Federal Court Rejects Fraud Class Action

A federal court stayed a  rejected proposed class action pending the outcome of plaintiffs' petition for interlocutory appeal of the class certification denial.  See Wiedenbeck v. Cinergy Health Inc., No. 12-cv-508-wmc (W.D. Wis., 9/20 class decision; stay 10/15/13).

Readers may be interested in the logic of the denial. Plaintiffs alleged that defendants used false or misleading infomercials to induce the purchase of a medical benefit plan that was deceptively limited, and then acted in bad faith in denying coverage under the plan.  The plaintiffs sought class certification for their fraud claim for a class of for all Wisconsin residents who purchased an insurance policy since Jan. 1, 2007.

Before addressing the specific requirements for class certification, the court discussed various Seventh Circuit precedents, including Thorogood v. Sears, Roebuck & Co., 547 F.3d 742 (7th Cir. 2008), in which the Seventh Circuit reversed the district court‟s order certifying a class because common issues of law or fact did not predominate over issues particular to each putative class member's purchase of the defendant's dryer. Thorogood alleged that the words “stainless steel” imprinted on the dryer were deceptive because the dryer drum was not made entirely of stainless steel.  In rejecting plaintiff‟s motion, the Seventh Circuit concluded that a fraud claim necessarily would turn on each class member's understanding of the meaning of the “stainless steel” label, reasoning that at least some portion of the class -- and, based on the court‟s pointed query, “Does anyone believe this besides Mr. Thorogood?”, perhaps all -- would not share the plaintiff‟s understanding of this point-of-sale advertisement. 

The court concluded that this case was arguably even less suited for class treatment than Thorogood.  Plaintiffs relied on different television commercials with different language; moreover, the record demonstrated that given the dates they aired, some class members could not have seen the alleged uniform representations. Defendants used at least 10 different "call scripts" for telemarketing, and transcripts of calls showed each representative responding to specific, individual questions posed by or information received from the customer, meaning the content of actual consumer calls necessary would vary.  There was evidence some consumers received other, material information about the policy at issue, which may have impacted their individual purchase decisions. For example, it is undisputed that purchasers had ten days to cancel the policy from receipt of a member handbook provided post-purchase.  Thus, there was evidence of no common misrepresentation, and no evidence of a common understanding by class members. 

Readers will note the response to plaintiffs' argument that a fraud claim is subject to common proof because the reasonableness of a consumer's reliance (or whether the reliance is justified) is allegedly judged from an “objective” standard. Even if true, an intentional misrepresentation claim under Wisconsin law still requires a plaintiff to demonstrate that he or she actually relied on the false representation (i.e., was misled), which is separate from any inquiry as to whether the reliance was justified or reasonable. And for this element, plaintiffs provided no basis for proving reliance or causation on a class-wide basis.  The courts have repeatedly rejected attempts to certify a class where a fraud claim turns on an individual's understanding in order to demonstrate causation or reliance.  Accordingly, plaintiffs could not meet the commonality prong of Rule 23. 

Final point worth noting, the court also declined to certify a single issue class. There was no common representation, so there really was no single issue as asserted by plaintiffs.

 

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