Sonner v. Premier Nutrition Corp.

• Decision Date: 17 June 2020
• Docket Number: No. 18-15890,18-15890
• Citation: 971 F.3d 834
• Parties: Kathleen SONNER, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. PREMIER NUTRITION CORPORATION, fka Joint Juice, Inc., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

971 F.3d 834

Kathleen SONNER, on behalf of herself and all others similarly situated, Plaintiff-Appellant,

v.PREMIER NUTRITION CORPORATION, fka Joint Juice, Inc., Defendant-Appellee.

No. 18-15890

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 3, 2019 San Francisco, California

Filed June 17, 2020

Amended August 20, 2020

ORDER

The opinion filed on June 17, 2020, and published at 962 F.3d 1072, is amended by the opinion filed concurrently with this order.

With these amendments, Judges Lucero, Callahan, and Bade vote to deny the petition for rehearing. Judges Callahan and Bade vote to deny the petition for rehearing en banc. The full court has been advised of the petition for rehearing en banc and no judge has requested a vote on whether to rehear the matter en banc. Fed. R. App. P. 35. Accordingly, Appellant's petition for rehearing or rehearing en banc is DENIED . No further petitions for panel rehearing or rehearing en banc may be filed.

BADE, Circuit Judge:

On the brink of trial after more than four years of litigation, Plaintiff-Appellant Kathleen Sonner voluntarily dismissed her sole state law damages claim and chose to proceed with only state law equitable claims for restitution and injunctive relief. A singular and strategic purpose drove this maneuver: to try the class action as a bench trial rather than to a jury. Indeed, Sonner continued to seek $32,000,000 on behalf of the consumers she represented, but as equitable restitution rather than as damages. But, to Sonner's dismay, the plan backfired when, relying on its interpretation of California law, the district court dismissed her claims for restitution because an adequate remedy at law, i.e., damages, was available.

Pursuant to Erie Railroad Co. v. Tompkins , 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and Guaranty Trust Co. of New York v. York , 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945), we hold that federal courts must apply equitable principles derived from federal common law to claims for equitable restitution under California's Unfair Competition Law ("UCL") and Consumers Legal Remedies Act ("CLRA").

I

In March 2013, Vincent Mullins filed a putative class action regarding "Joint Juice," a nutritional product manufactured, marketed, and sold by Defendant-Appellee Premier Nutrition Corporation ("Premier"). After substituting as the proposed class representative and named plaintiff, Sonner amended the complaint in September 2014. In April 2016, the district court certified a class of all California consumers who had purchased Joint Juice since March 1, 2009.

The basis for the lawsuit is false advertising. In its marketing materials, Premier touts Joint Juice as a dietary supplement beverage that supports and nourishes cartilage, lubricates joints, and improves joint comfort.¹ But, according to Sonner, Joint Juice fails to provide its advertised health benefits.

As originally pleaded, the complaint demanded injunctive relief under the UCL and CLRA, restitution under the UCL and CLRA, and damages under an Illinois consumer protection statute. In the first amended complaint, Sonner dropped her claim under Illinois law and amended the CLRA claim to seek damages because Premier failed to correct the alleged CLRA violations pursuant to California Civil Code § 1782. Both complaints demanded a jury trial.

For years, the litigation proceeded in the typical fashion. Both sides took discovery, engaged in motion practice, and prepared for the looming jury trial. But less than two months before trial was scheduled to begin, and after defeating Premier's summary judgment efforts, Sonner sought leave to file a second amended complaint to drop the CLRA damages claim. This strategy raises an obvious question: why would Sonner voluntarily abandon an ostensibly viable claim on the eve of trial after more than four years of litigation? The answer is also obvious: to request that the district court judge award the class $32,000,000 as restitution, rather than having to persuade a jury to award this amount as damages.

Premier opposed the motion for leave. Citing futility, Premier urged that Sonner's proposed second amended complaint would require dismissal of the restitution claims pursuant to California's inadequate-remedy-at-law doctrine. Without the CLRA damages claim, Premier argued, the proposed complaint failed to state viable claims for restitution because an adequate legal remedy—damages—was available for that injury.

During oral argument on the motion, the district court warned Sonner that if it granted the motion and she dropped the damages claim, "we are never going to hear again anything about a damage claim under the CLRA" and not to "put a lot of money" on a future motion to amend to re-allege the claim. The district court also explained that it would be "open season" on a motion to dismiss and that Sonner was taking a "chance" by dropping the damages claim.

The district court ultimately granted Sonner leave to amend and vacated the jury trial. Undeterred by Premier's arguments and the district court's warning, Sonner filed her second amended complaint in August 2017, dropping the CLRA damages claim. And, true to its word, Premier moved to dismiss the restitution claims pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that Sonner needed to—but could not—establish that she lacked an adequate legal remedy as required by both federal equitable principles and California law.

After full briefing and oral argument, the district court granted Premier's motion to dismiss. Applying its interpretation of California law, the district court held that Sonner could not proceed on her equitable claims for restitution in lieu of a claim for damages. Specifically, the district court concluded that claims brought under the UCL and CLRA remained subject to California's inadequate-remedy-at-law doctrine, and that Sonner failed to establish that she lacked an adequate legal remedy for the same past harm for which she sought equitable restitution. The district court also denied Sonner's request to amend her complaint to reallege the CLRA damages claim. During oral argument on the motion, the district court explained that allowing Sonner to reassert the intentionally dropped claim under the circumstances would reflect "total prejudice to the court system," would be "unfair" and "prejudicial" to Premier, and would constitute an "abuse of the court system." After the district court entered judgment, Sonner timely appealed the order dismissing her claims for equitable restitution to this court.

We review the district court's decision to grant a motion to dismiss under Rule 12(b)(6) de novo, Fayer v. Vaughn , 649 F.3d 1061, 1063–64 (9th Cir. 2011) (per curiam), and to deny a request for leave to amend for abuse of discretion, DCD Progs., Ltd. v. Leighton , 833 F.2d 183, 186 (9th Cir. 1987). We may affirm the district court's dismissal of the complaint on any basis supported by the record. See Johnson v. Riverside Healthcare Sys., LP , 534 F.3d 1116, 1121 (9th Cir. 2008).

II

Although not the basis for the district court's decision, we must first resolve a threshold jurisdictional question: do federal equitable principles independently apply to Sonner's equitable claims for restitution or must we, as a federal court, follow only the state law authorizing that equitable remedy?

Sonner argues that because her UCL and CLRA claims arise under California law and our jurisdiction rests in diversity, state law alone decides whether she must show a lack of an adequate legal remedy before obtaining restitution under those statutes. And, according to Sonner, the California legislature abrogated the state's inadequate-remedy-at-law doctrine for claims seeking equitable restitution under the UCL and CLRA.²

In contrast, Premier argues that federal courts in diversity are bound by traditional federal equitable principles, including the requirement that the party pursuing equitable relief establish that it lacks an adequate legal remedy. Premier also contends that equitable claims for restitution under the UCL and CLRA remain subject to California's inadequate-remedy-at-law doctrine.

A

It has long been the province of federal courts sitting in equity to apply a body of federal common law irrespective of state law. See Russell v. Southard , 53 U.S. (12 How.) 139, 147, 13 L.Ed. 927 (1851). Under the doctrine first prescribed in Erie , however, federal courts exercising diversity jurisdiction must follow state substantive law and federal procedural law when adjudicating state law claims. See Hanna v. Plumer , 380 U.S. 460, 465, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965). To carry out the thorny task of identifying whether a law is substantive or procedural, we generally use an "outcome-determination test," which asks whether applying federal law instead of state law would "significantly affect" the litigation's outcome. See Gasperini v. Ctr. for Humanities, Inc. , 518 U.S. 415, 427, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996) (quoting York , 326 U.S. at 109, 65 S.Ct. 1464 ). Thus, the outcome of a case in federal court should generally be "substantially the same, so far as legal rules determine the outcome of a litigation, as it would be if tried in a State court." York , 326 U.S. at 109, 65 S.Ct. 1464.

But when deciding between state and federal law, we do not rely on a rote litmus test. See Hanna , 380 U.S. at 467, 85 S.Ct. 1136. Rather, we must be cognizant of Erie ’s dual aims: "discouragement of forum-shopping and avoidance of inequitable administration of the laws." Gasperini , 518 U.S. at 428, 116 S.Ct. 2211 (quoting Hanna , 380 U.S. at 468, 85 S.Ct. 1136 ); see also Semtek Int'l Inc. v. Lockheed Martin Corp. , 531 U.S. 497, 508–09, 121 S.Ct. 1021, 149 L.Ed.2d 32 (2001). And we should also consider the policies underpinning the applicable state and federal laws. See Byrd v. Blue Ridge Rural Elec. Coop., Inc. , 356 U.S. 525, 537–38, 78 S.Ct. 893, 2 L.Ed.2d 953 (...