What’s the Damage? Class Actions & Damages Theories

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For class actions, the spotlight usually shines on acts of alleged corporate fraud, government incompetence or bad faith. You can picture the headlines popping up on cable news chyrons – Bank opens accounts in people’s names without their permission, credit card company reorders charges to make sure cardholders overdraft as many times as possible, lender forces inflated charges into purchase agreement, etc. However, a claimants’ damages theory (significantly less sexy than the headlines) often is the most important and dispositive issue in any given case.

If you remember from your law school remedies course, there are myriad types of damages and remedies – legal remedies, equitable remedies, statutory remedies, punitives, compensatory versus restitutionary damages, etc. How you plead a case determines the remedies you can seek, and practically speaking, is vital to any eventual recovery, especially in the class action context.

A common example of this issue arises when a plaintiff brings a claim under the Ohio Consumer Sales Practices Act, a common statutory vehicle for a consumer class action. A plaintiff may very easily be able to plead and prove a violation of the substantive OAC regulations, which delineate the deceptive practices that the CSPA prohibits. Company X violated OAC 109:4-3-12 when it failed to clearly and conspicuously disclose that the reference price for one of its products was not its own price. However, a court will still ask the question: OK, what’s the damage? How was the plaintiff harmed by this misrepresentation? Without a sufficient damages theory to back up that well-pled violation of the OAC regulation, the courts can and have dismissed class actions.

One creative solution has been to, instead of bringing a CSPA claim alone, bring an unjust enrichment claim with its concomitant equitable remedies. All a plaintiff needs to sufficiently plead an unjust enrichment claim is that defendant retained a benefit in circumstances under which it was unjust for the defendant to do so. We know the company is retaining profits from the sale at issue. The only other question is whether circumstances were unjust, which is fact intensive and likely to survive a motion to dismiss. To be fair, this is not a bulletproof claim. Courts can conflate “unjustness” with other issues such as injury-in-fact or damages when analyzing an unjust enrichment claim. However, it is much more difficult for a court to find, as a matter of law, that something is not unjust. “This is for the trier” is a much more successful argument than “this is the specific dollar value of this misrepresentation.”

One additional creative approach just emerging is a new focus on the CSPA catchall remedial language (ORC 1345.09(B): “ … other appropriate relief ”). That language is very broad, and pleading a CSPA claim along with an unjust enrichment claim and focusing on equitable remedies such as disgorgement of profits, looks much better in the face of a growing judicial tendency to find the consumer got what they paid for and, therefore, do not sustain damages even when a violation of an OAC regulation is well-pled. Hanging your hat on a specific OAC violation, while still being able to invoke a disgorgement of profits, which focuses on defendant’s gain and not plaintiff ’s loss, is the best of both worlds. You get the specifics of the remedial statute and avoid the pitfalls of a damages theory the judiciary increasingly just does not buy.

KADO

While these strategies have not been fully litigated and these questions have not been fully answered in the courts, that’s what you get when you are near the frontier. How the courts come down on these issues remains to be seen, but being aggressive and creative could make you successful, not just for your practice, but, most importantly, for your clients. Patrick J. Brickman

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