SANFORD v. MEMBERWORKS INC.

• Citation: 625 F.3d 550
• Decision Date: 25 October 2010
• Docket Number: No. 09-55502.,09-55502.
• Parties: Patricia SANFORD, on behalf of herself and all others similarly situated, Plaintiff-Appellant, Preston Smith; Rita Smith, on behalf of themselves and all others similarly situated, Plaintiff-intervenors-Appellants, v. MEMBERWORKS, INC., a Delaware corporation, AKA MWI Essentials, AKA MWI Home and Garden, AKA MWI Connections, AKA MWI Valuemax; West Corporation, a Delaware corporation; West Telemarketing Corporation, a Delaware corporation, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

625 F.3d 550

Patricia SANFORD, on behalf of herself and all others similarly situated, Plaintiff-Appellant,

Preston Smith; Rita Smith, on behalf of themselves and all others similarly situated, Plaintiff-intervenors-Appellants,

v.MEMBERWORKS, INC., a Delaware corporation, AKA MWI Essentials, AKA MWI Home and Garden, AKA MWI Connections, AKA MWI Valuemax; West Corporation, a Delaware corporation; West Telemarketing Corporation, a Delaware corporation, Defendants-Appellees.

No. 09-55502.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted May 6, 2010.

Filed Oct. 25, 2010.

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Eric A. Isaacson, Robbins, Geller, Rudman & Dowd LLP, San Diego, CA, argued the cause for the plaintiffs-appellants and filed briefs. Patrick J. Coughlin, Frank J. Janacek, Christopher Collins, and Amanda M. Frame, Robbins, Geller, Rudman & Dowd LLP, San Diego, CA; Jack Landskroner, Landskroner Grieco Madden, LLC, Cleveland, OH; and Artie Baran, Law Offices of Artie Baran APC, San Diego, CA, were also on the briefs.

Darrel J. Hieber, Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, CA, argued the cause for the defendants-appellees and filed a brief. Robert J. Herrington and Jennifer E. LaGrange, Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, CA, were also on the brief.

Appeal from the United States District Court for the Southern District of California, Michael M. Anello, District Judge, Presiding. D.C. No. 3:02-cv-00601-MMA-AJB.

Before: DIARMUID F. O'SCANNLAIN and RICHARD C. TALLMAN, Circuit Judges, and FREDERIC BLOCK, Senior District Judge. ^*

OPINION

O'SCANNLAIN, Circuit Judge:

We must decide whether consumers can pursue claims against a company that allegedly deceived them into buying memberships in a discount club.

I

A

In response to a television advertisement, Patricia Sanford purchased Tae-Bo fitness tapes over the phone in February 1999. West Corporation (“West”) operated the call center that received Sanford's call. Pursuant to West's joint marketing agreements with MemberWorks, Inc. (“MWI”), ¹ a West operator read Sanford the following sales script in an effort to “up-sell” a membership in the “MemberWorks Essentials” program:

Mr(s). _______, for purchasing Tae-Bo today, we're sending you a risk-FREE 30-day membership to ESSENTIALS, a service designed to SAVE YOU 20% from leading stores such as EXPRESS and FLORSHEIM, plus reward savings at VICTORIA'S SECRET, TJ MAXX, PIER ONE and TARGET, PLUS additional savings on eyewear, beauty products, haircuts, and more! After 30 days, the service is extended to a full year for just $6 a month, billed annually in advance to the credit card you're using today. If you want to cancel, just call the toll-free number that appears in your kit in the first 30 days and YOU WON'T BE BILLED. So look for that kit in the mail, OKAY?

Sanford had no recollection of hearing the script, agreeing to the free trial membership, or receiving the membership kit in the mail. Because she did not cancel her trial membership, her credit card was charged a $72 annual membership fee in March 1999. In January 2000, her credit card was charged an $84 renewal fee.

Preston and Rita Smith had a similar experience after purchasing various so-called “bait products” over the phone, including Tae-Bo videos, Nad's hair removal products, and Tai Vital Basics. The Smiths alleged that they were also read the sales script and, without their knowledge or consent, billed repeatedly for their membership in MemberWorks Essentials. They did not, however, allege whether it was Preston or Rita who placed each particular phone call.

B

On March 28, 2002, Sanford filed a putative class action against MWI ² asserting a claim for violation of the federal Unordered Merchandise Statute, 39 U.S.C. § 3009, as well as state-law claims for conversion, unjust enrichment, and fraud. The district court granted MWI's motion to compel arbitration of Sanford's individual claims and dismissed the class claims as moot. After the arbitrator found for MWI on all claims except for Sanford's claim for restitution under the Unordered Merchandise Statute, the district court granted MWI's motion to confirm the arbitration award and denied the Smiths' motion to intervene as alternative named plaintiffs. We vacated the district court's orders and remanded in Sanford v. MemberWorks, Inc., 483 F.3d 956 (9th Cir.2007).

On remand, MWI abandoned its efforts to go to arbitration. Sanford filed a First Amended Complaint, which added the Smiths as named plaintiffs and added a claim for violation of the Electronic Fund Transfer Act (“EFTA”), 15 U.S.C. § 1693 et seq. MWI filed a motion to dismiss, but before the district court ruled on the motion, Sanford and the Smiths (collectively, “Plaintiffs”) moved for leave to file a Second Amended Complaint on the ground that certain “ministerial” revisions were required to effectuate a settlement in a state-court action Sanford had filed against West. Although the district court granted leave to amend the complaint to avoid any impediment to the settlement, it dismissed the federal claims with prejudice and the state-law claims without prejudice but without leave to amend.

Plaintiffs then filed an ex parte application for leave to file a motion for reconsideration. For the first time, they asserted that “the facts alleged demonstrate that the fraudulent telemarketing practices at issue support a claim of RICO [Racketeer Influenced and Corrupt Organizations Act] violations.” Although the district court expressed doubt as to whether the facts supported a RICO claim, it granted the motion in part, allowing Plaintiffs to file a motion for leave to amend their complaint that “should demonstrate on its face why amendment would not be futile.”

Plaintiffs filed a proposed Third Amended Complaint, which not only included new RICO claims, but also added two new plaintiffs and realleged claims that had been dismissed with prejudice. MWI moved ex parte to dismiss or, in the alternative, to strike the realleged claims and new plaintiffs. The district court granted the motion to strike and held that it would assess only the new RICO claims in the proposed Third Amended Complaint. As to those claims, the district court denied leave to amend, holding that amendment would be futile and that Sanford no longer had standing because she had settled all of her claims in the state-court action. The district court entered judgment in favor of MWI, and this appeal timely followed.

II

We consider first whether the district court properly dismissed Sanford from the action for lack of standing. ³

[1] [2] [3] “Mootness [is] the doctrine of standing set in a time frame: The requisite personal interest that must exist at the commencement of the litigation (standing) must continue throughout its existence (mootness).” U.S. Parole Comm'n v. Geraghty, 445 U.S. 388, 397, 100 S.Ct. 1202, 63 L.Ed.2d 479 (1980) (internal quotation marks omitted). “Generally, when a party settles all of his personal claims before appeal, an appeals court must dismiss the appeal as moot unless that party retains a personal stake in the case that satisfies the requirements of Article III.” Smith v. T-Mobile USA, Inc., 570 F.3d 1119, 1122 (9th Cir.2009). “In order to retain ... a ‘personal stake,’ a class representative cannot release any and all interests he or she may have had in class representation through a private settlement agreement.” Narouz v. Charter Commc'ns, LLC, 591 F.3d 1261, 1264 (9th Cir.2010).

[4] In the state-court action against West, Sanford entered into a settlement agreement in which she agreed to relinquish “any claims arising out of or that could have arisen out of the allegations set forth” in her state-court case. ⁴ Because her claims against MWI in this action arise out of the same allegations in her state-court case against West, see West Corp. v. Sup. Ct., 116 Cal.App.4th 1167, 11 Cal.Rptr.3d 145, 149-50 (2004) (describing the allegations), she has indeed relinquished them.

Sanford nevertheless contends that she retains a personal stake in this action in the form of shifting litigation costs and fees to putative class members. We disagree. Included within the scope of the claims expressly released by the settlement agreement are “all claims, ... whether class, individual, or otherwise, including any claim for costs, expenses, pre or post judgment interest, penalties, fees (including attorneys' fees, expert fees and consulting fees) ... for any kind of relief whatsoever (including injunctive relief, monetary relief, damages, punitive damages, restitution, reimbursement, disgorgement, and economic injury).” Based on this broad language, we conclude that Sanford has bargained away not only her individual claims against MWI, but also any claim for fees or costs in this action. Sanford “ha[s] retained no interest in shifting the costs of litigation, and thus, [her] case is plainly moot.” Pettrey v. Enter. Title Agency, Inc., 584 F.3d 701, 705 (6th Cir.2009). Because Sanford no longer has any cognizable interest in the suit, she must be dismissed from the appeal. See Molski v. Evergreen Dynasty Corp., 500 F.3d 1047, 1056 (9th Cir.2007) (per curiam).

There is no contention that the claims of the other named plaintiffs, the Smiths, have been satisfied. Therefore, we conclude that the Smiths may continue in this suit, and we proceed to the merits of the Smiths' claims only.

III

[5] We next consider whether the district court erred in denying the Smiths' motion for leave to amend the complaint to add claims alleging violations of RICO, 18 U.S.C. § 1962(c) and (d). Where, as here, the district court denies leave to amend on futility grounds, we will uphold such denial if “it is clear, upon de novo review, that the complaint would not be saved by any amendment.” Leadsinger, Inc. v. BMG Music Publ'g, 512 F.3d 522, 532 (9th Cir.2008).

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