More Fair Competition: Corporate Defendants Gain a Measure of Protection Against Nationwide Consumer Class Actions

Legal Review: Is It What You Say or Who You Are?
February 2, 2017

California has long been considered a favorable venue for consumer plaintiffs. Among the State’s various consumer protection statutes, California’s sweeping unfair competition law (“UCL”) – embodied in Business and Professions Code Section 17200 et seq. – has become a source of particular concern to many businesses, due in large part to recent court decisions that have interpreted broadly what constitutes an unfair practice. In this consumer-friendly climate, however, the California Supreme Court has finally struck a blow for corporate defendants doing business in California by placing strict limits on the ability of California plaintiffs to obtain nationwide class certification for UCL and other claims.1

The Court’s unanimous decision in Washington Mutual Bank v. Superior Court, 24 Cal. 4th 906 (2001), now makes it clear that, prior to certifying a nationwide class, California trial courts must first determine (1) whether the laws of other states govern the claims of putative class members, and (2) whether variations among the applicable laws will defeat the purpose of class certification. Moreover, Washington Mutual firmly establishes that it is not the class action opponent’s burden to demonstrate that state law variations will swamp common issues in order to defeat certification. Rather, it is the proponent’s burden to demonstrate that such variations will not do so. Taken together, these clarifications will greatly assist litigants opposing class certification motions in California state courts.

Factual History

Washington Mutual Bank originated home mortgage loans in California and other states, and purchased loans from other lenders throughout the United States. Washington Mutual’s standard loan documents required the borrower to maintain hazard insurance for the secured property, and allowed Washington Mutual to obtain replacement insurance at the borrower’s cost in the event of default. These documents also contained a choice of law clause in favor of the state in which the property was located. Plaintiff filed suit in California state court against Washington Mutual alleging, inter alia, unfair business practice violations under the UCL. In particular, plaintiff alleged that Washington Mutual secretly profited from a practice of procuring expensive replacement insurance that cost the borrowers two to five times more than their original premiums. Plaintiff sued for herself and on behalf of at least 25,000 borrowers throughout the United States who were charged the allegedly inflated premiums, and moved for nationwide class certification. Washington Mutual opposed this motion on the ground that common questions of law did not predominate. After all, enforcement of the choice of law provision contained in each borrower’s loan documents meant that a judge would have to apply the laws of all 50 states if a nationwide class was certified. Nonetheless, the trial court granted plaintiff’s motion and ordered certification, without purporting to decide what law would apply to the claims of the putative class members.

The California Supreme Court Erects A Procedural Safeguard To Certification Of Nationwide Class Actions In California State Court

Emphasizing that a trial court cannot make an informed decision on certification without first determining whether the laws of other states will govern the claims of nonresident class members, the California Supreme Court reversed, and rendered an important series of holdings that provide both armor and sword to the corporate defendant confronted by a motion for nationwide class certification in California state court. First, where the class action opponent asserts that choice of law agreements will require adjudication of the claims of nonresident class members under the laws of their home states, a trial court must evaluate the enforceability of those agreements under the analysis set forth in Nedlloyd Lines B.V. v. Sup. Ct., 3 Cal. 4th 459 (1992). If the trial court determines both that the nonresident class member claims fall within the scope of their choice of law agreements and that the agreements are enforceable, the trial court must proceed to evaluate the impact of any state law variations on issues of predominance and manageability before it can order certification. Significantly, the high Court made it clear that it is the burden of the class action proponent – and not its opponent – to identify these variations and credibly demonstrate that they will not swamp common issues and defeat predominance. Second, in the absence of a contract, or where the trial court has deemed the choice of law agreements unenforceable, the trial court must nonetheless still ascertain whether another state’s law should govern the claims of foreign class members if the class action opponent timely invokes the law of a foreign state. When this occurs, the trial court must then apply the “governmental interest analysis” set forth in Clothesrigger, Inc. v. GTE Corp., 191 Cal. App. 3d 605 (1987), to determine whether a conflict exists among the laws, and if so, whether the foreign state has a superior interest to California in supplying its own rule of decision. As above, if this analysis confirms that another state’s law should govern, the burden shifts to the class action proponent to demonstrate that variations among the laws will not make nationwide class litigation unmanageable, or defeat the predominance of common legal questions.

Are The Claims Of Nonresident Class Members Subject To Choice Of Law Agreements?

Where the relationship between putative class members and a corporate defendant is contractual in nature, and those contracts contain a choice of law provision, a corporate defendant may effectively defeat a motion for certification of a nationwide class in California state court by demonstrating the enforceability of the choice of law agreements under the analysis set forth in Nedlloyd. Nedlloyd governs the enforceability of choice of law agreements generally in California. Pursuant to Nedlloyd, a trial court must first examine the choice of law clause and ascertain whether the various claims of the nonresident class members fall within its scope. If the clause is found to embrace these claims, the trial court must then apply a four-part test to evaluate its enforceability. Preliminarily, the court must determine whether (1) the chosen state has a substantial relationship to the parties or their transaction, or (2) there is any other reasonable basis for the parties’ choice of law. If either condition is satisfied, the court must next determine whether the chosen state’s law is contrary to a fundamental policy of California. If no such conflict exists, the court must then determine whether California has a materially greater interest than the chosen state in having its own law applied. Unless California’s interest is superior, the court must deem the choice of law agreement enforceable, meaning that foreign law will govern the claims of nonresident class members. Once this happens, the burden shifts to the class action proponent to identify any variations among the applicable state laws, and meaningfully demonstrate how a trial on the class causes of action can be conducted fairly and efficiently in light of those variations. Significantly, the trial court cannot grant certification unless it determines that the legal questions presented under the various laws are sufficiently similar to be manageable.

Should Another State’s Law Apply Despite The Absence Of An Enforceable Choice Of Law Agreement?

Even in the absence of an enforceable choice of law agreement (or of any contract at all), the trial court may nonetheless remain obligated to conduct further analysis where the class action opponent continues to invoke the application of foreign law. In such a situation, the trial court must apply the three-step analysis established in Clothesrigger to analyze the governmental interests of the various jurisdictions involved in order to determine whose law is more properly applied. Under the first step of the governmental interest test, the foreign law proponent must identify the applicable rule of law in each potentially concerned state and show that it differs materially from the law of California. If the trial court finds a material difference, it must proceed to determine what interest, if any, each state has in having its own law applied to the case. If the trial court determines both that the laws are materially different and each state has an interest in having its own law applied, it must take the final step and choose the law of the state whose interests would be “more impaired” if its law were not applied. Where this leads the court to conclude that the laws of another state should govern, the burden once again shifts to the plaintiff to credibly demonstrate that state law variations will not overwhelm the predominance of common issues. As discussed above, this presentation must be sufficient to permit the trial court, at the time of certification, to conclude that it can fairly and efficiently manage such differences at trial.

As a practical matter then, Washington Mutual dramatically raises the bar for plaintiffs seeking nationwide class certification in California. Busy state court judges are unlikely to order certification in the face of such a rigorous standard, especially when the holding itself appears to mark a clear policy decision to conserve state court resources. This goal undoubtedly influenced the California Supreme Court’s rejection of an outcome determinative choice of law test, which would have enabled a trial court to apply California law to the claims of nonresident class members unless the application of foreign law would result in exactly the opposite outcome.

In effect, the high Court has indicated that California is not interested in having the state’s courts adjudicate consumer claims on a nationwide basis simply because the challenged activities fit within California’s broad interpretation of what constitutes an unfair business practice. Washington Mutual should therefore help to ensure that corporate defendants do not have to defend nationwide class action claims in California where the challenged activities are lawful under the laws and regulations of other states. It should also ensure that consumers’ legal rights are determined by the laws of the states that most closely affect their transactions, i.e. the laws of their own states.


Washington Mutual offers a new level of protection to companies facing the prospect of defending a nationwide class action in California, particularly where their contracts with consumers contain choice of law agreements. As before, the enforceability of choice of law agreements remains subject to the Nedlloyd standard in California. Washington Mutual makes it clear, however, that California trial courts must now consider the applicability of such agreements at the outset of the certification process as part of their evaluation of whether common issues of fact and/or law predominate. Moreover, Washington Mutual has placed the burden squarely on the certification proponent to detail the impact of state law variations and demonstrate the viability of the class.


1. California is not alone in confronting the specter of nationwide class actions brought in state court under the unfair competition laws of individual states. See e.g., Pickett v. Holland America Line—Westtours, Inc., 101 Wash. App. 901 (2000). Plaintiff cruise ship passenger moved for certification of a nationwide class under the state’s Consumer Protection Act, alleging that the cruise line levied mandatory, add-on “port charges and taxes” on passengers in excess of actual port charges and taxes as part of a common scheme. Given that the cruise line’s passenger contracts contained a choice of law clause in favor of Washington, the appellate court concluded that nationwide certification was appropriate. The choice of law agreement clearly stated that Washington law applied to “non-ship segments” of the cruise-tour, and that venue was exclusively in Washington. Plaintiffs filed suit in Washington, and moved for certification only on one cause of action, the Washington CPA.

See also, Oliveira v. Amoco Oil Co., 311 Ill. App. 3d 886 (2000). Plaintiff consumer moved for certification of a nationwide class under the Illinois Consumer Fraud and Deceptive Business Practices Act, alleging that the defendant oil company had falsely asserted that its premium gasoline was better for cars and the environment. The appellate court held that certification was inappropriate because common issues of fact and law did not predominate. The court reasoned that the state’s consumer fraud act did not apply to the claims of non-residents who purchased gasoline out of state. Thus, each such consumer’s claims would be governed by the law of his home state which, unlike the Act, might require proof of individual reliance, thereby raising a myriad of fact issues under foreign law

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