The court denied Schwartz’s motion to certify a class under California’s FAL based on allegations that defendant LOA deceptively marketed its LED lamps by overstating their light output and lifetime, without substantiation, which resulted in an FTC action. Previously, the court found that Schwartz was an inadequate representative for UCL and CLRA claims because he was a Florida resident who’d bought the products in Florida, and LOA had shown material differences in the states’ consumer protection laws as well as foreign state interests in applying their own laws to injured state plaintiffs that would be impaired by application of California law. However, LOA didn’t show material differences between California's FAL and the laws of the foreign states. “Given the FAL's express prohibition against disseminating false advertisements across state lines, the Court reasoned that the FAL could, conceivably, be applied across a nationwide class where putative plaintiffs were harmed by false advertisements generated in California and disseminated throughout the country.”
But not here. Plaintiffs satisfied numerosity, commonality, and typicality. Adequacy turned on whether the court could apply the FAL nationwide. But LOA subsequently presented evidence of a material conflict among the states’ false advertising laws. Thus, foreign laws had to be applied to foreign plaintiffs, at least by way of subclassing. Because the California and Florida false advertising laws were materially different, Schwartz couldn’t claim under the FAL.
That took care of Rule 23(a), but there was still Rule 23(b)(3). Still, the same problems defeated a finding of predominance. Schwartz urged the court to apply the FAL nationwide, which required a choice of law analysis under Mazza. LOA’s headquarters was located in California, it made its products only in California, and all its ads were created in California. This was enough to shift the burden to LOA to show that foreign law should apply to class claims. LOA provided “comprehensive examples” of potentially outcome-determinative state differences in scienter, reliance, availability of private class actions, and remedies. Schwartz argued that the differences weren’t material because plaintiffs could readily satisfy even the most stringent standards for scienter and reliance, but that required merits judgments that the court wasn’t willing to make at this stage. Dukes gives courts some leeway in assessing the merits at the class certification phase, but the court wasn’t willing to use that to make a finding on scienter. And those foreign states had important interests in what conduct was permitted or banned within its own borders.
Schwartz argued that California’s interest in applying the FAL was still greater because LOA was a California corporation conducting its business exclusively in California. The language of the FAL offered support: it prohibits the dissemination of false or misleading advertisements “from this state before the public in any state.” But federalism still had a role to play. “Although the California legislature has every right to regulate business within its borders, the 49 other state legislatures have the same right, and California cannot exercise its power in a manner that encroaches on other states' authority.… California cannot create laws that reach conduct occurring in other states, even if a California corporation is the culprit.” California law also generally acknowledges that the place of the wrong has the predominant interest in applying its own laws. Schwartz argued that, because the false ads came from California, California was the place of the wrong, but that’s not right: it’s where the last event necessary to make the actor liable occurred, and that means it’s the place where the falsehoods were communicated to the class. The statutory language can be given effect through criminal prosecutions or a civil suit by an injured California competitor, even if it can’t be used in a class action. (And that doesn’t raise federalism concerns because … ?)
Other states’ interests would be more impaired by failure to apply their laws, as in Mazza. It didn’t matter that Mazza involved a multinational corporation and LOA was a California corporation conducting business exclusively in California. Mazza also involved ads generated in California and disseminated nationwide. The wrongs were still in the foreign states. Also, Mazza’s federalism analysis is “broad and categorical.” Defendants will love this line: “Thus, for false advertising claims--where the harm occurs in the state in which the advertisement is communicated--the interests of foreign states will invariably prevail over California's interest any time the advertisement is disseminated to foreign states” (emphasis added). The court couldn’t find any post-Mazza case where a defendant successfully demonstrated a conflict but failed to show that another jurisdiction had a superior interest in applying its law. Maybe there can be subclassing, though, the court suggested. But here, applying 50 different consumer protection laws destroyed predominance.
This also meant there was no superiority: the task of instructing a jury on 50 different laws would be “terribly inefficient, confusing, time consuming, and a waste of judicial resources,” and the court didn’t think grouping would help. However, plaintiff was given the opportunity to replead with subclasses.