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Date: 01-21-2010
Case Style: Martin Schnall v. AT&T Wireless Services, Inc.
Case Number: 80572-5
Judge: Barbara A. Madsen
Court: Supreme Court of Washington
Plaintiff's Attorney: Dan Johnson and David Breskin, Breskin Johnson & Townsend, P.L.L.C., Seattle, Washington and William Walter Houck, Issaquah, Washington
Shanon E. Smith, Office of the Attorney General, Seattle, Washington - Amicus Curiae on behalf of Chamber of Commerce of the United States of America
Kelby Dahmer Fletcher, Peterson Young Putra, Seattle, Washington and Bryan Patrick Harnetiaux, Spokane, Washington - Amicus Curiae on behalf of Washington State Trial Lawyers Association and Washington State Association for Justice Foundation
Defendant's Attorney: Mike Kipling, Kipling Law Group, P.L.L.C., Seattle, Washington
Stephen Michael Rummage and Fred B Burnside, Davis Wright Tremaine, L.L.P., Seattle, Washington and Robin S Conrad, National Chamber Litigation Center, Washington, D.C. - Amicus Curiae on behalf of Chamber of Commerce of the United States of America
Seth Leslie Cooper, Fairfax, Virginia and Micah Louise Balasbas, Tacoma, Washington - Amicus Curiae on behalf of American Legislative Exchange Council
Stephen Michael Rummage, Davis Wright Tremaine, L.L.P., Seattle, Washington and Paul J. Lawrence, K&L Gates, L.L.P., Seattle, Washington for Amicus Curiae on behalf of Amazon.com, Holland America Line , Inc., Microsoft Corporation, T-mobile Usa , Inc., and Clearwire Corporation
Description: This case asks our court to decide whether Washington will
become a locus of nationwide class action litigation. In the context of this case, we
believe the trial court did not abuse its discretion by declining to certify such a class. To
the extent a class action is feasible here, the only appropriately certified class for
plaintiffs' contract claims is a statewide class. We reverse, in part, and remand for
proceedings consistent with this opinion.
FACTS
Customers of AT&T Wireless Services, Inc. (AT&T) filed a nationwide class
action alleging the company misled consumers when it billed them for a charge that was
not included in advertised monthly rates and was not described clearly in billing
statements. The Federal Communications Commission (FCC) requires
telecommunications companies like AT&T to contribute to the Universal Service Fund
(USF), a fund created by the Telecommunications Act of 1996 that subsidizes phone and
Internet service to low-income and rural areas. The FCC expressly permits companies to
recover USF contributions from customers. AT&T recovered its contributions from
customers by charging a Universal Connectivity Charge (UCC), listed in customer
agreements as either "Other Charges & Credits" or "Taxes, Surcharges & Regulatory
Fees." Pet. for Review at 3. Named plaintiff Martin Schnall claims this categorization of
the UCC violates the Washington Consumer Protection Act (CPA), chapter 19.86 RCW,
and further, that AT&T violated the terms of its contract by failing to disclose the charge
at the time he signed his agreement for wireless service. Schnall further claims AT&T
violated the terms of its user contracts by increasing the UCC charge without notice.
Schnall sought certification of a nationwide class of all AT&T customers "who have been
improperly billed and paid a universal
connectivity charge that they did not owe." Clerk's Papers (CP) at 186 (First Amended
Class Action Complaint).
The trial court determined that "individual questions predominated over common
questions" and denied class certification on all of Schnall's claims. CP at 417-18 (Mem.
Op. Denying Mot. for Class Certification at 1-2) (Mem. Op.). Schnall appealed that
decision to Division One of the Court of Appeals which reversed the trial court and
certified the class.
Standard of Review
The standard of review is paramount in this case: it is not our place to substitute
our judgment for that of the trial court. When this court reviews a trial court's decision to
deny class certification, that decision is afforded a substantial amount of deference. "[I]f
the record indicates the court properly considered all CR 23 criteria," this court will not
disturb its decision. Nelson v. Appleway Chevrolet, Inc., 160 Wn.2d 173, 188, 157 P.3d
847 (2007). "[A] trial court abuses its discretion if its decision is manifestly unreasonable
or based on untenable grounds." Dix v. ICT Group, Inc., 160 Wn.2d 826, 833, 161 P.3d
1016 (2007).
Enforceability of Choice of Law Clauses
The parties initially dispute whether the choice of law clauses in the customers'
contracts are enforceable. The choice of law clauses in this case require customers to
litigate asserted violations of their contract in the respective jurisdiction where they
signed the contract. This jurisdiction is often based on the customer's area code.
We interpret contract provisions to 3
render them enforceable whenever possible. Patterson v. Bixby, 58 Wn.2d 454, 459, 364
P.2d 10 (1961). Further, "[w]e generally enforce contract choice of law provisions."
McKee v. AT&T Corp., 164 Wn.2d 372, 384, 191 P.3d 845 (2008) (citing Erwin v. Cotter
Health Ctrs., Inc., 161 Wn.2d 676, 694-96, 167 P.3d 1112 (2007)). In Erwin we applied
section 187 of the Restatement (Second) of Conflict of Laws (1971) (Restatement) to hold
the parties' contractual choice of law provision was effective. Section 187 reads in
significant part:
"'(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either "'(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or "'(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.'"
Erwin, 161 Wn.2d at 694-95 (quoting O'Brien v. Shearson Hayden Stone, Inc., 90 Wn.2d
680, 685, 586 P.2d 830 (1978), adhered to on recons., 93 Wn.2d 51, 605 P.2d 779
(1980)). To effectively void a choice of law provision, a court must find that the chosen
state has no substantial relationship to the parties and that the application of the chosen
law would be contrary to a fundamental policy of Washington. Id. at 698. Further,
Washington courts have also adopted the "significant relationship" test in section 145 of
the Restatement, which gives great weight to the place where the parties' relationship was
entered. Johnson v. Spider Staging Corp.,
87 Wn.2d 577, 580-82, 555 P.2d 997 (1976).
Other courts have also recognized the importance of the location of the contractual
relationship in deciding choice of law problems as they apply to class certification. In
Kelley v. Microsoft Corp., 251 F.R.D. 544 (W.D. Wash. 2008), the district court found
the most significant contacts to exist in Washington because in addition to being the
location where Microsoft "developed and launched its allegedly deceptive promotional
program," "the parties' relationship is not centered in any particular place because the
parties did not contract with one another." Id. at 552 (emphasis added) (citing
Restatement § 145(2)(b), (d) and applying Washington state law to class action
certification of CPA and contract claims). Though not a class action, in Kammerer v. W.
Gear Corp., 96 Wn.2d 416, 423, 635 P.2d 708 (1981), we held that because the parties
contracted in California to have California law apply, the choice of law clause should be
enforced.
The choice of law provisions in this case were mostly based on customers' area
codes, not on forums having no substantial relationship to the parties or location of the
transaction between them. While it is true that AT&T is headquartered in Washington
State, the customer's area code is left to the discretion of the customer, and this area code
often corresponds with the customer's place of residence: in effect the customer selected
which forum's law would apply when he requested phone service from AT&T. AT&T
should not now be forced to face the enormous cost and complexity presented by a
nationwide class action when they conscionably included choice of law provisions in
their customers' contracts and the choice of
forum is dictated by the consumer. See generally 4 Alba Conte & Herbert B. Newberg,
Newberg on Class Actions § 13:63, at 476 (4th ed. 2002) ("Like all litigation, complex
cases are more likely to be settled than tried. The stakes in the case and the cost of
pretrial activity increase that likelihood.").
Schnall presents no valid reason why we should now invalidate the choice of law
clause each customer signed when he or she purchased wireless service from AT&T. The
trial court did not abuse its discretion when it held
[t]here does not seem to be any public policy reason not to enforce the choice of law provision of the agreements in this case. The law of the State associated with the area code will generally be the law of the customer's home state, thereby applying to that customer the law with which he or she is most familiar.
CP at 418 (Mem. Op. at 2). Upholding the trial court's decision to deny certification of a
nationwide class does nothing to prevent persons outside of Washington from filing
statewide class actions in each of their respective home states. Indeed, the citizens of
California have already filed such a statewide class action. Suppl. Br. of Pet'r AT&T,
Ex. A (Order Granting Approval of Form Class Notice, Randolph v. AT&T Wireless
Servs., Inc., No. RG05193855).
Class Certification of Contract Claims
Schnall brings two types of claims before the court: one based in contract, the
other based on the CPA. The differences between these two types of claims have
important implications for analysis of their suitability as class action claims. AT&T
argues the trial court was correct in deciding that the choice of law clauses in each
customer's contract caused individual issues to predominate over common ones.
As noted above, the choice of law clause in each customer's contract is valid. The
trial court held: "[a]pplying the law of the customer's home state to the contract claims in
this case makes the contract claims unmanageable." CP at 418 (Mem. Op. at 2) (citing In
re Sch. Asbestos Litig., 789 F.2d 996 (3d Cir. 1986); Rory Ryan, Uncertifiable?: The
Current Status of Nationwide State-Law Class Actions, 54 Baylor L. Rev. 467 (2002)).
To validly certify a nationwide class for the contract claims, Schnall must meet the
requirements of CR 23(a): numerosity, commonality, typicality, and adequacy of
representation. Once those have been met, he must further satisfy the tougher standard of
CR 23(b)(3) and prove that common legal and factual issues predominate over individual
issues and that a class action is an otherwise superior form of adjudication. Factors to be
considered by the court when assessing predominance and superiority include
(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.
CR 23(b)(3). It is "incumbent upon class counsel to prove to the court . . . that there are
no significant differences in the various state laws, or if there are variations, that they can
be managed by the trial court." 4 Conte & Newberg, supra, § 13:36, at 436-37 (citing
Arthur R. Miller & David Crump, Jurisdiction and Choice of Law in Multistate Class
Actions after Phillips Petroleum Co. v. Shutts, 96 Yale L.J. 1, 63-68 (1986)).
The Court of Appeals held that a
"common nucleus of operative facts" predominated, but failed to substantially analyze the
issue of predominance, especially in consideration of the potential application of 50
different states' laws. Schnall v. AT&T Wireless Servs., Inc., 139 Wn. App. 280, 298-99,
161 P.3d 395 (2007). The Court of Appeals' predominance analysis reads more like a
CR 23(a) commonality test: "The common nucleus of facts among all class members on
this breach of contract claims is . . . . The common legal theory is." Schnall, 139 Wn.
App. at 299 (emphasis added). Simply stating the existence of commonalities does not prove predominance.1 The trial court's analysis on this point is more thorough and is
clearly supportable under our abuse of discretion standard.
As the Court of Appeals noted, the trial court "made several findings about the
individual issues the contract claim raised." Id. at 298. The trial court found that the
choice of law clauses, the interpretation of the contract terms, the differences in the
materials and information each potential class member received, and the availability of
differing affirmative defenses created a predominance of individual issues over common
ones. CP at 418-19 (Mem. Op. at 2-3).
Because CR 23 is identical to its federal counterpart, "cases interpreting the
analogous federal provision are highly persuasive." Schwendeman v. USAA Cas. Ins.
Co., 116 Wn. App. 9, 19 n.24, 65 P.3d 1 (2003) (citing Pickett v. Holland Am. Line-
Westours, Inc., 145 Wn.2d 178, 188, 35 P.3d 351 (2001)). The Court of Appeals reached
a conclusion that flies in the face of this "highly persuasive" federal law regarding
nationwide class action certification: "[b]ased primarily on the burden of applying
multiple states' laws, an overwhelming number of federal courts have denied certification
of nationwide state-law class actions." Ryan, supra, at 470 (emphasis added) (citing
Stirman v. Exxon Corp., 280 F.3d 554, 564-66 (5th Cir. 2002); Zinser v. Accufix
Research Inst., Inc., 253 F.3d 1180, 1187, amended by 273 F.3d 1266 (9th Cir. 2001);
Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 678 (7th Cir. 2001); In re LifeUSA
Holding, Inc., 242 F.3d 136, 147 (3d Cir. 2001); Spence v. Glock, Ges.m.b.H., 227 F.3d
308, 316 (5th Cir. 2000); Andrews v. Am. Tel. & Tel. Co., 95 F.3d 1014, 1025 (11th Cir.
1996); Castano v. Am. Tobacco Co., 84 F.3d 734, 740 (5th Cir. 1996); Georgine v.
Amchem Prods., Inc., 83 F.3d 610, 617 (3d Cir. 1996), aff'd sub nom. Amchem Prods.,
Inc. v. Windsor, 521 U.S. 591, 613, 117 S. Ct. 2231, 138 L. Ed. 2d 689 (1997); In re Am.
Med. Sys., Inc., 75 F.3d 1069, 1089 (6th Cir. 1996); In re Rhone-Poulenc Rorer Inc., 51
F.3d 1293, 1302 (7th Cir. 1995); Walsh v. Ford Motor Co., 257 U.S. App. D.C. 85, 807
F.2d 1000, 1010-11 (1986); In re Citigroup, Inc., No. CIV.A.10011912REK, 2001 WL
1682865, at *3 (D. Mass. Dec. 19, 2001); Hammett v. Am. Bankers Ins. Co., 203 F.R.D.
690, 700-02 (S.D. Fla. 2001); Duncan v. N.w. Airlines, Inc., 203 F.R.D. 601, 605, 610-14
(W.D. Wash. 2001); Neely v. Ethicon, Inc., No. 1:00-CV-00569, 2001 WL 1090204, at
*8-11, *15 (E.D. Tex. Aug. 15, 2001); Begley v. Acad. Life Ins. Co., 200 F.R.D. 489, 497
(N.D. Ga. 2001); Oxford v. Williams Cos., Inc., 137 F. Supp. 2d 756, 764 (E.D. Tex. 2001); Jones v. Allercare, Inc., 203 F.R.D.
290, 308 (N.D. Ohio 2001); Stipelcovich v. DirecTV, Inc., 129 F. Supp. 2d 989, 995
(E.D. Tex. 2001); Shelley v. AmSouth Bank, No. CIV.A.97-1170-RV-C, 2000 WL
1121778, at *8-10 (S.D. Ala. July 24, 2000), aff'd, 247 F.3d 250 (11th Cir. 2001); Lyon
v. Caterpillar, Inc., 194 F.R.D. 206, 220-23 (E.D. Pa. 2000); Adams v. Kan. City Life Ins.
Co., 192 F.R.D. 274, 277-78 (W.D. Mo. 2000); Hallaba v. Worldcom Network Servs.
Inc., 196 F.R.D. 630, 645 (N.D. Okla. 2000); Velasquez v. Crown Life Ins. Co., MDL-
1096 No. CIV.A.M-97-064, 1999 WL 33305652, at *4-7 (S.D. Tex. Aug. 10, 1999); Clay
v. Am. Tobacco Co., 188 F.R.D. 483, 497-98, 503 (S.D. Ill. 1999); Carpenter v. BMW of
N. Am., Inc., No. CIV.A.99-CV-214, 1999 WL 415390, at *4, *8 (E.D. Pa. June 21,
1999); Chilton Water Auth. v. Shell Oil Co., No. CIV.A.98-T-1452-N, 1999 WL
1628000, at *8 (M.D. Ala. May 21, 1999); Powers v. Gov't Employees Ins. Co., 192
F.R.D. 313, 319-20 (S.D. Fla. 1998); Rothwell v. Chubb Life Ins. Co. of Am., 191 F.R.D.
25, 33 n.7 (D.N.H. 1998); Dhamer v. Bristol-Myers Squibb Co., 183 F.R.D. 520, 532-34
(N.D. Ill. 1998); Weikel v. Tower Semiconductor Ltd., 183 F.R.D. 377, 402-03 (D.N.J.
1998); In re Jackson Nat'l Life Ins. Co. Premium Litig., 183 F.R.D. 217, 225 (W.D.
Mich. 1998); Chin v. Chrysler Corp., 182 F.R.D. 448, 465 (D.N.J. 1998); Marascalco v.
Int'l Computerized Orthokeratology Soc'y, Inc., 181 F.R.D. 331, 340-41 (N.D. Miss.
1998); In re Ford Motor Co. Vehicle Paint Litig., 182 F.R.D. 214, 222-26 (E.D. La.
1998); Fisher v. Bristol-Myers Squibb Co., 181 F.R.D. 365, 368 (N.D. Ill. 1998); Poe v.
Sears, Roebuck & Co., 1 F. Supp. 2d 1472, 1476 (N.D. Ga. 1998); Borskey v.
Medtronics, No. CIV.A.94-2302, 1998 WL
122602, at *3 (E.D. La. Mar. 18, 1998); Tylka v. Gerber Prods. Co., 178 F.R.D. 493, 496-
99, 502 (N.D. Ill. 1998); Peoples v. Am. Fid. Life Ins. Co., 176 F.R.D. 637, 646 (N.D.
Fla. 1998); In re Ford Motor Co. Bronco II Prod. Liab. Litig., 177 F.R.D. 360, 376 (E.D.
La. 1997); Clement v. Am. Honda Fin. Corp., 176 F.R.D. 15, 23 & nn.10-12 (D. Conn.
1997); Dubose v. First Sec. Sav. Bank, 183 F.R.D. 583, 587 (M.D. Ala. 1997); In re Ford
Motor Co. Ignition Switch Prods. Liab. Litig., 174 F.R.D. 332, 347-52 (D.N.J. 1997); In
re Stucco Litig., 175 F.R.D. 210, 219 (E.D.N.C. 1997); Smith v. Brown & Williamson
Tobacco Corp., 174 F.R.D. 90, 100 (W.D. Mo. 1997); Rohlfing v. Manor Care, Inc., 172
F.R.D. 330, 341-42 (N.D. Ill. 1997); In re Masonite Corp. Hardboard Siding Prods.
Liab. Litig., 170 F.R.D. 417, 422-27 (E.D. La. 1997); Mack v. Gen. Motors Acceptance
Corp., 169 F.R.D. 671, 679 (M.D. Ala. 1996); Harding v. Tambrands Inc., 165 F.R.D.
623, 631-33 (D. Kan. 1996); Barbarin v. Gen. Motors Corp., No. CIV.A.84-0888, 1993
WL 765821, at *3 (D.D.C. Sept. 22, 1993); Raye v. Medtronic Corp., 696 F. Supp. 1273,
1275 (D. Minn. 1988); Feinstein v. Firestone Tire & Rubber Co., 535 F. Supp. 595, 608
(S.D.N.Y. 1982)).
Even where courts find that a nationwide, state-law governed class otherwise
meets Rule 23(a) and 23(b)(3) criteria, "the choice-of-law inquiry will ordinarily make or
break certification." Ryan, supra, at 474. This is because if the laws of 50 jurisdictions
apply to plaintiffs' claims, "the variations in the laws of the states . . . 'may swamp any
common issues and defeat predominance.'" Spence, 227 F.3d at 311 (quoting Castano,
84 F.3d at 741); see also Georgine, 83 F.3d at 627 ("[B]ecause we must apply an
individualized choice of law analysis to
each plaintiff's claims, the proliferation of disparate factual and legal issues is
compounded exponentially" (citation omitted)); In re Am. Med. Sys., Inc., 75 F.3d at
1085 ("If more than a few of the laws of the fifty states differ, the district judge would
face an impossible task of instructing a jury on the relevant law, yet another reason why
class certification would not be the appropriate course of action.").
The choice of law provisions in this case will do more than cause variations in
damages. The availability of the voluntary payment doctrine alone could abrogate
AT&T's liability for all customers who voluntarily paid the UCC after receiving the
informational flyer detailing their responsibility for its payment and reside in states
employing the doctrine. This is only one example.
The Court of Appeals dismissed the trial court's concerns in part because it
determined that "extrinsic evidence" "will not be necessary here because these consumers
entered into a standardized contract." Schnall, 139 Wn. App. at 299-300. However,
there is no support cited for this conclusion. Indeed, some Washington courts have held
just the opposite: "When material extrinsic evidence shows that outside agreements were
relied upon, those parol agreements should be given effect rather than allowing
boilerplate 'to vitiate the manifest understanding of the parties.'" Lopez v. Reynoso, 129
Wn. App. 165, 173, 118 P.3d 398 (2005) (quoting Lyall v. DeYoung, 42 Wn. App. 252,
258, 711 P.2d 356 (1985)). Further, simply because the Court of Appeals finds extrinsic
evidence would be unnecessary under Washington law does not mean that the law of all
other 49 states would exclude such evidence as well.
An additional concern is the availability of affirmative defenses. As the trial court noted, "[s]ome states, such as
Illinois, . . . allow as a contract claim defense, the voluntary payment doctrine which
prohibits a contract claim for refund of a sum voluntarily paid." CP at 419-20 (Mem. Op.
at 3-4) (citing Smith v. Prime Cable of Chi., 276 Ill. App. 3d 843, 658 N.E.2d 1325, 213
Ill. Dec. 304 (1995)). The Court of Appeals suggested the trial court employ subclasses
and master's hearings to sort out the morass. However, the availability of these
mechanisms for efficient management of large class actions cannot change the
predominance of the individualized issues in this case. See 2 Alba Conte & Herbert B.
Newberg, Newberg on Class Actions § 4:32, at 286-87 (4th ed. 2002) (noting courts have
found "subclasses would not cure the problems" of diverse factual issues and that "when
a court determines that a multitude of mini-trials will be necessary to dispose of
individual claims, the court will likely find that common questions do not predominate.").
As the trial court noted, "[w]hile Washington would be only one of fifty jurisdictions'
law[s] which would have to be addressed in resolving the contract claims, it is illustrative
of the issues that would arise." CP at 418 (Mem. Op. at 2).
Superiority Analysis
Even if individualized issues did not predominate, CR 23(b)(3) also requires "that
a class action [be] superior to other available methods for the fair and efficient
adjudication of the controversy." (Emphasis added.) See also 4 Conte & Newberg,
supra, § 13:11, at 406 ("It must be emphasized that, under the rule, a class action must be
superior, not just as good as, other available methods." (emphasis added)). The
superiority requirement "focuses upon a
comparison of available alternatives." Sitton v. State Farm Mut. Auto. Ins. Co., 116 Wn.
App. 245, 256, 63 P.3d 198 (2003) (citing 1 Herbert B. Newberg & Alba Conte, Newberg
on Class Actions § 4.27 (3d ed. 1992)).
In more traditional statewide class actions, these alternatives include joinder,
intervention, or consolidation. Id. The most obvious alternative to the proposed
nationwide class action in this case is numerous statewide class actions brought by the
citizens of each state against AT&T. This is not a case where the choice is either a
nationwide class action or no action at all. Miller & Crump, supra, at 71 ("Our analysis
suggests that some of the problems of jurisdiction and choice of law could be solved by
resort to statewide, as opposed to nationwide, class actions."). Given the sheer number of
AT&T customers in each of the 50 states, no one state's citizens will be left out in the
class action cold without the possibility of amassing enough individual claims within
their state to cover litigation costs. Cf. Phillips Petroleum Co. v. Shutts, 472 U.S. 797,
809, 105 S. Ct. 2965, 86 L. Ed. 2d 628 (1985) ("Class actions also may permit the
plaintiffs to pool claims which would be uneconomical to litigate individually. . . .
[M]ost of the plaintiffs would have no realistic day in court if a class action were not
available.").
Although it is true that small amounts of money are at issue and the decision will
have broad impact, Schnall, 139 Wn. App. at 299, there is simply no efficiency in asking
a trial judge to manage the laws of 50 different states as they apply to plaintiffs' contract
claims and the varied factual scenarios inherent therein. See Miller & Crump, supra, at
64 ("Beyond the difficult task of correctly
determining foreign law, the nationwide class action may present an even greater problem
because of the sheer burden of organizing and following fifty or more different bodies of
complex substantive principles. Although the comparison obviously is inexact, one can
appreciate the magnitude of the trial judge's task by imagining a first-year law student
who, instead of a course in contracts, is required simultaneously to enroll in fifty courses,
each covering the contract law of a single state, and to apply each body of law correctly
on the final examination." (footnote omitted)).
Further, Washington has no interest in seeing contracts executed by AT&T
representatives in other states with citizens of those states examined and adjudicated in
Washington courts. Certified as a nationwide class action, this case would present an
unwarranted and unnecessary burden on the state judicial system, all at a large cost to
taxpayers. See R.J. Reynolds Tobacco Co. v. Engle, 672 So. 2d 39, 41 (Fla. Dist. Ct.
App. 1996) ("No doubt a tremendous number of retired judges, special masters, and
general masters would have to be appointed by the court in order to complete this
herculean task within a reasonable period of time -- all at a staggering cost to the
taxpayers."). There is no sound reason in this case for this court to force Washington
trial courts to entertain the contract claims of citizens from around the nation. Their state
courts are equally as prepared, if not better situated to apply the contract laws of their
states. The trial court did not abuse its discretion by denying nationwide certification of
the plaintiffs' contract claims. This court does not dispute, however that if the contract
class were constructed as a statewide class, it would meet the requirements of both CR
23(a) and (b)(3).
Extraterritorial Application of Washington's Consumer Protection Act
The trial court and the Court of Appeals both noted that the CPA was applicable to
all plaintiffs' claims because they arose from statute instead of contract. However,
nothing in our law indicates that CPA claims by nonresidents for acts occurring outside of
Washington can be entertained under the statute. "Because the laws of each state are
designed to regulate and protect the interest of that state's own residents and citizens,
each state has a measurable, and usually predominant, interest in having its own
substantive laws apply." 4 Conte & Newberg, supra, § 13:37, at 438. While it is true
that "Washington has a strong interest in regulating any behavior by Washington
businesses which contravenes the CPA," CP at 421 (Mem. Op. at 5), the CPA indicates
the legislature's intent to limit its application to deceptive acts that affect the citizens and
residents of Washington. The CPA states: "[u]nfair methods of competition and unfair
or deceptive acts or practices in the conduct of any trade or commerce are hereby
declared unlawful." RCW 19.86.020. "Trade" or "commerce" is defined as "the sale of
assets or services, and any commerce directly or indirectly affecting the people of the
state of Washington." RCW 19.86.010(2) (emphasis added). To state a CPA claim a
person must show that the unfair or deceptive act affected the people of the state of
Washington. This geographic and jurisdictional limitation originates in the CPA's history
as a tool used by the State attorney general to protect the citizens of Washington. Indoor
Billboard/Wash., Inc. v. Integra Telecom of
Wash., Inc., 162 Wn.2d 59, 74, 170 P.3d 10 (2007). The attorney general of the state of
Washington has no power outside the geographic boundary of this state. It is understood
that her actions will be brought on "behalf of persons residing in the state." RCW
19.86.080(1).
This statutory and jurisdictional limitation cannot be obviated simply because the
claimants are private citizens. Indeed, our courts retained this limitation for private
attorneys general through the requirement that the private claimants prove a defendant's
practices affect "the public interest." Hangman Ridge Training Stables, Inc. v. Safeco
Title Ins. Co., 105 Wn.2d 778, 784, 719 P.2d 531 (1986). Because of the statute's
jurisdictional limitation, applicable to both the attorney general and private claimants, a
private claimant cannot state a CPA claim by proving the defendant's practices affected
the public interest or the citizens of another state. See Lyon, 194 F.R.D. at 215 ("State
consumer fraud acts are designed to either protect state residents or protect consumers
engaged in transactions within the state."). RCW 19.86.920 does not indicate otherwise.
This portion of the CPA empowers courts analyzing unfair competition claims to consider
"whether conduct restrains or monopolizes trade or commerce" even when those market
effects are felt outside of Washington. RCW 19.86.920. This provision merely closes a
potential loophole in the CPA that would allow companies to escape liability by claiming
their methods of competition are within Washington's boundaries even though those
methods effectively monopolize trade outside the state. This portion of the statute does
not give Washington the power to enforce its laws outside its territorial borders.
Even the general extraterritorial
flavor of RCW 19.86.920 cannot change the clear standing limitations in the statute: a
claimant must allege injury in trade or commerce that "directly or indirectly affect[s] the
people of the state of Washington." RCW 19.86.010(2); Panag v. Farmers Ins. Co. of
Wash., 166 Wn.2d 27, 38, 204 P.3d 885 (2009) ("[T]he Hangman Ridge-test incorporates
the issue of standing, particularly the elements of public interest impact and injury."). In
the context of this case, the CPA only applies to claims brought by persons residing in
Washington.
Remaining Washington Plaintiffs' CPA Claims
The question then remains, can a class of Washington only CPA plaintiffs be
certified? The trial court correctly found that "proof of causation is an essential element
of a CPA action." CP at 421 (Mem. Op. at 5). Hangman Ridge, 105 Wn.2d at 785,
requires CPA plaintiffs to establish a causal link "between the unfair or deceptive act
complained of and the injury suffered." We have more recently held that this causal link
must establish that the "injury complained of . . . would not have happened" if not for
defendant's violative acts. Indoor Billboard, 162 Wn.2d at 82. The quantum of proof
necessary to establish the proximate, "but for" causation required by the CPA is not fully
developed in our case law. However, Indoor Billboard clearly establishes that proximate
cause in a class action cannot be established by "mere payment" of an allegedly injurious
charge, though that payment can be "considered with all other relevant evidence on the
issue of proximate cause." Id. at 83. Indoor Billboard did not reject individual reliance
as a method of proving causation under the CPA, but merely held that plaintiffs cannot be
required to show reliance where other
evidence is sufficient to establish "but for" causation. Id. at 85 (noting that injury may be
established as a result of "reliance on information" and citing Nuttall v. Dowell, 31 Wn.
App. 98, 639 P.2d 832 (1982) for support). Nuttall held "a party has not established a
causal relationship with a misrepresentation of fact where he does not convince the trier
of fact that he relied upon it." Nuttal, 31 Wn. App. at 111. We recently affirmed that
reliance is not a dead letter in our law: "[d]epending on the deceptive practice at issue
and the relationship between the parties, the plaintiff may need to prove reliance to
establish causation, as in Indoor Billboard." Panag, 166 Wn.2d at 59 n.15.
Our decision to retain reliance as one method of proving "but for" causation
inherently recognizes a principle established in multiple forums, that the difference
between "but for proximate cause" and individual reliance varies with the context of the
claim:
[W]here, as here, the plaintiffs allege that their damages were caused by deceptive, misleading, or fraudulent statements or conduct . . . , as a practical matter it is not possible that the damages could be caused by a violation [of the Minnesota CPA] without reliance on the statements or conduct alleged to violate the statutes.
Group Health Plan, Inc. v. Philip Morris, Inc., 621 N.W.2d 2, 13 (Minn. 2001); accord,
e.g., Hageman v. Twin City Chrysler-Plymouth Inc., 681 F. Supp. 303, 308 (M.D.N.C.
1988) ("To prove actual causation, a plaintiff must prove that he or she detrimentally
relied on the defendant's deceptive statement or misrepresentation.") (citing Pearce v.
Am. Defender Life Ins. Co., 316 N.C. 461, 343 S.E.2d 174, 180 (1986)); Feitler v.
Animation Celection, Inc., 170 Or. App. 702, 13 P.3d 1044, 1047 (2000) (holding causal
element of misrepresentation claim requires
reliance by the consumer); cf. Siemer v. Assocs. First Capital Corp., No. CV 97-281
TUC JMR (JCC), 2001 WL 35948712, at *4 (D. Ariz. Mar. 30, 2001) ("The injury
element of the [state consumer protection statute] claim occurs when the consumer relies
on the misrepresentations."); see generally Sheila B. Scheuerman, The Consumer Fraud
Class Action: Reining in Abuse by Requiring Plaintiffs to Allege Reliance as an Essential
Element, 43 Harv. J. on Leg. 1 (2006).
As noted in Nuttall, in the context of private CPA actions where plaintiffs seek
damages, more than a mere capacity to deceive must be shown to establish "some causal
link between defendant's unfair act and [consumer's] injury." 31 Wn. App. at 110.
In the context of private misrepresentation cases, a plaintiff can satisfy the "but
for" causation requirement by showing she relied on the misrepresentation. See State ex
rel. D.R.M. v. Wood, 109 Wn. App. 182, 197 n.8, 34 P.3d 887 (2001) ("The but-for test
of causation employed in that case would fail here since McDonald did not rely on
Wood's promise."); Bank of China, N.Y. Branch v. NBM, LLC, 359 F.3d 171, 178 (2d
Cir. 2004) (requiring plaintiffs to demonstrate "reasonable reliance" to satisfy the
proximate cause requirement in a civil RICO proceeding); Sandwich Chef of Tex., Inc. v.
Reliance Nat'l Indem. Ins. Co., 319 F.3d 205, 218-19 (5th Cir. 2003) (holding that where
"[k]nowledge of the truth defeats a claim of fraud because it eliminates the deceit as the
'but for' cause of the damages," proof of reliance is required); Huddleston v. Herman &
MacLean, 640 F.2d 534, 549 (5th Cir. 1981) (reliance is "a type of 'but for' requirement:
had the [purchaser] known the truth he would not have acted"), aff'd in part, rev'd in
part, 459 U.S. 375, 103 S. Ct. 683, 74 L.
Ed. 2d 548 (1983).
As the trial court recognized, this court does not require proof of individual
reliance from CPA claimants as a separate element. But, where knowledge of the truth
would defeat a claim of misrepresentation, that alleged misrepresentation has been
eliminated as the "but for" cause of the claimant's injury. In misrepresentation and
deception or fraud cases, the claimant may be called upon to offer more individualized
proof that she had no knowledge of the truth because the remaining evidence is simply
insufficient to establish "but for" causation. Kelley, 251 F.R.D. at 557-58 (analyzing
class certification under Washington's CPA after Indoor Billboard to hold "a deception-
based theory of causation would necessarily require the trier of fact here to determine
whether individual class members were actually deceived and whether they would have
purchased [the goods] but for Microsoft's marketing of them." The court went on to
allow class certification on plaintiff's "price inflation" or "market theory" of causation.)
(citing Oshana v. Coca-Cola Bottling Co., 225 F.R.D. 575 (N.D. Ill. 2005), aff'd, 472
F.3d 506 (7th Cir. 2006); Wright v. Fred Hutchinson Cancer Research Ctr., No.
C01-5217L, 2001 WL 1782714 (W.D. Wash. Nov. 19, 2001); Hutson v. Rexall Sundown,
Inc., 837 So. 2d 1090 (Fla. Dist. Ct. App. 2003)). In the case at hand, for example, some
plaintiffs received materials that "specifically list the 'universal connectivity charge' as
one of the fees, taxes, and surcharges which the customer is responsible for paying." CP
at 418 (Mem. Op. at 2). Under plaintiffs' misrepresentation theory of causation the trial
court will need to decide, as in Kelley, whether "individual class members were actually
deceived and whether they would have"
purchased their cellular service, or paid the UCC but for AT&T's marketing of the cost of
the cellular plan or their explanations regarding the genesis of the UCC. Kelley, 251
F.R.D. at 558.
The trial judge found that "[i]n the context of" a nationwide CPA action, proof of
causality for each plaintiff "must necessarily be individual for each potential class
member," resulting in an uncertifiable class in which "individual issues would
predominate over class issues and a class action would be unmanageable." CP at 422
(Mem. Op. at 6) ("In the context of this case, each plaintiff must show that [AT&T's]
alleged misrepresentation about the plaintiff's obligation to pay a UCC affected the
plaintiff's decision to chose [AT&T] as a wireless provider."). However, the trial court
provided no specific analysis of whether proof of causality would be so individualized
among a class comprised only of Washington customers. For example, if Washington
customers all had received no information regarding the UCC, proof of causality could be
more common than if they all had received different and allegedly fraudulent
representations: proving a plaintiff relied on an affirmative misrepresentation is
necessarily individualized, but proving the lack of information was the common cause of
each plaintiffs' decision to sign up for wireless service could be more generalized.
Because the trial court did not analyze the causality element of plaintiffs' CPA
claims as it would apply only to the facts and evidence pertaining to Washington
customers, we remand for further consideration of this issue in accordance with our
opinion.
* * *
See: http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=805725MAJ
Outcome: This case asks our court to decide whether Washington will
become a locus of nationwide class action litigation. In the context of this case, we
believe the trial court did not abuse its discretion by declining to certify such a class. To
the extent a class action is feasible here, the only appropriately certified class for
plaintiffs' contract claims is a statewide class. We reverse, in part, and remand for
proceedings consistent with this opinion.
FACTS
Customers of AT&T Wireless Services, Inc. (AT&T) filed a nationwide class
action alleging the company misled consumers when it billed them for a charge that was
not included in advertised monthly rates and was not described clearly in billing
statements. The Federal Communications Commission (FCC) requires
telecommunications companies like AT&T to contribute to the Universal Service Fund
(USF), a fund created by the Telecommunications Act of 1996 that subsidizes phone and
Internet service to low-income and rural areas. The FCC expressly permits companies to
recover USF contributions from customers. AT&T recovered its contributions from
customers by charging a Universal Connectivity Charge (UCC), listed in customer
agreements as either "Other Charges & Credits" or "Taxes, Surcharges & Regulatory
Fees." Pet. for Review at 3. Named plaintiff Martin Schnall claims this categorization of
the UCC violates the Washington Consumer Protection Act (CPA), chapter 19.86 RCW,
and further, that AT&T violated the terms of its contract by failing to disclose the charge
at the time he signed his agreement for wireless service. Schnall further claims AT&T
violated the terms of its user contracts by increasing the UCC charge without notice.
Schnall sought certification of a nationwide class of all AT&T customers "who have been
improperly billed and paid a universal
connectivity charge that they did not owe." Clerk's Papers (CP) at 186 (First Amended
Class Action Complaint).
The trial court determined that "individual questions predominated over common
questions" and denied class certification on all of Schnall's claims. CP at 417-18 (Mem.
Op. Denying Mot. for Class Certification at 1-2) (Mem. Op.). Schnall appealed that
decision to Division One of the Court of Appeals which reversed the trial court and
certified the class.
Standard of Review
The standard of review is paramount in this case: it is not our place to substitute
our judgment for that of the trial court. When this court reviews a trial court's decision to
deny class certification, that decision is afforded a substantial amount of deference. "[I]f
the record indicates the court properly considered all CR 23 criteria," this court will not
disturb its decision. Nelson v. Appleway Chevrolet, Inc., 160 Wn.2d 173, 188, 157 P.3d
847 (2007). "[A] trial court abuses its discretion if its decision is manifestly unreasonable
or based on untenable grounds." Dix v. ICT Group, Inc., 160 Wn.2d 826, 833, 161 P.3d
1016 (2007).
Enforceability of Choice of Law Clauses
The parties initially dispute whether the choice of law clauses in the customers'
contracts are enforceable. The choice of law clauses in this case require customers to
litigate asserted violations of their contract in the respective jurisdiction where they
signed the contract. This jurisdiction is often based on the customer's area code.
We interpret contract provisions to 3
render them enforceable whenever possible. Patterson v. Bixby, 58 Wn.2d 454, 459, 364
P.2d 10 (1961). Further, "[w]e generally enforce contract choice of law provisions."
McKee v. AT&T Corp., 164 Wn.2d 372, 384, 191 P.3d 845 (2008) (citing Erwin v. Cotter
Health Ctrs., Inc., 161 Wn.2d 676, 694-96, 167 P.3d 1112 (2007)). In Erwin we applied
section 187 of the Restatement (Second) of Conflict of Laws (1971) (Restatement) to hold
the parties' contractual choice of law provision was effective. Section 187 reads in
significant part:
"'(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either "'(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or "'(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.'"
Erwin, 161 Wn.2d at 694-95 (quoting O'Brien v. Shearson Hayden Stone, Inc., 90 Wn.2d
680, 685, 586 P.2d 830 (1978), adhered to on recons., 93 Wn.2d 51, 605 P.2d 779
(1980)). To effectively void a choice of law provision, a court must find that the chosen
state has no substantial relationship to the parties and that the application of the chosen
law would be contrary to a fundamental policy of Washington. Id. at 698. Further,
Washington courts have also adopted the "significant relationship" test in section 145 of
the Restatement, which gives great weight to the place where the parties' relationship was
entered. Johnson v. Spider Staging Corp.,
87 Wn.2d 577, 580-82, 555 P.2d 997 (1976).
Other courts have also recognized the importance of the location of the contractual
relationship in deciding choice of law problems as they apply to class certification. In
Kelley v. Microsoft Corp., 251 F.R.D. 544 (W.D. Wash. 2008), the district court found
the most significant contacts to exist in Washington because in addition to being the
location where Microsoft "developed and launched its allegedly deceptive promotional
program," "the parties' relationship is not centered in any particular place because the
parties did not contract with one another." Id. at 552 (emphasis added) (citing
Restatement § 145(2)(b), (d) and applying Washington state law to class action
certification of CPA and contract claims). Though not a class action, in Kammerer v. W.
Gear Corp., 96 Wn.2d 416, 423, 635 P.2d 708 (1981), we held that because the parties
contracted in California to have California law apply, the choice of law clause should be
enforced.
The choice of law provisions in this case were mostly based on customers' area
codes, not on forums having no substantial relationship to the parties or location of the
transaction between them. While it is true that AT&T is headquartered in Washington
State, the customer's area code is left to the discretion of the customer, and this area code
often corresponds with the customer's place of residence: in effect the customer selected
which forum's law would apply when he requested phone service from AT&T. AT&T
should not now be forced to face the enormous cost and complexity presented by a
nationwide class action when they conscionably included choice of law provisions in
their customers' contracts and the choice of
forum is dictated by the consumer. See generally 4 Alba Conte & Herbert B. Newberg,
Newberg on Class Actions § 13:63, at 476 (4th ed. 2002) ("Like all litigation, complex
cases are more likely to be settled than tried. The stakes in the case and the cost of
pretrial activity increase that likelihood.").
Schnall presents no valid reason why we should now invalidate the choice of law
clause each customer signed when he or she purchased wireless service from AT&T. The
trial court did not abuse its discretion when it held
[t]here does not seem to be any public policy reason not to enforce the choice of law provision of the agreements in this case. The law of the State associated with the area code will generally be the law of the customer's home state, thereby applying to that customer the law with which he or she is most familiar.
CP at 418 (Mem. Op. at 2). Upholding the trial court's decision to deny certification of a
nationwide class does nothing to prevent persons outside of Washington from filing
statewide class actions in each of their respective home states. Indeed, the citizens of
California have already filed such a statewide class action. Suppl. Br. of Pet'r AT&T,
Ex. A (Order Granting Approval of Form Class Notice, Randolph v. AT&T Wireless
Servs., Inc., No. RG05193855).
Class Certification of Contract Claims
Schnall brings two types of claims before the court: one based in contract, the
other based on the CPA. The differences between these two types of claims have
important implications for analysis of their suitability as class action claims. AT&T
argues the trial court was correct in deciding that the choice of law clauses in each
customer's contract caused individual issues to predominate over common ones.
As noted above, the choice of law clause in each customer's contract is valid. The
trial court held: "[a]pplying the law of the customer's home state to the contract claims in
this case makes the contract claims unmanageable." CP at 418 (Mem. Op. at 2) (citing In
re Sch. Asbestos Litig., 789 F.2d 996 (3d Cir. 1986); Rory Ryan, Uncertifiable?: The
Current Status of Nationwide State-Law Class Actions, 54 Baylor L. Rev. 467 (2002)).
To validly certify a nationwide class for the contract claims, Schnall must meet the
requirements of CR 23(a): numerosity, commonality, typicality, and adequacy of
representation. Once those have been met, he must further satisfy the tougher standard of
CR 23(b)(3) and prove that common legal and factual issues predominate over individual
issues and that a class action is an otherwise superior form of adjudication. Factors to be
considered by the court when assessing predominance and superiority include
(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.
CR 23(b)(3). It is "incumbent upon class counsel to prove to the court . . . that there are
no significant differences in the various state laws, or if there are variations, that they can
be managed by the trial court." 4 Conte & Newberg, supra, § 13:36, at 436-37 (citing
Arthur R. Miller & David Crump, Jurisdiction and Choice of Law in Multistate Class
Actions after Phillips Petroleum Co. v. Shutts, 96 Yale L.J. 1, 63-68 (1986)).
The Court of Appeals held that a
"common nucleus of operative facts" predominated, but failed to substantially analyze the
issue of predominance, especially in consideration of the potential application of 50
different states' laws. Schnall v. AT&T Wireless Servs., Inc., 139 Wn. App. 280, 298-99,
161 P.3d 395 (2007). The Court of Appeals' predominance analysis reads more like a
CR 23(a) commonality test: "The common nucleus of facts among all class members on
this breach of contract claims is . . . . The common legal theory is." Schnall, 139 Wn.
App. at 299 (emphasis added). Simply stating the existence of commonalities does not prove predominance.1 The trial court's analysis on this point is more thorough and is
clearly supportable under our abuse of discretion standard.
As the Court of Appeals noted, the trial court "made several findings about the
individual issues the contract claim raised." Id. at 298. The trial court found that the
choice of law clauses, the interpretation of the contract terms, the differences in the
materials and information each potential class member received, and the availability of
differing affirmative defenses created a predominance of individual issues over common
ones. CP at 418-19 (Mem. Op. at 2-3).
Because CR 23 is identical to its federal counterpart, "cases interpreting the
analogous federal provision are highly persuasive." Schwendeman v. USAA Cas. Ins.
Co., 116 Wn. App. 9, 19 n.24, 65 P.3d 1 (2003) (citing Pickett v. Holland Am. Line-
Westours, Inc., 145 Wn.2d 178, 188, 35 P.3d 351 (2001)). The Court of Appeals reached
a conclusion that flies in the face of this "highly persuasive" federal law regarding
nationwide class action certification: "[b]ased primarily on the burden of applying
multiple states' laws, an overwhelming number of federal courts have denied certification
of nationwide state-law class actions." Ryan, supra, at 470 (emphasis added) (citing
Stirman v. Exxon Corp., 280 F.3d 554, 564-66 (5th Cir. 2002); Zinser v. Accufix
Research Inst., Inc., 253 F.3d 1180, 1187, amended by 273 F.3d 1266 (9th Cir. 2001);
Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 678 (7th Cir. 2001); In re LifeUSA
Holding, Inc., 242 F.3d 136, 147 (3d Cir. 2001); Spence v. Glock, Ges.m.b.H., 227 F.3d
308, 316 (5th Cir. 2000); Andrews v. Am. Tel. & Tel. Co., 95 F.3d 1014, 1025 (11th Cir.
1996); Castano v. Am. Tobacco Co., 84 F.3d 734, 740 (5th Cir. 1996); Georgine v.
Amchem Prods., Inc., 83 F.3d 610, 617 (3d Cir. 1996), aff'd sub nom. Amchem Prods.,
Inc. v. Windsor, 521 U.S. 591, 613, 117 S. Ct. 2231, 138 L. Ed. 2d 689 (1997); In re Am.
Med. Sys., Inc., 75 F.3d 1069, 1089 (6th Cir. 1996); In re Rhone-Poulenc Rorer Inc., 51
F.3d 1293, 1302 (7th Cir. 1995); Walsh v. Ford Motor Co., 257 U.S. App. D.C. 85, 807
F.2d 1000, 1010-11 (1986); In re Citigroup, Inc., No. CIV.A.10011912REK, 2001 WL
1682865, at *3 (D. Mass. Dec. 19, 2001); Hammett v. Am. Bankers Ins. Co., 203 F.R.D.
690, 700-02 (S.D. Fla. 2001); Duncan v. N.w. Airlines, Inc., 203 F.R.D. 601, 605, 610-14
(W.D. Wash. 2001); Neely v. Ethicon, Inc., No. 1:00-CV-00569, 2001 WL 1090204, at
*8-11, *15 (E.D. Tex. Aug. 15, 2001); Begley v. Acad. Life Ins. Co., 200 F.R.D. 489, 497
(N.D. Ga. 2001); Oxford v. Williams Cos., Inc., 137 F. Supp. 2d 756, 764 (E.D. Tex. 2001); Jones v. Allercare, Inc., 203 F.R.D.
290, 308 (N.D. Ohio 2001); Stipelcovich v. DirecTV, Inc., 129 F. Supp. 2d 989, 995
(E.D. Tex. 2001); Shelley v. AmSouth Bank, No. CIV.A.97-1170-RV-C, 2000 WL
1121778, at *8-10 (S.D. Ala. July 24, 2000), aff'd, 247 F.3d 250 (11th Cir. 2001); Lyon
v. Caterpillar, Inc., 194 F.R.D. 206, 220-23 (E.D. Pa. 2000); Adams v. Kan. City Life Ins.
Co., 192 F.R.D. 274, 277-78 (W.D. Mo. 2000); Hallaba v. Worldcom Network Servs.
Inc., 196 F.R.D. 630, 645 (N.D. Okla. 2000); Velasquez v. Crown Life Ins. Co., MDL-
1096 No. CIV.A.M-97-064, 1999 WL 33305652, at *4-7 (S.D. Tex. Aug. 10, 1999); Clay
v. Am. Tobacco Co., 188 F.R.D. 483, 497-98, 503 (S.D. Ill. 1999); Carpenter v. BMW of
N. Am., Inc., No. CIV.A.99-CV-214, 1999 WL 415390, at *4, *8 (E.D. Pa. June 21,
1999); Chilton Water Auth. v. Shell Oil Co., No. CIV.A.98-T-1452-N, 1999 WL
1628000, at *8 (M.D. Ala. May 21, 1999); Powers v. Gov't Employees Ins. Co., 192
F.R.D. 313, 319-20 (S.D. Fla. 1998); Rothwell v. Chubb Life Ins. Co. of Am., 191 F.R.D.
25, 33 n.7 (D.N.H. 1998); Dhamer v. Bristol-Myers Squibb Co., 183 F.R.D. 520, 532-34
(N.D. Ill. 1998); Weikel v. Tower Semiconductor Ltd., 183 F.R.D. 377, 402-03 (D.N.J.
1998); In re Jackson Nat'l Life Ins. Co. Premium Litig., 183 F.R.D. 217, 225 (W.D.
Mich. 1998); Chin v. Chrysler Corp., 182 F.R.D. 448, 465 (D.N.J. 1998); Marascalco v.
Int'l Computerized Orthokeratology Soc'y, Inc., 181 F.R.D. 331, 340-41 (N.D. Miss.
1998); In re Ford Motor Co. Vehicle Paint Litig., 182 F.R.D. 214, 222-26 (E.D. La.
1998); Fisher v. Bristol-Myers Squibb Co., 181 F.R.D. 365, 368 (N.D. Ill. 1998); Poe v.
Sears, Roebuck & Co., 1 F. Supp. 2d 1472, 1476 (N.D. Ga. 1998); Borskey v.
Medtronics, No. CIV.A.94-2302, 1998 WL
122602, at *3 (E.D. La. Mar. 18, 1998); Tylka v. Gerber Prods. Co., 178 F.R.D. 493, 496-
99, 502 (N.D. Ill. 1998); Peoples v. Am. Fid. Life Ins. Co., 176 F.R.D. 637, 646 (N.D.
Fla. 1998); In re Ford Motor Co. Bronco II Prod. Liab. Litig., 177 F.R.D. 360, 376 (E.D.
La. 1997); Clement v. Am. Honda Fin. Corp., 176 F.R.D. 15, 23 & nn.10-12 (D. Conn.
1997); Dubose v. First Sec. Sav. Bank, 183 F.R.D. 583, 587 (M.D. Ala. 1997); In re Ford
Motor Co. Ignition Switch Prods. Liab. Litig., 174 F.R.D. 332, 347-52 (D.N.J. 1997); In
re Stucco Litig., 175 F.R.D. 210, 219 (E.D.N.C. 1997); Smith v. Brown & Williamson
Tobacco Corp., 174 F.R.D. 90, 100 (W.D. Mo. 1997); Rohlfing v. Manor Care, Inc., 172
F.R.D. 330, 341-42 (N.D. Ill. 1997); In re Masonite Corp. Hardboard Siding Prods.
Liab. Litig., 170 F.R.D. 417, 422-27 (E.D. La. 1997); Mack v. Gen. Motors Acceptance
Corp., 169 F.R.D. 671, 679 (M.D. Ala. 1996); Harding v. Tambrands Inc., 165 F.R.D.
623, 631-33 (D. Kan. 1996); Barbarin v. Gen. Motors Corp., No. CIV.A.84-0888, 1993
WL 765821, at *3 (D.D.C. Sept. 22, 1993); Raye v. Medtronic Corp., 696 F. Supp. 1273,
1275 (D. Minn. 1988); Feinstein v. Firestone Tire & Rubber Co., 535 F. Supp. 595, 608
(S.D.N.Y. 1982)).
Even where courts find that a nationwide, state-law governed class otherwise
meets Rule 23(a) and 23(b)(3) criteria, "the choice-of-law inquiry will ordinarily make or
break certification." Ryan, supra, at 474. This is because if the laws of 50 jurisdictions
apply to plaintiffs' claims, "the variations in the laws of the states . . . 'may swamp any
common issues and defeat predominance.'" Spence, 227 F.3d at 311 (quoting Castano,
84 F.3d at 741); see also Georgine, 83 F.3d at 627 ("[B]ecause we must apply an
individualized choice of law analysis to
each plaintiff's claims, the proliferation of disparate factual and legal issues is
compounded exponentially" (citation omitted)); In re Am. Med. Sys., Inc., 75 F.3d at
1085 ("If more than a few of the laws of the fifty states differ, the district judge would
face an impossible task of instructing a jury on the relevant law, yet another reason why
class certification would not be the appropriate course of action.").
The choice of law provisions in this case will do more than cause variations in
damages. The availability of the voluntary payment doctrine alone could abrogate
AT&T's liability for all customers who voluntarily paid the UCC after receiving the
informational flyer detailing their responsibility for its payment and reside in states
employing the doctrine. This is only one example.
The Court of Appeals dismissed the trial court's concerns in part because it
determined that "extrinsic evidence" "will not be necessary here because these consumers
entered into a standardized contract." Schnall, 139 Wn. App. at 299-300. However,
there is no support cited for this conclusion. Indeed, some Washington courts have held
just the opposite: "When material extrinsic evidence shows that outside agreements were
relied upon, those parol agreements should be given effect rather than allowing
boilerplate 'to vitiate the manifest understanding of the parties.'" Lopez v. Reynoso, 129
Wn. App. 165, 173, 118 P.3d 398 (2005) (quoting Lyall v. DeYoung, 42 Wn. App. 252,
258, 711 P.2d 356 (1985)). Further, simply because the Court of Appeals finds extrinsic
evidence would be unnecessary under Washington law does not mean that the law of all
other 49 states would exclude such evidence as well.
An additional concern is the availability of affirmative defenses. As the trial court noted, "[s]ome states, such as
Illinois, . . . allow as a contract claim defense, the voluntary payment doctrine which
prohibits a contract claim for refund of a sum voluntarily paid." CP at 419-20 (Mem. Op.
at 3-4) (citing Smith v. Prime Cable of Chi., 276 Ill. App. 3d 843, 658 N.E.2d 1325, 213
Ill. Dec. 304 (1995)). The Court of Appeals suggested the trial court employ subclasses
and master's hearings to sort out the morass. However, the availability of these
mechanisms for efficient management of large class actions cannot change the
predominance of the individualized issues in this case. See 2 Alba Conte & Herbert B.
Newberg, Newberg on Class Actions § 4:32, at 286-87 (4th ed. 2002) (noting courts have
found "subclasses would not cure the problems" of diverse factual issues and that "when
a court determines that a multitude of mini-trials will be necessary to dispose of
individual claims, the court will likely find that common questions do not predominate.").
As the trial court noted, "[w]hile Washington would be only one of fifty jurisdictions'
law[s] which would have to be addressed in resolving the contract claims, it is illustrative
of the issues that would arise." CP at 418 (Mem. Op. at 2).
Superiority Analysis
Even if individualized issues did not predominate, CR 23(b)(3) also requires "that
a class action [be] superior to other available methods for the fair and efficient
adjudication of the controversy." (Emphasis added.) See also 4 Conte & Newberg,
supra, § 13:11, at 406 ("It must be emphasized that, under the rule, a class action must be
superior, not just as good as, other available methods." (emphasis added)). The
superiority requirement "focuses upon a
comparison of available alternatives." Sitton v. State Farm Mut. Auto. Ins. Co., 116 Wn.
App. 245, 256, 63 P.3d 198 (2003) (citing 1 Herbert B. Newberg & Alba Conte, Newberg
on Class Actions § 4.27 (3d ed. 1992)).
In more traditional statewide class actions, these alternatives include joinder,
intervention, or consolidation. Id. The most obvious alternative to the proposed
nationwide class action in this case is numerous statewide class actions brought by the
citizens of each state against AT&T. This is not a case where the choice is either a
nationwide class action or no action at all. Miller & Crump, supra, at 71 ("Our analysis
suggests that some of the problems of jurisdiction and choice of law could be solved by
resort to statewide, as opposed to nationwide, class actions."). Given the sheer number of
AT&T customers in each of the 50 states, no one state's citizens will be left out in the
class action cold without the possibility of amassing enough individual claims within
their state to cover litigation costs. Cf. Phillips Petroleum Co. v. Shutts, 472 U.S. 797,
809, 105 S. Ct. 2965, 86 L. Ed. 2d 628 (1985) ("Class actions also may permit the
plaintiffs to pool claims which would be uneconomical to litigate individually. . . .
[M]ost of the plaintiffs would have no realistic day in court if a class action were not
available.").
Although it is true that small amounts of money are at issue and the decision will
have broad impact, Schnall, 139 Wn. App. at 299, there is simply no efficiency in asking
a trial judge to manage the laws of 50 different states as they apply to plaintiffs' contract
claims and the varied factual scenarios inherent therein. See Miller & Crump, supra, at
64 ("Beyond the difficult task of correctly
determining foreign law, the nationwide class action may present an even greater problem
because of the sheer burden of organizing and following fifty or more different bodies of
complex substantive principles. Although the comparison obviously is inexact, one can
appreciate the magnitude of the trial judge's task by imagining a first-year law student
who, instead of a course in contracts, is required simultaneously to enroll in fifty courses,
each covering the contract law of a single state, and to apply each body of law correctly
on the final examination." (footnote omitted)).
Further, Washington has no interest in seeing contracts executed by AT&T
representatives in other states with citizens of those states examined and adjudicated in
Washington courts. Certified as a nationwide class action, this case would present an
unwarranted and unnecessary burden on the state judicial system, all at a large cost to
taxpayers. See R.J. Reynolds Tobacco Co. v. Engle, 672 So. 2d 39, 41 (Fla. Dist. Ct.
App. 1996) ("No doubt a tremendous number of retired judges, special masters, and
general masters would have to be appointed by the court in order to complete this
herculean task within a reasonable period of time -- all at a staggering cost to the
taxpayers."). There is no sound reason in this case for this court to force Washington
trial courts to entertain the contract claims of citizens from around the nation. Their state
courts are equally as prepared, if not better situated to apply the contract laws of their
states. The trial court did not abuse its discretion by denying nationwide certification of
the plaintiffs' contract claims. This court does not dispute, however that if the contract
class were constructed as a statewide class, it would meet the requirements of both CR
23(a) and (b)(3).
Extraterritorial Application of Washington's Consumer Protection Act
The trial court and the Court of Appeals both noted that the CPA was applicable to
all plaintiffs' claims because they arose from statute instead of contract. However,
nothing in our law indicates that CPA claims by nonresidents for acts occurring outside of
Washington can be entertained under the statute. "Because the laws of each state are
designed to regulate and protect the interest of that state's own residents and citizens,
each state has a measurable, and usually predominant, interest in having its own
substantive laws apply." 4 Conte & Newberg, supra, § 13:37, at 438. While it is true
that "Washington has a strong interest in regulating any behavior by Washington
businesses which contravenes the CPA," CP at 421 (Mem. Op. at 5), the CPA indicates
the legislature's intent to limit its application to deceptive acts that affect the citizens and
residents of Washington. The CPA states: "[u]nfair methods of competition and unfair
or deceptive acts or practices in the conduct of any trade or commerce are hereby
declared unlawful." RCW 19.86.020. "Trade" or "commerce" is defined as "the sale of
assets or services, and any commerce directly or indirectly affecting the people of the
state of Washington." RCW 19.86.010(2) (emphasis added). To state a CPA claim a
person must show that the unfair or deceptive act affected the people of the state of
Washington. This geographic and jurisdictional limitation originates in the CPA's history
as a tool used by the State attorney general to protect the citizens of Washington. Indoor
Billboard/Wash., Inc. v. Integra Telecom of
Wash., Inc., 162 Wn.2d 59, 74, 170 P.3d 10 (2007). The attorney general of the state of
Washington has no power outside the geographic boundary of this state. It is understood
that her actions will be brought on "behalf of persons residing in the state." RCW
19.86.080(1).
This statutory and jurisdictional limitation cannot be obviated simply because the
claimants are private citizens. Indeed, our courts retained this limitation for private
attorneys general through the requirement that the private claimants prove a defendant's
practices affect "the public interest." Hangman Ridge Training Stables, Inc. v. Safeco
Title Ins. Co., 105 Wn.2d 778, 784, 719 P.2d 531 (1986). Because of the statute's
jurisdictional limitation, applicable to both the attorney general and private claimants, a
private claimant cannot state a CPA claim by proving the defendant's practices affected
the public interest or the citizens of another state. See Lyon, 194 F.R.D. at 215 ("State
consumer fraud acts are designed to either protect state residents or protect consumers
engaged in transactions within the state."). RCW 19.86.920 does not indicate otherwise.
This portion of the CPA empowers courts analyzing unfair competition claims to consider
"whether conduct restrains or monopolizes trade or commerce" even when those market
effects are felt outside of Washington. RCW 19.86.920. This provision merely closes a
potential loophole in the CPA that would allow companies to escape liability by claiming
their methods of competition are within Washington's boundaries even though those
methods effectively monopolize trade outside the state. This portion of the statute does
not give Washington the power to enforce its laws outside its territorial borders.
Even the general extraterritorial
flavor of RCW 19.86.920 cannot change the clear standing limitations in the statute: a
claimant must allege injury in trade or commerce that "directly or indirectly affect[s] the
people of the state of Washington." RCW 19.86.010(2); Panag v. Farmers Ins. Co. of
Wash., 166 Wn.2d 27, 38, 204 P.3d 885 (2009) ("[T]he Hangman Ridge-test incorporates
the issue of standing, particularly the elements of public interest impact and injury."). In
the context of this case, the CPA only applies to claims brought by persons residing in
Washington.
Remaining Washington Plaintiffs' CPA Claims
The question then remains, can a class of Washington only CPA plaintiffs be
certified? The trial court correctly found that "proof of causation is an essential element
of a CPA action." CP at 421 (Mem. Op. at 5). Hangman Ridge, 105 Wn.2d at 785,
requires CPA plaintiffs to establish a causal link "between the unfair or deceptive act
complained of and the injury suffered." We have more recently held that this causal link
must establish that the "injury complained of . . . would not have happened" if not for
defendant's violative acts. Indoor Billboard, 162 Wn.2d at 82. The quantum of proof
necessary to establish the proximate, "but for" causation required by the CPA is not fully
developed in our case law. However, Indoor Billboard clearly establishes that proximate
cause in a class action cannot be established by "mere payment" of an allegedly injurious
charge, though that payment can be "considered with all other relevant evidence on the
issue of proximate cause." Id. at 83. Indoor Billboard did not reject individual reliance
as a method of proving causation under the CPA, but merely held that plaintiffs cannot be
required to show reliance where other
evidence is sufficient to establish "but for" causation. Id. at 85 (noting that injury may be
established as a result of "reliance on information" and citing Nuttall v. Dowell, 31 Wn.
App. 98, 639 P.2d 832 (1982) for support). Nuttall held "a party has not established a
causal relationship with a misrepresentation of fact where he does not convince the trier
of fact that he relied upon it." Nuttal, 31 Wn. App. at 111. We recently affirmed that
reliance is not a dead letter in our law: "[d]epending on the deceptive practice at issue
and the relationship between the parties, the plaintiff may need to prove reliance to
establish causation, as in Indoor Billboard." Panag, 166 Wn.2d at 59 n.15.
Our decision to retain reliance as one method of proving "but for" causation
inherently recognizes a principle established in multiple forums, that the difference
between "but for proximate cause" and individual reliance varies with the context of the
claim:
[W]here, as here, the plaintiffs allege that their damages were caused by deceptive, misleading, or fraudulent statements or conduct . . . , as a practical matter it is not possible that the damages could be caused by a violation [of the Minnesota CPA] without reliance on the statements or conduct alleged to violate the statutes.
Group Health Plan, Inc. v. Philip Morris, Inc., 621 N.W.2d 2, 13 (Minn. 2001); accord,
e.g., Hageman v. Twin City Chrysler-Plymouth Inc., 681 F. Supp. 303, 308 (M.D.N.C.
1988) ("To prove actual causation, a plaintiff must prove that he or she detrimentally
relied on the defendant's deceptive statement or misrepresentation.") (citing Pearce v.
Am. Defender Life Ins. Co., 316 N.C. 461, 343 S.E.2d 174, 180 (1986)); Feitler v.
Animation Celection, Inc., 170 Or. App. 702, 13 P.3d 1044, 1047 (2000) (holding causal
element of misrepresentation claim requires
reliance by the consumer); cf. Siemer v. Assocs. First Capital Corp., No. CV 97-281
TUC JMR (JCC), 2001 WL 35948712, at *4 (D. Ariz. Mar. 30, 2001) ("The injury
element of the [state consumer protection statute] claim occurs when the consumer relies
on the misrepresentations."); see generally Sheila B. Scheuerman, The Consumer Fraud
Class Action: Reining in Abuse by Requiring Plaintiffs to Allege Reliance as an Essential
Element, 43 Harv. J. on Leg. 1 (2006).
As noted in Nuttall, in the context of private CPA actions where plaintiffs seek
damages, more than a mere capacity to deceive must be shown to establish "some causal
link between defendant's unfair act and [consumer's] injury." 31 Wn. App. at 110.
In the context of private misrepresentation cases, a plaintiff can satisfy the "but
for" causation requirement by showing she relied on the misrepresentation. See State ex
rel. D.R.M. v. Wood, 109 Wn. App. 182, 197 n.8, 34 P.3d 887 (2001) ("The but-for test
of causation employed in that case would fail here since McDonald did not rely on
Wood's promise."); Bank of China, N.Y. Branch v. NBM, LLC, 359 F.3d 171, 178 (2d
Cir. 2004) (requiring plaintiffs to demonstrate "reasonable reliance" to satisfy the
proximate cause requirement in a civil RICO proceeding); Sandwich Chef of Tex., Inc. v.
Reliance Nat'l Indem. Ins. Co., 319 F.3d 205, 218-19 (5th Cir. 2003) (holding that where
"[k]nowledge of the truth defeats a claim of fraud because it eliminates the deceit as the
'but for' cause of the damages," proof of reliance is required); Huddleston v. Herman &
MacLean, 640 F.2d 534, 549 (5th Cir. 1981) (reliance is "a type of 'but for' requirement:
had the [purchaser] known the truth he would not have acted"), aff'd in part, rev'd in
part, 459 U.S. 375, 103 S. Ct. 683, 74 L.
Ed. 2d 548 (1983).
As the trial court recognized, this court does not require proof of individual
reliance from CPA claimants as a separate element. But, where knowledge of the truth
would defeat a claim of misrepresentation, that alleged misrepresentation has been
eliminated as the "but for" cause of the claimant's injury. In misrepresentation and
deception or fraud cases, the claimant may be called upon to offer more individualized
proof that she had no knowledge of the truth because the remaining evidence is simply
insufficient to establish "but for" causation. Kelley, 251 F.R.D. at 557-58 (analyzing
class certification under Washington's CPA after Indoor Billboard to hold "a deception-
based theory of causation would necessarily require the trier of fact here to determine
whether individual class members were actually deceived and whether they would have
purchased [the goods] but for Microsoft's marketing of them." The court went on to
allow class certification on plaintiff's "price inflation" or "market theory" of causation.)
(citing Oshana v. Coca-Cola Bottling Co., 225 F.R.D. 575 (N.D. Ill. 2005), aff'd, 472
F.3d 506 (7th Cir. 2006); Wright v. Fred Hutchinson Cancer Research Ctr., No.
C01-5217L, 2001 WL 1782714 (W.D. Wash. Nov. 19, 2001); Hutson v. Rexall Sundown,
Inc., 837 So. 2d 1090 (Fla. Dist. Ct. App. 2003)). In the case at hand, for example, some
plaintiffs received materials that "specifically list the 'universal connectivity charge' as
one of the fees, taxes, and surcharges which the customer is responsible for paying." CP
at 418 (Mem. Op. at 2). Under plaintiffs' misrepresentation theory of causation the trial
court will need to decide, as in Kelley, whether "individual class members were actually
deceived and whether they would have"
purchased their cellular service, or paid the UCC but for AT&T's marketing of the cost of
the cellular plan or their explanations regarding the genesis of the UCC. Kelley, 251
F.R.D. at 558.
The trial judge found that "[i]n the context of" a nationwide CPA action, proof of
causality for each plaintiff "must necessarily be individual for each potential class
member," resulting in an uncertifiable class in which "individual issues would
predominate over class issues and a class action would be unmanageable." CP at 422
(Mem. Op. at 6) ("In the context of this case, each plaintiff must show that [AT&T's]
alleged misrepresentation about the plaintiff's obligation to pay a UCC affected the
plaintiff's decision to chose [AT&T] as a wireless provider."). However, the trial court
provided no specific analysis of whether proof of causality would be so individualized
among a class comprised only of Washington customers. For example, if Washington
customers all had received no information regarding the UCC, proof of causality could be
more common than if they all had received different and allegedly fraudulent
representations: proving a plaintiff relied on an affirmative misrepresentation is
necessarily individualized, but proving the lack of information was the common cause of
each plaintiffs' decision to sign up for wireless service could be more generalized.
Because the trial court did not analyze the causality element of plaintiffs' CPA
claims as it would apply only to the facts and evidence pertaining to Washington
customers, we remand for further consideration of this issue in accordance with our
opinion.
In sum, we agree with the trial court that this action should not be certified as a nationwide class action. Washington need not
apply its Consumer Protection Act, or its contract laws, to the citizens of other states in
order to protect the interests of the citizens of Washington. A nationwide class would be
unmanageable and unduly burdensome on the trial court and the state judicial system and
serve no real benefit to plaintiffs who are free to bring statewide class actions in their
home states.
Plaintiff's Experts:
Defendant's Experts:
Comments: