General Publications March 17, 2015

“Do Class Members Who Refuse a Full Refund Have Standing?,” Law360, March 17, 2015.

Extracted from Law360 

A company is served with a lawsuit from a consumer claiming that the company’s product caused him harm or was deceptively advertised. Soon, the plaintiff claims to represent a class of consumers who endured the same harm. What legal recourse does a company have when its records show that this would-be class representative was offered a full refund either through a product recall or individually?

A recent trend in class action defense has seen defendants seeking dismissal under Federal Rule of Civil Procedure 12(b)(1) by introducing extrinsic evidence of a recall and/or offers of a full refund to owners of an allegedly defective product. Ultimately, the argument intends to show that the plaintiffs either lack standing or that their complaint is moot as a result of a full remedy being freely available without relief from the court.

A review of recent class actions where defendants presented offers of refunds and recalls as evidence of the plaintiffs’ lack of subject matter jurisdiction shows that this argument can be both persuasive in federal courts and devastating to a class action product claim.

Standing, Mootness and Rule 12(b)(1)

Federal Rule 12(b)(1) allows a party to move for the dismissal of a claim based on lack of subject matter jurisdiction. In theory, an offer from a defendant for a full refund may create a lack of subject matter jurisdiction by nullifying the plaintiff’s claim for relief with the court. See Foster v. Carson, 347 F.3d 742, 745 (9th Cir. 2003) (quoting Ruvalcaba v. City of L.A., 167 F.3d 514, 521 (9th Cir. 1999)) (“If there is no longer a possibility that [a party] can obtain relief for his claim, that claim is moot and must be dismissed for lack of jurisdiction.”).

If a defendant can show that a plaintiff refused a full refund or recall that would have given him the same relief that they now seek in their suit, that claim could be dismissed as lacking subject matter jurisdiction, either because the plaintiff lost his “requisite personal interest” prior to filing suit (i.e., standing) or during the litigation (i.e., mootness). The difference between requesting dismissal for lack of standing versus the mootness of a plaintiff’s claim depends on when that motion occurs in the litigation. “Mootness can be characterized as the doctrine of standing set in a time frame: The requisite personal interest that must exist at the commencement of the litigation (standing) must continue throughout its existence (mootness).” Id. at 745 (quoting Cook Inlet Treaty Tribes v. Shalala, 166 F.3d 986, 989 (9th Cir. 1999)).

After a defendant moves to dismiss a case under Rule 12(b)(1), “[i]t then becomes necessary for the party opposing the motion to present affidavits or any other evidence necessary to satisfy its burden of establishing that the court, in fact, possesses subject matter jurisdiction.” Colwell v. U.S. Department of Health and Human Services, 558 F.3d 1112, 1121 (9th Cir.2009). Offering extrinsic evidence of a full refund essentially creates a mini-trial on the issue of the plaintiff’s standing and the mootness of his claim where the plaintiff is required to prove that his case is not moot.

Recent Trend of Class Action Defendants Arguing an Offer of Refund Moots a Claim

One recent use of this strategy for obtaining dismissal of a class action came in Long v. Graco Children’s Products Inc., et al., No. 13-cv-01257 (N.D. Cal. Dec. 17, 2014), where a district court judge considered Graco’s presuit, full refund for an allegedly defective infant car seat and a second opportunity for a full refund through Graco’s national recall drive for the product. Graco offered a declaration of its senior regulatory manager who testified that a customer service representative had offered the named plaintiff’s wife a full refund almost a year prior to the lawsuit along with recall notice documents that offered a replacement car seat buckle to consumers.

Graco’s argument was ultimately denied for lack of sufficient extrinsic evidence — the court found that Graco failed to offer enough evidence “demonstrating that it actually offered a full refund to plaintiff at any time for the defective car seats.” But the court’s willingness to consider the underlying theory for dismissal is notable for any current or future class action defendant.

The defendant successfully argued for lack of subject matter jurisdiction under this theory in Tosh-Surryhne v. Abbott Labs. Inc., No. CIV S-10-2603 KJM, 2011 WL 4500880 (E.D. Cal. Sept. 26, 2011). Abbott, the maker of Similac infant formula, argued that its “offer of a refund [to the plaintiff] moots any restitution claim a purchaser of recalled Similac might have had, regardless of whether that purchaser accepts the refund,” because Abbott claimed to have effectively offered to satisfy the plaintiff's demands without the need for litigation. Id. at *1.

Abbott submitted extrinsic evidence that it had announced both a recall and offers of full refund prior to the filing of the plaintiff’s suit along with examples of reimbursement checks and coupons for money off of future purchases to customers in exchange for proof of purchase of the recalled product. Id. at *4. The plaintiff declined this full reimbursement, despite having proof of purchase for at least some of her purchases. Yet, the plaintiff still argued that she represented a class of people who lacked proof of purchase for some of their Similac purchases and, therefore, could not benefit from Abbott’s offer of a full refund. The court found that argument unsupported by any indication that the plaintiff’s purchases without proof were actually part of Abbott’s recall and found that Abbott’s refund would have compensated the plaintiff for those unproven purchases as well. Id. The plaintiff failed to produce sufficient evidence to overcome Abbott’s evidence of a full refund offer and, as a result, her claim was dismissed for lack of subject-matter jurisdiction. Id. at *5.

Beyond being the basis for dismissing a single claim, extrinsic evidence of a full refund has successfully established that a potential class representative’s claim cannot be the basis for class certification as a whole. In Hayes v. Wal-Mart Stores Inc., 725 F.3d 349 (3rd Cir. 2013), the Third Circuit vacated an order granting class certification after Wal-Mart offered to refund Hayes the full cost of a service plan he had purchased along with his new television. Wal-Mart was able to prove this offer of a full refund (and Hayes' subsequent refusal to accept) by deposing the named plaintiff and obtaining his admission under oath that he was offered such a refund. Hayes v. Wal-Mart, 281 F.R.D. 203, 207 (D. N.J. 2012).

Conclusion

Strategically, arguing lack of subject matter jurisdiction because of an offer of a full refund allows a defendant to go on the offensive, submit its own extrinsic evidence, and place the burden on the plaintiff to prove that he still has standing and that his claim is not moot. Recent cases suggest that defendants will need strong evidentiary support for their claim that a full refund was offered to the plaintiff, likely either an admission by the plaintiff or incontrovertible documentary evidence and affidavit support.

Automotive companies would be wise to review their recordkeeping practices to ensure that all offers of refund (whether made through recall drives or independently through individual customers) are thoroughly documented in writing and that those offers are, in fact, for a full, unconditional refund of the product in question. With that evidentiary support, future claims can be attacked as being moot and may be dismissed for lack of subject matter jurisdiction.

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