Sixth Circuit affirms decision striking class allegations in challenge to health care discount program, calling class treatment inefficient, unworkable, and inconsistent with Rule 23

In Pilgrim v. Universal Health Card, LLC, 2011 U.S. App. LEXIS 22715 (6th Cir. Nov. 10, 2011), Plaintiffs Daniel Pilgrim and Patrick Kirlin sought to represent a nationwide class of individuals challenging the defendant companies for creating and marketing a health care discount program, which Plaintiffs claimed was deceptive and violated consumer-protection laws. 

Membership in the discount program gave consumers access to a network of providers who lowered their rates for members.  Plaintiffs disliked the program because they alleged some of the providers had never heard of the program and some of the advertisements were deceptive because they looked like news articles.  They also complained that the program was purportedly free when it included a registration fee and monthly fees after the first 30 days.

Plaintiffs filed their putative nationwide class action in the Northern District of Ohio, which took jurisdiction under the Class Action Fairness Act (CAFA).  The opt-out class included over 30,000 members. 

One of the defendants moved to strike the class allegations, which the district court granted on the basis that under Ohio's choice-of-law rules, it would have to analyze each class member’s claim under the law of his or her home State.  “‘Such a task,’ the district court concluded, ‘would make this case unmanageable as a class action’ and would dwarf any common issues of fact implicated by the lawsuit.”  Id. at 2011 U.S. App. LEXIS 22715, *4.  With the class allegations gone, the named Plaintiffs did not meet the $75,000 amount in controversy requirement, and the district court dismissed the case without prejudice for lack of subject matter jurisdiction.  Plaintiffs appealed the decision striking the class allegations.

The district court’s decision focused on Plaintiffs’ failure to meet the predominance requirement under Rule 23(b)(3), finding they could not demonstrate that common questions of law or fact predominated when the class members’ claims would be governed by the varying laws of the states in which the subject purchases occurred.

The Sixth Circuit affirmed, finding the judgment of the district court sound for three reasons.  First, it agreed that different laws would govern the class members’ claims.  Under Ohio’s choice-of-law principles, the consumer-protection laws of the potential class members’ home states would govern their claims.

Second, the Sixth Circuit found potential common issues of fact could not overcome the problem of varying applicable consumer-protection laws.  Even if the laws substantially overlapped, the discount program itself operated differently in different states, and the putative plaintiffs suffered different injuries as a result.  For example, a key part of the claim—that providers had not heard of the program—would require individualized showings in different parts of the country.  Further, although there were similarities in the allegedly deceptive advertising, the ads also varied across the country.

Finally, the Sixth Circuit found a decision upholding the order striking the class allegations consistent with its own and other courts’ precedents.  In particular, the Court focused on the impossibility of instructing the jury on up to fifty states’ laws if a nationwide class was certified when the applicable laws differed by state.

Notably, the Sixth Circuit also rejected Plaintiffs’ argument that they should have been given the opportunity for discovery before the class allegations were stricken.  Citing Rule 23(c)(1)(A), the Sixth Circuit agreed that the district court’s decision issued before Plaintiffs moved for class certification was within its discretion to address class certification issues at an “early practicable time” in the litigation.  Thus, the Sixth Circuit found the timing acceptable, especially because it also concluded discovery would not have cured the problems with the class allegations.

This case highlights the benefits of an early motion to strike class allegations as an effective cost-reduction tool in avoiding class certification even before class discovery has commenced or a motion to certify has been filed.

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