Opinion ID: 834924
Heading Depth: 2
Heading Rank: 2

Heading: Whether plaintiffs failed to present evidence of classwide reliance

Text: The second question that Farmers presents on review is whether it was entitled to a directed verdict on plaintiffs' fraud claim. Farmers argues that plaintiffs failed to present proof of reliance, as they were obligated to do, sufficient to support a conclusion that all members of the class detrimentally relied on Farmers's misrepresentation that they would pay reasonable medical expenses. To provide context for our discussion of Farmers's arguments, we begin by describing plaintiffs' fraud claim and the proof on which plaintiffs relied. [11] The essential elements of a common-law fraud claim are: the defendant made a material misrepresentation that was false; the defendant did so knowing that the representation was false; the defendant intended the plaintiff to rely on the misrepresentation; the plaintiff justifiably relied on the misrepresentation; and the plaintiff was damaged as a result of that reliance. See Handy v. Beck, 282 Or. 653, 659, 581 P.2d 68 (1978) (outlining elements); see generally Knepper v. Brown, 345 Or. 320, 329, 329 n. 5, 195 P.3d 383 (2008) (noting older cases listing nine elements of common-law fraud, and more recent cases using a more abbreviated list of elements). In this case, in allegations common to all of plaintiffs' claims, plaintiffs set out the standard PIP terms of Farmers's no-fault automobile policy i.e., that Farmers would cover medical expenses for bodily injury to an insured arising out of the operation or use of an automobile, and defining medical expenses to mean all reasonable and necessary expenses of medical, hospital, and related health providers as required by Oregon law. Plaintiffs also alleged that Farmers was required by Oregon law to provide PIP benefits no less favorable than required by ORS 742.524(1), which the complaint quoted. Then, for the fraud claim specifically, plaintiffs alleged that Farmers intentionally represented to plaintiffs that it would pay all reasonable medical and hospital expenses incurred by policyholders due to an automobile accident; that plaintiffs relied on that representation and incurred medical and hospital charges at usual and customary rates; that Farmers's representation was knowingly false, in that Farmers did not disclose to plaintiffs its cost containment procedures for determining benefits and by misrepresenting, when it paid reduced benefits, how those benefits were calculated; that plaintiffs did not know that Farmers's representations were false; and that, as a direct result of Farmers's misrepresentations and omissions, plaintiffs incurred medical and hospital costs for which they were not reimbursed by Farmers. Farmers's motion for directed verdict raised several challenges to the adequacy of plaintiffs' evidence on their various claims. As to plaintiffs' fraud claim, Farmers's argument was not extensive, but it did directly take issue with whether plaintiffs had adequately proved reliance on the part of the class as a whole. Specifically, Farmers argued: Plaintiffs' deceit[, i.e., fraud] claims require proof that plaintiffs relied on a material misrepresentation or omission of defendants. Several class members testified about their expectations and understanding of the insurance policy and information received from Farmers about the claims process. However, there is no evidence common to the class which establishes that the absent class members relied upon any material misrepresentation or omission of the defendants. The trial court denied the motion, concluding that, viewed in the light most favorable to plaintiffs, [12] the evidence created a jury question on classwide reliance. On appeal, the Court of Appeals agreed, explaining that evidence of reliance by the absent class members need not be direct, but could be inferred: [P]laintiffs offered evidence that, viewed in the light most favorable to plaintiffs, established that Farmers (1) promised to pay all reasonable and necessary medical expenses as part of its PIP coverage; (2) selected an arbitrary percentile cutoff that would increase its profits at the expense of insureds; and (3) continued to collect premiums from its insureds without informing them that it had decided not to pay all reasonable and necessary expenses. From that evidence, a reasonable trier of fact could conclude that the payment of reasonable and necessary PIP-related expenses was a material part (and, in fact, a statutorily required part) of the insurance policy and could therefore reasonably infer that plaintiffs relied on Farmers' misrepresentation that it would pay reasonable and necessary PIP-related expenses when they continued to pay their premiums. That is, on this record, a reasonable trier of fact could conclude that plaintiffs acted to their detriment in paying premiums for PIP coverage that Farmers never intended to provide. Strawn, 228 Or.App. at 470-71, 209 P.3d 357(citations omitted). On review, Farmers characterizes the Court of Appeals as having indulged a presumption of reliance, one that relieved plaintiffs of their burden to prove reliance on the part of each of the class members. Farmers argues that, as a matter of law, reliance in a fraud case can never be presumed and the obligation to prove reliance therefore poses a particular evidentiary challenge to a class action plaintiff. At a minimum, according to Farmers, a class action plaintiff must present competent evidence from which a jury can conclude that class members were generally aware of a claimed misrepresentation and acted on the basis of that awareness. Farmers thus asserts that, in the context of this case, plaintiffs had to come forward with proof that each class member knew of the representation at issue, interpreted it to mean that Farmers would pay full billed charges, and relied on that representation. Here, Farmers maintains, plaintiffs presented absolutely no evidence, either individualized by class member or common to the class, from which the jury could logically draw the necessary conclusion of reliance as to all class members. Plaintiffs, for their part, agree that they had to prove reliance for the class as a whole, rather than reliance only by plaintiff Strawn or isolated members of the class. But classwide reliance, they urge, does not require direct evidence of reliance by every individual class member. Instead, plaintiffs urge, such reliance can be inferred in a proper case, and this is such a case. Here, the evidence showed that the class members received insurance policies in Farmers's standard form, containing the same promise to pay PIP benefits in the form of reimbursement for reasonable medical expenses, as defined by the policy and by statute. All class members, after being involved in an accident, made a claim for the contractually promised PIP benefits. All sought and received medical services, and all (subject to some variation shown during the individualized damages phase of the trial) received reduced payments based on Farmers's percentile reduction methodology. Plaintiffs argue that the evidence of the promise made and the actions that class members took is sufficiently common to the class to permit a jury to infer classwide reliance on Farmers's representation that it would pay their reasonable medical expenses. In making their respective arguments, the parties debate at some length the significance of our decision in Newman v. Tualatin Development Co. Inc., 287 Or. 47, 54, 597 P.2d 800 (1979). We agree that Newman provides guidance for this case. We therefore turn to the issue presented in that case and what this court held in resolving it. The plaintiffs in Newman were purchasers of townhouses built and sold by the defendant. They brought a class action on behalf of all such purchasers, seeking damages based on the defendant's use of galvanized, instead of copper, water pipes in the townhouses. The trial court had certified the class for purposes of the plaintiffs' negligence and implied warranty claims, but declined to certify it for the express warranty claim. Based on the particular evidence presented at the class certification stage of the proceeding, this court agreed that individual determinations of reliance would be necessary, with the result that common questions of fact would not predominate over questions affecting individual members of the class. Id. The court explained: Plaintiffs contend individual determinations will not be required because direct evidence of reliance is not necessary. All that is required is proof that the seller's statements were of a kind which naturally would induce the buyer to purchase the goods and that he did purchase the goods. Plaintiffs contend that the warranty was made in a sales brochure given to all purchasers. Even if plaintiffs can prove the brochure was given to all members of the class in this case, that would not establish that every member of the class read, was aware of, and relied upon each of the representations in the brochure. The brochure made statements about many features of the townhouses,various floor plans, vaulted ceilings, color-matched kitchen appliances, brick-enclosed courtyards, etc. The water pipes and their composition is a relatively minor component. Id. (internal quotes and citations omitted). Citing Newman, Farmers asserts that reliance, whenever it is an element of a class action claim, must be established through direct evidence of each class member's individual reliance. But Newman, as the portion of the decision just quoted reveals, does not stand for that proposition. Newman expressly tied its holding to the weaknesses of the particular evidence submitted in support of class certification on the express warranty claim. Immediately after discussing those weaknesses, Newman expressly disavowed that individual evidence of reliance was required as a matter of law in all class actions: We do not hold that an express warranty is never an appropriate subject for a class action adjudication or that the issue of reliance always requires individual determination. However, here, the alleged express warranty is such a small part of the item purchased and the representation is interspersed with many other descriptive statements. Newman, 287 Or. at 54, 597 P.2d 800. Newman thus turned on its particular facts, while leaving other class actions requiring proof of reliance to do the same. And although Newman did not declare when reliance can be determined through common, rather than individualized evidence, it at least suggested an answer viz., when the same misrepresentation was made to all individual class members and was sufficiently material or central to the plaintiff's and the defendant's dealings that the individual class members naturally would have relied on the misrepresentation. [13] Such a standard for inferring classwide reliance from evidence common to the class accords with what we consider to be the better-considered authority in other jurisdictions. As many courts have concluded, whether classwide reliance can be inferred from evidence common to the class depends on the misrepresentation. A key consideration is whether the misrepresentation was uniformly made to all class members, as through standardized documents, or whether the evidence shows material variations in how the misrepresentation may have been communicated, as with oral representations made by different agents. [14] A second key consideration is the nature of the misrepresentation itself: how likely it is that class members would have uniformly relied on it and, conversely, the likelihood that their reliance would vary significantly from one class member to the next. [15] One particularly instructive case, with factual parallels to this one, is Klay v. Humana, Inc., 382 F.3d 1241 (11th Cir.2004), cert. den., 543 U.S. 1081, 125 S.Ct. 877, 160 L.Ed.2d 825 (2005). Klay was a class action case brought by a large number of physicians against almost all major health maintenance organizations (HMOs) alleging, among other claims, fraud. The alleged misrepresentations that formed the basis for the fraud were that the HMOs agreed to reimburse physicians for all medically necessary services. The physicians alleged that the HMOs artificially and covertly underpaid them by using automated statistical and other criteria, rather than medical necessity, to calculate reimbursement amounts. Id. at 1247. In affirming the class certification on the fraud claim, the Eleventh Circuit agreed that the plaintiffs, to prove their case, had to establish reliance on the part of each class member. But the court concluded that, based on the nature of the misrepresentations at issue, the circumstantial evidence that can be used to show reliance is common to the whole class. Id. at 1259. The court reasoned: The alleged misrepresentations in the instant case are simply that the defendants repeatedly claimed that they would reimburse the plaintiffs for medically necessary services they provide to the defendants' insureds[.]    It does not strain credulity to conclude that each plaintiff, in entering into contracts with the defendants, relied upon the defendants' representations and assumed they would be paid the amounts they were due. A jury could quite reasonably infer that guarantees concerning physician paythe very consideration upon which those agreements are basedgo to the heart of these agreements, and that doctors based their assent upon them.    Consequently, while each plaintiff must prove reliance, he or she may do so through common evidence (that is, through legitimate inferences based on the nature of the alleged misrepresentations at issue). Id. The rule adopted by the authorities that we have cited, and implicitly suggested in this court's decision in Newman, is sound. To prevail in a class action for fraud, the class plaintiff must prove reliance on the part of all class members. Direct evidence of reliance by each of the individual class members is not always necessary, however. Rather, reliance can, in an appropriate case, be inferred from circumstantial evidence. For that inference to arise in this context, the same misrepresentation must have been without material variation to the members of the class. In addition, the misrepresentation must be of a nature that the class members logically would have had a common understanding of the misrepresentation, and naturally would have relied on it to the same degree and in the same way. Not all fraud claims will lend themselves to common evidence of reliance, rather than individualized proof. Newman is a good example of a case that did not. As the decision in Newman emphasized, the representation at issue there was one of myriad statements made in a sales brochure for the townhouses, a brochure that the evidence did not establish had been given to every putative class member. Equally important, whether individual purchasers cared about the kind of water pipes in the townhouseswhich the court characterized as a relatively minor component ( Newman, 287 Or. at 54, 597 P.2d 800)as opposed to other features, could readily vary from one purchaser to the next and, on the evidence before the court, simply was not established. This case presents a more compelling basis for the inference of classwide reliance. The misrepresentation at issue here was in a uniform provision of a contract for motor vehicle insurance, not a sales brochure that may not even have ended up in the hands of all of the class members. [16] The fact that the promise was in a written and binding contract of insurance, rather than in a sales brochure, provides a stronger basis than in Newman to infer classwide reliance. Even so, contracts are often complex documents, ones that can incorporate a wide array of terms, many of which contain provisions that would notat least for purposes of a fraud claimbe uniformly understood or relied on by any person who might enter into the contract. A motor vehicle liability policy, however, is distinctive, both in many of its terms and in the reasons for its purchase. As plaintiffs pleaded, and as was emphasized to the jury throughout the trial, PIP benefits are a statutorily mandated provision of motor vehicle insurance in Oregon. ORS 742.520(1) (mandating PIP coverage for [e]very motor vehicle liability policy issued for delivery in this state for private passenger motor vehicles). The terms of required PIP coverage are extensively controlled by statute as well. See ORS 742.524 (describing mandatory benefits); ORS 742.530 (describing permissive exclusions from benefits). An insurer may provide greater PIP coverage that the statutes require, but not less. Utah Home Fire Ins. Co. v. Colonial Ins., 300 Or. 564, 568, 715 P.2d 1112 (1986) (insurance policy cannot provide fewer PIP benefits than the law requires it to provide); ORS 742.532 (policy may provide more favorable personal injury protection benefits than required by law). Thus, although the policy is required to state the coverage that the policy provides (ORS 742.450(1)), the policy provides PIP benefits, regardless of whether it so declares. Persons insuring and driving motor vehicles licensed in Oregon have corresponding obligations. To register or renew a motor vehicle license in Oregon, the applicant must provide assurance of compliance with the financial responsibility laws. [17] ORS 803.370 (registration of motor vehicle); ORS 803.460 (registration renewal). Most people meet that obligationas the class members in this case didby purchasing a motor vehicle liability policy that satisfies the requirements of Oregon law. See ORS 806.060(2)(a) (specifying when policy of insurance will satisfy financial responsibility requirements); see generally OAR 735-050-0050 (1997) (identifying information to be presented as part of certificate of insurance). Finally, it is unlawful for a person to drive a vehicle in Oregon without meeting the financial responsibility requirements of Oregon law; doing so is a Class B traffic offense. ORS 806.010 (defining offense of driving uninsured). Against that extensive regulatory backdrop, a person who purchases a motor vehicle policy to meet the financial responsibility requirements of Oregon law does not need to read the policy to justifiably rely on its provisions. That person has no choice to buy a policy without PIP coverage. The insurer issuing the policy has no choice to issue it without PIP coverage. The entire scheme is structured to permit the purchasers of such insurance, as well as the state in its regulatory role, to have confidence that the policy provides all coverage, including PIP benefits, that is required to meet the financial responsibility laws. Given the statutory requirements for the contents of motor vehicle policies, and the responsibilities imposed on persons who are obligated to purchase such policies, an insured's reliance on the PIP coverage that the policy provides is inherent in the purchase of the insurance, or at least, a factfinder is entitled to infer as much. [18] For those reasons, a jury could infer from evidence common to the class that the individual class members relied on Farmers's misrepresentation that it would pay its insureds' reasonable medical expenses arising out of their automobile accidents; individualized evidence of the class members' reliance was not necessary to create a jury question on that element of plaintiffs' fraud claim. Consequently, the trial court properly denied Farmers's motion for directed verdict on that ground.