Keeping Tabs on the Ninth Circuit
March 17, 2023 - This Week at the Ninth

This Week At The Ninth: Individualized Issues And Secret Proceedings

clothing hangers

This week, the Court addresses when individualized issues may preclude class certification, and considers the public’s right of access to court proceedings seeking third-party assistance with criminal investigations.

The Court holds that the district court failed to properly consider whether some class members’ receipt of discounts offsetting a wrongly assessed sales tax created individualized issues that rendered class certification improper.

The panel: Judges Bea, Ikuta, and Christen, with Judge Bea writing the opinion and Judge Christen concurring in part.

Key highlight:Rule 23 does not demand proof of who will win or lose at trial. LuLaRoe invoked an individualized issue—that retailer discounts left some class members uninjured—and provided evidence that at least some class members lack meritorious claims because of this issue, thus summoning the spectre of class-member-by-class-member adjudication. . . . When a defendant substantiates such an individualized issue in this way, the district court must determine whether the plaintiff has proven by a preponderance of the evidence that the questions of law or fact common to class members predominate over any questions affecting only individual members—that is, whether a class-member-by-class-member assessment of the individualized issue will be unnecessary or workable.” (Internal citations omitted.)

Background: LuLaRoe is a multilevel-marketing company whose retailers sell clothing throughout the United States. Prior to May 2017, LuLaRoe improperly charged sales tax based on the location of the retailer making the sale, rather than the customer making the purchase. As a result, some LuLaRoe customers paid more sales tax than they should have. LuLaRoe issued refunds for all improperly assessed sales tax, but not for any interest that would have accrued between the time of purchase and the time of the refund.

Plaintiff Katie Van seeks to represent a class of Alaskans improperly charged sales tax on LuLaRoe purchases. As relevant here, Van’s complaint alleged that LuLaRoe had violated the Alaska Unfair Trade Practices and Consumer Protection Act (“UTPCPA”). LuLaRoe’s answer asserted various affirmative defenses, including that Van’s claims were barred under the voluntary payment doctrine. The district court granted Van’s motion to strike this defense as it pertained to the UTPCPA claims. It subsequently granted Van’s motion to certify a class composed of “[a]ll persons who paid ‘tax’ on a purchase of LuLaRoe products and whose purchase was delivered into a location in Alaska that does not assess a sales or use tax on the clothing that LuLaRoe sells.” The Ninth Circuit granted Lu La Roe’s petition under Federal Rule of Civil Procedure 23(f) for permission to appeal the certification order.

Result: The Ninth Circuit vacated the district court’s certification order and remanded for further proceedings. Under Rule 23(b)(3), a class seeking damages may be certified only if “the questions of law or fact common to class members predominate over any questions affecting only individual members.” LuLaRoe argued that three individualized issues predominated over class issues. While the Court rejected LuLaRoe’s first two arguments, it agreed with the third. 

First, LuLaRoe asserted that a significant number of class members lacked Article III standing because the interest they were owed was so miniscule (in some cases less than $0.01) that it did not constitute a concrete injury. The Court rejected this argument, reiterating that monetary loss—no matter how small—satisfies Article III’s injury-in-fact requirement.

Second, LuLaRoe argued that some class members lacked meritorious claims because LuLaRoe’s retailers had explained the sales tax situation before those class members voluntarily paid the sales tax. The Court first considered whether it had jurisdiction to consider that defense at all, which the district court initially rejected when it granted Van’s motion to strike. The Court concluded that it had jurisdiction to consider LuLaRoe’s voluntary payment defense because that issue was both factually and legally part of the district court’s class certification decision—it had been raised and briefly addressed at class certification, and it was relevant to the predominance question. But on the merits, the Court rejected LuLaRoe’s argument because LuLaRoe had not provided evidence sufficient to show that individualized issues would bar recovery for at least some class members. LuLaRoe provided a handful of invoices showing that the purchaser had been told about the sales tax issue. But each of those invoices also indicated that the purchaser had received a discount equal to or greater than the improperly assessed sales tax, so these purchasers had not been improperly charged sales tax at all. LuLaRoe also submitted four declarations from its retailers asserting that some consumers were told about the sales tax issue. But those declarations did not state with any certainty that any member of this class was informed about the improper sales tax and still paid it. The Court held that such speculation was not enough to demonstrate the existence of individualized issues.

Third, LuLaRoe argued that individualized issues predominated because it had provided some class members discounts that were intended to offset any improperly assessed sales tax. It submitted evidence of such discounts in at least 18 transactions. The district court had concluded that the evidence showed that only a de minimis number of class members had received such a discount. But the Ninth Circuit concluded that the district court had apparently misunderstood the Rule 23 inquiry, which did not turn on whether LuLaRue had already produced evidence that would defeat a substantial number of the class members’ claims. Rather, the question was whether LuLaRoe’s evidence demonstrated the existence of individualized issues. The class members received a total of 13,680 discounts, and LuLaRoe’s evidence showed that an inquiry into the basis for each of those discounts might be necessary. The Court remanded for the district court to determine whether Van had proven by a preponderance of the evidence that a class-member-by-class-member assessment of this individualized issue was either unnecessary or workable. 

Judge Christen concurred in part. She agreed that even a negligible loss of money supported Article III standing, and that LuLaRoe’s evidence was insufficient to demonstrate that the voluntary payment defense created an individualized issue. She also agreed that remand was necessary because the district court failed to consider LuLaRoe’s evidence of the discounts. She wrote separately to note that the Ninth Circuit had “previously rejected litigants’ attempts to slip prior rulings into a Rule 23(f) appeal through the backdoor,” and that a previously litigated issue is not bound up in a class certification order merely because a party re-raises it in its class certification briefing. Although Judge Christen agreed that the Court had interlocutory jurisdiction to review the voluntary payment defense because the district court’s order was not solely limited to reiterating it previous holding, she saw the question as a close one. Judge Christen also disputed the majority’s suggestion that the district court misunderstood the Rule 23 inquiry, noting that the district court had recognized that individualized determinations regarding the basis for each discount might be necessary.

The Court holds that the public has no right to access court records relating to government requests under the All Writs Act for orders compelling third parties to assist in criminal investigations. 

The panel: Judges Rawlinson, Bade, and Bress, with Judge Bress writing the opinion.

Key highlight: “Matters decided in the courts are often of considerable public interest, and we have no reason to question petitioners when they assert that the public has an interest in knowing more about how AWA orders are used to enlist private companies to assist in criminal investigations. The question here, however, is not one of public interest but public access. And greater public attention does not inevitably mean greater disclosure when competing interests are at stake.”

Background:  Forbes reporter Thomas Brewster discovered an inadvertently unsealed federal government application for the issuance of an order under the All Writs Act (AWA) to compel Sabre, an online travel company, to disclose travel information regarding the subject of an arrest warrant. He authored an article, entitled “The FBI Is Secretly Using A $2 Billion Travel Company As A Global Surveillance Tool.” Brewster and Forbes then filed petitions in the Northern District of California and the Western District of Washington seeking to unseal additional records related to the government’s application. Both district courts denied the petitions. 

Result: The Ninth Circuit affirmed. First, the Court rejected the petitioners’ argument that they were entitled to the records under the First Amendment. The Court applied the “experience and logic” test, asking (1) “whether the type of proceeding at issue has been traditionally conducted in an open fashion,” and (2) “whether public access plays a significant positive role in the functioning of the particular process in question.” Here, there was no history of allowing public access to AWA proceedings, which—like search warrant or grand jury proceedings—were generally maintained under seal. The Court dismissed the petitioners’ attempt to analogize to “injunction” proceedings more generally, observing that this contention “operates at a stratum of abstraction far removed from the nature of the AWA proceedings at issue here.” Moreover, the Court continued, public access would not “play a significant positive role in the functioning” of the AWA proceedings; rather, it would undermine them by jeopardizing ongoing criminal investigations. While the Court acknowledged the petitioners’ concerns about leaving potential government overreach unchecked, it noted that AWA orders can be challenged by parties like Sabre, and that there was still a “robust public debate” over such issues.

Second, the Court also rejected petitioners’ claim to a common-law right of access to the records. The Court began with the “threshold question” of whether the public had any right of access to these sorts of materials, an inquiry that “turns on roughly similar considerations of historical tradition and the risks and benefits of public disclosure.” The Court reiterated that there was no history of access to AWA proceedings. And, it continued, petitioners had not demonstrated an “important public need” for access, especially given the potential risks to ongoing criminal investigations. While petitioners contended that public access was needed in order to help Congress craft legislation in this area, the Court observed that Congress had its own independent means of securing information regarding AWA procedures. 

The Court also rejected petitioners’ argument that, under both the First Amendment and the common law, the inquiry should be into whether the public has the right to certain types of documents in the AWA proceedings, rather than the public’s right of access to the AWA proceedings as a whole. The Court explained that the Ninth Circuit’s precedent mandated an inquiry into the nature of the proceedings themselves. The Court further observed that it “did not decide whether the analysis would be different once the suspect is caught and the criminal investigation concluded,” although it rejected petitioners’ request that it order the government to inform them when that occurred, leaving that issue to the district courts’ discretion. Finally, the Court concluded that the facts that a district court in Pennsylvania had since reached a different conclusion regarding related AWA materials, and that the government had not sought a stay of that unsealing order, did not change its analysis here.