United States: Appeals Court Rejects Certification of National Class Under Single State’s Consumer Protection Statute

In a ruling issued on October 12, 2005, the United States Court of Appeals for the Eighth Circuit reversed a district court’s certification of a nationwide class action asserting claims under a series of Minnesota consumer protection and deceptive trade practices statutes. In re St. Jude Medical, Inc., No. 04-3117, __F.3d__, 2005 WL 2509282 (8th Cir. Oct. 12, 2005). This opinion reversed a district court decision accepting the possibility of a nationwide class action lawsuit premised on the laws of a single state, In re St. Jude Medical, Inc., No. 0:01-MD-1396, Docket No. 185 (D. Minn. Mar. 27, 2003), and effectively overruled a second district court decision in an insurance sales practices case which had reached a similar conclusion. In re Lutheran Brotherhood Variable Ins. Prods. Co. Sales Practices Litig., 201 F.R.D. 456 (D. Minn. 2001). The Eighth Circuit’s ruling addresses the role of the various constitutional considerations implicated by putative national class actions which seek to rely on the law of one particular state and represents the second significant appellate court decision in recent months rejecting the certification of a nationwide class. See Avery v. State Farm Mut. Auto. Ins. Co., __N.E.2d__, 2005 WL 1981444 (Ill. Aug. 18, 2005).

Defendant is a medical manufacturing company with its headquarters and operations located in Minnesota. A number of putative class actions were filed on behalf of those patients in the United States who had received a Silzone valve implant manufactured by Defendant. These lawsuits were consolidated by the Judicial Panel on Multidistrict Litigation and transferred to the United States District Court for the District of Minnesota for pretrial proceedings. Plaintiffs asserted common law claims for strict products liability, breach of implied and express warranties, negligence, and medical monitoring as well as claims under a variety of Minnesota statutes including the False Advertising Act, the Consumer Fraud Act, the Unlawful Trade Practices Act, and the Uniform Deceptive Trade Practices Act.

Plaintiffs moved for certification of a number of different classes including a single, national class under Federal Rule of Civil Procedure 23(b)(3) asserting claims under Minnesota’s consumer protection and deceptive trade practices acts. Defendant argued, among other things, that (i) application of Minnesota law to the entire class was unconstitutional in the first instance and (ii) even assuming such application was constitutional, Minnesota law should not be presumed to apply to all class members and the court should undertake a state-by-state analysis to determine what law should apply to each plaintiff’s claims, an inquiry the breadth of which would overwhelm any common issues and make a national class unmanageable.

The district court rejected the first argument, finding Minnesota had a significant interest in the litigation in light of the fact Defendant was headquartered there and most of the relevant conduct had occurred in, or emanated from, Minnesota. Therefore, application of Minnesota law was neither arbitrary nor fundamentally unfair.

With respect to the second argument, the district court found there were no impediments to applying Minnesota’s consumer protection statutes to a nationwide class because those statutes explicitly permitted "any person" or "a person" injured by a violation to bring a lawsuit. See Minn. Stat. §§ 8.31, subd. 3a, 325D.45, subd. 1. Relying on a prior district court ruling, Lutheran Brotherhood, 201 F.R.D. 456, the district court reasoned that because each individual plaintiff had standing to assert a claim under the Minnesota statutes irrespective of their own personal contacts with the state, "[t]he fact that individual plaintiffs hail from other states is immaterial." Lutheran Brotherhood had addressed the certifiability of a nationwide class action brought under Minnesota’s consumer fraud statute on behalf of owners of "vanishing premium" life insurance policies issued by a Minnesota entity. In a footnote, the Lutheran Brotherhood court rejected the defendants’ constitutional arguments against the application of Minnesota law to a nationwide class by citing Group Health Plan, Inc. v. Philip Morris, Inc., 621 N.W.2d 2 (Minn. 2001), for the proposition that Minnesota’s consumer fraud statute conferred standing broadly upon "any person" injured by a violation thereof, and generally citing the defendant’s contacts with Minnesota as giving the state a significant interest in the litigation. The St. Jude Medical district court found the Lutheran Brotherhood holding to be "foursquare with the present case" and proceeded to certify a national class action under Minnesota’s assorted consumer protection statutes. Defendant appealed.

On appeal, Defendant argued the district court’s certification of a nationwide class action using the consumer protection laws of a single state to the exclusion of all others violated the Commerce Clause, the Due Process Clause, the Full Faith and Credit Clause, the Rules Enabling Act, the Erie doctrine, and Rule 23. The Eighth Circuit found it necessary only to address the Due Process and Full Faith and Credit arguments.

The court cited the same general rule of constitutional law as the district court (i.e., in order "for a state’s substantive law to be selected in a constitutionally permissible manner, the State must have a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair"), but found it impossible to determine whether that rule had been satisfied in this case since the district court had not analyzed the contacts between Minnesota and each plaintiff’s claims The court read the Minnesota Supreme Court’s ruling in Group Health (upon which both the district court and Lutheran Brotherhood had relied) to hold only that the statutory language permitting "any person" or "a person" to bring a cause of action applied equally to both individual consumers and sophisticated purchasers such as corporations. The Eighth Circuit found nothing in Group Health regarding the ability of non-residents to assert causes of action under those provisions irrespective of the sufficiency of their contacts with Minnesota. As such, the Eighth Circuit stated "Lutheran Brotherhood’s citation to Group Health was misplaced because Group Health spoke only to standing rather than extraterritorial application to a nationwide class."

In order to apply Minnesota law to a nationwide class, the court held the district court was first required to conduct an individualized choice-of-law analysis with respect to each plaintiff class member’s claim in order to determine whether any conflicts existed. The court found it unnecessary to delve into that task itself, relying instead on the Seventh Circuit’s conclusion in In re Bridgestone/Firestone, Inc., 288 F.3d 1012 (7th Cir. 2002), that "[s]tate consumer-protection laws vary considerably, and courts must respect these differences rather than apply one state’s laws to sales in other states with different rules." Id. at 1018. As such, the court found the district court had attempted to preempt the Due Process and Full Faith and Credit Clauses with state standing statutes in violation of the Supremacy Clause. Accordingly, the court reversed the certification of the consumer protection class and remanded the case so that the district court could conduct "a thorough conflicts-of-law analysis with respect to each plaintiff class member before applying Minnesota law."

© 2005 Sutherland Asbill & Brennan LLP. All Rights Reserved. This article is for informational purposes and is not intended to constitute legal advice.