Yokoyama v. Midland National ( 2010 )


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  •                   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    The opinion filed on August 28, 2009, is hereby withdrawn.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.