United States District Court, S.D. New York
CHRISTINE RODRIGUEZ, SANDRA BURGA, KAREN MALAK, JAMES TORTORA, LISA BRUNO, JANEEN CAMERON, KAREN MCBRIDE, ANDREW WOOLF, and BRAD BERKOWITZ, individually and for all others similarly situated, Plaintiffs,
IT'S JUST LUNCH, INTERNATIONAL, IT'S JUST LUNCH, INC., HARRY SALLY, INC., RIVERSIDE COMPANY, LOREN SCHLACHET, IJL NEW YORK CITY FRANCHISE, IJL ORANGE COUNTY FRANCHISE, IJL CHICAGO FRANCHISE, IJL PALM BEACH FRANCHISE, IJL DENVER FRANCHISE, IJL AUSTIN FRANCHISE, IJL LOS ANGELES-CENTURY CITY FRANCHISE, and DOES 1-136, Defendants.
OPINION & ORDER
SIDNEY H. STEIN, District Judge.
Plaintiffs in this putative class action allege fraud and deceptive business practices by It's Just Lunch International ("IJL"), a provider of personalized matchmaking services that operates nationally through franchises. Plaintiffs proposed that both a national class of plaintiffs and a New York class of plaintiffs be certified. The proposed representatives of the national class, all of whom paid for IJL's services, claim to have been enticed to do so by means of corporate-mandated misrepresentations repeated by individual IJL employees. ( See Order dated April 23, 2013, at 1 (Dkt. No. 167).) The proposed representative of the New York class alleges that IJL charged him more than $1, 000 for one year of services in violation of the New York General Business laws. The named plaintiffs now move pursuant to Federal Rule of Civil Procedure 23 for the Court to certify classes as to each of their claims. (Dkt. No. 184.)
For the reasons that follow, the Court grants plaintiffs' motion in part and denies it in part. In short, virtually all evidence in the record indicates that during the period at issue, IJL staff relied on a uniform script to inform prospective customers during initial interviews that IJL already had at least two matches in mind for those customers' first dates regardless of whether or not that was true. The proposed national class's fraud claims will substantially rise or fall based on whether that "multiple match" representation was materially misleading. Moreover, plaintiffs have demonstrated that they can attempt to prove their fraud claims through common evidence, including that IJL structured its sales pitch to collect payment from customers immediately after making the "multiple match" representation. Because plaintiffs have demonstrated that Rule 23(a) and (b)(3) are satisfied, the Court certifies a national class with regard to plaintiffs' fraud claims. The Court denies certification of the national class's unjust enrichment claim because given state law variations, plaintiffs have not demonstrated that common questions predominate.
The Court also finds that both the fraud and unjust enrichment claims of the prospective New York class satisfy Rule 23(a) and (b)(3). Whether IJL charged New York customers more than $1, 000 during the relevant time period is a question common to that class. The fact that IJL uniformly disclosed the terms of New York's consumer protection law governing dating services means that this Court will be able to assess on a classwide basis whether plaintiffs may prevail notwithstanding IJL's disclosure.
The facts and procedural history of this case are set forth in the Reports and Recommendations of Magistrate Judge Kevin Nathaniel Fox dated April 6, 2012 (Dkt Nos. 155, 156), and in this Court's Memorandum Order dated April 23, 2013, adopting in part and overruling in part Judge Fox's recommendations (Dkt. No. 167). This Court presumes the reader's familiarity with those decisions and the facts set forth in them.
Plaintiffs Lisa Bruno, Karen Malak, James Tortora, Janeen Cameron, and Brad Berkowitz are former IJL customers. Bruno, Malak, Tortora, and Cameron seek to represent a national class of "persons who were or are members of IJL who signed a contract with IJL." (Third Am. Compl. ¶ 56 (Dkt. No. 169).) Those four plaintiffs bring two claims on behalf of the proposed national class: they allege that (1) defendants fraudulently induced plaintiffs to enter into contracts with IJL; and (2) in doing so, defendants unjustly enriched themselves.
Plaintiff Berkowitz seeks to represent a class of individuals who became clients of It's Just Lunch, International; It's Just Lunch, Inc.; and Harry and Sally, Inc. in New York and who paid more than $1, 000 for a year's worth of IJL services. (Third Am. Compl. ¶ 227; Pls.' Mem. at 1, 10-11; Pls.' Reply Mem. of Law in Further Supp. of Their Mot. for Class Certification for Appointment of Representative & Class Counsel ("Pls.' Reply") (Dkt. No. 191) at 15.) Berkowitz alleges on behalf of the proposed New York class that (1) IJL's billing practices violated New York's General Business Law §§ 349 and 394-c; and (2) defendants therefore unjustly enriched themselves.
II. A NATIONAL FRAUD CLASS AND A NEW YORK FRAUD AND UNJUST ENRICHMENT CLASS SATISFY RULE 23'S REQUIREMENTS BUT A NATIONAL UNJUST ENRICHMENT CLASS DOES NOT.
A. Rule 23 Standard
A court "may certify a class only after making determinations that each" of the requirements of Federal Rule of Civil Procedure 23 is met. See In re Initial Pub. Offerings Sec. Litig. ("In re IPO" ), 471 F.3d 24, 41 (2d Cir. 2006).
Rule 23(a) provides four prerequisites to class certification: that
(1) the class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.
Fed. R. Civ. P. 23(a).
The Court must also determine prior to certifying a class that "the class satisfies at least one of the three provisions for certification found in Rule 23(b)." See In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108, 117 (2d Cir. 2013). Plaintiffs seek class certification pursuant to Rule 23(b)(3). That rule permits certification only when "questions of law or fact common to class members predominate over any questions affecting only individual members, " and when "a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed.R.Civ.P. 23(b)(3).
"To certify a class, a district court must make a definitive assessment of Rule 23 requirements, notwithstanding their overlap with merits issues, ... must resolve material factual disputes relevant to each Rule 23 requirement, and must find that each requirement is established by at least a preponderance of the evidence." See In re U.S. Foodservice, 729 F.3d at 117 (quotation marks omitted). If both Rule 23(a) and Rule 23(b) are satisfied, the Court may, in its discretion, certify the class. See In re IPO, 471 F.3d at 32. The Court proceeds to address each of the applicable Rule 23 requirements with respect to each of the proposed class claims.
B. National Class Claims
1. The Proposed National Class Meets Each of Rule 23(a)'s Requirements.
a. The Members of the Proposed National Class Are Sufficiently Numerous.
"[N]umerosity is presumed" when the proposed national class includes more than forty members. See Shahriar v. Smith & Wollensky Rest. Grp., 659 F.3d 234, 252 (2d Cir. 2011). Here, that number is greatly exceeded, since more than ten thousand individuals purchased defendants' services annually during each year of the proposed class period. (Ex. 1 to Decl. of John G. Balestriere dated Oct. 4, 2013, at 2, Dkt. No. 192-1.) On plaintiffs' theory of the case, all of those individuals fall within the proposed class because plaintiffs contend that "IJL and its franchises lied to all customers about the services they promised to provide and none of them received such services." ( E.g., Pls.' Mem. at 25.)
Still, the ultimate determination of whether "the class is so numerous that joinder of all members is impracticable, " see Fed.R.Civ.P. 23(a)(1), "depends on all the circumstances surrounding the case, not on mere numbers, " see Robidoux v. Celani, 987 F.2d 931, 936 (2d Cir. 1993). Those circumstances include the "judicial economy arising from the avoidance of a multiplicity of actions." See Robidoux, 987 F.2d at 936. Based on that consideration, the Court finds that plaintiffs have demonstrated Rule 23(a)(1)'s numerosity requirement by a preponderance of the evidence as to both the fraud and the unjust enrichment claims of the proposed national class.
b. Whether IJL Materially Misrepresented Its Services Is a Question Common to the Fraud and Unjust Enrichment Claims of the Proposed National Class.
To satisfy Rule 23(a)(2)'s commonality requirement, plaintiffs' claims "must depend upon a common contention... which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke." See Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2551 (2011). "What matters to class certification is not the raising of common questions' - even in droves - but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation." Id. (alteration omitted).
Plaintiffs contend that "questions of law or fact common to the class, " see Fed.R.Civ.P. 23(a)(2), include: (1) whether "IJL and its franchises lied to all customers about the services they promised to provide"; (2) "whether the sales script and tactics employed by IJL misrepresented IJL's actual services"; and (3) whether the Class members were fraudulently induced to enter into contracts for matchmaking services." (Pls.' Mem. at 25.) In essence, these three proposed questions are various ways of restating plaintiffs'"core" contention that IJL interviewers misrepresented to each IJL customer that the "interviewer had at least two matches in mind during the intake interview." (Pls.' Reply at 10 n.12.)
As explained below, the Court concludes that plaintiffs have demonstrated that a "common question" exists as to whether defendants materially misrepresented their services to the members of the proposed national class. To reach that conclusion, the Court first resolves the parties' factual dispute over whether IJL in fact told all class members in an initial sales interview that IJL had multiple matches in mind. The Court answers that question in the affirmative, at least for purposes of this class certification motion. That answer in turn will "drive the resolution" of the prospective national class's fraud and unjust enrichment claims under the substantive law that governs those claims. See Dukes, 131 S.Ct. at 2551.
i. IJL Sales Staff Followed a Uniform Script in Conducting Intakes and Informed Virtually All Prospective Customers that IJL Had Multiple Matches In Mind.
The alleged common issues of fact or law for the claims of the proposed national class revolve around whether or not IJL made substantially uniform representations to the members of the proposed class. The parties dispute whether defendants in fact told all customers during initial interviews that IJL staff had multiple ideas for first dates. The Court must therefore resolve this "material factual dispute" in assessing whether Rule 23(a)(2)'s commonality requirement is met here. See In re U.S. Foodservice, 729 F.3d at 117. The relevant evidence before the Court is as follows.
IJL trained all sales staff through a "comprehensive training program that covered] the entire sales process, " known as First Date University ("FDU"). (Dep. of Melissa Brown dated Oct. 5, 2010, at 20, 160, Ex. G to Decl. of Peter T. Shapiro dated Aug. 23, 2013, Dkt. No. 188-8.) IJL provided all FDU attendees with an "info-call script' to use as a guideline while conversing with" prospective IJL customers. (E.g., Aff. of Pamela Joyce Osgood dated Jan. 14, 2011 at ¶ 12, Ex. D to Shapiro Decl., Dkt. No. 188-5; Brown Dep. at 117.) That script instructed FDU trainees "in all capitals" that they should "NOT DEVIATE FROM THE INFO CALL PRESENTATION." ( See Brown Dep. at 253.) The script also contained a number of "control points, " which, an FDU training manual explained, "are [to be] said verbatim in an interview to establish control" over prospective customers ( Id. at 117.) One of those control points was that the IJL salesperson, after learning basic demographic data about the prospective customer, was to inform the customer: "Ok, so far I have 3-4 ideas for your first date." (Ex. UU to Decl. of Jon L. Norinsberg dated Feb. 25, 2011, Dkt. No. 154-6, at 68.)
Throughout this litigation, defendants have contended that the "infocall script" and its "control points" were merely "example[s] of how" sales staff "would go about starting off and finishing the" process of interviewing prospective customers ( see Brown Dep. at 54) and that in practice, salespersons only gave prospective customers accurate information about IJL's services. For instance, defendants maintain, IJL staff will only tell a prospective customer they had ideas for a first date if the staff in fact had such ideas. ( See, e.g., Osgood Aff. ¶ 13; Brown Dep. at 49).)
Based on the current record, the Court concludes by a preponderance of the evidence that IJL staff were instructed to, and in fact did, read the control points to all prospective members. Michelle Le Page, a senior coordinator who supervised and trained staff at IJL's national call center, testified that IJL staff routinely "t[o]ld people that [IJL] already ha[d] two matches for them... even... if [IJL] d[i]dn't... know if [it] ha[d] two matches for them." (Dep. of Michelle Le Page dated Sept. 30, 2010 at 64, 92, Ex. 1 to Decl. of John G. Balestriere dated July 19, 2013, Dkt. No. 186-1; see id. at 30 (Le Page was trained "to stick to that specific script and not veer away from it").) Angel Velasquez, a training and sales manager at the call center, testified that an "important" "sales tactic" of IJL's was to "stick to the script and... tell" prospective members: "Oh, by the way, I've got three people that I'm thinking for you just off the top of my head." (Dep. of Angel Velazquez dated Sept. 30, 2010 at 42, 73, Ex. 2 to Balestriere Decl. dated July 19, 2013, Dkt. No. 186-1.) Velasquez further testified that IJL sales staff were trained to "accept all members, " without regard to whether "there were matches available." ( Id. at 74-75.)
Similarly, Camila Craig, an IJL sales representative, testified that during her training, she was directed that as "part of the script[, w]e had to tell" customers that "we had two or three matches in mind for them... and we had to be enthusiastic." (Dep. of Camila Craig dated Nov. 8, 2010, at 224-25, Ex. 3 to Balestriere Decl. dated July 19, 2013, Dkt. No. 186-1.) Craig in fact emphasized at her deposition that IJL sales staff "were informed by [the] corporate [o]ffice" to "take everybody" regardless of whether IJL could "match" those new members. ( Id. at 260.) Moreover, as this Court has previously noted, each of the proposed representatives of the national class has "provided evidence... that the IJL interviewer" informed each plaintiff that the interviewer "had at least two matches in mind during the intake interview." ( See Order dated April 23, 2013, at 7 (Dkt. No. 167).)
To be sure, defendants' position that IJL's script and its "control points" were only "guidelines" finds some support in the record. But when pressed to give examples of the extent to which salespeople could or did deviate from the script, IJL's witnesses gave only narrow or speculative examples. Melissa Brown, IJL's president, testified that it was "okay" for IJL sales representatives to omit the word "the" from the script, as long as the "message is clear." (Brown Dep. at 137.) When asked for an example of a situation in which she would reject a prospective customer rather than claiming to be able to provide matches, Jill Vandor, co-owner of the New York IJL franchise at which plaintiff Bruno was a customer, testified that she would "likely" reject "a 55-year-old [who] came in and only wanted to date a 30-year-old." (Dep. of Jill Vandor dated Nov. 2, 2010, at 98, Ex. H. to Shapiro Decl., Dkt. No. 188-9.) Notwithstanding that hypothetical example, Vandor nonetheless also testified that IJL staff would "essentially say the words" on the script during their initial intakes with new customers. ( Id. at 88.) Craig testified that she once initially turned down a potential customer - a man who "could not complete a full sentence" - but "ended up taking him" after a supervisor suggested that she do so. (Craig Dep. at 261.) In short, the evidence in the record that defendants' salesforce ever diverged from the script is speculative at best.
Finally, defendants contend in passing that plaintiffs have not established that IJL continues to use a uniform script "today." However, the evidence to date points in a single direction: during the period at issue, IJL trained its sales staff to inform all prospective members that the company had multiple existing members who were matches for the prospective member.
In light of: (1) the record evidence regarding IJL's uniform sales script; (2) the standardized procedures for training employees in using that script to enroll customers; and (3) testimony from senior IJL staff that they in fact followed that script - with only de minimis variations and in unusual circumstances - the Court concludes based on a preponderance of the evidence that IJL staff informed all prospective members during the intake interview that IJL had multiple matches in mind, regardless of the truth of that statement. The Court now turns to the legal frameworks into which this factual finding will feed.
ii. Under New York Choice-of-Law Principles, the Law Governing the Claims of the Proposed National Class Is the Law of Each State in Which IJL Allegedly Made Misrepresentations to Each Prospective Class Member.
To determine whether plaintiffs' claims are "capable of classwide resolution, " see Dukes, 131 S.Ct. at 2551, the Court must at this juncture determine the law to be applied to those claims.
IJL argues that Rule 23(a)(2) is not satisfied here even if IJL made uniform representations to all members of the proposed national class. That is so, IJL contends, because plaintiffs' claims "have to be adjudicated under their local state laws." (Defs.' Mem. at 17.) The Court agrees with IJL that the laws of the several states must be applied here but finds that the need to conduct such an analysis is not fatal to commonality.
As a federal court sitting in diversity pursuant to the Class Action Fairness Act of 2005, see 28 U.S.C. § 1332((d)(2)(A), this Court "applies the choice-of-law rules of the state in which" the Court sits, namely New York. See Walton v. Morgan Stanley & Co., 62 F.2d 796, 798 n.4 (2d Cir. 1980). Plaintiffs' fraud and unjust enrichment claims sound in tort pursuant to New York law. See AXA Versicherung AG v. N.H. Ins. Co., 708 F.Supp.2d 423, 429 (S.D.N.Y. 2010); In re Grand Theft Auto Video Game Consumer Litig., 251 F.R.D. 139, 148 n.11 (S.D.N.Y. 2008). In tort cases where "conduct-regulating standards are at issue, " see In re Grand Theft Auto, 251 F.R.D. at 149, "the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders, " see GlobalNet Financial.Com, Inc. v. Frank Crystal & Co., 449 F.3d 377, 384 (2d Cir. 2006). The Court sees no reason to depart from that rule and concludes pursuant to New York law that the law to be applied to the proposed national class's fraud and unjust enrichment claims is the law of the state in which IJL allegedly made material misrepresentations to each class member.
iii. Any Differences Among the Law Applicable to Plaintiffs' Fraud or Unjust Enrichment Claims Do Not Defeat Commonality.
As a "federal court sitting in diversity, " this Court unquestionably "has the ability to adjudicate class action litigation that involves the application of numerous state laws." See Steinberg v. Nationwide Mut. Ins. Co., 224 F.R.D. 67, 79 (E.D.N.Y. 2004). "[D]espite the" possible "existence of state law variations" among plaintiffs' fraud and unjust enrichment claims, those claims "can implicate common issues... so long as the elements of the claim[s]... are substantially similar." See id.
With regard to plaintiffs' fraud claims, although "states vary on whether they require proof of intent as an element in a fraud action... all states require proof of misrepresentation, materiality of misrepresentation and reliance." See In re Telectronics Pacing Sys., Inc., 164 F.R.D. 222, 230 (S.D. Ohio 1995). As the Court has found, see Section II.B.1.b.1 supra, IJL made substantially uniform representations to all members of the proposed national class. And as the U.S. Supreme Court recently noted, materiality "is judged according to an objective standard." See Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 133 S.Ct. 1184, 1191 (2013). Litigation of the fraud claims on a classwide basis will therefore "generate common answers apt to drive the resolution of this litigation, " see Dukes, 131 S.Ct. at 2551, particularly with regard to whether IJL made misrepresentations, and whether those misrepresentations were material.
As for the unjust enrichment claims of the proposed national class, several courts have recognized that "a universal thread throughout all common law causes of action for unjust enrichment" is "a focus on the gains of the defendants." See Keilholtz v. Lennox Hearth Prods. Inc., 268 F.R.D. 330, 341 (N.D. Cal. 2010); see also Schumacher v. Tyson Fresh Meats, Inc., 221 F.R.D. 605, 612 (D.S.D. 2004); In re Terazosin Hydrochloride Antitrust Litig., 220 F.R.D. 672, 697 n.40 (S.D. Fla. 2004). Accordingly, there is a question "[clommon to all class members and provable on a class-wide basis" as to whether [d]efendants unjustly profited, " see Keilholtz, 268 F.R.D. at 341, by making representations during each initial intake interview that IJL staff already had multiple matches in mind.
In short, plaintiffs' allegation that IJL staff informed all prospective members that IJL had multiple matches is at the heart of the claims of the proposed national class. At this stage, the Court is satisfied that plaintiffs' fraud and unjust enrichment claims will rise or fall in significant part based on whether IJL's materially uniform representations to the class were materially misleading and whether IJL unjustly profited as a result - issues that in turn can be determined on a classwide basis, and without regard to possible variations in state laws. See Amgen, 133 S.Ct. at 1191; ...