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Kabbash v. Jewelry Channel, Inc.

United States District Court, W.D. Texas, Austin Division

April 7, 2017

LIANNA KABBASH on behalf of herself and all others similarly situated, Plaintiff,
v.
THE JEWELRY CHANNEL, INC. USA d/b/a Liquidation Channel, Defendant.

          ORDER

          SAM SPARKS UNITED STATES DISTRICT JUDGE

         BE IT REMEMBERED on the 7th day of April 2017, the Court held a hearing in the above-styled cause and the parties appeared in person or through counsel. Before the Court are Plaintiff Lianna Kabbash (Plaintiff)'s Motion to Certify Class [#121], Defendant The Jewelry Channel, Inc. USA d/b/a Liquidation Channel (LC)'s Response [#126] in opposition, and Plaintiffs Reply [#131] in support as well as Plaintiff s Amended Class Definition and Scope [#136], LC's Objections [#138] thereto, and Plaintiffs Reply [#144] in support. Having reviewed the documents, the arguments of counsel, the relevant law, and the file as a whole, the Court now enters the following opinion and order DENYING class certification.

         Background

         I. Factual History

         LC operates a web-based home shopping network that sells jewelry, gemstones, and related items on its website. Am. Compl. [#89] ¶ 6. LC's corporate headquarters, offices, and employees are all located in Austin, Texas. Order of Feb. 22, 2016 [#53] at 3.

         On the website, all of LC's products are advertised in a standard manner. Am. Compl. [#89] ¶¶ 14-15. All items are displayed with photographs, general descriptions, an estimated retail value (ERV), LC's price, and a bolded black or red box describing the percent savings. Id. ¶ 15. When a customer clicks on a product, the ERV, LC's price, and percentage saved appear on a new webpage. Id. ¶ 16. The ERV is often over eighty percent higher than LC's Price. Id. When a customer places an item in his or her shopping cart and checks out, the "Order Confirmation" screen lists the total cost and a notice in bold displaying how much money the customer saved (e.g., "You saved $ 130.00 today!"). Id. ¶ 17.

         Plaintiff first created a customer account with LC via the website on November 21, 2014. Order of Feb. 22, 2016 [#53] at 1. Before creating her account, Plaintiff was required to click on a box affirming she had read and accepted LC's Terms and Conditions (TOC). Id. The TOC provided that:

These terms of use shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America, without giving effect to any principles of conflicts of law or the United Nations Convention on Contracts for the International Sale of Goods. You agree that any action at law or in equity arising out of or relating to these terms (including the Privacy Policy) shall be filed only in the state or federal courts located in Austin, Travis County, Texas, USA and you hereby consent and submit to the personal jurisdiction of such courts for the purposes of litigating any such action.

Dugar Decl. [#47-7] Ex. 7 (TOC) at 41.

         Between November 21, 2014, and November 30, 2014, Plaintiff, a California resident, purchased approximately fifteen items from LC at a total cost of approximately $522.40. Mot. Certify Class [# 121 ] at 7-8. After receiving the jewelry and wearing the items, Plaintiff claims the items began to fall apart. Id. at 8.

         II. Procedural History

         On May 28, 2015, Plaintiff Lianna Kabbash filed a complaint on behalf of herself and all others similarly situated in federal district court in California.[1] Compl. [#2]. According to Plaintiff, LC inflates the ERV of its products to artificially increase the percentage savings LC advertises. Am. Compl. [#89] ¶ 25. Plaintiff asserts LC's prices are not discounted at all and the ERV is part of a pricing scheme used to induce purchases. Id. ¶¶ 25, 27.

         In particular, Plaintiff claims LC reverse engineers its ERV to mislead consumers through the following process. Mot. Certify Class [#121] at 5. First, LC determines its price for an item. Id. Second, LC calculates an ERV for the item based on specific, predetermined multipliers; items with greater LC prices have larger multipliers. Id. Third, LC employees conduct a review of other products to collect comparable products in confirmation of the calculated ERV. Id. at 5.

         Plaintiff s original complaint alleged the following claims for a nationwide class: (1) negligent misrepresentation, (2) intentional misrepresentation, (3) and unjust enrichment. Id. Plaintiff also alleged the following claims for a California class: (1) violation of California's False Advertising Law (FAL), Cal. BUS. & Prof. Code § 17500, et seq.\ (2) violation of the California Consumer Legal Remedies Act (CLRA), CAL. Civ. CODE § 1750, et seq.; (3) violation of California's Unfair Competition Law (UCL), CAL. BUS. & PROF. CODE, § 17200 et seq.; (4) negligent misrepresentation; and (5) intentional misrepresentation. Id.

         LC filed a motion to dismiss, arguing in part its ERVs and percentage savings displays were non-actionable puffery under California law. Mot. Dismiss [#23] at 9 (citing/« re Century 21-RE/MAX Real Estate Advert. Claims Litig., 882 F.Supp. 915, 927 (CD. Cal. 1994)). LC also argued Plaintiff failed to allege justifiable reliance for her FAL, CLRA, UCL, and misrepresentation claims. Id. at 14. Finding LC's ERV and percentage savings displays were statements of fact and whether reliance is justified was a question of fact for the California claims, the California district court denied the motion to dismiss. Order of Nov. 2, 2015 [#41] at 5-6.

         LC then filed a motion to transfer venue to the Western District of Texas, asking the California district court to honor the forum selection clause in the TOC. Mot. Transfer [#46] at 1-2. The California district court granted the motion to transfer, conveying the case to this Court. Order of Feb. 22, 2016 [#53] at 8.

         After transfer, Plaintiff filed an amended complaint asserting the same claims as in her original complaint for a nationwide class and a California class. See Am. Compl. [#89] at ¶¶39-109. Following limited discovery for class certification purposes only, Plaintiff filed a motion to certify class. Mot. Certify Class [#121].

         On April 7, 2017, this Court held a hearing, entertaining argument from both parties on choice of law and the motion for class certification. Postponing ruling on Plaintiffs motion for class certification in light of representations made by counsel, the Court authorized Plaintiff to submit an amended class definition and permitted supplemental briefing. Orderof Apr. 7, 2017 [#133]. Plaintiff subsequently filed an amended class definition and the parties have now filed supplemental briefing in response. Plaintiffs motion for class certification is now ripe for consideration.

         Analysis

         Plaintiff submits the following amended class definition for certification:

All persons who, while in California and during the four-year period preceding the initiation of this litigation, purchased an item on LC's website that LC's business records show was advertised with an estimated retail price.[2]

Pl's Scope Definition of Class [#136]. Plaintiff also seeks to have herself appointed as the class representative and her counsel appointed as class counsel. Mot. Certify Class [#121] at 2.[3]

         I. Choice of Law

         Before considering Plaintiffs motion for class certification, the Court must decide what law will govern Plaintiffs claims and therefore those of a purported class. LC argues Texas law governs Plaintiff s claims because the TOC contain a choice-of-law provision endorsing Texas law. In contrast, Plaintiff argues the TOC do not require the application of Texas law to Plaintiffs substantive claims, which sound in tort and not contract. Instead, Plaintiff claims California law should apply.

         Because this is a diversity case, Texas law governs the choice-of-law analysis. Smith v. EMC Corp., 393 F.3d 590, 597 (5th Cir. 2004) ("District courts sitting in diversity apply the choice-of-law rules of the forum state.").

         Texas courts apply the Second Restatement of Conflict of Laws' (Restatement) "most significant relationship" test to decide choice-of-law issues unless there is a valid choice-of-law clause. Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 727 (5th Cir. 2003) (citing Hughes Wood Prods., Inc. v. Wagner, 18 S.W.3d 202, 205 (Tex. 2000)). "Texas law gives effect to choice of law clauses regarding construction of a contract." Id. (citing In re J.D. Edwards World Sols. Co., 87 S.W.3d 546, 549 (Tex. 2002)). However, "[w]hen dealing with narrow choice of law provisions, Texas law requires an issue-by-issue choice of law analysis." Id. at 727 (citing Stier v. Reading & Bates Corp., 992 S.W.2d 423, 433 (Tex. 1999)).

         The choice-of-law provision in the TOC provides: "These terms of use shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America, without giving effect to any principles of conflicts of law" TOC at 41. Such a contractual choice-of-law clause is narrow because it governs the construction and interpretation of the contract and does not address the parties' entire relationship. See Benchmark Elecs., Inc., 343 F.3d at 726 (considering a choice-of-law provision stating "Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York" and finding the provision to be narrow, applying only to the construction and interpretation of the contract).

         Here, Plaintiffs claims and those of the purported class do not appear to require construction or interpretation of the TOC. See Id. (holding claims of fraud and negligent misrepresentation were not governed by the narrow choice-of-law provision). Although LC alleges Plaintiff is merely pleading around a contract claim by asserting tort claims, the essence of Plaintiff s claim sound in tort rather than contract. See Hr' g Tr. [# 13 7] at 13:7-15:1. Plaintiff s allegation LC s ERVs are misleading is the crux of her complaint. See Am. Compl. [#89] at 1 (summarizing Plaintiffs allegations that LC misrepresents the nature and value of its items through its ERV and percentage saved). As a result, the Texas choice-of-law provision in the TOC does not govern Plaintiffs tort claims. See Floyd v. ...


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