Judge Timothy J. Savage of the United States District Court for the Eastern District of Pennsylvania had a straightforward job.
All he had to do was:
- survey the laws of all fifty states with regard to unjust enrichment and breach of the implied warranty of merchantability,
- Huber v. Taylor, 469 F.3d 67, 82-83 (3d. Cir. 2006) (consideration of the requirements for certification must be conducted in light of the correct jurisdiction’s law); see also In re Sch. Asbestos Litig., 789 F.2d 996, 1010 (3d Cir. 1986).;
- determine whether there were actual or real conflicts between those laws,
- Hammersmith v. TIG Ins. Co., 480 F.3d 220, 230-31 (3d Cir. 2007)
- where there was such a conflict, assess which state has the greater interest in the application of its law to determining the liability for defective aircraft crankshafts that were allegedly more vulnerable to stresses in their ordinary and foreseeable use,
- Cipolla v. Shaposka, 439 Pa. 563, 267 A.2d 854, 856 (Pa. 1970); Melville v. Am. Home Assurance Co., 584 F.2d 1306, 1311 (3d Cir. 1978)
- and consider whether applying that law to all plaintiffs and class members violates the Due Process and Full Faith and Credit Clauses through individualized scrutiny of the claims asserted by each member of the plaintiff class.
- Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-13, 101 S. Ct. 633, 66 L. Ed. 2d 521 (1981) (plurality opinion); see generally, 1 Joseph M. McLaughlin, McLaughlin on Class Actions: Law and Practice § 5:46 (4th ed. 2007).
Simple, right? Apparently not:
Our review of the record persuades us that the choice-of-law examination here had its shortcomings. As one instance, the District Court observed in its unjust enrichment analysis that a true conflict existed between the relevant states’ laws because Pennsylvania and some others preclude recovery if the parties had an express contract. Believing unjust enrichment to be a hybrid of contract and tort law, the Court purportedly weighed the factors from sections 188 (concerning contracts) and 148 (relating to torts involving fraud and misrepresentation) of the Restatement (Second) Conflict of Laws and concluded that Pennsylvania ‘has the most significant relationship to the transaction and the parties.’ Defendants were sued in Pennsylvania, manufactured the crankshafts there, ‘issued service bulletins and instructions . . . about the crankshafts . . . in Pennsylvania, and plan to replace [them] [t]here.’"
Powers v. Lycoming Engines, No. 07-4710, 2009 U.S. App. LEXIS 6785, at *10–12 (3d Cir. Mar. 31, 2009).
Unfortunately, the above was in error because:
Pennsylvania, however, does not consider unjust enrichment to be either an action in tort or contract. Unjust enrichment, rather, an equitable remedy and synonym for quantum meruit, is ‘a form of restitution.’ Mitchell v. Moore, 1999 PA Super 77, 729 A.2d 1200, 1202 n.2 (Pa. Super. Ct. 1999); see also Ne. Fence & Iron Works, Inc. v. Murphy Quigley Co., 2007 PA Super 287, 933 A.2d 664, 667 (Pa. Super. Ct. 2007); Sack v. Feinman, 495 Pa. 100, 432 A.2d 971, 974 (Pa. 1981) (citing Restatement of Restitution § 1 (1937) as a source for the elements of an unjust enrichment claim); Meehan v. Cheltenham Twp., 410 Pa. 446, 189 A.2d 593, 595 (Pa. 1963) (same). The Restatement views restitution as an area of the law ‘which is neither contract nor tort.’ Restatement (Second) of Conflict of Laws § 221 introductory note (1971)."
If there is a claim under Pennsylvania law that falls within the scope of restitution under the Restatement (Second) Conflict of Laws, [Fn 3] the following factors should have been addressed in the choice-of-law examination: (1) the place where the parties’ relationship was centered; (2) the state where defendants received the alleged benefit or enrichment; (3) the location where the act bestowing the enrichment or benefit was done; (4) the parties’ domicile, residence, place of business, and place of incorporation; and (5) the jurisdiction "where a physical thing . . . , which was substantially related to the enrichment, was situated at the time of the enrichment." Id. § 221(2) (1971).
Id. Footnote 3 notes:
Although we have found no instance in which Pennsylvania has adopted section 221, our case law, in explaining the state’s choice-of-law approach, directs courts to "use the Second Restatement of Conflict of laws as a starting point." Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455, 463 (3d Cir. 2006). "[T]o properly apply the Second Restatement and remain true to the spirit of Pennsylvania’s ‘flexible approach,’ [courts] must . . . characterize the particular issue . . . in order to settle on a given section of the Restatement for guidance." Id. Because Pennsylvania considers unjust enrichment to be a form of restitution, we believe applying section 221 would be proper.
In other words, Judge Savage, having no Pennsylvania precedent at all to rely on, incorrectly predicted which way Pennsylvania would go in making the archaic distinction between claims in law and claims in equity in the choice of law context. The Third Circuit predicted that, if Pennsylvania courts had to decide if unjust enrichment was a tort or contract claim, the Pennsylvania courts would say, "neither, it’s a claim in equity," and so should be evaluated under different standards in determining which state’s laws should be evaluated for potential application in a class action filed in Pennsylvania.
Nonetheless, in light of Judge Savage’s lengthy opinion analyzing most of the relevant issues under the similar, but erroneous, standard he used, it’s hard to see how the outcome will change by this ruling.
A model of efficiency, class actions are not.
I don’t have an easy answer for how class actions should be prosecuted and evaluated. Judge Savage and the Appellate Judges (Ambro, Weis and Van Antwerpen) clearly did the best they could; fact is, class actions are complicated, time-consuming, expensive and just plain hard to litigate and to decide. It’s not uncommon to bounce back and forth between the trial court and the appellate court several times prior to even beginning discovery, much less trial. Then comes the "real" post-trial appeal from a final order.
Plaintiff’s complaint was filed July 10, 2006, more than two-and-a-half years ago. Plaintiff and his lawyers have gone essentially nowhere since then, and still have years of litigation ahead, all at substantial time and expense to the plaintiff’s counsel, who likely represents plaintiff on a contingent fee, a fee that will depend not only on winning, but on the judge’s own evaluation of whether the claimed fee is fair and reasonable. All years down the road.
Something to keep in mind when you hear about all these "unfair" counsel fees in class actions.