Monday, November 24, 2008

Tennessee Rejects Consumer Fraud Class Actions (Walker v. Sunrise Pontiac)

By the standards of the blogosphere, this news is prehistoric. It dates not from last week or (perish the thought!) last month, but all the way back to February, when we were young. Nonetheless, the Tennessee Supreme Court's decision in Walker v. Sunrise Pontiac-GMC Truck, Inc., 249 S.W.3d 301 (Tenn. 2008) (link from the Tennessee Supreme Court website here), warrants mention. Here's why:

When people suffer an actual physical injury as a result of an allegedly defective product, they can usually find a lawyer willing to take their case on a contingent fee. The lawyer files a lawsuit on behalf of that one plaintiff seeking to recover money damages.

When no one has been injured by the product, it's trickier to gin up a lawsuit that will convince a defendant to pay money to resolve the claim. Thus, in the "no-injury" cases, plaintiffs' counsel rope all of the non-injured people into a supposed "class" of plaintiffs and file a lawsuit on behalf of the entire class. (We don't make this stuff up. For a collection of "no-injury" cases in the context of drugs and devices alone, click on the "No Injury Scorecard" over on the righthand side of this blog, or just click here for a quick view.)

If a court certifies a class of thousands or millions of people, the defendant is facing a serious risk at trial, even if none of the plaintiffs has been injured. If it works, this game can be worth real money to plaintiffs' counsel.

Sometimes it's hard for plaintiffs' counsel to find a legal theory to support claims being brought by people who weren't hurt. But state consumer protection laws occasionally do the trick. In some states, the elements of statutory consumer protection claims are amorphous, so allegations that wouldn't support any traditional claim may (wrongly, in our view) state a consumer protection claim.

We thus see a fair number of putative class actions brought under state consumer protection laws.

In February 2008, the Tennessee Supreme Court put an end to this for claims brought under Tennessee law. Walker v. Sunrise Pontiac involved a claim that a car dealership misrepresented the nature of "dealer incurred costs" that it passed on to people who bought cars from it. Walker sued on behalf of a putative class of people who had supposedly been misled into paying these charges.

The trial court certified the class.

The Tennessee Supreme Court reversed. The court held (as most courts do) that the individualized nature of any misrepresentations made to customers precluded certifying a class of fraud or misrepresentation claims.

And, on the issue dearer to our hearts, the court also held that plaintiffs cannot, under any circumstances, bring class action claims under the Tennessee Consumer Protection Act. Tennessee Code Annotated section 47-18-109(a)(1) provides that "[a]ny person . . . may bring an action individually to recover actual damages." The word "individual" refers to a single person, as opposed to a class or group. Thus, by its plain language, the Tennessee Consumer Protection Act does not allow class action lawsuits.

If protection of a class of people were necessary, the Act gives the state Attorney General and the Division of Consumer Affairs of the Tennessee Department of Commerce and Insurance the power to investigate and prosecute violations of the law. Thus, the Act protects the public without the need for private class actions.

This decision will help defendants in three ways. First, Tennessee residents cannot bring class actions under the TCPA. Second, when plaintiffs bring class actions on behalf of the citizens of all fifty states, courts will have to recognize that at least some of the plaintiffs -- those who live in Tennessee -- are not permitted to proceed on a classwide basis. That legal wrinkle will provide extra ammunition to defendants trying to avoid certification of a nationwide class. Finally, when plaintiffs bring cases against corporations that reside in Tennessee and insist (improperly, in our view) that Tennessee law should apply to everyone, that Tennessee law will not permit the case to proceed on a classwide basis.

This isn't a drug or device case in particular, but it's a decision that will affect putative class action lawsuits brought against many product manufacturers, including those who inhabit our little sandbox. All lawyers who defend class actions should be aware of this case.

1 comment:

raymondane said...

Thanks for the good read, I will definitely return for an update!

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