Lambert v. Nutraceutical Corp.

          Argued and Submitted March 9, 2017 Pasadena, California

         Appeal from the United States District Court No. 2:13-cv-05942-AB-E for the Central District of California André Birotte, Jr., District Judge, Presiding

          Gregory Weston (argued) and David Elliott, The Weston Firm, San Diego, California; Ronald A. Marron, The Law Offices of Ronald A. Marron APLC, San Diego, California; for Plaintiff-Appellant.

          Steven N. Feldman (argued) and John C. Hueston, Hueston Hennigan LLP, Los Angeles, California; Jon F. Monroy, Monroy Averbuck & Gysler, West Lake Village, California; for Defendant-Appellee.

          Before: Richard A. Paez, Marsha S. Berzon, and Morgan Christen, Circuit Judges.

         SUMMARY^[*]

         Fed. R. Civ. P. 23(f) & 23(b)(3) / Class Certification

         The panel concluded that plaintiff's Fed.R.Civ.P. 23(f) petition for class certification was timely filed with this court; reversed the district court's order decertifying the class; and remanded for further proceedings.

         Rule 23(f) governs interlocutory appeals of "order[s] granting or denying class-action certification, " and requires that a petition for permission to appeal be filed "within 14 days after the order is entered." Fed.R.Civ.P. 23(f). The plaintiff filed his motion for reconsideration twenty days after the district court decertified the class.

         The panel held that the fourteen-day Rule 23(f) deadline was not jurisdictional. Specifically, the panel that under Bowles v. Russell, 551 U.S. 205 (2007), and Eberhart v. United States, 546 U.S. 12 (2005), the Rule 23(f) deadline was not jurisdictional because it was procedural, did not remove a court's authority over subject matters or persons, and was in the Federal Rules of Civil Procedure, rather than in a statute.

         The panel held that because the Rule 23(f) deadline was not jurisdictional, equitable exceptions, such as tolling, might apply. The panel also held that a motion for reconsideration filed within the Rule 23(f) deadline would toll the deadline.

         The panel held that the Rule 23(f) deadline could be tolled as a result of additional equitable circumstances. The panel further held that a number of equitable factors supported tolling the Rule 23(f) deadline. The panel held that because plaintiff informed the court orally of his intention to seek reconsideration of the decertification order and the basis for his intended filing within fourteen days of the decertification order and otherwise acted diligently, and because the district court set the deadline for filing a motion for reconsideration with which plaintiff complied, the Rule 23(f) deadline should be tolled. The panel noted that other circuits would likely not toll the Rule 23(f) deadline in this case, and would only allow tolling when the motion for reconsideration was filed within the fourteen-day period. The panel concluded that plaintiff's Rule 23(f) petition was timely filed in this court.

         Turning to the merits of the certification petition, the panel held that the district court abused its discretion in decertifying the class on the basis of plaintiff's inability to prove restitution damages through the full refund model. Plaintiff brought his consumer class action under Fed.R.Civ.P. 23(b)(3), which requires that a plaintiff show a class wide method for damages calculations as a part of the assessment of whether common questions predominate over individual questions. The full refund model measures damages by presuming a full refund for each customer, on the basis that the product has no, or only a de minimis, value. The panel held that because plaintiff's damages model matched his theory of liability, and because plaintiff had shown that his damages model was supportable on evidence that could be introduced at trial, the class should not have been decertified. The panel further held that whether plaintiff could prove damages to a reasonable certainty on the basis of his full refund model was a question of fact that should be decided at trial on remand.

          OPINION

          PAEZ, Circuit Judge.

         Federal Rule of Civil Procedure 23(f) allows a litigant to seek an interlocutory appeal of a district court's order granting or denying class certification. This case is about whether and when the fourteen-day Rule 23(f) deadline may be tolled. In a matter of first impression for this court, we hold that the Rule 23(f) deadline is not jurisdictional, thus equitable exceptions apply. We therefore hold that a motion for reconsideration filed within the Rule 23(f) deadline will toll the deadline. Parting ways with some of our sister circuits, we further hold that additional equitable circumstances may also warrant tolling. As a result, we hold that the Rule 23(f) deadline was tolled here, when counsel for the lead plaintiff, within fourteen days of the district court's decertification order, informed the court of his intention to seek reconsideration, explained his reasons for doing so, and the court set a date for filing the motion with which counsel complied. As for the merits of the Rule 23(f) petition, we hold that the district court abused its discretion in decertifying the class, and therefore reverse and remand.

         I.

         Lambert purchased "Cobra Sexual Energy, " an alleged aphrodisiac dietary supplement manufactured and marketed by Nutraceutical, which the Food and Drug Administration ("FDA") had not approved. Labels on Cobra Sexual Energy boasted that it contained performance-enhancing herbs that would provide users with "animal magnetism" and "potency wood." On the basis of these labels, Lambert believed that the product would enhance his sexual performance and increase the frequency with which he could engage in sexual activity. Had he known that the labels' claims were false, he would not have purchased the product.

         According to Lambert, Cobra Sexual Energy violated the FDA's aphrodisiac drug rule because it claimed to increase sexual desire but had not been through clinical testing, as required by 21 C.F.R. § 310.528(c); nor had it received FDA approval, as required by 21 C.F.R. § 310.528(b). The product also failed to display prominently a disclaimer that it had not been evaluated by the FDA, in alleged violation of 21 U.S.C. § 343(r)(6)(C). Moreover, Lambert alleges that the supplement contained an ingredient, yohimbe, which is dangerous for certain persons in certain doses, yet the product label contained no warning of that risk.

         Lambert brought a consumer class action for violations of California's Unfair Competition Law ("UCL") (Cal. Bus. & Prof. Code §17200 et seq.), False Advertising Law ("FAL") (Cal. Bus. & Prof. Code § 17500 et seq.), and Consumer Legal Remedies Act ("CLRA") (Cal. Civ. Code § 1750 et seq.). Lambert brought his class action under Federal Rule of Civil Procedure 23(b)(3), which provides that a class may be certified if "questions of law or fact common to class members predominate over any questions affecting only individual members."

         The district court initially granted class certification on the basis of the full refund damages model. That model applies when a product is shown to be worthless, and damages may be calculated by multiplying the average retail price by the number of units sold. In granting class certification, the district court concluded that Lambert put forth a "tenable theory that monetary relief can be ascertained on a classwide basis . . . [that] can be readily calculated using Defendant's sales numbers and an average retail price." The case was subsequently reassigned to a different district judge because the original judge retired. Discovery proceeded and closed. Nutraceutical then filed a motion for decertification of the class, upon which the newly assigned district judge held a hearing.

         On February 20, 2015, the district court granted the motion to decertify. The district court found that Lambert's full refund damages model was "consistent with his theories of liability." The court proceeded to find, however, that Lambert "failed to provide the key evidence necessary to apply his classwide model for damages, " so common issues did not predominate. The district court required Lambert to provide the actual average retail price, and Lambert had provided only the suggested retail price.

         During a March 2, 2015 status conference, ten days after the order decertifying the class, Lambert informed the court of his intention to file a motion for reconsideration. Counsel explained that he had a damages model and evidentiary support for it. The district court instructed Lambert to file the motion for reconsideration within ten days-i.e., within twenty days in total from the order decertifying the class.

         As directed by the district court, ten days later, on March 12, 2015, Lambert moved for reconsideration and asked for recertification. In his motion for reconsideration, Lambert pointed to evidence he had presented in his class certification motion showing that the suggested retail price could be used in conjunction with other evidence to establish the full refund damages model. Lambert also argued for the first time that, as an alternative, he could prove damages through non-restitutionary disgorgement.

         The district court denied Lambert's motion for reconsideration three months later. The court rejected Lambert's contention that the average retail price could be calculated from the suggested retail price. The district court also rejected Lambert's non-restitutionary disgorgement argument, reasoning that he waived it by presenting it for the first time in his motion for reconsideration. The court proceeded to hold that even if Lambert had not waived the non-restitutionary disgorgement argument, it was improper under California law, as restitution should be measured by what the plaintiffs lost, not by what the defendants gained; in other words, the district court held, non-restitutionary disgorgement is not available under California law.^[1] In addition to declining to recertify the class, the order set forth a plan for notifying the class regarding decertification.

         Within fourteen days of the order denying his motion for reconsideration, Lambert filed in this court a Rule 23(f) petition for permission to appeal the district court's orders granting the motion for class decertification and denying the motion for reconsideration. Upon the filing of that petition, the district court stayed proceedings pending appeal. A motions panel of this court conditionally granted Lambert's Rule 23(f) petition, instructing the parties "[i]n addition ...