Commercial Conflicts: How State Law Differences Overwhelm Nationwide Class Action Certification

By Luke Rona
Articles Editor

The Washington Supreme Court recently held that nationwide class certification was properly denied by the trial court due to the potential burden of managing multiple state laws in a suit challenging AT&T’s billing practices.  Schnall v. AT&T Wireless Servs., Inc., 2011 Wash. LEXIS 316 (Wash. Apr. 14, 2011).

 

The case raises important issues regarding class action practice, conflicts of law, contracts, and consumer protection.  While appearing to shield commercial giants such as AT&T because their business fortuitously crosses state lines, the Court actually provides a pragmatic blueprint for class actions based on state law: statewide class actions in individuals’ home states.  See Schnall, 2011 Wash. LEXIS at *8.

Named plaintiff Martin Schnall, an AT&T customer, filed a nationwide class action alleging that AT&T misled its customers by charging a Universal Connectivity Charge (UCC), which covers AT&T’s mandatory contributions to the Universal Services Fund.  Schnall, 2011 Wash. LEXIS at *1-2.  This fund subsidizes phone and Internet services in low-income and rural areas.  Id. at *2.  While AT&T is permitted to recover this cost from its customers, Schnall maintains that AT&T violated the terms of its contract by failing to disclose the charge to Schnall at the time he signed his wireless agreement, as well as violating the Washington Consumer Protection Act (CPA).  Id. at *2, *11.

In its denial of nationwide class certification, the trial court determined that “individual questions predominated over common questions” for all of Schnall’s claims, thereby failing the predominance test of CR 23(b)(3), which mirrors Federal Rule of Civil Procedure 23(b)(3).   The trial court based its denial of class certification on the choice of law clauses in each customer’s contract, which dictated that the law of the customer’s area code governed each dispute.  Id. at *6.  Applying potentially 50 states’ laws in one proceeding would be unduly burdensome and unmanageable.  The Court of Appeals reversed, holding that a “common nucleus of operative facts” predominated among all class members.  Id. at *10.

One of the key distinctions in a CR 23(b)(3) damages class action is the stricter scrutiny common questions receive, extending beyond the  CR 23(a) commonality test.  Id.  Crucially, the trial court’s findings that the choice of law clauses in each contract, the interpretation of the contractual terms, the “differences in the materials and information each potential class member received,” and the availability of differing affirmative defenses all legislated against finding predominance of common issues among the class members.  Id. at *11.  Where a plaintiff seeks certification of a class based on state-law claims, the potential weighing of 50 states’ laws is a “make or break” inquiry.  Id. at *15-16.  Once more than a few laws of those jurisdictions differ, the trial court faces the unwieldy task of not only analyzing those laws with respect to each plaintiff’s claim, but also instructing a jury on the relevant law.  Id. at *16.  For example, some states follow the “voluntary payment” doctrine, which would relieve AT&T of liability where customers voluntarily paid the UCC charge.

The predominance necessity in CR 23(b)(3) damages actions combines with the superiority requirement, whereby the class action mechanism must be superior to other available means of adjudicating the dispute.  Id. at 17.  The Supreme Court observed that alternatives include the standard means of “joinder, intervention, or consolidation,” as well as numerous statewide class actions brought by citizens of each state against AT&T.  Id. at *19.  While claims may be uneconomical to assert individually, the high number of AT&T customers in each state enables statewide class actions to be a viable alternative.  The trial court originally denied statewide certification for Schnall’s CPA claims on grounds of causation, because individual customers had not demonstrated reliance on AT&T’s false or deceptive billing practices (making class action certification inappropriate).  Id. at *22.  The Supreme Court, however, reversed and remanded on the CPA issue, concluding that reliance is not a necessary element of the plaintiff’s case.  Id. at *22-23.

Schnall demonstrates the possible pitfalls individual customers face when litigating against large commercial companies that contract with customers across state lines.  While the class action vehicle, especially one seeking damages, might exert significant pressure on large defendants in a way an individualized action could not, conflicts of law pose serious problems for certification.  Importantly, AT&T’s contractual choice of law clause was not arbitrary, relating to the customers area codes.  Id. at *6-7.  The Supreme Court emphasized how these choice-of-law clauses were valid, but that statewide class actions were still viable for contract claims assuming predominance and superiority could be demonstrated.  Id. at *8, *21.  Statewide class actions were also potentially viable for the CPA claims.  Id. at *24.  This is instructive for both commercial dealers and customers in disputes based on state law: while nationwide class action status may not be available, individuals still have recourse to statewide class certification.

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