CAFA Jurisdiction and Pleading Consumer Injury

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In a case that sheds some light on how the court handles allegations of subject matter jurisdiction under the Class Action Fairness Act, and how it applies the heightened pleading standards of Twombly and Iqbal to class action complaints under the Massachusetts Consumer Protection Act, the First Circuit on May 4th reversed the dismissal of a class action complaint asserting claims of anticompetitive acts in connection with the pricing for truck rentals brought under  Mass. Gen. Laws chapter 93A.  Liu v. Amerco, No. 11-2053 (1st Cir., May 4, 2012).  The court’s decision suggests that, at least where the parties have not raised a dispute about the issue, the burden for satisfying CAFA’s amount-in-controversy requirement for purposes of establishing subject matter jurisdiction is low, and that, in cases alleging that unfair methods of competition have resulted in price manipulation, a plaintiff may not be required to allege detailed facts about her own transactions to survive a motion to dismiss.

Before the lawsuit was filed, defendants (a parent corporation and its subsidiary) had entered into a consent order with the Federal Trade Commission,  The FTC claimed that the defendants had unilaterally raised prices for one-way truck rentals and instructed their managers to communicate those price increases to their competitors, in the hope of leading an industry-wide increase in prices.  The consent order provided injunctive relief, but because the FTC Act contains no private right of action, the FTC never had to address the issue of whether defendants’ alleged activities actually harmed consumers.

Plaintiff filed an action for damages under chapter 93A, alleging that the defendants’ conduct caused her harm, and seeking to represent a class of similarly situated Massachusetts consumers.  The district court dismissed the complaint on the grounds that, despite the general allegations of injury, the plaintiff had not adequately alleged her own injury; i.e., she failed to allege what she paid for her own transaction and what competitors’ rates were at the time.

On appeal, the First Circuit first addressed subject matter jurisdiction sua sponte.  The court accepted plaintiff’s counsel’s good faith representations that the minimum statutory damages of $25 per incident, which could potentially be trebled, would exceed CAFA’s jurisdictional threshold of $5 million in the aggregate for all class members.  The court noted that it need not resolve whether prospective attorneys’ fees would be included in calculating the jurisdictional amount, and observed that an earlier decision of the court which held that only the named plaintiffs’ attorneys’ fees are to be counted pre-dated CAFA.  Because it was “not clear to a legal certainty that the amount in controversy is less than $5 million,” the court proceeded to the merits.

The court then reviewed both whether the alleged acts violate chapter 93A and whether plaintiff had adequately alleged harm.  With respect to the first issue, the court held that, while a mere attempt to conspire or solicitation to conspire would not violate Section 1 of the Sherman Act, such unilateral activity could violate Section 5 of the FTC Act.  Further, because the Massachusetts legislature intended chapter 93A to be interpreted consistently with the FTC Act, the court predicted that Massachusetts courts would follow FTC precedent and hold that express and unambiguous proposals to a competitor to raise prices violate the state consumer law.

The court then rejected the district court’s holding that plaintiff had not sufficiently alleged injury to state a claim under chapter 93A.  Although, the court recognized, an unsuccessful attempt to fix prices would cause no direct harm to consumers, plaintiff overcame this obstacle by alleging that defendants, as part of the plan, unilaterally increased their prices.  The district court had dismissed the complaint because it lacked “the basic facts about the plaintiff’s individual transaction.”  The First Circuit acknowledged that “[c]ausation of damages is required for a chapter 93A claim,” citing the Massachusetts Supreme Judicial Court’s 2006 decision in Hershenow v. Enterprise Rent-A-Car Co., but held that the plaintiff, relying on the FTC’s allegations concerning instructions defendants allegedly gave their managers, some evidence and inference that managers had followed the instructions, and a study showing an increase in prices, had sufficiently alleged 93A injury.

Although the First Circuit’s decision is illuminating, it should not be interpreted too broadly.  The court raised the jurisdictional issue on its own initiative at oral argument, and pointed out in its decision that plaintiff’s counsel’s good faith representations about the amount in controversy were not challenged by defendants.  Had there been a challenge, the court would likely have applied closer scrutiny to the issue.  Similarly, in a footnote the court distinguished between consumer unfairness claims and claims based on alleged unfair methods of competition, the type of claim at issue in Liu.  In a consumer class action involving more typical claims of unfair or deceptive acts or practices (e.g., a deceptive advertising case), the court might well, and indeed should, require more detailed allegations concerning the named plaintiff’s injury.  Finally, Liu was decided on a motion to dismiss.  The court made it clear that it might reach a different result on summary judgment, and that the issue whether the case was suitable for class treatment was not raised by the appeal.

Written by former litigation partner, Donald R. Frederico.