Class Certification, Unfair Trade Practices, and Governing Standards
Ellis & Winters
In Bumpers v. Community Bank of Northern Virginia, the North Carolina Supreme Court held that when a plaintiff alleges a violation of N.C. Gen. Stat. § 75-1.1 based on a misrepresentation, the plaintiff must prove actual and reasonable reliance on the misrepresentation.
A recent federal appellate decision addresses a significant post-Bumpers question: When a plaintiff seeks class certification on a section 75-1.1 claim that requires proof of reliance, what standards govern the certification analysis?
This post analyzes this new decision by the U.S. Court of Appeals for the Sixth Circuit.
The Rikos case
According to the Rikos plaintiffs, Align does not deliver the promised digestive benefits. The plaintiffs sued P&G on a variety of theories, including claims for violations of five different unfair-trade-practice statutes. One of the named plaintiffs bought Align in North Carolina; the complaint therefore includes a claim under section 75-1.1.
P&G offered the district court a cascade of arguments against class certification. On the unfair-trade-practices claims, P&G pointed out that the law under each statute requires each putative class member to prove reliance on the alleged misrepresentation. That proof would require individualized evidence. The morass of proving reliance on a class-member-by-class-member basis would probably bar class certification.
The district court rejected P&G’s argument. Before the plaintiffs could enjoy their bounty, however, P&G timely sought appellate review under Rule 23(f) of the Federal Rules of Civil Procedure. The Sixth Circuit granted review.
The Sixth Circuit’s reasoning
The Sixth Circuit started its discussion of North Carolina law by noting that, under Bumpers, a section 75-1.1 claim that rests on an alleged misrepresentation requires both actual and reasonable reliance. The court then framed the question as whether, after Bumpers, a plaintiff can establish reliance through classwide proof.
To answer this question, the court turned to the Bumpers court’s statement that reliance turns on “the mental state of the plaintiff and his/her decision-making process.” Writing for the majority in Rikos, Circuit Judge Karen Nelson Moore admitted that—because of the need for individualized evidence of a plaintiff’s mental state—proving reliance on a classwide basis “would seem to be difficult.”
This admission sounds ominous for the Rikos plaintiffs, but the tide then turned their way.
Judge Moore turned to the 2001 decision of the North Carolina Court of Appeals in Pitts v. American Security Insurance Company. In Pitts, the Court of Appeals concluded, under North Carolina procedure, that a court may certify a class even if a certified claim requires individualized showings of reliance. The North Carolina Supreme Court later affirmed the result in Pitts by an equally divided vote.
The Pitts opinion does not elaborate on what standards decide whether common issues of fact or law predominate over individual issues of reliance. Instead, Pitts—like Rikos, a consumer-fraud opinion—appears to be based on policy concerns:
- The Pitts court wrote that “the benefit of allowing consumer fraud actions to proceed as class actions must be considered when determining whether the element of reliance, an individual issue, renders a class non-existent.”
- Pitts states that class actions are “viable and important” because they provide a way for an injured consumer to sue when she might otherwise be financially deterred from doing so.
- The opinion goes on to state that, when a court decides whether common issues predominate over individual issues, “the trial court should consider public policy favoring protection of consumers from fraud.”
In Rikos, Judge Moore conceded that the reasoning in Pitts is “sparse.”
Despite this concession, however, Judge Moore interpreted Pitts in a charitable way for the plaintiffs: she described Pitts as focusing “on the general uniformity in the defendant’s conduct towards the class.”
Judge Moore then applied that interpretation to justify class certification on the section 75-1.1 claim in Rikos. She wrote that, under North Carolina law, classwide proof of individual reliance on an alleged misrepresentation can be offered through evidence that the alleged misrepresentation “was made in a generally uniform manner to all class members.” Because P&G made its statements about Align in a uniform manner, Judge Moore reasoned, class certification was appropriate.
Digesting the decision
Future consumer-fraud plaintiffs with section 75-1.1 claims might cite Rikos as a major gain. Defendants who must confront Rikos, however, will not be without counterpoints.
For one, Pitts, the main authority cited by the Rikos court, lacks precedential value. The North Carolina Supreme Court heard argument in Pitts, but that appeal ended in a stalemate: three justices of the Supreme Court recused themselves, and the remaining four justices split two to two. Under North Carolina law, this outcome affirms the decree of the Court of Appeals, but makes the appellate court’s opinion nonprecedential.
Second, although Judge Moore analyzed and quoted Pitts in her initial discussion of North Carolina law, she cited and discussed a different case—an Eleventh Circuit decision called Klay v. Humana—when she ultimately concluded that North Carolina law allows classwide proof of reliance. Klay involved alleged misrepresentations to physicians by an insurance company. It was not a consumer-fraud case, and it did not involve North Carolina law at all. Thus, Klay is not a precedent under section 75-1.1.
Third, Rikos has a credible dissent. Circuit Judge Deborah Cook opined that federal class-certification standards require a rigorous analysis of Rule 23’s requirements. That analysis, as the United States Supreme Court explained in Wal-Mart Stores v. Dukes, will sometimes overlap with the merits of the plaintiffs’ underlying claims. Judge Cook pointed out that the evidence before the court shows that the extent to which consumers benefit from Align varies with their “their individual gastrointestinal health.” Judge Cook argued that the district court’s class-certification analysis should have considered this evidence.
This evidence, if considered, would play a significant role in the assessment of whether each class member relied on the alleged misrepresentations about Align. A class member with serious gastrointestinal issues might have studied the representations closely and compared them with representations about other probiotic supplements. A class member with a cleaner bill of health, however, might not have cared about the specific representations, and instead might have purchased Align based on price, packaging, or loyalty to the P&G brand.
Time will tell whether Rikos is the dawn of a new generation of consumer-fraud cases under North Carolina law. At a minimum, however, Rikos illustrates the uncertainty and dramatic consequences that accompany a request for class certification on a section 75-1.1 claim.
Author: Stephen Feldman