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In re APA Assessment Fee Litig.

United States Court of Appeals, District of Columbia Circuit

September 5, 2014

IN RE: APA ASSESSMENT FEE LITIGATION, ELLEN G. LEVINE, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED, ET AL., APPELLANTS, FRANK SUMMERS, ET AL., APPELLANTS
v.
AMERICAN PSYCHOLOGICAL ASSOCIATION AND AMERICAN PSYCHOLOGICAL ASSOCIATION PRACTICE ORGANIZATION, DEFENDANTS, JOINTLY AND SEVERALLY, APPELLEES

Argued April 7, 2014.

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Appeal from the United States District Court for the District of Columbia. (No. 1:10-cv-01780).

Hassan A. Zavareei argued the cause and filed the briefs for appellants. Greg E. Mason entered an appearance.

David W. Ogden argued the cause for appellees. With him on the brief were Jonathan E. Paikin and Francesco Valentini.

Before: ROGERS, GRIFFITH and SRINIVASAN, Circuit Judges.

OPINION

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Srinivasan, Circuit Judge:

The American Psychological Association (the APA) is a national nonprofit organization representing clinical, research, and academic psychologists. APA members must pay annual association fees billed by the organization on its yearly " Membership Dues Statement." For certain members, the dues statement also includes a separate, " special assessment" fee. At all relevant times, the dues statement's instructions informed affected members that they " MUST PAY" the special assessment. Despite that mandatory language, the special assessment in fact was not a requirement

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of APA membership. Instead, it was an optional payment collected by the APA to fund the lobbying activities of a separate, APA-affiliated organization.

After learning that there was no requirement to pay the special assessment to maintain APA membership, several members brought the present class action lawsuit seeking recovery of all special assessment fees paid. They alleged that the APA had intentionally misled members into believing that payment of the special assessment fee was a condition of membership, and that they would not have paid the fee had they known it was optional. The district court dismissed all of plaintiffs' claims based in principal part on a conclusion that plaintiffs could not have reasonably believed that the assessment fee was mandatory rather than optional. We disagree with that conclusion, among others, and we therefore reverse in part the dismissal of plaintiffs' claims.

I.

A.

The case is before us on a motion to dismiss, so we accept the facts as alleged in the complaint. See Oberwetter v. Hilliard, 639 F.3d 545, 549, 395 U.S.App. D.C. 52 (D.C. Cir. 2011). The American Psychological Association is " the world's largest organization representing psychologists." Compl. ¶ 15. Headquartered in Washington, D.C., the APA has more than 100,000 members. Compl. ¶ 2.

The organization claims tax-exempt status under § 501(c)(3) of the Internal Revenue Code, which limits the APA's ability to engage in lobbying and advocacy. Compl. ¶ ¶ 2, 5. Recognizing that restriction, the APA's leadership in 2001 created a companion organization--the American Psychological Association Practice Organization (the APAPO)--to " conduct[] professional advocacy and lobbying on behalf of members." Compl. ¶ ¶ 3, 15. The APAPO is organized under § 501(c)(6) of the Internal Revenue Code, which permits lobbying activities forbidden to the APA under § 501(c)(3). See Am. Soc'y of Ass'n Execs. v. United States, 195 F.3d 47, 50, 338 U.S.App. D.C. 432 (D.C. Cir. 1999).

This case concerns payments made by APA members to support the APAPO. According to the complaint, APA leadership " [r]ecogniz[ed] that many of its members would not want to voluntarily pay to fund" the APAPO's lobbying activities. Compl. ¶ 6. In order to " maximize lobbying funds," the APA therefore " misrepresented" to its " clinician[]" members that they were required to pay a special assessment fee to maintain APA membership. Compl. ¶ ¶ 6, 15, 16. Payment of the special assessment, however, was not in fact a requirement of APA membership. According to plaintiffs, the APA could not condition membership on payment of that fee without jeopardizing the organization's § 501(c)(3) tax status.

The APA allocated special assessment fee proceeds to the APAPO. Compl. ¶ ¶ 4, 6, 16. In 2009, the special assessment was $137 per person while regular APA dues were $238. Compl. ¶ 21.

B.

In October 2010, an APA member residing in California filed a class-action lawsuit against the APA and APAPO in the federal district court for the District of Columbia. The following month, a Tennessee resident filed a similar suit. The district court consolidated the two actions at the plaintiffs' request.

The consolidated complaint asserts a nationwide class of " [a]ll persons in the United States who paid a 'special' . . . assessment fee as part of their APA annual

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dues after 2000." Compl. ¶ 31. It also describes subclasses of " [a]ll persons in California" and " [a]ll persons in Tennessee" who paid the fee. Compl. ¶ 32. The complaint includes three causes of action. Count I, " Unjust Enrichment and Constructive Trust," alleges that the APA intentionally misled class members into paying the special assessment by misrepresenting that it was a requirement of APA membership. See Compl. ¶ ¶ 33-39. That count seeks restitution and disgorgement of the defendants' " wrongful profits." Compl. ¶ 38. Counts II and III, limited to the subclass of California residents, allege violations of California's Unfair Competition Law and California's False Advertising Law, respectively, based on the same underlying conduct. See Compl. ¶ ¶ 40-53.

In May 2012, the district court granted defendants' motion to dismiss all counts. In re APA Assessment Fee Litig. ( APA I ), 862 F.Supp.2d 1, 14 (D.D.C. 2012). First, the court dismissed the unjust enrichment claim, explaining that unjust enrichment is an " equitable quasi-contract claim" that cannot proceed when an " actual contract exists between the parties" that " cover[s] the issue under dispute." Id. at 7. Here, the APA bylaws and rules constituted such a contract, the court held, precluding any unjust enrichment claim related to membership fees. Id. at 7-9. Second, the court dismissed the two California-law claims upon concluding, based on a choice-of-law analysis, that D.C. law governed the dispute. Id. at 11-14. Finally, acknowledging that the plaintiffs had sought to amend their complaint to allege two new causes of action for fraudulent inducement and rescission if the court dismissed the unjust enrichment claim, the court ordered supplemental briefing on whether the proposed amendments would be futile. Id. at 10-11. The parties filed supplemental briefs, in which the plaintiffs additionally requested to add a third cause of action for negligent misrepresentation.

In February 2013, the district court rejected plaintiffs' proposed amendments as futile. See In re APA Assessment Fee Litig. ( APA II ), 920 F.Supp.2d 86, 90 (D.D.C. 2013). The court stated that " all three proposed counts require an actionable misrepresentation as well as reasonable reliance by plaintiffs on that misrepresentation." Id. at 88. In the court's view, all three claims failed on the reasonable reliance prong. Id. at 89. In a footnote, the court found the rescission count " independently barred because plaintiffs' membership contracts with APAPO have been fully performed, and the parties cannot be returned to the pre-contractual status quo." Id. at 90 n.3. The negligent misrepresentation count was " independently barred" as well " because plaintiffs did not ask to add it in their opposition to defendants' motion to dismiss, and the request now is untimely." Id.

Plaintiffs now appeal the district court's dismissal of their unjust enrichment and California-law claims as well as the denial of their motion for leave to amend their complaint.

II.

We first consider the district court's dismissal of plaintiffs' unjust enrichment claim. In the district court, the parties agreed that choice-of-law analysis was unnecessary for that claim because the unjust enrichment law of the various potential jurisdictions is identical. In light of the parties' stance, the district court applied D.C. law to the unjust enrichment claim. On appeal, neither party contends that any other jurisdiction's law should govern resolution of that claim. Under D.C. law, " [u]njust enrichment occurs when: (1) the plaintiff conferred a benefit

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on the defendant; (2) the defendant retains the benefit; and (3) under the circumstances, the defendant's retention of the benefit is unjust." News World Commc'ns, Inc. v. Thompsen, 878 A.2d 1218, 1222 (D.C. 2005); see also Peart v. D.C. Hous. Auth., 972 A.2d 810, 813-14 (D.C. 2009). " In such a case, the recipient of the benefit has a duty to make restitution to the other person . . . ." 4934, Inc. v. D.C. Dep't of Employment Servs., 605 A.2d 50, 55 (D.C. 1992) (citing Restatement (First) of Restitution § 1 cmt. c (1937)). Reviewing the issue de novo, see Peart, 972 A.2d at 814, we reverse the district court's dismissal of the unjust enrichment count.

A.

Unjust enrichment is an equitable quasi-contract claim " based on a contract implied in law." Peart, 972 A.2d at 813-14. Such a claim is a " [l]egal fiction" designed " to permit recovery by contractual remedy in cases where, in fact, there is no contract, but where circumstances are such that justice warrants a recovery as though there had been a promise." 4934, Inc., 605 A.2d at 55 (alteration in original) (quoting Black's Law Dictionary 324 (6th ed. 1990)). Unjust enrichment will not lie when " the parties have a contract governing an aspect of [their] relation," because " a court will not displace the terms of that contract and impose some other duties not chosen by the parties." Emerine v. Yancey, 680 A.2d 1380, 1384 (D.C. 1996). That rule does not apply, however, if the contract is invalid or does not cover the issue in dispute. See Armenian Assembly of Am., Inc. v. Cafesjian, 597 F.Supp.2d 128, 135 (D.D.C. 2009). As summarized by the Restatement, " [a] valid contract defines the obligations of ...


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