Kearns v. Ford Motor Company
567 F.3d 1120 (2009)
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Rule of Law:
When state law consumer protection claims brought in federal court are grounded in a unified course of fraudulent conduct, they are subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b), which requires that the circumstances constituting fraud be stated with particularity.
Facts:
- Ford Motor Company (Ford) markets and sells a 'Certified Pre-Owned' (CPO) vehicle program, advertising that CPO vehicles undergo a rigorous inspection process to ensure superior safety and reliability compared to other used cars.
- Ford sells CPO vehicles at a premium price over ordinary used cars, promoting them as providing buyers with 'peace of mind'.
- Ford provides its dealerships with marketing materials for the CPO program and charges them annual and per-vehicle fees to participate.
- William Kearns was exposed to Ford's CPO marketing through television advertisements, sales materials at a dealership, and representations from sales personnel.
- Kearns was specifically told that CPO vehicles were 'the best used vehicles available as they were individually hand-picked and rigorously inspected'.
- Relying on Ford's representations about the safety and reliability of CPO vehicles, Kearns purchased one.
- Kearns later alleged that Ford's representations were false and misleading, claiming the inspection process was not rigorous, technicians lacked special training, and the CPO vehicles were not safer or more reliable than regular used vehicles.
- Kearns also alleged that Ford failed to disclose its lack of oversight over the dealerships' implementation of the CPO certification process.
Procedural Posture:
- William Kearns filed a class-action lawsuit against Ford Motor Company in California state court.
- Ford removed the case to the U.S. District Court based on diversity jurisdiction.
- The district court denied Kearns's motion to remand the case to state court.
- The district court dismissed Kearns's Amended Complaint for failure to state a claim, granting him leave to amend.
- The district court then dismissed Kearns's Second Amended Complaint for failing to meet the heightened pleading standards of Rule 9(b).
- Kearns filed a Third Amended Complaint (TAC), which Ford moved to dismiss for failure to comply with Rule 9(b) and also moved to strike a footnote.
- The district court granted Ford's motion to dismiss the TAC with leave to amend and also granted the motion to strike.
- Kearns filed a notice stating he would not amend the complaint, prompting the district court to enter a final judgment of dismissal.
- Kearns, as appellant, appealed the dismissal to the U.S. Court of Appeals for the Ninth Circuit, with Ford as the appellee.
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Issue:
Does Federal Rule of Civil Procedure 9(b), which requires pleading fraud with particularity, apply to state law consumer protection claims brought in federal court when the claims are grounded in a unified course of fraudulent conduct?
Opinions:
Majority - N.R. Smith
Yes. When state law claims brought in federal court are grounded in a unified course of fraudulent conduct, the complaint as a whole must satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). It is well-settled that federal procedural rules apply in federal court, irrespective of whether the substantive law is state or federal. Kearns's complaint alleges a unified fraudulent scheme where Ford and its dealerships misrepresented the CPO program to induce consumer reliance and increase profits. Because the entire claim is 'grounded in fraud,' it must meet Rule 9(b)'s particularity standard. Kearns failed to do so, as he did not specify the 'who, what, when, where, and how' of the alleged misrepresentations, such as identifying specific advertisements or the salesperson who made false statements. Furthermore, his nondisclosure claims are also subject to Rule 9(b), as the California Supreme Court in Engalla v. Permanente Med. Group, Inc. established that nondisclosure is a form of misrepresentation constituting fraud under state law. Therefore, the entire complaint, including claims under the 'unfairness' prong of the UCL, was properly dismissed for failing to plead fraud with the required particularity.
Analysis:
This case solidifies the principle that plaintiffs cannot evade the stringent requirements of Federal Rule of Civil Procedure 9(b) by framing fraud-based claims under the broader language of state consumer protection statutes like California's UCL and CLRA. By holding that an entire complaint 'grounded in fraud' must satisfy the particularity standard, the court raises the pleading bar for consumer class actions in federal court. This decision forces plaintiffs to allege specific facts about the fraudulent conduct at the outset of litigation, limiting their ability to use vague allegations as a basis for embarking on costly discovery to find evidence of wrongdoing. It underscores the power of federal procedural rules to shape the litigation of state-law claims in federal diversity cases.
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