Hoang v. Etrade Group, Inc.Hoang v. Etrade Group, Inc.
{¶ 1} Defendant-appellant E*Trade Group, Inc. appeals the common pleas court’s granting of plaintiff-appellee Truc Q. Hoang’s
{¶ 2} E*Trade Group, Inc. (“E*Trade”) is a California company and provider of online investing services. It offers customers automated securities order placement and execution in conjunction with a number of other products and services, such as portfolio tracking, stock quotes, news, and information. E*Trade custоmers can access its services using a variety of means, including the Internet, direct modem access, Internet service providers, and touch-tone telephone, or by calling a toll-free telephone number and speaking with and placing orders through a live representative.
{¶ 4} Directly above Hoang’s signature on her account application, Hoang acknowledged that she “received, read, and agree[d] to be bound by the terms and conditions as currently set forth in the E Trade Customer Agreement.” E*Trade also subsequently mailed a hard copy of the Customer Agreement to Hoang.
{¶ 5} The Customer Agreement, which Hoang acknowledged she had read and to which she agreed, stated that E‘Trade is not liable for damages resulting from loss of use of its online service or for losses resulting from a cause over which it does not have direct control, including electronic or mechanical equipment failure. It also stated that E*Trade is not liable for losses caused directly or indirectly by computer or telephone fаilure, that order execution may be delayed, that orders may be executed at prices different from the price quoted when the order is placed, and that it would rarely be possible to cancel a market order during market hours.
{¶ 6} In her amended complaint, Hoang asserted that E*Trade entered into a “written agreement” with its customers in which E*Trade allegedly promised “to prоvide continuous and/or reliable trading services.” She alleged that E*Trade advertised online securities trading as “reliable, convenient, fast and efficient” and that securities “trades could typically be ‘executed and electronically confirmed in seconds.’ ” She also alleged that E*Trade “proclaimed that its systems were ‘state of the art,’ [and] that it had ‘superior technology.’ ” Finally, Hoang alleged that E*Trade advertised that “customers could place orders via the Internet or telephone 24 hours a day.”
{¶ 7} Hoang claimed that these representations and promises gave rise to her claims for breach of contract, fraud, breach of fiduciary duty, and violation of Ohio’s consumer protection laws, because E*Trade allegedly failed to prоvide her with the service it promised. She alleged that E*Trade’s system experienced various interruptions and that E*Trade customers could not access their accounts for “75 minutes” on February 3, for “two hours” on February 4, and for “29 minutes” on February 5, 1999. E*Trade’s computer system experienced other similar but limited interruptions on March 19, July 9, August 10, and November 23 through December 3, 1999, and January 25, March 2, April 3, May 3, and October 18, 2000.
{¶ 9} After a hearing, the trial court granted Hoang’s motion and thereby certified a class consisting of all Ohio residents who had a trading account with E*Trade on the following dates: November 27 and 30, 1998; February 3 through 5, 1999; March 19, 1999; July 9, 1999; August 10, 1999; November 23 through December 3,1999; January 25, 2000; April 3, 2000; May 3 2000; and October 18, 2000.
{¶ 10} On appeal, E*Trade argues in a single assignment of error that the trial court erred in certifying this case as a class action. In
Hamilton v. Ohio Sav. Bank
(1998),
{¶ 11} “ ‘A trial judge has broad discretion in determining whether a class action may be maintained and that determination will not be disturbed absent a showing of an abuse of discretion.’ * * * Howevеr, the trial court’s discretion in deciding whether to certify a class action is not unlimited, and indeed is bounded by and must be exercised within the framework of
{¶ 12}
{¶ 13} In an action for damages, the trial court must specifically find, pursuant to
{¶ 14} The party seeking to maintain a class action has the burden of demonstrating that all factual and legal prerequisites to class certification have been met.
Gannon v. Cleveland
(1984),
{¶ 15} E*Trade argues that while Hoang can establish most of the
Predominance
{¶ 16} Performing a “rigorous analysis” of the
{¶ 17} In finding that the predominance requirement was met, the trial court stated in its opinion:
{¶ 18} “First, one of the bases for E*Trade’s liability is the existence of a standard, uniform customer agreement. Second, E*Trade’s actions in this case are actions directed toward, оr having impact upon, all plaintiffs in this case. There are no individual contracts or questions involving E*Trade’s actions toward any specific individuals that would fracture the class. The predominance prereq
{¶ 19} The trial court seems to have applied the requirements necessary for a finding of commonality under
{¶ 20} Hoang argues that nominal damages are recoverable for all of the plaintiffs’ claims, except negligence. We disagree. Although nominal damages may substitute for proof of the аmount of damages in certain cases, it cannot substitute for proof of injury. Class certification cases distinguish between the amount of damages, the calculation of which will not ordinarily defeat class certification, and the fact of injury and causation, which are liability elements of a claim. As the court held in
Martino v. McDonald’s Sys., Inc.
(N.D.Ill.1980),
{¶ 21} “[T]he fact of damage question is distinct from the issue of actual damages. Fact of damage pertains to the existence of injury, as a predicate to liability; actual damages involve the quantum of injury, and relate to the appropriate measure of individual relief. Although actual damages typically require the courts to become involved in individual calculations of damages, this has been held to be an insufficient basis for denying class certification where the common issues relevant to liability can be established on a classwide basis. * * * Class treatment of fact of damage issues, however, presumes the ability to prove
{¶ 22} In
In re Merrill Lynch Sec. Litigation
(D.N.J.1999),
{¶ 23} The plaintiffs then filed a motion for class certification. While some of the plaintiffs suffered damages, others did not. The court denied the motion for class certification, explaining:
{¶ 24} “[A]bsent proof of classwide pecuniary loss * * * there can be no classwide claim for securities fraud. * * * Implicit in Rule 23’s requirements is a showing that those persons sought to be included in the class have all suffered some harm to which common questions of law or faсt apply. * * * In order to show injury, a class member would have to establish that, at the time when he or she purchased or sold securities, a better price was available through one of the alternative sources but was not obtained, resulting in pecuniary loss to the class member. If the NBBO price was, in fact, the best price available at the time the securities were purchased or sold, then the class member has suffered no loss whatsoever and has no claim for securities fraud. The question of damages is further individualized because ‘other terms in addition to price are also relevant to best execution.’ * * * Thus, even if this action could be bifurcated into liability and damages phases, establishing liability would require a fact-specific inquiry into the details of every individual transaction.”
2
Id. at 397. Similarly, in the instant case, some of the plaintiffs have suffered damages as a result of E*Trade’s system interruptions while others have not. Some E*Trade customers may not have been trading during any of the system interruptions, in which case they were not injured and have no claims. Customers that were trading may not have suffered any losses as a result of a system interruption, in which
{If 25} This analysis is complex because it requires consideration of each individual transaction, other transactions in the same security that occurred in the markеt, and the market conditions at the time, including the number of orders waiting to be executed in the market, the size and type of those orders, and other factors. Further, some customers who were affected by the system interruptions may have actually benefited from the interruption, in which case they have no claims.
{¶ 26} It should be noted that Hoang argues that class certification is approрriate because each plaintiffs damages may be ascertained by a mathematical formula. E*Trade contends that the only expert in this case testified that it is impossible to determine individual plaintiffs damages with use of a simple mathematical formula. Whether a mathematical formula could be used to calculate individual damages is irrelevant because the need tо calculate damages individually, by itself, is not a reason to deny class certification. We find that class certification is inappropriate in this case because liability as to each individual plaintiffs claims cannot be ascertained on a classwide basis in a single adjudication.
{¶ 27} Hoang also argues that all E*Trade customers were injured during an E*Trade system interruption, even if they were not trading during the interruptions. Specifically, Hoang claims that all E*Trade customers were injured simply because they could not access their E*Trade accounts during those times. However, the law does not provide a recovery for inchoate claims.
Pappas Realty Co. v. Wharton
(July 11, 1984), 9th Dist. Nos. 11222, 11223 and 11233,
{¶ 28} Accordingly, we conclude that because the issues relating to liability with respect to each individual plaintiffs claims make it impossible to prove or disprove the claims of all the members of the class on a simultaneous, classwide basis, class certification is inaрpropriate. Having found that the predominance requirement has not been met, we need not address E*Trade’s other arguments with respect to the typicality and superiority requirements.
Consumer Sales Practices Act
{¶ 29} Hoang argues, in the alternative, that this case should be certified as a class action pursuant to
{¶ 31} “* * *
{¶ 32} “(B) Where the violation was an act or practice declared to be deceptive or unconscionable by rule adopted under division (B)(2) of section 1345.05 of the Revised Code before the consumer transaction on which the action is based, or an act or practice determined by a court of this state to violate section 1345.02 or 1345.03 of the Revised Code and committed after the decision containing the determination has been made available for public inspection under division (A)(3) of section 1345.05 of the Revised Code, the consumer may rescind the transaction or recover, but not in a class action, three times the amount of bis actual damages or two hundred dollars, whichever is greater, or recover damages or other appropriate relief in a class action under Civil Rule 23, as amended.” (Emphasis added.)
{¶ 33} Hoang claims, citing
Brown v. Lyons
(C.P.1974),
{¶ 34} Moreover,
{¶ 35} The judgment is reversed, and the cause is remanded to the lower court for farther proceedings consistent with this opinion.
Judgment accordingly.
Notes
. The rule in California is similar in that injury is an element of a breach-of-contract claim.
Cochran v. Cochran
(1997),
. Hoang cites a number of cases for the proposition that "common, classwide injury” is not essential to a finding of predominance for purposes of class certification. However, we find these cases distinguishable.