Overlawyered watch

I knew it would happen, and it did.  Overlawyered found a way to spin Pelman v. McDonald's.  Of course, they conclude that the result is wrong, and innocent corporations are being persecuted by evil trial lawyers in appellate courts.   Anyway, if you are interested in knowing why I think Overlawyered is wrong, read on.   If not, there are lots of other appellate cases, and you can always read The Onion or something.

(I take no position on the merits of the case, and I have no blog-related interested in trial-level proceedings.  However, I think that it is wrong to mis-characterize what the Second Circuit did.)

In this case, the Second Circuit applied New York’s consumer protection law allows suits against companies for deceptive advertising, even if the individual doesn’t point to a specific injury, and found that these did not fall within FRCP 9(b) and it requirement that "fraud or mistake" be plead with particularly.  This is a pretty common regime for state consumer protection laws.  Legislatures figure that allowing individuals to act as a sort of private attorney general will keep companies on their toes, and prevent injuries against other people.  See Sec. 349 of New York General Business Law.  In this case, the (elected) New York Attorney General, apparently entered into a settlement agreement with McDonald's in which McDonald's agreed to post nutritional information, and the plaintiffs allege that they did not.  To Overlawyered, this is a “nuisance” settlement.

Now, Overlawyered says the case was

...reinstated yesterday on the highly technical grounds
 

“Highly technical grounds,” to Overlawyered, means a substantive interpretation of state law (which, I guess, is applied to the Federal Rules of Civil Procedure).  They continue:

that the lower court applied the Federal Rule 9(b) "heightened pleading" standard to the New York consumer fraud statutes instead of the more lenient Rule 8. The court cites no relevant precedent for this assertion, which contradicts the language of the rule.

Of course, Overlawyered doesn’t say HOW it contradicts the language of FRCP 8 or 9. The Second circuit held that unlike an action grounded in common law fraud, an action based on the state statute, need not be plead with particularity.  Now, does this mean that if the Second Circuit had affirmed the district court that a decision that a lawsuit must be dismissed because he fails to comply with a rule regarding the degree of particularity required for a complaint is NOT "technical."  Anyway, Overlawyered claims that

The court cites no relevant precedent for this assertion, which contradicts the language of the rule.

However, the Second Circuit actually cited three cases for the interpretation that FRCP 9 only applies to common law fraud, and it should not be read to include anything besides that, or in the latin (which I don't endorse) "Expressio unius est exclusio alterius."  First, the Second Circuit cited an opinion by Justice Thomas, Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002), which held that:

Rule 8(a)'s simplified pleading standard applies to all civil actions, with limited exceptions. Rule 9(b), for example, provides for greater particularity in all averments of fraud or mistake... This Court, however, has declined to extend such exceptions to other contexts.  

The Second Circuit also cited Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, 507 U.S. 163, 168 (1993), in which Justice Rehnquist held that:

Rule 9(b) does impose a particularity requirement in two specific instances. It provides that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Thus, the Federal Rules do address in Rule 9(b) the question of the need for greater particularity in pleading certain actions, but do not include among the enumerated actions any reference to complaints alleging municipal liability under § 1983. Expressio unius est exclusio alterius.

Finally, to show that § 349(h) “extends well beyond common-law fraud to cover a broad range of deceptive practices” the court cited Gaidon v. Guardian Life Ins. Co. of Am., 94 N.Y.2d 330, 343 (1999) which reads, in part, “...General Business Law § 349 contemplates actionable conduct that does not necessarily rise to the level of fraud.”  So, since complaints under § 349 do not allege conduct that do not "rise to the level of fraud" they need not comply with 9(b).

In short, courts will not apply the 9(b) standards to complaints unless they are alledging “fraud” or “mistake.”   They will not hold complaints to that standard if they claim they failed to abide by a settlement with the New York Attorney General or deceptive advertising (which is not fraud.)

PS: You can read the amended complaint here, so if you really don't care about FRCP-related issues, you can see what the petitioners complain about.

Comments

[Ted]

The difference between Rule 8 and Rule 9(b)--the basis of the Second Circuit's reversal--is a purely technical one not familiar to a layperson. ("Technical"--of or relating to a particular specialization.) So my characterization is correct, as demonstrated after the fact that it took me fifteen minutes to explain to a Wall Street Journal reporter the underlying civil procedure principles. Sorry: I'm not going to give a full-fledged civil procedure lesson in every Overlawyered post.

How does it contradict Rule 9(b)? "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." For crying out loud, you quote the language yourself. The Second Circuit held that a claim grounded in fraud did not need to be stated with particularity. End of story.

Nothing in Leatherman or Swierkiewicz changes that principle: a § 1983 action is not a fraud action; neither is a Title VII action. Indeed, the language you quote proves my point. Averring consumer fraud means averring a claim that "sounds in fraud", meaning it falls within Rule 9(b). See any of the hundreds of cases requiring "securities fraud" to meet the Rule 9(b) requirements, even though securities fraud is "different" than fraud. E.g., Anderson v. Clow (In re Stac Elecs. Sec. Litig.), 89 F.3d 1399, 1404-05 (9th Cir.1996); Lone Star Ladies Inv. Club v. Schlotzsky's Inc., 238 F.3d 363, 368 (5th Cir.2001); Shapiro v. UJB Fin. Corp., 964 F.2d 272, 288 (3d Cir. 1992); Sears v. Likens, 912 F.2d 889, 892-93 (7th Cir. 1990).

That's a federal procedural rule, so citing to a New York state case doesn't change the fact that Rule 9(b) applies. That's basic 1L Civ Pro, Hanna v. Plumer. All Gaidon means is that reliance need not be plead. It doesn't mean that the prima facie element of the underlying fraud avoids the particularity requirement.

If it's so "common" to hold that consumer fraud statutes are outside of Rule 9(b), how come the Second Circuit couldn't find a single case to cite to support that proposition, and instead cited a Supreme Court case that was inapposite? See also Williamson v. Allstate Ins. Co. (D. Ariz. 2001).

I don't know why I bother to respond: this web site has yet to make a valid criticism of an Overlawyered post I've written, has yet to have the honesty to correct its earlier blatant errors, and it doesn't even have the professionalism to produce a post not riddled with HTML and spelling errors.

[S.cotus]

I don’t know why you respond either. However, anyone who is interested in reading the opinions of the New York Court of Appeals, the Second Circuit, or the Supreme Court as well as the Federal Rules of Civil procedure are welcome to draw their own conclusions and not rely on your predicable defense of any corporation that happens to be sued. Now, mind you, I am not arguing that McDonald’s is wrong, I am just pointing out that the Second Circuit’s interpretation is probably correct.

Specifically, the New York Court of Appeals (which is binding upon the Second Circuit) held, in the case I cited that an action grounded in New York’s consumer protection law was not the same as common law fraud. With that in mind the Second Circuit looked at Supreme Court caselaw which holds that the applicability of 9(b) must be narrowly construed, to only what is specifically mentioned in the rule – fraud and mistake – and the binding authority holds that this action was not grounded in fraud or mistake.

Now, I don’t expect you to ever concede that you are wrong about anything. I don’t think anyone expects you to. So, I can pretty much guess what you will say.

[Aaron]

("Scotus v Overlawyered - The Rematch" has to be the most overrated bout since Tyson-McNeely.)

[David Behar, 2L]

I do know that McDonald's french fries, once the best in the world, and on my list of pre-execution foods, started tasting like cardboard after this unspeakable member of the CCE tortiously interfered with my implied, constructive contract with McDonald's by meritless lawsuits.

McDonald's is not the cause of the obesity epidemic. It is something else. Unfortunately, I cannot reveal it to this...this... I don't know what you are here.

"Technical," -- of or relating to a particular lawyer theft.

[S.cuts]

Thanks for sharing.

[Ted]

As I noted in the several cases I cited in my comment, a cause of action doesn't have to be identical to common law fraud to fall within Rule 9(b), so your cite to the New York Court of Appeals is irrelevant. Rule 9(b) doesn't say "common law fraud", it says "fraud."

You also utterly misrepresent the NY state court, which most certainly does not say that a consumer fraud based on misrepresentations is not grounded in fraud. But it's par for the course for this website, which will make any dishonest claim to avoid admitting it was wrong.

The Supreme Court does not say Rule 9(b) must be "narrowly construed"; rather, it struck down attempts to extend Rule 9(b) to things that aren't fraud at all such as Title VII or § 1983. I'm not disagreeing with those opinions as a positive statement of the FRCP, but they have no bearing where, as here, Pelman alleges liability based on misrepresentation.

If you want to make the incoherent claim that a cause of action can be based on misrepresentation, but not grounded in fraud, go ahead.

[S.cuts]

Thank you for views. The internet is a wonderful thing, and as it has grown, society has been enriched. I truly hope that Appellate Law and Practice enriches your internet experience. Since I have provided the citations, together with the relevant text, there is little need for a point by point rebuttal of your predictable declarations that 1) trial lawyers are bad; 2) any appellate court decision against a corporation is wrong; and 3) I misrepresented the opinion of a court.

Therefore, if people wish to see why I am right and you are wrong, they are free to simply look at the texts of the decisions. Of course, if they disagree with the Supreme Court (or the drafters of the FRCP) there is a different kettle of fish to deep fry. With tarter sauce. And fries.

Perhaps you disagree with Justices Rehnquist and Thomas, who are known for their sympathies for “liberal trial lawyers.” However, for better or worse, the Supreme Court has held that the scope of 9(b) is to be construed narrowly (that is what those latin words were referring to when they said “the express mention of one thing implies the exclusion of another, applies”). Since New York’s statute encompasses behavior that is not necessarily fraudulent, like the 1983 actions cited in the Supreme Court cases.

As the Supreme Court pointed out in Leatherman, “The phenomenon of litigation against municipal corporations based on claimed constitutional violations by their employees dates from our decision in Monell, supra, where we for the first time construed § 1983 to allow such municipal liability. Perhaps if Rules 8 and 9 were rewritten today, claims against municipalities under § 1983 might be subjected to the added specificity requirement of Rule 9(b).” Obviously, 1983 litigation against municipalities is not New York’s consumer protection act, but it is different than fraud. (If anyone out there doubts what Leatherman says, they are free to read it here: http://supct.law.cornell.edu/supct/html/91-1657.ZO.html )

Indeed, the way I look at it, misleading advertising, if it does exist, is similar to a breach of contract. Moreover, since the plaintiffs rely on the text of a settlement agreement, they can easily argue that McDonalds did breach a type of contract.

Indeed, being a strict vegan myself, and of superior breeding (like a prize Holstein) I don’t set foot in these establishments. Therefore, I have not taken a position on whether McDonald’s assertion that its customers are: 1) attractive; and 2) clowns – is correct or not.

Finally, causes of action CAN be based on mere misrepresentation. Why? New York law says they can provided they have been injured. Sec. 349(h) – available at http://caselaw.lp.findlaw.com/nycodes/c44/a46.html reads “...any person who has been injured by reason of any violation of this section may bring an action in his own name to enjoin such unlawful act or practice, an action to recover his actual damages or fifty dollars, whichever is greater, or both such actions.” Sec. 349 does not require proof of actual reliance, or so the New York Court of appeals said in Stutman – available at http://www.law.cornell.edu/nyctap/I00_0066.htm (“Further, as we have repeatedly stated, reliance is not an element of a section 349 claim”). But folks, don't trust me -- look at the cases and statutes.

I appreciate your drive to educate non-lawyers about how bad lawyers are (except for your kind.) I think I will stick to reading cases and communicating solely with lawyers.

[Ted]

I will take from your three-point mischaracterization of my argument that you have nothing to say about the argument I actually make. I don't know whether you're dishonest or you just have deep reading comprehension problems, but it's one of the two; the constant references to the non-existent "Justice Rhenquist" makes me suspect the latter.

Rehnquist and Thomas do not say "9(b) should be construed narrowly." They say it should be limited to what it says: fraud and mistake. I don't disagree. The Second Circuit took a claim based in fraud, and held that 9(b) doesn't apply. I disagree, because I believe the rule means what it says, and I'm not aware of any other court to hold otherwise. Apparently, neither is the Second Circuit, because they cite no authority for the proposition that consumer fraud does not fit within 9(b), when there are plenty of other courts who hold otherwise. Neither do you, for that matter. Are all those courts wrong? Why is that so difficult to understand?

For example, when do I claim that misrepresentation can't be a cause of action? Nowhere: my argument is simply that such a claim is plainly within Rule 9(b) because it's inherently grounded in fraud. Rule 9(b) says nothing about reliance. Again, you're either dishonestly attacking a straw man or showing an inability to process the English language. I can't think of another reason why you would write "causes of action CAN be based on mere misrepresentation." Little wonder you're anonymous.

I am happy for people to read the cases I've cited, and the cases you cited. If they do so, they will see that the cases I've cited are relevant, and the cases you've cited do not carry the weight you've given them. Which is what I said on Overlawyered in the first place.

[Aaron]

====== Ted Says ======
I will take from your three-point mischaracterization of my argument that you have nothing to say about the argument I actually make. I don't know whether you're dishonest or you just have deep reading comprehension problems, but it's one of the two; the constant references to the non-existent "Justice Rhenquist" makes me suspect the latter.
===================

When I made my Tyson-McNeely joke, I thought that Ted had been down for a legitimate ten-count. He still seems a bit late with his second wind... but really, Ted - are you trying to be disqualified for hitting below the belt?

[S.cuts]

Well, Aaron, unless and until Overlawyered ever finds itself in a position where it must attempt be compensated for an injury, it will continue to conclude that any loss (however slight) to a corporation is some evil plot by a bunch of attorneys who lack the proper breeding. It really is a shame, too, because many of us have some academic interest in law reform, but to have someone oversimplify issues for the non-lawyers helps nobody.

[Ted]

The reading incomprehension of "S.cuts" (whose misspellings apparently now include her own pseudonym) continues; she accuses Overlawyered of being a mindless corporate shill, which is no doubt why OL regularly comments on corporate litigation. I've also written about my own injuries.

[Aaron]

You seem like the pampered sort, Ted, but perhaps you held a "working class" job at some point in your life? (If so, I am sorry for my mistaken impression.) When I was in college, I paid the tuition by managing a bagel shop - I am not sure how many bagels I sliced over the years, but the number was certainly in the tens of thousands, using tools ranging from a bread knife or butcher knife to a "bagel slicer" which is essentially a modified circular saw with a chute for the bagel. I can't recall that I ever cut myself in the process. (I'm not bragging; just reminiscing.)

On the other hand, we had a cocoa machine which had a pressurized vessel for holding the hot water, which was mixed with powder and dispensed into a cup at the push of a button. The resulting cocoa was dangerously (and undrinkably) hot, so we would routinely add a small amount of ice to the cocoa before serving it.

Cutting bagels without cutting myself, and not serving dangerously hot beverages, to me, seemed pretty darn obvious. And quite distinct. (Not that I don't appreciate your wit.)

You at Overlawyered, perhaps out of recognition that tort litigation between businesses has been increasing substantially, have commented on five corporate litigation cases in the past year? Make that four - the one about sanctions against a corporate defendant for spoliation isn't really about corporate litigation. Er, make that three - the one about a law firm's fee being reduced by a bankruptcy court also ins't really about corporate litigation. (I'm just kidding you, of course. I'm sure that, over the course of the past year, there are a lot more than three examples on your site, right? If you're not feeling shilly, who am I to turn up the heat? ;-)

[David Behar, 2L]

As a member of the appalled public, I see little difference between the lot of you.

Why has the lawyer dealt itself immunity from third parties? If the lawyer deviates from professional standards of practice, and damages a third party, why is there no recourse, including the Disciplinary Counsel?

That was a Constitutional grade question, in case you missed the subtlety. Common high school knowledge is often news to this group. That question is also the core of a future case valued higher than the human assets on earth and in space.