In McKinney v. Bayer Corp., 2010 WL 3834327 (N.D. Ohio, Sept. 30, 2010), plaintiff alleged that Bayer falsely advertised that its One-A-Day Men’s Health and One-A-Day Men’s 50+ Advantage vitamins promoted prostate health and could reduce the risk of prostate cancer. Alleging he purchased the vitamins in reliance on these false representations, plaintiff asserted claims for violations of Ohio’s consumer fraud statutes and for breach of warranty. He sought to represent a class of all persons who purchased the vitamin products in Ohio.
Bayer moved to dismiss the Ohio Consumer Sales Practices Act (OCSPA) class action claim, arguing that the OCSPA allows a consumer class action only if the defendant acted with prior notice that its conduct was deceptive or unconscionable. Ohio Rev. Code § 1345.09(B). The requisite notice must be in the form of (1) a rule adopted by the Ohio Attorney General, or (2) a judicial decision involving substantially similar conduct. Id. Bayer moved to dismiss the class action claim because plaintiff had not alleged that Bayer’s conduct had been previously declared deceptive or unlawful. Plaintiff countered that the Supreme Court’s decision in Shady Grove Orthopedic Associates, P.A. v. Allstate Ins, Co., ___ S. Ct. ___, 2010 WL 1222272 U.S. (2010), precluded the court from applying the state’s prohibition on class actions.
In Shady Grove, a divided Supreme Court addressed a motion to dismiss a class action pursuant to a New York law, N .Y. Civ. Prac. Law Ann. § 901(b), that prohibited class actions in suits seeking penalties or statutory minimum damages. In a 5-4 decision, the Supreme Court ruled that the New York provision did not preclude a federal district court sitting in diversity from entertaining a class action under Federal Rule of Civil Procedure 23.
In an opinion by Justice Scalia, four justices found that Rule 23 was purely procedural and, as such, would prevail over any state law, whether substantive or procedural. Accordingly, the federal district court should apply Rule 23, not the New York law, and deny the motion to dismiss. Justice Stevens cast the deciding fifth vote that prevented application of the New York class action ban, but he did not agree with Justice Scalia’s reasoning. According to Justice Stevens's formulation, even though it is procedural, Rule 23 cannot be applied to displace a state law that is nominally procedural “but is so intertwined with a state right or remedy that it functions to define the scope of the state-created right." 2010 WL 1222272 at *16. Because the New York rule before the Court was not such a state law, Justice Stevens agreed the case could proceed under Rule 23.
Applying Shady Grove to the McKinney case, the court first determined Shady Grove’s holding by using the Supreme Court's “narrowest grounds” rule: “When a fragmented Court decides a case and no single rationale explaining the result enjoys the assent of five Justices, the holding of the Court may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds.” Marks v. United States, 430 U.S. 188, 193, 97 S.Ct. 990, 51 L.Ed.2d 260 (1977). Under this “narrowest grounds” rule, Justice Stevens’s opinion, and not the sweeping pronouncement of Justice Scalia, would control.
Applying Justice Stevens’s reasoning, the court concluded that the Ohio limitation on class actions was a substantive limitation on the right to recover for consumer fraud, a right created within the same statute that imposed the limitation. Applying Federal Rule 23 to allow a class action would alter the balance of substantive rights under Ohio law and would therefore exceed the power conferred by the Rules Enabling Act. The McKinney court relied on two recent district court opinions to support its conclusion. In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., 2010 U.S. Dist. LEXIS 69254, *6-8 (N.D. Ohio July 12, 2010) (dismissing the Ohio Consumer Sales Practices Act class action); Bearden v. Honeywell Int'l Inc., 2010 U.S. Dist. LEXIS 83996, *25-26 (M.D. Tenn. Aug. 16, 2010) (dismissing Tennessee Consumer Protection Act class action).
McKinney is an important indicator of how the lower federal courts will interpret Shady Grove and suggests state imposed limitations on class actions will remain viable defenses to many putative federal class actions.