APA Assessment Fee Litigation v. American Psychological Assoc. ( 2014 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 7, 2014 Decided September 5, 2014
No. 13-7032
IN RE: APA ASSESSMENT FEE LITIGATION,
ELLEN G. LEVINE, ON BEHALF OF HERSELF AND ALL OTHERS
SIMILARLY SITUATED, ET AL.,
APPELLANTS
FRANK SUMMERS, ET AL.,
APPELLANTS
v.
AMERICAN PSYCHOLOGICAL ASSOCIATION AND AMERICAN
PSYCHOLOGICAL ASSOCIATION PRACTICE ORGANIZATION,
DEFENDANTS, JOINTLY AND SEVERALLY,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:10-cv-01780)
Hassan A. Zavareei argued the cause and filed the briefs
for appellants. Greg E. Mason entered an appearance.
David W. Ogden argued the cause for appellees. With
him on the brief were Jonathan E. Paikin and Francesco
Valentini.
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Before: ROGERS, GRIFFITH and SRINIVASAN, Circuit
Judges.
Opinion for the Court filed by Circuit Judge SRINIVASAN.
SRINIVASAN, Circuit Judge: The American
Psychological Association (the APA) is a national nonprofit
organization representing clinical, research, and academic
psychologists. APA members must pay annual association
fees billed by the organization on its yearly “Membership
Dues Statement.” For certain members, the dues statement
also includes a separate, “special assessment” fee. At all
relevant times, the dues statement’s instructions informed
affected members that they “MUST PAY” the special
assessment. Despite that mandatory language, the special
assessment in fact was not a requirement of APA
membership. Instead, it was an optional payment collected by
the APA to fund the lobbying activities of a separate, APA-
affiliated organization.
After learning that there was no requirement to pay the
special assessment to maintain APA membership, several
members brought the present class action lawsuit seeking
recovery of all special assessment fees paid. They alleged
that the APA had intentionally misled members into believing
that payment of the special assessment fee was a condition of
membership, and that they would not have paid the fee had
they known it was optional. The district court dismissed all of
plaintiffs’ claims based in principal part on a conclusion that
plaintiffs could not have reasonably believed that the
assessment fee was mandatory rather than optional. We
disagree with that conclusion, among others, and we therefore
reverse in part the dismissal of plaintiffs’ claims.
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I.
A.
The case is before us on a motion to dismiss, so we
accept the facts as alleged in the complaint. See Oberwetter
v. Hilliard, 639 F.3d 545, 549 (D.C. Cir. 2011). The
American Psychological Association is “the world’s largest
organization representing psychologists.” Compl. ¶ 15.
Headquartered in Washington, D.C., the APA has more than
100,000 members. Compl. ¶ 2.
The organization claims tax-exempt status under
§ 501(c)(3) of the Internal Revenue Code, which limits the
APA’s ability to engage in lobbying and advocacy. Compl.
¶¶ 2, 5. Recognizing that restriction, the APA’s leadership in
2001 created a companion organization—the American
Psychological Association Practice Organization (the
APAPO)—to “conduct[] professional advocacy and lobbying
on behalf of members.” Compl. ¶¶ 3, 15. The APAPO is
organized under § 501(c)(6) of the Internal Revenue Code,
which permits lobbying activities forbidden to the APA under
§ 501(c)(3). See Am. Soc’y of Ass’n Execs. v. United States,
195 F.3d 47, 50 (D.C. Cir. 1999).
This case concerns payments made by APA members to
support the APAPO. According to the complaint, APA
leadership “[r]ecogniz[ed] that many of its members would
not want to voluntarily pay to fund” the APAPO’s lobbying
activities. Compl. ¶ 6. In order to “maximize lobbying
funds,” the APA therefore “misrepresented” to its
“clinician[]” members that they were required to pay a special
assessment fee to maintain APA membership. Compl. ¶¶ 6,
15, 16. Payment of the special assessment, however, was not
in fact a requirement of APA membership. According to
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plaintiffs, the APA could not condition membership on
payment of that fee without jeopardizing the organization’s
§ 501(c)(3) tax status.
The APA allocated special assessment fee proceeds to the
APAPO. Compl. ¶¶ 4, 6, 16. In 2009, the special assessment
was $137 per person while regular APA dues were $238.
Compl. ¶ 21.
B.
In October 2010, an APA member residing in California
filed a class-action lawsuit against the APA and APAPO in
the federal district court for the District of Columbia. The
following month, a Tennessee resident filed a similar suit.
The district court consolidated the two actions at the
plaintiffs’ request.
The consolidated complaint asserts a nationwide class of
“[a]ll persons in the United States who paid a
‘special’ . . . assessment fee as part of their APA annual dues
after 2000.” Compl. ¶ 31. It also describes subclasses of
“[a]ll persons in California” and “[a]ll persons in Tennessee”
who paid the fee. Compl. ¶ 32. The complaint includes three
causes of action. Count I, “Unjust Enrichment and
Constructive Trust,” alleges that the APA intentionally misled
class members into paying the special assessment by
misrepresenting that it was a requirement of APA
membership. See Compl. ¶¶ 33-39. That count seeks
restitution and disgorgement of the defendants’ “wrongful
profits.” Compl. ¶ 38. Counts II and III, limited to the
subclass of California residents, allege violations of
California’s Unfair Competition Law and California’s False
Advertising Law, respectively, based on the same underlying
conduct. See Compl. ¶¶ 40-53.
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In May 2012, the district court granted defendants’
motion to dismiss all counts. In re APA Assessment Fee Litig.
(APA I), 862 F. Supp. 2d 1, 14 (D.D.C. 2012). First, the court
dismissed the unjust enrichment claim, explaining that unjust
enrichment is an “equitable quasi-contract claim” that cannot
proceed when an “actual contract exists between the parties”
that “cover[s] the issue under dispute.” Id. at 7. Here, the
APA bylaws and rules constituted such a contract, the court
held, precluding any unjust enrichment claim related to
membership fees. Id. at 7-9. Second, the court dismissed the
two California-law claims upon concluding, based on a
choice-of-law analysis, that D.C. law governed the dispute.
Id. at 11-14. Finally, acknowledging that the plaintiffs had
sought to amend their complaint to allege two new causes of
action for fraudulent inducement and rescission if the court
dismissed the unjust enrichment claim, the court ordered
supplemental briefing on whether the proposed amendments
would be futile. Id. at 10-11. The parties filed supplemental
briefs, in which the plaintiffs additionally requested to add a
third cause of action for negligent misrepresentation.
In February 2013, the district court rejected plaintiffs’
proposed amendments as futile. See In re APA Assessment
Fee Litig. (APA II), 920 F. Supp. 2d 86, 90 (D.D.C. 2013).
The court stated that “all three proposed counts require an
actionable misrepresentation as well as reasonable reliance by
plaintiffs on that misrepresentation.” Id. at 88. In the court’s
view, all three claims failed on the reasonable reliance prong.
Id. at 89. In a footnote, the court found the rescission count
“independently barred because plaintiffs’ membership
contracts with APAPO have been fully performed, and the
parties cannot be returned to the pre-contractual status quo.”
Id. at 90 n.3. The negligent misrepresentation count was
“independently barred” as well “because plaintiffs did not ask
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to add it in their opposition to defendants’ motion to dismiss,
and the request now is untimely.” Id.
Plaintiffs now appeal the district court’s dismissal of their
unjust enrichment and California-law claims as well as the
denial of their motion for leave to amend their complaint.
II.
We first consider the district court’s dismissal of
plaintiffs’ unjust enrichment claim. In the district court, the
parties agreed that choice-of-law analysis was unnecessary for
that claim because the unjust enrichment law of the various
potential jurisdictions is identical. In light of the parties’
stance, the district court applied D.C. law to the unjust
enrichment claim. On appeal, neither party contends that any
other jurisdiction’s law should govern resolution of that
claim. Under D.C. law, “[u]njust enrichment occurs when:
(1) the plaintiff conferred a benefit on the defendant; (2) the
defendant retains the benefit; and (3) under the circumstances,
the defendant’s retention of the benefit is unjust.” News
World Commc’ns, Inc. v. Thompsen, 878 A.2d 1218, 1222
(D.C. 2005); see also Peart v. D.C. Hous. Auth., 972 A.2d
810, 813-14 (D.C. 2009). “In such a case, the recipient of the
benefit has a duty to make restitution to the other person . . . .”
4934, Inc. v. D.C. Dep’t of Emp’t Servs., 605 A.2d 50, 55
(D.C. 1992) (citing Restatement (First) of Restitution § 1 cmt.
c (1937)). Reviewing the issue de novo, see Peart, 972 A.2d
at 814, we reverse the district court’s dismissal of the unjust
enrichment count.
A.
Unjust enrichment is an equitable quasi-contract claim
“based on a contract implied in law.” Peart, 972 A.2d at 813-
7
14. Such a claim is a “[l]egal fiction” designed “to permit
recovery by contractual remedy in cases where, in fact, there
is no contract, but where circumstances are such that justice
warrants a recovery as though there had been a promise.”
4934, Inc., 605 A.2d at 55 (alteration in original) (quoting
Black’s Law Dictionary 324 (6th ed. 1990)). Unjust
enrichment will not lie when “the parties have a contract
governing an aspect of [their] relation,” because “a court will
not displace the terms of that contract and impose some other
duties not chosen by the parties.” Emerine v. Yancey, 680
A.2d 1380, 1384 (D.C. 1996). That rule does not apply,
however, if the contract is invalid or does not cover the issue
in dispute. See Armenian Assembly of Am., Inc. v. Cafesjian,
597 F. Supp. 2d 128, 135 (D.D.C. 2009). As summarized by
the Restatement, “[a] valid contract defines the obligations of
the parties as to matters within its scope, displacing to that
extent any inquiry into unjust enrichment.” Restatement
(Third) of Restitution & Unjust Enrichment § 2(2) (2011)
(emphasis added).
Here, the district court considered plaintiffs’ unjust
enrichment claim to be precluded by an express contract—
namely the APA bylaws and Association Rules, which “can
be ‘construed as a contractual agreement between the
organization and its members.’” APA I, 862 F. Supp. 2d at 7
(quoting Meshel v. Ohev Sholom Talmud Torah, 869 A.2d
343, 361 (D.C. 2005)). Urging us to accept that reasoning,
defendants contend that the existence of an express
membership contract between the parties precludes plaintiffs’
unjust enrichment claim.
We reject that approach. According to defendants,
plaintiffs’ decision to pay the special assessment had no
bearing on plaintiffs’ rights or obligations as APA members
under the bylaws and rules. Defendants in fact allow that
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nothing in the bylaws and rules “even permits APA to
terminate membership based on nonpayment” of the special
assessment. Appellee Br. 53. But if that is so, payment of the
special assessment at no point formed any part of the explicit
contractual arrangement between the APA and its members.
It was instead an extra-contractual payment falling outside the
“scope” of the governing contracts. See Restatement (Third)
of Restitution & Unjust Enrichment § 2(2) (2011). The
bylaws and rules then pose no obstacle to an unjust
enrichment claim seeking to recover assessment fees paid. As
the Restatement explains, “[r]estitution claims of great
practical significance” do arise “in a contractual context”
when the contract does not “regulate the parties’ obligations”
in relevant part. Id. § 2 cmt. c.
Plaintiffs’ claim, in fact, fits a standard pattern of unjust
enrichment recovery. According to the complaint, defendants
included misleading language on the dues statement in order
to deceive plaintiffs into overpaying for APA membership.
Plaintiffs seek recovery of the alleged overpayments. They
thus base their claim on a theory of “[m]istaken payment of
money not due”—“one of the core cases of restitution.” Id.
§ 6 cmt. a. The goal is “to bring the transfers between the
parties into conformity with the true state of their contractual
obligations.” Id. § 6 cmt. c. The Restatement offers the
following illustrative example:
Landlord erroneously bills Tenant for rent at $1000
per month, which Tenant pays. In fact, the lease
calls for a monthly rent of $500. Tenant has a claim
in restitution to recover the overpayment.
Id. § 6 cmt. c, illus. 9. Tenant can recover the “erroneously
bill[ed]” $500, despite the existence of an express contract
defining the amount of rent due.
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Here, plaintiffs likewise can seek to recover the
“erroneously bill[ed]” special assessment fee, notwithstanding
the existence of an express contract defining APA
membership requirements. As the Restatement explains:
“Payments resulting from a misunderstanding of the extent
of . . . a contractual obligation present a characteristic issue of
restitution.” Id. § 6 cmt. c; see also id. § 13 cmt. a (noting an
additional basis for relief when erroneous overpayment is
induced by fraud). Defendants’ basic position, that an unjust
enrichment claim is precluded whenever it relates to the
subject matter of an express contract, would eliminate not just
plaintiffs’ claim but the entire category of mistaken
overpayments—“a characteristic issue of restitution.” Id. § 6
cmt. c. We have little doubt that District of Columbia courts
would reject such an approach.
Defendants rely heavily on a footnote in Schiff v.
American Ass’n of Retired Persons, 697 A.2d 1193 (D.C.
1997). The plaintiff in Schiff, a member of the American
Association of Retired Persons, sued the organization over
alleged misrepresentations in the sale of insurance policies.
The D.C. Court of Appeals affirmed the dismissal of the
plaintiff’s unjust enrichment claim, finding it to be precluded
by two express contracts. See id. at 1194 n.2. According to
defendants, Schiff requires dismissing the unjust enrichment
claim here as well. But Schiff contains no description of the
terms of the contracts at issue. See id. Insofar as the terms of
the contracts governed the matter in dispute, they precluded
an unjust enrichment claim. See Restatement (Third) of
Restitution & Unjust Enrichment § 2(2) (2011). We have no
basis to read the Schiff footnote to denote an intention to go
considerably further than that—i.e., to lop off, as defendants’
urge here, a major category of unjust enrichment recovery by
eliminating relief for mistaken overpayments. Declining
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defendants’ invitation to read the decision so broadly, we hold
that plaintiffs’ unjust enrichment claim is not precluded by an
express contract.
B.
Defendants argue next that their retention of the
assessment fees is not “unjust.” According to defendants,
plaintiffs were fully aware that the special assessment funded
the APAPO’s advocacy activities, and plaintiffs allege no
inadequacy in the organization’s lobbying efforts. Because
plaintiffs therefore received all the benefits they were
promised in exchange for the assessment fees, defendants
contend, it is “just” for defendants to retain the fees paid.
Defendants’ argument erroneously assumes that the
promise of APAPO advocacy activities induced plaintiffs to
pay the special assessment in the first place. Plaintiffs,
however, assert that they had no interest in APAPO lobbying.
Rather, they paid the special assessment to attain (or retain)
APA membership, and only because defendants intentionally
misled them into believing that the assessment was a
precondition to their doing so. In those circumstances,
defendants’ subsequent performance of APAPO lobbying
activities cannot render “just” their retention of the
assessment fees. Under the Restatement’s landlord/tenant
example, for instance, suppose the landlord intentionally
overbills the monthly rent by $500 but also includes an
additional promise to perform lobbying activities on behalf of
renters. A tenant who pays the overbilled $500 because she
believes the rental contract so requires does not lose her
unjust enrichment claim if the landlord performs the lobbying
services. The landlord cannot immunize himself from an
unjust enrichment claim by performing services that the
tenant never desired in the first place. Here, the APAPO’s
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lobbying activities similarly cannot defeat plaintiffs’ unjust
enrichment claim. The decisions relied on by defendants do
not suggest otherwise because they involved no material
misrepresentation at contract formation like those alleged by
plaintiffs here. See, e.g., Jordan Keys & Jessamy, LLP v. St.
Paul Fire & Marine Ins. Co., 870 A.2d 58, 62-66 (D.C.
2005).
C.
Defendants’ final argument on the unjust enrichment
claim is that it was not reasonable for plaintiffs to believe that
payment of the special assessment was required for APA
membership. As a threshold matter, defendants do not fully
explain why plaintiffs’ unjust enrichment claim would fail
under D.C. law if plaintiffs had genuinely, but unreasonably,
been misled by the dues statement’s language. Cf.
Restatement (Third) of Restitution & Unjust Enrichment § 6
cmt. a (2011) (“As in other cases of benefit conferred by
mistake, the fact that the claimant may have acted negligently
in making a mistaken payment is normally irrelevant to the
analysis of the claim.”). But assuming plaintiffs must
demonstrate reasonable reliance, they have amply satisfied
their burden. That is particularly so in light of the stage of the
proceedings in this case. Defendants seek to prevail at the
motion-to-dismiss stage even though the “reasonableness
of . . . reliance upon a misrepresentation is a question of fact,
for which disposition by [pre-trial motion] is generally
inappropriate.” Cassidy v. Owen, 533 A.2d 253, 256 (D.C.
1987).
We focus our analysis on the “2001 Membership Dues
Statement,” see J.A. 77, which defendants appended to their
motion to dismiss, and which mirrored dues statements from
subsequent years in relevant respects. The dues statement’s
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first page contained a worksheet for calculating the payment
owed. Line 1 of the worksheet, appearing in a box titled
“REGULAR APA DUES,” came preprinted with a “2001
dues” amount of $219. Id. Line 10, the “2001 Special
Assessment,” appeared in the next box, also with a preprinted
amount (of $110). Id. The only other preprinted figure on the
statement was $329 on line 14—denoted “SUBTOTAL
DUES AND ASSESSMENTS”—a subtotal of lines 1 and 10.
Id. Below the subtotal line, in a box labeled “VOLUNTARY
CONTRIBUTIONS,” members could make optional
donations to several enumerated funds and foundations. The
voluntary contributions, unlike the “2001 dues” and “2001
Special Assessment,” contained no preprinted amount.
The first page of the worksheet in the dues statement
contained several indications that payment of the special
assessment was a requirement of APA membership. First, the
name itself—“Special Assessment”—suggested that payment
was mandatory. See Merriam-Webster Unabridged
Dictionary (online ed. 2014) (defining “assessment” as “an
amount that a person is officially required to pay especially as
a tax”) (emphasis added). Second, the fact that the special
assessment came with a preprinted amount on the form, both
on its own line and as part of a subtotal combined with the
regular dues, implied that the assessment, like the regular
dues, was required for APA membership. That implication
was further reinforced by the various “VOLUNTARY
CONTRIBUTIONS” listed in a box found immediately next
on the form, the presence of which indicated that the
preprinted fees above that box were not voluntary.
Although the dues statement alone suffices at the motion-
to-dismiss stage to defeat defendants’ arguments about the
reasonableness of plaintiffs’ beliefs, there is considerably
more. For each line of the dues statement, the accompanying
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instructions contained an “EXPLANATION” column and an
“ACTION REQUIRED” column. J.A. 79. The instructions
for the special assessment fee stated in the
“EXPLANATION” column: “An annual assessment is
applied to all licensed health care psychologists who provide
services in the health or mental health field or who supervise
those who do.” Id. (emphasis added). The explanation then
listed categories of practicing psychologists who “MUST
PAY” the special assessment. Id. The mandatory “MUST
PAY” language in the “EXPLANATION” column appeared
alongside an entry in the “ACTION REQUIRED” column for
the special assessment. That entry directed members to “*Pay
$110 (the preprinted amount) unless you hold a full-time
faculty position.” Id. What is more, the instructions went on
to list “SPECIAL ASSESSMENT EXEMPTIONS”: six
defined categories of members who did not have to pay the
assessment and who therefore could “cross off the amount.”
Id. The enumerated exemptions fortified the impression that
non-exempt members could not “cross off” the preprinted
assessment fee if they wished to retain APA membership.
Finally, the instructions for line 19—the “TOTAL AMOUNT
PAYABLE TO APA”—stated that, if a member did not
calculate the total himself, “the total of all preprinted dues and
assessments will be charged to you.” J.A. 80. The inclusion
of the special assessment in the default renewal charge
cemented the conclusion that that assessment formed part of
the minimum payment required for membership.
The functioning of the APA website, as alleged in the
complaint, is entirely of a piece with the indications in the
dues statement and accompanying instructions of the
mandatory nature of the special assessment. According to the
complaint, the website stated for a “period of years” that
members “must pay the Special Assessment.” J.A. 60
(internal quotation marks omitted). The website also stated
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“repeatedly” that “all practicing APA members were billed
the practice assessment and were expected to pay” it. Id.
Moreover, the website did not allow members to pay their
APA dues without paying the special assessment. Id. A
member who viewed the dues statement in conjunction with
the website therefore had even greater reason to believe that
payment of the special assessment was a condition of APA
membership.
In the face of all of those indications that the special
assessment was a requirement for APA membership,
defendants highlight an instruction for line 2 of the dues
statement (pertaining to amounts still owed from past years)
which stated that “[b]asic dues are required for continuous
membership.” J.A. 78. Noting that the same language did not
appear in the instructions for the special assessment,
defendants contend that any reasonable reader would have
drawn the inference that the special assessment was not
“required for continuous membership.” Id. The instruction
for line 2, however, would have no relevance for any member
who had no carryover balance from prior years. At any rate,
any negative inference from that instruction of the kind
suggested by defendants would not begin to overcome the
overwhelming indications to the contrary, particularly for
purposes of resolving defendants’ motion to dismiss. For
instance, a member might well have reasonably concluded
that the emphatic “MUST PAY” instruction for the special
assessment was a shorthand equivalent of the “required for
continuous membership” language from the line 2
instructions.
Defendants also assert, without support, that the “MUST
PAY” instruction and similar language intended to convey
only that the special assessment was a “professional
obligation of practicing APA members” as opposed to a
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requirement for membership. Appellee Br. 29. We cannot
consider that assertion at the motion-to-dismiss stage because
it does not appear in the complaint or in any other document
in the limited record before us. See Navab-Safavi v.
Glassman, 637 F.3d 311, 318 (D.C. Cir. 2011). And even if
we could consider it, there would be no basis for concluding
at the motion-to-dismiss stage that members should have
perceived a distinction between a “professional obligation”
and a “membership obligation” and understood that the
special assessment fell into the former category, much less
that they should have done so when examining a statement
and accompanying instructions entitled, “Membership Dues.”
J.A. 77, 79 (emphasis added).
We are equally unmoved by defendants’ effort to
overcome the language of the dues statement and instructions
by reference to the APA bylaws and rules. Defendants cite
Clark v. Mutual Reserve Fund Life Ass’n, 14 App. D.C. 154,
169 (D.C. 1899), for the proposition that “[m]embers of a
mutual association are conclusively presumed to know its
constitution and by-laws.” Assuming the continuing force of
that proposition as a matter of District of Columbia law,
nothing in the bylaws or rules would have cast doubt on the
reasonableness of plaintiffs’ beliefs about the mandatory
nature of the special assessment. Defendants highlight
language in the bylaws’ “Dues and Subscriptions” section
authorizing the APA to impose “basic Association dues to be
paid annually by Members.” J.A. 158. Neither the bylaws
nor the rules, defendants observe, specifically mentioned the
special assessment as a condition of membership (or
otherwise). But defendants fail to explain why it would have
been unreasonable for a member to believe that the special
assessment was merely a particular type of APA “due[]”—a
term undefined in the bylaws and rules. After all, the special
assessment appeared, preprinted, on the annual APA
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“Membership Dues Statement,” J.A. 77 (emphasis added), as
something members “MUST PAY.” J.A. 79.
Finally, defendants contend that plaintiffs had a duty to
investigate further before concluding that the special
assessment was required for APA membership. See, e.g.,
Wash. Inv. Partners of Del., LLC v. Sec. House, K.S.C.C., 28
A.3d 566, 576 (D.C. 2011). For the reasons already
explained, however, plaintiffs reasonably could have
concluded that the meaning of the dues statement was clear,
such that there was no reason to investigate further. The
circumstances here are also distinguishable from the cases
relied on by defendants in which D.C. courts have “imposed a
very high standard on sophisticated business entities
claiming fraudulent inducement in arms-length transactions.”
Id. at 575-76 (internal quotation marks omitted) (emphasis
added). Plaintiffs here were not engaged in arms-length,
adversarial business dealings but instead were seeking
membership in a reputable national professional organization.
In that setting, there is no reason to conclude that D.C. courts
would impose on a would-be member any heightened duty to
investigate before relying on facially straightforward billing
language.
For those reasons, we conclude that plaintiffs’ unjust
enrichment claim survives defendants’ motion to dismiss. We
therefore reverse the district court’s dismissal of that claim.
III.
Plaintiffs next appeal the dismissal of their California
statutory claims. The complaint alleges a violation of
California’s Unfair Competition Law, see Cal. Bus. & Prof.
Code §§ 17200 et seq., and of California’s False Advertising
Law, see id. §§ 17500 et seq. The district court dismissed
17
both claims upon concluding that District of Columbia—not
California—law governed the dispute. See APA I, 862 F.
Supp. 2d at 11-14. We review the district court’s choice-of-
law determination de novo, see Oveissi v. Islamic Republic of
Iran, 573 F.3d 835, 842 (D.C. Cir. 2009), and we affirm.
A federal court sitting in diversity must apply the choice-
of-law rules of the forum state—here, the District of
Columbia. See Muir v. Navy Fed. Credit Union, 529 F.3d
1100, 1107 (D.C. Cir. 2008). D.C. law employs “a modified
governmental interests analysis which seeks to identify the
jurisdiction with the most significant relationship to the
dispute.” Washkoviak v. Student Loan Mktg. Ass’n, 900 A.2d
168, 180 (D.C. 2006) (quoting Moore v. Ronald Hsu Constr.
Co., 576 A.2d 734, 737 (D.C. 1990)) (internal quotation
marks omitted).
The D.C. Court of Appeals’ 2006 decision in Washkoviak
provides an instructive model for the choice-of-law analysis
in this case. The plaintiffs in that case were Wisconsin
students with loans held by Sallie Mae, a congressionally
created private corporation that “serve[s] as a secondary
market and warehousing facility for student loans.” 900 A.2d
at 171. Asserting claims under a D.C. consumer-protection
statute, plaintiffs alleged that “Sallie Mae makes affirmative
misrepresentations that cause borrowers to incur late fees
continuously.” Id. at 174. Sallie Mae moved to dismiss,
arguing that Wisconsin—not D.C.—law governed the case.
Applying D.C.’s choice-of-law rules, the D.C. Court of
Appeals held that, for purposes of resolving the motion to
dismiss, D.C. law applied. See id. at 180-83. “Wisconsin has
a powerful interest in protecting its residents from fraud and
misrepresentation,” the court noted, “while the District of
Columbia has an equally strong interest in ensuring that its
18
corporate citizens refrain from fraudulent activities.” Id. at
180-81. Given the “equal[]” interests at stake, the court
turned to the Restatement (Second) of Conflict of Laws
(1971), finding that a “qualitative weighing” of the factors set
forth in §§ 145 and 148 did not clearly favor either
jurisdiction. Id. at 182 & n.18. The court applied the law of
the forum state (D.C.) as a tie-breaker. Id. at 182. With
Washkoviak as our guide, we examine whether California or
D.C. law applies to plaintiffs’ statutory claims.
A.
Initially, we must “determine whether a ‘true conflict’
exists” between the laws of the two jurisdictions—“that is,
whether more than one jurisdiction has a potential interest in
having its law applied and, if so, whether the law of the
competing jurisdictions is different.” GEICO v. Fetisoff, 958
F.2d 1137, 1141 (D.C. Cir. 1992) (citing Fowler v. A & A Co.,
262 A.2d 344, 348 (D.C. 1970)). A “false conflict” exists, on
the other hand, “when the policies of one state would be
advanced by the application of its law and the policies of the
states whose laws are claimed to be in conflict would not be
advanced by application of their law[s].” Long v. Sears
Roebuck & Co., 877 F. Supp. 8, 11 (D.D.C. 1995) (citing
Biscoe v. Arlington Cnty., 738 F.2d 1352, 1360 (D.C. Cir.
1984)). In that event, we “apply the law of the state whose
policy would be advanced by application of its law.” Id.
We begin by identifying the policies underlying the laws
of both jurisdictions. Plaintiffs invoke the protections of
California’s Unfair Competition Law and California’s False
Advertising Law. Both statutes manifest California’s
“obvious interest in protecting its residents” from fraud. APA
I, 862 F. Supp. 2d at 13; cf. Aral v. Earthlink, Inc., 36 Cal.
Rptr. 3d 229, 244 (Cal. Ct. App. 2005) (emphasizing “the
19
right of California to ensure that its citizens have a viable
forum in which to recover minor amounts of money allegedly
obtained in violation of the [Unfair Competition Law]”);
Washkoviak, 900 A.2d at 180 (“Wisconsin has a powerful
interest in protecting its residents from fraud and
misrepresentation.”).
The dispute here centers on what interest, if any,
underlies District of Columbia law. The most relevant statute
identified by the parties is D.C.’s Consumer Protection
Procedures Act (CPPA), D.C. Code §§ 28-3901 et seq., the
same statute at issue in Washkoviak. “The CPPA prohibits a
wide variety of deceptive trade practices perpetrated against
consumers.” Busby v. Capital One, N.A., 772 F. Supp. 2d
268, 279 (D.D.C. 2011) (citing D.C. Code. § 28-3904).
Both sides agree that the CPPA does not provide
plaintiffs with a cause of action. Plaintiffs do not appear to
have been acting as “consumer[s]” within the meaning of the
statute when they paid the special assessment: they did not
“purchase, lease . . . , or receive consumer goods or services,”
that is, goods or services “normally use[d] for personal,
household, or family purposes.” D.C. Code § 28-
3901(a)(2)(A), (B)(i). Moreover, the CPPA expressly
provides that any “action . . . against a nonprofit organization
shall not be based on membership in such organization,
membership services, . . . or any other transaction, interaction,
or dispute not arising from the purchase or sale of consumer
goods or services in the ordinary course of business.” D.C.
Code § 28-3905(k)(5) (emphasis added). Plaintiffs’ claims
fall directly within the nonprofit-membership exclusion.
Plaintiffs argue that there is a “false conflict” here
because California statutes authorize their suit while the
CPPA does not. See Fresh Start Indus., Inc. v. ATX
20
Telecomms. Servs., 295 F. Supp. 2d 521, 527 (E.D. Pa. 2003).
But the District of Columbia’s failure to provide a statutory
cause of action does not necessarily demonstrate that it has no
underlying interest at stake. To the contrary, a “rule which
exempts the actor from liability for harmful conduct” may
embody an interest in protecting “defendants against being
harassed by such actions.” Restatement (Second) of Conflict
of Laws § 145 cmt. c (1971).
For example, in Pietrangelo v. Wilmer Cutler Pickering
Hale & Dorr, LLP, 68 A.3d 697 (D.C. 2013), the D.C. Court
of Appeals found a conflict between the consumer protection
laws of Massachusetts and the CPPA. The Massachusetts
statute allowed suits “against an attorney who acts unfairly or
deceptively in the rendition of legal services,” while the
CPPA “specifically exclude[d] attorneys” from its reach. Id.
at 714. “This distinction between Massachusetts and D.C.
law,” the court concluded, “demonstrates that the two laws
are in conflict.” Id. We understand that decision to recognize
that a rule of non-liability—reflecting a legislative purpose to
protect defendants from litigation—can be owed “the same
consideration in the choice-of-law process as is a rule which
imposes liability.” Restatement (Second) of Conflict of Laws
§ 145 cmt. c (1971); see also Stephen A. Goldberg Co. v.
Remsen Partners, Ltd., 170 F.3d 191, 195 (D.C. Cir. 1999).
For that reason, we find a true conflict here. Although a
rule of non-liability can reflect a goal other than protecting
defendants from litigation, the available evidence suggests
that the D.C. Council acted specifically to shield nonprofit
organizations from statutory liability for membership-related
disputes. The Council revised the CPPA in 2007 to expose
nonprofits otherwise acting as “merchants” to the same level
of liability as for-profit corporations. See Nonprofit
Organizations Oversight Improvement Amendment Act of
21
2007, 2007 D.C. Legis. Serv. (West). But the Council went
only so far: it explicitly barred claims, like plaintiffs’,
relating to organizational membership. See D.C. Code § 28-
3905(k)(5). The amendment’s legislative history indicates a
concern with appropriately calibrating the level of nonprofit
liability. “The goal of nonprofit regulation,” states one
committee report, “should be to ferret out and prosecute
fraudulent activities, while not imposing unnecessary burdens
that have little benefit but limit nonprofits’ effectiveness.”
D.C. Council, Comm. on Pub. Safety and the Judiciary, Rep.
on B. 17-53, at 2 (Feb. 28, 2007) (emphasis added).
Given that D.C.’s rule of non-liability is owed “the same
consideration in the choice-of-law process as is a rule,” like
California’s, “which imposes liability,” Restatement (Second)
of Conflict of Laws § 145 cmt. c. (1971), we find that the
laws of the relevant jurisdictions “are in conflict.”
Pietrangelo, 68 A.3d at 714. The two jurisdictions’ interests
therefore are “equally strong.” Washkoviak, 900 A.2d at 181.
B.
The next step entails evaluating “the two jurisdictions’
respective relationships to the complaint” under the factors set
forth in the Restatement (Second) of Conflict of Laws.
Washkoviak, 900 A.2d at 181. D.C. courts follow § 145 of
the Restatement, which provides four factors to identify the
jurisdiction with the “most significant relationship to the
occurrence and the parties” in tort cases. Restatement
(Second) of Conflict of Laws § 145(1) (1971). Those factors
are:
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury
occurred,
22
(c) the domicil, residence, nationality, place of
incorporation and place of business of the parties,
and
(d) the place where the relationship, if any, between
the parties is centered.
Id. § 145(2). “These contacts are to be evaluated according to
their relative importance with respect to the particular issue.”
Id.
Applying the first § 145 factor, Washkoviak held that the
place of injury was Wisconsin, where the plaintiffs “received
the alleged misrepresentations and made their payments.”
900 A.2d at 181. Similarly, the place of injury here was
California, where the relevant subclass of plaintiffs received
their dues statements and presumably paid the special
assessments. According to Washkoviak, though, the place of
injury holds a “discounted value . . . in cases, such as this one,
involving claims of misrepresentation.” Id. at 182.
The Washkoviak court found that the second § 145 factor,
“the place where the conduct causing the injury occurred,”
favored District of Columbia law. Plaintiffs had alleged that
Sallie Mae’s injurious conduct was “formulated and
conceived . . . in the District of Columbia[,] . . . directed . . .
from the District of Columbia, and emanated from . . . the
District of Columbia.” Id. at 181 (alteration in original).
Here, plaintiffs have not alleged where defendants drafted the
dues statements or otherwise formulated and transmitted the
alleged misrepresentations. But as the district court noted, the
complaint contends that “defendants had their principal place
of business in Washington, D.C., and that ‘significant events
giving rise to this case took place in this District.’” APA I,
862 F. Supp. 2d at 13 (quoting Compl. ¶ 9). We agree with
the district court that the second factor weighs at least
23
moderately towards D.C. law given that neither side has
“suggest[ed] any other location where the conduct could have
occurred.” Id. We reject plaintiffs’ unexplained assertion
that the defendants’ use of a website to convey information
should alter the analysis.
The third § 145 factor is “the domicil, residence,
nationality, place of incorporation and place of business of the
parties.” Washkoviak found that factor to result in a tie
because the plaintiffs resided in Wisconsin while Sallie Mae
was located in the District of Columbia. 900 A.2d at 181.
For the same reason, the third factor is “split evenly” between
California and D.C. here. See id. Plaintiffs argue in favor of
California law based on Restatement commentary stating that
the “domicil, residence and place of business of the plaintiff
are more important than are similar contacts on the part of the
defendant.” Restatement (Second) of Conflict of Laws § 148
cmt. i (1971). That argument is foreclosed by Washkoviak.
Finally, for the fourth § 145 factor—“the place where the
relationship, if any, between the parties is centered”—
Washkoviak found the relationship “centered” in Wisconsin
based on case law specific to borrower/lender relationships.
See 900 A.2d at 181. In our case, the parties cite no case law
directly addressing where the relationship between a national
nonprofit organization and its members is “centered.” We
therefore find that “the fourth factor does not weigh strongly
in favor of either party.” APA I, 862 F. Supp. 2d at 13.
Balancing the four factors, the Washkoviak court found
that they did not favor application of either jurisdiction’s law.
See 900 A.2d at 182. Although two factors favored
Wisconsin and only one favored D.C (with one evenly split),
the court held that “a mere counting of contacts is not what is
involved.” Id. at 181 (internal quotation marks omitted).
24
Rather, “[g]iven the discounted value of the place of injury,”
the court could not “say that a qualitative weighing of the
factors clearly favors Wisconsin.” Id. at 182.
We reach the same conclusion here. Although the fourth
§ 145 factor does not weigh strongly in favor of either party—
unlike in Washkoviak, where it pointed to Wisconsin law—
any difference from that factor is offset, in our view, by the
second factor’s weighing more weakly towards D.C. here due
to the relative dearth of factual allegations concerning the
location of defendants’ conduct. We therefore “cannot say
that a qualitative weighing of” the § 145 factors favors either
California or D.C. law. See id. That result remains
unchanged by consideration of Restatement § 148, “Fraud and
Misrepresentation.” See id. at 182 n.18 (applying the § 148
factors “qualitatively rather than quantitatively” and
concluding that the result was, “at best, ambiguous”).
C.
Faced with a conflict between jurisdictions, with neither
jurisdiction’s law favored by the Restatement factors, the
Washkoviak court concluded that the law of the forum state
governed. Id. at 182; see also Wu v. Stomber, 750 F.3d 944,
949 (D.C. Cir. 2014) (“D.C. choice-of-law rules require, in a
case where the [Restatement] factors do not point to a clear
answer, that we apply D.C. tort law, the law of the forum
state.”). Finding ourselves in a comparable situation, we
reach the same result. As the district court observed, that
outcome “works no unfairness to plaintiffs, because they
chose to pursue their claim in the District of Columbia.” APA
I, 862 F. Supp. 2d at 14. We therefore affirm the district
court’s dismissal of plaintiffs’ California-law claims.
25
IV.
Plaintiffs’ final challenge concerns the district court’s
denial of their motion to amend the complaint to add claims
for fraudulent inducement, rescission, and negligent
misrepresentation.
A.
The district court denied, as futile, plaintiffs’ request to
add a claim for fraudulent inducement. See APA II, 920 F.
Supp. 2d at 90. We review a denial based on futility de novo,
see In re Interbank Funding Corp. Sec. Litig., 629 F.3d 213,
218 (D.C. Cir. 2010), and we reverse.
The essential elements of a D.C. common-law fraud
claim are “(1) a false representation (2) made in reference to a
material fact, (3) with knowledge of its falsity, (4) with the
intent to deceive, and (5) an action that is taken in reliance
upon the representation.” Kitt v. Capital Concerts, Inc., 742
A.2d 856, 860-61 (D.C. 1999) (internal quotation marks
omitted). In certain cases, the plaintiff must also show “(6)
that the defrauded party’s reliance [was] reasonable.”
Hercules & Co. v. Shama Rest. Corp., 613 A.2d 916, 923
(D.C. 1992) (emphasis in original); see also In re U.S. Office
Prods. Co. Sec. Litig., 251 F. Supp. 2d 77, 100 n.13 (D.D.C.
2003). The district court held that plaintiffs’ proposed claim
failed based on its conclusion that any reliance here was
unreasonable. See APA II, 920 F. Supp. 2d at 90. On appeal,
plaintiffs argue that reasonable reliance is not a required
element of their claim. We need not resolve the issue
because, as explained, plaintiffs have adequately pled
reasonable reliance here. See supra Part II.C. We thus hold
that the district court erred in denying, as futile, plaintiffs’
motion to add a fraudulent inducement claim.
26
B.
The district court also denied plaintiffs’ motion to add a
rescission claim. To “justify rescission of a contract based on
a misrepresentation,” D.C. law requires a plaintiff to
“establish, by a preponderance of the evidence, (i) a
misrepresentation, (ii) made in reference to a material fact,
that (iii) ‘would have been likely to have induced a reasonable
recipient to make the contract.’” Fennell v. AARP, 770 F.
Supp. 2d 118, 132 (D.D.C. 2011) (quoting In re Estate of
McKenney, 953 A.2d 336, 342 (D.C. 2008)). A plaintiff
prevailing on a rescission claim can set aside the contract,
thereby “restor[ing] the aggrieved party to that party’s
position at the time the contract was made as opposed to
seeking damages for breach of contract.” In re Estate of
Johnson, 820 A.2d 535, 539 (D.C. 2003). Here, the district
court denied plaintiffs’ motion to amend, again finding that
any reliance on the alleged misrepresentations was
unreasonable. See APA II, 920 F. Supp. 2d at 90. As before,
we find that conclusion to have been in error.
The district court, however, also found the rescission
count “independently barred because plaintiffs’ membership
contracts with APAPO have been fully performed, and the
parties cannot be returned to the pre-contractual status quo.”
APA II, 920 F. Supp. 2d at 90 n.3. “[I]nherent in the remedy
of rescission is the return of the parties to their pre-contract
positions.” Dean v. Garland, 779 A.2d 911, 915 (D.C. 2001).
As a result, “a party seeking rescission must restore the other
party to that party’s position at the time the contract was
made. This rule applies even when the party against whom
rescission is sought has committed fraud.” Id. (internal
citation omitted). While plaintiffs point to other jurisdictions
that allow rescission “despite the impossibility or
27
undesirability of complete restoration,” e.g., Baney Corp. v.
Agilysys NV, LLC, 773 F. Supp. 2d 593, 607 (D. Md. 2011),
they identify no District of Columbia cases adopting that
approach. Given plaintiffs’ concession that “it is not possible
. . . [to] restore the status quo ante” in this case, Appellant Br.
60, we agree with the district court that plaintiffs’ proposed
rescission claim fails as a matter of D.C. law.
C.
Finally, the district court denied, as futile, plaintiffs’
request to add a cause of action for negligent
misrepresentation. See APA II, 920 F. Supp. 2d at 90. As
with the fraudulent inducement and rescission claims, the
court held that the negligent misrepresentation claim failed
because any reliance on defendants’ alleged
misrepresentations was not reasonable. See id. We once
again reject that conclusion.
The district court, however, also found the negligent
misrepresentation count “independently barred because
plaintiffs did not ask to add it in their opposition to
defendants’ motion to dismiss, and the request now is
untimely and outside the scope of the supplemental briefing.”
APA II, 920 F. Supp. 2d at 90 n.3. We find no abuse of
discretion in that decision. See James Madison Ltd. v.
Ludwig, 82 F.3d 1085, 1099 (D.C. Cir. 1996). As the court
noted in its May 2012 order, plaintiffs asked to add only two
claims to their complaint: fraudulent inducement and
rescission. See APA I, 862 F. Supp. 2d at 10-11. Plaintiffs’
request made no mention of negligent misrepresentation. The
district court correspondingly ordered supplemental briefing
limited to fraudulent inducement and rescission. See id. In
their supplemental briefing, plaintiffs proposed a third claim
for negligent misrepresentation without seeking permission to
28
do so. Under the circumstances, the district court did not
abuse its discretion by declining to consider a proposed claim
outside the scope of the ordered briefing.
Plaintiffs, however, have not permanently relinquished
any opportunity to follow proper procedures. We thus reverse
the district court’s decision insofar as it dismissed the
negligent misrepresentation claim with prejudice. On
remand, plaintiffs may file a procedurally regular motion
requesting leave to add a negligent misrepresentation claim to
their complaint. See Fed. R. Civ. P. 15. The district court
may not deny such a motion based solely on timeliness unless
the defendants can show undue prejudice. See Foman v.
Davis, 371 U.S. 178, 182 (1962); Harrison v. Rubin, 174 F.3d
249, 253 (D.C. Cir. 1999) (“Where an amendment would do
no more than clarify legal theories or make technical
corrections, we have consistently held that delay, without a
showing of prejudice, is not a sufficient ground for denying
the motion.”).
* * * * *
For the foregoing reasons, we affirm in part and reverse
in part the district court’s orders. We reverse the dismissal of
plaintiffs’ unjust enrichment claim and the denial of plaintiffs’
request to add a fraudulent inducement claim. We affirm the
dismissal of the California-law claims as well as the denial of
plaintiffs’ requests to add claims for rescission and negligent
misrepresentation. For the negligent misrepresentation claim,
however, we reverse to the extent that the dismissal was with
prejudice. We remand for proceedings consistent with this
opinion.
So ordered.