The Ninth Circuit Court of Appeals reversed a Hawaii district court's denial of class certification in an action brought under Hawaii's Deceptive Practices Act (Haw. Rev. Stat. § 480-2) based on insurer's allegedly deceptive marketing of its annuities products to seniors, concluding, contrary to the district court's ruling, that the act does not require a showing of subjective, individualized reliance on the allegedly deceptive practices, but rather merely requires a showing of objective reliance—i.e., that a practice is "likely to mislead" a reasonable consumer under similar circumstances. Because there were no individualized issues of subjective reliance, common issues predominated and class action was a superior method of adjudication.
Plaintiffs purchased Midland National Life Insurance Company ("Midland") annuities through independent brokers. They filed a class action claiming that Midland marketed the annuities through deceptive practices in violation of the act by using brochures which represented the annuities as being appropriate for seniors but deceptively represented that its annuities protected clients from the risks of the stock market, and omitted facts regarding the true risks, possible detriments, and unsuitability of Midland's long-term annuities for seniors.
The district court refused to certify the class because it determined that Hawaii's consumer protection laws require individualized reliance showings, such that class issues did not predominate over issues affecting individual members. Plaintiffs appealed, arguing the district court's class certification decision was premised on an error of law.
On appeal, the Ninth Circuit reversed the lower court's denial of class certification, concluding the denial was per se an abuse of discretion (i.e., an error of law) because it was based on an erroneous interpretation of Hawaii's consumer protection laws. Reviewing the lower court's determination of law de novo, the Ninth Circuit found the act employs an objective test of reliance by a reasonable consumer acting under similar circumstances, rather than requiring an individualized showing of reliance by each particular consumer.
In support, the court pointed to a Hawaii State Supreme Court decision, Courbat v. Dahana Ranch, Inc. (Haw. 2006) 141 P.3d 427, 435, which held that reliance is determined under an "objective 'reasonable person' standard" by looking to the likelihood of a representation, omission or practice to mislead or deceive "consumers acting reasonably under the circumstances." "[A]ctual deception need not be shown, the capacity to deceive is sufficient." Bronster v. U.S. Steel Corp. (Haw. 1996) 919 P.2d 294, 313. Thus, the Ninth Circuit ruled the applicable standard was "an objective test, and therefore actual reliance need not be established."
The court reasoned that because plaintiffs' claims were only based on what Midland omitted from its brochures, the jury would not have to determine whether each plaintiff subjectively relied on the omissions. Instead, the jury would only have to determine whether such omissions were likely to deceive a reasonable person, which, in the Ninth Circuit's view "[did] not involve an individualized inquiry."
The court further rejected the district court's determination that plaintiffs' claims would also "involve separate questions of fact as to what information the independent brokers selling the [annuities] conveyed," reiterating that plaintiffs' claims were expressly limited to Midland's allegedly deceptive omissions from its brochures, and not on brokers' oral representations to each member of the class.
The court also refuted the district court's determination that commonality was further undermined by the damages calculations, which "involved highly individualized and fact-specific determinations." While the court admitted that the calculation of damages is invariably an individual question, in the Ninth Circuit such variance alone "does not defeat class action treatment." Accordingly, the court found class issues to predominate.
Lastly, the court found the district court's determination that a class action was not a "superior" means of adjudication was erroneous because it too was premised on the lower court's misinterpretation of the reliance requirement under Hawaii's Deceptive Practices Act. The statute expressly provides its remedies were appropriate for class actions, and the Hawaii Supreme Court has stated the act was "constructed in broad language in order to constitute a flexible tool" to prevent unfair and deceptive practices for the protection of both consumers and honest businesses. Moreover, as the Ninth Circuit had noted, individual reliance determinations were not relevant to the action, and individualized damages alone were not sufficient to undermine class certification. In addition, though class members had incentive to pursue individual claims given that the average purchase price exceeded $50,000, average actual damages were no more than 20 or 30 percent of the purchase price. The existence of individual claims against other parties such as brokers did not necessarily defeat the availability of a class action against the company under a statute aimed at protecting reasonable consumers from deceptive business practices.
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