The UCL Practitioner

Supreme Court grants review in UCL "vested interest" restitution case: Reid v. Google

Yesterday, the Supreme Court granted review in Reid v. Google, no. S158965. In that case, the Court of Appeal held (among other things) that the UCL did not permit the plaintiff to recover his unvested stock options as "restitution" in an individual action for age discrimination. Reid v. Google, Inc., 155 Cal.App.4th 1342 (2007).

Because the Supreme Court has not yet posted its statement of issues on review, we can't tell whether the Supreme Court will be reviewing the restitution issue or some other issue in the case. The Court of Appeal's opinion also addressed some interesting issues regarding summary judgment procedure, one of which might have grabbed the Supreme Court's attention. My original post on Reid v. Google is here.

New UCL public prosecutor decision: People ex rel. Gallegos v. Pacific Lumber Company

The Court's opinion in People ex rel. Gallegos v. Pacific Lumber Company, ___ Cal.App.4th ___ (Jan. 10, 2008) (First Appellate District, Division Three) contains a very interesting discussion of the interplay between the UCL and the litigation privilege of Civil Code section 47(b). The leading case on that issue is Rubin v. Green, 4 Cal.4th 1187 (1993), in which the Supreme Court held that section 47(b) created a safe harbor for litigants against private UCL claims. In Pacific Lumber, the Court of Appeal held that the safe harbor should also apply to UCL claims brought by public prosecutors. Slip op. at 5-13.

Here is the opinion, courtesy of Docstoc, which is an interesting new free service I heard about from Legal Blog Watch:

New UCL/CLRA "preclusion" decision: Wells Fargo Bank v. Superior Court

In Wells Fargo Bank v. Superior Court, ___ Cal.App.4th ___ (Jan. 25, 2008), the Court of Appeal (First Appellate District, Division One) held that "the Securities Litigation Uniform Standards Act of 1998 (Pub.L. No. 105–353 (Nov. 3, 1998) 112 Stat. 3227) (SLUSA) precludes plaintiffs’ class action complaint," which alleged UCL, CLRA and other claims. Slip op. at 1-2. The opinion explains that:

SLUSA is a preclusion provision[, rather than a preemption provision,] because it does not displace state law with federal law, but makes some state law claims nonactionable through the class action device in both federal and state courts. (See Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit (2006) 547 U.S. 71, 87 [164 L.Ed.2d 179, 193, 126 S.Ct. 1503, 1514] (Dabit).) Thus, once a court determines that SLUSA applies to a given state law action, the action cannot be maintained on a class basis in either state or federal court. (Kircher v. Putnam Funds Trust (2006) 547 U.S. 633, ___ [165 L.Ed.2d 92, ___, 126 S.Ct. 2145, 2155].)

Id. at 3 n.2. The opinion goes on:

SLUSA provides in relevant part: “Limitations on remedies [] (1) Class action limitations. [] No covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging— [] (A) a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security; or [] (B) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.” (15 U.S.C. § 78bb(f).) Congress enacted SLUSA in response to the marginal success the Private Securities Litigation Reform Act of 1995 (PSLRA) had in achieving its goal of combating strike suits and securities class actions. (See SLUSA, Pub.L. No. 105–353, § 2(1)-(5) (Nov. 3, 1998) 112 Stat. 3227; 15 U.S.C. 788bb(f).) In enacting PSLRA, Congress targeted “perceived abuses of the class-action vehicle in litigation involving nationally traded securities.” (Dabit, supra, 547 U.S. 71, 81.) However, “[r]ather than face the obstacles set in their path by [PSLRA], plaintiffs and their representatives began bringing class actions under state law,” alleging violations of state statutory or common law. (Id. at p. 82.) Subsequently, Congress passed SLUSA to prevent plaintiffs from frustrating the objectives of PSLRA. (Ibid.)

An action will be dismissed under SLUSA if it (1) is a “covered class action”; (2) is based on state law; (3) involves a “covered security”; and (4) alleges a “misrepresentation or omission of a material fact” or use of “any manipulative or deceptive device . . . in connection with the purchase or sale of a covered security.” (15 U.S.C. § 78bb(f); see, e.g., Behlen v. Merrill Lynch, supra, 311 F.3d 1087, 1092.) A “covered class action” is a lawsuit in which damages are sought on behalf of more than 50 people. (15 U.S.C. § 78bb(f)(5)(B).) A “covered security” is one traded nationally and listed on a regulated national exchange. (15 U.S.C. § 78bb(f)(5)(E).) In determining whether an alleged misrepresentation or omission “coincides” with a securities transaction, courts look at “the gravamen” – whether the complaint, as a whole, involves an untrue statement or substantive omission of a material fact, and whether that conduct coincides with a transaction involving a covered security. (Kutten v. Bank of America, N.A. (E.D.Mo., Aug. 29, 2007, Civ. No. 06-0937 (PAM)) 2007 U.S.Dist. Lexis 63897, at pp. *4–5 (Kutten).) The court focuses on the substance of the claim, not the plaintiffs’ characterization of it. (Miller v. Nationwide Life Ins. Co. (5th Cir. 2004) 391 F.3d 698, 702 [whether SLUSA applies “hinges on the context of the allegations—not on the label affixed to the cause of action”].)

Id. at 4-5. The Court then applies these rules to the case before it:

Here, it is undisputed that both the class and the mutual funds at issue are “covered” as defined by SLUSA. It is also clear from the complaint that the action is based on state law. Thus, the key question is whether the gravamen involves a misrepresentation or omission in connection with the purchase or sale of mutual funds. We conclude it does.

The essence of plaintiffs’ second amended complaint is that the Bank made misrepresentations and omitted material facts, including conflicts of interests and fees relating to the transfer of trust assets into proprietary and nonproprietary mutual funds. The complaint is replete with allegations that the Bank “failed to disclose” (i.e., omitted) details regarding fees and conflicts of interests, and that these omissions caused injury to the plaintiffs. ....

Further, each of the six causes of action hinges on harm caused by the Bank’s misrepresentations. (See Rowinski v. Salomon Smith Barney Inc. (3d Cir. 2005) 398 F.3d 294, 300 [misrepresentation prong was satisfied where the allegations of misrepresentation served as the “factual predicate” of state law causes of action].) .... The third cause of action for violation of the Consumers Legal Remedies Act and the fifth cause of action for unfair business practices contain allegations that the Bank engaged in deceptive practices in connection with its investments and trust services. .... Whether plaintiffs’ alleged omissions are couched in terms of a fiduciary duty or claims of fraud, they are, in essence, claims that the Bank misrepresented or omitted key information about the securities transactions in which they were involved, thereby causing plaintiffs’ injuries.

Id. at 7-8.

The Court concludes by holding that plaintiffs should be allowed leave to amend their complaint: "Because plaintiffs are free to pursue their claims on an individual basis, and because some of their allegations, including their allegations regarding unreasonable charges for the preparation of tax returns, are outside the scope of SLUSA, plaintiffs may amend the second amended complaint to (1) assert state claims for a group of fewer than 50 plaintiffs; or (2) exclude allegations that trigger SLUSA preclusion." Id. at 15.

New class member discovery decision: Puerto v. Superior Court (Wild Oats Markets, Inc.)

In Puerto v. Superior Court (Wild Oats Markets, Inc.), ___ Cal.App.4th ___ (Jan. 15, 2008), the Court of Appeal (Second Appellate District, Division Seven) held that the trial court abused its discretion by requiring an "opt-in" procedure before witness contact information could be released in response to Form Interrogatory 12.1. The tone of the opinion is quite interesting. It suggests that the Court of Appeal considers such discovery routine and that an opt-in procedure would never have been ordered in a smaller (i.e., a non-putative-class-action) case. For example:

Central to the discovery process is the identification of potential witnesses. .... One glance at the form interrogatories approved by the Judicial Council, particularly the interrogatories in the 12.0 series, demonstrates how fundamentally routine the discovery of witness contact information is.

Slip op. at 8. Similarly:

This is basic civil discovery. .... Nothing could be more ordinary in discovery than finding out the location of identified witnesses so that they may be contacted and additional investigation performed. .... Indeed, it is only under unusual circumstances that the courts restrict discovery of nonparty witnesses’ residential contact information.

Id. at 13. As for the impact of the size of the (putative class action) case, the Court had this to say:

To the extent that the privacy invasion appears significant here, we believe that this is an artifact of the number of individuals involved. Consider a hypothetical in which a plaintiff propounds the same form interrogatory used here to a corner grocery store with 10 employees. Counsel for that grocery store takes the same course that [the defendant] did, choosing to list all 10 employees that worked with plaintiff in response to the interrogatory. Plaintiff then seeks the addresses and telephone numbers of the 10 employees as requested in the interrogatory, and the grocery store refuses to disclose their contact information, citing privacy. We cannot imagine that any trial court would have entered a protective order requiring the plaintiff to use a third party administrator to send letters to those 10 employees informing them that they would have to consent in writing before counsel for the plaintiff could contact them. We cannot imagine a trial court entering a protective order at all under those circumstances, absent a finding of discovery abuse. Nothing is analytically different here—only the number of witnesses is changed. It appears that the large number of witnesses identified by [the defendant], rather than the actual significance of the privacy invasion with respect to each witness, may have impacted the court’s analysis. We, however, see no manner in which the mere numerosity of witnesses alters the underlying analysis of the seriousness of the intrusion on the witnesses’ privacy rights.

Id. at 15 (footnote omitted) (emphasis added). Two other points in the opinion are worth mentioning. First, the Court distinguished Pioneer Electronics (USA), Inc. v. Superior Court, 40 Cal.4th 360 (2007) based on the underlying purpose of the discovery in question, noting that percipient witnesses may not choose to decline to participate in a case:

[T]he discovery in Pioneer was precertification discovery designed to identify members of the class rather than to locate percipient witnesses, although the Supreme Court did note that some number of the potential class members would also be witnesses. This procedural distinction explains why the opt-out letter outcome of Pioneer is not necessarily appropriate here: in Pioneer, the plaintiffs were looking for people who would want to participate in the lawsuit. As pursuing litigation is a voluntary activity, an opt-out letter that offered recipients the option of participating or declining to participate was appropriate. In contrast, a percipient witness’s willingness to participate in civil discovery has never been considered relevant—witnesses may be compelled to appear and testify whether they want to or not.

Id. at 10 (emphasis added). The Court also rejected the notion that it consititues a misuse of the discovery process for plaintiffs' counsel to talk to witnesses about the claims they might have against the defendant and potentially to assist them in pursuing those claims:

[Defendant] asserts misuse of discovery because some employees whose names were provided to counsel in this manner in previous wage and hour suits filed against [defendant] have become plaintiffs in later actions. The trial court, however, did not make any express findings of abuse, as it did not issue any statement of decision, nor is discovery misuse an implied finding necessary to the court’s order. Provided that counsel observes ethical rules in interactions with prospective witnesses, “[t]o the extent that plaintiff’s attorney, on request, provides information to other claimants which causes them to ‘recognize legal problems,’ his [or her] behavior is laudable.” (Colonial Life & Accident Ins. Co. v. Superior Court (1982) 31 Cal.3d 785, 795 (Colonial Life).)

Id. at 12-13 (emphasis added). The Court concluded its analysis by approving the entry of an appropriate protective order in the trial court's discretion, but by also observing that "the procedure selected here, an opt-in letter, effectively gave more protection to nonparty witnesses’ contact information than the Discovery Act gives to much more sensitive consumer or employment records. We are aware of no logic or authority that would justify such disproportionate protection of this private but under these circumstances relatively nonsensitive information." Id. at 20. For more discussion of the opinion, see this post by Michael Walsh of Wage Law.

"Federal judge nominated to state appeals court"

Today's San Francisco Chronicle reports that U.S. District Judge Martin Jenkins has been nominated to serve on the First District Court of Appeal based in San Francisco, replacing Justice Joanne Parrilli, who recently retired. Bob Egelko, "Federal judge nominated to state appeals court," San Francisco Chronicle (Jan. 26, 2008). This is important because, according to the article, Judge Jenkins was assigned to the Wal-Mart gender discrimination case and is the judge who granted class certification in that case. Right now, after two opinions from a three-judge Ninth Circuit panel, a petition for en banc rehearing is pending. The article says that on remand the case would be assigned to a new judge.

Howard Bashman of How Appealing has posted a copy of the petition for en banc rehearing as well as a useful redline comparing the two Ninth Circuit opinions (pdf).

March 5, 2008 MCLE: "Class Action Hurdles From The Plaintiff’s Perspective"

On March 5, 2008, Consumer Attorneys of California College of Trial Arts, the San Francisco Trial Lawyers Association, and the Bar Association of San Francisco will jointly present their 2nd Annual Class Action Seminar: Class Action Hurdles From the Plaintiff's Perspective. The conference will take place from 9:00 a.m. to 2:00 p.m. at the Sir Francis Drake Hotel in San Francisco. All are welcome to register. Speakers include Alameda County Superior Court Judge Bonnie Sabraw, Arthur Bryant of Public Justice, Brad Seligman of The Impact Fund, and a number of other attorneys, including myself. I attended this conference last year and it was very good. I hope some of the readers of this blog will be able to be there.

Two Supreme Court opinions to be handed down tomorrow

The Supreme Court just announced that it will hand down two new opinions tomorrow at 10:00 a.m. While they are not strictly related to the UCL, they do sound very interesting, especially the second one, which addresses attorneys' fees under the private attorney general doctrine of Code of Civil Procedure section 1021.5:

ROSS (GARY) v. RAGINGWIRE TELECOMMUNICATIONS, INC.
S138130 (C043392 – Sacramento County Superior Court – 02AS05476)
Argued in Sacramento 11-06-07

This case includes the following issue: When a person who is authorized to use marijuana for medical purposes under the California Compassionate Use Act (Health & Saf. Code, § 11362.5) is discharged from employment on the basis of his or her off-duty use of marijuana, does the employee have either a claim under the Fair Employment and Housing Act (Gov. Code, § 12900 et seq.) for unlawful discrimination in employment on the basis of disability, or a common law tort claim for wrongful termination in violation of public policy?

ADOPTION OF JOSHUA S., A MINOR.
S138169 (D045067 – San Diego County Superior Court – JA46053)
Argued in Sacramento 11-06-07

This case presents the following issue: Was the plaintiff in a civil action that was brought to confirm the validity of a so-called second parent adoption (see Sharon S. v. Superior Court (2003) 31 Cal.4th 417) entitled to attorney fees under Code of Civil Procedure section 1021.5 for enforcing an important right affecting the public interest, when the plaintiff had a strong and significant, but nonpecuniary, individual private interest in pursuing the litigation?

When the opinions come down, they will be available at these links:

• Ross v. Ragingwire Telecommunications, Inc., ___ Cal.4th ___ (Jan. 24, 2007)

• Adoption of Joshua S., ___ Cal.4th ___ (Jan. 24, 2007)

New York decision on rights of absent class members: Wyly v. Milberg Weiss Bershad & Schulman LLP

In Wyly v. Milberg Weiss Bershad & Schulman LLP, ___ N.Y.S.2d ___, 2007 NY Slip. Op. 10506 (Dec. 27, 2007), the New York Supreme Court, Appellate Division (First Department) addressed the relationship between absent class members and class counsel. In holding that absent class members do not have the right to inspect class counsel's files, as does the client in a more traditional attorney-client relationship, the Court explained:

[I]t has been observed, by courts and commentators alike, that the relationship between appointed counsel and an absent member in a class action differs fundamentally from that found in the traditional [attorney-client] relationship (see e.g. Selection of Class Counsel, Third Circuit Task Force Report, 208 FRD 340, 347-348 [2002] ["absent class [*5]members are not individual clients. Thus, the ordinary attorney-client relationship does not exist between each class member and class counsel."]; In re Community Bank of N. Va. & Guaranty Natl. Bank of Tallahassee Second Mortgage Loan Litig., 418 F3d 277, 313 [2005] ["([c]ourts have recognized that class counsel do not possess a traditional attorney-client relationship with absent class members."]; In re J.P. Morgan Chase Cash Balance Litig., 242 FRD 265, 277 [2007] ["appointment of class counsel is an extraordinary practice with respect to dictating and limiting the class members' control over the attorney-client relationship and thus requires a heightened level of scrutiny to ensure that the interests of the class members are adequately represented and protected."]; In re Chicago Flood Litig., 289 Ill App3d 937, 942 [1997] ["attorney-client relationship is limited, however, and is different in the class context than it is in a traditional, nonclass situation"]; 2 Bus & Com Litig Fed Cts, § 16:3 2nd ed ["absent class members not only do not get to select their own counsel, but often they are unaware that their legal rights may be bartered and compromised by counsel who are not constrained by a traditional attorney-client relationship with the absent class members."]; G. Donald Puckett, Note, Peering Into a Black Box: Discovery and Adequate Attorney Representation for Class Action Settlements, 77 Tex L Rev 1271, 1291 [1999] ["[c]ourts have recognized that the class action context differs drastically from the traditional bipolar attorney-client relationship, and that salient differences make a strict application of traditional ethics rules to class representation both unwise and impractical."]; Howard W. Erichson, Beyond the Class Action: Lawyer Loyalty and Client Autonomy in Non-Class Collective Representation, 2003 U Chi Legal F 519, 524 [2003] ["in a class action, numerous plaintiffs depend upon the work of counsel with whom they have no meaningful individual lawyer-client relationship, [and] over whom they have no meaningful control . . ."]).

The United States Supreme Court, in Phillips Petroleum Co. v Shutts (472 US 797, 810-811 [1985]), succinctly addressed not only the status of an absent class action plaintiff, but also the relative detachment, and concomitant security, that characterizes that plaintiff's involvement in the litigation.

"Unlike a defendant in a normal suit, an absent class-action plaintiff is not required to do anything. He may sit back and allow the litigation to run its course, content in knowing that there are safeguards provided for his protection. In most class actions an absent plaintiff is provided at least with an opportunity to opt out' of the class, and if he takes advantage of that opportunity he is removed from the litigation entirely."

The Supreme Court further opined that:

"absent plaintiff class members are not subject to other burdens imposed upon defendants. They need not hire counsel or appear. They are almost never subject to counterclaims or cross-claims, or liability for fees or costs. Absent plaintiff class members are not subject to coercive or punitive remedies. Nor will an [*6]adverse judgment typically bind an absent plaintiff for any damages . . ." (id. at 810 [footnote omitted]).

In sum, while petitioner herein, as an absent class member in the federal action, was entitled to some of the benefits of the attorney-client relationship, such as the right to privileged communications with class counsel and the prohibition against attempts by defendants' counsel to communicate with him, he had no right to direct the course of the litigation, testify at trial, participate in discovery, or dismiss class counsel. Moreover, petitioner was free to hire his own counsel to appear in the class action if he wished to employ a traditional attorney-client relationship, although his input into the litigation would still have been curtailed, or to opt out of the class action altogether if he was unsatisfied with his limited role.

Given the above-delineated disparity in the roles, responsibilities, and potential liabilities assumed by a client in the traditional attorney-client context, as opposed to an absent class member's relationship to class counsel, and his/her status as a litigant, coupled with the potential for class counsel to be unduly burdened, even after the end of litigation, by a multitude of requests from absent class members for counsel's entire file, we reject a blanket extension of Sage Realty's presumptive-entitlement right to absent class members, and find that the better practice is to require absent class members to establish their entitlement to class counsel's file on a case-by-case basis. Petitioner, in this matter, has failed to shoulder that burden.

Slip op. at *5-*6 (hyperlink added) (citing Sage Realty Corp. v. Proskauer Rose Goetz & Mendelsohn, 91 N.Y.2d 30 (1997)). On December 28, 2007, Anthony Lin of the New York Law Journal reported on the decision: "Court Rejects Billionaire's Bid to Obtain Milberg Weiss Work Product."

"Blogging Lessons Learned"

On January 10, 2008, The National Law Journal had an article, "Blogging Lessons Learned," by Mark Herrmann, one of the two authors of Drug and Device Law. An excerpt:

Finally, the spoils: Blogging pays off.

It pays off in part by being a self-fulfilling prophecy. Whether or not you know anything about drug and device products liability law, you appear to be an expert in that field as of the day you launch the "Drug and Device Law Blog." Impressed by your expertise, and hoping that you'll mention them online, complete strangers begin sending you e-mails containing unpublished decisions, creative ideas and endless other tidbits relating to drug and device law. Eventually, your blog becomes a clearinghouse for information about the subject it covers. By staking a claim to some online turf, you gradually come to dominate that turf and to become an insider on events in that field.

Hosting a blog also raises your own personal profile. The print and broadcast media search the blogosphere for experts who can provide insights into current legal issues. If you want to be found, you must exist in the relevant world: Establish an online presence. My co-host and I have been interviewed in our year of blogging by the Wall Street Journal, The National Law Journal and countless papers in between.

Drug and Device Law also has an interesting follow-up post on the readers' and bloggers' reactions to the article. [Via Cal Blog of Appeal.]

Oral argument report: County of Santa Clara v. Superior Court (ARCO)

Yesterday, in County of Santa Clara v. Superior Court (ARCO), the Court of Appeal for the Sixth Appellate District heard oral argument on whether public entities may hire private attorneys to represent them on a contingency-fee basis. The panel consisted of Acting Presiding Justice Patricia Bamattre-Manoukian, Justice Nathan D. Mihara, and Justice Richard J. McAdams. They are the same justices who issued a prior opinion in this case, County of Santa Clara v. Atlantic Richfield Co., 137 Cal.App.4th 292 (2006).

Owen J. Clements of the San Francisco City Attorney's office presented the County's argument. Philip H. Curtis of Arnold & Porter argued on behalf of ARCO. Both of them were extremely well prepared and presented excellent arguments.

Mr. Clements began his argument by pointing out the importance of the legal question and the fact that the issue is of very great importance to public entities across the state (as borne out by his participation in the case). He characterized the question as whether public attorneys can ever retain private attorneys on a contingency-fee basis in a public nuisance case. The trial court held that there is an absolute bar, relying on Clancy (People ex rel. Clancy v. Superior Court, 39 Cal.3d 740 (1985)). But Clancy is distinguishable. The private attorney in Clancy appeared in place of the government attorneys, rather than to assist them.

Justice Bamattre-Manoukian then broke in, saying that many helpful briefs had been filed, and that there are strong policy arguments on both sides and language in Clancy that supports both sides. She pointed out that the trial court was concerned about a number of things. First, what recovery was being sought and where the money for the contingency fee would come from. Second, even if you assume there's assistance by private counsel, the briefs say that the public attorneys are going to exercise complete control over the case. The trial court said how can you ensure this? Third, even if you can ensure this, the issue in Clancy is neutrality. Shouldn't this determination be made at the end of the case? Isn't this premature?

Turning to the first issue, Justice Bamattre-Manoukian then asked what is the recovery being sought? Is the case limited to abatement [of the public nuisance]? Mr. Clements replied that no damages are being sought, but abatement can take several forms. Until abatement has actually been awarded, it's hard to say what the contingency fee might look like. He referred to a similar case pending in Rhode Island, and said that abatement was being sought there, and that there are many possibilities for what abatement might look like here. [The Rhode Island Supreme Court case cited in the briefs is State of Rhode Island v. Lead Industries Ass'n, 898 A.2d 1234 (R.I. 2006).] The common fund doctrine and the substantial benefit doctrine may also be asserted as a possible basis for fees. One possible remedy would be for this Court to send the case back to the trial court with instructions to monitor the proceedings. But don't ban at the outset an arrangement that's very helpful to the public attorneys.

Justice Bamattre-Manoukian pointed out the County's argument that they are being deprived of counsel of their choice. The law seems clear, maybe, that you can hire outside lawyers on an hourly basis. Mr. Clements said yes, that's conceded in this case, and it's an absolute necessity because not all public entities have in-house lawyers. [An aside: For a number of years in the 1980s, my dad was City Attorney of the City of Porterville. The City of Porterville had no attorneys on staff. My dad stayed with his private firm throughout his tenure as City Attorney.]

Justice Bamattre-Manoukian said that Clancy requires "absolute neutrality," and then she read a lengthy quotation from the case. Mr. Clements said that Clancy requires neutrality of the decision-maker. Justice Bamattre-Manoukian said that may or may not be "complete" or "absolute" control; it may be "what's necessary," for example, if private counsel is in court handling a hearing, making objections, etc., they're in control. Mr. Clements said yes, as they would be if they were paid by the hour. Justice Bamattre-Manoukian said, so "complete" or "absolute" control is not necessary. Clements said the concern is whether the power of the government is being used by the private attorney for private gain.

Justice McAdams pointed out what appeared to him to be an inconsistency in the County's position. The public attorneys are saying they don't have the resources or expertise to handle some of this litigation, yet on the other hand you say you're exercising complete control over the outside attorneys. Clements said that absolute control is not possible, but control that involves making strategic decisions, deciding what motions to file, what experts to retain, approving settlement terms, is possible. Those are the concerns that Clancy addresses. It's not necessary under Clancy to have "absolute" control.

Justice Bamattre-Manoukian asked, "Do you have to be present at every deposition and every hearing? What does 'control' mean?" Clements said we don't have to be omnipresent, looking over the shoulder of the outside attorneys. But we'll oversee to make sure there's no overreaching. This is all Clancy requires. It's the same thing we do with our hourly co-counsel. Our contract with the outside lawyers says so.

Justice Bamattre-Manoukian then said: You're asking us to make this statement. How do we know whether you're in compliance with Clancy until the trial court looks at the proceeding. Don't we wait until the end of the case to determine whether the public entity has exercised neutrality (and here she quoted more language from Clancy) and then let the trial court determine, if there is any recovery, whether a contingency fee would be appropriate, the amount of the fee, and whether the award is in the public interest? Clements said that's what happening in Rhode Island. That's one way to do it. This Court could overturn the trial court's ruling and say there's no absolute bar. The trial court should not assume that there will be misconduct. The rules say you don't presume that attorneys will act unethically. You wait for evidence of misconduct.

Justice Bamattre-Manoukian broke in to say we're an intermediate court. We have to follow the Supreme Court. We have one case before us. Other states are struggling with the issue of neutrality. She then quoted some more language from Clancy, saying that certain language suggested that contingency-fee arrangements are antithetical to the principle of neutrality, but that footnotes 4 and 5 suggest otherwise. Shouldn't a pronouncement on this come from the Supreme Court? Isn't it sufficient to say a determination should be made at the end of the case as to whether there's been neutrality? Shouldn't we take an intermediate position at this point?

Clements replied that he understands that might improve judicial economy and provide a better record for the Supreme Court. But he wants to argue for a higher ruling (by which he meant that the Court should go ahead and rule that there is no per se bar to contingency-fee arrangements). Later cases interpreting Clancy say that the issue is the degree of control and this is what ensures neutrality. He cited Philip Morris, Inc. v. Glendening, 709 A.2d 1230 (Md. 1988) and City and County of San Francisco v. Philip Morris, 957 F.Supp. 1130 (N.D. Cal. 1997). Justice Bamattre-Manoukian said the second one is a tort action. She said this Court can make that ruling as a matter of law, because we can't really tell right now. Clements said the trial court will always have jurisdiction to deal with it if there's evidence of misconduct. He said in the most recent case, Grass Valley [2007 U.S. Dist. LEXIS 8917], the court said look at the fee contract and see if there's any provision that constitutes an improper delegation of public power. For example, a contract that gave the private attorney the power to veto a settlement. Such a pronouncement from this Court would not preclude the trial court from keeping an eye on what's happening.

Justice Bamattre-Manoukian: Is there any statutory authority for recovery of attorneys' fees in public nuisance abatement cases? Clements: No, except equitable theories such as common fund or substantial benefit theories. Bamattre-Manoukian: There are no criminal proceedings associated with this enforcement case? Clements: No. That's a second basis on which to distinguish Clancy.

Justice McAdams then pointed out that there were First Amendment issues in Clancy. Clements said yes. The City of Corona was trying to shut down a bookstore. There was no question in that case that the city sought a prior restraint on speech. That's another way to distinguish that case from this one. Also, this case will involve no ongoing supervision of business conduct, as in Clancy. The conduct in this case has been banned by law since 1978.

Justice Mihara then spoke for the first time. You'd like us to focus on the holding of Clancy vs. other language in Clancy suggesting a broader approach. The fact that attorney James Clancy was in total control. How does that affect neutrality? This case is different, wouldn't you say? Clements caught the softball: I would say. Clancy was the only attorney who appeared. There was an undertone of vendetta against the bookstore owners. Here, we have city attorneys who are very involved. He then pointed out footnote 3 in Clancy, where the Court distinguished Sedelbauer [v. State, 455 N.E.2d 1159 (Ind. App. 1983)] on that basis.

Justice Mihara then said, reviewing the fee agreement, the facts show that the private attorneys have a subordinate role and that the public attorneys have total control, and your argument is that's perfectly acceptable because it protects neutrality. Clements: That's correct. Mihara: Looking at this case from an analytical point of view -- how the court should tackle this -- the issue in the main is the validity of the fee agreement. Clements: Yes, that's what this case is all about. The agreements have been modified to make the issue of control clearer. If there's a problem, the remedy is to modify the fee agreement rather than disqualify counsel.

Justice Mihara went on: Is there any evidence that would suggest a conflict of interest that would impede neutrality? Clements: Only the suggestion that contingency-fee arrangements inherently undermine neutrality. However, private outside counsel are ethically bound to subordinate their interests to those of their clients, the People, just like hourly attorneys. Justice Mihara: You're saying we control this case, we have outside counsel assisting us, let us try this case. If any problem comes up, opposing counsel will bring it to the court's attention. But as far as the fee agreements are concerned, there is no difficulty, and the trial court would have the opportunity to ferret out any improper exercise of control?

Clements: Yes. We have had 7 years of litigation and there is no specific evidence of bias or misconduct. There is no need to categorically bar the contingency-fee arrangement. The approach this Court is suggesting is much wiser.

Justice McAdams: What is the practical effect on the hiring of counsel if we leave this to the end of the case? Clements: That's the reason why I'm arguing for what I called a "higher ruling" -- that there's nothing wrong with this arrangement absent evidence of wrongdoing. Leaving it to the end creates more risk for the outside attorney. Of course, the outside attorney is already bearing a lot of risk, including the risk that the case will not succeed.

Justice Bamattre-Manoukian: Hourly work also creates problems. There is self-interest inherent in hourly fee relationships as well. Clements: Yes. Bamattre-Manoukian: How do you interpret footnote 3 of Clancy? Clements: It's the control that any client has to say I want you to file this suit. In Clancy the public attorney wasn't involved in those decisions. In this case we have a much higher level of control than in other cases -- strategic decisions regarding the exercise of government power are made by the public attorneys.

And that was the end of Clements' argument.

Mr. Curtis pulled no punches. The first words he said were, "The poison is already in the system. It's been in the system since those agreements were signed." He said he was pleased to hear the Court quote Clancy (and he repeated part of the quotation). There's a lot at stake here about the system. We've repeatedly heard about "private attorneys," "private attorneys," "private attorneys." The attorneys with power to bring this case are public attorneys. I disagree with the idea that Clancy contains language supporting both sides.

Justice Bamattre-Manoukian broke in with another quotation from Clancy: "Nothing we say herein should be construed as preventing the government, under appropriate circumstances, from engaging private counsel. Certainly there are cases in which a government may hire an attorney on a contingent fee to try a civil case." [Clancy, 39 Cal.3d at 748.] Curtis: I agree with that completely. The distinction is between a proprietary action vs. a representative action. [This public nuisance case is considered a "representative" action.] The rule that Clancy laid down applies to a public representative action. There are no exceptions.

Justice Bamattre-Manoukian then asked if neutrality is preserved, why should a contingency-fee agreement be precluded if the trial court addresses it at the end of the case and the trial court finds that the public attorneys retained control so as to preserve neutrality, that the interests of the public have been served, and there has been no misuse of public funds? How does it offend the sense of neutrality? There is no criminal prosecution in this case. Many counties lack resources. Some have very few staff attorneys. How does that offend Clancy?

Curtis: Clancy answered that question. The attorney argued I'm an independent contractor. The Court said "a lawyer cannot escape the heightened ethical requirements of one who performs governmental functions merely by declaring he is not a public official. The responsibility follows the job: if Clancy is performing tasks on behalf of and in the name of the government to which greater standards of neutrality apply, he must adhere to those standards." [Clancy, 39 Cal.3d at 747.] There's no "control exception" in that language. Clancy recognized the big issues in play regarding public confidence -- if the public prosecutor is tainted by personal gain that undermines public confidence. It's the agreement itself that's the problem. Clancy sets down a categorical rule that a government lawyer (and these private attorneys are government lawyers) -- if they have a financial stake in the outcome we have a very serious problem. There's no control exception.

Curtis went on: There are two foundations to Clancy. One is constitutional and the other is ethical. The constitutional foundation is in the language that's been read into the record today at pages 746-747 ("When a government attorney has a personal interest in the litigation, the neutrality so essential to the system is violated." [Clancy, 39 Cal.3d at 746]) and also in the four cases the Clancy Court cited. All four are constitutional authorities.

Justice Bamattre-Manoukian interjected: All of those cases have facts distinguishable from the facts we have here. Curtis: Clancy says those cases are not to be distinguished. Clancy is the controlling authority and says those distinctions don't matter. Toomey [phonetic] makes clear that the United States Supreme Court recognizes that there's a difference between some types of biases and the government officer having a personal financial stake in the outcome. Clancy says the first type of bias might be tinkered with by the Legislature but the other can't be. "The responsibility follows the job." [Clancy, 39 Cal.3d at 747.]

Justice McAdams: How is this different from any other contingency-fee contract? Curtis: The difference is who the client is. That's a good way to turn to the ethical strain in Clancy. The client is the sovereign; it has a duty to ensure justice is done. This means its agents can't have a personal financial stake in one side or another. Not even twelve dollars or twenty-five dollars. In Rhode Island, the plaintiffs are seeking billions of dollars in relief and they're going to try to get their fees out of it. The issue is going to the court right now. Briefing is about to be submitted [he might have said already submitted; can't recall].

Curtis continued: There is no "supervision exception" in Clancy. It's been made from whole cloth in these other cases, which were either not public nuisance cases or wrongly decided. The question came up of what use Clancy made of Sedelbauer. He said the issue the Court was addressing was how the case should be styled under the Code of Civil Procedure. They were saying it should be brought in the name of the District Attorney. In footnote 3, the Sedelbauer footnote, the Court was grasping at straws. It cited an Indiana case. It's inconceivable that the Court was articulating a "supervision exception" in footnote 3 because on page 750 the Court says that on remand the case must be styled "People ex. rel [District Attorney] Dallas Holmes" -- it's okay for Holmes to hire Mr. Clancy. [The language from Clancy reads: "Thus on remand the action herein should be brought in the name of Dallas Holmes, the Corona City Attorney. The City may hire Clancy to represent Holmes. (Gov. Code, § 37103.)." Clancy, 39 Cal.3d at 750 n.5.]

Curtis went on: The Court understood perfectly well what a towering principle it was dealing with. We will have a neutral judge and neutral public lawyers. This does not mean the lawyers can have a profit stake without running afoul of the ethics rules.

Justice McAdams then referred to some of the language in ARCO's brief: "incentive to maximize the monetary award by any means possible." You argue that the mere existence of the contingency-fee agreement creates this incentive. How would the private attorney do this if their actions are being controlled by the public attorney? [An aside: I thought it was interesting at this point that Justice McAdams continued to refer to the outside lawyer as a "private attorney," despite Curtis' argument that a private attorney acting on behalf of a government entity becomes a "public attorney."] How does it play out as a practical matter?

Curtis said that no court will ever be in the conference room where strategy decisions are made. We're never going to know where there's an impact. The attorneys with billions of dollars at stake are not going to be potted plants. For example, there has been some success in cases dealing with childhood lead exposure. [This case involves "the public nuisance created by lead paint." County of Santa Clara, 137 Cal.App.4th at 298.] A neutral might not think it's a good idea to hire thousands of workers to abate every single one. There are lots of different ways that influence can be brought to bear. In the Louis Vuitton case, the court rejected a "harmless error" argument. It said we're dealing with a fundamental, systemic problem. We don't look at harmless error. In the federal system, for a public prosecutor to have a financial interest in a prosecution is "a go-to-jail offense." Those exercising the government's discretion may not have a financial interest in the outcome.

Justice McAdams said but couldn't the same argument be made by the hourly attorney -- who's no shrinking violet -- saying to the meek public attorney, let's not settle this case; let's go all the way. Curtis said of course. Hourly retentions have conceivably some issue. But what's so troublesome about the contingency-fee arrangement is that it depends on the outcome as to the defendant. Clancy and other authorities say it's so erosive to our system of law and government that we're not going there. We understand that the risk of influence, and the public perception of the risk of influence, is too overwhelmingly great.

Justice Bamattre-Manoukian then asked Curtis the same question she asked Clements: Is there any statutory authority for fees in a public nuisance case? Curtis said what they're asking for is common fund -- it's mentioned in the agreements. These attorneys are not in the business of working for free. That's why this is not premature. You're entitled to neutrality from the beginning of the case.

Justice Bamattre-Manoukian then said: What about the Rhode Island case where they decided to wait? (And she read a quotation from the Rhode Island case.) Curtis said: I think the Rhode Island Supreme Court got it wrong. I think the United States Supreme Court and the California Supreme Court got it right. Rhode Island chose not to recognize the principle. Go back to Clancy and look at how the court dealt with Sedelbauer.

At this point, Mr. Curtis spent quite a while parsing the County's writ petition (specifically, pages 29-31) and basically arguing that the petition misrepresented the holding of Clancy. He concluded that part of his argument by emphasizing "the principles upon which the Clancy opinion was based -- constitutional and ethical principles. If you're acting on behalf of the government, you must act with neutrality. Clancy controls. The trial court got it right. This is a problem that has to be nipped in the bud."

From the tone of his voice, that sounded like the end of his argument. But no, there were more questions. (The same thing happened near the end of Clements' argument.)

Justice Bamattre-Manoukian said what about cases where small counties have no funds to pursue these cases? Pursuing the case is in the public interest, but the only way they can pursue it is if private lawyers step up. You would say to them that Clancy precludes that? Curtis replied, We've got to decide the case before us. This case involves ten counties. They have hundreds of employees and budgets that add up to billions. But even in your more extreme case, the constitution and ethics cannot give way there. When an attorney exercises government power, that government attorney cannot have a financial stake in the outcome against the defendant.

Justice Bamattre-Manoukian then summarized the Court's three options for disposing of the case. First, the Court could affirm, which would likely lead to further review before the Supreme Court. Second, the Court could remand for the issue to be resolved by the trial court at the end of the case. Mr. Curtis jumped in to say that that is contrary to Clancy and "the federal constitutional authorities I've cited." Justice Bamattre-Manoukian then said that the Court's third option is to hold that the trial court didn't get it right, and instruct that court to monitor the case. Curtis objected to that proposal by saying that if there are exceptions to Clancy (which is what such a holding would imply), it's for the California Supreme Court to identify them.

And that was the end of his argument.

On rebuttal, Mr. Clements said Mr. Curtis was advancing a reading of Clancy as an absolute, categorical rule. That's not the holding of Clancy. It's the job of courts to look at cases and distinguish them. Clancy is distinguishable.

Justice Bamattre-Manoukian said that footnote 5 of Clancy says you can hire Mr. Clancy back, but presumably on an hourly basis. Mr. Clements replied that you'd still have an issue regarding delegating authority on an hourly basis. They're inferring a lot from footnote 5. Footnote 5 relates to how the case should be captioned. Bamattre-Manoukian: But it does seem a little inconsistent with their holding, which was to disqualify Mr. Clancy. Justice Bamattre-Manoukian and Mr. Clements then talked back and forth about the fact that the footnote doesn't specify hourly vs. contingency nor does it specify whether Mr. Clancy could be hired as the sole attorney for the DA, as opposed to working in a co-counsel capacity with the DA. Mr. Clements said that no court has extended Clancy as an absolute rule that applies when private attorneys are co-counseling and assisting public attorneys and when the public attorneys retain control.

Justice Bamattre-Manoukian said that there were no California cases that address the issue at all. Clements said that the Grass Valley case, which is the opinion of a federal district court in California, did. He also cited the "interest of justice" provision in Code of Civil Procedure section 128 [which relates to the trial court's power to control the proceedings before it] and a case called People of Santa Monica, which recognized a balancing test.

Responding to Curtis' argument that the Court should decide just the case before it, Clements said this is a case that will make a rule for all. It will affect all public entities including those who don't have an in-house attorney. There's a public interest in deciding issues on the merits, especially in a case like this.

Clements went on: You need actual evidence of improper bias or violation of ethical duties, and there's none of that in this case after seven years. The order should be that the trial court got it wrong and the rule should be that contingency-fee agreements are acceptable if the agreement preserves the government attorney's control. Justice Bamattre-Manoukian broke in: It's not really "misconduct," is it? Rather, it's neutrality and control. Clements replied that "excessive delegation" might be a better way to put it. There are five lines of defense here. The first line of defense is the ethical duty of all attorneys. Courts do not assume that attorneys are going to breach their ethical duties. The second line of defense is the public officials who will be supervising the private lawyers. The law presumes that public officials discharge their duties. Third, the fee contracts have been approved by the public entities, here, the Board of Supervisors. Fourth, able defense counsel are on the watch. And fifth, the trial court will take action if any evidence of excessive delegation arises.

That was the end of the argument. As I mentioned early this morning, my sense at the conclusion of the argument was that the justices were leaning in favor of the County's position. I think they will either adopt the County's legal argument, or remand for the trial court to consider, at the end of the case, whether the government attorneys exercised sufficient control throughout the litigation so as to make an award of contingency fees proper. Either result would be a victory for the County. An opinion will be due by mid-April.

Yesterday's oral argument: County of Santa Clara v. Superior Court (ARCO)

I attended yesterday's argument in County of Santa Clara v. Superior Court (ARCO) and will put up my report later today. For now, suffice it to say that the presentations were excellent and that the justices' comments suggest that they are leaning in favor of the County's position.

Oral argument preview: County of Santa Clara v. Superior Court (ARCO)

This morning at 9:30, the Court of Appeal for the Sixth Appellate District will hear oral argument in County of Santa Clara v. Superior Court (ARCO), no. H031540. In this case, the issue is whether a public prosecutor may hire private outside counsel to represent it on a contingency-fee basis. Barry Barnett of Blawgletter has an interesting post on some of the practical ramifications of the case.

I'm planning to attend the argument and will provide a report most likely tomorrow. Meanwhile, here are the trial court's order and some of the appellate briefs:

• Petition for Writ of Mandate (filed 05/11/07)
  

• Return by Real Parties in Interest to Petition for Writ of Mandate (filed 07/30/07)
  

• Petitioners' Reply to Real Parties' Return (filed 08/20/07)
  

• Amici Curiae Brief of the California State Association of Counties and the League of California Cities (filed 08/29/07)
  

• Amicus Curiae Brief of the Association of California Water Agencies (filed 08/29/07)
  

• Amici Curiae Brief of Public Justice, P.C., Healthy Children Organizing Project, and Western Center for Law and Poverty (filed 08/29/07)
  

• Amici Curiae Brief of the Chamber of Commerce of the United States and the American Tort Reform Association (filed 08/29/07)
  

• Amicus Curiae Brief of American Chemistry Council (filed 09/10/07)
  

• Real Parties' Response to Amici Curiae Briefs of (a) Association of California Water Agencies and (b) Public Justice, P.C., Healthy Children Organizing Project, and Western Center for Law and Poverty (filed 09/13/07)
  

• Petitioners' Response to Amicus Curiae Brief of American Chemistry Council (filed 09/25/07)
  

Many thanks, again, to Santa Clara County Counsel Ann Miller Ravel for providing copies of these briefs.

A new firm for the new year!

After six years with The Furth Firm LLP, I have decided to explore new opportunities! I have joined another San Francisco plaintiffs' class action firm, Schubert & Reed LLP, as a partner. I'm very excited about this opportunity and am looking forward to working with my new partners, Bob Schubert, Justice Reed, Willem Jonckheer, and Miranda Kolbe, all of whom have deep experience handling plaintiff-side class actions. I will continue to work on antitrust, employment and consumer class actions, and what's more, I also hope to expand my practice. I look forward in particular to the possibility of doing more work with some of the readers of this blog!

In an article in today's Recorder, "S.F. Firm Gets First Lateral" (subscription), Petra Pasternak reports:

Kimberly Kralowec built her reputation as an authority on Proposition 64 by blogging about unfair competition law. But the plaintiff lawyer didn't work much on the UCL during her six years at the Furth Firm in San Francisco, where she was of counsel. Although the connections she developed through her blog led to offers to co-counsel on matters like employment and consumer-fraud class actions, Kralowec couldn't accept them.

At the Furth Firm she primarily worked on antitrust cases, a mainstay there. .... "When I started to get my own business opportunities, I just wasn't able to follow up with them in the way I'd like to."

Kralowec was ready to open her own firm, but when a friend connected her with Schubert & Reed, she saw a fit. On Jan. 28 she'll join the small San Francisco plaintiff shop, established in 1996, as its first-ever lateral partner.

I will, of course, continue to maintain this blog, and I will also continue my other writing activities such as my Forum magazine column. I will be taking a short vacation between firms, but will continue to blog and check my email (uclpractitioner@gmail.com) during this period. My next post will be on Thursday, in anticipation of the oral argument in County of Santa Clara v. Superior Court (ARCO), no. H031540 (Sixth Appellate District). Last but not least, I want to thank my readers for your continued support and enthusiasm over the years!

Here is my new contact information (effective January 28, 2008):

Kimberly A. Kralowec, Esq.
Schubert & Reed LLP
Three Embarcadero Center, Suite 1650
San Francisco, CA 94111
Telephone: (415) 788-4220
Facsimile: (415) 788-0161
Email address: uclpractitioner@gmail.com

Supreme Court expresses potential interest in UCL "injury in fact" case: Buckland v. Threshold Enterprises, Ltd.

On January 3, 2008, the Supreme Court granted itself an extension of time, through February 1, 2008, to grant or deny review in Buckland v. Threshold Enterprises, Ltd., no. S157919. In Buckland, the Court of Appeal (Second Appellate District, Division Four) held that the plaintiff failed to adequately allege post-Prop. 64 standing because she could not allege actual reliance. The discussion of Prop. 64's "injury in fact" language is extensive. Buckland v. Threshold Enterprises, Ltd., 155 Cal.App.4th 798 (2007). My original post on Buckland is here.

Given the apparent overlap in issues, it would not be surprising to see a "grant and hold" order in this case pending resolution of In re Tobacco II Cases. In light of the Supreme Court's conference schedule, as a practical matter review will have to be either granted or denied no later than the conference on January 30. A depublication request was also filed.

UPDATE: On January 16, 2008, the Supreme Court denied review and depublication.

New UCL "injury in fact" decision: Hall v. Time Inc.

In Hall v. Time Inc., ___ Cal.App.4th ___ (Jan. 8, 2007 2008), the Court of Appeal (Fourth Appellate District, Division Three) construed Prop. 64's "injury in fact" language and held that "causation" must also be pleaded to meet Prop. 64's standing requirement. Respecting "injury in fact," the Court explained:

Few cases since Proposition 64’s passage have directly addressed what constitutes injury in fact or loss of money as a result of unfair competition for purposes of determining standing. Cases decided since Proposition 64 changed the language of Business and Professions Code section 17204 have concluded a plaintiff suffers an injury in fact for purposes of standing under the UCL when he or she has:

(1) expended money due to the defendant’s acts of unfair competition (Aron v. U-Haul Co. of California (2006) 143 Cal.App.4th 796, 802 803 [plaintiff alleged he was required to purchase excess fuel when returning rental truck]; Monarch Plumbing Co. v. Ranger Ins. Co. (E.D.Cal., Sept. 25, 2006, No. Civ. S 06 1357) 2006 U.S.Dist. Lexis 68850, *20 [plaintiff alleged he paid higher insurance premiums because of defendant insurer’s settlement policies]; Witriol v. LexisNexis Group (N.D.Cal., Feb. 10, 2006, No. C05 02392) 2006 U.S.Dist. Lexis 26670, *18 19 [plaintiff incurred costs to monitor and repair damage to his credit caused by defendants’ unauthorized release of private information]; Southern Cal. Housing v. Los Feliz Towers Homeow. (C.D.Cal. 2005) 426 F.Supp.2d 1061, 1069 [housing rights center lost financial resources and diverted staff time investigating case against defendants]; Laster v. T Mobile USA, Inc. (S.D.Cal. 2005) 407 F.Supp.2d 1181, 1194 [defendants advertised cellular phones as free or substantially discounted when purchased with cellular telephone service, but plaintiffs were required to pay sales tax on the full retail value of the phones]);

(2) lost money or property (Huntingdon Life Sciences, Inc. v. Stop Huntingdon Animal Cruelty USA, Inc. (2005) 129 Cal.App.4th 1228, 1240, 1262 [plaintiff’s home and car were vandalized by animal rights protestors]); or

(3) been denied money to which he or she has a cognizable claim (Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 269-270, 285, fn. 5 [insurance company paid insured’s medical bills, then sued to recover that money when insured collected damages from the third party who caused his injuries; insured had standing to bring UCL claim against insurance company]; Starr Gordon v. Mass. Mut. Life Ins. Co. (E.D.Cal., Nov. 7, 2006, No. Civ. S 03 68) 2006 U.S.Dist. Lexis 83110, *1, *18 19 [plaintiff challenged the process by which defendant terminated her disability benefits]).

In this case, Hall did not allege he suffered an injury in fact under any of these definitions. He expended money by paying Time $29.51—but he received a book in exchange. He did not allege he did not want the book, the book was unsatisfactory, or the book was worth less than what he paid for it.

Slip op. at 8-9. In discussing "causation," the Court explained in a footnote that:

We use the word “causation” to refer both to the causation element of a negligence cause of action (Ladd v. County of San Mateo (1996) 12 Cal.4th 913, 917), and to the justifiable reliance element of a fraud cause of action (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974). In a fraud case, justifiable reliance is the same as causation, thus, “[a]ctual reliance occurs when a misrepresentation is ‘“an immediate cause of [a plaintiff’s] conduct, which alters his legal relations,”’ and when, absent such representation,” the plaintiff “‘“would not, in all reasonable probability, have entered into the contract or other transaction.”’” (Engalla v. Permanente Medical Group, Inc., supra, 15 Cal. 4th at p. 976; see Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 1092 [“specific pleading is necessary to ‘establish a complete causal relationship’ between the alleged misrepresentations and the harm claimed to have resulted therefrom”].) Cases construing the Proposition 64 amendments to the UCL often use the terms “causation” and “reliance” together or interchangeably. (E.g., Laster v. T Mobile USA, Inc., supra, 407 F.Supp.2d at p. 1194.)

Slip op. at 9-10 n.2.

The Court then cited three federal district court decisions, but no California appellate decisions, to construe causation/reliance in the UCL context. Id. at 10-12 (citing Cattie v. Wal-Mart Stores, Inc. 504 F.Supp.2d 939 (S.D. Cal. 2007); Brown v. Bank of America, N.A., 457 F.Supp.2d 82 (D. Mass. 2006); Laster v. T Mobile USA, Inc., 407 F.Supp.2d 1181 (S.D. Cal. 2005)). This is probably because the Supreme Court has taken up most of the California decisions addressing UCL reliance, making them uncitable under Rule of Court 8.1105(e)(1). It could also be that we are seeing more UCL cases in federal court due to CAFA. The Court also distinguished Anunziato v. eMachines, Inc., 402 F.Supp.2d 1133 (C.D. Cal. 2005), on which the plaintiff relied. Slip op. at 13.

In conclusion, the Court held that "the representative UCL plaintiff must plead he or she suffered an injury in fact caused by, or in justifiable reliance on, the alleged acts of unfair competition"; that the plaintiff's allegations "did not satisfy the injury in fact and causation requirements either expressly or by reasonable inference"; and that the trial court properly denied leave to amend the complaint. Id. at 14 (emphasis added).

"Private AGs Watching Fate of Expert Fees"

Yesterday's Recorder had an article on a case to be argued today in the California Supreme Court addressing whether expert witness fees, in addition to attorneys' fees, are recoverable under the private attorney general doctrine of Code of Civil Procedure section 1021.5. Mike McKee, "Private AGs Watching Fate of Expert Fees" (Jan. 8, 2007) (subscription).

The case in which this issue has been raised is Olson v. Automobile Club of Southern California, no. S143999. The Court of Appeal (Second Appellate District, Division Two) held that section 1021.5 did not authorize recovery of expert witness fees:

Only one reported decision, Beasley v. Wells Fargo Bank (1991) 235 Cal.App.3d 1407, 1421 [1 Cal.Rptr.2d 459] (Beasley), permits the award of expert witness fees under section 1021.5 for experts not ordered by the court. We disagree with Beasley, as its conclusion is contrary to the plain statutory language and legislative intent, and its reasoning is unpersuasive.

Olson v. Automobile Club of Southern California, 139 Cal.App.4th 552 (2006) (review granted 07/26/06).

UCL decision from last May: Overstock.com, Inc. v. Gradient Analytics, Inc.

Somehow I missed the Court of Appeal's opinion in Overstock.com, Inc. v. Gradient Analytics, Inc., 151 Cal.App.4th 688 (2007), which the First Appellate District, Division Four handed down on May 30, 2007.

Overstock.com was decided in the context of an anti-SLAPP motion and contains several noteworthy rulings relating to the UCL. First, the Court of Appeal determined that conduct "likely to deceive a reasonable consumer" was actionable under the UCL even if the reasonable consumer is someone other than the plaintiff — in this case, potential investors in the plaintiff's stock. Overstock.com, 151 Cal.App.4th at 714.

Second, the Court of Appeal determined that securities transactions are not excluded from the UCL's coverage, declining to follow Bowen v. Ziasun Technologies, Inc., 116 Cal.App.4th 777 (2004), on this point:

"The UCL contains no language supporting an exclusion for securities, and under the plain language of the UCL, we cannot create such an exclusion." .... Indeed the sweeping language of the UCL is intended " ' to permit tribunals to enjoin on-going wrongful business conduct in whatever context such activity might occur.' "

Id. at 715-16 (quoting Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th. 163, 181 (1999); Roskind v. Morgan Stanley Dean Witter & Co., 80 Cal.App.4th 345, 355 (2000)). (For more discussion of the UCL and securities claims, see this blog post.)

The Court also noted that "the California UCL contains no directive to interpret our consumer protection statute consistently with the FTC Act." Id. at 715. This holding tends to undermine Camacho v. Automobile Club of Southern California, 142 Cal.App.4th 1394, 1403 (2006), in which the Court of Appeal relied on the FTC Act in adopting a third formulation of the UCL's "unfair" prong.

Finally, the Court of Appeal held that the plaintiff satisified the Prop. 64 "injury in fact" requirement by alleging that the defendant's unfair, unlawful and fraudulent conduct "result[ed] in diminution in value of its assets and decline in its market capitalization and other vested interests. This meets the statutory requirement of 'injury in fact' resulting from defendants' misconduct." Overstock.com, 151 Cal.App.4th at 716. This holding is directly contrary to at least one federal decision, Walker v. USAA Casualty Ins. Co., 474 F.Supp.2d 1168 (E.D. Cal. 2007), in which the court held that to qualify as "injury in fact," the monetary loss must also be recoverable as "restitution" under the UCL. As I have explained before, that holding seemed to me contrary to the plain language of Prop. 64, and Overstock.com confirms this.

Op-Ed by Chief Justice George: "Reform death penalty appeals"

Chief Justice Ronald M. George has an op-ed piece in today's Los Angeles Times, "Reform death penalty appeals." Of interest to those of us who practice in the civil arena:

California's Supreme Court issues 110 to 115 opinions annually, almost twice as many as the U.S. Supreme Court. Typically, these include more than 20 capital appeals. (Another 30 capital-case-related habeas corpus matters also are disposed of each year.) Yet this is only a small portion of the cases that are awaiting our attention. At the moment, nearly 400 capital appeals are pending before the court, about 80 of which are fully briefed and ready for oral argument and decision. About 130 non-death-penalty cases presenting important civil and criminal issues also are pending, 80 of them fully briefed, and the court selects additional cases for review at almost every weekly conference. Only if the state Supreme Court were to defer these other cases could it more quickly address the backlog of capital appeals -- and even then, new death penalty appeals and new legal issues requiring review would continue to pour into the system.