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Class Action Countermeasures Discussions of the Strategic Considerations Involved In Class Action Defense

Judge Says “Pfau” to Literary Class Action

Posted in Motions Practice

 Last week, the District of Montana ruled on the defendants’ motion to dismiss in Pfau v. Mortenson (the infamous "Three Cups of Tea" class action). The lawsuit alleged that author Greg Mortenson had made up aspects of his biography in writing and marketing his bestselling memoir Three Cups of Tea.  The plaintiffs–a pair of Montana lawmakers–specifically claimed that Mortenson and his publisher had engaged in a criminal enterprise (a term of art for RICO claims) to market his book as nonfiction despite the falsehoods it allegedly contained.

When the complaint was filed, I wrote about how the lawsuit had a slim chance of getting certified as a class action. That chance has now gone from "slim" to "none": the trial court dismissed the complaint without leave to amend. And its opinion is instructive reading for class-action defense lawyers.

I’m going to presume that most of my readers are familiar with motions to dismiss, and so will not dwell on the court’s discussion of Iqbal (which discusses the "plausibility" requirement in federal pleading) or Rule 9(b) (which requires a heightened pleading standard for fraud-based claims). Instead, I’ll just note that the opinion largely turns on the fact that the plaintiffs did not meet their pleading burden in either case. As the court put it when dismissing plaintiffs’ RICO claims:

The RICO claims are fraught with shortcomings, including failure to satisfy causal elements, failure to specify the roles of the Defendants, not adequately pleading enterprise theories, and failure to specify an actionable, identifiable racketeering activity. Failure to adequately address the causal elements is the ultimate and fatal flaw. The Complaint does not state, nor is it possible to ascertain, whether Plaintiffs would have purchased the Books if: (1) the Books were labeled or marketed as fiction; or (2) the readers knew portions of the Books, as claimed, were fabricated. Plaintiffs’ overly broad statements that they paid approximately $15 for the Books because they were represented as true does not suffice. Additionally, Plaintiffs fail to allege when they purchased the Books, which is crucial in analyzing this case. In fact, Plaintiffs never allege they visited CAI’s website or saw or heard any statements made by it before purchasing the Books.

(Emphases added; internal footnote omitted.)  The opinion also points out that the plaintiffs did not differentiate among the defendants in making their allegations. (Courts generally frown on "group pleading" of fraud or RICO claims.)

Nor was the court impressed by plaintiffs’ fraud-related claims.  In particular, it pointed out that the plaintiffs could not point to any specific misrepresentation on which they relied.  (The plaintiffs had alleged that they were misled by the book’s characterization as "nonfiction."  They did not specify who made that representation, or how they relied on it.)

The fraud pleadings in point of fact are weakened by incorporation of the flawed RICO allegations. Moreover, the Complaint fails to specify what representation the Plaintiffs relied upon or the materiality of that representation. Plaintiffs are not entitled to rely on general allegations of purported lies within the Books’ content. At a minimum, Plaintiffs must show that they relied on some particular statement by the Defendants made outside the text of the Books.

(Internal footnote omitted.) The plaintiffs had also asserted breach-of-contract and unjust enrichment claims. The court denied these for lack of privity. (Since the plaintiffs bought the book from retailers, there was no privity of contract between them and the publisher, or them and the author.)

What’s the takeaway here? Don’t forget about the merits arguments. While I talk a lot about how plaintiffs often don’t consider whether classes are actually certifiable, they often stretch legal theories far beyond what they’re intended as well. In particular, plaintiffs asserting class actions based on public outrage often find themselves in a precarious position: if they are too specific in their allegations, it becomes clear that they do not have a certifiable class. If they rely on vague allegations to mask the obvious certification problems, then they can not prevail on the merits. Plaintiffs (and scholars sympathetic to them) will likely say this is evidence that Rule 23 is not working properly. I’d say the opposite. The class action is not a one-size-fits all device, and its primary purpose is not to leverage quick settlements. The class action is designed to allow a trial of aggregated claims; it works for some kinds of cases, and not others. Recognizing where it will not does not diminish its usefulness.