Michael Rattagan v. Uber Technologies, Inc. ( 2021 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MICHAEL R. RATTAGAN, No. 20-16796
Plaintiff-Appellant,
D.C. No.
v. 3:19-CV-01988-EMC
UBER TECHNOLOGIES, ORDER CERTIFYING
INC., QUESTION TO THE
Defendant-Appellee. SUPREME COURT OF
CALIFORNIA
Filed December 6, 2021
Before: Mary H. Murguia, Chief Judge, and J. Clifford
Wallace and Morgan Christen, Circuit Judges.
2 RATTAGAN V. UBER TECHNOLOGIES
SUMMARY *
California Law
The panel certified to the Supreme Court of California
the following question:
Under California law, are claims for
fraudulent concealment exempted from the
economic loss rule?
ORDER
We are asked to determine whether fraudulent
concealment claims are exempt from the economic loss rule
under California law. This central question of state law is
determinative of the instant case, and there is no controlling
precedent in the California Supreme Court’s decisions. Cal.
R. Ct. 8.548(a). Therefore, we respectfully certify this
question of law to the California Supreme Court pursuant to
California Rule of Court 8.548.
I. Factual Background
This case arises out of Uber Technologies, Inc.’s
(“Uber”) launch of its ridesharing platform in Argentina. In
2013, two of Uber’s wholly owned Dutch subsidiaries
retained Plaintiff-Appellant, Michael Rattagan, a corporate
attorney in Argentina, to provide certain legal services and
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
RATTAGAN V. UBER TECHNOLOGIES 3
serve as the Dutch entities’ legal representative in Buenos
Aires. These Dutch entities would be the shareholders of a
new Uber subsidiary in Argentina. In 2015, Uber
representatives from the company’s headquarters in San
Francisco allegedly assumed responsibility for
communicating with Mr. Rattagan about the launch.
In April 2016, Uber launched its platform in Argentina.
According to Mr. Rattagan, however, Uber did so before its
Argentine subsidiary was fully formed or registered with the
proper tax authority. Mr. Rattagan alleges that despite
knowing that Mr. Rattagan, as the Dutch entities’ legal
representative, could be subject to personal liability for
Uber’s violations of Argentine law, Uber concealed its
launch plans from him.
Within days of the launch, law enforcement authorities
raided Mr. Rattagan’s office and the homes of his business
colleagues. The raids occurred in connection with a charge
that Mr. Rattagan, as an Uber representative, was illegally
using public space for commercial gain. Mr. Rattagan also
alleges that his offices were surrounded by protestors and
that he and his firm received negative press in the news.
Mr. Rattagan promptly requested that the Dutch entities
remove him as legal representative, but the change did not
occur until at least two months after the launch. He contends
that, by this time, the damage to his reputation already was
done. Mr. Rattagan later was charged with aggravated tax
evasion for his perceived involvement with the Uber launch.
The investigation received significant media attention,
which Mr. Rattagan asserts harmed his reputation in his
community.
In the operative complaint, Mr. Rattagan alleged claims
of negligence, breach of the implied covenant of good faith
and fair dealing, fraudulent concealment, and aiding and
4 RATTAGAN V. UBER TECHNOLOGIES
abetting fraudulent concealment. Applying California law,
the district court concluded that Mr. Rattagan’s negligence
and breach of the implied covenant claims were time barred.
The district court also held that the fraudulent concealment
claims were foreclosed by the economic loss rule—a
doctrine that prevents a party to a contract from recovering
economic damages resulting from breach of contract under
tort theories of liability. Accordingly, the district court
dismissed Rattagan’s complaint.
On appeal, Mr. Rattagan challenges only the district
court’s conclusion that his fraudulent concealment claims
were foreclosed by the economic loss rule. Two of
Mr. Rattagan’s arguments fail: Mr. Rattagan waived the
argument that his claim is shielded by the special
relationship exception, and he has not plausibly alleged that
his relationship with Uber was non-contractual. This case
therefore turns on Mr. Rattagan’s remaining argument:
fraudulent concealment claims are exempt from California’s
economic loss rule. Because the fraudulent concealment
issue is dispositive in Mr. Rattagan’s case, because there are
no California Supreme Court or appellate court decisions on
point, and because federal district courts are divided on the
issue, we certify Mr. Rattagan’s question to the California
Supreme Court.
II. Explanation of Certification
Federal courts sitting in diversity, as here, apply state
substantive law and federal procedural law. In re County of
Orange, 784 F.3d 520, 527 (9th Cir. 2015) (citing Erie R.
Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L.Ed. 1188(1938), quoting Gasperini v. Ctr. for Humanities, Inc.,
518 U.S. 415, 427 (1996)). Application of the economic loss
rule is substantive and thus governed by California law. See
City of Pomona v. SQM N. Am. Corp., 750 F.3d 1036, 1050
RATTAGAN V. UBER TECHNOLOGIES 5
(9th Cir. 2014). When determining state law in the absence
of a decision from the relevant state’s high court, this court
may look to the state’s courts of appeal for guidance.
Strother v. S. Cal. Permanente Med. Grp., 79 F.3d 859, 865
(9th Cir. 1996).
The economic loss rule limits a party to a contract “to
recover[ing] in contract for purely economic loss due to
disappointed expectations,” rather than in tort, “unless he
can demonstrate harm above and beyond a broken
contractual promise.” Robinson Helicopter Co. v. Dana
Corp., 102 P.3d 268, 272 (Cal. 2004). Stated differently, a
party to a contract generally cannot recover for pure
economic loss—i.e., damages that are solely monetary—that
resulted from a breach of contract unless he can show a
violation of some independent duty arising in tort. See
Erlich v. Menezes, 981 P.2d 978, 983 (Cal. 1999) (“[C]ourts
will generally enforce the breach of a contractual promise
through contract law, except when the actions that constitute
the breach violate a social policy that merits the imposition
of tort remedies.” (quoting Freeman & Mills, Inc. v. Belcher
Oil Co., 44 Cal. Rptr. 2d 420, 434 (1995))). The rule
“prevent[s] the law of contract and the law of tort from
dissolving one into the other.” Robinson, 102 P.3d at 273(alteration in original) (quoting Rich Products Corp. v.
Kemutec, Inc., 66 F. Supp. 2d 937, 969 (E.D. Wis. 1999)).
In Robinson, the California Supreme Court held that the
economic loss rule does not bar fraud claims premised on
affirmative misrepresentations. Id. at 274–75. The
California Supreme Court reasoned that this species of fraud
constitutes tortious conduct separate from a breach of the
contract. Id. at 274. Because the affirmative
misrepresentations were “dispositive fraudulent conduct,”
the Court expressly declined to address whether another type
6 RATTAGAN V. UBER TECHNOLOGIES
of fraud—intentional concealment—likewise constitutes an
independent tort warranting an exception. Id. at 275. The
California Supreme Court explained, “Our holding today is
narrow in scope and limited to a defendant’s affirmative
misrepresentations on which a plaintiff relies and which
expose a plaintiff to liability for personal damages
independent of the plaintiff’s economic loss.” Id. at 276. It
reasoned that “fraud is a tort independent of the breach” of a
contract, and moreover, “[a]llowing Robinson’s claim . . .
discourages [affirmative misrepresentation] in the future
while encouraging a business climate free of fraud and
deceptive practices.” Id. at 275 (internal quotation marks
and citation omitted).
Since the Robinson decision, federal district courts have
confronted the issue of whether fraudulent concealment also
constitutes independent tortious conduct, warranting an
exception to the economic loss rule. The district courts have
reached opposing conclusions. For example, the district
court in Goldstein v. Gen. Motors LLC, 517 F. Supp. 3d 1076(S.D. Cal. 2021), held that “[t]he narrowly tailored exception
to the economic loss rule articulated in Robinson Helicopter
does not extend to fraudulent omission claims.” Id. at 1093.
Therefore, consumers’ claims that car manufacturers had
knowingly failed to disclose a dangerous defect in car touch
screens was precluded by the economic loss rule. Id. The
district court in NuCal Foods, Inc. v. Quality Egg LLC,
918 F. Supp. 2d 1023 (E.D. Cal. 2013), reached the opposite
conclusion. That court refused to dismiss fraudulent
concealment claims related to the sale of allegedly
contaminated eggs, because it held that the Robinson opinion
“strongly suggests no meaningful distinction exists between
intentional concealment and intentional misrepresentation.”
Id. at 1031.
RATTAGAN V. UBER TECHNOLOGIES 7
Occasionally, such diametrically opposed holdings have
appeared within the same litigation. For instance, the district
court in In re Ford Motor Co. DPS6 Powershift Transmission
Prods. Liab. Litig., No. CV1706656ABFFMX, 2019 WL
3000646 (C.D. Cal. May 22, 2019), found that under
Robinson, the economic loss rule did not apply to plaintiffs’
claims for fraudulent concealment or omission. Id. at *6.
One year later, ruling on a different plaintiff’s claim, that
district court concluded that it was bound by the California
Supreme Court’s decision in Robinson not to extend the
exception to the economic loss rule to fraudulent omissions.
In re Ford Motor Co. DPS6 Powershift Transmission Prods.
Liab. Litig., 483 F. Supp. 3d 838, 849 (C.D. Cal. 2020).
California Courts of Appeal have not addressed whether
the Robinson exception applies to fraudulent concealment.
Some appellate courts have suggested that Robinson extends
to all claims of intentional, fraudulent conduct, see, e.g.,
Frank E. Maddocks, Inc. v. Univ. Med. Prods./USA, Inc.,
No. B172559, 2005 WL 2002396, at *3 (Cal. Ct. App. Aug.
22, 2005) (“the [economic loss] rule does not bar fraud and
intentional misrepresentation claims”), while others have
declined to apply Robinson beyond the “narrow
circumstances” presented in that case, see. e.g., United Med.
Devices, LLC v. PlaySafe, LLC, No. B250305, 2015 WL
920695, at *6 (Cal. Ct. App. Mar. 2, 2015), as modified on
denial of reh’g (Mar. 30, 2015).
State courts across the country have exempted fraud
claims like the one Mr. Rattagan asserts from the economic
loss doctrine. See, e.g., Taylor v. Taylor, 422 P.3d 1116,
1125 (Idaho 2018), as corrected (July 31, 2018) (economic
loss rule does not apply where unique circumstances require
a reallocation of risk); see also Tiara Condo. Ass’n, Inc. v.
Marsh & McLennan Cos., Inc., 110 So. 3d 399, 407 (Fla.
8 RATTAGAN V. UBER TECHNOLOGIES
2013) (no application outside products liability context); see
also Formosa Plastics Corp. USA v. Presidio Eng’rs &
Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998) (listing
various species of fraud claims that are exempt from the
economic loss rule).
These courts, like the Robinson court, have recognized
that the scope of the economic loss doctrine implicates two
crucial public policy concerns: “freedom of contract and
abhorrence of fraud.” See Milan Supply Chain Sols., Inc. v.
Navistar, Inc., 627 S.W.3d 125, 153 (Tenn. 2021)
(“declin[ing] to announce a broad rule either extending the
economic loss rule to all fraud claims or exempting all fraud
claims from the economic loss rule”). On one hand, the
doctrine serves the important purposes of allowing
contracting parties to “reliably allocate risks and costs during
their bargaining” and encouraging them to “build the cost
considerations into the contract because they will not be able
to recover economic damages in tort.” BRW, Inc. v. Dufficy
& Sons, Inc., 99 P.3d 66, 72 (Colo. 2004). But
notwithstanding this tendency to “increase the certainty in
contractual relationships,” applying the rule to intentional
fraud may “encourage[e] fraudulent conduct at the expense
of an innocent party.” Robinson, 102 P.3d at 276.
Recovering the benefit of the bargain may afford incomplete
relief to fraud victims since parties typically do not factor in
the possibility of dishonesty when negotiating a contract. Id.at 275–76.
The unanswered question of whether fraudulent
concealment claims are exempted from the economic loss
rule is dispositive in the instant case. There is no controlling
state precedent, and the question implicates important policy
concerns. Accordingly, after careful consideration, we
exercise our discretion to certify this question to the
RATTAGAN V. UBER TECHNOLOGIES 9
California Supreme Court. See Cal. R. Ct. 8.548(a); see also
Kremen v. Cohen, 325 F.3d 1035, 1037–38 (9th Cir. 2003)
(listing the factors considered when determining whether
certification is appropriate).
III. Certified Question
We respectfully certify the following question to the
California Supreme Court:
Under California law, are claims for
fraudulent concealment exempted from the
economic loss rule?
We will accept the decision of the California Supreme Court.
Cal. R. Ct. 8.548(b)(2). We acknowledge that, as the
receiving court, the California Supreme Court may restate
the certified question. Cal. R. Ct. 8.548(f)(5).
IV. Counsel Information
The names and addresses of counsel or the parties, as
required by Cal. R. Ct. 8.548(b)(1) are as follows:
Andrew A. August, Esq., Steyer Lowenthal
Boodrookas Alvarez & Smith LLP, 235 Pine
Street, 15th Floor, San Francisco, California
94104, for Plaintiff Michael R. Rattagan
Jeffrey M. Davidson and Amy S. Heath,
Covington & Burling, LLP, Salesforce
Tower, 415 Mission Street, Suite 5400, San
Francisco, CA 94105-2533, for Defendant
Uber Technologies, Inc.
10 RATTAGAN V. UBER TECHNOLOGIES
V. Conclusion
The Clerk shall forward an original and ten certified
copies of this certification order, under official seal, to the
California Supreme Court. Cal. R. Ct. 8.548(d). The Clerk
is also ordered to transmit copies of all relevant briefs, as
well as any additional record materials requested by the
California Supreme Court. Cal. R. Ct. 8.548(c).
Submission of this appeal for decision is vacated and
deferred pending the California Supreme Court’s final
response to this certification order. The Clerk is directed to
administratively close this docket, pending further order.
The parties shall notify the Clerk of this court within
fourteen days of the California Supreme Court’s acceptance
or rejection of certification, and again, if certification is
accepted, within fourteen days of the California Supreme
Court’s issuance of a decision.
QUESTION CERTIFIED; PROCEEDINGS
STAYED.