Lower Court's Ruling Violates Rules Enabling Act: Google Appeal Petition

The lower court’s decision in an ad-pricing class action, Cabrera v. Google, that deprived Google of a defense it would have in an individualized action “by applying a different contract interpretation rule,” violates the Rules Enabling Act, said defendant/petitioner Google Tuesday in its petition for leave (docket 23-80077) to appeal a class-certification order before the U.S. 9th Circuit Court of Appeals.

In the breach of contract class action, Rene Cabrera alleges Google’s terms of service for the Google AdWords advertising platform included a promise to apply Smart Pricing, a feature that would have reduced what Cabrera paid for ad clicks. Google breached its contractual promise to include Smart Pricing “in the manner Plaintiffs believe Google promised,” said the petition.

Though the U.S. District Court for Northern California recognized that the AdWords agreement contains no explicit promise to apply Smart Pricing and that the contract contains an integration clause, it also held that extrinsic evidence could be used to interpret the contract’s provisions, the petition said. It also said, in the context of Cabrera’s extrinsic evidence, the contract was ambiguous enough that the court couldn't rule out the possibility that the contract included a promise to apply Smart Pricing or in the way the plaintiff preferred. The court denied Google’s motion for summary judgment.

Plaintiffs sought certification of the breach of contract claim of a class comprising all advertisers that advertised through AdWords from August 2006 to February 2013 and whose clicks were allegedly not properly “smart priced,” a class allegedly comprising tens of thousands of advertisers, said the petition. Google argued if plaintiffs’ theory on the meaning of the contract rested on extrinsic evidence, the plaintiffs’ could satisfy the predominance requirement of Rule 23(b)(3) only by using class-wide evidence “to establish that the extrinsic evidence had been seen and relied upon by absent class members.”

The district court permitted plaintiff Cabrera “to prevail on a claim based on extrinsic evidence without proof the plaintiff saw and relied on that evidence,” in violation of the Rules Enabling Act, Google argued, citing Tyson Foods v. Bouaphakeo, in which the U.S. Supreme Court cited the act’s “pellucid instruction that use of the class device cannot ‘abridge…any substantive right.’” In Wal-Mart v. Dukes, SCOTUS ruled that "because the Rules Enabling Act forbids interpreting Rule 23 to ‘abridge, enlarge, or modify any substantive right,’ a class cannot be certified on the premise that Wal-Mart will not be entitled to litigate its statutory defenses to individual claims," the petition said. That the district court believed the “no proof of reliance needed” rule would apply in an individual action was a “manifestly wrong” conclusion, Google said.

On class certification, the district court acknowledged “a deep split of intracircuit authority on this question,” said the petition, and rejected Google’s argument “and the approach taken by other lower courts in this circuit.” The court instead concluded plaintiffs weren't required to demonstrate that all class members had seen the extrinsic evidence in question or would have reached the same conclusion based on that evidence, said the petition. The court said individual class members’ knowledge of the extrinsic evidence was "irrelevant because the meaning of the contract could be determined classwide by assessing how a reasonable advertiser would interpret the agreement if all of the extrinsic evidence were available to her.” Seeing this as a common question for the class, the court certified a portion of the claim for class treatment, the petition noted.

The ruling warrants the 9th District’s “immediate review” under Rule 23(f), Google said. In a nonclass action, a breach of contract claim based on extrinsic evidence not seen by the plaintiff “would be rejected summarily,” said the petition. That is what the district court’s ruling allows for class members “who will be able to proceed to trial, exposing Google to millions of dollars of potential liability, based on a contract interpretation that relies on extrinsic evidence those class members may never have seen.”

The question presented in the appeal is whether the lower court erred as a matter of law by finding predominance based on application of a substantive rule that prevents the defendant from using a defense available in an individual action: "rebutting Plaintiffs’ contract-interpretation argument based on extrinsic evidence by arguing that individual class members were not aware of and did not rely on that evidence,” it said.