The UCL Practitioner

New UCL class certification decision: Davis-Miller v. Automobile Club of Southern California

In Davis-Miller v. Automobile Club of California, ___ Cal.App.4th ___ (Oct. 26, 2011; pub. ord. Nov. 22, 2011), the Court of Appeal (Second Appellate District, Division Three) affirmed an order denying class certification of UCL and CLRA claims.

The case might be described as a twelfth post-Tobacco II class certification decision.  (See my prior blog posts, "Nine post-Tobacco II decisions" and "A tenth post-Tobacco II opinion.")  Not surprisingly, the court relied heavily on Pfizer and Vioxx, decided by the same Division. 

The eleventh post-Tobacco II decision in the series is Knapp v. AT & T Wireless Services, Inc., 195 Cal.App.4th 932 (Apr. 25, 2011; pub. ord. May 20, 2011) (Fourth Appellate District, Division Three).   I mentioned Knapp very briefly in a post in July.  There, the panel relied heavily on Cohen v. DIRECTV, Inc., 178 Cal.App.4th 966 (2009), in affirming the denial of class certification.  A petition for review was filed in June and denied in August (no. S193539). 

New Ninth Circuit UCL standing and preemption decision: Degelmann v. Advanced Medical Optics Inc.

In Degelmann v. Advanced Medical Optics Inc., ___ F.3d ___ (9th Cir. Sept. 28, 2011), the defendant's contact lens solution, Complete MoisturePlus, was inferior to other brands because it created an enhanced risk of contracting a certain type of serious eye infection.   Two consumers who bought the solution filed suit under the UCL and FAL, alleging that the defendant misrepresented the solution's efficacy as a contact lens disinfectant and that they wouldn't have bought the solution if they had known.   Slip op. at 18562-63.

The district court (Judge Hamilton) granted the defendant's summary judgment motion and dismissed the action for lack of standing.  Id. at 18563. 

The Ninth Circuit reversed.  Citing Kwikset Corp. v. Superior Court, 51 Cal.4th 310 (2011), it rejected the argument that the plaintiffs lost no money because they necessarily would have bought some other solution instead:

Here, as in Kwikset, the plaintiffs allege that they paid more for a product due to reliance on false advertising. The district court in this case was likely correct that [plaintiffs] would have bought other contact lens solution had they not purchased MoisturePlus. However, as elucidated by the Kwikset court’s discussion, it does not necessarily follow that they did not suffer economic harm. [Plaintiffs] presented evidence that they were deceived into purchasing a product that did not disinfect as well as it represented. Had the product been labeled accurately, they would not have been willing to pay as much for it as they did, or would have refused to purchase the product altogether. The district court’s reasoning—that class members would have bought other contact lens solution, and therefore suffered no economic harm—conceived of injury in fact too narrowly.

Slip op. at 18565 (footnote omitted). 

In a footnote, the panel distinguished a pre-Kwikset decision, Birdsong v. Apple, Inc., 590 F.3d 955 (9th Cir. 2009):

The inquiry into injury in fact in this case, where the class makes claims under both the UCL’s fraud prong and the FAL, is not controlled by Birdsong v. Apple, Inc., 590 F.3d 955 (9th Cir. 2009). In that case, purchasers of iPod headphones pursued a claim under the UCL’s “unfair” and “unlawful” prongs, asserting that listening to loud music on the headphones could result in hearing loss. They did not allege economic harm from having purchased headphones in reliance on false advertising, but rather claimed that the inherent risk of the headphones reduced the value of their purchase and deprived plaintiffs of the benefit of their bargain. Id. at 961. The court in that case found that the claim of economic harm was not sufficient to plead injury in fact in part because, in distinct contrast to the MoisturePlus labeling at issue in this case, Apple had not represented that the headphones were safe at high volume. Rather, “Apple provided a warning against listening to music at loud volumes.” Id. Because there is allegedly false labeling and advertising at issue in this case, Birdsong does not aid our disposition here.

Slip op. at 18565-66 n.1.

The opinion goes on to find the claims preempted by the the federal Food, Drug, and Cosmetic Act (21 U.S.C. § 360k(a)).  Id. at 18566-70.

Interesting Ninth Circuit comment on UCL vs. Article III standing: TrafficSchool.com, Inc. v. Edriver Inc.

TrafficSchool.com, Inc. v. Edriver Inc., ___ F.3d ___ (9th Cir. Jul. 28, 2011), is primarily a Lanham Act decision.  However, the Ninth Circuit had this to say about UCL and Article III standing:

The district court found that plaintiffs “failed to prove . . . that they have suffered an injury in fact and lost money or property as a result of Defendants’ actions,” and that they “provided no evidence showing a causal connection between Defendants’ actions and any harm Plaintiffs incurred.” Defendants argue that this finding divested the district court of jurisdiction, and also that plaintiffs lacked standing under the Lanham Act.  The latter contention is wrong because a false advertising plaintiff need only believe that he is likely to be injured in order to bring a Lanham Act claim. 15 U.S.C. § 1125(a). Moreover, the district court made its findings of no injury when it analyzed plaintiffs’  state-law unfair competition claim. These findings conclusively establish that plaintiffs didn’t have standing to bring their state-law claim; but, because California’s unfair competition law defines “injury in fact” more narrowly than does Article III, the findings don’t necessarily preclude Article III standing. See Cal. Bus. & Prof. Code § 17204.1

1 Plaintiffs filing an unfair competition suit must prove a pecuniary injury, Hall v. Time Inc., 70 Cal. Rptr. 3d 466, 470-71 (Cal. Ct. App. 2008), and “immediate” causation, In re Tobacco II Cases, 207 P.3d 20, 40 (Cal. 2009). Neither is required for Article III standing.

Slip op. at 9740-41 & n.1. 

Decisions of interest from April and May 2011

The Court of Appeal and Ninth Circuit handed down the following decisions in April and May (listed in reverse chronological order by publication date):

Folgelstrom v. Lamps Plus, Inc., 195 Cal.App.4th 986 (Apr. 29, 2011; pub. ord. May 20, 2011; mod. Jun. 7, 2011) (Second Appellate District, Division Five) (affirming dismissal of UCL claim for lack of Prop. 64 standing; reversing dismissal of Song-Beverly Act claim, following Pineda v. Williams-Sonoma)

Knapp v. AT & T Wireless Services, Inc., 195 Cal.App.4th 932 (Apr. 25, 2011; pub. ord. May 20, 2011) (Fourth Appellate District, Division Three) (affirming order denying class certification of UCL, CLRA and fraud claims, which suffered from Kaldenbach problems)

Archer v. United Rentals, Inc., 195 Cal.App.4th 807 (May 19, 2011; mod. Jun. 13, 2011) (Second Appellate District, Division One) (affirming dismissal of UCL claim for injunctive relief for lack of Prop. 64 standing; reversing order denying class certification of Song-Beverly Act claim, following Pineda v. Williams-Sonoma)

People ex rel. Harris v. Pac Anchor Transportation, Inc., 195 Cal.App.4th 765 (May 18, 2011) (Second Appellate District, Division Five) (reversing dismissal of public prosecutor action in which the Attorney General's office employed the UCL's "unlawful" prong to pursue the defendant for wage and hour violations, holding that the FAA Authorization Act did not preempt the claims)

Marlo v. United Parcel Service, Inc., 639 F.3d 942 (9th Cir. Apr. 28, 2011) (affirming order decertifying class in wage & hour misclassification case)

Starbucks Corp. v. Superior Court (Lords), 194 Cal.App.4th 820 (Apr. 25, 2011) (Fourth Appellate District, Division Three) (reversing order permitting discovery of class list by putative class representatives who lacked standing)

New UCL standing decision: Bower v. AT&T Mobility

In Bower v. AT&T Mobility, LLC, ___ Cal.App.4th ___ (Jun. 29, 2011), the Court of Appeal (Second Appellate District, Division One) addressed UCL standing and applied the Supreme Court's decision in Kwikset Corp. v. Superior Court (Benson), 51 Cal.4th 310 (2011).

Kwikset and Tobacco II footnotes

I'm sure everyone is well aware of famous footnote 17 in Tobacco II:

We emphasize that our discussion of causation in this case is limited to such cases where, as here, a UCL action is based on a fraud theory involving false advertising and misrepresentations to consumers. The UCL defines "unfair competition" as "includ[ing] any unlawful, unfair or fraudulent business act or practice . . . ." (§ 17200.) There are doubtless many types of unfair business practices in which the concept of reliance, as discussed here, has no application.

In re Tobacco II Cases, 46 Cal.4th 298, 325 n.17 (2009) (emphasis added).  The example I like to use of a UCL case in which "the concept of reliance ... has no application" is an "unlawful" prong case predicated on a Labor Code violation.  Either the defendant calculated the overtime rate correctly or it did not.  The class members' reliance, or lack thereof, is irrelevant to the named plaintiff's standing (and to the violation). 

Kwikset has a similar footnote:

While plaintiffs also allege unlawful conduct, in that Kwikset violated Business and Professions Code sections 17500 and 17533.7 and Civil Code section 1770, subdivision (a)(4), these statutory provisions simply codify prohibitions against certain specific types of misrepresentations. The theory of the case is that Kwikset engaged in misrepresentations and deceived consumers. Thus, our remarks in In re Tobacco II Cases, supra, 46 Cal.4th 298, concerning the cause requirement in deception cases, are apposite. (See Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1363 [“[T]he reasoning of Tobacco II [concerning the cause requirement] applies equally to the ‘unlawful’ prong of the UCL when, as here, the predicate unlawfulness is misrepresentation and deception.”]; Hale v. Sharp Healthcare, supra, 183 Cal.App.4th at p. 1385 [In re Tobacco II Cases’ discussion of causation applies equally to unlawful UCL claims based on misrepresentation].) As in In re Tobacco II Cases, at page 325, footnote 17, we need express no views concerning the proper construction of the cause requirement in other types of cases.

Kwikset Corp. v. Superior Court (Benson), 51 Cal.4th 310, 2011 WL 240278, *8 n.9 (2011) (emphasis added).  The opinion's approval of Durell and Hale on this point is interesting, but I think my Labor Code example remains apt. 

New federal UCL standing decision: Webb v. Carter's, Inc.

Many thanks to the multiple readers who emailed me about a new federal standing decision, Webb v. Carter's, Inc., ___ F.R.D. ___, 2011 WL 343961, 2011 U.S. Dist. LEXIS 12597 (C.D. Cal. Feb. 3, 2011). 

In Webb, District Judge Gary Allen Feess of the Central District of California held that in federal court, all class members must meet Article III's standing requirements:

Before considering whether Plaintiffs' proposed classes meet the requirements of Federal Rule of Civil Procedure 23, the Court must determine whether the members of the proposed class have Article III standing. Although there is no controlling authority requiring absent class members, as opposed to the named plaintiffs, to satisfy Article III's standing requirements, the Court is persuaded by authority indicating that they must. In Burdick v. Union Security Insurance Co., Judge Collins concluded that absent class members, like the class representatives, must have standing. Burdick v. Union Sec. Ins. Co., 2009 WL 4798873, *3 (C.D.Cal. Dec.9, 2009). In reaching this conclusion, Judge Collins pointed to the Supreme Court's decision in Reno v. Catholic Social Services, Inc., 509 U.S. 43, 113 S.Ct. 2485, 125 L.Ed.2d 38 (1993), which allows the federal courts to exercise jurisdiction over the claims of class members only if those claims are ripe. Id. at *3. Judge Collins also pointed to other cases indicating that classes should be defined so as to exclude members lacking standing. Id. at *4 (citing Denney v. Deutsche Bank AG, 443 F.3d 253, 264 (2d Cir.2006); O'Neill v. Gourmet Sys. of Minn., Inc., 219 F.R.D. 445, 451-52 (W.D.Wis.2002); Sanders v. Apple, Inc., 2009 WL 150950, at *10 (N.D.Cal.2009)). Finally, Judge Collins noted that requiring class members to have standing comports with the Supreme Court's admonition to be “mindful that Rule 23's requirements must be interpreted in keeping with Article III constraints.” Id. (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 612-13, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997)).

The Court acknowledges that a leading treatise, Newberg on Class Actions, indicates that absent class members need not make a showing of standing. Newberg on Class Actions § 2:7. This treatise, however, also suggests that members of a proper class will necessarily have standing, because the class representative's claims must be “typical” of those of the class.

Further, contrary to Plaintiffs' contention, the California Supreme Court's decision in In re Tobacco II, 46 Cal.4th 298, 93 Cal.Rptr.3d 559, 207 P.3d 20 (Cal.2009), does not establish that absent class members in a federal class action need not have Article III standing. In that case, the California Supreme Court considered the effect of Proposition 64, a voter initiative that amended the UCL to allow private suit only by a plaintiff “who has suffered injury in fact and has lost money or property as a result of ... unfair competition.” Id. at 25. Previously, the UCL had allowed suit by any private party. The court considered whether that new requirement applied only to the named plaintiff or also to all absent class members. Id. at 25. The court concluded, based on the language of the initiative, that only the named plaintiff needed to show such an injury in fact. Id. Individuals could remain part of the class even if they had suffered no injury in fact. Id. at 35. That case, however, was in state court and did not address federal courts' standing requirements. Before the enactment of Proposition 64, uninjured plaintiffs could bring UCL claims in state court, but not federal court. See, e.g., Seibels Bruce Group, Inc. v. R.J. Reynolds Tobacco Co., No. C-99-0593 MHP, 1999 WL 760527 at *6 (N.D. Cal. Sept.21, 1999) (holding that plaintiff did not have standing to assert UCL claim in federal court because it did not establish a distinct and palpable injury); Boyle v. MTV Networks, Inc., 766 F.Supp. 809, 817-18 (N.D. Cal. 1991) (noting that case involving private-party UCL claim could not be removed as it would result in lack of standing). Tobacco II established that Proposition 64 changes this for named plaintiffs, but not for absent class members. It did not, and could not, hold that uninjured parties could be class members in a class action brought in federal court, despite their lack of Article III standing. Tobacco II therefore does not persuade the Court that a class action can proceed even where class members lack Article III standing.

Id. at *6 (emphasis in original).

Six pending cases to watch in 2011

Here are six important cases to follow in the coming months (listed in no particular order):

1. Kwikset Corp. v. Superior Court (Benson), no. S171845 (Cal.).  This UCL case was argued in the California Supreme Court on November 3, 2010, which means that the opinion is due by Tuesday, February 1, 2010.  Because the Court hands down opinions on Mondays and Thursdays, we can expect the opinion no later than Monday, January 31, 2011 -- assuming former Chief Justice George sends his vote in from Antarctica!  In this case, the Supreme Court will be interpreting Prop. 64's "lost money or property" language. 
   
   
2. AT&T Mobility LLC v. Concepcion, no. 09-893 (U.S.).  This case was argued in the U.S. Supreme Court on November 9, 2010.  The issue is whether the FAA preempts state-law unconscionability principles as applied to no-class-action arbitration clauses in consumer contracts of adhesion, and the continuing vitality of our own Supreme Court's Discover Bank decision could be at stake.  The opinion will be filed by the end of the current Term, which means no later than June 27, 2011. 
   
3. Brinker Restaurant Corp. v. Superior Court (Hohnbaum), no. S166350 (Cal.).  This wage and hour case raises substantive questions relating to California's meal period and rest break laws, but could also be a significant class certification case.  The Supreme Court has not directly addressed core class certification issues since Sav-on in 2004.  The case is fully briefed, but has not yet been scheduled for oral argument.  It may or may not be set this year.  [Disclosure:  My firm is co-counsel for the workers in Brinker.]
   
   
4. Wal-Mart Stores, Inc. v. Dukes, no. 10-277 (U.S.).  The U.S. Supreme Court granted cert. in this case on December 6, 2010, and has scheduled oral argument for March 29, 2010. The opinion will be filed by the end of June 2011, when the current Term ends.  The district court granted class certification of certain employment discrimination claims under Rule 23(b)(2), and the Ninth Circuit, sitting en banc, affirmed in part. 
   
   
5. Mazza v. American Honda Motor Co., no. 09-55376 (9th Cir.).  In this auto defect case, the district court granted nationwide class certification of UCL and CLRA claims for recovery of economic losses.  Mazza v. American Honda Motor Co., 254 F.R.D. 610 (C.D. Cal. 2008).  The Ninth Circuit granted a Rule 23(f) petition for permission to appeal, and the case was argued on June 11, 2010.  One day after the Supreme Court granted cert. in Dukes, however, the Ninth Circuit issued a sua sponte order deferring submission of the action pending resolution of that case.
   
   
6. Sullivan v. DB Investments, Inc., no. 08-2784 (3d Cir.). In this antitrust case for price-fixing in the diamond industry, the Third Circuit reversed the district court's order granting final approval of a nationwide class action settlement.  Sullivan v. DB Investments, Inc., 613 F.3d 134 (3d Cir. 2010).  On August 27, 2010, en banc rehearing was granted, and the case has been scheduled for argument on February 23, 2011.  On November 10, 2010, the Court ordered supplemental briefing on some broad class-certification-related questions. 

A tenth post-Tobacco II opinion: Sevidal v. Target Corp.

The Court of Appeal (Fourth Appellate District, Division One) has handed down a tenth post-Tobacco II opinion, Sevidal v. Target Corp., ___ Cal.App.4th ___ (Oct. 29, 2010).  The opinion affirms an order denying class certification of UCL claims for lack of ascertainability and because (inventing a new element of certification) the class was "overbroad."  It thus falls on the defense side of the ledger.

The Complex Litigator has a detailed post on the opinion.  The plaintiffs in Sevidal seem to have had some Kaldenbach-type problems that are not going to be present in every UCL action.

It also bears pointing out that class certification jurisprudence does not recognize an "overbroad class definition" as an independent basis to deny certification (even though the Sevidal court discusses this in a separate section of the opinion).  Whether a class definition is "overbroad" might be relevant to the ascertainability or predominance analyses, but it is not a separate element of certification.

As authority for denying class certification because the class definition was "overbroad," the Sevidal court cited Pfizer, Inc. v. Superior Court, 182 Cal.App.4th 622 (2010), and no other authority.  Pfizer did deny certification solely on the basis that the class was "overbroad," but its only authority for doing so was Kwaak v. Pfizer, Inc., 881 N.E.2d 812, 818 (Mass. App. 2008) (cited in Pfizer, 182 Cal.App.4th at 633 n.6).  A careful review of that case shows that the certification order was reversed because common questions did not predominate—not because the class definition was "overbroad":

In this case, there is insufficient information in the record to identify any such similarity of exposure, deception, and causation. The class certified is everyone who purchased Listerine products during the advertising campaign, regardless whether a purchaser was exposed to the campaign. ... [N]ot every product was mislabeled. Some Listerine products, for example, contained no label or tag connected to the advertising campaign. Moreover, the advertising campaign also changed substantially over time, moving, for example, from advertisements that may have improperly conveyed a floss-replacement message (the most obviously objectionable aspect of the campaign) to advertisements that expressly did not. Therefore, many of those exposed to the advertising campaign may not have been exposed to unfair or deceptive acts as defined by [the relevant statute]. In  analyzing these false advertising claims, the court will be forced to draw fine lines between actionable deception and permissible puffery. Also unclear is whether those exposed to the deceptive aspects of the advertising campaign purchased Listerine for reasons unrelated to the advertising, such as to freshen their breath or as an adjunct to flossing. [Citation.] Whether a causal connection exists between a deceptive act and a loss is not just difficult to identify but appears to vary widely depending on the customer.

Id. at 818 (footnotes omitted).  The word "overbroad" appears in that opinion only once, in a footnote.  Id. at 819 n.8.

As I've explained before, the problem with denying class certification in post-Prop. 64 UCL actions because of lack of reliance by unnamed class members is that, as the Supreme Court confirmed in Tobacco II, the unnamed class members need not establish reliance (or, for that matter, deception or injury).  Neither they nor the named class representatives need to prove those elements at trial.  It makes no sense to deny class certification because of lack of predominance on elements that will never have to be established at trial, either on a classwide basis or, indeed, at all. 

Let us not allow Prop. 64 creep to redefine the elements of certification in California.

Oral argument report: Kwikset Corp. v. Superior Court (Benson)

The Supreme Court heard oral argument on November 3, 2010 in Kwikset Corp. v. Superior Court (Benson), no. S171845.  Jonathan W. Cuneo of Cuneo Gilbert & DaLuca, LLP in Washington, D.C. argued for the plaintiffs.  Fredrick A. Rafeedie of Jones, Bell, Abbott, Fleming & Fitzgerald LLP in Los Angeles argued for the defendant. 

Mr. Cuneo began: This Court must reverse the Court of Appeal to confirm the power of Californians who every day vote with their wallets by choosing products in whole or in part based on how the products were made.  Consumers care about process as well as the final result.

Justice Werdegar:  Our concern is that after Proposition 64 it’s required that the consumer has lost money or property.  If the consumer buys a product, and it works as it’s supposed to work, and it’s not defective, even if the consumer preferred a made in the USA product how would they have lost money? 

Cuneo: People buy things for lots of reasons.  Sometimes to support a social cause.

Justice Corrigan:  I agree, but it seems a more tenuous argument when you’re talking about locksets.  Cuneo:  It applies across the board.  There are many people who want to purchase products made in the US. 

Justice Corrigan:  What if there are two locksets, side by side, they both cost $50.  They are the same except one is labeled made in the USA.  How have I lost money or property?

Cuneo:  Because you made a purchase decision based on a misrepresentation.  You have lost $50.  Justice Moreno:  Is that the measure of restitution?  Cuneo:  No.  Justice Moreno:  How would you measure it?  Cuneo: Restitution under the UCL is flexible.  In this case we never sought rescission.  Justice Moreno:  You’re not seeking the full amount of out-of-pocket loss?  Cuneo:  Absolutely not.  One of the beauties of the UCL is that it allows the judge to fashion an appropriate remedy. That is what happened here.  [And he described the three forms of injunctive relief ordered by the trial court, described at 171 Cal.App.4th at 649.]  This discretion is a significant limitation on the UCL’s reach.  Restitution is necessarily a flexible remedy.  Sometimes the defendant receives a benefit in circumstances in which the plaintiff is not harmed – did not pay extra.  In that case, the court has the ability to fashion injunctive relief and grant limited restitution as in this case.

Justice Kennard: What Prop. 64 says is [and she quoted it].  As I listen to your argument in response to questions from the bench, you said your client lost money when your client paid for a particular lock.  Cuneo:  Yes. Justice Kennard: But so long as your client received a lock that’s working, where’s the harm?  Cuneo:  The harm is he did not get the benefit of the bargain—which is a lockset made in America. 

Justice Kennard: So your argument is that this was fraud?  Justice Chin (interjecting):  But the locksets weren’t inferior?  Cuneo: No.  Justice Chin: They were not overpriced?  Cuneo: We are prepared to amend our complaint to allege a price differential. 

Justice Kennard:  I’m trying to find an argument that is implicit in the rest of your argument.  Is the implicit argument this:  Is it your view that that would allow defendants to make misrepresentations with impunity?  Cuneo:  Yes. 

Justice Baxter:  How much was paid for the locksets?  Let’s say $50, and the consumer relies on the representation made in the US and then discovers later that parts were not—a misrepresentation.  And let’s assume that it’s clear that you could put it on eBay and it would sell for at least what the consumer paid.  Is it your position that that’s irrelevant to your suit?  Cuneo:  I think the answer’s no.  That’s almost a man bites dog story.  Justice Baxter: Let’s say a watch represented to be a Rolex and it’s not.  Cuneo: In that case you’d be very badly damaged.  There is a category of products where you can’t tell by looking at something whether it’s been misrepresented.  Justice Baxter:  Knockoffs.  But let’s say it’s worth more or equal in value to what you paid.  Is that relevant?

Cuneo:  In the ordinary case the answer is no.  There are extreme examples, where you might have lost money or property but were not injured in fact.  If you bought a piece of costume jewelry and found out later it’s the Hope diamond.  You have lost money or property but were not injured in fact.

Justice Chin:  So injury in fact is something different from lost money or property?  Cuneo:  Yes.  In this case, both are met.  Justice Corrigan: And that’s where the issue is joined.  I don’t disagree that they suffered injury in fact.   But if those two are different, where’s the lost money or property?  Cuneo:  No, by putting down your credit card or cash, you’ve lost money. 

Justice Moreno: Is any part of our claim for ill-gotten gains vis-à-vis the defendant’s gaining a competitive advantage?  Cuneo:  Yes.  What the defendant was able to save by shifting jobs to Mexico.  The thing about this case is there’s a statute that makes it a per se offense.  People cared enough about products made in the US that the legislature enacted a statute.  Suppose your religion requires you to eat only kosher foods.  You buy a hot dog mislabeled as kosher.  You’ve lost money or property.  If one examines the language of Prop. 64, its background and what the voters were told, it supports our position.

Justice Corrigan:  With misrepresentation off the table, it’s your position that when I bought a lock, I lost money or property?  Cuneo:  In the context of Prop. 64, what lost money means is you had a business transaction with the defendant.  In your hypothetical, there would be no violation because it doesn’t meet the “as a result of” requirement.

Justice Corrigan:  In my opinion it doesn’t meet “lost money or property” either.   Cuneo:  Pre-Prop. 64 we had unusually broad standing.  Prop. 64 meant to ensure that the plaintiff had a business dealing with the defendant.  The standing requirements don’t say anything about having to prove damages.  Lots of impractical things would result from defendant’s position.  One is valuation and damages would have to be decided at the outset.  Every UCL case would turn into a trial on market pricing.  There’s nothing in the legislative history that said the consumer would be stripped of the right to sue unless they prove a defect or a price differential.  [Then he turned to an example from the ballot materials involving bottled water that had not been properly tested, but was not necessarily bad water.]  There was no indication that the water was dangerous or overpriced.  But the proponents assured the voters that that case would survive.

Justice Corrigan: Well that case could survive if someone lost money or property because of the failure to test.  Cuneo:  But there was nothing about any additional proof.  Justice Corrigan:  No—the requirements are set out in the threefold test.  Cuneo:  In your hypothetical it doesn’t pass the “as a result of” test. 

Justice Baxter:  What if we didn’t have the UCL and the plaintiff sued for restitution under the common law.  What would the result be?  Cuneo:  It’s hard to answer because we’ve had the UCL for so long.  We should not throw out the baby with the bathwater.  [At this point in the argument I felt that the question of standing was being conflated with the question of restitution and how it might be measured.]  Justice Baxter: My question is whether rescission and restitution, in their common-law form, can be obtained if there’s a material misrepresentation that’s relied on.  Cuneo:  Under those circumstances you’re positing a situation in which the streamlined remedies of the UCL, which don’t require the same showing as fraud, would be gone and that would be a significant loss to the people of California. 

That was the end of Mr. Cuneo’s opening argument.  Before Mr. Rafeedie could say anything, Justice Baxter interjected:

Justice Baxter: In that hypothetical we were just discussing, why wouldn’t a consumer who discovered the misrepresentation about made in the USA, why couldn’t that person go into court and get rescission and restitution?  Rafeedie:  I’m not sure they couldn’t do that.  That’s not a cause of action alleged in this case.  Justice Baxter:  Would it be conditioned on proof that that they paid more for the product than it was worth?  Rafeedie:  No.  It would be conditioned on returning the product.

Chief Justice George:  That’s a pretty heavy burden.  Rafeedie:  I’m not sure you would have to go to court to do that.  You could go back to the store and say I found out this product was mislabeled and get your money back.  Chief Justice George:  In some cases a legal action might be required.  Justice Corrigan:  If you had to spend money to go to court then would you have lost money or property?  Rafeedie:  Yes, if you had to spend money to go to court. 

Justice Werdegar:  The purpose of the UCL is to protect consumers and competitors by promoting fair competition.  The mislabeling in this case is unfair competition.  Consumers are motivated to buy products made in the USA.  Prop. 64 requires economic damage.  If someone buys a lockset because it was labeled made in the USA, why have they not suffered economic injury if the implication is they would not have parted with their money for that lockset?  Rafeedie: That would satisfy injury in fact but not money or property.  Justice Werdegar:  The money is gone and the consumer would not have purchased the product.  Rafeedie:  One does not necessarily lose money or property under those circumstances.  Here, plaintiffs purchased locksets and they have had no problems with them.

Justice Kennard:  What is your response to the argument that manufacturers could engage in deceit with impunity so long as the product does what it’s supposed to do?  Rafeedie:  To the extent it does involve monetary loss, consumers can bring UCL actions.  If it does not, public prosecutors can bring the action.  Justice Kennard: But here we’re dealing with Prop. 64 standing.  Is your argument that under the language of Prop. 64, the consumer has not alleged injury in fact?  Rafeedie:  No.  The Court of Appeal found injury in fact satisfied and we have not argued against that.  We argue no lost money resulted from the misrepresentation.

Justice Werdegar:  But if I allege I would not have bought this property except for the misrepresentation, why have I not suffered economic loss?  Rafeedie:  You were in the market for a lock and you got one.  Justice Werdegar:  I don’t think the UCL requires a defect. We’re looking at defective products.  Rafeedie:  The Court of Appeal’s use of the term defective, if the misrepresentations induced you to buy something. 

Justice Werdegar:  You might have paid more for the label.  If kosher is important to me, even though the hot dog is delicious and has full nutritional value, have I not suffered injury because I would not have suffered the economic loss but for the label?  Rafeedie:  Not necessarily.  It depends on the circumstances.  Maybe the label allowed the manufacturer to command a premium price. 

Justice Moreno:  Is the plaintiff allowed a claim for ill-gotten gains due to the competitive advantage gained over other competitors?  Does the consumer have a UCL claim for that profit?  Rafeedie:  No, the consumer does not.  Justice Chin:  But a competitor might?  Rafeedie: Yes, a competitor might, but not a consumer. 

Chief Justice George:  Is your answer the same if the claim is a product was labeled organically grown?  Is it inconsequential that it was falsely labeled? Rafeedie: Yes.  Justice Chin:  Unless a premium was paid.  Rafeedie: Yes.

Justice Corrigan:  If you lost money or property returning the item; because you had to consult with a spiritual adviser because you ate non-kosher food; if you got sick.  There are lots of ways a consumer could lose money or property.  Rafeedie:  I agree.  Not necessarily limited to paying a premium.  That’s one type.  There might be consequential damages, conceivably lost profits.  These are the sorts of things fraud law allows recovery for. 

Chief Justice George:  There is a recent case that this Court decided called Bronco Wine.  In that case wine was labeled as from Napa Valley when it should have been labeled Lodi.  Assume the wine was just as good.  How would you recover restitution?  Rafeedie:  If that’s the only allegation it depends on the circumstances whether a loss was suffered.  If I wasn’t in the marketplace and wouldn’t have bought anything but for the misrepresentation.

Justice Werdegar: Whose burden is it to show that the plaintiff was really going to buy wine or a hot dog?  That they would not have bought something exactly comparable?  Rafeedie:  The plaintiff’s.  Justice Werdegar:  But the plaintiff has already alleged he would not have bought the product.  Does he have to show he never would have bought anything comparable?  Rafeedie:  Yes.  That’s what the plaintiff has to prove. Here we have no allegations that the plaintiff would have paid less for a comparable lockset.  Justice Werdegar: But they do allege they would not have given money for those locksets.  Rafeedie: That is part of the greater allegation that if we had known, we would not have bought. 

Justice Moreno: How is this case different from the Napa wine case? Would it be easy to measure restitution?  Rafeedie: Because there are no allegations of any differential in price.  Justice Moreno: Would you agree that in the Napa/Lodi example there is a difference?  Rafeedie: If there’s a differential in price that would be the difference.  Justice Moreno:  You’re saying here because the locksets are equal in quality there is no loss.  Rafeedie:  Yes, no allegation the locks are any different than they would have been if they had been made in the US.

Justice Baxter: But we’re not talking about damages under the UCL; were talking about restitution and injunctive relief.  If the purchaser can mitigate damages by selling on eBay, does that have any impact on the ability to proceed under the UCL?  Rafeedie:  Yes. 

Justice Corrigan: If the plaintiff alleged that he had lost money because he had to pay a fee to sell the product on eBay, pay shipping costs, then that would be sufficient?  Rafeedie:  Consequential damages could be.  Justice Corrigan:  If they could prove they suffered those damages then the expenditure of those moneys could constitute lost money or property?  Rafeedie:  Yes it could.  It’s not recoverable as restitution, however. 

That was the end of Mr. Rafeedie’s argument.  The rebuttal:

Cuneo:  In response to Justice Baxter’s questions about eBay, and I think Justice Chin had the same question.  If you can resell it for more on eBay, that is the same circumstance this Court just considered in Clayworth.  The pharmacists passed on the overcharge.  The holding of that case was they lost money or property when they paid for the price-fixed pharmaceuticals.  Clayworth was also—  Justice Chin (interrupting): This is not a question of passing on the value by selling on eBay.  If you get the value of the property, where’s the loss? 

Cuneo:  The second you pay for it you’ve got the loss under Clayworth.  The primary purpose of the UCL is injunctive relief, to enable people to stop misrepresentations in their tracks.  On the less than meritorious cases, let’s bear in mind that the UCL gives courts tremendous discretionary power to limit the remedies. The court can find a violation and the judge can say it’s not substantial enough for any relief.  Or the court can issue an injunction only, but nothing to the consumers.  The courts have the tools to address the concerns raised in the Tobacco II dissent by Justice Baxter.  What adoption of the Court of Appeal opinion would do is impose vast new burdens at the front end of UCL actions.  On the public prosecutor point, public prosecutors have their hands full.  That’s why the DAs filed an amicus brief on our side.

Justice Werdegar:  What remedies did the trial court order in this case.  Cuneo: [he described the three forms of injunctive relief].  Justice Werdegar: It denied restitution to consumers, correct?  Cuneo:  It did.  Justice Werdegar: It engaged in the discretionary, nuanced remedies you referenced, didn’t it?  Cuneo:  It did. 

And that was the end of the argument.  

It's not hard to guess where Justice Corrigan will come down on this question, but I don't think any of the other justices feel as strongly as she does.  Justices Werdegar and Kennard and even the Chief Justice appear to favor the plaintiff's position.  The one thing that I think can be safely predicted is a split decision.

The opinion will be due in 90 days.

Supreme Court briefs in Kwikset Corp. v. Superior Court (Benson)

The Supreme Court has posted online copies of the briefs in Kwikset Corp. v. Superior Court (Benson), no. S171845, which is scheduled for oral argument in San Francisco on Wednesday, November 3, 2010 at 9:00 a.m.:

S171845 - KWIKSET CORPORATION v. S.C. (BENSON)

• Real Parties' in Interest Petition for Review
• Petitioners' Answer to Petition for Review
• Real Parties' in Interest Reply to Answer to Petition for Review
• Real Parties' in Interest Opening Brief on the Merits
• Petitioners' Answer Brief on the Merits
• Real Parties' in Interest Reply Brief on the Merits
• Real Parties' in Interest Supplemental Brief

This case will address important questions relating to the proper interpretation of the UCL's post-Prop. 64 standing requirement.  Chief Justice George is not recused in this case, which is one factor that distinguishes it from Tobacco II.

After the case is argued on November 3, the opinion will be due in 90 days.  That works out to February 1, 2011.  However, Chief Justice George's term ends on January 2, 2011.  Will the Court expedite decision in the cases on the November calendar?  How will it handle the December calendar (scheduled for the week of December 6, 2010)?  I don't have an answer to either of these questions. 

UPDATE:  In response to my questions, the folks from At the Lectern undertook a review of opinions issued after the retirements of other Supreme Court justices. They found that many of the retired justices continued to sign opinions for several months after they departed from the Court.  At the Lectern predicts that the Acting Chair of the Judicial Council will assign Chief Justice George as a pro tem justice in all of the cases that he hears through the December calendar.  This is a logical prediction and is one solution that had crossed my mind.

New UCL competitor action applying Clayworth: Finelite, Inc. v. Ledalite Architectural Products

Many thanks to the blog reader who forwarded a recent decision by U.S. District Judge Maxine Chesney, Finelite, Inc. v. Ledalite Architectural Products, 2010 WL 3385027 (N.D. Cal. Aug. 26, 2010).  Finelite is competitor action arising from misstatements by one competitor that allegedly stole away sales from the other competitor, impacting that competitor's profits.   The defendant moved to dismiss the UCL claim (which sought injunctive relief only) for lack of standing, arguing that to obtain any form of relief under the UCL, the plaintiff must have suffered a loss that would be compensable as restitution.  Lost profits would be damages, not recoverable under the UCL.  Id. at *1.

Judge Chesney denied the motion, applying the Supreme Court's recent holding in Clayworth v. Pfizer:  

Ledalite also relies on cases that have held a plaintiff cannot seek injunctive relief under § 17200 if the plaintiff does not have standing to seek restitution. See Pom Wonderful LLC v. Welch Foods, Inc., 2009 WL 5184422, *3-5 (C.D.Cal.2009) (holding plaintiff lacked standing to seek injunctive relief where plaintiff failed to allege entitlement to restitution); Walker v. GEICO General Ins. Co., 474 F.Supp.2d 1168, 1172 (E.D.Cal.2007) (holding plaintiff lacked standing to assert “any UCL claim” because plaintiff could not show “either prior possession or a vested legal interest in the money or property allegedly lost”). As the California Supreme Court has more recently explained, however, “the right to seek injunctive relief under section 17200 is not dependent on the right to seek restitution; the two are wholly independent remedies.” See Clayworth v. Pfizer, Inc., 49 Cal.4th 758, 790, 111 Cal.Rptr.3d 666, 233 P.3d 1066 (2010) (rejecting argument that plaintiffs alleging claim under § 17200 “could not seek injunctive relief unless they could also seek restitution”); see also Fulford v. Logitech, Inc., 2009 WL 1299088, at *1 (N.D.Cal.2009) (noting “a number of courts, subsequent to the enactment of the UCL standing requirement ..., have found [the] plaintiff has standing under the UCL, irrespective of any such plaintiff's inability to seek restitution from the defendant”); G & C Auto Body, Inc. v. GEICO General Ins. Co., 2007 WL 4350907, at *3-5 (N.D.Cal.2007) (holding, although plaintiffs could not establish entitlement to restitution, plaintiffs had standing to seek injunction based on plaintiffs' “loss of business caused by [d]efendants' steering of customers away from [p]laintiffs' [businesses]”); White v. Trans Union, LLC, 462 F.Supp.2d 1079, 1083 (C.D.Cal.2006) (holding that although plaintiffs “would be required to show that [defendant] took money directly from them in order to obtain [restitution], no such burden exists [ ] where [p]laintiffs seek only injunctive relief” under § 17200). Consequently, any inability by Finelite to state a claim for restitution does not constitute a bar to Finelite's seeking injunctive relief.

Id. at *2 (footnotes omitted) (emphasis added).  Finelite confirms that Prop. 64 did not do away with UCL competitor actions for injunctive relief. 

New Ninth Circuit UCL opinion: Rubio v. Capital One Bank

In Rubio v. Capital One Bank, ___ F.3d ___ (9th Cir. Jul. 21, 2010), the Ninth Circuit addressed UCL standing and held that loss of a line of credit constitutes a loss of money or property sufficient to confer Prop. 64 standing.  Slip op. at 10400-01. 

The court also noted the split in authority on the definition of "unfair," but found it unnecessary to choose between the different definitions because the defendant's conduct was unfair under both.  Id. at 10402.

Finally, the court applied the pre-Prop. 64 formulation of the "fraudulent" prong (conduct likely to deceive a reasonable consumer).  Id.  at 10402 (citing Tobacco II and Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008)). 

New UCL "unlawful" prong decision: Nelson v. Pearson Ford Co.

In Nelson v. Pearson Ford Co., ___ Cal.App.4th ___ (Jul. 15, 2010), the Court of Appeal (Fourth Appellate District, Division One) addressed a number of interesting UCL-related issues.  The most interesting one is the class representative's standing in an "unlawful" prong case.   Slip op. at 32-34.

The first 30+ pages of the opinion focus on whether the defendant auto dealer violated various provisions of the Automobile Sales Finance Act (Civ. Code §2981 et seq.) ("ASFA").  After concluding that it had, the Court of Appeal turned to the UCL and CLRA claims.  The first question was Prop. 64 standing:

Pearson Ford does not challenge the conclusion that its violations of the ASFA support Nelson's UCL claims; rather its appeal is limited to the trial court's finding that Nelson had standing to pursue claims under the UCL. Pearson Ford focuses its argument on whether Nelson suffered injury "as a result of" its unfair competition under the UCL. (Bus. & Prof. Code, § 17204.) Relying on Troyk [v. Farmers Group, Inc., 171 Cal.App.4th 1305 (2009)], Pearson Ford contends that Nelson needed to prove he would not have bought the car if he had known that the second contract: (1) charged him pre-consummation interest; (2) misstated the APR; and (3) failed to separately itemize the $250 insurance premium. We disagree.

The failure of Pearson Ford to comply with the ASFA caused Nelson to suffer an injury and lose money as to both classes because he paid pre-consummation interest (the backdating class), and paid sales tax and financing charges on the insurance premium (the insurance class). Unlike Troyk, these illegal charges violated the UCL and Pearson Ford improperly collected additional funds from Nelson. UCL causation exists because Nelson would not have paid pre-consummation interest, or sales tax and financing charges on the insurance premium had Pearson Ford complied with the ASFA. Because Nelson had standing to pursue claims under the UCL, we reject Pearson Ford's argument that the judgment in favor of both classes should be vacated to the extent it grants relief under the UCL.

Slip op. at 34 (emphasis added). 

This holding is consistent with the Tobacco II footnote explaining that "the concept of reliance" will have "no application" in many UCL cases.  In re Tobacco II Cases, 46 Cal.4th 298, 325 n.17 (2009).  In Nelson, the defendant violated the law, which meant that additional charges and incorrect interest calculations were incorporated into the plaintiff's sales contract.  This occurred wholly apart from any "reliance" by the plaintiff.  By contrast, "the lack of disclosure of proper charges, not illegal charges, violated the UCL in Troyk." Nelson, slip op. at 33.   

The Nelson opinion goes on to discuss UCL restitution (slip op. at 35-38) (worth reading); UCL rescission (slip op. at 39-40) (which it holds is not an available remedy); unclaimed residual funds under Code of Civil Procedure section 384 (slip op. at 40-42) (see this blog post for more on that topic); the CLRA (slip op. at 45-47); and 998 offers in the class action context (slip op. at 48-52). 

Supreme Court hands down significant UCL decision: Clayworth v. Pfizer

The Supreme Court's decision in Clayworth v. Pfizer is now up.  Clayworth v. Pfizer, Inc., ___ Cal.4th ____ (Jul. 12, 2010). 

After discussing the Cartwright Act claim in depth, the Court turned to the UCL, and confirmed that, to have standing to seek an injunction, the plaintiff need not have suffered a loss that would be recoverable as restitution: 

The Court of Appeal held Pharmacies were barred from seeking injunctive relief because, it concluded, they had suffered no monetary loss. To the extent this holding rests on the conclusion Pharmacies lacked standing under section 17204, it is erroneous; as discussed ante, Pharmacies have standing. To the extent the holding rests on the conclusion that even if Pharmacies had standing, they could not seek injunctive relief unless they could also seek restitution, it similarly is erroneous. Section 17203 makes injunctive relief “the primary form of relief available under the UCL,” while restitution is merely “ancillary.” (In re Tobacco II Cases (2009) 46 Cal.4th 298, 319.) Nothing in the statute’s language conditions a court’s authority to order injunctive relief on the need in a given case to also order restitution. Accordingly, the right to seek injunctive relief under section 17203 is not dependent on the right to seek restitution; the two are wholly independent remedies. (See ABC Internat. Traders, Inc. v. Matsushita Electric Corp. (1997) 14 Cal.4th 1247, 1268 [§ 17203 “contains . . . no language of condition linking injunctive and restitutionary relief”]; Prata v. Superior Court (2001) 91 Cal.App.4th 1128, 1139 [plaintiff could pursue injunctive relief even though restitution was unavailable].)

Slip op. at 41. This overrules a number of decisions, such as Buckland and Citizens for Humanity, holding that the only type of monetary loss that can confer standing is a restitutionary loss. This is going to be very important for preserving competitor vs. competitor UCL cases.

I'm still reviewing the opinion and hope to have more on it later.  The Court also held that the pass-on defense does not bar either the Cartwright Act or the UCL claims. 

New UCL competitor decision: Silvaco Data Systems v. Intel Corp.

Silvaco Data Systems v. Intel Corp., ___ Cal.App.4th ___ (Apr. 29, 2010) is a case for misappropriation of trade secrets in which the plaintiff also brought a UCL claim.  See pp. 37-41 for the Sixth District's discussion of standing (which, strangely, makes no mention of Tobacco II, a case undoubtedly relevant to the discussion). 

Recent Court of Appeal opinions of interest

Several new decisions of interest were handed down during my blogging hiatus (and before Dukes v. Wal-Mart):

• Arenas v. El Torito Restaurants, Inc., ___ Cal.App.4th ___ (Mar. 15, 2010; pub. ord. Apr. 6, 2010) (Second Appellate District, Division Five) (affirming order denying class certification of certain wage and hour claims)
  
• McGuigan v. City of San Diego, ___ Cal.App.4th ___ (Apr. 6, 2010) (modified Apr. 27, 2010) (Fourth Appellate District, Division One) (construcing Code of Civil Procedure section 1021.5; denying further award of attorneys' fees incurred preserving a class action settlement against objectors' appeal because defendant was no longer an "opposing" party)
  
• Salenga v. Mitsubishi Motors Credit of America, Inc., ___ Cal.App.4th ___ (Apr. 9, 2010) (modified Apr. 26, 2010) (Fourth Appellate District, Division One) (addressing statute of limitations in UCL case)
  
• Wallace v. Geico General Ins. Co., ___ Cal.App.4th ___ (Apr. 19, 2010) (Fourth Appellate District, Division One) (holding that "pick-off" rule applies in UCL cases)
  
• Durell v. Sharp Healthcare, ___ Cal.App.4th ___ (Apr. 19, 2010) (Fourth Appellate District, Division One) (construing Tobacco II and the "unfair" prong at the pleading stage)
  
• Hale v. Sharp Healthcare, ___ Cal.App.4th ___ (Apr. 19, 2010) (Fourth Appellate District, Division One) (construing Tobacco II at the pleading stage)

Currently, I have more material to post on than days in the week, which is not a bad position for a blogger to be in.  I will try to write more on some or all of these cases in later posts. 

Nine post-Tobacco II opinions

In preparation for our Rutter Group seminar last week, Will Stern and I compiled this list of the nine Court of Appeal opinions substantively construing Tobacco II:

Morgan v. AT & T Wireless Services, Inc., 177 Cal.App.4th 1235 (2009) (Second Appellate District, Division Four)  (no petition for review filed)

Kaldenbach v. Mutual of Omaha Life Ins. Co., 178 Cal.App.4th 830 (2009) (Fourth Appellate District, Division Three) (no petition for review filed)

Cohen v. DirecTV, Inc., 178 Cal.App.4th 966 (2009) (Second Appellate District, Division Eight) (rev. den. 02/10/10)

Princess Cruise Lines, Ltd. v. Superior Court, 179 Cal.App.4th 36 (Nov. 10, 2009) (Second Appellate District, Division Eight) (rev. den. 02/04/10)

In re Vioxx Class Cases, 180 Cal.App.4th 116 (Dec. 15, 2009) (Second Appellate District, Division Three) (petition for review filed 01/25/10, no. S179699) 

Weinstat v. Dentsply International, Inc., 180 Cal.App.4th 1213 (Jan. 7, 2010) (First Appellate District, Division Four) (petition for review filed 02/11/10, no. S180179)

In re Steroid Hormone Product Cases, 181 Cal.App.4th 145 (Jan. 1, 2010; mod. Feb. 8, 2010) (Second Appellate District, Division Four) (opinion; modification order) (petition for review filed 03/01/10, no. S180583)

McAdams v. Monier, Inc., 182 Cal.App.4th 174 (Feb. 24, 2010) (Third Appellate District)

Pfizer Inc. v. Superior Court (Galfano), 182 Cal.App.4th 622 (Feb. 25, 2010; pub. order Mar. 2, 2010) (Second Appellate District, Division Three)

Four of these (Morgan, Weinstat, Steroid Hormone Cases, and McAdams) generally favor the plaintiff's side, while the others generally favor the defendant.  The decisions are difficult to reconcile, although Will and I tried to during the Rutter seminar.  I'm starting to think that the Supreme Court will need to select a case to take up and elaborate on Tobacco II.

Pfizer v. Superior Court (Galfano) now published

Yesterday, the Court of Appeal published its opinion in Pfizer v. Superior Court (Galfano), ___ Cal.App.4th ___ (Feb. 25, 2010; pub. ord. Mar. 2, 2010), which originally was handed down as an unpublished opinion last week.  The opinion grants a writ of mandate reversing the trial court's order certifying a class, notwithstanding Tobacco II. 

The docket does not list any letters requesting publication.  It appears the panel simply reconsidered whether the opinion met the standards for publication and decided it did. 

BREAKING NEWS: Two new cases handed down today and yesterday

Yesterday, the Supreme Court handed down its opinion in the CAFA case, Hertz Corp. v. Friend, ___ U.S. ___ (Feb. 23, 2010).

Today, the Court of Appeal (Third Appellate District) handed down its opinion in McAdams v. Monier, Inc., ___ Cal.App.4th ___ (Feb. 24, 2010), once again reversing the order denying class certification of the CLRA and UCL claims.

I will have more on these opinions later.

Court of Appeal adds new section to opinion: Steroid Hormone Product Cases

On February 8, 2010, the Court of Appeal (Second Appellate District, Division Four) issued a modification order adding a new, three-page section to its opinion in Steroid Hormone Product Cases, ___ Cal.App.4th ___ (Jan. 21, 2010).  As my post on the original opinion explained, this panel correctly interpreted Tobacco II (in a manner directly contrary to the Court of Appeal in Cohen). 

Evidently, a rehearing petition was filed on February 2, urging the Court to follow Cohen and Vioxx.  The quickly-issued modification order (which also denied rehearing with no change in the judgment) makes the panel's disagreement with those opinions clear.  It is reasonable to assume that a review petition will be filed. 

In other appellate activity of note, a rehearing petition was filed on January 22 and denied on January 26 in the Weinstat case (see this post).  Again, a petition for review would not be surprising.  And we still await opinions in the two "grant and hold" cases, Pfizer and McAdams. 

UPDATE:  Many thanks to the blog reader who wrote to advise that a petition for review was already filed last Thursday, February 11, in the Weinstat case.  Weinstat v. Dentsply Int'l., no. S180179.  I have also received copies of the petition for review and the rehearing petition, which will go up in a later post. 

New UCL class certification decision: Steroid Hormone Product Cases

Another case interpreting Tobacco II has been handed down, and this one, like Weinstat a couple of weeks ago, refutes the Cohen court's interpretation.

In Steroid Hormone Product Cases, ___ Cal.App.4th ___ (Jan. 21, 2010), the Court of Appeal (Second Appellate District, Division Four) reversed an order denying class certification of UCL and CLRA claims.  The case alleged that the defendant (GNC) sold nutritional supplements containing a controlled substance that was illegal to sell or possess without a prescription, and that the defendant failed to disclose to consumers that its product contained this illegal ingredient.  Slip op. at 3-4.  The plaintiff class consisted of all those who purchased the supplements.  See id., passim.

The trial court denied class certification "on the ground that, with regard to both the UCL claim and the CLRA claim, an individualized inquiry would have to be conducted into whether the illegality of androstenediol products was material to each purchaser, to determine whether GNC’s alleged conduct caused injury to that purchaser." Id. at 8.

The Court of Appeal disagreed.  Under Tobacco II made clear that "the standing provision added by Proposition 64 'was not intended to have any effect at all on unnamed class members.'"  Id. at 10 (quoting Tobacco II, 46 Cal.4th at 321.)   "Therefore, while a named plaintiff in a UCL class action now must show that he or she suffered injury in fact and lost money or property as a result of the unfair competition, once the named plaintiff meets that burden, no further individualized proof of injury or causation is required to impose restitution liability against the defendant in favor of absent class members." Id. (emphasis added). 

This holding is directly contrary to Cohen.

The defendant raised the argument that the Cohen court found persuasive, namely, that Tobacco II merely addressed "standing" and was not relevant to class certification.  This panel did not read Tobacco II that way:

GNC tries to avoid the required reversal by arguing in its respondent’s brief that the trial court’s ruling does not conflict with Tobacco II because Tobacco II addressed standing, while the trial court specifically stated that standing was irrelevant to the certification analysis. Although the court did state that standing was irrelevant, it nevertheless found that Proposition 64 added actual injury as an element of a cause of action for restitution under the UCL, and therefore injury must be established for each class member. Tobacco II made clear, however, that Proposition 64 only affected the named plaintiff’s standing in a UCL class action seeking restitution; it did not add an additional element to be satisfied by all class members.

Id. at 10-11 n.8 (citing Tobacco II, 46 Cal.4th at 321) (emphasis added).  In other words, the Steroid Hormone Product Cases court recognized that because reliance and injury are not elements of a UCL claim, they are irrelevant to class certification.  The court concluded that class certification should have been granted because common questions predominated:

Martinez’s UCL claim presents two predominate issues (other than Martinez’s individual standing), both of which are common to the class: (1) whether GNC’s sale of androstenediol products was unlawful; and if so, (2) the amount of money GNC “may have . . . acquired by means of” those sales that must be restored to the class (Bus. & Prof. Code, § 17203).

Id. at 11.

As for the CLRA claim, the doctrine of presumed reliance based on the materiality of the undisclosed information warranted class certification of that claim as well:

[Plaintiff] correctly argues that he is entitled to show that GNC’s alleged deceptive conduct caused the same damage to the class by showing that the alleged misrepresentation was material, even if GNC might be able to show that some class members would have bought the products even if they had known they were unlawful to sell or possess without a prescription. [Citation.] In other words, if Martinez can show that “‘material misrepresentations were made to the class members, at least an inference of reliance [i.e., causation/injury] would arise as to the entire class.’”

Id. at 13 (citing Vasquez v. Superior Court, 4 Cal.3d 800 (1971); Massachusetts Mutual Life Ins. Co. v. Superior Court, 97 Cal.App.4th 1282 (2002)) (footnote omitted). 

The court then reaffirmed the "reasonable consumer" standard for CLRA cases, explaining:

the question that must be answered in this case is whether a reasonable person would find it important when determining whether to purchase a product that it is unlawful to sell or possess that product. It requires no stretch to conclude that the proper answer is “yes” -- we assume that a reasonable person would not knowingly commit a criminal act.

Id. at 14 (citing Civ. Code § 3548; Garnette v. Mankel, 71 Cal.App.2d 783, 787 (1945)).  Finally, the court rejected the argument that a "reasonable bodybuilder" standard should apply instead, as well as the argument that "as a rule, bodybuilders care less about legality than non-bodybuilders."  Id.  Bodybuilders as a class will no doubt appreciate the vindication. 

Oral argument scheduled in McAdams v. Monier, Inc.

The Court of Appeal for the Third Appellate District has scheduled oral argument in the McAdams case for Monday, January 25, 2010 at 2:00 p.m. in Sacramento.  McAdams v. Monier, no. C051841.  McAdams is one of the three Tobacco II "grant and hold" cases. 

Another "grant and hold" case, Pfizer v. Superior Court (Galfano), no. B188106, was argued on December 7, 2009, and we still await the Court of Appeal's opinion. 

If you are in Sacramento and would like to attend the McAdams argument on the 25th and provide a report for posting here, please let me know. 

New opinion interpreting Tobacco II: Weinstat v. Dentsply International, Inc.

In Weinstat v. Dentsply International, Inc., ___ Cal.App.4th ___ (Jan. 7, 2010), the Court of Appeal (Fourth First Appellate District, Division Four) reversed an order decertifying UCL and breach of warranty claims.

A group of dentists sued the manufacturer of an "ultrasonic scaler," which is a device used to clean teeth.  According to the manufacturer, the device was also safe and appropriate for use as an irrigant/coolant during oral surgery.  Slip op. at 1-3, passim.  In fact, however, the device was unsafe for surgical use because it could not be adequately sterilized.  Id. at 4. 

Initially, the trial court granted class certification of the plaintiffs' UCL and breach of warranty claims.  Id. at 5.  After the Pfizer decision was handed down in 2006, however, the defendant moved to decertify the classes.  Pfizer held -- erroneously, as it turned out -- that after Prop. 64, each class member would have to establish standing by proving that he or she individually relied on the defendant's misrepresentations.  The trial court followed Pfizer in decertifying the UCL claim, and for good measure, reconsidered the breach of warranty claim and decertified that claim as well.  Id. at 5-6.

The Court of Appeal reversed the decertification order:

Here it is abundantly clear that the trial court incorrectly believed that each class member must establish standing, thereby requiring the court to delve into individual proof of material[ity], reliance and resulting damage. Tobacco II has dispatched that reasoning and therefore reversal is appropriate.

Id. at 9. And that was essentially the end of the analysis.

Notably, unlike the court in Cohen, the Weinstat court considered it wholly unnecessary to address whether individualized reliance issues might impact the commonality element of class certification.   Instead, pursuant to Tobacco II, the court simply reversed the decertification order and remanded for redetermination of a single question:  "whether the named representatives can meet the UCL standing requirements announced in Tobacco II and if not, whether amendment should be permitted."  Id.  The Supreme Court did exactly the same thing in Tobacco II itself.  In re Tobacco II Cases, 46 Cal.4th 298, 306 (2009). 

In other words, Weinstat correctly followed Tobacco II as it was bound to do.  Cohen misinterpreted Tobacco II and reached the wrong result. 

The opinion also includes a lengthy footnote further interpreting Tobacco II and confirming that, even after Prop. 64, the substantive liability standard in a UCL "fraudulent" prong case is whether "the representations or nondisclosures in question would likely be misleading to a reasonable consumer.  The question of materiality, in turn, is whether a reasonable person would attach importance to the misrepresentation or nondisclosure in deciding how to proceed in the particular transaction -- in other words, would a reasonable dentist attach importance to Dentsply's claim that the [device] was safe for use in surgery."  Slip op. at 8 n.8 (citation omitted). 

Next, the Court of Appeal turned to the breach of warranty claim, and held that that claim should not have been decertified, either. 

As a procedural matter, the Court held that a decertification motion may be granted only upon proof of changed circumstances, such as a change in law or newly-discovered facts.  Slip op. at 11-12.  Because the defendant had presented none with respect to the warranty claim, the trial court had no power to decertify that claim:

In the case at hand, Dentsply’s motion for decertification was accompanied by changed circumstances, most notably the Pfizer decision. However, this circumstance only pertained to the UCL cause of action. Nevertheless, the trial court went on to address Dentsply’s reassertions as to why the breach of warranty class should be decertified as well. Decertifying one theory should not sanction decertifying another absent some commonality with the changed circumstance or some other situation justifying reconsideration. Here there was none.

Id. at 12. 

Then, the Court held that, "even if the trial court correctly reconsidered its certification of the breach of warranty class, its substantive decision was wrong." Id.  In an interesting and lengthy discussion, the Court determined that "reliance plays no role" in a claim for breach of express warranty.  Id. at 12-17.  And even if it did, none of the variations in the wording of defendants' misrepresentations would defeat certification.  Id. at 17-21.  "[T]he finding that the [misrepresentations] were not uniform does not imply that the variations were material to the claims ...."  Id. at 19.  On the most material question -- "biofilm infection risk" -- defendants "were silent."  Id.  (Here, the Weinstat court departs from Kaldenbach.)  And finally, the defendant's hypothetical defenses to the warranty claim (specifically, its right to present "clear affirmative proof" that the misrepresentations in question did not go "to the essence of the agreement") could not defeat the predominance finding.  Id. at 21-23.

Many thanks to everyone who wrote to alert me to this new decision. 

New Ninth Circuit UCL decision: Birdsong v. Apple, Inc.

In Birdsong v. Apple, Inc., ___ F.3d ___ (9th Cir. Dec. 30, 2009), the Ninth Circuit held that the district court had correctly granted the defendant's motion to dismiss the plaintiffs' UCL "fraudulent" prong claim (as well as their breach of express and implied warranty claims).  The UCL claim was properly dismissed, the court held, due to lack of Prop. 64 standing.

This decision received a lot of press coverage because the product in question was the iPod.  From an article by Bob Egelko in the San Francisco Chronicle: "A federal appeals court flicked the off switch Wednesday on a lawsuit claiming Apple's iPod is defective because it lacks adequate controls against dangerous sound levels."

Three new UCL and class-action-related decisions

Last Thursday, November 19, 2009, was a busy day for our state appellate courts.  Thirteen published opinions (and one modification of a published opinion) were issued on that date.  I've been following the opinions for a long time, and that's a huge number for a single day.  It probably had something to do with the fact that the preceding day (Wednesday, Nov. 18) was a court closure day.  I have a feeling that a lot of our appellate justices and research attorneys (not to mention our trial court judges) aren't exactly taking those days off. 

Three of the Nov. 19th opinions, listed below, involve interesting UCL or class action issues.  I will have more on these cases after the holiday.  Happy Thanksgiving! 

• Barboza v. West Coast Digital GSM, Inc., ___ Cal.App.4th ___ (Nov. 19, 2009) (Second Appellate District, Division Four)
• Davis v. Ford Motor Credit Co., ___ Cal.App.4th ___ (Nov. 19, 2009) (Second Appellate District, Division Three)
• Dowell v. Pacesetter, Inc., ___ Cal.App.4th ___ (Oct. 20, 2009; partial pub. ord. Nov. 19, 2009) (Second Appellate District, Division Two)
  

Supreme Court dismisses final Tobacco II "grant and hold" case: O'Brien v. Camisasca Automotive Mfg.

On Thursday, November 19, 2009, the Supreme Court finally acted on the last of the Tobacco II "grant and hold" cases, O'Brien v. Camisasca Automotive Mfg., no. S163207.  Instead of transferring the case back to the intermediate appellate panel for further proceedings, as in McAdams and Pfizer (Galfano), the Court simply dismissed review.  The dismissal order reads:

In light of the decision in In re Tobacco II Cases (2009) 46 Cal.4th 298 and Meyer v. Sprint Spectrum LP (2009) 24 Cal.4th 634, review in the above-entitled matter is dismissed. (Cal. Rules of Court, rule 8.528(b)(1).)

(Hyperlink added.)  This means that the earlier Court of Appeal opinion stands and binds the parties, but it remains unpublished.  Here is my original blog post on the Court of Appeal opinion, and the opinion itself (Second Appellate District, Division Three).  

I'm sure the similarity of issues between O'Brien and Kwikset was not lost on the Supreme Court.  Both are "Made in the U.S.A." cases that lower courts dismissed for lack of Prop. 64 standing (although the similarities end there). Perhaps the Court felt that leaving the O'Brien opinion unpublished was the best way to manage the development of the case law in this area.  O'Brien, of course, was decided long before review was granted in Kwikset, and I'm not sure there is any procedural way to convert O'Brien into a Kwikset "grant and hold" case, which it could easily have become if it had been handed down later. 

Interestingly, both O'Brien and Pfizer/Galfano are Second Appellate District, Division Three cases, and two of the panel Justices (Klein and Kitching) are the same.  Justice Croskey will join in re-deciding Pfizer/Galfano in a few weeks, whereas Justice Aldrich was the third panelist in O'Brien.

Oral argument scheduled in Pfizer, Inc. v. Superior Court (Galfano)

The Court of Appeal for the Second Appellate District, Division Three, has scheduled oral argument in Pfizer v. Superior Court (Galfano), no. B188106, one of the Tobacco II "grant and hold" cases.  The argument will take place on Monday, December 7, 2009 at 9:30 a.m. in Los Angeles.  If anyone would like to attend and prepare a report of the oral argument for posting here, I would be glad to hear from you.

I have copies of the parties' supplemental briefs filed pursuant to Rule of Court 8.200(b)(1) as well as the two amicus briefs:

• Supplemental Brief of Real Party in Interest Steve Galfano (filed 09/03/09)
• Supplemental Brief of Petitioner Pfizer, Inc. (filed 09/18/09)
• Amicus Curiae Brief of Chamber of Commerce of the U.S. (filed 09/22/09)
• Amicus Curiae Brief of Consumer Attorneys of California (filed 10/27/09)

On November 6, 2009, the parties filed replies to the two amicus briefs, but I have not yet received copies of those.  CAOC's amicus brief was written by yours truly, with critical assistance from fellow CAOC Board member David Arbogast.  Thanks again, David!

Meanwhile, supplemental briefs have also been filed in the other Tobacco II "grant and hold" case, McAdams v. Monier, no. C051841 (Third Appellate District).  In that case, however, there is no indication that the Court intends to conduct further oral argument. 

Also, the McAdams panel rejected my application to file an amicus brief on behalf of CAOC.  The order did not say why, and I honestly cannot fathom the reason.  I'd file the same brief all over again because I can't see what was wrong with it.  I wish the order had given a reason so that next time I could correct whatever it was that led them to reject the brief.  In any event, McAdams is another case to follow closely. 

Another new opinion interpreting Tobacco II: Princess Cruise Lines, Ltd. v. Superior Court (Wang)

In a new opinion handed down yesterday, Princess Cruise Lines, Ltd. v. Superior Court (Wang), ___ Cal.App.4th ___ (Nov. 10, 2009), the Court of Appeal (Second Appellate District, Division Eight) came close to interpreting Tobacco II's notorious footnote 17, but didn't quite get there. 

In footnote 17, the Supreme Court took pains to make clear that "as a result of" requires proof of actual reliance only in "fraudulent" prong cases, but not in "unfair" or "unlawful" prong cases not based on alleged fraud:

We emphasize that our discussion of causation in this case is limited to such cases where, as here, a UCL action is based on a fraud theory involving false advertising and misrepresentations to consumers. The UCL defines ‘unfair competition’ as ‘includ[ing] any unlawful, unfair or fraudulent business act or practice . . . .’ ([Bus. & Prof. Code,] § 17200.) There are doubtless many types of unfair business practices in which the concept of reliance, as discussed here, has no application.

In re Tobacco II Cases, 46 Cal.4th 298, 325 n.17.  

In Princess Cruise Lines, the plaintiffs argued that they need not prove "reliance" because the defendant's allegedly wrongful conduct "is an unfair business practice that does not involve fraud, i.e., they seek to place themselves within the rule set forth Tobacco II that UCL claims that are not based on fraud do not require reliance." Slip op. at 8 (emphasis added).  

The Court of Appeal held that the trial court should have granted summary judgment in the defendant's favor because "there is simply no ... evidence in this record" that the defendant's allegedly "unfair" conduct was in fact "unfair."  Id. at 10.  The Court also held that if "reliance" is required, the record contained no evidence of that, either.  Id. at 8. 

The final interesting part of Princess Cruise Lines is its holding that "as a result of" in the CLRA means the same thing as "as a result of" in the UCL, and that, therefore, "the analysis of the phrase ... found in Tobacco II" governs in CLRA cases:  "[R]eliance is required for CLRA actions, with the limitations noted in Tobacco II."  Slip op. at 11-12 (emphasis added). 

UPDATE:  Scott Leviant's post on Princess Cruise Lines points out that the same three panel members (Justices Rubin, Flier and Bigelow of the Second Appellate District, Division Eight) also gave us Cohen v. DIRECTV (discussed here), yet Princess Cruise Lines does not even mention Cohen.  Interesting. 

Unpublished opinion applies Tobacco II to common-law fraud claim: Whiteley v. R.J. Reynolds Tobacco Co.

In a recent unpublished opinion, the Court of Appeal (First Appellate District, Division Two) applied Tobacco II's discussion of actual reliance in a non-class common-law fraud case.  Whiteley v. R.J. Reynolds Tobacco Co., Nos. A119345, A121027 (nonpub. Oct. 14, 2009).  

This is interesting because there has been discussion of whether Tobacco II might make common-law fraud class actions easier to certify.  This unpublished decision shows, at least, that Tobacco II is going to be instructive in such cases.