Lit Alerts—August 2016 (First Edition)

• Consumer Protection: Ninth Circuit Provides Guidance for Pleading Reliance on False Advertisements
• Federal Rules Amendments: S.D.N.Y. Requires Discovery To Be Grounded in the Pleadings
• Removal: Eighth Circuit Holds That District Court's Refusal To Consider Evidence Submitted After Removal Was Abuse of Discretion

Consumer Protection: Ninth Circuit Provides Guidance for Pleading Reliance on False Advertisements

In June, the Ninth Circuit clarified the requirements for pleading a fraudulent advertising claim. In Haskins v. Symantec Corp., the court ruled that a plaintiff seeking damages for fraudulent advertising must allege reliance on specific advertisements to avoid dismissal under Federal Rule of Civil Procedure 9(b) (FRCP 9(b)). The court distinguished the plaintiff's factual allegations from those in the Tobacco II case, which recognized an exception to FRCP 9(b) for ubiquitous and widespread advertising campaigns.

In Haskins, the plaintiff asserted multiple causes of action under California's Unfair Competition Law and Consumers Legal Remedies Act alleging that Symantec Corp., an antivirus software maker, had fraudulently concealed that hackers had stolen the secrets to its antivirus software, which left computers relying on Symantec's products more vulnerable to hackers. The district court dismissed the plaintiff's first three complaints under FRCP 9(b) because they each failed to cite any specific advertisement the plaintiff had relied upon when she made her decision to purchase Symantec's software. The plaintiff attempted to work around her inability to cite a specific advertisement by citing Tobacco II's exception to the usual pleading requirements of FRCP 9(b).

In Tobacco II, the plaintiff class was allowed to pursue fraudulent advertising claims against a number of tobacco companies without citing any specific advertisements that class members had relied upon, by convincing the court that the defendant tobacco companies' advertisements were so widespread and pervasive that they had "saturated" California. Proving a plaintiff's reliance on any single advertisement would be unrealistic in those circumstances, the court decided.

The Haskins court found Tobacco II inapposite, however, because the plaintiff had failed to allege that Symantec had saturated the California market with advertisements in the same way as the Tobacco II defendants had. Accordingly, the plaintiff would have to plead reliance on a specific Symantec advertisement prior to her purchase to survive a motion to dismiss.

This decision will pose an obstacle to consumer advertising class actions in California federal courts. To satisfy FRCP 9(b), plaintiffs will have to allege they relied on specific advertisements, which will make class certification less likely where each plaintiff relies on distinct and individualized facts.

Federal Rules Amendments: S.D.N.Y. Requires Discovery To Be Grounded in the Pleadings

As part of the December 1, 2015 amendments to the Federal Rules of Civil Procedure, Rule 26(b)(1) was revised to remove the statement that "the court may order discovery of any matter relevant to the subject matter involved in the action." "New" Rule 26(b)(1) permits discovery only "regarding any nonprivileged matter that is relevant to any claim or defense."

In May, S.D.N.Y. Magistrate Judge Francis IV discussed the scope of this new rule in Lifeguard Licensing Corp. v. Kozak, 15 Civ. 8459 (LGS)(JCF) (May 23, 2016). The defendants sought pre-answer discovery of information "relevant to the[ir] likely defenses and counterclaims." Referencing the newly revised Rule 26(b)(1), the court stated that it would not permit discovery on unpled defenses for three reasons: (1) "it would be a waste of resources to devote discovery to issues that may never be addressed in the litigation"; (2) "a party and its attorney must have conducted 'an inquiry reasonable under the circumstances' before filing a pleading," so permitting discovery on unpled claims or defenses would dilute the requirement to do so on all claims; and (3) "the plain language of the Rule does not provide for discovery of 'likely,' antcipated' [sic], or 'potential' claims or defenses." Put simply, "the pleadings in this case define the scope of discovery," and defendants constrained their own discovery rights by choosing to file a motion to dismiss without answering the complaint.

Removal: Eighth Circuit Holds That District Court's Refusal To Consider Evidence Submitted After Removal Was Abuse of Discretion

Last month, the Eighth Circuit held that the district court's refusal to consider evidence submitted after the notice of removal was filed was an abuse of discretion. The case, Pudlowski v. The St. Louis Rams, LLC, No. 16-8009, arose from the highly publicized relocation of the St. Louis Rams football team to Los Angeles. The plaintiffs, alleging they were misled into purchasing tickets, merchandise, and concessions under the false promise that the Rams would stay in Missouri, purported to represent a class of all Missouri residents who made purchases from April 2010 through January 2016. They sued the Rams in Missouri state court, and the Rams removed the case to federal court on the basis of the Class Action Fairness Act (CAFA).

After filing the notice of removal, the Rams submitted two affidavits from putative class members declaring that while they were Missouri residents at the time they made their purchases, they had since moved out of state. The Rams argued that these affidavits showed that CAFA's minimal diversity requirement was met because "at least one plaintiff and one defendant are citizens of different states." The district court refused to consider the affidavits, interpreting "the rule that a federal court's jurisdiction is measured 'at the time of removal' to preclude it from considering evidence submitted to the court postremoval."

The Eighth Circuit reversed, holding that the district court abused its discretion in refusing to consider the affidavits: "While it is true that jurisdiction is measured at the time of removal, that only means that facts arising subsequent to removal have no bearing on a court's jurisdictional determination." The Rams' notice of removal was not required to include evidence, the court further held, and post-removal discovery is often necessary if jurisdictional or venue issues arise.