Judge Walker's recent nationwide class certification ruling is now available on Westlaw and has been assigned a Federal Rules Decisions citation: Chavez v. Blue Sky Natural Beverage Co., ___ F.R.D. ___, 2010 WL 2528525 (N.D. Cal. 2010). My earlier blog post on this decision is here.
Many thanks to the blog reader who forwarded Chief Judge Vaughn R. Walker's recent class certification order in Chavez v. Blue Sky Natural Beverage Co., 2010 U.S. Dist. LEXIS 60554 (N.D. Cal. Jun. 18, 2010). The order does not appear to be available on Westlaw yet. UPDATE: The order is now available on Westlaw and has also been assigned a Federal Rules Decisions cite: Chavez v. Blue Sky Natural Beverage Co., ___ F.R.D. ___, 2010 WL 2528525 (N.D. Cal. 2010).
Notably, Judge Walker followed Tobacco II's holding that only the named class representatives, and not the unnamed class members, must satisfy the UCL's post-Prop. 64 standing requirement. Chavez, 2010 U.S. Dist. LEXIS 60554 at *27-*28, *37 (citing In re Tobacco II Cases, 46 Cal.4th 298, 324 (2009)). He found no Article III bar to applying Tobacco II in federal court. See id. at *27-*28.
He further followed Tobacco II in holding that the plaintiffs' UCL claim (based on misrepresentations of the geographic origin of goods) did not require individualized proof of reliance, actual deception or injury. Id. at *29 (citing Tobacco II, 46 Cal.4th at 320). In granting class certification, he followed In re Steroid Hormone Product Cases, 181 Cal.App.4th 145 (2010), rather than Cohen v. DirecTV, Inc., 178 Cal.App.4th 966 (2009). Chavez, 2010 U.S. Dist. LEXIS 60554 at *29-*30.
Also of interest, the plaintiffs submitted the report of a marketing expert in support of class certification on the "materiality of [the defendant's] product labeling and marketing." Chavez, 2010 U.S. Dist. LEXIS 60554 at *32. Materiality was relevant to the CLRA and common-law fraud claims, which Judge Walker certified based on the doctrine of presumed reliance. Id. at *30-*31. Judge Walker considered the expert report in accordance with the standards set forth in the new Dukes v. Wal-Mart en banc opinion. Id. at *32 (citing Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 603 & n. 22 (9th Cir. 2010)).
I am occasionally asked about the use of expert testimony in false advertising cases to establish whether a particular misrepresentation or omission was material (for CLRA purposes) or likely to deceive a reasonable consumer (for UCL purposes). It makes a lot of sense as a theoretical matter (although it is not required, see Brockey v. Moore, 107 Cal.App.4th 86 (2003)). Up to now, however, the only case I could think of actually involving such testimony was Lavie v. Procter & Gamble Co., 105 Cal.App.4th 496 (2003). The unpublished portion of that decision discussed the expert testimony in depth (see this blog post).
In Cohen, the Court of Appeal (Second Appellate District, Division Eight) affirmed the trial court's denial of class certification of CLRA and UCL claims. In so doing, the Court misinterpreted Tobacco II.
The case alleged that DIRECTV advertised its HD satellite television service "without the intent to provide the customers" with the advertised levels of resolution, and "that DIRECTV switched its HDTV channels to a lower 'resolution,' reducing the quality of the television images it transmits to its subscribers." Slip op. at 3. The trial court denied certification of both the CLRA and the UCL claims because (among other reasons) it determined that actual reliance was an element of both claims. Id. at 7.
As for the UCL claim, the trial court held (in November 2007):
Prior to Prop 64 the standard for fraud was "likely to be deceived." However since Prop 64, amendments require the plaintiff to have suffered injury in fact and lost money or property. A conclusion may be drawn that class members must have actu[a]lly been deceived.
Id. (alteration in original; emphasis added). This, of course, is precisely the opposite of the Supreme Court's holding in Tobacco II. Yet, in Cohen, the Court of Appeal held that the trial court "did not apply an improper criterion in addressing the class certification issue." Slip op. at 16. That holding is, respectfully, wrong.
This is how the Court of Appeal described Tobacco II in Cohen:
... Tobacco II held that, for purposes of standing in context of the class certification issue in a “false advertising” case involving the UCL, the class members need not be assessed for the element of reliance. Or, in other words, class certification may not be defeated on the ground of lack of standing upon a showing that class members did not rely on false advertising. In short, Tobacco II essentially ruled that, for purposes of standing, as long as a single plaintiff is able to establish that he or she relied on a defendant’s false advertising, a multitude of class members will also have standing, regardless of whether any of those class members have in any way relied upon the defendant’s allegedly improper conduct.
Slip op. at 15 (italics in original; bold added).
That is not what Tobacco II held. As you may remember, both the trial court and the intermediate appellate court in Tobacco II had held that, "post Proposition 64, individual issues of exposure to the allegedly deceptive statements and reliance upon them, predominated over class issues." Tobacco II, 46 Cal.4th at 311 (describing lower courts' holding). In Tobacco II, class certification was not denied "on the ground of lack of standing," but rather because common questions would not predominate on the issue of reliance. That is the ruling Tobacco II expressly reversed. Tobacco II goes far beyond standing (as will be discussed in more detail below).
Nor did Tobacco II hold that if the class representative has standing, "a multitude of class members will also have standing." Slip op. at 15. On the contrary, Tobacco II holds that "standing requirements are applicable only to the class representatives, and not all absent class members." 46 Cal.4th at 306 (emphasis added). In other words, the class representative's standing does not confer standing on the unnamed class members; rather, the unnamed class members need not meet the standing requirements at all: "[A]ccepted principles of class action procedure ... treat the issue of standing as referring only to the class representative and not the absent class members.” Id. at 321.
Cohen also held that the UCL does not "authorize an award for injunctive relief and/or restitution on behalf of a consumer who was never exposed in any way to an allegedly wrongful business practice." Slip op. at 14. The Supreme Court held the opposite in Tobacco II:
[Business and Professions Code section 17204], construed in light of the “concern that wrongdoers not retain the benefits of their misconduct” (Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d 442, 452, 153 Cal.Rptr. 28, 591 P.2d 51) has led courts repeatedly and consistently to hold that relief under the UCL is available without individualized proof of deception, reliance and injury. (E.g., Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267, 10 Cal.Rptr.2d 538, 833 P.2d 545; Committee on Children's Television, Inc. v. General Foods Corp., supra, 35 Cal.3d at p. 211, 197 Cal.Rptr. 783, 673 P.2d 660.)
Tobacco II, 46 Cal.4th at 321 (emphasis added).
Let me repeat that for emphasis. Under the UCL, "relief" may be ordered "without individualized proof of deception, reliance and injury." Id. (emphasis added).
The reason for this is simple. Actual deception, reliance and injury are not elements of a UCL claim. Id.; see also id. at 312 (UCL "fraudulent" prong claim requires proof only that “members of the public are likely to be deceived"); Morgan v. AT&T Wireless Services, Inc., 177 Cal.App.4th 1235, 1253 (2009) ("[P]re-Proposition 64 caselaw that describes the kinds of conduct outlawed under the UCL is applicable to post-Proposition 64 cases such as the present case. The only difference is that, after Proposition 64, plaintiffs (but not absent class members in a class action) must establish that they meet the Proposition 64 standing requirements." (citing Tobacco II)).
Contrary to the Cohen court's perception, Tobacco II addresses far more than just standing. The Supreme Court held that the standing requirement ("suffered injury in fact and lost money or property as a result of") could not be imposed on unnamed class members because doing so would serve to change these long-established elements of a UCL claim -- something the Court had previously held, in Mervyn's, Prop. 64 did not do:
[T]o hold that the absent class members on whose behalf a private UCL action is prosecuted must show on an individualized basis that they have “lost money or property as a result of the unfair competition” (§ 17204) would conflict with the language in section 17203 authorizing broader relief -- the “may have been acquired” language -- and implicitly overrule a fundamental holding in our previous decisions, including Fletcher, Bank of the West and Committee on Children's Television.
Had this been the intention of the drafters of Proposition 64 -- to limit the availability of class actions under the UCL only to those absent class members who met Proposition 64's standing requirements -- presumably they would have amended section 17203 to reflect this intention. Plainly, they did not.
[It] would undermine the guarantee made by Proposition 64's proponents that the initiative would not undermine the efficacy of the UCL as a means of protecting consumer rights, because requiring all unnamed members of a class action to individually establish standing would effectively eliminate the class action lawsuit as a vehicle for the vindication of such rights.
Tobacco II, 46 Cal.4th at 320, 321.
The Cohen opinion expresses the view that UCL claims are incompatible with class certification principles unless each class member proves reliance and injury:
[W]e find Tobacco II to be irrelevant because the issue of "standing" simply is not the same thing as the issue of "commonality." .... We see no language in Tobacco II which suggests to us that the Supreme Court intended our state's trial court's to dispatch with an examination of commonality when addressing a motion for class certification.
Slip op. at 15-16. Cohen overlooks the fact that Tobacco II necessarily addressed not only standing, but also commonality, because in Tobacco II, the Supreme Court expresssly reinstated an order granting class certification of a UCL "fraudulent" prong claim. The Supreme Court did not direct lower courts to dispense with commonality when analyzing class certification; but what it did do is direct lower courts to assess commonality in light of the actual elements of the claim ("likely to deceive" consumers) rather than non-existent ones (actual reliance and injury).
For a case in which the court employed precisely that approach to commonality, and found the element satisfied, see Plascencia v. Lending 1st Mortgage, ___ F.R.D. ___, 2009 WL 2569732 (N.D. Cal. Aug. 21, 2009) (discussed in this blog post.) Even the Court of Appeal in Kaldenbach (published on Monday) employed that approach.
The Cohen opinion concludes:
In short, ... factual questions associated with [unnamed class members'] relianceon DIRECTV’s alleged false representations was a proper criterion for the court’s consideration when examining “commonality”in the context of the subscribers’ motion for class certification, even after Tobacco II.
Slip op. at 16 (emphasis added). This holding takes us back to pre-Mervyn's and pre-Tobacco II days, when lower courts had (erroneously) held that Prop. 64 changed the UCL's substantive elements by importing a "reliance" requirement. The Supreme Court held in no uncertain terms that Prop. 64 "was not intended to have any effect on absent class members.” Tobacco II, 46 Cal. 4th at 319 (emphasis added). If Cohen stands, the effect will be major and substantive.
As defendants like to point out, the class action statute is a procedural device that is not to be employed to alter the underlying claim's substantive elements. See, e.g., Tobacco II, 46 Cal.4th at 312 (citing City of San Jose v. Superior Court, 12 Cal.3d 447, 462 (1974) ("Class actions are provided only as a means to enforce substantive law.")). The Cohen opinion uses the class action device to impose a "reliance" element that the Supreme Court has (twice) held Prop. 64 did not impose and is not part of the UCL. The opinion should either be depublished or taken up for review.
The plaintiffs' claim in Lockwood v. Conagra Foods, Inc., ___ F.Supp.2d ___, 2009 WL 250459 (N.D. Cal. Feb. 3, 2009) is that "defendant engages in misleading conduct by advertising its 'Healthy Choice' pasta sauce as 'all natural' when in fact it includes 'high fructose corn syrup.'" Id. at *1. Judge Charles R. Bryer determined that neither the Nutrition Labeling and Education Act nor FDA regulations under the Federal Food and Drug Cosmetic Act preempted this claim. Id. at *1-*6. He also refused to strike the class allegations:
Finally, defendant seeks to strike the class allegations on the ground that a class cannot be certified as a matter of law. Specifically, defendant alleges that each class member must prove reliance on the “all natural” representation and therefore individual questions necessarily predominate.
If a misrepresentation is material an inference of class-wide reliance may be inferred. Mass. Mut. Li[f]e Ins. Co. v. Superior Court, 97 Cal.App.4th 1282, 1292, 119 Cal.Rptr.2d 190 (Cal.App.2002). The Court cannot determine on the pleadings whether a class-wide inference is appropriate in this case. Accordingly, defendant's motion to strike the class allegations is denied without prejudice to the Court considering the issue on a fully-briefed and supported motion concerning class certification.
On August 10, 2007, the Court of Appeal issued this order (quoted from the docket): "To make non-substantive changes to the opinion, the Court grants rehearing on its own motion. No further briefing is required." On December 4, 2007, the Court of Appeal issued its new opinion: Ticconi v. Blue Shield of California Life & Health Ins. Co., ___ Cal.App.4th ___ (Dec. 4, 2007). As indicated in the docket, the new opinion does not appear to include any substantive changes.
In Estrada v. FedEx Ground Package System, Inc., ___ Cal.App.4th ___ (Aug. 13, 2007), the Court of Appeal (Second Appellate District, Division One) affirmed a judgment in favor of a class of FedEx delivery truck drivers, holding that the trial court correctly determined that the drivers were FedEx employees, not independent contractors, and that their expenses should have been reimbursed pursuant to Labor Code section 2802. The Court also held that some of the expenses were improperly disallowed, and remanded for redetermination of the amount (as well as for recalculation of attorneys' fees under Code of Civil Procedure section 1021.5).
The Court also rejected FedEx's post-trial challenge to the trial court's order granting certification and its approval of plaintiffs' use of representative ("anecdotal") testimony to establish their claims classwide:
The decision whether to certify a class is one within the trial court’s discretion and will be set aside only upon a showing of abused discretion. (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326-327; Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435-436.) On this record, FedEx cannot make the required showing because it is clear that common issues -- whether the drivers were employees and, if so, which expenses would be reimbursable -- predominated. The anecdotal evidence was admitted to show FedEx’s power to interpret the Operating Agreement and was relevant to the class as a whole, not just to the drivers who happened to be the subject of a particular anecdote. FedEx’s failure to raise this point below suggests it understood that it would fail (it did not at any time during the nine-week trial move for decertification on the basis of the anecdotal evidence). (Telles Transport, Inc. v. Workers’ Comp. Appeals Bd. (2001) 92 Cal.App.4th 1159, 1166-1167; Mesecher v. County of San Diego (1992) 9 Cal.App.4th 1677, 1685-1686.)
In Ticconi v. Blue Shield of California Life & Health Ins. Co., ___ Cal.App.4th ___ (Jul. 30, 2007), the Court of Appeal (Second Appellate District, Division Three) reversed an order denying class certification of the plaintiff's UCL claim, which alleged that the defendant violated certain Insurance Code provisions. The Court of Appeal determined that the trial court made an erroneous legal assumption concerning available defenses to the UCL claim.
In particular, the Court held that any non-common questions surrounding the defendant's defenses of unclean hands and fraud could not defeat certification of the UCL claim because those were not valid defenses to that claim:
Courts have long held that the equitable defense of unclean hands is not a defense to an unfair trade or business practices claim based on violation of a statute. To allow such a defense would be to judicially sanction the defendant for engaging in an act declared by statute to be void or against public policy. (Kofsky v. Smart & Final Iris Co. (1955) 131 Cal.App.2d 530, 532; Page v. Bakersfield Uniform Etc. Co. (1966) 239 Cal.App.2d 762, 770 [“The equitable doctrine of the refusal of aid to anyone with ‘unclean hands,’ does not, as such, apply to actions under [the unfair practices act].”) ....
More recently, our Supreme Court explained that “equitable defenses may not be asserted to wholly defeat a UCL claim [under Bus. & Prof. Code, § 17200] since such claims arise out of unlawful conduct. . . .” (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 179.) In Cortez, the plaintiff brought an action under the UCL seeking restitution of overtime wages withheld from her and other employees. The defendant argued that where the UCL sounded in equity, the trial court was obligated to consider equitable defenses. The Supreme Court held that the equities may be considered when the trial court exercises its discretion to fashion a remedy under Business and Professions Code section 17203. (Ibid.) But, equitable defenses may not be used to defeat the cause of action under the UCL. As more fully explained by Justice Werdegar in her concurrence in Cortez, “in general, as between a person who is enriched as the result of his or her violation of the law, and a person intended to be protected by the law who is harmed by its violation, for the violator to retain the benefit would be unjust.” (Cortez, supra, at p. 182, conc. opn. of Werdegar, J.)
Accordingly, Blue Shield Life should not be entitled to raise the equitable defense of unclean hands to defeat the UCL cause of action here. To allow Blue Shield Life to argue as a defense to the UCL claim of postclaims underwriting that plaintiffs have unclean hands because they misrepresented material medical information on unattached and unendorsed insurance applications, would be to sanction Blue Shield Life’s unlawful and unfair conduct. (Cortez v. Purolator Air Filtration Products Co., supra, 23 Cal.4th at p. 182, conc. opn. of Werdegar, J.; Page v. Bakersfield Uniform Etc. Co., supra, 239 Cal.App.2d at p. 770; Kofsky v. Smart & Final Iris Co., supra, 131 Cal.App.2d at p. 532.) Of course, the trial court has the discretion to consider equitable defenses such as unclean hands in creating the remedies authorized by Business and Professions Code section 17203. (Cortez, supra, at p. 179.) Such defenses may not be used, however, to wholly defeat the UCL cause of action. (Ibid.)
Nor is fraud available as a defense to defeat plaintiff’s cause of action. Insofar as Blue Shield Life failed to attach its insureds’ applications to or endorse them on the policies, those insureds would “not [be] bound by any statements made in [those] application[s]” (§ 10381.5) and “[a]ny waiver of the provisions of this section shall be void” (§ 10113). To raise unclean hands and fraud based on statements in the application to defeat this UCL claim, Blue Shield Life would need to hold insureds to those statements. Yet, not only would that defense violate section 10113’s anti-waiver provision and the very sanction that section 10381.5 provides for failure to attach or endorse the applications to the policy, but that defense is specifically denied the insurance company by the Supreme Court. (Telford v. New York Life Ins. Co., supra, 9 Cal.2d at p. 106.)
Slip op. at 14-16. Applying these principles, the Court determined that class certification had been improperly denied:
[W]here equitable defenses may not be used to wholly defeat the UCL cause of action (Cortez v. Purolator Air Filtration Products Co., supra, 23 Cal.4th at p. 179), and where the insurer may not raise a defense based on misstatements made in unattached and unendorsed applications (Telford v. New York Life Ins. Co., supra, 9 Cal.2d at p. 106), the diverse facts making up Blue Shield Life’s fraud and unclean hands defenses are not to be factored in when determining whether the community interest requirement is met. That is, where they are not to be considered, legal and factual issues that go to remedies simply cannot outweigh the common issues related to liability. In short, the trial court relied on erroneous legal assumptions when it weighed the legal and factual issues of fraud and unclean hands in deciding to deny plaintiff’s motion for class certification. (Linder v. Thrifty Oil Co., supra, 23 Cal.4th at pp. 435-436.)
We disagree with Blue Shield Life that equitable considerations at the remedy stage involve individual issues precluding class treatment of liability. “In the absence of California authority, California courts may look to the Federal Rules of Civil Procedure (FRCP) and to the federal cases interpreting them [citation].” (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2006) 14:11.20, p. 14-9.) As explained by the authority on federal class actions, “Individual issues will often be present in a class action, especially in connection with individual defenses against class plaintiffs, rights of individual class members to recover in the event a violation is established, and the type of amount of relief individual class members may be entitled to receive. Nevertheless, it is settled that the common issues need not be dispositive of the litigation. The fact that class members must individually demonstrate their right to recover, or that they may suffer varying degrees of injury, will not bar a class action; nor is a class action precluded by the presence of individual defense against class plaintiffs.  Moreover, a court has the discretion to limit a class suit to liability issues only, or to select common claims and defenses . . . .” (1 Newberg on Class Actions § 3:12, pp. 315-316, fns. omitted; see also Gerdom v. Continental Airlines, Inc. (9th Cir. 1981) 648 F.2d 1223, 1228, vacated in part in 692 F.2d 602, cert. den. sub nom. Continental Air Lines, Inc. v. Gerdom (1983) 460 U.S. 1074 [commonality requirement not defeated by fact that members had differing injuries].)
In Arias v. Superior Court, ___ Cal.App.4th ___ (Jul. 24, 2007), the Court of Appeal (Third Appellate District) addressed whether the trial court properly granted the defendant's motion to strike the representative allegations from the plaintiff's complaint. The opinion has two holdings of note.
First, the court held that "[t]he UCL requires that a representative claim be brought as a class action because the UCL requires compliance with the class action provisions of Code of Civil Procedure section 382." Slip op. at 2; see id. at 3-12. This part of the holding does not seem particularly noteworthy to me, if only because several other courts have already said this, albeit in dicta. Arias is, however, the first decision to analyze the question in any detail. (The decision does not expressly address the injunctive relief question or whether a UCL claim seeking injunctive relief only must be formally certified for class treatment before the court may order the defendant to halt its wrongful conduct.)
The decision also includes an interesting diccussion of Prop. 64's impact on associational standing. According to the Arias court, Prop. 64 did not change the rules of associational standing because it is Code of Civil Procedure section 382, not the UCL, that authorizes such standing:
The Supreme Court has interpreted the second half of section 382 as permitting two types of representative suits: class actions and actions by an association on behalf of its members. (Californians For Disability Rights v. Mervyn's, LLC (2006) 39 Cal.4th 223, 233, fn. 4.) [n.5] ....
[n.5] As enacted, associations and organizations whose members have a joint interest in their affairs, such as joint associations and partnerships, were included within the representative provisions of section 382. (See Code commrs. notes foll. 14 West’s Ann. Code Civ. Proc., § 382 as enacted in 1872 (2004 ed.) p. 269.)
These provisions were retained when the UCL was amended pursuant to Proposition 64, the only change being the deletion of the phrase “person acting for the interests of itself,” and its replacement with “person who has suffered injury . . . .” Accordingly, the amendments affect only natural “persons,” who are subject to the injury in fact and damage requirements of Business and Professions Code section 17204.
Slip op. at 8 & n.5. The court's use of the word "damage" to describe section 17204 is also interesting. Elsewhere, the court says that "Business and Professions Code section 17204 now requires that a plaintiff have suffered damages." Slip op. at 4-5 (emphasis added).
The second noteworthy holding in Arias is the court's conclusion that the Labor Code Private Attorneys General Act ("PAGA") (Lab. Code §§ 2698 et seq.) authorizes a representative action, similar to a pre-Prop. 64 UCL representative action, without formal class certification. Slip op. at12-16. The court predicated its holding on Labor Code section 2699, which states:
Notwithstanding any other provision of law, any provision of this code that provides for a civil penalty to be assessed and collected by the Labor and Workforce Development Agency or any of its departments, divisions, commissions, boards, agencies, or employees, for a violation of this code, may, as an alternative, be recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current or former employees pursuant to the procedures specified in Section 2699.3.”
Slip op. at 12-13 (quoting Lab. Code § 2699). The court said that "[t]he PAGA was adopted to empower aggrieved employees to act as private attorneys general and to authorize them to seek civil penalties for Labor Code violations that previously could be assessed only by state agencies." Id. at 14 (citing Dunlap v. Superior Court, 142 Cal.App.4th 330, 336 (2006)). The court explained:
Both the language of the PAGA and the express intent of the Legislature indicate that an aggrieved employee may bring an action on behalf of other employees without complying with the requirements of a class action. Labor Code section 2699 specifically states that an aggrieved employee may bring an action on behalf of other employees, “[n]otwithstanding any other provision of law . . . .” The wording of the PAGA, which authorizes an aggrieved employee to bring an action “on behalf of himself or herself and other current or former employees . . . [,]” is similar to the former wording of Business and Professions Code section 17204, which authorized a person to bring an action “acting for the interests of itself, its members or the general public.” Non-class representative actions were authorized under former Business and Professions Code section 17204. (See Kraus v. Trinity Management Services, Inc., supra, 23 Cal.4th 116.) Unlike the current version of Business and Professions Code section 17203 after the passage of Proposition 64, the PAGA does not require that an action brought by an aggrieved employee comply with section 382 of the Code of Civil Procedure.
In Seastrom v. Neways, Inc., ___ Cal.App.4th ___ (Apr. 23, 2007), the Court of Appeal (Fourth Appellate District, Division One) addressed the "adequacy" element of class certification. The two proposed plaintiffs (who were substituted into the case after the original plaintiff lost standing in the wake of Prop. 64) were participants in a pyramid scheme. That scheme sold "an anti-aging dietary supplement" called BioGevity. One ingredient in BioGevity is federally regulated and is supposed to be sold only with a prescription. Slip op. at 2-4.
The Court of Appeal determined that the trial court did not abuse its discretion in holding that the two plaintiffs, who profited from selling the dietary supplement, were not adequate representatives of a proposed class of persons who bought the dietary supplement. Their conflict of interest, the court held, "goes to the very subject matter of the litigation." Id. at 6-7 (quoting Richmond v. Dart Industries, Inc., 29 Cal.3d 462, 470 (1981)). It seems to me that if someone who sold a product in violation of the UCL wished to facilitate a class action to recitify that misconduct, what they should do is notify their customers of the violation and encourage them to retain counsel. The Court of Appeal declined to address whether leave to amend the complaint to add another plaintiff should be granted. Id. at 11 n.2.
This case reminds me of Yoo v. Jho, ___ Cal.App.4th ___ (Feb. 23, 2007), in which the Court of Appeal (Second Appellate District, Division Three) held that two manufacturers of counterfeit designer bags could not bring their contract dispute into the court system and expect equitable relief. What were they thinking?
Yesterday, in Pfizer, Inc. v. Superior Court, ___ Cal.App.4th ___ (Jul. 11, 2006), the Court of Appeal (Second Appellate District, Division Three) addressed a trio of significant and unresolved questions about how the UCL works in the post-Prop. 64 world. The court decided all three questions in the defendant's favor:
(1) In a UCL class action, all class members, not just the representative plaintiff, must have suffered "injury in fact." "We conclude that in order to meet the ‘community of interest’ requirement of Code of Civil Procedure section 382, which requires, inter alia, the class representative to have claims typical of the class, it is insufficient if the class representative alone suffered injury in fact and lost money or property as a result of the unfair competition or false advertising. The class members being represented by the named plaintiff likewise must have suffered injury in fact and lost money or property as a result of such violation." (Slip op. at 5 (emphasis added).) The court rejected the argument that the amendment's plain language—"Actions ... under this section may be prosecuted ... by any person who has suffered injury in fact and has lost money or property as a result of a violation of this chapter"—meant that only the representative plaintiff had to prove "injury in fact." (Slip op. at 13-14.)
(2) The "likely to deceive" standard, which governed UCL "fraudulent" prong cases before Prop. 64, has been abolished. "[T]he mere likelihood of harm to members of the public is no longer sufficient for standing to sue. Persons who have not suffered any injury in fact and who have not lost money or property as a result of an alleged fraudulent business practice cannot state a cause of action merely based on the 'likelihood' that members of the public will be deceived." (Slip op at 5 (emphasis added).) The Court declined to follow any of the post-Prop. 64 decisions that applied the "likely to deceive" formulation (see this post for a list of those decisions). (Slip op. at 15-17.)
(3) Prop. 64 imports a reliance element into the UCL. "[I]nherent in Proposition 64’s requirement that a plaintiff suffered ‘injury in fact ... as a result of’ the fraudulent business practice or false advertising (§§ 17204, 17535, italics added) is that a plaintiff actually relied on the false or misleading misrepresentation or advertisement in entering into the transaction in issue." (Slip op. at 5 (emphasis in original).) The court expressly declined to follow Anunziato v. eMachines, Inc., 402 F.Supp.2d 1133 (C.D. Cal. 2005), and held instead that "the district court's decision in Laster v. T-Mobile USA, Inc. (S.D. Cal. 2005) 407 F.Supp.2d 1181, sets forth the correct interpretation." (Slip op. at 18.) (See theseposts for further discussion of Anunziato and Laster.)
The Court concluded by saying:
We recognize this initiative measure, which was promoted as adding a standing requirement to the UCL and FAL, has had the effect of dramatically restricting these consumer protection measures. .... However, this court must take the statutory language as it finds it. Given the new restrictions on private enforcement under the UCL and the FAL, enforcement of these statutes in legitimate cases is increasingly the responsibility of a vigilant state Attorney General and/or local public prosecutors.
(Slip op. at 20.)
If the Pfizer holdings stand up, the effect of Prop. 64 will indeed be quite different from what the electorate was told. The silver lining for plaintiffs is that such amendments cannot possibly be construed as merely "procedural." According to Pfizer, Prop. 64 altered the "fraudulent" prong's "likely to deceive" standard and "added a reliance element to the UCL." (Slip op. at 16-17 (emphasis added).) Those changes are substantive. They cannot be applied to cases filed before the amendments' effective date absent a very clear statement of retroactive intent, which Proposition 64 does not contain.
On the other hand, if the Supreme Court holds that Prop. 64's amendments do apply to previously-filed actions, that would impliedly overrule Pfizer (unless the holding is based exclusively on the so-called "statutory repeal rule," which I consider unlikely for reasons explained here). This whole thing is becoming a Gordian knot.
In the published portion of Alan v. American Honda Motor Co., ___ Cal.App.4th ___ (Aug. 2, 2005), the Court of Appeal (Second Appellate District, Division Three) reaffirmed the rule that an order denying certification of an entire class is appealable.
The unpublished portion of the opinion is much more interesting. There, the Court addressed the plaintiff's argument that, given the passage of Proposition 64, a pre-Prop. 64 order denying certification of the CLRA claim, but not the UCL claim, was only a partial denial of class certification, and therefore not appealable:
Plaintiff asserts ... that the order denying plaintiff’s motion for class certification was not the death knell of the class action allegations. According to plaintiff, the trial court’s order was tantamount to a partial denial of class certification, and therefore was not appealable. (See, e.g., Shelley v. City of Los Angeles, supra, 36 Cal.App.4th 692; General Motors Corp. v. Superior Court (1988) 199 Cal.App.3d 247.)
Specifically, plaintiff asserts ... that the recently enacted Proposition 64 transformed the cause of action under Business and Professions Code section 17200 from a representative action to a class action.
Based upon these considerations, plaintiff claims the trial court order denying class certification was only a partial denial of certification, and therefore not immediately appealable. Plaintiff explains that this was a cautionary appeal and that this court should exercise its discretion to consider the premature appeal as a petition for a writ of mandate. (SeeSzetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1098.) We reject these assertions.
On this record, the trial court order denying certification cannot be construed as a partial denial of class certification. ....
[A]t the time the trial court ruled on plaintiff’s motion for certification, Proposition 64 had not been approved by the electorate. (Berger v. California Ins. Guarantee Assn. (2005) 128 Cal.App.4th 989, 1007, fn. 17 [Proposition 64 took effect on November 3, 2004.].) Thus, none of the class claims were based upon Proposition 64’s modifications of Business and Professions Code section 17200. In any event, plaintiff has offered no explanation as to how the newly-enacted Proposition 64 would broaden the potential class. Plaintiff has offered no explanation as to whether a proposed class under section 17200 of the Business and Professions Code would be comprised of a different class of persons or whether such a class would present different claims.
The trial court’s January 2, 2003, order was the final disposition of all class claims at issue and presented in this litigation. Thus, the trial court order denying plaintiff’s motion for class certification was the death knell of the class claims presented under the Consumer Legal Remedies Act. The order was therefore immediately appealable.