Yokoyama v. Midland National ( 2010 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
GARY YOKOYAMA, ATTORNEY IN 
FACT FOR LEATRICE C. YOKOYAMA,
INDIVIDUALLY AND ON BEHALF OF A
CLASS OF SIMILARLY SITUATED No. 07-16825
PERSONS, CATHERINE THORSON; D.C. No.
EDNA YAMANE,
Plaintiffs-Appellants,
 CV-05-00303-JMS
ORDER AND
v. OPINION
MIDLAND NATIONAL LIFE INSURANCE
COMPANY,
Defendant-Appellee.

Appeal from the United States District Court
for the District of Hawaii
J. Michael Seabright, District Judge, Presiding
Argued and Submitted
November 20, 2008—Honolulu, Hawaii
Filed February 8, 2010
Before: Mary M. Schroeder, Richard A. Paez and
N. Randy Smith, Circuit Judges.
Opinion by Judge Schroeder
2127
2130 YOKOYAMA v. MIDLAND NATIONAL LIFE
COUNSEL
James J. Bickerton, Honolulu, Hawaii, for plaintiff-appellant,
Gary Yokoyama, et al.
Robert D. Phillips, Oakland, California, for defendant-
appellee, Midland National Life Insurance Co.
ORDER
The opinion filed on August 28, 2009, is hereby withdrawn.
The petition for rehearing is denied. An opinion is being filed
concurrently with this order.
OPINION
SCHROEDER, Circuit Judge:
Defendant Midland National Life Insurance Company mar-
keted annuities to senior citizens in Hawaii. At issue in this
case are Midland annuities that were sold by independent bro-
kers between 2001 and 2005. Plaintiff Gary Yokoyama pur-
chased one of those annuities through an independent broker
and filed this class action claiming that Midland marketed the
annuities through deceptive practices, in violation of Hawaii’s
Deceptive Practices Act. See Haw. Rev. Stat. § 480-2. The
complaint specifically targets representations made in Mid-
land’s brochures, which promoted the annuities as appropriate
for seniors. This action has been exempted from multi-district
litigation against Midland pending in the Central District of
YOKOYAMA v. MIDLAND NATIONAL LIFE 2131
California, because this action has been narrowly tailored to
rely only on Hawaii law.
The district court denied class certification, holding that in
order to succeed under the Hawaii Act, each plaintiff would
have to show subjective, individualized reliance on deceptive
practices within the circumstances of each plaintiff’s purchase
of the annuity. See Yokoyama v. Midland Nat’l Life Ins. Co.,
243 F.R.D. 400 (D. Haw. 2007). Principally for that reason,
the district court held that the plaintiffs could not satisfy Fed-
eral Rule of Civil Procedure 23(b)(3)’s requirements that
common issues predominate over individual issues and that a
class action is a superior method of adjudication. The disposi-
tive issue is thus an issue of Hawaii state law, namely whether
Hawaii’s Deceptive Practices Act requires a showing of indi-
vidualized reliance.
The Hawaii Supreme Court has considered the issue of
whether the statute requires actual, i.e., subjective reliance. It
has said that the dispositive issue is whether the allegedly
deceptive practice is “likely to mislead consumers acting rea-
sonably under the circumstances.” Courbat v. Dahana Ranch,
Inc., 141 P.3d 427, 435 (Haw. 2006). “[A]ctual deception
need not be shown, the capacity to deceive is sufficient.” State
of Bronster v. U.S. Steel Corp., 919 P.2d 294, 313 (Haw.
1996) (citation omitted). This is an objective test, and there-
fore actual reliance need not be established. Accordingly,
there is no reason to look at the circumstances of each indi-
vidual purchase in this case, because the allegations of the
complaint are narrowly focused on allegedly deceptive provi-
sions of Midland’s own marketing brochures, and the fact-
finder need only determine whether those brochures were
capable of misleading a reasonable consumer.
In the event the plaintiffs succeed under this standard in
establishing liability under the Hawaii Act, there will then, in
all likelihood, be individualized issues of damages. The
potential existence of individualized damage assessments,
2132 YOKOYAMA v. MIDLAND NATIONAL LIFE
however, does not detract from the action’s suitability for
class certification. Our court long ago observed that “[t]he
amount of damages is invariably an individual question and
does not defeat class action treatment.” Blackie v. Barrack,
524 F.2d 891, 905 (9th Cir. 1975) (citations omitted); accord
Smilow v. SW. Bell Mobile Sys, Inc., 323 F.3d 32, 40 (1st Cir.
2003). Because there are no individualized issues of subjec-
tive reliance under Hawaii law, we hold that the district court
erred when it denied class certification.
BACKGROUND
Three consumer senior citizens, all residents of Hawaii, ini-
tiated this action. Each purchased Midland’s annuities from
an independent broker. Each signed Midland’s sales and dis-
closure forms. Midland obligates its brokers, with respect to
each sale, to provide certain documentation to consumers, to
obtain consumers’ signatures on various forms, and to certify
that nothing was said that is inconsistent with Midland’s bro-
chures and disclosure forms. In particular, Midland requires
its brokers to sign the following certification:
I certify that the Company disclosure material has
been presented to the applicant. I have made no
statements which differ in any significant manner
from this material. I have not made any promises or
guarantees about the future value of any non-
guaranteed elements.
Plaintiffs allege that Midland’s documentation deceptively
represents that its annuities protect its clients from the risks of
the stock market and that Midland fails to include in its docu-
mentation facts necessary to inform prospective purchasers of
the true risks, possible detriments, and unsuitability of Mid-
land’s long-term annuities for seniors. The plaintiffs’ com-
plaint therefore makes clear that plaintiffs’ claims rest on
Midland’s own sales materials, not any representations made
by specific brokers to the individual plaintiffs. Specifically,
YOKOYAMA v. MIDLAND NATIONAL LIFE 2133
their allegations do not relate to what they were told by bro-
kers; rather, their allegations relate to what information was
absent from Midland’s brochures.
ANALYSIS
I. Standard of Review
[1] The prerequisites for maintaining a class action pursu-
ant to Rule 23(a), and the findings necessary under Rule
23(b)(3) to certify the type of class sought in this case, include
some determinations that may, depending on the nature of the
case, present questions of law, or of fact, or involve issues
requiring a discretionary determination.1 Rule 23(a)’s prereq-
uisite that there must be questions of law or fact common to
the class, for example, is obviously one where the trial court
must look to both the legal and factual contexts of the litiga-
tion before it. Fed.R.Civ.P. 23(a)(2). The same is true for Rule
23(b)(3)’s stricture that the court find that “the questions of
law or fact common to class members predominate” over
individualized issues. Fed.R.Civ.P. 23(b)(3). Such a determi-
nation also generally contains an element of discretion, as do
most of the Rule’s requirements, particularly the prerequisites
1
At issue in this case are Rule 23(b)(3)’s predominance and superiority
requirements. Rule 23(b)(3) requires that:
questions of law or fact common to class members predominate
over any questions affecting only individual members, and that a
class action is superior to other available methods for fairly and
efficiently adjudicating the controversy. The matters pertinent to
these findings include:
(A) the class members’ interest in individually controlling
the prosecution or defense of separate actions;
(B) the extent and nature of any litigation concerning the
controversy already begun by or against class members;
(C) the desirability or undesirability of concentrating the liti-
gation of the claims in the particular forum; and
(D) the likely difficulties in managing a class action.
2134 YOKOYAMA v. MIDLAND NATIONAL LIFE
of numerosity, typicality, and adequacy of representation. The
most important determination, i.e., the ultimate decision as to
whether or not to certify the class, must, at least in any non-
frivolous putative class action, involve a significant element
of discretion.
It is, therefore, unsurprising that when a district court’s
class action certification is on appeal, we say that the overall
standard of review is for abuse of discretion. See, e.g., Parra
v. Bashas’, Inc., 536 F.3d 975, 977 (9th Cir. 2008). In addi-
tion, when any particular underlying Rule 23 determination
involving a discretionary determination is appealed, our stan-
dard of review must be for abuse of discretion.
While our review of discretionary class certification deci-
sions is deferential, it is also true that we accord the decisions
of district courts no deference when reviewing their determi-
nations of questions of law. Further, this court has oft
repeated that an error of law is an abuse of discretion. See,
e.g., Knight v. Kenai Peninsula Borough Sch. Dist., 131 F.3d
807, 816-17 (9th Cir. 1997) (“We review a district court’s
denial of class certification for abuse of discretion,” and “a
district court abuses its discretion when it makes an error of
law.”); Hawkins v. Comparet-Cassani, 251 F.3d 1230, 1237
(9th Cir. 2001) (“A district court’s decision regarding class
certification is reviewed for abuse of discretion” and “[a]
court abuses its discretion if its certification order is premised
on legal error.”) (internal citations omitted); Molski v. Gleich,
318 F.3d 937, 946 (9th Cir. 2003) (same, citing Hawkins, 251
F.3d at 1237). Indeed, since Salve Regina Coll. v. Russell, 499
U.S. 225, 231, 111 S. Ct. 1217, 113 L.Ed.2d 190 (1991), no
federal court has ever held that a district court’s error as to a
matter of law is not an abuse of discretion, in the class action
context, or in any other.
[2] Thus, when an appellant raises the argument that the
district court premised a class certification determination on
an error of law, our first task is to evaluate whether such legal
YOKOYAMA v. MIDLAND NATIONAL LIFE 2135
error occurred. See, e.g., Zinser v. Accufix Research Inst., 253
F.3d 1180, 1186-88 (9th Cir. 2001) (reviewing a district
court’s choice of law determination de novo, and its factual
findings for clear error); Knight v. Kenai Peninsula Borough
Sch. Dist., 131 F.3d 807, 811-812 (9th Cir. 1997) (finding an
issue of law, regarding a mootness determination, is reviewed
without deference to the district court and that an error of law
is a per se abuse of discretion).
As Zinser and Knight illustrate, once we have determined
the threshold question of whether an error of law has
occurred, we review the class certification determination for
abuse of discretion. If the district court’s determination was
premised on a legal error, we will find a per se abuse of dis-
cretion. See Knight, 131 F.3d at 817. If no legal error
occurred, we will proceed to review the district court’s class
certification decision for abuse of discretion as we always
have done.
The Supreme Court has addressed this same dichotomy in
the sanctions context of Rule 11 of the Federal Rules of Civil
Procedure. The Court resolved it by holding that when a dis-
trict court errs as a matter of law in imposing sanctions, the
legal error automatically becomes an abuse of discretion.
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110
S.Ct. 2447, 110 L.Ed.2d 359 (1990) (“A district court would
necessarily abuse its discretion if it based its ruling on an
erroneous view of the law . . . .”).
Our court’s method in Zinser and Knight is also consistent
with the practices of other circuits. For example, in Miles v.
Merrill Lynch & Co., the Second Circuit held that the stan-
dard for appellate review of the Rule 23 requirements “is
whether discretion has been exceeded (or abused). . . . Of
course, this leeway, with all matters of discretion, is not
boundless. To the extent that the ruling on a Rule 23 require-
ment . . . involves an issue of law, review is de novo.” 471
F.3d 24, 40-41 (2d Cir. 2006). See also Andrews v. Chevy
2136 YOKOYAMA v. MIDLAND NATIONAL LIFE
Chase Bank, 545 F.3d 570, 573 (7th Cir. 2008) (“We gener-
ally review a grant of class certification for abuse of discre-
tion, but ‘purely legal’ determinations made in support of that
decision are reviewed de novo.”); In re Hydrogen Peroxide
Antitrust Litig., 552 F.3d 305, 312 (3d Cir. 2009) (“We
review a class certification order for abuse of discretion . . .
. . Whether an incorrect legal standard has been used in an
issue of law to be reviewed de novo.”) (internal quotations
omitted).
[3] In light of the above, in reviewing this case, we must
first determine whether the law of Hawaii requires a finding
of individual reliance in the application of its consumer pro-
tection statutes. As a federal court sitting in diversity, we
answer this question of state law de novo. Salve Regina, 499
U.S. at 231. Our conclusion of whether or not the district
court erred in interpreting Hawaii law will then inform our
abuse of discretion review of the district court’s denial of
class certification.
II. The District Court Erred as a Matter of Law When
It Found that Hawaii’s Consumer Protection Law
Required Individualized Showings of Reliance
The Hawaii Supreme Court has described the state’s con-
sumer protection laws as having been “constructed in broad
language in order to constitute a flexible tool to stop and pre-
vent fraudulent, unfair or deceptive business practices for the
protection of both consumers and honest businessmen.” Ai v.
Frank Huff Agency, Ltd., 607 P.2d 1304, 1311 (Haw. 1980),
overruled on other grounds by Robert’s Haw. Sch. Bus, Inc.
v. Laupahoehoe Transp. Co., Inc., 982 P.2d 853 (Haw. 1999).
Although “deceptive” practices violate Hawaii’s Hawaii
Revised Statute § 480-2, chapter 480 provides no definition of
“deceptive.” Courbat, 141 P.3d at 434. Section 480-2 pro-
vides, in pertinent part, as follows:
YOKOYAMA v. MIDLAND NATIONAL LIFE 2137
(a) Unfair methods of competition and unfair or
deceptive acts or practices in the conduct of any
trade or commerce are unlawful.
(b) In construing this section, the courts and the
office of consumer protection shall give due consid-
eration to the rules, regulations, and decisions of the
Federal Trade Commission and the federal courts
interpreting section 5(a)(1) of the Federal Trade
Commission Act (15 U.S.C. 45(a)(1)), as from time
to time amended.
Haw. Rev. Stat. § 480-2.
[4] Hawaii courts have interpreted the word “deceptive” to
include those acts that mislead “consumers acting reasonably
under the circumstances.” Courbat, 141 P.3d at 435. Hawaii
courts have held that deceptive practices are those “tend[ing]
to mislead or deceive.” Bronster, 919 P.2d at 312. A decep-
tive act or practice is “(1) a representation, omission, or prac-
tice[ ] that (2) is likely to mislead consumers acting
reasonably under the circumstances [where] (3) [ ] the repre-
sentation, omission, or practice is material.” Courbat, 141
P.3d at 435 (alterations in original) (citation omitted). The
representation, omission, or practice is material if it is likely
to affect a consumer’s choice. Id. Whether information is
likely to affect a consumer’s choice is an objective inquiry,
“turning on whether the act or omission is ‘likely to mislead
consumers’ as to information ‘important to consumers’ in
making a decision regarding the product or service.” Id.(internal citations and footnote omitted). Therefore, Hawaii’s
consumer protection laws look to a reasonable consumer, not
the particular consumer.
[5] Hawaii’s consumer protection laws expressly consider
class actions to be appropriate enforcement mechanisms.
Haw. Rev. Stat. § 480-13(c) (“The remedies provided in sub-
sections (a) and (b) shall be applied in class action and de
2138 YOKOYAMA v. MIDLAND NATIONAL LIFE
facto class action lawsuits or proceedings, including actions
brought on behalf of direct or indirect purchasers . . . .”).
Hawaii’s courts recognize that its consumer protection laws
can be enforced through class actions. See Fuller v. Pac. Med.
Collections, Inc., 891 P.2d 300, 309 (Haw. App. 1995).
Retaining the class action feature likely helps bolster the
“flexibility” of the consumer protection laws. See Ai, 607 P.2d
at 1311.
III. The District Court’s Denial of Class Certification
Was a Per Se Abuse of Discretion Because It Was
Premised on Legal Error
The district court refused to certify a class in this case
because it determined that Hawaii’s consumer protection laws
require individualized reliance showings. Believing that the
plaintiffs’ claims would “require inspection of whether the
class members individually relied on Midland’s misstate-
ments,” the district court concluded that class issues do not
predominate over issues affecting individual members.
[6] The district court’s premise was contrary to the Hawaii
Supreme Court’s interpretation of Hawaii state law, because
the Hawaii Supreme Court has made it clear that reliance is
judged by an “objective ‘reasonable person’ standard.” Cour-
bat, 141 P.3d at 436. Hawaii’s Supreme Court has said as
much: “[A]ctual deception need not be shown; the capacity to
deceive is sufficient.” Bronster, 919 P.2d at 313. Because
Hawaii uses an objective test to effectuate its remedial con-
sumer protection statute, the district court erred in holding
that individual reliance issues make this case inappropriate for
class certification.
[7] These plaintiffs base their lawsuit only on what Mid-
land did not disclose to them in its forms. The jury will not
have to determine whether each plaintiff subjectively relied
on the omissions, but will instead have to determine only
YOKOYAMA v. MIDLAND NATIONAL LIFE 2139
whether those omissions were likely to deceive a reasonable
person. This does not involve an individualized inquiry.
[8] The district court also determined that the plaintiffs’
claims “involve separate questions of fact as to what informa-
tion the independent brokers selling the [annuities] con-
veyed.” The plaintiffs’ allegations, however, are that the
deceptive acts or practices are omissions or misstatements in
Midland’s own brochures. More specifically, their Fourth
Amended Complaint alleges that the deception was perpe-
trated by Midland through its “fail[ure] to disclose to Plain-
tiffs and Class Members material information concerning the
benefits/detriments from, and suitability and impact of” the
annuities. The plaintiffs have thus crafted their lawsuit so as
to avoid individual variance among the class members. Plain-
tiffs’ case will not require the fact-finder to parse what oral
representations each broker made to each plaintiff. Instead,
the fact-finder will focus on the standardized written materials
given to all plaintiffs and determine whether those materials
are “likely to mislead consumers acting reasonably under the
circumstances.” Courbat, 141 P.3d at 435.
Perhaps in part because the district court interpreted Hawaii
law to require subjective reliance, it concluded that the dam-
ages calculation involved highly individualized and fact-
specific determinations. The District Court explained that
the amount of damage sustained by a single class
member would depend on factors such as the finan-
cial circumstances and objectives of each class mem-
ber; their ages; the IAP selected; any changes in the
fixed interest rate for that particular IAP; the perfor-
mance of the selected index; any changes in the
index margin for that particular IAP; any cap on the
indexed interest; the length of the surrender periods;
whether the individual had undertaken or wanted to
undertake an early withdrawal of funds; any benefit
the individual policy holder derived from the form of
2140 YOKOYAMA v. MIDLAND NATIONAL LIFE
the annuity itself, including the tax-deferral of cred-
ited interest; and the actual rate of return on the IAP.
[9] Damage calculations will doubtless have to be made
under Hawaii’s consumer protection laws. See Flores v. Rawl-
ings Co., LLC, 177 P.3d 341, 355 (Haw. 2008); Balthazar v.
Verizon Haw. Inc., 123 P.3d 194 (Haw. 2005). In this circuit,
however, damage calculations alone cannot defeat certifica-
tion. We have said that “[t]he amount of damages is invari-
ably an individual question and does not defeat class action
treatment.” Blackie, 524 F.2d at 905. Thus, because there are
no individualized issues sufficient to render class certification
inappropriate under Rule 23, class issues predominate.
The same erroneous interpretation of Hawaii’s consumer
protection law undermines the district court’s determination
that a class action was not a “superior” means to adjudicate
the case. The principal reason that the district court found that
a class action was not “superior” was the many “individual
determinations that must be made,” a rationale premised on
the district court’s misinterpretation of Hawaii law and this
circuit’s precedent regarding the significance of individual-
ized damages calculations in the context of class certification.
While the district court also reasoned that there was an incen-
tive to pursue individual claims because the average purchase
price exceeded $50,000, the parties do not dispute that aver-
age actual damages would be only about 20-30 percent of the
purchase price. Lastly, while the court said that individual
claims against brokers could not be adjudicated within the
class action framework, the existence of individual claims
against other parties, such as brokers, does not necessarily
defeat the availability of a class action against the company
under a statute aimed at protecting reasonable consumers
from deceptive business practices. See Courbat, 141 P.3d at
434-35; Ai, 607 P.2d at 1311. Therefore, since it is clear that
the district court’s overriding but erroneous concern was that
a need for individualized determinations of both reliance and
YOKOYAMA v. MIDLAND NATIONAL LIFE 2141
damages defeated class treatment, we also reverse the district
court’s superiority determination.
CONCLUSION
[10] Because the proper inquiry under Hawaii law consid-
ers the effect upon a reasonable consumer, not a particular
consumer, there are no individualized issues of reliance under
Rule 23. Moreover, Hawaii’s state courts have made clear that
Hawaii’s consumer protection laws are flexible and may be
enforced through the class action mechanism. We express no
opinion on the merits of the claims.
REVERSED and REMANDED for FURTHER PRO-
CEEDINGS.