A Plaintiff Must Plead California UCL Causes of Action With "Heightened Particularly" in Federal Court
In Kearns v. Ford Motor Co., No. 07-55835, 2009 WL 1578535 (9th Cir. June 8, 2009), the Ninth Circuit held that Federal Rule of Civil Procedure ("FRCP") 9(b) applies to causes of action under California's unfair competition laws brought in federal court. FRCP 9(b) requires that
when fraud is alleged, "a party must state with particularity the circumstances constituting fraud . . . ." [FRCP] 9(b). Where fraud is not an essential element of a claim, only those allegations of a complaint which aver fraud are subject to Rule 9(b)'s heightened pleading standard. Id. at *2.
Kearns brought a class action against Ford alleging that Ford Motor Company and its licensed dealerships conspired to mislead customers into paying more for "Certified Pre-owned Vehicles," which weren't actually any better than equivalent non-certified used cars.
According to Kearns, Ford misled its customers by making false statements regarding the overall safety and road-worthiness of Ford-certified pre-owned vehicles when compared to regular used cars. As a result of Ford's false statements, consumers were led to believe that the certified pre-owned vehicles were guaranteed safer than non-certified used cars when, in fact, they were not.
Kearns argued that Ford never maintained much oversight over the certification process. Thus, the certified pre-owned cars were really no safer than average used cars, and the average price difference between a certified pre-owned car and a regular used car was somewhere around $1,080.
Kearns further argued that Ford's behavior with regard to the certified pre-owned vehicles constituted violations of California's Consumer Legal Remedies Act, and California's Unfair Competiton Law. However, the district court dismissed the case because Kearns' complaint failed to state his claims with the requisite heightened particularity.
The Ninth Circuit affirmed the district court's decision, holding that since essentially all of Kearn's claims were grounded in fraud, his pleadings had to meet the "heightened particularity" requirement as articulated in FRCP 9(b). Kearns' claims that he relied on false or misleading television advertisements, and other misleading sales materials were too unspecific to satisfy FRCP 9(b). As the Ninth Circuit states,
[n]owhere...does Kearns specify what the television advertisements or other sales material specifically stated. Nor did Kearns specify when he was exposed to them or which ones he found material. Kearns also failed to specify which sales material he relied upon in making his decision to buy a [certified pre-owned] vehicle. Id. at *4.
- What's the Point of the "Heightened Particularity" Standard for Fraud Claims?
Fraud claims are unique as they are basically excepted from the relatively loose federal notice pleading standard because of how potentially damaging they may be to the defendant's reputation. As the Ninth Circuit explains,
[FRCP] 9(b) serves three purposes: (1) to provide defendants with adequate notice to allow them to defend the charge and deter plaintiffs from the filing of complaints "as a pretext for the discovery of unknown wrongs"; (2) to protect those whose reputation would be harmed as a result of being subject to fraud charges; and (3) to "prohibit [ ] plaintiff[s] from unilaterally imposing upon the court, the parties and society enormous social and economic costs absent some factual basis." In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1405 (9th Cir. 1996) (quoting Semegen v. Weidner, 780 F.3d 727, 731 (9th Cir. 1985)). Id. at *3.
In short, the heightened standard is supposed to deter serious accusations of fraud and conspiracy that lack a real basis in fact; however, I've never been quite convinced that it actually serves that purpose. Rather, it seems that it serves to deter accusations of fraud and conspiracy that lack a basis in specific facts known to the plaintiff when filing a claim. But, isn't formal discovery at least in part designed to give the parties access to evidence that independent investigation and other methods of informal discovery might otherwise fail to uncover?
I also find it odd that of the three purposes behind FRCP 9(b), as stated by the courts, not one of them specifically mentions that a successful fraud claim can lead to large punitive damages awards. What other "enormous social and economic costs" could the Ninth Circuit be referring to?
