In the last few years, statutory non-disclosure have become more common among class-action filings. They allow the plaintiffs to assert fraud-like claims that can arouse public (or judicial) sympathy, without necessarily having to worry about proving individualized reliance the way they would if they had alleged a common-law fraud claim.
A recent case, Noel v. Hudd Distribution Services, Inc., 2011 U.S. Dist. LEXIS 21480 (D.S.C. March 2, 2011), provides one tactical roadmap for defending against these kinds of claims. In Noel, the plaintiffs brought claims against a truck leasing company, claiming that it charged them for insurance premiums and certain cell phone charges without disclosing them first as required by federal law. True to form, the plaintiffs asserted a number of pseudo-fraud claims, couched as "disclosure" violations. In this case, those claims incldued:
1) declaratory judgment action seeking declarations from the court that defendants have violated the Truth-in-Leasing Act in multiple respects; 2) damages for Truth-in-Leasing Act violations (insurance charge-backs); 3) damages for Truth-in-Leasing violations (cell phone charge-backs); 4) injunctive relief; 5) breach of contract (insurance-charge backs); 6) breach of contract (cell phone charge-backs); 7) breach of the covenant of good faith and fair dealing; and 8) misrepresentation.
Faced with these kinda-sorta fraud allegations, the defendants took the plaintiffs’ depositions. And they promptly discovered that the two named plaintiffs each would have difficulty proving that they had been even kinda-sorta defrauded by the alleged non-disclosure.
Yates stated that he read portions of the lease agreements but that he did not read the insurance-related appendix. Noel did read his leases and knew that Defendants were authorized to make certain insurance-related deductions from his compensation and how the number was calculated.
In other words, one plaintiff hadn’t even read the section where the disclosure should have gone. The other had, and understood what the defendants were doing perfectly well. Neither of these plaintiffs could claim they were misled. One knew better, and the other didn’t know enough.
As a result, the defendants opposed certification, arguing that–because they could not demonstrate that they had read or were misled by the allegedly fraudulent statements–the named plaintiffs were not typical of the remainder of the class. The court agreed.
Plaintiffs’ testimony offers no basis to infer whether members of the absent class read their leases, understood the terms, or ultimately cared about those terms. Because Plaintiffs themselves cannot establish that they were misled or harmed by MDSI’s allegedly deficient disclosures, they cannot claim to be typical of other class members they seek to represent.
So what can defendants learn from this case? First, always do the due diligence on a claim: serve interrogatories aimed at the elements of the claim, and focus in the deposition on how the named plaintiff will prove her claim. And second, don’t forget to defend against the real claim in the case. Regardless of how much a plaintiff tries to mask it, if she is alleging a fraud case, she will still have to prove, in some fashion, the elements of fraud.