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California v. IntelliGender, LLC

United States Court of Appeals, Ninth Circuit

November 7, 2014

THE PEOPLE OF THE STATE OF CALIFORNIA, Plaintiff-Appellee,
v.
INTELLIGENDER, LLC, Defendant-Appellant

Argued and Submitted, August 4, 2014,  Pasadena, California

Page 1170

Appeal from the United States District Court for the Central District of California. D.C. No. 2:10-cv-04210-ABC-VBK. Audrey B. Collins, District Judge, Presiding.

SUMMARY[*]

Class Action Fairness Act / Res Judicata

The panel affirmed the district court's denial of IntelliGender, LLC's motion to enjoin an entire enforcement action brought by the State of California under the State's Unfair Competition and False Advertising Laws, but reversed the denial of IntelliGender's motion to enjoin only the State's restitution claims in the State's action seeking relief for some individuals who were bound by a Class Action Fairness Act class action settlement concerning a nationwide class of disappointed purchasers of the IntelliGender Prediction Test, which purported to predict a fetus's gender.

The panel held that the district court correctly denied IntelliGender's motion to enjoin the State's enforcement action in its entirety. The panel held that a Class Action Fairness Act (" CAFA" ) class action, though approved by the district court, did not act as res judicata against the State in its sovereign capacity, even though many of the same claims were included in both the CAFA action and the enforcement action. The panel further held that because the State action was brought on behalf of the people, it implicated the public's interest as well as private interests, and therefore the remedial provisions swept much more deeply.

The panel held that the district court erred in denying IntelliGender's motion to enjoin the State's claims for restitution because the State's action, insofar as it sought restitution for individual members of the settlement class, could be enjoined under the district court's continuing jurisdiction to enforce and administer the class action settlement. The panel held that the State, having chosen not to participate in the CAFA action, was precluded from seeking the same relief sought in the CAFA class action by operation of the principles of res judicata.

Douglas J. Collodel (argued), Sedgwick LLP, Los Angeles, California; Paul Jeffrey Riehle, Nora Wetzel, Sedgwick LLP, San Francisco, California, for Defendant-Appellant.

Kristine A. Lorenz (argued), San Diego City Attorney's Office, San Diego, California, for Plaintiff-Appellee.

Before: Stephen Reinhardt, Kim McLane Wardlaw, and Consuelo M. Callahan, Circuit Judges.

OPINION

Page 1171

WARDLAW, Circuit Judge:

This case sits squarely at the intersection of the Class Action Fairness Act (" CAFA" ) and a sovereign's right to bring an enforcement action to protect its citizens from unscrupulous, fraudulent, or harmful business practices. The district court approved a CAFA settlement between a nationwide certified class of disappointed purchasers of the IntelliGender Prediction Test and defendant IntelliGender, which sold and advertised the Test as an accurate predictor of a fetus's gender using the mother's urine sample. Subsequently, the People of the State of California filed an enforcement action against IntelliGender under the State's Unfair Competition and False Advertising Laws, largely based on the same claims asserted in the CAFA class action. The State seeks civil penalties, injunctive relief, and restitution for some individuals

Page 1172

who were bound by the CAFA class action settlement. IntelliGender initially moved for an injunction against the State's entire action, which the district court denied. IntelliGender next moved for an injunction against only the State's restitution claims, positing that the State's action undermines the finality of the CAFA settlement, which the court also denied. Because the State's action is designed to vindicate broader governmental interests than the class action, the settlement agreement in the CAFA class action does not create privity sufficient to warrant enjoining the entire action. While we recognize the State's strong interest in protecting its citizens through enforcement actions, we note that CAFA expressly provides that the defendant in a class action must provide notice to the appropriate state official of any proposed settlement, presumably so that the state may comment upon or object to the settlement's approval, if the State believes the terms inadequately protect state citizens. Here, the appropriate State officials were notified, but they chose not to participate in the settlement approval process. The State cannot now obtain a duplicate recovery in the form of restitution on behalf of those individual citizens who are bound by the bargained for restitution in the CAFA class settlement. Accordingly we affirm the district court's denial of the motion to enjoin the entire State action, but reverse its denial of the motion to enjoin only restitution claims.

I.

A.

Earlier this year, the Supreme Court explained:

Congress enacted CAFA in order to amend the procedures that apply to consideration of interstate class actions. In doing so, Congress recognized that class action lawsuits are an important and valuable part of the legal system. It was concerned, however, that certain requirements of federal diversity jurisdiction, 28 U.S.C. § 1332, had functioned to keep cases of national importance in state courts rather than federal courts.

Miss. ex rel. Hood v. AU Optronics Corp., 134 S.Ct. 736, 739, 187 L.Ed.2d 654 (2014) (citations omitted) (internal quotation marks omitted). The Senate stated its concerns more bluntly: " [M]ost class actions are currently adjudicated in state courts, where the governing rules are applied inconsistently (frequently in a manner that contravenes basic fairness and due process considerations) and where there is often inadequate supervision over litigation procedures and proposed settlements." S. Rep. No. 109-14, at 4 (2005), 2005 WL 627977, at *5. In an effort to curb these perceived abuses, Congress loosened the requirements for diversity jurisdiction by adding 28 U.S.C. § 1332(d)(2), which " replaced the ordinary requirement of complete diversity of citizenship among all plaintiffs and defendants, with a requirement of minimal diversity." AU Optronics, 134 S.Ct. at 740 (citation omitted). Under CAFA, therefore, a federal court may exercise jurisdiction so long as " any member of a class of plaintiffs is a citizen of a State different from any defendant" and the amount in controversy exceeds $5 million. 28 U.S.C. § 1332(d)(2).

Complementing the expansion of federal jurisdiction to ensure uniformity and fairness is CAFA's class action settlement notice requirement, 28 U.S.C. § 1715, which was intended to " provide a check against inequitable settlements." S. Rep. No. 109-14, at 35 (2005), 2005 WL 627977, at *34; see In re Uponor, Inc., F1807 Plumbing Fittings Prods. Liab. Litig., 716 F.3d 1057, 1064-65 (8th Cir. 2013). Section 1715 requires notice of a proposed settlement to be served on the " appropriate" federal and

Page 1173

state officials--typically the Attorney General of the United States and " the person in the State who has the primary regulatory or supervisory responsibility with respect to the defendant." 28 U.S.C. § 1715(a). In addition, § 1715 prohibits a court from ordering final approval of a proposed settlement until 90 days after the appropriate government officials were notified. Id. § 1715(d). The statute is equally clear that it shall not " be construed to expand the authority of, or impose any obligations, duties, or responsibilities upon, Federal or State officials." Id. ยง 1715(f). These requirements are intended to give states a role in ensuring that citizens are equitably compensated in class action settlements, but states are ...


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