Northwest Business Litigation

Ninth Circuit rejects nationwide class action for false advertising

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.”

Oregon Court of Appeals: Tortious interference claim accrues when injury occurs, not when wrongful act occurs

A dispute over the inheritance of a family farm set the stage for a ruling by the Oregon Court of Appeals this week on the law of interference with economic relations.  In Butcher v. McClain, plaintiffs were a woman and her children, and defendants were the siblings of the woman's deceased husband.  Plaintiffs contended that defendants had wrongly caused the family matriarch to execute a will that disinherited plaintiffs from the family farm.  Plaintiffs sued for tortious interference with a prospective inheritance. 

Defendants moved to dismiss the claim on the ground that the two-year statute of limitations had run.  The trial court agreed, holding that the claim accrued when the matriarch executed the will disinheriting plaintiffs, more than two years before suit was filed.

The Court of Appeals reversed.  Judge Rosenblum, writing for the Court, first noted that Oregon does recognize the tort of interference with an economic advantage in the form of a prospective inheritance.  Such a claim is subject to the two-year statute of limitations for torts.  According to the Court, the claim accrues not when the wrongful act occurs, but when the interference in fact causes injury.  Thus, plaintiffs' claim accrued not when the will was executed, but when the matriarch died and plaintiffs lost their expected inheritance.  Because those events occured within two years of the date plaintiffs filed suit, the claim was timely.

Homeowner may pursue negligence claim for construction defect, Oregon Supreme Court holds

Last week the Oregon Supreme Court held that a homeowner seeking to recover against a builder for damages caused by construction defects may sue for common law negligence, absent a contractual provision that forecloses such a claim.  In Abraham v. T. Henry Construction, Inc., plaintiff homeowners hired defendant contractors to build a house.  When plaintiffs discovered defects in the construction years later, they sued for negligence. 

The Court of Appeals held that the parties' contractual relationship did not prevent a negligence claim, and that plaintiffs were entitled to pursue a negligence per se claim based on a violation of the Oregon Building Code.

The Supreme Court affirmed, but on a somewhat different basis.  First, according to the Court, a construction defect claim concerns damage to property -- and not mere economic losses -- and thus is not barred by the economic loss doctrine.  Second, the existence of a contract between plaintiff and defendant does not preclude a common law negligence claim for personal injury or property damage, unless the contract defines the parties' obligations and remedies in such a way as to limit or foreclose such a claim.  As a result, plaintiff is entitled to pursue a tort claim as long as the property damage at issue was a reasonably foreseeable result of defendant's conduct.  Plaintiff is not limited to a negligence per se claim. 

See our discussion of the Court of Appeals opinion in Abraham here.

Ater Wynne scores trial victory for NAACP

Ater Wynne's Seattle trial lawyers, Steve Kennedy and Rob Roy Smith, today prevailed in a lawsuit filed against the NAACP, following a week-long bench trial in King County Superior Court.  At issue was whether the national office of the NAACP was liable for legal malpractice, breach of contract, and negligence, arising from the alleged acts and omissions of a lawyer who also happened to work as a volunteer officer at the Seattle-King County Branch of the NAACP. 

The plaintiff alleged that the lawyer mishandled his earlier race discrimination lawsuit against a former employer.  Plaintiff also alleged that he thought he was being represented by the NAACP, which had supposedly "assigned" the lawyer to his case.

Relying on the U.S. Supreme Court's 1982 decision in NAACP v. Clairborne Hardware Co., the trial court found that there was no credible evidence that the NAACP authorized or ratified (either expressly or by implication) any of the activities of the local lawyer in connection with the previous discrimination lawsuit.  The court found that neither the NAACP nor the Seattle-King County Branch was acting as the plaintiff's lawyer;  rather, the plaintiff separately retained the lawyer as a private attorney.

Oregon Supreme Court tosses single-digit ratio for punitive damages in employment case

On Thursday, a divided Oregon Supreme Court affirmed a jury award of punitive damages of $175,000 in a case in which compensatory damages were only $6,000.  In Hamlin v. Hampton Lumber Mills, Inc., plaintiff was a former employee of defendant who was not rehired after recovering from a workplace injury.  He claimed discrimination based on his filing of a workers' compensation claim. 

The Court of Appeals, in reviewing the verdict in 2008, had held that the punitive damages of 30 times compensatory damages was grossly excessive under the Due Process Clause of the U.S. Constitution, and stated that the ratio of punitive to compensatory damages in non-personal-injury cases should generally not exceed 4:1.  In this week's ruling, the Supreme Court disagreed and declined to apply the single-digit ratio, holding that where the compensatory award is small -- $12,000 or less -- and where defendant's conduct is sufficienly reprehensible, an award in excess of a single-digit ratio is not grossly excessive.  

Justice Martha Lee Walters wrote the majority opinion for five members of the Court.  Retiring Justice Michael Gillette wrote a dissenting opinion.  He noted that judges have struggled to apply Due Process limitations in cases such as this, and ended with a plea to the United States Supreme Court to give state courts more guidance on the issue.

See our earlier posts on Hamlin in the Court of Appeals and other Oregon cases addressing punitive damages here, here and here.

Oregon Supreme Court limits State's power to share in punitive damages verdict

The Oregon Supreme Court today curtailed Oregon's "split recovery" law, in a case in which Ater Wynne successfully represented the plaintiff

Since 1987, Oregon has had a "split recovery" statute that requires part of any punitive damage award to be paid to the State's crime victim compensation fund.  Currently, ORS 31.735 provides that the State is a "judgment creditor" as to 60 percent of a punitive damages "verdict."  The Oregon Supreme Court concluded that the State can't prevent the plaintiff and defendant from entering into a settlement that reduces or eliminates the State's share, if that settlement occurs after the verdict and before entry of a judgment.

In Patton v. Target Corp., the jury awarded compensatory and punitive damages to plaintiff in an employment discrimination case in federal court.  The plaintiff and defendant then entered into a settlement that did not include payment to the State, and at the parties' request the trial court entered a judgment of dismissal.  The State intervened, seeking to undo the settlement and dismissal.  The trial court refused the State's request, and the case was appealed to the Ninth Circuit, which certified the issue of state law to the Oregon Supreme Court.  The Supreme Court held that the State as a "judgment creditor" has no enforceable interest in a verdict and cannot veto a settlement that occurs before judgment.

Ater Wynne attorney and Northwest Litigation Blog editor Lori Irish Bauman handled the appeal for plaintiff.  See our earlier coverage of Oregon's split recovery statute here.

Ninth Circuit: Employee holding a web site for ransom violated Anti-Cybersquatting Act

The Ninth Circuit ruled last week in DSPT International, Inc. v. Nahum that a defendant who lawfully owns and uses a domain name may violate the federal Anti-Cybersquatting Consumer Protection Act (ACCPA), 12 USC sec. 1125(d)(1)(A), by later holding the domain name for ransom.  

Congress intended the ACCPA to impose civil liability on "cyberpirates" who register a well known trademark and either offer to sell the domain name for an exorbitant sum to the trademark owner, or divert business from the trademark owner.   However, in DSPT International v. Nahum, the court found that the ACCPA is written so broadly that it applies beyond these common scenarios.  In DSPT, an employee in good faith registered his employer's web site to himself.  Years later, in a dispute over compensation, the employee took down the web site, refusing to restore it until he was paid.  The Ninth Circuit affirmed a jury verdict for the employer, and an award of damages of $152,000, under the ACCPA.

The ACCPA establishes civil liability for "cyberpiracy" where plaintiff proves: (1) defendant registered or used a domain name; (2) the domain name is identical or confusingly simiar to a protected mark owned by plaintiff; and (3) the defendant acted with a "bad faith intent to profit from that mark."     

Stolen medical records yield no claim against health care provider

Individuals whose electronic patient records were stolen from the car of an employee of Providence Health System were left with no remedy in a decision Wednesday by the Oregon Court of Appeals.  The plaintiffs in Paul v. Providence Health System-Oregon were two of the 365,000 individuals whose records were stolen when a Providence employee took home computer discs and tapes and left them in his car overnight. 

The plaintiffs sought to assert claims for negligence and violation of the Unlawful Trade Practices Act against Providence, claiming damages associated with the cost of credit-monitoring services, as well as emotional distress.

The Court of Appeals dismissed the negligence claim, citing the economic loss rule.  Under that rule, a party is not typically liable for causing a stranger's purely economic loss.  In this case, the losses were economic and not in the form of damage to person or property.  To avoid the economic loss rule, a plaintiff must allege that defendant had a heightened duty of care to protect plaintiff against economic harm.  Plaintiffs here could allege no such special duty. 

The Court of Appeals likewise dismissed a claim based on an alleged breach of a duty of confidentiality.  Such a claim exists under Oregon law for an affirmative disclosure of confidential information, but not for a failure to protect the information from misappropriation by a third party.

Finally, the Court of Appeals dismissed the Unlawful Trade Practices Act claim.  Plaintiffs alleged that, as a provider of medical services, Providence represented that it would keep medical records safe.  Plaintiffs could not show a "loss of money or property" from that misrepresentation under the Act because they did not allege a difference in value between the product or service as represented and as actually received.  The out-of-pocket losses associated with credit monitoring are not the type of losses that are recoverable under the Act, according to the Court.

Oregon Supreme Court takes away $100 million in punitive damages due to flawed jury instruction

When the US Supreme Court decided Williams v. Philip Morris in 2007, it created a challenge for judges instructing juries on punitive damages.  The Due Process Clause prevents a jury from imposing punitive damages to punish a defendant directly for harm it causes to non-parties.  But a jury can consider evidence of harm to others when assessing the reprehensibility of defendant's conduct as part of  setting the amount of punitive damages.  How to instruct juries to avoid improper use of evidence of harm to others is where the problem lies.

On Thursday, the Oregon Supreme Court in Schwarz v. Philip Morris vacated a $100 million punitive damages award in a tobacco products liability case because the jury instructions didn't appropriately distinguish between proper and improper uses of evidence of harm to third parties.  The court determined that the Uniform Civil Jury Instruction in effect at the time of the 2002 trial could have led the jury to believe that it could "use evidence of harm to others in arriving at its punitive damages verdict" and lacked an explanation of the limits of permissible use.   

The court remanded for a new trial limited to the question of punitive damages.

Cost of repair fails as measure of fraud damages, Oregon Court of Appeals holds

The wrong measure of damages sunk a claim for fraud in a case decided yesterday by the Oregon Court of Appeals.  In Morasch v. Hood, the plaintiffs alleged fraud in connection with defendants' sale of real property to plaintiffs.  Plaintiffs offered evidence of the cost of repairing or altering the property to bring it into conformity with defendants' representations, and the jury used that evidence to award damages to plaintiffs.  On appeal, defendants disputed whether the cost to repair is the proper measure of damages. 

The Court of Appeals held that the "out-of-pocket" damages rule applies, which means that plaintiff must show the difference between the purchase price and the fair market value on the date of sale.  And the fair market value is the value it would have had if defendants hadn't misrepresented the property.  Because plaintiff failed to show the value the property would have had if defendants had told the truth, the jury was unable to apply the correct measure of damages, and its verdict was properly vacated.