The Ninth Circuit continues to grapple with the standards for certifying class actions following the U.S. Supreme Court decision in Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011). Last week, a divided panel of the Ninth Circuit refused to certify a nationwide class action on behalf of individuals who bought or leased Acura RL automobiles equipped with a Collision Mitigation Braking System.
In Mazza v. American Honda Motor Company, Inc., plaintiffs claimed that Honda misrepresented and concealed material information about the braking system in the marketing and sale of Acura RL vehicles. Plaintiffs made claims under California’s unfair competition and false advertising laws. While the District Court found common issues of law and fact sufficient to certify a nationwide class, the Ninth Circuit reversed. Judge Ronald M. Gould, writing for the majority, focused on the admonition in Wal-Mart that commonality means that an issue central to each class member’s claim is subject to resolution “in one stroke.”
Material differences in the consumer protection laws of the states in which class members reside, and those states’ interests in having their own laws apply, caused the court to conclude that common issues of law do not predominate. Further, the small scale of the advertising campaign for the braking system did not support a presumption that all purchasers and lessors relied on the alleged false advertising. The proposed class, as defined, would almost certainly include members who were not exposed to the allegedly misleading advertising material, and as a result common issues of fact would not predominate.
Judge Dorothy W. Nelson issued a strong dissent. She stated first that, because the allegations of false advertising are based on omissions rather than affirmative statements, it is appropriate to impute reliance to the class. Second, the differences among the consumer protection statutes of the states in which class members reside are not material and should not block a class action. Finally, because American Honda and its advertising agency are headquartered in California, that state’s interest in deterring false advertising makes it appropriate to apply California law. Judge Nelson decried the seemingly insurmountable hurdles to a nationwide class action by consumers subjected to false advertising: “If the harm to individual consumers is small enough to create a disincentive to individual litigation, and if a nationwide class action is not a potential consequence, corporations can choose increased revenues over the consumer with impunity.”
The National Labor Relations Board is in the news again, this time in connection with employee arbitration agreements. In D.R. Horton, Inc. and Michael Cuda, Case No. 12-CA-25764, two members of a three-member panel (the third member recused himself without explanation) held that an arbitration agreement required as a condition of employment may not preclude employees from engaging in concerted activity. The two panel members held that the arbitration agreement at issue, under which employees waived their right to a judicial forum and agreed to bring all claims to an arbitrator on an individual basis, violated section 7 of the NLRA, which gives employees the right to engage in concerted activities for mutual aid or protection. Imposing the agreement on employees as a condition of employment violated section 8(a)(1) of the Act and, therefore, constituted an unfair labor practice.
While employers "remain free to insist that arbitral proceedings be conducted on an individual basis," the Board concluded that employers must "make it clear to employees that the agreement does not constitute a waiver in all forums of their right to maintain employment-related class or collective actions and does not restrict employees' right to file charges with the National Labor Relations Board."
The conclusion is arguably at odds with the recent U.S. Supreme Court opinion in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), which upheld a consumer arbitration agreement prohibiting class action despite contrary state law. The Board expressly considered Concepcion, but found, in essence, that its decision did not conflict with the Federal Arbitration Act (while strongly suggesting that if such a conflict existed, the NLRA should prevail over the FAA).
The NLRB's ruling was issued on the same day one of the two signatories to the opinion stepped down as his recess appointment expired. Although only two Board members voted, the decision appears to be valid under the requirements of New Process Steel v. NLRB, 130 S. Ct. 2635 (2010), which permits a decision by only two Board members if a third member is disqualified. President Obama appointed three new recess appointments to the Board the following day.
The Ninth Circuit recently measured the scope of a safe harbor for service providers accused of copyright infringement, holding that it's broad enough to protect operators of filesharing websites. In UMG Recordings, Inc. v. Shelter Capital Partners LLC, the Ninth Circuit interpreted and clarified the part of the Digital Millenium Copyright Act that created the safe harbor, 17 U.S.C. § 512(c).
UMG offered three reasons for denying to Veoh Networks safe harbor protection. First, UMG argued that the automatic copying of uploaded files to enable access fell outside the plain meaning of "infringement of copyright by reason of the storage [of material] at the direction of a user." (emphasis added). The Ninth Circuit disagreed, holding that the service provider safe harbor encompasses the access-facilitating processes that automatically occur when a user uploads a video to Veoh Networks.
Second, UMG insisted that Veoh Networks had actual knowledge of infringement or was aware of facts from which infringing activity was apparent, in violation of specific provisions of the safe harbor. Again, the Ninth Circuit rebuffed UMG's argument, holding that a service provider must have specific knowledge of particular infringing activity to have actual knowledge. It is not enough that a service provider has general knowledge that its services could be used to share infringing material. With respect to the facts from which infringing activity was allegedly apparent, the Ninth Circuit held that the red flags were insufficient because a service provider has no duty to determine whether stored materials are actually infringing.
Finally, UMG argued that Veoh Networks was ineligible for the safe harbor because it received financial benefit directly attributable to the infringing activity, which it had the right and ability to control. The Ninth Circuit affirmed the District Court and held that the "right and ability to control" under the safe harbor requires control over specific infringing activity the service provider knows about.
With this opinion, the Ninth Circuit has reassured the operators of filesharing websites that the safe harbor in the Digital Millenium Copyright Act is real.