Kearns v. Ford Motor Co.

• Decision Date: 08 June 2009
• Docket Number: No. 07-55835.,07-55835.
• Parties: William Ray KEARNS, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. FORD MOTOR COMPANY; Claremont Ford, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

567 F.3d 1120

William Ray KEARNS, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. FORD MOTOR COMPANY; Claremont Ford, Defendants-Appellees.

No. 07-55835.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 20, 2008.

Filed June 8, 2009.

Joseph D. Daly and Elisabeth A. Bowman, Coughlin Sotia Geller Rudman & Robbins LLP, San Diego, CA, for the plaintiff-appellant.

Thomas M. Riordan, O'Melveny & Myers LLP, Newport Beach, CA, for the defendants-appellees.

Appeal from the United States District Court for the Central District of California, Andrew J. Guilford, District Judge, Presiding. D.C. No. CV-05-05644-AG.

Before: HARRY PREGERSON, CYNTHIA HOLCOMB HALL and N. RANDY SMITH, Circuit Judges.

N.R. SMITH, Circuit Judge:

William Kearns's Third Amended Complaint ("TAC") claimed violations of California's Consumers Legal Remedies Act ("CLRA"), Cal. Civ.Code §§ 1750-1784, and California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof.Code §§ 17200-17210. Those state claims are subject to Rule 9(b) of the Federal Rules of Civil Procedure ("Rule 9(b)") which requires that allegations of fraud be pleaded with particularity. See Fed.R.Civ.P. 9(b). Because we find that Kearns's claims were all grounded in fraud, his failure to plead the TAC with particularity merited its dismissal, and we must affirm the district court. As the TAC was properly dismissed, we need not reach the moot issue of whether the district court abused its discretion by striking the first footnote.

I. FACTS AND PROCEDURAL HISTORY

Kearns brought this diversity class action for himself and those similarly situated (collectively "Kearns"), claiming that Ford Motor Company and its dealerships (collectively "Ford") acted illegally to increase sales of their Certified Pre-Owned ("CPO") vehicles, in violation of the CLRA and UCL. The district court dismissed Kearns's TAC for failure to plead fraud with particularity as required by Rule 9(b) and granted Ford's request to strike the first footnote of Kearns's TAC.

Ford offers potential buyers three classifications of cars to purchase—new, used, and CPO. CPO vehicles are late model used vehicles, which Ford purports to put through a rigorous inspection process in order to certify that the vehicle's safety, reliability, and road-worthiness surpass non-certified used vehicles. Ford advertises and markets these CPO vehicles to purchasers at a premium (above that charged for ordinary used cars).

Ford Motor Company markets and sells the CPO program to its dealerships as a way of repackaging its used car inventory while increasing their profit margin. Ford Motor Company then charges each dealership (1) an annual fee for the program and (2) a per-vehicle fee for each vehicle in the program. Once enrolled, the dealership is supplied with marketing materials, instructional guides, and access to the CPO database, which allows the dealerships to print standard "Maroney-type" window stickers. In addition, Ford Motor Company pays to promote, market, and advertise the CPO program through a variety of print, broadcast, online, and other media. Local dealerships are responsible for the implementation of the sale and service of CPO vehicles.

Kearns makes several allegations concerning the purported benefits of CPO vehicles. Specifically, Kearns contends that Ford makes false and misleading statements concerning the safety and reliability of its CPO vehicles. Kearns claims that, by making such false statements, Ford conspires to mislead class members into believing that the CPO program guarantees a safer, more reliable, and more roadworthy used vehicle. Such statements are allegedly made to get purchasers to rely on the notion that CPO vehicles are safer due to the certification process. Ford engages in such conduct to give the buyers of CPOs "peace of mind," which purportedly costs $1,080 dollars, an amount Kearns claims exceeds the benefit of this "peace of mind."

Kearns also alleges that Ford has failed to disclose the very little oversight it has over the certification process. Kearns claims that Ford misrepresents (1) the quality of the complete repair and accident-history report; (2) the level of training of CPO technicians; and (3) the rigorous certification inspection. Such misrepresentations are claimed to provide the consumer with a sense of security that their CPO has passed a rigorous inspection, has an extended warranty, and therefore is more safe, more reliable, and more roadworthy than a regular used vehicle. Kearns argues that the inspection is not rigorous; the warranty does not cover all components; and the CPO vehicles are not any safer, more reliable, or more roadworthy than a regular used vehicle.

Kearns originally filed this suit in California state court. It was removed to federal court for diversity jurisdiction under 28 U.S.C. § 1332(d). Kearns moved to remand under the "local controversy exception" to the Class Action Fairness Act which was denied. Kearns then filed an Amended Complaint which was dismissed (with leave to amend) for failing to state a claim. The district court also dismissed the Second Amended Complaint, finding that it failed to meet the heightened pleading standards of Rule 9(b). Kearns then filed the TAC, which is the operative complaint on appeal.

Ford (1) filed a Motion to Dismiss the TAC for failing to comply with the heightened pleading standards of Rule 9(b) and (2) moved to strike the first footnote of the TAC.¹ The district court granted Ford's Motion to Dismiss the TAC with leave to amend and granted Ford's Motion to Strike. Kearns filed a Notice of Intent Not to File an Amended Complaint, because he believed the TAC met the standards for pleading a cause of action under the CLRA and UCL. Following this filing, the district court dismissed the case. Kearns timely filed his notice of appeal.

II. MOTION UNDER RULE 9(b)

Kearns argues that his claims should not be subject to Rule 9(b), because (1) California state law precedent is contrary to Rule 9(b); (2) some of his claims are not based in fraud; and (3) the complaint should have been evaluated under the unfairness prong of the UCL instead.² We review de novo dismissals under Rule 9(b). Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1102 (9th Cir.2003). Thus, the panel must consider the matter anew, as if no decision previously had been rendered. See Ness v. Comm'r, 954 F.2d 1495, 1497 (9th Cir.1992) (citing United States v. Silverman, 861 F.2d 571, 576 (9th Cir.1988)).

Rule 8(a)(2) of the Federal Rules of Civil Procedure requires a party's pleading to contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). However, Rule 9(b) requires that, when fraud is alleged, "a party must state with particularity the circumstances constituting fraud...." Fed.R.Civ.P. 9(b). Where fraud is not an essential element of a claim, only those allegations of a complaint which aver fraud are subject to Rule 9(b)'s heightened pleading standard. Vess, 317 F.3d at 1105. Any averments which do not meet that standard should be "disregarded," or "stripped" from the claim for failure to satisfy Rule 9(b). Id. To the extent a party does not aver fraud, the party's allegations need only satisfy the requirements of Rule 8(a)(2). Id. "Fraud can be averred by specifically alleging fraud, or by alleging facts that necessarily constitute fraud (even if the word `fraud' is not used)." Id.

Rule 9(b) demands that the circumstances constituting the alleged fraud "be `specific enough to give defendants notice of the particular misconduct ... so that they can defend against the charge and not just deny that they have done anything wrong.'" Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir.2001) (quoting Neubronner v. Milken, 6 F.3d 666, 671 (9th Cir.1993)). "Averments of fraud must be accompanied by `the who, what, when, where, and how' of the misconduct charged." Vess, 317 F.3d at 1106 (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997)). A party alleging fraud must "set forth more than the neutral facts necessary to identify the transaction." In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir.1994), superceded by statute on other grounds.

Rule 9(b) serves three purposes: (1) to provide defendants with adequate notice to allow them to defend the charge and deter plaintiffs from the filing of complaints "as a pretext for the discovery of unknown wrongs"; (2) to protect those whose reputation would be harmed as a result of being subject to fraud charges; and (3) to "prohibit [] plaintiff[s] from unilaterally imposing upon the court, the parties and society enormous social and economic costs absent some factual basis." In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1405 (9th Cir.1996) (quoting Semegen v. Weidner, 780 F.3d 727, 731 (9th Cir.1985)) (internal quotations omitted, brackets in original).

A.

Kearns's first argument—that Rule 9(b) does not apply to California's consumer protection statutes because California courts have not applied Rule 9(b) to the Consumer Protection Statutes, which include the CLRA and UCL—is unavailing. It is well-settled that the Federal Rules of Civil Procedure apply in federal court, "irrespective of the source of the subject matter jurisdiction, and irrespective of whether the substantive law at issue is state or federal." See Vess, 317 F.3d at 1102 (citing Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965)). "`[W]hile a federal court will examine state law to determine whether the elements of fraud have been pled sufficiently to state a cause of action, the Rule 9(b) requirement that the circumstances of the fraud must be stated with particularity is a federally imposed rule.'" Vess, 317 F.3d at 1103 (quoting Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir.1985) (emphasis omitted, brackets in original)).

The CLRA prohibits "unfair methods of competition and unfair...