Pilgrim v. Universal Health Card, LLC

• Decision Date: 10 November 2011
• Docket Number: Nos. 10–3211,10–3475.,s. 10–3211
• Citation: 80 Fed.R.Serv.3d 1477,660 F.3d 943
• Parties: Daniel PILGRIM and Patrick Kirlin, Plaintiffs–Appellants, v. UNIVERSAL HEALTH CARD, LLC and Coverdell & Company, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

660 F.3d 943

80 Fed.R.Serv.3d 1477

Daniel PILGRIM and Patrick Kirlin, Plaintiffs–Appellants,

v.UNIVERSAL HEALTH CARD, LLC and Coverdell & Company, Inc., Defendants–Appellees.

Nos. 10–3211

10–3475.

United States Court of Appeals, Sixth Circuit.

Argued: Oct. 6, 2011.Decided and Filed: Nov. 10, 2011.

ARGUED: Peter N. Freiberg, Meiselman, Denlea, Packman, Carton & Eberz P.C., White Plains, New York, for Appellants. Robert N. Rapp, Calfee, Halter & Griswold LLP, Cleveland, Ohio, Gary A. Corroto, Tzangas, Plakas, Mannos & Raies, Ltd., Canton, Ohio, for Appellees. ON BRIEF: Peter N. Freiberg, Meiselman, Denlea, Packman, Carton & Eberz P.C., White Plains, New York, for Appellants. Robert N. Rapp, Matthew J. Kucharson, Eric S. Zell, Calfee, Halter & Griswold LLP, Cleveland, Ohio, Gary A. Corroto, Lee E. Plakas, Edmond J. Mack, Tzangas, Plakas, Mannos & Raies, Ltd., Canton, Ohio, for Appellees.Before: KEITH, SUTTON and McKEAGUE, Circuit Judges.

OPINION

SUTTON, Circuit Judge.

Hoping to represent a nationwide class of consumers, Daniel Pilgrim and Patrick Kirlin sued two companies responsible for creating and marketing a healthcare discount program, alleging that the companies had used deceptive advertising to sell their product. The consumer-protection laws of many States, not just of Ohio, govern these claims and factual variations among the claims abound, making a class action in this setting neither efficient nor workable nor above all consistent with the requirements of Rule 23 of the Federal Rules of Civil Procedure. We affirm.

I.

In 2007, Universal Health Card and Coverdell & Company created a program designed to provide healthcare discounts to consumers. Membership in the program gave consumers access to a network of healthcare providers that had agreed to lower their prices for members. Universal placed ads in newspapers around the country encouraging customers to visit its website or call its toll-free hotline to learn more about the program and to sign up for a membership. Coverdell was responsible for maintaining the network of healthcare providers and for reviewing Universal's advertising materials.

Some people did not like the program. They discovered healthcare providers listed in the discount network that had never heard of the program, and complained that the newspaper advertisements, designed to look like news stories and dubbed “advertorials,” were deceptive.

Two disenchanted consumers, Pilgrim and Kirlin, sued Universal and Coverdell in federal court, seeking to represent a nationwide class of all people who had joined the program. The opt-out class encompassed 30,850 people. The district court exercised jurisdiction under a provision of CAFA, the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d), which grants jurisdiction over class actions in which the amount in controversy exceeds $5 million and the parties are minimally diverse. The plaintiffs complained that the defendants advertised the program as “free” when it included a nonrefundable registration fee and a monthly membership fee after the first thirty days. Even then, the program was worthless, they added, because the advertised providers in their area did not offer the featured discounts. Based on these and other allegedly deceptive practices, the plaintiffs claimed that the companies had violated the Ohio Consumer Sales Practices Act as well as Ohio's common law prohibition against unjust enrichment.

Coverdell filed a motion to dismiss the complaint under Rule 12(b)(6), which the district court granted. It reasoned that Universal, not Coverdell, peddled and sold the memberships, making Coverdell too far removed from the transactions to qualify as a “supplier” under Ohio law or to have to answer to an unjust-enrichment claim under Ohio law.

Of more pertinence to this appeal, Universal filed a motion to strike the class allegations, which the district court also granted. It reasoned that, under Ohio's choice-of-law rules, it would have to analyze each class member's claim under the law of his or her home State. “Such a task,” the district court concluded, “would make this case unmanageable as a class action” and would dwarf any common issues of fact implicated by the lawsuit. Reasoning that the claims of the named plaintiffs did not exceed $75,000, the district court dismissed the lawsuit without prejudice for lack of subject matter jurisdiction.

II.

Rule 23 of the Federal Rules of Civil Procedure governs class actions in federal court. To obtain class certification, a claimant must satisfy two sets of requirements: (1) each of the four prerequisites under Rule 23(a), and (2) the prerequisites of one of the three types of class actions provided for by Rule 23(b). A failure on either front dooms the class. A district court's class-certification decision calls for an exercise of judgment; its use of the proper legal framework does not. So long as the district court applies the correct framework, we review its decision for an abuse of discretion.

In this instance, the district court opted to focus on a failure to meet the predominance requirement under Rule 23(b), more particularly under Rule 23(b)(3), the only conceivable vehicle for this claim. To demonstrate predominance, parties seeking class recognition must show that “questions of law or fact common to class members predominate over any questions affecting only individual members.” Fed.R.Civ.P. 23(b)(3). The plaintiffs could not do that here, the district court held, because each class member's claim would be governed by the law of the State in which he made the challenged purchase, and the differences between the consumer-protection laws of the many affected States would cast a long shadow over any common issues of fact plaintiffs might establish. That judgment is sound and far from an abuse of discretion for three basic reasons.

Reason one: different laws would govern the class members' claims. As the parties agree (quite properly, we might add), Ohio's choice-of-law rules determine which consumer-protection laws cover these claims. See Muncie Power Prod., Inc. v. United Techs. Automotive, Inc., 328 F.3d 870, 873 (6th Cir.2003). Under those rules, “the law of the place of injury controls unless another jurisdiction has a more significant relationship to the lawsuit.” Morgan v. Biro Mfg. Co., 15 Ohio St.3d 339, 474 N.E.2d 286, 289 (1984). In determining the State with the most significant relationship, Ohio courts consider: (1) “the place of the injury”; (2) the location “where the conduct causing the injury” took place; (3) “the domicile, residence, ... place of incorporation, and place of business of the parties”; (4) “the place where the relationship between the parties ... is located”; and (5) any of the factors listed in Section 6 of the Restatement (Second) of Conflict of Laws “which the court may deem relevant to the litigation.” Id. The Section 6 factors include: “the relevant policies of the [State in which the suit is heard],” “the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,” “the basic policies underlying the particular field of law,” “certainty, predictability and uniformity of result” and “ease in the determination and application of law to be applied.” Id. at 289 n. 6 (internal quotation omitted).

Gauged by these factors, the consumer-protection laws of the potential class members' home States will govern their claims. As with any claim arising from an interstate transaction, the location-based factors point in opposite directions: injury in one State, injury-causing conduct in another; residence in one State, principal place of business in another. Yet the other factors point firmly in the direction of applying the consumer-protection laws of the States where the protected consumers lived and where the injury occurred. No doubt, States have an independent interest in preventing deceptive or fraudulent practices by companies operating within their borders. But the State with the strongest interest in regulating such conduct is the State where the consumers—the residents protected by its consumer-protection laws—are harmed by it. That is especially true when the plaintiffs complain about the conduct of companies located in separate States (Universal in Ohio; Coverdell in Georgia), diluting the interest of any one State in regulating the source of the harm yet in no way minimizing the interest of each consumer's State in regulating the harm that occurred to its residents.

To conclude otherwise would frustrate the “basic policies underlying” consumer-protection laws. Morgan, 474 N.E.2d at 289 n. 6. It would permit companies to “evade [local] consumer protection laws by locating themselves just across the [border] from the ... citizens they seek as customers.” Williams v. First Gov't Mortg. & Investors Corp., 176 F.3d 497, 499 (D.C.Cir.1999) (internal quotation marks omitted). And it would permit nationwide companies to choose the consumer-protection law they like best by locating in a State that demands the least. Does anyone think that, if State A opted to attract telemarketing companies to its borders by diluting or for that matter eliminating any regulation of them, the policy makers of State B would be comfortable with the application of the “consumer-protection” laws of State A to their residents—the denizens of State B? Highly doubtful: the idea that “one state's law would apply to claims by consumers throughout the country—not just those in Indiana, but also those in California, New Jersey, and Mississippi—is a novelty.” In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1016 (7th Cir.2002); see also id. at 1018 (“We do not for a second suppose that Indiana would apply Michigan law to an auto sale if Michigan permitted auto companies to conceal defects from customers; nor do we think it likely that Indiana would apply Korean law (no matter what Korean law...