MassTortDefense has posted about the dangers lurking in consumer fraud class actions before. About a year ago, we posted on a disturbing decision in Nafar v. Hollywood Tanning Systems, Inc., 2008 WL 3821776 (D.N.J., August 11, 2008), where the district court certified a nationwide class of tanning customers.  We concluded our post, by noting “Clearly, this certification decision ought to be reviewed by the Third Circuit.”  Fortunately, that has happened. The Third Circuit granted Hollywood Tans’ petition for interlocutory review under Fed. R. Civ. P. 23(f), and has vacated the class certification decision. Nafar v. Hollywood Tanning Systems, Inc., No. 08-3994 (3d Cir. Aug. 5, 2009).

Plaintiff had alleged she purchased monthly tanning memberships from defendant Hollywood Tanning Systems, in New Jersey. Plaintiff alleged that defendant fraudulently failed to disclose the fact that any exposure to ultraviolet rays (UV rays) increases the risk of cancer and allegedly deceptively failed to warn consumers about the dangers of indoor tanning. While plaintiff acknowledged that defendant’s machines may block out most UVB rays, she contended that defendant failed to inform consumers that UVA rays, also emitted by its machines, are allegedly linked to skin cancer. Plaintiff instituted suit alleging: (1) violation of the New Jersey Consumer Fraud Act (“NJCFA”), (2) fraud, (3) unjust enrichment, and (4) breach of warranty.

Plaintiff sought a nationwide class of consumers who had purchased tanning memberships. The district court’s analysis of the Rule 23(b) requirements for class certification was, unfortunately, devoid of substance. The 3d Circuit determined that the district court erred by not defining either the class or the class claims, as required by Rule 23(c);  erred by failing to conduct an adequate choice-of-law analysis when the potential class members for this consumer fraud action hail from numerous states; erred by failing to consider evidence suggesting that individual issues of fact and law regarding causation predominate over common issues, and finally, erred in failing to consider whether res judicata would apply to potential personal injury claims, and therefore whether Nafar was an “adequate representative” of the class.

In the context of class action certification, the Supreme Court has stated that a district court “may not take a transaction with little or no relationship to the forum and apply the law of the forum in order to satisfy the procedural requirement that there be a ‘common question of law.’” Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 821 (1985). A court must apply an individualized choice of law analysis to each plaintiff’s claims. Here, the district court had stated that common issues of law predominated: “Common questions of law predominate because New Jersey law is central to this litigation. The NJCFA [consumer fraud act] will apply to all class members because this particular law governs Defendant’s behavior and uniform policies. New Jersey has a strong interest in this litigation because the case’s outcome will likely affect Defendant’s nationwide behavior…. Indeed, the NJCFA is one of this nation’s strongest consumer protection laws and its application will not frustrate other states’ consumer protection laws. ” That conclusion was not based on an analysis of the choice of law rules of the forum state; cited no state court cases suggesting that NJ law should apply to the claims of consumer from other states; failed to analyze the differences among the consumer protection laws of the various states; and failed to analyze the interests other states may have in applying their laws by simply assuming every state would rather apply NJ’s law.

The 3d Circuit noted that New Jersey now applies the Second Restatement’s “most significant relationship” test. On remand, the District Court was ordered to conduct a choice of law analysis under New Jersey’s most significant relationship test.

The trial court had stated that common fact issues predominated as well because the alleged misrepresentations and omissions concerning the negative consequences related to indoor tanning are alleged to be uniform. However, the court failed to conduct any analysis of the elements of the claims upon which the class was certified, and whether any of the elements might raise individual questions. In addition to the analysis that will be necessitated by a proper choice of law review, the 3d Circuit noted that evidence of plaintiffs’ conduct relevant to the causation issue cannot be ignored without comment in a predominance analysis. This is because the Supreme Court of New Jersey has held that individual issues regarding plaintiff’s behavior may, in certain cases, defeat predominance in a NJCFA class action, despite the alleged uniformity of a defendant’s misrepresentations or omissions.

As we noted last year about the certification decision, the defendant apparently submitted surveys showing that the risks of tanning are common knowledge, and many consumers understood the cancer risks involved. Even if plaintiffs were not required to present any direct proof of individual reliance – which they would be under some state laws – this would not prevent a defendant from presenting direct evidence that an individual plaintiff did not rely on any representations from the company. Defendants have a right to present evidence negating a plaintiff’s direct or circumstantial showing of causation and/or reliance. The “predominance” inquiry here thus resembled a mere commonality test. On remand, the 3d Circuit held, the court should consider the evidence presented, resolve any disputes relevant to the predominance issue, and consider all the elements of the underlying claims to determine if individual issues predominate over common issues of fact and law.

Finally, named plaintiff had only economic injuries, but personal injury claims were ostensibly included in the class definition.  This raised the issue of claim splitting and res judicata, and the issue whether the named plaintiff could be an adequate class representative for a class alleging such disparate injuries.  The appeals court found that  the district court failed to consider this very important issue in assessing the adequacy of representation requirement. For that reason the court was told it should consider, on remand, New Jersey’s doctrines regarding preclusion, whether other states’ preclusion doctrines would apply, the specific claims and facts alleged here, and whether any potential future claims by class members with personal injury would be at risk of being barred by res judicata.

We will see what happens on remand, but for now, scary decision vacated.