APA Assessment Fee Litigation v. American Psychological Assoc.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 7, 2014 Decided September 5, 2014

No. 13-7032

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

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.

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Before: ROGERS, GRIFFITH and SRINIVASAN, Circuit

Judges.

Opinion for the Court filed by Circuit Judge SRINIVASAN.

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 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.

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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 (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 (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

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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 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.

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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

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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 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 Emp’t 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-

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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

the parties as to matters within its scope, displacing to that

extent any inquiry into unjust enrichment.” Restatement

(Third) of Restitution & Unjust Enrichment § 2(2) (2011)

(emphasis added).

Here, the district court considered plaintiffs’ unjust

enrichment claim to be precluded by an express contract—

namely the APA bylaws and Association Rules, which “can

be ‘construed as a contractual agreement between the

organization and its members.’” APA I, 862 F. Supp. 2d at 7

(quoting Meshel v. Ohev Sholom Talmud Torah, 869 A.2d

343, 361 (D.C. 2005)). Urging us to accept that reasoning,

defendants contend that the existence of an express

membership contract between the parties precludes plaintiffs’

unjust enrichment claim.

We reject that approach. According to defendants,

plaintiffs’ decision to pay the special assessment had no

bearing on plaintiffs’ rights or obligations as APA members

under the bylaws and rules. Defendants in fact allow that

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nothing in the bylaws and rules “even permits APA to

terminate membership based on nonpayment” of the special

assessment. Appellee Br. 53. But if that is so, payment of the

special assessment at no point formed any part of the explicit

contractual arrangement between the APA and its members.

It was instead an extra-contractual payment falling outside the

“scope” of the governing contracts. See Restatement (Third)

of Restitution & Unjust Enrichment § 2(2) (2011). The

bylaws and rules then pose no obstacle to an unjust

enrichment claim seeking to recover assessment fees paid. As

the Restatement explains, “[r]estitution claims of great

practical significance” do arise “in a contractual context”

when the contract does not “regulate the parties’ obligations”

in relevant part. Id. § 2 cmt. c.

Plaintiffs’ claim, in fact, fits a standard pattern of unjust

enrichment recovery. According to the complaint, defendants

included misleading language on the dues statement in order

to deceive plaintiffs into overpaying for APA membership.

Plaintiffs seek recovery of the alleged overpayments. They

thus base their claim on a theory of “[m]istaken payment of

money not due”—“one of the core cases of restitution.” Id.

§ 6 cmt. a. The goal is “to bring the transfers between the

parties into conformity with the true state of their contractual

obligations.” Id. § 6 cmt. c. The Restatement offers the

following illustrative example:

Landlord erroneously bills Tenant for rent at $1000

per month, which Tenant pays. In fact, the lease

calls for a monthly rent of $500. Tenant has a claim

in restitution to recover the overpayment.

Id. § 6 cmt. c, illus. 9. Tenant can recover the “erroneously

bill[ed]” $500, despite the existence of an express contract

defining the amount of rent due.

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Here, plaintiffs likewise can seek to recover the

“erroneously bill[ed]” special assessment fee, notwithstanding

the existence of an express contract defining APA

membership requirements. As the Restatement explains:

“Payments resulting from a misunderstanding of the extent

of . . . a contractual obligation present a characteristic issue of

restitution.” Id. § 6 cmt. c; see also id. § 13 cmt. a (noting an

additional basis for relief when erroneous overpayment is

induced by fraud). Defendants’ basic position, that an unjust

enrichment claim is precluded whenever it relates to the

subject matter of an express contract, would eliminate not just

plaintiffs’ claim but the entire category of mistaken

overpayments—“a characteristic issue of restitution.” Id. § 6

cmt. c. We have little doubt that District of Columbia courts

would reject such an approach.

Defendants rely heavily on a footnote in Schiff v.

American Ass’n of Retired Persons, 697 A.2d 1193 (D.C.

1997). The plaintiff in Schiff, a member of the American

Association of Retired Persons, sued the organization over

alleged misrepresentations in the sale of insurance policies.

The D.C. Court of Appeals affirmed the dismissal of the

plaintiff’s unjust enrichment claim, finding it to be precluded

by two express contracts. See id. at 1194 n.2. According to

defendants, Schiff requires dismissing the unjust enrichment

claim here as well. But Schiff contains no description of the

terms of the contracts at issue. See id. Insofar as the terms of

the contracts governed the matter in dispute, they precluded

an unjust enrichment claim. See Restatement (Third) of

Restitution & Unjust Enrichment § 2(2) (2011). We have no

basis to read the Schiff footnote to denote an intention to go

considerably further than that—i.e., to lop off, as defendants’

urge here, a major category of unjust enrichment recovery by

eliminating relief for mistaken overpayments. Declining

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defendants’ invitation to read the decision so broadly, we hold

that plaintiffs’ unjust enrichment claim is not precluded by an

express contract.

B.

Defendants argue next that their retention of the

assessment fees is not “unjust.” According to defendants,

plaintiffs were fully aware that the special assessment funded

the APAPO’s advocacy activities, and plaintiffs allege no

inadequacy in the organization’s lobbying efforts. Because

plaintiffs therefore received all the benefits they were

promised in exchange for the assessment fees, defendants

contend, it is “just” for defendants to retain the fees paid.

Defendants’ argument erroneously assumes that the

promise of APAPO advocacy activities induced plaintiffs to

pay the special assessment in the first place. Plaintiffs,

however, assert that they had no interest in APAPO lobbying.

Rather, they paid the special assessment to attain (or retain)

APA membership, and only because defendants intentionally

misled them into believing that the assessment was a

precondition to their doing so. In those circumstances,

defendants’ subsequent performance of APAPO lobbying

activities cannot render “just” their retention of the

assessment fees. Under the Restatement’s landlord/tenant

example, for instance, suppose the landlord intentionally

overbills the monthly rent by $500 but also includes an

additional promise to perform lobbying activities on behalf of

renters. A tenant who pays the overbilled $500 because she

believes the rental contract so requires does not lose her

unjust enrichment claim if the landlord performs the lobbying

services. The landlord cannot immunize himself from an

unjust enrichment claim by performing services that the

tenant never desired in the first place. Here, the APAPO’s

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lobbying activities similarly cannot defeat plaintiffs’ unjust

enrichment claim. The decisions relied on by defendants do

not suggest otherwise because they involved no material

misrepresentation at contract formation like those alleged by

plaintiffs here. See, e.g., Jordan Keys & Jessamy, LLP v. St.

Paul Fire & Marine Ins. Co., 870 A.2d 58, 62-66 (D.C.

2005).

C.

Defendants’ final argument on the unjust enrichment

claim is that it was not reasonable for plaintiffs to believe that

payment of the special assessment was required for APA

membership. As a threshold matter, defendants do not fully

explain why plaintiffs’ unjust enrichment claim would fail

under D.C. law if plaintiffs had genuinely, but unreasonably,

been misled by the dues statement’s language. Cf.

Restatement (Third) of Restitution & Unjust Enrichment § 6

cmt. a (2011) (“As in other cases of benefit conferred by

mistake, the fact that the claimant may have acted negligently

in making a mistaken payment is normally irrelevant to the

analysis of the claim.”). But assuming plaintiffs must

demonstrate reasonable reliance, they have amply satisfied

their burden. That is particularly so in light of the stage of the

proceedings in this case. Defendants seek to prevail at the

motion-to-dismiss stage even though the “reasonableness

of . . . reliance upon a misrepresentation is a question of fact,

for which disposition by [pre-trial motion] is generally

inappropriate.” Cassidy v. Owen, 533 A.2d 253, 256 (D.C.

1987).

We focus our analysis on the “2001 Membership Dues

Statement,” see J.A. 77, which defendants appended to their

motion to dismiss, and which mirrored dues statements from

subsequent years in relevant respects. The dues statement’s

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first page contained a worksheet for calculating the payment

owed. Line 1 of the worksheet, appearing in a box titled

“REGULAR APA DUES,” came preprinted with a “2001

dues” amount of $219. Id. Line 10, the “2001 Special

Assessment,” appeared in the next box, also with a preprinted

amount (of $110). Id. The only other preprinted figure on the

statement was $329 on line 14—denoted “SUBTOTAL

DUES AND ASSESSMENTS”—a subtotal of lines 1 and 10.

Id. Below the subtotal line, in a box labeled “VOLUNTARY

CONTRIBUTIONS,” members could make optional

donations to several enumerated funds and foundations. The

voluntary contributions, unlike the “2001 dues” and “2001

Special Assessment,” contained no preprinted amount.

The first page of the worksheet in the dues statement

contained several indications that payment of the special

assessment was a requirement of APA membership. First, the

name itself—“Special Assessment”—suggested that payment

was mandatory. See Merriam-Webster Unabridged

Dictionary (online ed. 2014) (defining “assessment” as “an

amount that a person is officially required to pay especially as

a tax”) (emphasis added). Second, the fact that the special

assessment came with a preprinted amount on the form, both

on its own line and as part of a subtotal combined with the

regular dues, implied that the assessment, like the regular

dues, was required for APA membership. That implication

was further reinforced by the various “VOLUNTARY

CONTRIBUTIONS” listed in a box found immediately next

on the form, the presence of which indicated that the

preprinted fees above that box were not voluntary.

Although the dues statement alone suffices at the motion-

to-dismiss stage to defeat defendants’ arguments about the

reasonableness of plaintiffs’ beliefs, there is considerably

more. For each line of the dues statement, the accompanying

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instructions contained an “EXPLANATION” column and an

“ACTION REQUIRED” column. J.A. 79. The instructions

for the special assessment fee stated in the

“EXPLANATION” column: “An annual assessment is

applied to all licensed health care psychologists who provide

services in the health or mental health field or who supervise

those who do.” Id. (emphasis added). The explanation then

listed categories of practicing psychologists who “MUST

PAY” the special assessment. Id. The mandatory “MUST

PAY” language in the “EXPLANATION” column appeared

alongside an entry in the “ACTION REQUIRED” column for

the special assessment. That entry directed members to “*Pay

$110 (the preprinted amount) unless you hold a full-time

faculty position.” Id. What is more, the instructions went on

to list “SPECIAL ASSESSMENT EXEMPTIONS”: six

defined categories of members who did not have to pay the

assessment and who therefore could “cross off the amount.”

Id. The enumerated exemptions fortified the impression that

non-exempt members could not “cross off” the preprinted

assessment fee if they wished to retain APA membership.

Finally, the instructions for line 19—the “TOTAL AMOUNT

PAYABLE TO APA”—stated that, if a member did not

calculate the total himself, “the total of all preprinted dues and

assessments will be charged to you.” J.A. 80. The inclusion

of the special assessment in the default renewal charge

cemented the conclusion that that assessment formed part of

the minimum payment required for membership.

The functioning of the APA website, as alleged in the

complaint, is entirely of a piece with the indications in the

dues statement and accompanying instructions of the

mandatory nature of the special assessment. According to the

complaint, the website stated for a “period of years” that

members “must pay the Special Assessment.” J.A. 60

(internal quotation marks omitted). The website also stated

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“repeatedly” that “all practicing APA members were billed

the practice assessment and were expected to pay” it. Id.

Moreover, the website did not allow members to pay their

APA dues without paying the special assessment. Id. A

member who viewed the dues statement in conjunction with

the website therefore had even greater reason to believe that

payment of the special assessment was a condition of APA

membership.

In the face of all of those indications that the special

assessment was a requirement for APA membership,

defendants highlight an instruction for line 2 of the dues

statement (pertaining to amounts still owed from past years)

which stated that “[b]asic dues are required for continuous

membership.” J.A. 78. Noting that the same language did not

appear in the instructions for the special assessment,

defendants contend that any reasonable reader would have

drawn the inference that the special assessment was not

“required for continuous membership.” Id. The instruction

for line 2, however, would have no relevance for any member

who had no carryover balance from prior years. At any rate,

any negative inference from that instruction of the kind

suggested by defendants would not begin to overcome the

overwhelming indications to the contrary, particularly for

purposes of resolving defendants’ motion to dismiss. For

instance, a member might well have reasonably concluded

that the emphatic “MUST PAY” instruction for the special

assessment was a shorthand equivalent of the “required for

continuous membership” language from the line 2

instructions.

Defendants also assert, without support, that the “MUST

PAY” instruction and similar language intended to convey

only that the special assessment was a “professional

obligation of practicing APA members” as opposed to a

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requirement for membership. Appellee Br. 29. We cannot

consider that assertion at the motion-to-dismiss stage because

it does not appear in the complaint or in any other document

in the limited record before us. See Navab-Safavi v.

Glassman, 637 F.3d 311, 318 (D.C. Cir. 2011). And even if

we could consider it, there would be no basis for concluding

at the motion-to-dismiss stage that members should have

perceived a distinction between a “professional obligation”

and a “membership obligation” and understood that the

special assessment fell into the former category, much less

that they should have done so when examining a statement

and accompanying instructions entitled, “Membership Dues.”

J.A. 77, 79 (emphasis added).

We are equally unmoved by defendants’ effort to

overcome the language of the dues statement and instructions

by reference to the APA bylaws and rules. Defendants cite

Clark v. Mutual Reserve Fund Life Ass’n, 14 App. D.C. 154,

169 (D.C. 1899), for the proposition that “[m]embers of a

mutual association are conclusively presumed to know its

constitution and by-laws.” Assuming the continuing force of

that proposition as a matter of District of Columbia law,

nothing in the bylaws or rules would have cast doubt on the

reasonableness of plaintiffs’ beliefs about the mandatory

nature of the special assessment. Defendants highlight

language in the bylaws’ “Dues and Subscriptions” section

authorizing the APA to impose “basic Association dues to be

paid annually by Members.” J.A. 158. Neither the bylaws

nor the rules, defendants observe, specifically mentioned the

special assessment as a condition of membership (or

otherwise). But defendants fail to explain why it would have

been unreasonable for a member to believe that the special

assessment was merely a particular type of APA “due[]”—a

term undefined in the bylaws and rules. After all, the special

assessment appeared, preprinted, on the annual APA

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“Membership Dues Statement,” J.A. 77 (emphasis added), as

something members “MUST PAY.” J.A. 79.

Finally, defendants contend that plaintiffs had a duty to

investigate further before concluding that the special

assessment was required for APA membership. See, e.g.,

Wash. Inv. Partners of Del., LLC v. Sec. House, K.S.C.C., 28

A.3d 566, 576 (D.C. 2011). For the reasons already

explained, however, plaintiffs reasonably could have

concluded that the meaning of the dues statement was clear,

such that there was no reason to investigate further. The

circumstances here are also distinguishable from the cases

relied on by defendants in which D.C. courts have “imposed a

very high standard on sophisticated business entities

claiming fraudulent inducement in arms-length transactions.”

Id. at 575-76 (internal quotation marks omitted) (emphasis

added). Plaintiffs here were not engaged in arms-length,

adversarial business dealings but instead were seeking

membership in a reputable national professional organization.

In that setting, there is no reason to conclude that D.C. courts

would impose on a would-be member any heightened duty to

investigate before relying on facially straightforward billing

language.

For those reasons, we conclude that plaintiffs’ unjust

enrichment claim survives defendants’ motion to dismiss. We

therefore reverse the district court’s dismissal of that claim.

III.

Plaintiffs next appeal the dismissal of their California

statutory claims. The complaint alleges a violation of

California’s Unfair Competition Law, see Cal. Bus. & Prof.

Code §§ 17200 et seq., and of California’s False Advertising

Law, see id. §§ 17500 et seq. The district court dismissed

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both claims upon concluding that District of Columbia—not

California—law governed the dispute. See APA I, 862 F.

Supp. 2d at 11-14. We review the district court’s choice-of-

law determination de novo, see Oveissi v. Islamic Republic of

Iran, 573 F.3d 835, 842 (D.C. Cir. 2009), and we affirm.

A federal court sitting in diversity must apply the choice-

of-law rules of the forum state—here, the District of

Columbia. See Muir v. Navy Fed. Credit Union, 529 F.3d

1100, 1107 (D.C. Cir. 2008). D.C. law employs “a modified

governmental interests analysis which seeks to identify the

jurisdiction with the most significant relationship to the

dispute.” Washkoviak v. Student Loan Mktg. Ass’n, 900 A.2d

168, 180 (D.C. 2006) (quoting Moore v. Ronald Hsu Constr.

Co., 576 A.2d 734, 737 (D.C. 1990)) (internal quotation

marks omitted).

The D.C. Court of Appeals’ 2006 decision in Washkoviak

provides an instructive model for the choice-of-law analysis

in this case. The plaintiffs in that case were Wisconsin

students with loans held by Sallie Mae, a congressionally

created private corporation that “serve[s] as a secondary

market and warehousing facility for student loans.” 900 A.2d

at 171. Asserting claims under a D.C. consumer-protection

statute, plaintiffs alleged that “Sallie Mae makes affirmative

misrepresentations that cause borrowers to incur late fees

continuously.” Id. at 174. Sallie Mae moved to dismiss,

arguing that Wisconsin—not D.C.—law governed the case.

Applying D.C.’s choice-of-law rules, the D.C. Court of

Appeals held that, for purposes of resolving the motion to

dismiss, D.C. law applied. See id. at 180-83. “Wisconsin has

a powerful interest in protecting its residents from fraud and

misrepresentation,” the court noted, “while the District of

Columbia has an equally strong interest in ensuring that its

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corporate citizens refrain from fraudulent activities.” Id. at

180-81. Given the “equal[]” interests at stake, the court

turned to the Restatement (Second) of Conflict of Laws

(1971), finding that a “qualitative weighing” of the factors set

forth in §§ 145 and 148 did not clearly favor either

jurisdiction. Id. at 182 & n.18. The court applied the law of

the forum state (D.C.) as a tie-breaker. Id. at 182. With

Washkoviak as our guide, we examine whether California or

D.C. law applies to plaintiffs’ statutory claims.

A.

Initially, we must “determine whether a ‘true conflict’

exists” between the laws of the two jurisdictions—“that is,

whether more than one jurisdiction has a potential interest in

having its law applied and, if so, whether the law of the

competing jurisdictions is different.” GEICO v. Fetisoff, 958

F.2d 1137, 1141 (D.C. Cir. 1992) (citing Fowler v. A & A Co.,

262 A.2d 344, 348 (D.C. 1970)). A “false conflict” exists, on

the other hand, “when the policies of one state would be

advanced by the application of its law and the policies of the

states whose laws are claimed to be in conflict would not be

advanced by application of their law[s].” Long v. Sears

Roebuck & Co., 877 F. Supp. 8, 11 (D.D.C. 1995) (citing

Biscoe v. Arlington Cnty., 738 F.2d 1352, 1360 (D.C. Cir.

1984)). In that event, we “apply the law of the state whose

policy would be advanced by application of its law.” Id.

We begin by identifying the policies underlying the laws

of both jurisdictions. Plaintiffs invoke the protections of

California’s Unfair Competition Law and California’s False

Advertising Law. Both statutes manifest California’s

“obvious interest in protecting its residents” from fraud. APA

I, 862 F. Supp. 2d at 13; cf. Aral v. Earthlink, Inc., 36 Cal.

Rptr. 3d 229, 244 (Cal. Ct. App. 2005) (emphasizing “the

19

right of California to ensure that its citizens have a viable

forum in which to recover minor amounts of money allegedly

obtained in violation of the [Unfair Competition Law]”);

Washkoviak, 900 A.2d at 180 (“Wisconsin has a powerful

interest in protecting its residents from fraud and

misrepresentation.”).

The dispute here centers on what interest, if any,

underlies District of Columbia law. The most relevant statute

identified by the parties is D.C.’s Consumer Protection

Procedures Act (CPPA), D.C. Code §§ 28-3901 et seq., the

same statute at issue in Washkoviak. “The CPPA prohibits a

wide variety of deceptive trade practices perpetrated against

consumers.” Busby v. Capital One, N.A., 772 F. Supp. 2d

268, 279 (D.D.C. 2011) (citing D.C. Code. § 28-3904).

Both sides agree that the CPPA does not provide

plaintiffs with a cause of action. Plaintiffs do not appear to

have been acting as “consumer[s]” within the meaning of the

statute when they paid the special assessment: they did not

“purchase, lease . . . , or receive consumer goods or services,”

that is, goods or services “normally use[d] for personal,

household, or family purposes.” D.C. Code § 28-

3901(a)(2)(A), (B)(i). Moreover, the CPPA expressly

provides that any “action . . . against a nonprofit organization

shall not be based on membership in such organization,

membership services, . . . or any other transaction, interaction,

or dispute not arising from the purchase or sale of consumer

goods or services in the ordinary course of business.” D.C.

Code § 28-3905(k)(5) (emphasis added). Plaintiffs’ claims

fall directly within the nonprofit-membership exclusion.

Plaintiffs argue that there is a “false conflict” here

because California statutes authorize their suit while the

CPPA does not. See Fresh Start Indus., Inc. v. ATX

20

Telecomms. Servs., 295 F. Supp. 2d 521, 527 (E.D. Pa. 2003).

But the District of Columbia’s failure to provide a statutory

cause of action does not necessarily demonstrate that it has no

underlying interest at stake. To the contrary, a “rule which

exempts the actor from liability for harmful conduct” may

embody an interest in protecting “defendants against being

harassed by such actions.” Restatement (Second) of Conflict

of Laws § 145 cmt. c (1971).

For example, in Pietrangelo v. Wilmer Cutler Pickering

Hale & Dorr, LLP, 68 A.3d 697 (D.C. 2013), the D.C. Court

of Appeals found a conflict between the consumer protection

laws of Massachusetts and the CPPA. The Massachusetts

statute allowed suits “against an attorney who acts unfairly or

deceptively in the rendition of legal services,” while the

CPPA “specifically exclude[d] attorneys” from its reach. Id.

at 714. “This distinction between Massachusetts and D.C.

law,” the court concluded, “demonstrates that the two laws

are in conflict.” Id. We understand that decision to recognize

that a rule of non-liability—reflecting a legislative purpose to

protect defendants from litigation—can be owed “the same

consideration in the choice-of-law process as is a rule which

imposes liability.” Restatement (Second) of Conflict of Laws

§ 145 cmt. c (1971); see also Stephen A. Goldberg Co. v.

Remsen Partners, Ltd., 170 F.3d 191, 195 (D.C. Cir. 1999).

For that reason, we find a true conflict here. Although a

rule of non-liability can reflect a goal other than protecting

defendants from litigation, the available evidence suggests

that the D.C. Council acted specifically to shield nonprofit

organizations from statutory liability for membership-related

disputes. The Council revised the CPPA in 2007 to expose

nonprofits otherwise acting as “merchants” to the same level

of liability as for-profit corporations. See Nonprofit

Organizations Oversight Improvement Amendment Act of

21

2007, 2007 D.C. Legis. Serv. (West). But the Council went

only so far: it explicitly barred claims, like plaintiffs’,

relating to organizational membership. See D.C. Code § 28-

3905(k)(5). The amendment’s legislative history indicates a

concern with appropriately calibrating the level of nonprofit

liability. “The goal of nonprofit regulation,” states one

committee report, “should be to ferret out and prosecute

fraudulent activities, while not imposing unnecessary burdens

that have little benefit but limit nonprofits’ effectiveness.”

D.C. Council, Comm. on Pub. Safety and the Judiciary, Rep.

on B. 17-53, at 2 (Feb. 28, 2007) (emphasis added).

Given that D.C.’s rule of non-liability is owed “the same

consideration in the choice-of-law process as is a rule,” like

California’s, “which imposes liability,” Restatement (Second)

of Conflict of Laws § 145 cmt. c. (1971), we find that the

laws of the relevant jurisdictions “are in conflict.”

Pietrangelo, 68 A.3d at 714. The two jurisdictions’ interests

therefore are “equally strong.” Washkoviak, 900 A.2d at 181.

B.

The next step entails evaluating “the two jurisdictions’

respective relationships to the complaint” under the factors set

forth in the Restatement (Second) of Conflict of Laws.

Washkoviak, 900 A.2d at 181. D.C. courts follow § 145 of

the Restatement, which provides four factors to identify the

jurisdiction with the “most significant relationship to the

occurrence and the parties” in tort cases. Restatement

(Second) of Conflict of Laws § 145(1) (1971). Those factors

are:

(a) the place where the injury occurred,

(b) the place where the conduct causing the injury

occurred,

22

(c) the domicil, residence, nationality, place of

incorporation and place of business of the parties,

and

(d) the place where the relationship, if any, between

the parties is centered.

Id. § 145(2). “These contacts are to be evaluated according to

their relative importance with respect to the particular issue.”

Id.

Applying the first § 145 factor, Washkoviak held that the

place of injury was Wisconsin, where the plaintiffs “received

the alleged misrepresentations and made their payments.”

900 A.2d at 181. Similarly, the place of injury here was

California, where the relevant subclass of plaintiffs received

their dues statements and presumably paid the special

assessments. According to Washkoviak, though, the place of

injury holds a “discounted value . . . in cases, such as this one,

involving claims of misrepresentation.” Id. at 182.

The Washkoviak court found that the second § 145 factor,

“the place where the conduct causing the injury occurred,”

favored District of Columbia law. Plaintiffs had alleged that

Sallie Mae’s injurious conduct was “formulated and

conceived . . . in the District of Columbia[,] . . . directed . . .

from the District of Columbia, and emanated from . . . the

District of Columbia.” Id. at 181 (alteration in original).

Here, plaintiffs have not alleged where defendants drafted the

dues statements or otherwise formulated and transmitted the

alleged misrepresentations. But as the district court noted, the

complaint contends that “defendants had their principal place

of business in Washington, D.C., and that ‘significant events

giving rise to this case took place in this District.’” APA I,

862 F. Supp. 2d at 13 (quoting Compl. ¶ 9). We agree with

the district court that the second factor weighs at least

23

moderately towards D.C. law given that neither side has

“suggest[ed] any other location where the conduct could have

occurred.” Id. We reject plaintiffs’ unexplained assertion

that the defendants’ use of a website to convey information

should alter the analysis.

The third § 145 factor is “the domicil, residence,

nationality, place of incorporation and place of business of the

parties.” Washkoviak found that factor to result in a tie

because the plaintiffs resided in Wisconsin while Sallie Mae

was located in the District of Columbia. 900 A.2d at 181.

For the same reason, the third factor is “split evenly” between

California and D.C. here. See id. Plaintiffs argue in favor of

California law based on Restatement commentary stating that

the “domicil, residence and place of business of the plaintiff

are more important than are similar contacts on the part of the

defendant.” Restatement (Second) of Conflict of Laws § 148

cmt. i (1971). That argument is foreclosed by Washkoviak.

Finally, for the fourth § 145 factor—“the place where the

relationship, if any, between the parties is centered”—

Washkoviak found the relationship “centered” in Wisconsin

based on case law specific to borrower/lender relationships.

See 900 A.2d at 181. In our case, the parties cite no case law

directly addressing where the relationship between a national

nonprofit organization and its members is “centered.” We

therefore find that “the fourth factor does not weigh strongly

in favor of either party.” APA I, 862 F. Supp. 2d at 13.

Balancing the four factors, the Washkoviak court found

that they did not favor application of either jurisdiction’s law.

See 900 A.2d at 182. Although two factors favored

Wisconsin and only one favored D.C (with one evenly split),

the court held that “a mere counting of contacts is not what is

involved.” Id. at 181 (internal quotation marks omitted).

24

Rather, “[g]iven the discounted value of the place of injury,”

the court could not “say that a qualitative weighing of the

factors clearly favors Wisconsin.” Id. at 182.

We reach the same conclusion here. Although the fourth

§ 145 factor does not weigh strongly in favor of either party—

unlike in Washkoviak, where it pointed to Wisconsin law—

any difference from that factor is offset, in our view, by the

second factor’s weighing more weakly towards D.C. here due

to the relative dearth of factual allegations concerning the

location of defendants’ conduct. We therefore “cannot say

that a qualitative weighing of” the § 145 factors favors either

California or D.C. law. See id. That result remains

unchanged by consideration of Restatement § 148, “Fraud and

Misrepresentation.” See id. at 182 n.18 (applying the § 148

factors “qualitatively rather than quantitatively” and

concluding that the result was, “at best, ambiguous”).

C.

Faced with a conflict between jurisdictions, with neither

jurisdiction’s law favored by the Restatement factors, the

Washkoviak court concluded that the law of the forum state

governed. Id. at 182; see also Wu v. Stomber, 750 F.3d 944,

949 (D.C. Cir. 2014) (“D.C. choice-of-law rules require, in a

case where the [Restatement] factors do not point to a clear

answer, that we apply D.C. tort law, the law of the forum

state.”). Finding ourselves in a comparable situation, we

reach the same result. As the district court observed, that

outcome “works no unfairness to plaintiffs, because they

chose to pursue their claim in the District of Columbia.” APA

I, 862 F. Supp. 2d at 14. We therefore affirm the district

court’s dismissal of plaintiffs’ California-law claims.

25

IV.

Plaintiffs’ final challenge concerns the district court’s

denial of their motion to amend the complaint to add claims

for fraudulent inducement, rescission, and negligent

misrepresentation.

A.

The district court denied, as futile, plaintiffs’ request to

add a claim for fraudulent inducement. See APA II, 920 F.

Supp. 2d at 90. We review a denial based on futility de novo,

see In re Interbank Funding Corp. Sec. Litig., 629 F.3d 213,

218 (D.C. Cir. 2010), and we reverse.

The essential elements of a D.C. common-law fraud

claim are “(1) a false representation (2) made in reference to a

material fact, (3) with knowledge of its falsity, (4) with the

intent to deceive, and (5) an action that is taken in reliance

upon the representation.” Kitt v. Capital Concerts, Inc., 742

A.2d 856, 860-61 (D.C. 1999) (internal quotation marks

omitted). In certain cases, the plaintiff must also show “(6)

that the defrauded party’s reliance [was] reasonable.”

Hercules & Co. v. Shama Rest. Corp., 613 A.2d 916, 923

(D.C. 1992) (emphasis in original); see also In re U.S. Office

Prods. Co. Sec. Litig., 251 F. Supp. 2d 77, 100 n.13 (D.D.C.

2003). The district court held that plaintiffs’ proposed claim

failed based on its conclusion that any reliance here was

unreasonable. See APA II, 920 F. Supp. 2d at 90. On appeal,

plaintiffs argue that reasonable reliance is not a required

element of their claim. We need not resolve the issue

because, as explained, plaintiffs have adequately pled

reasonable reliance here. See supra Part II.C. We thus hold

that the district court erred in denying, as futile, plaintiffs’

motion to add a fraudulent inducement claim.

26

B.

The district court also denied plaintiffs’ motion to add a

rescission claim. To “justify rescission of a contract based on

a misrepresentation,” D.C. law requires a plaintiff to

“establish, by a preponderance of the evidence, (i) a

misrepresentation, (ii) made in reference to a material fact,

that (iii) ‘would have been likely to have induced a reasonable

recipient to make the contract.’” Fennell v. AARP, 770 F.

Supp. 2d 118, 132 (D.D.C. 2011) (quoting In re Estate of

McKenney, 953 A.2d 336, 342 (D.C. 2008)). A plaintiff

prevailing on a rescission claim can set aside the contract,

thereby “restor[ing] the aggrieved party to that party’s

position at the time the contract was made as opposed to

seeking damages for breach of contract.” In re Estate of

Johnson, 820 A.2d 535, 539 (D.C. 2003). Here, the district

court denied plaintiffs’ motion to amend, again finding that

any reliance on the alleged misrepresentations was

unreasonable. See APA II, 920 F. Supp. 2d at 90. As before,

we find that conclusion to have been in error.

The district court, however, also 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.”

APA II, 920 F. Supp. 2d at 90 n.3. “[I]nherent in the remedy

of rescission is the return of the parties to their pre-contract

positions.” Dean v. Garland, 779 A.2d 911, 915 (D.C. 2001).

As a result, “a party seeking rescission must restore the other

party to that party’s position at the time the contract was

made. This rule applies even when the party against whom

rescission is sought has committed fraud.” Id. (internal

citation omitted). While plaintiffs point to other jurisdictions

that allow rescission “despite the impossibility or

27

undesirability of complete restoration,” e.g., Baney Corp. v.

Agilysys NV, LLC, 773 F. Supp. 2d 593, 607 (D. Md. 2011),

they identify no District of Columbia cases adopting that

approach. Given plaintiffs’ concession that “it is not possible

. . . [to] restore the status quo ante” in this case, Appellant Br.

60, we agree with the district court that plaintiffs’ proposed

rescission claim fails as a matter of D.C. law.

C.

Finally, the district court denied, as futile, plaintiffs’

request to add a cause of action for negligent

misrepresentation. See APA II, 920 F. Supp. 2d at 90. As

with the fraudulent inducement and rescission claims, the

court held that the negligent misrepresentation claim failed

because any reliance on defendants’ alleged

misrepresentations was not reasonable. See id. We once

again reject that conclusion.

The district court, however, also found the negligent

misrepresentation count “independently barred because

plaintiffs did not ask to add it in their opposition to

defendants’ motion to dismiss, and the request now is

untimely and outside the scope of the supplemental briefing.”

APA II, 920 F. Supp. 2d at 90 n.3. We find no abuse of

discretion in that decision. See James Madison Ltd. v.

Ludwig, 82 F.3d 1085, 1099 (D.C. Cir. 1996). As the court

noted in its May 2012 order, plaintiffs asked to add only two

claims to their complaint: fraudulent inducement and

rescission. See APA I, 862 F. Supp. 2d at 10-11. Plaintiffs’

request made no mention of negligent misrepresentation. The

district court correspondingly ordered supplemental briefing

limited to fraudulent inducement and rescission. See id. In

their supplemental briefing, plaintiffs proposed a third claim

for negligent misrepresentation without seeking permission to

28

do so. Under the circumstances, the district court did not

abuse its discretion by declining to consider a proposed claim

outside the scope of the ordered briefing.

Plaintiffs, however, have not permanently relinquished

any opportunity to follow proper procedures. We thus reverse

the district court’s decision insofar as it dismissed the

negligent misrepresentation claim with prejudice. On

remand, plaintiffs may file a procedurally regular motion

requesting leave to add a negligent misrepresentation claim to

their complaint. See Fed. R. Civ. P. 15. The district court

may not deny such a motion based solely on timeliness unless

the defendants can show undue prejudice. See Foman v.

Davis, 371 U.S. 178, 182 (1962); Harrison v. Rubin, 174 F.3d

249, 253 (D.C. Cir. 1999) (“Where an amendment would do

no more than clarify legal theories or make technical

corrections, we have consistently held that delay, without a

showing of prejudice, is not a sufficient ground for denying

the motion.”).

* * * * *

For the foregoing reasons, we affirm in part and reverse

in part the district court’s orders. We reverse the dismissal of

plaintiffs’ unjust enrichment claim and the denial of plaintiffs’

request to add a fraudulent inducement claim. We affirm the

dismissal of the California-law claims as well as the denial of

plaintiffs’ requests to add claims for rescission and negligent

misrepresentation. For the negligent misrepresentation claim,

however, we reverse to the extent that the dismissal was with

prejudice. We remand for proceedings consistent with this

opinion.

So ordered.