Wright v. Honeywell Intern., Inc.

• Citation: 2009 VT 123,989 A.2d 539
• Decision Date: 10 December 2009
• Docket Number: No. 08-423.,08-423.
• Parties: Alfred T. WRIGHT, on Behalf of Himself and Others Similarly Situated v. HONEYWELL INTERNATIONAL, INC.
• Court: United States State Supreme Court of Vermont

989 A.2d 539

2009 VT 123

Alfred T. WRIGHT, on Behalf of Himself and Others Similarly Situated v. HONEYWELL INTERNATIONAL, INC.

No. 08-423.

Supreme Court of Vermont.

December 10, 2009.

Christine M. Craig, D. Michael Noonan and Neah Sochs of Shaheen & Gordon, P.A., Dover, NH, and Jill Abrams of Abbey Spanier Rodd & Abrams, LLP, New York City, for Plaintiff-Appellant.

Karen McAndrew of Dinse, Knapp & McAndrew, P.C., Burlington, and Richard G. Parker, Ian Simmons, and Alexander Okuliar of O'Melveny & Myers, LLP, Washington, DC, for Defendant-Appellee.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

¶ 1. REIBER, C.J.

In this interlocutory appeal, plaintiff challenges the superior court's decision denying his motion for class certification with respect to his lawsuit claiming that defendant Honeywell International, Inc. violated the Vermont Consumer Fraud Act (CFA) by engaging in deceptive tactics to create an unlawful monopoly that resulted in overcharges to consumers for the company's round thermostat. We reverse the superior court's decision insofar as plaintiff has made a sufficient showing at this juncture of the proceedings to demonstrate that questions of law and fact common to the class will predominate and that a class action will be a superior method for resolving the controversy.

¶ 2. In late 2004, plaintiff filed a one-count complaint alleging that Honeywell created an unlawful monopoly on round thermostats by engaging in deceptive tactics that violated the CFA, 9 V.S.A. § 2453 (prohibiting unfair or deceptive acts or practices in commerce). The complaint followed a federal court decision denying Honeywell's motion for a preliminary injunction to prevent a competitor from manufacturing and selling a round thermostat. See Eco Mfg. LLC v. Honeywell Int'l, Inc., 295 F.Supp.2d 854 (S.D.Ind.), aff'd, 357 F.3d 649 (7th Cir.2003). In determining that Honeywell was unlikely to prevail in its trademark infringement lawsuit against its competitor, the federal district court found that the competitor had come forward with substantial evidence showing that Honeywell made factually false statements in seeking and procuring trademark protection in the mid-1980's for its round thermostat. Eco Mfg., 295 F.Supp.2d at 877-78. Although the federal district court concluded, based on the limited record before it, that the competitor had not yet shown by clear and convincing evidence that Honeywell had obtained its trademark through fraud, it also preliminarily concluded that Honeywell did not have valid trademark rights and thus would not be able to prevent its competitor from manufacturing and selling a round thermostat. Id. at 881-82.

¶ 3. Following plaintiff's filing of his 2004 complaint, the matter was removed to federal court on federal question jurisdiction and consolidated with similar actions against Honeywell from other states. The state actions were then transferred to another federal court, which found an inadequate basis for removal and therefore remanded each action to its respective state court without reaching a decision on pending state law claims. In re Circular Thermostat, No. MDL CO5-01673WHA, 2005 WL 2043022, at *1 (N.D.Cal. Aug. 24, 2005). Back in Vermont superior court, plaintiff alleged, among other things, that: (1) Honeywell had a utility patent from 1946 to 1963 and a design patent from 1956 to 1979 based on the round thermostat's functional and safety advantages; (2) in anticipation of the expiration of its design patent, in 1968 Honeywell applied for trademark protection based on the round shape of the thermostat; (3) the trademark application was initially denied because a utilitarian/functional design feature cannot be trademarked; (4) Honeywell appealed to the Trademark Trial and Appeal Board (TTAB) and lost; (5) Honeywell drove a series of would-be competitors from the market by falsely claiming to hold trademark rights and threatening sham litigation based on that false assertion; (6) Honeywell again applied for trademark protection in 1986; (7) this time Honeywell prevailed on an appeal to the TTAB by falsely alleging that no competitors had produced round thermostats in the past sixteen years even though Honeywell had not had any patent or trademark protection during that period; and (8) Honeywell obtained trademark protection in 1988 by engaging in these unfair and deceptive practices.

¶ 4. In addition to alleging violations of the CFA, plaintiff sought to certify a CFA class composed of "[a]ll similarly situated consumer purchasers residing in the State of Vermont (excluding governmental entities, Defendants, and subsidiaries and affiliates of Defendants) who indirectly purchased from the Defendants, for their own use and not for resale, round thermostats between June 30, 1986 and the present." Thus, plaintiff sought to bring an indirect purchaser class action under the CFA.

¶ 5. In a May 15, 2008 decision, the superior court denied Honeywell's motion for summary judgment, in which Honeywell claimed that plaintiff's action was barred by the applicable statute of limitations and that plaintiff would be unable to prove any injury, as required by the CFA. At the same time, the court denied plaintiff's motion for class certification, concluding that (1) plaintiff's expert did not offer a viable methodology to show either class-wide impact resulting from Honeywell's alleged deceptive conduct or how the conduct affected members of the class differently, and thus plaintiff failed to demonstrate that questions of law or fact common to the proposed class would predominate; and (2) plaintiff failed to present a feasible plan for identifying potential class members, and thus could not demonstrate that the proposed class action was administratively manageable and superior to individual actions.

¶ 6. Upon plaintiff's motion, we granted plaintiff permission to file an interlocutory appeal of the superior court's decision denying class certification. On appeal, plaintiff argues that the superior court erred: (1) by not applying the proper standard for determining whether to grant his motion for class certification; (2) by weighing the evidence and looking beyond the legal adequacy of his proposed methods of proof; (3) by not presuming that overcharges to direct customers of Honeywell were passed onto the indirect consumers that make up the proposed class; (4) by conflating the concepts of fact of damages and proof of damages in determining that common questions of law and fact would not predominate; and (5) by concluding that a class action was not the superior method for resolving the dispute.

¶ 7. Before taking up these claims of error, we first examine the applicable law on consumer fraud actions and motions for class certification. The CFA, which is to be liberally construed to protect the public and encourage fair and honest competition, State v. Custom Pools, 150 Vt. 533, 536, 556 A.2d 72, 74 (1988), prohibits unfair methods of competition or deceptive practices in commerce. 9 V.S.A. § 2453(a). A person who sustains injury or damages as a result of any fraudulent representations or practices prohibited by § 2453 may sue for equitable relief and to recover damages. Id. § 2461(b); see also id. § 2465(a) (any person sustaining damages or injury from antitrust violation prohibited by § 2453 may recover "the amount of his or her damages"). In Elkins v. Microsoft Corp., 174 Vt. 328, 341, 817 A.2d 9, 20 (2002), while recognizing that the United States Supreme Court had barred indirect consumers from claiming antitrust violations under federal law, Illinois Brick Co. v. Illinois, 431 U.S. 720, 746, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), we nonetheless held that a class of indirect purchasers could bring private antitrust cases and recover damages under § 2461(b) of the CFA.

¶ 8. Regarding class certification, the basic prerequisites require that: (1) the class is numerous enough that joinder of all of its members is impracticable; (2) questions of law or fact are common to the class; (3) the representative parties are making claims and defenses that are typical of the class; and (4) the representative parties will adequately protect the interests of the class. V.R.C.P. 23(a). In this case, the superior court concluded that the proposed class satisfied each of these four prerequisites, and Honeywell does not challenge that conclusion.

¶ 9. Beyond these prerequisites, class actions are maintainable only if at least one of the more onerous conditions set forth in Rule 23(b) is satisfied. Neither the parties nor the superior court identified Rule 23(b)(1) or (2) as a stumbling block to class certification. Hence, as is often the situation in a request for class certification, this case comes down to whether "the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy." V.R.C.P. 23(b)(3). The rule also lists several factors for the court to consider in determining whether Rule 23(b)(3) is satisfied, including "the difficulties likely to be encountered in the management of a class action." Id. 23(b)(3)(D).

¶ 10. As a general rule, class actions are of limited and special application and are not to be casually authorized. Salatino v. Chase, 2007 VT 81, ¶ 11, 182 Vt. 267, 939 A.2d 482. The superior court has discretion in determining whether to certify a class. We will affirm the court's denial of a motion for class certification provided that the court applied the correct legal standards, which we review de novo, and did not abuse its discretion in applying those standards. Id. ¶ 6; see also Alger v. Dep't of Labor & Indus., 2006 VT 115, ¶ 36, 181 Vt. 309, 917 A.2d 508. To the extent that the Vermont rule mirrors the comparable federal rule, we "look to federal...