Solano v. Kroger Co.

ELISHA SOLANO et al., individually and on behalf of other customers, Plaintiffs, v. THE KROGER CO., doing business as Fred Meyer, Defendant.

No. 3:18-cv-01488-AC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON PORTLAND DIVISION

November 30, 2020

OPINION AND ORDER

MOSMAN, J.,

On July 20, 2020, Magistrate Judge John V. Acosta issued his Amended Findings and Recommendation (F. & R.) [ECF 38]. Judge Acosta recommends that I grant in part and deny in part Defendant Fred Meyer's Motion to Dismiss [ECF 24]. Judge Acosta also recommends that I give Plaintiffs leave to amend their complaint to cure any deficiencies. Both Plaintiffs and Fred Meyer filed lengthy objections.

Upon review and for the reasons discussed below, I ADOPT in part Judge Acosta's F. & R. [ECF 38] and GRANT in part and DENY in part Fred Meyer's Motion to Dismiss [ECF 24]. I reject Fred Meyer's objections to the F. & R. I decline to adopt Judge Acosta's recommendations as to ascertainable loss, causation, and scienter under Oregon's Unfair Trade Practices Act ("UTPA"). I GRANT Plaintiffs leave to amend to cure any remaining deficiencies.

BACKGROUND

In this putative class action, Plaintiffs claim that Fred Meyer impermissibly charged a ten-cent bottle deposit on purchases of certain orange juice beverages that were exempt from Oregon's Bottle Bill. Plaintiffs allege that Fred Meyer violated seven subparts of the UTPA, along with an Oregon law prohibiting elder abuse. Plaintiffs also allege that Fred Meyer was unjustly enriched. Fred Meyer has moved to dismiss on two grounds: (1) this court lacks subject-matter jurisdiction and (2) Plaintiffs failed to state a claim upon which relief can be granted. Fed R. Civ. P. 12(b)(1), (6). On the latter ground, Fred Meyer argues that Rule 9(b)'s heightened pleading standard applies.

Judge Acosta recommends that I deny Fred Meyer's Motion to Dismiss for lack of subject-matter jurisdiction. He further recommends that I apply Rule 8's pleading standard rather than Rule 9(b)'s and grant in part and deny in part Fred Meyer's Motion to Dismiss for failure to state a claim.

In light of Judge Acosta's F. & R., Plaintiffs have agreed to drop five of their seven UTPA challenges and their elder-abuse claim. Pls.' Obj. [ECF 41] at 10 n.3. Plaintiffs have also agreed to add additional factual details as to certain named parties, consistent with Judge Acosta's F. & R. Id. at 10. Even with these concessions, several issues remain, which I address below.

STANDARD OF REVIEW

The magistrate judge makes only recommendations to the court, to which any party may file written objections. The court is not bound by the recommendations of the magistrate judgebut retains responsibility for making the final determination. The court is generally required to make a de novo determination regarding those portions of the report or specified findings or recommendation as to which an objection is made. 28 U.S.C. § 636(b)(1)(C). However, the court is not required to review, de novo or under any other standard, the factual or legal conclusions of the magistrate judge as to those portions of the F. & R. to which no objections are addressed. See Thomas v. Arn, 474 U.S. 140, 149 (1985); United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003). While the level of scrutiny under which I am required to review the F. & R. depends on whether or not objections have been filed, in either case, I am free to accept, reject, or modify any part of the F. & R. 28 U.S.C. § 636(b)(1)(C).

DISCUSSION

I. Fred Meyer's Objections

Fred Meyer objects to the F. & R. on three grounds. First, it argues that the Tax Injunction Act ("TIA") deprives the district court of jurisdiction. Second, it argues that Rule 9(b)'s heightened pleading standard applies. Third, it argues that Plaintiffs' two remaining UTPA challenges are implausible. Upon review, I agree with and ADOPT as my own opinion Judge Acosta's F. & R. on the latter two grounds: Rule 9(b)'s heightened pleading standard does not apply, and Plaintiffs' two remaining UTPA challenges are plausible. I also agree with Judge Acosta's ultimate recommendation that the TIA does not deprive the district court of jurisdiction, but I write separately to explain why I believe this is so.

Under the TIA, "district courts shall not enjoin, suspend, or restrain the assessment, levy, or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341. The TIA "was designed expressly to restrict the jurisdiction of the district courts of the United States over suits relating to the collection of Statetaxes." Hibbs v. Winn, 542 U.S. 88, 104 (2004) (citation omitted). Accordingly, the district court lacks jurisdiction over this matter if (1) the ten-cent bottle deposits under Oregon's Bottle Bill are a tax; (2) Plaintiffs seek to "enjoin, suspend, or restrain the assessment, levy, or collection of" that tax; and (3) Plaintiffs have "a plain, speedy and efficient remedy" in state court. 28 U.S.C. § 1341.

Judge Acosta resolved this matter on prong one. He applied Ninth Circuit case law and determined that the deposit is not a tax. F. & R. [ECF 38] at 9-13. Fred Meyer strenuously argues that Judge Acosta misapplied that case law and the deposit is a tax. Def.'s Objs. [ECF 42] at 13-23. However, regardless of whether the Bottle Bill imposes a tax, this issue is easily resolved on prong two: Plaintiffs are not seeking to enjoin, suspend, or restrain the assessment, levy, or collection of ten-cent deposits under the Bottle Bill.

The United States Supreme Court "has interpreted and applied the TIA only in cases Congress wrote the Act to address, i.e., cases in which state taxpayers seek federal-court orders enabling them to avoid paying state taxes." Hibbs, 542 U.S. at 107. The TIA "serves 'state-revenue-protective objectives' and accordingly applies only if the requested relief would 'reduce the flow of state tax revenue.'" Fredrickson v. Starbucks Corp., 840 F.3d 1119, 1123 (9th Cir. 2016) (quoting Hibbs, 542 U.S. at 104, 106). By its plain language, the TIA's focus is on prospective relief: enjoining, suspending, or restraining the assessment, levy, or collection of any tax under State law. See Direct Marketing Ass'n v. Brohl, 575 U.S. 1, 13-14 (2015) (explaining that the terms "enjoin," "suspend," and "restrain" in the TIA are terms of art in equity that refer to relief that "to some degree stops" an official action). In those cases in which a plaintiff seeks prospective relief, "the only question is whether the declaratory and injunctive relief theplaintiffs seek would 'enjoin, suspend or restrain'—that is, stop—the collection of state taxes within the meaning of the [TIA]." Fredrickson, 840 F.3d at 1122.

Here, Plaintiffs are not seeking to enjoin, suspend, or restrain the assessment, levy, or collection of any tax. Judge Acosta reached this same conclusion, albeit in a different portion of his analysis:

Contrary to Fred Meyer's contention, Plaintiffs are not challenging the underlying Bottle Bill or its statutory scheme. Plaintiffs are not challenging Fred Meyer's authority to charge ten-cent bottle deposits for those beverages that are covered by the Bottle Bill. Instead, Plaintiffs are challenging Fred Meyer's practice of charging ten cents extra for beverages that are not redeemable under the guise of the Bottle Bill, and improperly retaining the money. As properly construed, Plaintiffs' action does not challenge or implicate the Bottle Bill, and Fred Meyer's arguments are misplaced. Thus, Plaintiffs are not seeking to enjoin a tax, but instead are seeking damages for an allegedly illegal, unfair scheme.

F. & R. [ECF 38] at 13. For those very reasons, the TIA does not deprive the district court of jurisdiction to hear this case.

I therefore ADOPT Judge Acosta's recommendation that Fred Meyer's Motion to Dismiss for lack of subject-matter jurisdiction should be denied, and I reject all of Fred Meyer's objections to Judge Acosta's F. & R.

II. Plaintiffs' Objections

Plaintiffs object to Judge Acosta's recommendations regarding ascertainable loss, causation, and scienter under the UTPA. Judge Acosta concluded that Plaintiffs failed to plausibly allege that any violation of the UTPA caused Plaintiffs an ascertainable loss or that Fred Meyer acted with the requisite scienter. I disagree.

The UTPA authorizes private civil actions.

[A] person that suffers an ascertainable loss of money or property, real or personal, as a result of another person's willful use or employment of a method, act or practice declared unlawful under ORS 646.608 . . . may bring an individual actionin an appropriate court to recover actual damages or statutory damages of $200, whichever is greater.

Or. Rev. Stat. § 646.638(1). In a class action, plaintiffs may recover statutory damages only if they suffered an ascertainable loss "as a result of a reckless or knowing use or employment" of an unlawful trade practice. Id. § 646.638(8)(a).

Thus, Plaintiffs must establish (1) that they suffered an ascertainable loss (2) as a result of Fred Meyer's unlawful trade practice, and (3) that Fred Meyer acted with the requisite scienter. I address these three requirements in turn.

A. Ascertainable Loss

Plaintiffs can prove ascertainable loss under one of a number of different theories. "Under the typical UTPA scenario, the loss is evidenced by the difference in value between the product as represented by the defendant and as actually received by the plaintiff." Paul v. Providence Health System-Oregon, 240 P.3d 1110, 1121 (Or. Ct. App. 2010) (collecting cases). This is known as the "diminished value theory of ascertainable loss," Pearson v. Philip Morris, Inc., 361 P.3d 3, 23-24 (Or. 2015), and it is the primary theory advanced by Plaintiffs here.¹ To succeed, Plaintiffs must establish that Fred Meyer misrepresented the beverages to be worth ten cents more than they actually were. The ascertainable loss...