Ninth Circuit Vacates District Court’s Order of Class Certification

On March 13, 2023, the U.S. Court of Appeals for the Ninth Circuit vacated the district court’s order of class certification in Van v. LLR, Inc. under Rule 23(f).

This case, Van v. LLR, Inc., 61 F.4th 1053, No.

21-36020, 2023 WL 2469909 (9th Cir.

2023), concerns a merchandise company that improperly charged sales tax based on the location of its retailers, rather than the location of the purchaser, as required by tax laws. One purchaser, Katie Van, filed a class action against Defendants LLR, Inc., and LuLaRoe, LLC (collectively “LuLaRoe”) on behalf of Alaskans who were charged sales tax on their LuLaRoe purchases, despite Alaska being a no sales tax state.

In the district court, Plaintiff successfully certified a class consisting of “[a]ll persons who paid ‘tax’ on a purchase of LuLaRoe products and whose purchase was delivered into a location in Alaska that does not assess a sales or use tax on the clothing that LuLaRoe sells.” On appeal, LuLaRoe argued that this class was improperly certified “because individualized issues predominate over class issues.” The Ninth Circuit agreed, vacating and remanding the district court’s decision of certification. In reaching this decision, the Ninth Circuit conducted three separate inquiries.

First, the Court considered whether there was standing. Both the district court and Ninth Circuit recognized that to establish standing, a plaintiff must have some concrete injury. LuLaRoe previously refunded all improperly collected money; the only remaining ‘injury’ is whether plaintiffs should have received interest on these refunds.

Even though the interest owed to plaintiffs was negligible-only a few cents for roughly 20% of them-the Ninth Circuit held this was enough to establish standing. The Court found that a loss “for such a short amount of time or involving such a small amount of money” is not too trifling. “Any monetary loss, even one as small as a fraction of a cent, is sufficient to support standing.” Second, the Ninth Circuit analyzed whether class members’ voluntary payment of the sales tax after being informed it was improper defeats class certification.

The Court held it did not. The Court found that it had jurisdiction to address this state law defense under Rule 23(f). It reasoned that even though the issue was addressed by the district court on a Rule 12 motion, the Ninth Circuit retained jurisdiction “because an assessment of the validity and prevalence of state law issues, including the defense . . ., is a necessary part of the class certification decision.” Once jurisdiction was established, the Ninth Circuit refrained from addressing the merits of this defense.

It found that LuLaRoe did not present sufficient evidence to establish this defense, and thus, could not claim that these individual issues predominated the class issues. Because the Court
“do[es] not permit a defendant to support its invocation of individualized issues with mere speculation,” this was not a sufficient basis to de-certify the class. Finally, the Ninth Circuit examined setoffs of the sales tax.

LuLaRoe argued that some retailers provided discounts to purchasers “in an amount greater than or equal to the improper sales tax for the purpose of offsetting the improper sales tax,” leaving class members uninjured. The Court held that these discounts are “sufficient to prove that an inquiry into the circumstances and motivations” behind each discount is necessary. The Court explained that “[t]his inquiry, which could potentially involve up to 13,680 depositions and months of trial, certainly cannot be described as de minimis.” Plaintiff was unable to prove by a preponderance of the evidence that common law questions predominated these individual inquiries, and thus class certification was reversed.

On remand, Plaintiff will have the burden, once again, to prove that common issues predominate over individual ones-a burden that will be exceedingly difficult to meet given the Ninth Circuit’s opinion here.