Fraud claims are generally ill-suited for class action treatment. In nearly any class action involving fraud, plaintiffs face an uphill battle in establishing class-wide exposure to the alleged misrepresentations, which is only an initial element of the claim. A recent federal court decision (Simmons v. Author Solutions, LLC, No. 13cv2801, 2015 WL 4002243 (July 1, 2015)) nicely illustrates the difficulty plaintiffs face.
In Simmons, the plaintiffs sought to certify a class of authors who contracted with the defendant, a self-publishing service. Among other things, plaintiffs alleged claims of fraud. Plaintiffs did not allege that the defendant made any misrepresentations in their contracts or during conversations with sales people. Instead, plaintiffs based their fraud claims on three representations on the defendant’s website about the publishing service’s ability to help authors’ sales. The court denied plaintiffs’ motion for class certification on their fraud claims for failing to meet the predominance requirement in Rule 23(b)(3).
The court focused on the plaintiffs’ lack of evidence that the putative class members had been uniformly exposed to the alleged misrepresentations. Showing class-wide exposure is usually the first step for plaintiffs asserting fraud claims. The first and most obvious way to do so is to offer evidence of actual exposure. This is easiest in cases involving misrepresentations in contracts, because there will be little difficulty in showing that class members were exposed if they all signed contracts containing the statements at issue. Plaintiffs in Simmonscould not show actual exposure because they could not show that the putative class members had all read the same parts of the website, or even whether they had visited the website at all.
Next, Plaintiffs argued that individual proof of exposure was unnecessary because exposure could be presumed. Because California law controlled, plaintiffs relied on In re Tobacco II Cases, 207 P.3d 20 (Cal. 2009), which held that class members’ exposure to tobacco companies’ misrepresentations about the health effects of smoking could be presumed. But nearly any case will be easily distinguishable from Tobacco II. The Simmons court distinguished the Tobacco IIcase, as other federal courts have done, as a unique situation where, because of the tobacco advertising campaign conducted over multiple decades, each class member was almost certainly exposed to the misrepresentations. Instances where exposure may be presumed will likely be limited to such long-term, pervasive campaigns of misrepresentations. In contrast, plaintiffs in Simmons could not prove a detailed, long-term campaign to defraud.
Third, Plaintiffs may also attempt to overcome individualized proof of exposure by showing that the defendant utilized a script in conversations with class members. Plaintiffs in Simmons claimed that the defendant used the representations on the website as a script during conversations with customers, thereby increasing the chances that putative class members were exposed. But plaintiffs could only point to vague deposition testimony about salespeople generally using template emails and salespeople being directed to point customers to the website, which the court found insufficient to show widespread exposure to the representations.
Finally, plaintiffs argued that class certification was appropriate because each class members was subject to a common deceptive scheme. Plaintiffs relied on In re First Alliance Mortgage Co., 471 F.3d 977, 991-992 (9th Cir. 2006), where a class was certified even though the same specifically-worded misrepresentation was not delivered to each class member. First Alliance held that class certification was appropriate because the defendant engaged in a “centrally-orchestrated scheme” to misrepresent the monthly loan payments, and to falsely represent that all fees and costs were included in the monthly payments when asked by potential borrowers about points, before directing them to another document. But plaintiffs inSimmons had no evidence of a centrally-orchestrated scheme with concrete misrepresentations.
Simmons highlights four avenues for showing class-wide exposure to misrepresentations, but each poses its own difficulties. In the end, class action treatment was inappropriate in Simmons for the same reason it is inappropriate in most fraud cases: even assuming the representations were false, it is difficult to show that each class member was actually exposed to the representations.