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finding representative inadequate where "[p]laintiffs' own allegations . . . establish that the abandoned damages here are likely to be significant"
Summary of this case from In re Lincoln Nat'l COI Litig.Opinion
For Tasion Communications Inc., a Canadian corporation, on behalf of itself and all others similarly situated, doing business as, Planet Telecom, Plaintiff: David Christopher Parisi, LEAD ATTORNEY, Suzanne L. Havens Beckman, Parisi & Havens LLP, Santa Monica, CA; Alan Himmelfarb, The Law Offices of Alan Himmelfard, Sierra Madre, CA.
For International Power Systems, LLC, an Arizona, doing business as, Freeway Networks, Plaintiff: David Christopher Parisi, LEAD ATTORNEY, Suzanne L. Havens Beckman, Parisi & Havens LLP, Santa Monica, CA.
For Nationwide Computer Systems, Inc., a Florida corporation, doing business as, Camplink, Plaintiff: David Christopher Parisi, LEAD ATTORNEY, Parisi & Havens LLP, Santa Monica, CA.
For Ubiquiti Networks, Inc., a Delaware corporation, Defendant: Devin C. Courteau, Ropers, N. Kathleen Strickland, Majeski, Kohn & Bentley, San Francisco, CA; Justin Ananda Zucker, Ropers, Majeski, Kohn and Bentley PC, San Francisco, CA.
ORDER DENYING PLAINTIFFS' MOTION FOR CLASS CERTIFICATION (Docket No. 142)
EDWARD M. CHEN, United States District Judge.
Currently pending before the Court is Plaintiffs' motion for class certification. Plaintiffs ask the Court to certify classes and subclasses against Defendant Ubiquiti Networks, Inc. for their claims for breach of express warranty and fraudulent inducement. Having considered the papers submitted, as well as the oral argument of counsel, the Court hereby DENIES the motion for certification in its entirety.
In June 2015, Fundamental Holdings Corp. (d/b/a Peak Internet) voluntarily dismissed its claims. See Docket Nos. 186, 193 (stipulations of voluntary dismissal). Therefore, the remaining plaintiffs in this case are (1) Tasion Communications, Inc. (d/b/a Planet Telecom) (" Tasion" ); (2) International Power Systems, LLC (d/b/a Freeway Networks) (" Freeway" ); and (3) Nationwide Computer Systems, Inc. (d/b/a Camplink) (" Camplink" ).
Ubiquiti is the only remaining defendant in this case because, in June 2015, those plaintiffs with claims against Defendant Streakwave Wireless, Inc. filed voluntary dismissals with respect to those claims. See Docket Nos. 193-94 (stipulations of voluntary dismissal).
I. FACTUAL & PROCEDURAL BACKGROUND
As alleged in the operative fifth amended complaint (" 5AC" ), Ubiquiti is a communications technology company that designs, manufactures, and sells broadband wireless products. See 5AC ¶ 1. At issue in this litigation is a Ubiquiti product known as TOUGHCable (" TC" ). T.C. is a cable product. During the relevant period, Ubiquiti manufactured two kinds of TC, Level 1 and Level 2. However, according to Plaintiffs, there are no material differences between the two for purposes of this lawsuit.
Plaintiffs allege that, in Ubiquiti's advertising as well as on the T.C. box itself, Ubiquiti claimed that T.C. was a Category 5e outdoor carrier-class shielded cable that was built to withstand harsh outdoor environments. See 5AC ¶ 4. Plaintiffs purchased T.C. based on that representation. According to Plaintiffs, that representation was false and Ubiquiti knew the representation to be false at the time Plaintiffs purchased the T.C. product. Plaintiffs maintain that Ubiquiti knew that T.C. was not suitable for outdoor use based on, e.g., UV testing that was conducted on the product. See, e.g., 5AC ¶ ¶ 255-61.
Based on, inter alia, the above allegations, Plaintiffs have sued Ubiquiti for, inter alia, breach of express warranty and fraudulent inducement.
II. DISCUSSION
A. Legal Standard
In their opening brief, Plaintiffs asked the Court to certify a nationwide Rule 23(b)(3) class (applying California law) for both its claim for breach of express warranty and its claim for fraudulent inducement. In the alternative, Plaintiffs asked the Court to certify, pursuant to Rule 23(b)(3), twelve state-based classes for its fraudulent inducement claim and its claims for violations of state consumer protection laws. Finally, Plaintiffs asked that, if the Court were to find that " any particular class claim fails to satisfy the requirements of Rule 23(b)," it certify " relevant issues classes under Rule 23(c)(4)." Mot. at 24.
In its reply brief, Plaintiffs now concede that a nationwide Rule 23(b)(3) class for its fraudulent inducement claim is improper; Plaintiffs now ask only for certification of issues classes and subclasses for the fraudulent inducement claim. For the express warranty claim, Plaintiffs still ask for certification of a nationwide Rule 23(b)(3) class; in the alternative, Plaintiffs ask that issues classes and subclasses be certified. Apparently, Plaintiffs have completely dropped their request for Rule 23(b)(3) certification with respect to its consumer protection claims.
1. Rule 23(b)(3)
For a Rule 23(b)(3) class, Plaintiffs must show the following:
(1) that all Rule 23(a) requirements are satisfied, i.e., numerosity, commonality, typicality, and adequacy, see Fed.R.Civ.P. 23(b); and
(2) that " questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiency adjudicating the controversy." Fed.R.Civ.P. 23(b)(3).
As for an issues class, Rule 23(c)(4) provides that, " [w]hen appropriate, an action may be brought or maintained as a class action with respect to particular issues." Fed.R.Civ.P. 23(c)(4). The Ninth Circuit has explained that, " [e]ven if the common questions do not predominate over the individual questions so that class certification of the entire action is warranted, Rule 23[(c)(4)] authorizes the district court in appropriate cases to isolate the common issues . . . and proceed with class treatment of these particular issues." Valentino v. Carter-Wallace, Inc., 97 F.3d 1227, 1234 (9th Cir. 1996) (emphasis added). The theory underlying the rule is that " the advantages and economies of adjudicating issues that are common to the entire class on a representative basis may be secured even though other issues in the case may need to be litigated separately by each class member." Wright et al., Fed. Prac. & Proc. § 1790. Thus, for example, Rule 23(c)(4) may be used " to separate the issue of liability from damages." In re Nassau County Strip Search Cases, 461 F.3d 219, 226 (2d Cir. 2006); see also Fed.R.Civ.P. 23(c)(4), 1966 advisory committee notes (noting, as an example, " in a fraud or similar case the action may retain its 'class' character only through the adjudication of liability to the class; the members of the class may thereafter be required to come in individually and prove the amounts of their respective claims" ).
Contrary to what Plaintiffs argued at the hearing, a Rule 23(c)(4) issues class must still meet the requirements of Rule 23(a) and (b) (except for the predominance requirement of Rule 23(b)(3)). See, e.g., Avilez v. Pinkerton Gov't Servs., 596 Fed.Appx. 579, 579 (9th Cir. 2015) (noting that subclasses would meet the requirements of Rule 23(a); adding that " [w]e need not decide whether these subclasses . . . would satisfy the predominance requirement of Rule 23(b)(3)" because the district court was being asked to certify a liability issues class under Rule 23(c)(4)); Central Wesleyan College v. W.R. Grace & Co., 6 F.3d 177, 189 (4th Cir. 1993) (stating that, " district courts may separate and certify certain issues for class treatment, [but] the 'subclass' on each issue still 'must independently meet all the requirements of [subsection 23(a)] and at least one of the categories specified in [subsection 23(b)]'[; ] [t]hus, a limited class pursuing the eight issues still must possess both (a)(3) typicality and demonstrate (b)(3)(D) manageability" ); Romero v. Allstate Ins. Co., 52 F.Supp.3d 715, 724 (E.D. Pa. 2014) (stating that " [c]ertification of particular issues under Rule 23(c)(4) is only proper if the other requirements of Rule 23(a) and (b) are first met" ); House v. Pritzker, 28 F.Supp.3d 222, 253-54 (S.D.N.Y. 2014) (stating that " Rule 23(c)(4) continues to provide a viable solution if damages cannot be determined on a classwide basis, so long as the proposed class satisfies the requirements of 23(a) and (b) with respect to liability" ); see also Wright et al., Fed. Prac. & Proc. § 1790 (stating that, potentially, just " one common issue can be identified as appropriate for class treatment, that is enough to justify application of the provision as long as the other Rule 23 requirements are met" ). Moreover, even if certain issues may otherwise meet the requirements of Rule 23(a) and (b), issue certification must materially advance the litigation. See McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 234 (2d Cir. 2008).
B. Rule 23(b)(3) Class -- Claim for Breach of Express Warranty
The Court acknowledges that Plaintiffs have objected to the declarations of Mary Kay Kane and David Stewart. The objections are moot as the Court not relied on either declaration in ruling on the motion to certify.
As noted above, Plaintiffs initially asked the Court to certify a nationwide Rule 23(b)(3) class (applying California law) for two different claims: (1) fraudulent inducement and (2) breach of express warranty. In their reply brief, Plaintiffs changed their tune and admitted that a nationwide class for the fraudulent inducement claim would not work because of a predominance or manageability problem -- more specifically, because California law could not uniformly apply. See Reply at 12 (conceding that " [a] Rule 23(b)(3) class based on fraudulent inducement . . . requires application of the laws of individual states due to variations in those 50 state's laws[; ] [s]uch a class would not be manageable" ). Thus, Plaintiffs now ask for certification of a nationwide class for their express warranty claim only.
Although Plaintiffs claim that the class is a nationwide class, it would really appear to be -- as Ubiquiti argues -- a worldwide class because some of the purchasers of the T.C. product reside outside the United States. See Opp'n at 11. But for purposes of this order, the Court will continue to refer to a nationwide class.
1. Mazza
Plaintiffs' proposed nationwide class is defined as follows: All persons or entities who purchased Ubiquiti TOUGHCable Level 1 or 2 (where the purchase was completed in the United States). See Mot. at 6. Plaintiffs' nationwide class is predicated on California law governing all members of the class. Plaintiffs do not contend that nationwide class certification would be appropriate in this case if the laws of each of the 50 states were to apply variously to class members residing in each state. Not surprisingly, the main ground of Ubiquiti's challenge to the nationwide class is that Rule 23(b)(3)'s predominance requirement is not met. More specifically, Ubiquiti contends that California law applies only to California purchasers; for other purchasers, the applicable law is the law of the state where the purchaser resided when it made the purchase. According to Ubiquiti, this means that the laws of all the states in the country, as well as the laws of the District of Columbia and a number of international countries, are at issue. See Opp'n at 11 (looking at the purchases made from Streakwave, one of Ubiquiti's main distributors). Because the laws of multiple jurisdictions have been implicated, Ubiquiti contends that common issues cannot predominate. As Plaintiffs do not appear to dispute such a conclusion were Ubiquiti correct on the choice of law, the Court focuses on the choice-of-law question.
Both parties agree that Mazza v. American Honda Motor Co., Inc., 666 F.3d 581 (9th Cir. 2012) is the critical Ninth Circuit authority on point. Therefore, the Court briefly discusses the opinion below. In Mazza, the plaintiffs brought a class action, asserting that the defendant-car company had misrepresented characteristics of a braking system used in a certain kind of vehicle. The plaintiffs asserted various claims for relief, all predicated on California law -- namely, California Business & Professions Code § § 17200 and 17500, the California Consumer Legal Remedies Act, and unjust enrichment. See id. at 587. The district court certified a nationwide class. On appeal, the defendant argued that the district court erred because " common issues of law do not predominate[:] California's consumer protection statutes may not be applied to a nationwide class with members in 44 jurisdictions." Id. at 589. The Ninth Circuit agreed with the defendant that the district court erred by " conclud[ing] that California law could be applied to the entire nationwide class." Id. at 585.
The Ninth Circuit reached this conclusion by doing a choice-of-law analysis. Because the district court, sitting in diversity, was located in California, the Ninth Circuit looked to California's choice-of-law rules. See id. at 589.
Under California's choice of law rules, the class action proponent bears the initial burden to show that California has " significant contact or significant aggregation of contacts" to the claims of each class members. Such a showing is necessary to ensure that application of California law is constitutional. Once the class action proponent makes this showing the burden shifts to the other side to demonstrate " that foreign law, rather than California law, should apply to class claims."
California law may only be used on a classwide basis if " the interests of other states are not found to outweigh California's interest in having its law applied." To determine whether the interests of other states outweigh California's interest, the court looks to a three-step governmental interest test:
First, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular issue in question is the same or different.
Second, if there is a difference, the court examines each jurisdiction's interest in the application of its own law under the circumstances of the particular case to determine whether a true conflict exists.
Third, if the court finds that there is a true conflict, it carefully evaluates and compares the nature and strength of the interest of each jurisdiction in the application of its own law to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state, and then ultimately applies the law of the state whose interest would be more impaired if its law were not applied.
Id. at 589-90.
The Ninth Circuit held that, in the case before it, California law could be applied as a constitutional matter: " California has a constitutionally sufficient aggregation of contacts to the claims of each putative class member in this case because [defendant's] corporate headquarters, the advertising agency that produced the allegedly fraudulent misrepresentations, and one fifth of the proposed class members are located in California." Id. at 590. However, the court then went on to conclude that the governmental interest test indicated that California law should not apply across the board. First, California law materially " differ[ed] from the laws of the 43 other jurisdictions in which the class members reside." Id. at 591. For example, " the California laws at issue here have no scienter requirement, whereas many other states' consumer protection statutes do require scienter. California also requires named class plaintiffs to demonstrate reliance, while some other states' consumer protection statutes do not." Id. Furthermore, " there are also material differences in the remedies given by state laws," and " [t]he elements necessary to establish a claim for unjust enrichment also vary materially from state to state." Id.
Second, states other than California had an interest in having their laws apply:
" [E]very state has an interest in having its law applied to its resident claimants." California law also acknowledges that " a jurisdiction ordinarily has 'the predominant interest' in regulating conduct that occurs within its borders. The automobile sales at issue in this case took place within 44 different jurisdictions . . . .
Id. at 591-92. The court emphasized that " each state has an interest in setting the appropriate level of liability for companies conducting business within its territory." Id. at 592-93 (stating that " the district court erred by discounting" this interest and focusing instead on the protection of consumers alone).
Third, California did not have a strong interest in applying its law:
California recognizes that " with respect to regulating or affecting conduct within its borders, the place of the wrong has the predominant interest." California considers " the place of the wrong" to be the state where the last event necessary to make the actor liable occurred. See McCann, 48 Cal.4th at 94 n.12 (pointing out that the geographic location of an omission is the place of the transaction where it should have been disclosed); Zinn v. Ex-Cell-O Corp., 148 Cal.App.2d 56, 80 n.6, 306 P.2d 1017 (1957) (concluding in fraud case that the place of the wrong was the state where the misrepresentations were communicated to the plaintiffs, not the state where the intention to misrepresent was formed or where the misrepresented acts took place). Here, the last events necessary for liability as to the foreign class members -- communication of the advertisements to the claimants and their reliance thereon in purchasing the vehicles -- took place in the various foreign states, not in California.
Id. at 593-94. California also had a limited interest " in applying its law to residents of foreign states." Id. at 594.
Accordingly, the Ninth Circuit held that " each class member's consumer protection claim should be governed by the consumer protection laws of the jurisdiction in which the transaction took place." Id. at 594.
2. Governmental Interest Test
Having reviewed Mazza, the Court now turns to the application of the governmental interest test to the case at hand.
a. Step 1: Material Difference in Law
According to Ubiquiti, there are material differences in the laws of the various jurisdictions with respect to a claim for breach of express warranty. The identified differences are as follows:
1. Privity requirement.
2. Pre-litigation notice requirement.
3. Reliance requirement.
See Opp'n at 12; Courteau Decl. ¶ 6 & Ex. 2 (charts regarding express warranty laws).
In their reply brief, Plaintiffs concede that Ubiquiti has " correctly identifie[d] those conflicts as potentially material." Reply at 2. The Court therefore need not dwell on step one any further. However, in the interest of ensuring accuracy, it briefly addresses each of these subjects below. As discussed below, Ubiquiti has valid arguments. See also Dei Rossi v. Whirlpool Corp., No. 2:12-cv-00125-TLN-CKD, at *28-32 (E.D. Cal. Apr. 28, 2015) (indicating that there are material differences with respect to express warranty law in 33 different jurisdictions -- e.g., regarding privity); Rikos v. Procter & Gamble Co., No. CV 11-226, at *16-19 (S.D. Ohio Feb. 28, 2012) (finding material differences in express warranty laws -- e.g., regarding privity and reliance).
(i) Privity Requirement
As Ubiquiti argues, some states do, as a general matter, require privity between the plaintiff and the defendant for an express warranty claim, while others do not have a privity requirement. Compare, e.g., Johnson v. Anderson Ford, 686 So.2d 224, 228 (Ala. 1996) (taking note of the general rule that " a plaintiff must prove privity of contract in an action on an express warranty where only economic harm is involved," unless, e.g., there is evidence that the seller intended to extend the express warranty directly to the ultimate purchaser); Fowler v. Gen. Elec. Co., 40 N.C.App. 301, 305, 252 S.E.2d 862 (1979) (stating that an " exception to the rule that privity of contract is required in actions for breach of warranty is applicable when the manufacturer addresses a warranty directly to the ultimate consumer or user of the product, thereby making an express warranty" ), with Cardinal Health 301, Inc. v. Tyco Elecs. Corp., 169 Cal.App.4th 116, 143-44, 87 Cal.Rptr.3d 5 (2008) (stating that " [p]rivity is generally not required for liability on an express warranty because it is deemed fair to impose responsibility on one who makes affirmative claims as to the merits of the product, upon which the remote consumer presumably relies" ) (emphasis added).
(ii) Pre-Litigation Notice Requirement
Ubiquiti correctly contends that some states require notice for a claim of breach of express warranty while others do not. Compare, e.g., Tasion Communs., Inc. v. Ubiquiti Networks, Inc., No. C-13-1803 EMC, at *14-15 (N.D. Cal. Mar. 14, 2014) (noting that, under California law, notice of a breach is required within a reasonable time), with Kolarik v. Cory Int'l Corp., 721 N.W.2d 159, 163 (Iowa 2006) (stating that, for express warranty claim, remote buyers are not required to give notice to seller). Furthermore, for those jurisdictions that do require notice, some require pre-litigation notice while others do not. Compare, e.g., Tasion, at *14-15 (noting that, under California law, " notice must be provided before the lawsuit -- notice that is after, or contemporaneous with, the filing of the lawsuit is insufficient" ), with Pace v. Sagebrush Sales Co., 114 Ariz. 271, 274, 560 P.2d 789 (1977) (" agree[ing] with the defendant that the requirement of notice may indeed be fulfilled by the pleadings themselves" ).
(iii) Reliance Requirement
Finally, as Ubiquiti asserts, some jurisdictions require reliance (or something similar) for a claim of breach of express warranty while others do not. Compare, e.g., Tasion, at *33 (based on " basis of the bargain" language in the California Commercial Code, stating that a plaintiff in an express warranty case must at least allege that he or she read or was otherwise exposed to the representation at issue, especially absent privity); Compaq Comp. Corp. v. Lapray, 135 S.W.3d 657, 676 (Tex. 2004) (concluding that the Uniform Commercial Code's use of the " basis of the bargain" language reflects a reliance requirement of some kind), with Norcold, Inc. v. Gateway Supply Co., 154 Ohio App.3d 594, 601, 2003-Ohio-4252, 798 N.E.2d 618 (2003) (evaluating " basis of the bargain" language in the Uniform Commercial Code; indicating agreement with the " majority of courts that . . . have reached the . . . conclusion that reliance is not an element in a claim for breach of an express written warranty" ); Samuel Bassett v. Kia Motors Am., Inc., 613 Pa. 371, 411-12, 34 A.3d 1 (2011) (stating that the class not was required to prove reliance in order to recover on express warranty claim; " [a] written express warranty that is part of the sales contract is the seller's promise which relates to goods, and it is part of the basis of the bargain[; ] [t]his statement of law is not qualified by whether the buyer has read the warranty clause and relied on its in seeking its application" ).
But see In re Conagra Foods, Inc., No. CV 11-05379 MMM (AGRx), 90 F.Supp.3d 919, at *128-32 & n.198 (C.D. Cal. Feb. 23, 2015) (stating that, for an express warranty claim, " [p]roof of reliance on specific promises or representations is not required" ; acknowledging some case law to the contrary but finding such case law unpersuasive, especially because the Uniform Commercial Code commentary provides that reliance is not required).
b. Step 2: Interests of Each Jurisdiction
As with step one, Plaintiffs do not contest step two of the governmental interest test. See Reply at 2 (stating that " Plaintiffs differ with Ubiquiti's characterizations in this second step of the analysis, but nevertheless do not challenge it" ). However, as above, the Court briefly addresses step two in the interest of ensuring accuracy.
As discussed above, in Mazza, the Ninth Circuit took into account that (1) a jurisdiction has an interest in having its own law apply to its residents and that (2) a jurisdiction also has an interest in regulating conduct that takes place within its own borders. In the instant case, these considerations are equally applicable.
First, for the case at hand, states other than California have an interest in having their own laws apply to the extent their own residents purchased the T.C. product ( i.e., not everyone who purchased the T.C. product resides in California).
Second, states other than California also have an interest in having their own laws apply to the extent critical conduct took place within their borders. For example, representations about TC's suitability for outdoor use were received within their borders by residents who purchased the T.C. product. Also, the contracts to purchase the T.C. product were formed within their borders. See Ledbetter Erection Corp. v. Workers' Comp. Appeals Bd., 156 Cal.App.3d 1097, 1103, 203 Cal.Rptr. 396 (1984) (taking note of " the well-established principle of contract law that a contract is formed at the time and place the offeree accepts and communicates his or her acceptance to the offer" ); Rest. 2d Contracts § 64, cmt. c (stating that " the contract is created at the place where the acceptor speaks or otherwise completes his manifestation of assent" ). Although Plaintiffs fairly point out that they have sued for breach of express warranty, and not for breach of contract, that does not make the place of contracting irrelevant. The warranty was extended only when a person or entity entered into a contract to purchase the T.C. product.
c. Step 3: Weighing Interests
Step three is where Plaintiffs make their challenge. Plaintiffs do not dispute that a jurisdiction has an interest in having its own law apply to its residents, see also Mazza, 666 F.3d at 594 (indicating that California had a limited interest " in applying its law to residents of foreign states" ), but argues that, as reflected in Mazza, " California recognizes that 'with respect to regulating or affecting conduct within its borders, the place of the wrong has the predominant interest.' California considers 'the place of the wrong' to be the state where the last event necessary to make the actor liable occurred." Id. at 593. According to Plaintiffs, in the case at hand, the place of wrong was California because " [b]reach of express warranty has three elements to establish liability" (at least under California law) and " the 'place' of each of these elements was in California" :
(1) Ubiquiti's representations and promises with respect to TOUGHCable were effectuated in California [where Ubiquiti's principal place of business is located]; (2) the statements became part of the basis of the bargain in California; and (3) the " breach" was the TOUGHCable itself (the defective TOUGHCable was the injury).
Reply at 2-3 (emphasis in original).
For purposes of this opinion, the Court assumes that Plaintiffs are correct in looking to California law on breach of express warranty in assessing place of wrong. The problem for Plaintiffs is that, even with this assumption, the place of wrong is not always California but rather is the jurisdiction where the purchaser resided (which could be in California or outside of California).
In Mazza, the Ninth Circuit noted that, in a fraud case, California law provides that " the place of the wrong was the state where the misrepresentations were communicated to the plaintiffs, not the state where the intention to misrepresent was formed or where the misrepresented acts took place." Mazza, 666 F.3d at 593-94 (emphasis added). Although the Court is dealing here with a warranty claim, and not a fraud claim, California law -- as the Court previously held in this case -- has a reliance-type requirement. See Tasion, at *33 (stating that, based on " basis of the bargain" language in the California Commercial Code, a plaintiff in an express warranty case must at least allege that he or she read or was otherwise exposed to the representation at issue, especially absent privity). That being the case, then the warranty claim is analogous to a fraud claim, and the critical wrong is where the misrepresentation was received by the purchaser.
Plaintiffs focus on T.C. being defective at the outset. See, e.g., Reply at 3-4 (arguing that " there was no action or circumstance needed on the part of the purchaser that would alter the fact that the TOUGHCable was already defective and in breach of the warranty before the product was even shipped" ) (emphasis in original). But contrary to what Plaintiffs argue, T.C. being " defective" at the outset is not the real problem. There was only problematic conduct on the part of Ubiquiti when it communicated (or had others communicate on its behalf) to purchasers that the T.C. product was something that it was not. As noted above, this communication was received by purchasers in the jurisdictions where they resided.
Finally, the Court notes that, even if an express warranty claim were evaluated more along the lines of a contract claim, cf., e.g., Cal. U. Com. Code § 2725 (including a breach of warranty as a breach of contract for sale); Williamson v. Apple, Inc., No. 5:11-cv-00377 EJD, at *21-22 (N.D. Cal. Sept. 4, 2012) (noting that, " [s]ince liability for breach of express warranty sounds in contract, '[a] manufacturer's liability for breach of an express warranty derives from, and is measured by, the terms of that warranty'" ), Plaintiffs would fare no better. As indicated above, the place of contracting is where the T.C. purchasers ultimately bought the product (which came with the express warranty); this is where the offeree accepted the offer -- presumably where the offeree/purchaser resided.
d. Summary
For the foregoing reasons, the Court concludes that there is a true conflict as there are material differences amongst the jurisdictions with respect to a claim for breach of express warranty, and that the jurisdiction with the strongest interest ( i.e., whose interest would be most impaired if its law were not applied) is variable, depending on where the purchaser of the T.C. product resided. Under these circumstances, California law does not uniformly apply to the entire class; rather the governing law for the express warranty claim will be based on where the purchaser of the T.C. product resided. And because the laws of multiple jurisdictions is thereby implicated, Ubiquiti correctly contends that there is a predominance/manageability problem that precludes certification of a Rule 23(b)(3) class.
C. Rule 23(c)(4) Classes and Subclasses -- Fraudulent Inducement and Breach of Express Warranty
Plaintiffs argue that, even if the Court does not certify a nationwide Rule 23(b)(3) class for the express warranty claim, it should still certify seven issues classes pursuant to Rule 23(c)(4) to assist in resolution of the claim. Plaintiffs also contend that the same issues classes would be used for the fraudulent inducement claim. Subclasses would then be created to address differences in state law with respect to both the express warranty and fraudulent inducement claims. According to Plaintiffs, the issues classes and subclasses would cover 49 states.
Plaintiffs identify the following seven issues as issues appropriate for class treatment.
(1) The falsity of the representation regarding TC's suitability for outdoor use.
(2) The materiality of the representation regarding TC's suitability for outdoor use
(3) Whether the representation regarding TC's suitability for outdoor use was part of the basis of the bargain for the purchase of TC. (4) Ubiquiti's state of mind regarding the representation regarding TC's suitability for outdoor use.
(5) T.C. purchasers' reliance on the representation regarding the product's suitability for outdoor use.
(6) Whether T.C. purchasers are entitled to consequential damages -- more specifically, labor costs to replace the T.C. product.
(7) Whether T.C. purchasers are entitled to punitive damages
See Reply at 14.
Plaintiffs' proposal is problematic for multiple reasons. First, even assuming Rule 23(c)(4) may, in essence, obviate a predominance problem under Rule 23(b)(3) with respect to particular issues identified for issue certification, see Valentino, 97 F.3d at 1234 (stating that, " [e]ven if the common questions do not predominate over the individual questions so that class certification of the entire action is warranted, Rule 23[(c)(4)] authorizes the district court in appropriate cases to isolate the common issues . . . and proceed with class treatment of these particular issues" ) (emphasis added), Plaintiffs appear to be stretching the rule beyond its intended application. That is, Plaintiffs are basically asking the Court to have every element of a claim for fraudulent inducement and/or breach of express warranty subject to class treatment -- i.e., in effect, the entire action. Compare, e.g., Cordes & Co. Fin. Servs. v. A.G. Edwards & Sons, Inc., 502 F.3d 91, 109 (2d Cir. 2007) (stating that, " [o]n remand, if the district court concludes that the action ought not to be certified in its entirety because it does not meet the predominance requirement of Rule 23(b)(3), Cordes and Creditors Trust may seek certification of a class to litigate the first element of their antitrust claim -- the existence of a Sherman Act violation -- pursuant to Rule 23(c)(4)(A) and Nassau County" ) (emphasis added). Plaintiffs cite no precedent in which a court has allowed a comprehensive division of multiple issues for certification under Rule 23(c)(4) where the aggregation of those issues would otherwise not be certifiable under Rule 23(b)(3).
Second, several of the issues Plaintiffs posit for certification pose commonality problems. Plaintiffs have not explained, for instance, how reliance or benefit of the bargain will not require individualized inquiries as to each T.C. purchaser where reliance is not presumed. See generally In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d 604, 619 (8th Cir. 2011) (noting that " [c]laims requiring individual proof of reliance are generally not amenable to class certification because common evidence could not 'suffice to make out a prima facie case for the class'" ); see also Wright et al., Fed. Prac. & Proc. § 1790 (stating that " [c]ourts have applied subdivision (c)(4)(A) to allow a partial class action to go forward, leaving questions of reliance, damages, and other issues to be adjudicated on an individual basis" ); cf. Fed.R.Civ.P. 23(b)(3), 1966 advisory committee notes (noting that, " although having some common core, a fraud case may be unsuited for treatment as a class action if there was material variation . . . in the kinds or degrees of reliance by the persons to whom they were addressed" ). In their reply brief, Plaintiffs suggest that, for the express warranty claim at least, subclasses could be established: " Subclass 2A for states with a reliance requirement and Subclass 2B for those states that do not have a reliance requirement." Reply at 20 (emphasis added). But this proposal still seems problematic because at least for Subclass 2A individualized inquiries would still need to be made.
Plaintiffs point out that reliance can be presumed under California law. See, e.g., Engalla v. Permanente Med. Grp., Inc., 15 Cal.4th 951, 977, 64 Cal.Rptr.2d 843, 938 P.2d 903 (1997) (addressing claim for fraud in the inducement of an arbitration agreement; stating that " [a] presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material" ). But they have made no demonstration in their papers that all or even most jurisdictions have such a presumption. See, e.g., Mot. at 15.
Individualized inquiries would also appear to be needed for the damages-related issues Plaintiffs seek to certify. Plaintiffs contend that there not be individualized inquiries because (1) they are limiting their damages to the labor cost to replace the T.C. product and (2) the labor cost can be determined based on the " average amount of time to install 'X' number of feet of cable." Mot. at 23; see also Reply at 11 (asking " what is a reasonable minimum amount of time to install 1,000 feet (one box) of cable" ). Putting aside, for the moment, Plaintiffs' abandonment of damages other than labor cost (which is problematic for the reasons discussed infra ), it is highly questionable that, as Plaintiffs maintain, " the amount of time [to install] per foot will remain relatively consistent." Mot. at 23. As Ubiquiti argues, Plaintiffs' position that " it takes the same amount of time to install thirty feet of cable on a tower in a jungle as it does to install on a suburban home" strains credulity. Opp'n at 14; cf. Doster Lighting, Inc. v. E-Conolight LLC, No. 12-C-0023, at *52-53 (E.D. Wisc. June 17, 2015) (in case involving allegedly defective LED bulb arrays and fixtures, noting that " [l]abor costs for each class member could differ based on labor rates in the particular geographic area and where the light fixtures are located (indoors or outdoors, on a garage or in a tree, etc." ; therefore, " [i]ndividualized inquiries will be required to determine whether the labor costs are reasonable for each plaintiff" ).
To be sure, Issue Number 1 (falsity) may be amenable to common analysis with a resolution that applies to all class members. It is one issue that may commonly be adjudicated assuming the laws of the various states all apply the same legal test of falsity. However, resolution of Issue Number 1 would leave many other issues to be adjudicated, as evidenced by the six other issues Plaintiffs have identified. This is problematic because Rule 23(b)(3) requires consideration of superiority and manageability. Unlike the typical Rule 23(c)(4) case where there is certification of liability, leaving only damages to be litigated on an individual bases ( see, e.g., Nassau, 461 F.3d at 226 (noting that Rule 23(c)(4) may be used " to separate the issue of liability from damages" ), certification here of an issue would resolve only one of many issues necessary to establish only liability. Cf. McLaughlin, 522 F.3d at 234 (denying request for issue certification because, " in this case, given the number of questions that would remain for individual adjudication, issue certification would not 'reduce the range of issues in dispute and promote judicial economy'[; ] [c]ertifying, for example, the issue of defendants' scheme to defraud, would not materially advance the litigation because it would not dispose of larger issues such as reliance, injury, and damages" ). Thus, resolving the question of falsity would only slightly, not substantially or materially, advance the litigation. Weighed against the limited utility of such an adjudication is the fact that there is no showing that class members do not have an incentive to prosecute their own claims or lack the wherewithal to protect their individual interests, and that a class mechanism is essential to vindicating class members' rights; as discussed below, there is a substantial amount of money potentially at stake for each class member (many thousands of dollars) who is likely a business and not a consumer or employee. Cf. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997) (noting that " '[t]he policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights[; ] [a] class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor" ); Byrd v. Aaron's Inc., 784 F.3d 154, 176 n.10 (3d Cir. 2015) (indicating that, " 'where the injury to any individual consumer is small, but the cumulative injury to consumers as a group is substantial, that the class action mechanism provides one of its most important social benefits'" ); Ebin v. Kangadis Food Inc., 297 F.R.D. 561, 567 (S.D.N.Y. 2014) (stating that " the class action device, at its very core, is designed for cases like this where a large number of consumers have [allegedly] been defrauded but no one consumer has suffered an injury sufficiently large as to justify bringing an individual lawsuit" ). Nor is this a case where vindication of important public policy interests (as embodied, for instance, in a statute) may be jeopardized in the absence of class certification. Thus, in this case, the Court is doubtful that Plaintiffs have failed to establish the superiority and manageability requirements of Rule 23(b) to justify Rule 23(c)(4) certification.
Even assuming an issue such as falsity could be certified under Rule 23(c)(4), there is an adequacy problem. As noted above, Plaintiffs have asked for just one kind of damage -- i.e., direct labor costs to replace TC. Plaintiffs have chosen to forgo all other possible elements of damages. Plaintiffs have failed to give any real explanation as to why they are willing to abandon other kinds of compensable damages, such as replacement cable and cable connectors, damaged radios, travel-related costs, downtime, lost connectivity, compensation to customers, lost profits, and lost customers, where such damages are likely to exceed by many times the direct replacement labor cost Plaintiffs now seek. In fact, these kinds of damages were all highlighted extensively in the operative complaint. For example:
The Court notes that there also appears to be an adequacy problem specific to Tasion. Tasion does not reside in any of the forty-nine states at issue, but rather in Canada, and Plaintiffs have made no showing that Canadian law is comparable to any state law on breach of express warranty or fraudulent inducement.
o Plaintiffs repeatedly allege in the complaint that the problem with the T.C. product " often destroy[s]" the " expensive" radio equipment to which T.C. is connected. 5AC ¶ ¶ 7, 12, 50, 52, 57 (emphasis added). If the radio equipment is so expensive, then that begs the question of why Plaintiffs are willing to give up their pursuit of that damages component.
o Plaintiffs repeatedly allege that it is necessary to " completely replace[]" T.C. with new product because " its installation poses an unreasonable and completely foreseeable risk of harm to the expensive radio transceiver equipment it is connected to." 5AC ¶ 12; see also 5AC ¶ 57 (" Wherever it has been installed, it must be completely replaced. Not replacing the TOUGHCable subjects delicate and expensive radio and transmission equipment to certain and inevitable failure. Broadcasters risk complete cessation of broadcast capacity. Each customer's location must be completely rewired -- all of the defective TOUGHCable completely removed and replaced -- to protect the equipment at each location where the TOUGHCable was used." ). Again, if it is necessary to completely replace T.C. with brand new cable, then that begs the question of why that damages component is not being pursued.
Even if a customer did not seek the cost of replacement cable and simply wanted a refund of the money it paid for TC, that would not be an insignificant amount either. See, e.g., 5AC ¶ ¶ 75-76 (indicating that Tasion paid approximately $100 per box for approximately 25 boxes).
o Plaintiffs indicate that Ubiquiti's wireless products are particularly useful in rural and remote areas but then, where a Ubiquiti customer must investigate and resolve a problem in such an area, significant travel time is incurred. See, e.g., 5AC ¶ ¶ 28, 83, 89. If significant travel time is incurred, then implicitly there are significant costs, and Plaintiffs should explain why it is not necessary to include that damages component.
Even beyond Plaintiffs' complaint, there is evidence in the record that the abandoned damages could be significant. See, e.g., Himmelfarb Reply Decl., Ex. 48 (e-mail from Ubiquiti customer from approximately 2012) (stating that " our company is experiencing a significantly increased expense in operations costs due to this cable defect that merely providing a replacement of the cable does not cure" ).
Although Exhibit 48 is sealed, the Court finds that, because the customer's identity is not being disclosed, it is not necessary to seal the excerpt quoted above.
Plaintiffs' conduct in this litigation is thus comparable to that of the plaintiff in Drimmer v. WD-40 Co., No. 06-CV-900 W (AJB), (S.D. Cal. Aug. 24, 2007), where the district court found an adequacy problem based on the plaintiff's abandonment of damages: In an apparent attempt to limit unique questions of fact, [plaintiff] seeks only the purchase price and an injunction prohibiting the language on the Flush packaging. But [plaintiff] cannot plausibly claim that every class member would forfeit damages from replacing the tank parts, paying higher water bills, or even hiring a plumber to find the lead (as [plaintiff] did). " A class representative is not an adequate representative when the class representative abandons particular remedies to the detriment of the class." [Plaintiff] cannot maintain a class action without seeking all available remedies for the class members, yet he refuses to seek all available remedies even for himself. Accordingly, [plaintiff's] own conduct militates against finding that he adequately represents the class. Assuming for the sake of argument that res judicata would not bar the class members from obtaining further relief, the court cannot ignore the inference that [plaintiff] holds different priorities and litigation incentives than a typical class member.
Id. at *7-8.
Plaintiffs' argument in reply is not convincing. Plaintiffs rely on Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006), to argue that it is appropriate for a class representative to forego damages in order to achieve class certification. But Murray, a case where the plaintiff alleged a violation of the Fair Credit Reporting Act, must be taken in context. The relevant text from Murray is as follows:
The district court's second reason -- that Murray should have sought compensatory damages for herself and all class members rather than relying on the statutory-damages remedy -- would make consumer class actions impossible. What each person's injury may be is a question that must be resolved one consumer at a time. Although compensatory damages may be awarded to redress negligence, while statutory damages require wilful conduct, introducing the " easier" negligence theory would preclude class treatment. Common questions no longer would predominate, and an effort to determine a million consumers' individual losses would make the suit unmanageable. Yet individual losses, if any, are likely to be small -- a modest concern about privacy, a slight chance that information would leak out and lead to identity theft. That actual loss is small and hard to quantify is why statutes such as the Fair Credit Reporting Act provide for modest damages without proof of injury.
Rule 23(b)(3) was designed for situations such as this, in which the potential recovery is too slight to support individual suits, but injury is substantial in the aggregate. Reliance on federal law avoids the complications that can plague multi-state classes under state law, and society may gain from the deterrent effect of financial awards. The practical alternative to class litigation is punitive damages, not a fusillade of small-stakes claims.
Refusing to certify a class because the plaintiff decides not to make the sort of person-specific arguments that render class treatment infeasible would throw away the benefits of consolidated treatment. Unless a district court finds that personal injuries are large in relation to statutory damages, a representative plaintiff must be allowed to forego claims for compensatory damages in order to achieve class certification. When a few class members' injuries prove to be substantial, they may opt out and litigate independently. Only when all or almost all of the claims are likely to be large enough to justify individual litigation is it wise to reject class treatment altogether.
Id. at 953 (emphasis added). Plaintiffs have failed to make any showing that this case is similar to Murray where the abandoned damages would be small or insignificant such that it would be fair for Plaintiffs to forego them in order to prosecute a class action. To the contrary, as noted above, Plaintiffs' own allegations in the operative complaint establish that the abandoned damages here are likely to be significant. This case is thus entirely distinguishable from Murray and other consumer class action suits. The need to forego damage claims in an effort ultimately to protect the class through certification is diminished by the fact that it appears that the typical class members here, as represented by the named Plaintiffs, are businesses, not individual consumers, who made substantial purchases from Ubiquiti -- Plaintiffs conceded at the hearing that each box of T.C. cost $5,000 to $10,000.
To the extent Plaintiffs argue that a putative class member can simply opt out to protect its interests, that may be true, but it is then possible that a large number of putative class members would opt out, which could result in a numerosity problem. And regardless of how many class members would or would not opt out, the opt-out option does not obviate the question as to whether Plaintiffs and their counsel are willing to drive this case towards certification to the potential and substantial detriment of the putative class. This adequacy problem obtains even if some of the Rule 23(c)(4) issues posited by Plaintiffs are not directly affected by the waiver of damages; Plaintiffs have demonstrated they are generally inadequate to represent the class because the choices they have already made in this case vis-a-vis the class. Plaintiffs' failure to address the problem of abandonment of damages claims compels the Court to conclude that they are not adequate representatives in this case.
III. CONCLUSION
For the foregoing reasons, the Court denies Plaintiffs' motion for class certification in its entirety. The proposed Rule 23(b)(3) class for the express warranty claim cannot be certified because of the predominance/manageability problem conceded by Plaintiffs were the Court to rule, as it does, that various laws of multiple states, rather than the laws of California above, apply. The proposed Rule 23(c)(4) issue classes and subclasses shall not be certified because there are substantial problems of commonality, typicality, superiority, manageability, and adequacy of representation.
Plaintiffs do not seek to certify a class confined to any particular state such as where a named Plaintiff resides. Instead, they seek only a nationwide class, and do so predicated on the uniform approach of California law. The Court does not suggest that classes and subclasses may never be certified where multiple state laws are involved. Cf. In re Carrier IQ, Inc., Consumer Privacy Litig., No. C-12-md-2330 EMC, 78 F.Supp.3d 1051, (N.D. Cal. Jan. 21, 2015) (claims brought under various state laws); see also Mazza, 666 F.3d at 594 (" express[ing] no view whether on remand it would be correct to certify a smaller class containing only those who purchased or leased Acura RLs in California, or to certify a class with members more broadly but with subclasses for class members in different states, with different jury instruction for materially different bodies of state law." ); Ellsworth v. U.S. Bank, N.A., No. 12-02506 LB, at *69 (N.D. Cal. June 13, 2014) (granting class certification where the relevant " laws of the various states [were] capable of being organized into groups with similar legal regimes" ); In re Toyota Motor Corp. Unintended Accel. Mktg., Sales Pracs., & Prods. Liab. Litig., No. 8:10ML 02151 JVS (FMOx), at *257 (C.D. Cal. July 24, 2013) (noting that, in the absence of a settlement class, defendant would likely oppose any motion for class certification and, " as noted by the Court in a previous Order, the laws of different states would likely apply, necessitating multiple classes or subclasses of Plaintiffs" ); Forcellati v. Hyland's, Inc., 876 F.Supp.2d 1155, 1159 (C.D. Cal. 2012) (stating that, " should choice-of-law analysis appear to pose problems at the class certification stage, Plaintiff could seek to certify subclasses of putative class members from individual states or subclasses of class members from groups of states with consumer protection laws that are not materially different" ).
Accordingly, the case shall proceed as an individual, and not a class, action. Plaintiffs' motion for class certification is DENIED.
A case management conference is set for August 20, 2015 at 10:30 a.m. A joint case management conference statement shall be filed by August 13, 2015.
This order disposes of Docket No. 142.
IT IS SO ORDERED.