Ninth Circuit Declares That Individualized Damages Issues Alone Never, Ever Preclude Certification of a Rule 23(b)(3) Class
In Pulaski & Middleman, LLC v. Google, Inc., No. 12-16752, 2015 U.S. App. LEXIS 16723 (9th Cir. Sept. 21, 2015), a Ninth Circuit panel held that individualized damages (or restitution) calculations cannot alone defeat Rule 23(b)(3)’s predominance element. The opinion is significant because the district court below had determined that an exceedingly high degree of individualized proof would be needed to calculate each putative class member’s restitution award and plaintiffs had failed to propose a “workable method” to reduce this complexity. Notably, the panel also defined the measure of restitution in false advertising cases brought under California’s Unfair Competition Law (UCL) and False Advertising Law (FAL) in a manner that plaintiffs will likely argue expands the remedy.
In Pulaski, plaintiffs, internet advertisers who purchased Google’s ad-placement service known as AdWords, alleged that Google falsely touted AdWords, causing plaintiffs to unwittingly pay for advertising placed on less valuable “parked domain and/or error page websites.” Plaintiffs alleged they would not have paid for this advertising (or not paid as much) had they known the truth. They moved to certify a purchaser class under Rule 23(b)(3) on the ground that common issues of law and fact predominated over individual issues.
The district court denied the motion, finding common questions did not predominate. Specifically, it found that Google’s use of a non-uniform auction process to sell, price and place ads on behalf of each putative class member defied any class-wide approach to restitution. Moreover, evidence showed that some advertisers derived economic benefits from ads placed on the websites in question which, according to the district court, posed the risk that the class might include members who lacked “entitlement” to restitution. Although the district court, citing Yokoyama v. Midland National Life Insurance Co., 594 F.3d 1087 (9th Cir. 2010), acknowledged that damage calculations alone do not defeat class certification, it held that this rule did not apply in this instance because of the complexity of the individual calculations, and the absence of any proposed method to render the individual calculations sufficiently formulaic.
The Ninth Circuit reversed. The panel first found the district court erred to the extent it believed it had to conduct individual inquiries to identify each class member’s “entitlement” to restitution. The panel identified entitlement to restitution as an inquiry separate from calculating the amount of restitution owed, if any. As the panel explained, a threshold showing of UCL or FAL liability automatically establishes entitlement to restitution on a class-wide basis. This liability showing in turn only requires proof that the public is likely to be deceived by the defendant’s conduct—an inherently class-wide showing. Hence, entitlement to restitution is always a common, not individual, question.
Next, the Ninth Circuit confirmed that Yokoyama’s rule that individualized damages calculations alone do not defeat class certification applies in all Ninth Circuit cases regardless of the degree of individualized calculations required. Thus, the district court abused its discretion in denying class certification on the ground that Yokoyama did not apply. The Ninth Circuit also rejected Google’s argument that the U.S. Supreme Court’s decision in Comcast Corp. v. Behrend, 133 S.Ct. 1426 (2013), cast Yokoyama in doubt. The panel described Comcast as requiring only that any proposed class damages method align with the case’s theory of liability, and reaffirmed that “Yokoyama remains the law of this court, even after Comcast.”
Lastly, the panel held that at least one of plaintiffs’ proposed UCL and FAL restitution measures was proper under California law and, therefore not “arbitrary.” Specifically, the panel identified the proper restitution measure as the difference between what the purchaser paid and what a reasonable consumer would have paid at the time of purchase absent the fraudulent or omitted information. It found that one of plaintiff’s proposed measures roughly fit this definition. Notably, the Ninth Circuit rejected Google’s argument that any restitution measure must also account for any subsequent benefits the putative class member’s received in having ads placed by Google on parked domain and error page websites. The Ninth Circuit held that restitution “need not account for benefits received after purchase because the focus is on the value at the time of purchase.”
Pulaski stands at odds with other Ninth Circuit precedent recognizing that individualized damages issues can defeat class certification when the degree of complexity is high and no method exists to render “the process of computing individual damages…a virtually mechanical task.” Blackie v. Barrack, 524 F.2d 891, 905 (9th Cir. 1975). In addition, by insisting on a rule that effectively applies Rule 23(b)(3)’s predominance test to just liability issues as opposed to all issues, Pulaski endorses what is tantamount to a liability-only Rule 23(b)(3) class. But, even when certified in this manner, individualized damages issues remain as Rule 23 cannot require a defendant to surrender its defenses, including its right to litigate damages issues on an individualized basis. Hence, defendants in UCL and FAL class actions in the Ninth Circuit must strive to preserve all opportunities to mount a defense on an individual, claim-by-claim, class member-by-class member basis during the damages (or restitution) phase of trial.