Fraud class actions have become increasingly difficult to certify over the years as courts routinely have held that individualized issues of reliance swamp any common issues. Plaintiffs’ attorneys thus have been keen to attempt to transform fraud claims into breach of contract claims and claims under consumer protection statutes.  That approach failed miserably for plaintiffs in In re Facebook, Inc. PPC Advertising Litigation, No. C 09-3043 PJH, slip op. (N.D. Cal. Apr. 13, 2012), when the court denied class certification as it searched in vain for the purported contract and likewise held that plaintiffs’ unfair business practices claim under California’s Unfair Competition Law (“UCL”) could not be certified as it was dependent on the elusive contract.

The case centers on allegations that Facebook breached “cost-per-click” (“CPC”) contracts with its advertisers and engaged in unfair business practices by charging advertisers for illegitimate “clicks,” i.e.,  clicks that were either unintended by a Facebook user or that failed when that user attempted to get to the advertisement. 

Relying on Mazza v. American Honda Motor Co., Inc., 666 F.3d 581 (9th Cir. 2012), the court conducted a rigorous analysis of the Rule 23 criteria and held that plaintiffs could not demonstrate the predominance of common questions:  “plaintiffs have failed to establish that the terms of the contract that were allegedly breached by Facebook are part of any contract between CPC advertisers and Facebook; have failed to establish that there is any uniform method for distinguishing, on a classwide basis, between ‘invalid’ clicks (at issue in the case) and ‘fraudulent’ clicks (not at issue in the case); and have failed to establish that damages can be calculated on a classwide basis.” 

As to the contract itself, the court could not find a uniform promise that advertisers would not be charged for invalid clicks.  To the contrary, the court ruled that “[n]owhere . . . does Facebook promise that advertisers will never be billed for an ‘invalid’ click.”  With regard to differentiating between valid and invalid clicks, plaintiffs contended that their expert could devise a methodology to do so on a classwide basis.  The court rejected this approach, relying on Facebook’s expert to hold that “there is no way to conduct this type of highly specialized and individualized analysis for each of the thousands of advertisers in the proposed class.”  Finally, the court noted that while the need to determine individualized damages alone is not enough to defeat class certification, “the need for an individualized assessment of damages is a factor in the superiority analysis.”

As to the UCL claim, plaintiffs contended that their claim was predicated on a “systematic” breach of the allegedly uniform contract.  As such, the UCL claim failed for the same reasons that the breach of contract claim failed.  Further, the court held that the UCL claim could not be certified because plaintiffs could not show that all putative class members were exposed to an alleged misrepresentation and thus were harmed by virtue of unfair competition:  “[n]or would it be permissible to indiscriminately award recovery in this case for clicks that are not linked to any alleged wrongdoing….”  Rather, relying on In re Google AdWords Litig., 2012 WL 28068 (N.D. Cal. Jan. 5, 2012), the court held that “‘restitution must be supported by substantial evidence.'”

Finally, with respect to both the breach of contract and UCL claims,  the court held that because of the plethora of individualized issues at play both in terms of liability and damages, a class action was not “superior.”

The Facebook Court’s thorough analysis laid bare the faulty basis for the case – a common promise that did not exist.  The Facebook Advertiser “Click” litigation thus demonstrates the significance of courts’ renewed efforts to “rigorously” analyze whether a class can be certified.  This case is but one in the growing body of caselaw that can help defendants defeat potentially costly litigation by demonstrating the fallacy of plaintiffs’ allegations at the class certification stage.