The UCL Practitioner

New Ninth Circuit UCL "likely to deceive" decision: Williams v. Gerber Products Co.

On Monday, the Ninth Circuit handed down an opinion applying the "likely to deceive" formulation of the UCL's "fraudulent" prong. Williams v. Gerber Products Co., ___ F.3d ___, 2008 WL 1776522 (9th Cir. Apr. 21, 2008). In Williams, the Ninth Circuit reversed an order dismissing the plaintiff's UCL claims (Williams v. Gerber Products Co., 439 F.Supp. 2d 1112 (S.D. Cal. 2006)), holding that the district court erred by assessing for itself whether the defendant's allegedly misleading labeling was "likely to deceive a reasonable consumer":

Here, the district court based its decision to grant the motion to dismiss solely on its own review of an example of the packaging. It is true that “the primary evidence in a false advertising case is the advertising itself.” Brockey v. Moore, 107 Cal.App.4th 86, 100 (Cal.App. 2003). California courts, however, have recognized that whether a business practice is deceptive will usually be a question of fact not appropriate for decision on demurrer. See e.g., Linear Technology Corp. v. Applied Materials, Inc., 152 Cal.App.4th 115, 134-35 (Cal.App. 2007) (“Whether a practice is deceptive, fraudulent, or unfair is generally a question of fact which requires ‘consideration and weighing of evidence from both sides’ and which usually cannot be made on demurrer.” (quoting McKell v. Washington Mutual, Inc., 142 Cal.App.4th 1457, 1472 (Cal.App. 2006))); Committee on Children’s Television, 35 Cal.3d at 197 (finding demurrer inappropriate in case where parents alleged deceptive advertising of sugar cereals).

....

The facts of this case ... do not amount to the rare situation in which granting a motion to dismiss is appropriate. Here, there are a number of features of the packaging Gerber used for its Fruit Juice Snacks product which could likely deceive a reasonable consumer. The product is called “fruit juice snacks” and the packaging pictures a number of different fruits, potentially suggesting (falsely) that those fruits or their juices are contained in the product. Further, the statement that Fruit Juice Snacks was made with “fruit juice and other all natural ingredients” could easily be interpreted by consumers as a claim that all the ingredients in the product were natural, which appears to be false. And finally, the claim that Snacks is “just one of a variety of nutritious Gerber Graduates foods and juices that have been specifically designed to help toddlers grow up strong and healthy” adds to the potential deception.

Slip op. at 4195-96. At this point, the opinion has an interesting footnote with a useful quotation for advertising cases:

Gerber’s claim that Snacks is “nutritious,” were it standing on its own, could arguably constitute puffery, since nutritiousness can be difficult to measure concretely. See Cook, Perkiss and Liehe, Inc. v. Northern Cal. Collection Serv., Inc., 911 F.2d 242, 246 (9th Cir. 1990) (finding that statements are non-actionable puffery where they constituted “general assertions of superiority” rather than “factual misrepresentations”). This statement certainly contributes, however, to the deceptive context of the packaging as a whole. Given the context of this statement, we decline to give Gerber the benefit of the doubt by dismissing the statement as puffery. “It is not difficult to choose statements, designs, and devices which will not deceive.” United States v. Ninety-Five Barrels More or Less of Alleged Apple Cider Vinegar, 265 U.S. 438, 443 (1924).

Slip op. at 4196 n.3. The opinion goes on:

The district court suggests that “no reasonable consumer upon review of the package as a whole would conclude that Snacks contains juice from the actual and fruit-like substances displayed on the packaging particularly where the ingredients are specifically identified.” Williams, 439 F.Supp.2d at 1116. We disagree with the district court that reasonable consumers should be expected to look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box. The ingredient list on the side of the box appears to comply with FDA regulations and certainly serves some purpose. We do not, however, think that a busy parent walking through the aisles of a grocery store should be expected to verify that the representations on the front of the box are confirmed in the ingredient list. Instead, reasonable consumers expect that the ingredient list contains more detailed information about the product that confirms other representations on the packaging. We do not think that the FDA requires an ingredient list so that manufacturers can mislead consumers and then rely on the ingredient list to correct those misinterpretations and provide a shield for liability for the deception.

Slip op. at 4196-97 (emphasis added). Finally, to illustrate these holdings, the opinion includes a copy of the challenged label:

Slip op. at 4199 (a full-size copy of the image is available at this link; click on the image to enlarge it).

The Ninth Circuit's reversal of the District Court's published order in Williams may necessitate reconsideration (or reversal) of other orders in which other District Courts followed Williams. See, e.g., McKinniss v. General Mills, Inc., 2007 WL 4762172 (C.D. Cal. Sept. 18, 2007); McKinnis v. Kellogg USA, 2007 WL 4766060 (C.D. Cal. Sept. 19, 2007).

New UCL "fraudulent" prong decision: Buller v. Sutter Health

In Buller v. Sutter Health, ___ Cal.App.4th ___ (Mar. 5, 2008), the plaintiff challenged the defendant's failure to disclose its practice of providing discounts, on request, to customers who timely paid their bills in full. This practice was "fraudulent" and "unfair" under the UCL, the plaintiff claimed, because the defendant did not disclose the practice and did nothing that "'would lead a reasonable consumer ... to seek the discount, or discern that the prompt-pay discount is available to all who pay promptly.'" Slip op. at 2. The Court of Appeal (First Appellate District, Division One) held that the trial court correctly sustained the defendant's demurrer to the plaintiff's UCL claim without leave to amend.

The most unfortunate part of this opinion is its discussion of the UCL's "fraudulent" prong. According to the opinion, "it appears settled that 'Absent a duty to disclose, the failure to do so does not support a claim under the fraudulent prong of the UCL.' (Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544, 1557 [62 Cal.Rptr.3d 177] [failure to disclose detailed listings or breakdowns of specific escrow charges comprising transfer or document fees did not violate the UCL].) This is because a consumer is not 'likely to be deceived' by the omission of a fact that was not required to be disclosed in the first place." Slip op. at 5. The opinion goes on to explain that the alleged nondisclosure was not actionable because "[consumers] in [plaintiff's] position are not likely to be operating under the expectation that they are entitled to a discount." Slip op. at 5-6 (citing Daugherty v. American Honda Motor Co., 144 Cal.App.4th 824 (2006); Bardin v. DaimlerChrysler Corp., 136 Cal.App.4th 1255 (2006)).

I would not call it "settled law" that a "duty to disclose" analysis has any place in UCL jurisprudence. The first case to use "duty to disclose" language in discussing a UCL claim is Daugherty, decided on October 31, 2006, less than 18 months ago. What the Buller opinion does not acknowledge is that nondisclosures are actionable if the concealed information would be material to a reasonable consumer. See, e.g., Massachusetts Mutual Life Ins. Co. v. Superior Court, 97 Cal.App.4th 1282, 1292 (2002) (whether the concealed information “should have been disclosed given the characteristics” of the transaction); see also Day v. AT&T Corp., 63 Cal.App.4th 325, 333 (1998) (“failure to disclose other relevant information”); Podolsky v. First Healthcare Corp., 50 Cal.App.4th 632, 651 (1996) (failure to disclose “all the pertinent facts”); Schnall v. Hertz Corp., 78 Cal.App.4th 1144, 1164 (2001) (concealment of information “relevant to the … decision” faced by the consumer). Perhaps the outcome in Buller would have been the same under that standard. Nonetheless, the settled decisions do not use "duty to disclose" terminology.

Incidentally, the Buller opinion applied the pre-Prop. 64 "likely to deceive" formulation of the "fraudulent" prong, rather than requiring proof of actual reliance. Slip op. at 5-6.

The Court then turned to the "unfair" prong, noting the split in authority regarding whether the pre- or post-Cel-Tech formulation applies. The Court resolved the matter thus: "[A]s we have noted in prior opinions, '[t]his court ... has followed the line of authority that ... requires the allegedly unfair business practice be "tethered" to a legislatively declared policy or has some actual or threatened impact on competition.' (Belton v. Comcast Cable Holdings, LLC (2007) 151 Cal.App.4th 1224, 1239–1240 [60 Cal.Rptr.3d 631], citing to Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 853–854 [128 Cal.Rptr.2d 389].)" Slip op. at 10-11. "[Plaintiff] makes no argument on appeal that his allegations are directly connected to any legislatively declared policy or threatened competition [and] has given us no reason to depart from our prior holdings in Belton and Gregory ...." Id. at 11.

The concluding paragraph of the analysis section shows that the Court simply did not think this was a good case:

Finally, we note that it is fairly common for consumers to ask for and receive discounts on products and services. The amount of these discounts may vary depending on many factors. Arguably, requiring a business to state a discount on its initial invoice runs counter to the purpose of having discretionary discounts in the first place. Indeed, taken to their logical conclusion, appellant’s arguments would effectively require a business to disclose all discretionary discounts it might offer. While we sympathize with appellant’s frustration over his failure to benefit from respondents’ discount policy, when viewed from the standpoint of consumers in general we believe respondents’ practice is beneficial rather than harmful, inasmuch as they apparently are not required to offer privately insured patients any discounts whatsoever.

Id. at 11.

New UCL "unfair" and "fraudulent" prong decision: Puentes v. Wells Fargo Home Mortgage, Inc.

In Puentes v. Wells Fargo Home Mortgage, Inc., ___ Cal.App.4th ___ (Feb. 28, 2008), the Court of Appeal (Fourth Appellate District, Division One), held that the trial court did not err by granting the defendant's summary judgment motion as to the plaintiffs' UCL claim. The claim challenged the way the defendant mortgage company, Wells Fargo, calculated interest on plaintiffs' home loans. Slip op. at 2-3. The Court of Appeal:

• Discussed the Cel-Tech "safe harbor" in some detail. Wells Fargo argued that federal Regulation Z (12 C.F.R. sections 226 et seq.) authorized their method of calculating interest. The Court, however, decided that "[w]e need not resolve the issue." Plaintiffs' challenge to the interest calculation was predicated on the deed of trust, a contract, which they said prohibited Wells from calculating interest the way it did. Quoting a federal case, Watson Laboratories v. Rhone-Poulenc Rorer, Inc., 187 F. Supp.2d 1099, 1117 n.12 (C.D. Cal. 2001), the Court said that "[a] breach of contract may ... form the predicate for Section 17200 claims, provided it also constitutes conduct that is 'unlawful, unfair, or fraudulent.'" Slip op. at 8.

• The Court then applied the pre-Prop. 64 formulation of "fraudulent," and held that Wells' interpretation of the trust deed provisions respecting interest calculations was "reasonable and not likely to deceive members of the public." Slip op. at 9.

• The Court then discussed the pre- and post-Cel-Tech formulations of "unfair" at some length. Slip op. at 10-12. It determined, however, that "[w]e are not required to adopt a particular definition of 'unfair' here, however, because Wells Fargo's practice is not actionable under any of the definitions." Id. at 12. The opinion concludes:

  The consumer benefit of Wells Fargo's adherence to Regulation Z and Appendix J in calculating equal monthly payments — and not recalculating interest during the year of payoff to retrospectively make monthly payments unequal — far outweighs the de minimus injury to some consumers who, like the Puenteses, may pay for a day or two of additional interest than if actual days in the month were used.

  Wells Fargo met its burden of persuasion that its practice is not fraudulent or unfair within the meaning of the UCL, and the Puenteses raised no triable issues of material fact in their opposing papers. Accordingly, summary judgment was proper.

  Slip op. at 18-19.

The full text of the opinion appears after the jump.

New unpublished UCL/CLRA auto defect opinion: Hunter v. General Motors Corp.

Yesterday, in an opinion worthy of publication, the Court of Appeal (Second Appellate District, Division Five) held that the trial court had improperly sustained without leave to amend the defendant's demurrer to the plaintiffs' UCL and CLRA claims. Hunter v. General Motors, no. B190809.

The putative class action challenged the defendant's "development, design, manufacture, and sale of certain vehicles with a defective rear brake system." Slip op. at 2. The opinion addresses, among other things, the Federal Motor Vehicle Safety Standards promulgated by NHTSA. The Safety Standards are often the central focus of non-injury consumer class actions involving safety-related auto defects. This opinion is the first to interpret them in the context of UCL and CLRA claims. For example:

Plaintiffs allege that defendant violated section 1770, subdivision (a)(3) of the CLRA when it knowingly affixed a certification label or tag to each of the subject vehicles falsely stating, “This Vehicle Conforms to All Applicable U.S. Federal Motor Vehicle Safety Standards in Effect on the Date of Manufacture Show[n] above.” Defendant’s defective braking system, plaintiffs allege, violated Federal Motor Vehicle Safety Standards 105 and 135.

....

The trial court ruled that plaintiffs’ Federal Motor Vehicle Safety Standards allegations do not state a basis for a misrepresentation under the CLRA because they fail to allege that “the parking brake systems were not ‘capable’ of holding the subject vehicles stationary for 5 minutes in both a forward and reverse direction on a 30 percent grade, nor is there an allegation that the parking brake system did not hold the vehicle stationary for 5 minutes in both a forward and reverse direction on the grade.” The trial court’s reading of plaintiffs’ allegations is unduly narrow and inconsistent with the mandate to construe the CLRA liberally (§ 1760; Wang v. Massey Chevrolet, supra, 97 Cal.App.4th at p. 869) and to give the complaint a reasonable interpretation (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at pp. 966-967). Plaintiffs allege that the label or tag affixed to each of the subject vehicles certifying that the vehicle conformed to all effective Federal Motor Vehicle Safety Standards was false because the parking brake system was defective. Liberally construed, that allegation alleges that the parking brakes could not hold the subject vehicles as required by 49 C.F.R. part 571.105, subpart 5.2.1 and 49 C.F.R. part 571.135, subpart 7.12.3 and, accordingly, is sufficient to establish a misrepresentation under the CLRA.

Also, plaintiffs’ allegations establish a misrepresentation under the CLRA based on 49 C.F.R. part 571.135, subpart 5.6(a) which provides, in pertinent part, “[a]ll mechanical components of the braking system shall be intact and functional.” Plaintiffs allege that defendant knew that “the parking brakes on the Subject Vehicles were defective in that they did not work.” We must accept that allegation as true. (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at pp. 966-967.) If the parking brakes “did not work,” then they were not “functional” as required by subpart 5.6(a), and a certification that a vehicle equipped with such parking brakes conformed to “All Applicable U.S. Federal Motor Vehicle Safety Standards in Effect on the Date of Manufacture” is an actionable misrepresentation under the CLRA.

Plaintiffs also allege that defendant violated section 1770, subdivisions (a)(5) and (a)(7) of the CLRA when defendant represented that the subject vehicles had characteristics and benefits they did not have and were a particular standard, quality, or grade they were not. In support of their CLRA cause of action, plaintiffs allege that defendant made representations about the quality, safety, and performance of the parking brake system on the subject vehicles while failing to disclose information it knew about the defect in the parking brakes. The list of proscribed practices in section 1770 includes the concealment or suppression of material facts. In the CLRA context, “[f]raud or deceit may consist of the suppression of a fact by one who is bound to disclose it or who gives information of other facts which are likely to mislead for want of communication of that fact.” (Outboard Marine Corp. v. Superior Court (1975) 52 Cal.App.3d 30, 37; compare with Bardin v. DaimlerChrysler Corp. (2006) 136 Cal.App.4th 1255 and Daugherty v. American Honda Motor Co., Inc. (2006) 144 Cal.App.4th 824, 835 [“although a claim may be stated under the CLRA in terms constituting fraudulent omissions, to be actionable the omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose”].) Plaintiffs’ allegations are sufficient to state a violation of the CLRA based on defendant’s alleged representations about the parking brakes and concealment of the defect. (See Outboard Marine Corp. v. Superior Court, supra, 52 Cal.App.3d at p. 37.)

Slip op. at 12-14 (footnotes omitted). The discussion of the plaintiffs' claims under the UCL's three prongs is equally interesting, including the holding that the plaintiffs "need not wait for a catastrophic event such as brake failure to bring an action under the UCL based on the facts alleged in the fourth amended complaint." Id. at 19. I would not be surprised to see publication requests filed here.

By the way, thanks again to JS, who continues to tirelessly mine the unpublished Court of Appeal opinions and send me the gems like this one.

New UCL/CLRA nondisclosure decision: Falk v. General Motors Corp.

In Falk v. General Motors Corp., 2007 WL 1970123 (N.D. Cal. Jul. 3, 2007), the plaintiffs alleged that GM knowingly sold vehicles with defective speedometers. Judge William Alsup denied GM's motion to dismiss the plaintiffs' CLRA and UCL claims.

Analyzing the CLRA claim, Judge Alsup distinguished both Daugherty and Bardin, then held that the alleged problem with the speedometers was material and that GM had a duty to disclose it. As for the UCL claim, Judge Alsup applied the ordinary "likely to be deceived" formulation of the "fraudulent" prong and the pre-Cel-Tech formulation of the "unfair" prong. He concluded that a claim was stated under all three prongs of the UCL. The opinion concludes:

In closing, it is worth saying that ordinarily an express warranty begins and ends the manufacturer’s duty to replace an item like the one in question. Here, however, the large number of articulate and credible Internet postings set forth in the complaint strongly indicates that GM knew of the problem and very likely had far more information on a material defect. At least at the pleading stage, this complaint states a claim that GM knew and concealed that its speedometers were defective and likely to fail far more often than expected by the consuming public. Discovery may or may not bear this claim out. But enough is alleged to authorize plaintiffs and their counsel to proceed to take discovery.

For the reasons given, defendant’s motion to dismiss plaintiffs’ unjust enrichment claim is GRANTED without leave to amend. Plaintiffs, however, allege sufficient factual support for all of their other claims. Although Daugherty and Bardin bar CLRA claims for omissions when there is no duty to disclose and when defendants have made no representations to the contrary, plaintiffs adequately plead that GM had a duty to disclose here, which it violated. Defendant’s motion to dismiss under Rules 12(b)(6) and 9(b) is therefore DENIED as to plaintiffs’ CLRA, UCL and fraud by omission claims. Discovery may begin immediately.

Falk, 2007 WL 1970123 at *10 (slip op. at 14). Thanks to the blog reader who emailed a copy of this decision.

New UCL/CLRA decision: Belton v. Comcast Cable Holdings, LLC

In Belton v. Comcast Cable Holdings, LLC, ___ Cal.App.4th ___ (June 8, 2007), the Court of Appeal (First Appellate District, Division One) addressed the interplay between the UCL, the CLRA, and the Unruh Act (Civ. Code §51). Among other things, the Court applied the post-Cel-Tech formulation of "unfair" to this consumer action:

[Plaintiffs] rely upon the definition of “unfair” set forth in Cel-Tech, supra, 20 Cal.4th 163. In Cel-Tech, the court, in the context of an unfair competition claim by a competitor, defined “unfair” as “conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.” (Id. at p. 187.) The Cel-Tech court further required “that any finding of unfairness to competitors under [Business and Professions Code] section 17200 be tethered to some legislatively declared policy or proof of some actual or threatened impact on competition.” (Id. at pp. 186-187.) The court left open the question whether this definition should also apply in the context of unfair competition claims brought by consumers (id. at p. 187, fn. 12), leading to a split of authority on this question among the courts of appeal. (See Bardin v. DaimlerChrysler Corp. (2006) 136 Cal.App.4th 1255, 1273-1274 [noting the split of authority and urging the California Supreme Court to resolve it].) This court, however, has followed the line of authority that also requires the allegedly unfair business practice be “tethered” to a legislatively declared policy or has some actual or threatened impact on competition. (See Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 853-854.)

Slip op. at 14. The Court of Appeal affirmed the judgment in the defendant's favor on all causes of action.

Supreme Court grants review in UCL/CLRA case: Miller v. Bank of America

Yesterday, the Supreme Court granted review in Miller v. Bank of America, no. S149178. In Miller, the Court of Appeal reversed an enormous judgment, approaching $300 million in compensatory damages and restution, plus even more in statutory penalties, holding that the defendant bank's conduct did not violate the UCL or the CLRA. Miller v. Bank of America, NT & SA, 144 Cal.App.4th 1301 (2006). My original post on Miller is here, and today's Recorder reports that "Supreme Court Takes Up $1B Banking Case" (subscription). UPDATE: Here is a non-subscription version of the Recorder article.

Amazing new Seventh Circuit UCL decision: In re African-American Slave Descendants Litigation

In In re African-American Slave Descendants Litigation, ___ F.3d ___ (7th Cir. Dec. 13, 2006), the Seventh Circuit (Judges Easterbrook, Posner and Manion) upheld, at the pleading stage, a UCL claim predicated on the defendants' failure to disclose to consumers their past involvement in slavery. In the opinion, Judge Posner writes:

The second qualification [to the court's holding that certain other claims are legally barred] concerns a claim, rather buried in the complaint but not forfeited, that in violation of state fraud or consumer protection law members of the plaintiff classes have bought products or services from some of the defendants that they would not have bought had the defendants not concealed their involvement in slavery. This claim has nothing to do with ancient violations and indeed would be unaffected if the defendants’ dealings with slaveowners had been entirely legal. It is a complaint of consumers’ being deceived because sellers have concealed a material fact. The injury is the loss incurred by buying something that one wouldn’t have bought had one known the truth about the product.

It is true that under no consumer protection law known to us, whether a special statute or a doctrine of the common law of contracts or torts, has a seller a general duty to disclose every discreditable fact about himself that might if disclosed deflect a buyer. To fulfill such a duty he would have to know much more about his consumers than he possibly could. But the plaintiffs are charging the defendants with misrepresenting their activities in relation to slavery. A seller who learns that some class of buyers would not buy his product if they knew it contained some component that he would normally have no duty to disclose, but fearing to lose those buyers falsely represents that the product does not contain the component, is guilty of fraud. An example would be a manufacturer who represented that his products were made in the United States by companies that employ only union labor, whereas in fact they were made in Third World sweatshops. See Kasky v. Nike, Inc., 45 P.3d 243, 248 (Cal. 2003); Price v. Philip Morris, Inc., 848 N.E.2d 1, 19 (Ill. 2005); Oliveira v. Amoco Oil Co., 776 N.E.2d 151, 154-55 (Ill. 2002); Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1185 (3d Cir. 1993).

We do not offer an opinion on the merits of the consumer protection claims, but merely reject the district court’s ruling that they are barred at the threshold.

Slip op. at 14-15 (emphasis added). The citation of Kasky v. Nike, a UCL case, is very significant here, as Consumer Law & Policy Blog explains in more detail. Please visit that blog for more about the decision and the underlying actions, including clarification that the underlying state consumer protection claims included a UCL claim.

New UCL/CLRA decision: Miller v. Bank of America

In Miller v. Bank of America, NT & SA, ___ Cal.App.4th ___ (Nov. 20, 2006), a judgment following a jury trial in a certified class action, with compensatory damages and penalties exceeding $1 billion, was reversed, wholesale. The Court of Appeal held that the defendant's conduct, which involved applying Social Security benefits deposited into its customers' accounts to pay various bank fees, did not violate either the UCL or the CLRA.

This morning's Daily Journal reports that "Billion-Dollar Reversal Lets Banks Tap Social Security Funds" (subscription), and the Recorder that "Billion-Buck BofA Ruling Struck Down" (subscription). In both articles, class counsel is quoted as saying he will seek Supreme Court review.

UPDATE: Here is a non-subscription link to the Recorder article. Also, the San Francisco Chronicle reports today that "Billion-dollar ruling against BofA tossed; Appeals court says deducting money to pay fees is OK." And the Los Angeles Times reports that "Judgment against BofA is overturned."

New UCL/CLRA decision: McKell v. Washington Mutual

The Court of Appeal's opinion in McKell v. Washington Mutual, Inc., ___ Cal.App.4th ___ (Sept. 18, 2006) (Second Appellate District, Division One) contains several interesting holdings. The court:

1. applied the ordinary "likely to deceive" formulation of the UCL's "fraudulent" prong (a noteworthy development in light of the ongoing debate over the validity of Pfizer's holding that Prop. 64 abolished that formulation) (slip op. at 10);
2. applied the pre-Cel-Tech formulation of "unfair" (slip op. at 12);
3. declined to apply the "economic abstention doctrine" of Desert Healthcare Dist. v. PacificCare FHP, Inc., 94 Cal.App.4th 781 (2001) (and other cases) to bar the plaintiffs' UCL claim (for more on that doctrine, see this post) (slip op. at 13);
4. held that neither RESPA nor HOLA preempted the plaintiffs' UCL claim (slip op. at 14-30);
5. held that a transaction resulting in the sale of real property does not fall within the scope of the Consumers Legal Remedies Act (Civ. Code §§1750 et seq.) because real property is not a "good or service" (slip op. at 31).

Significant new Prop. 64 decision: Pfizer, Inc. v. Superior Court

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 these posts 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.

New unpublished UCL "fraudulent" prong decision: Morgan Phillips, Inc. v. JAMS

In the published portion of Morgan Phillips, Inc. v. JAMS/Endispute, ___ Cal.App.4th ___ (Jun. 20, 2006), the Court of Appeal (Second Appellate District, Division Four) rejected the doctrine of "arbitral immunity." That holding got a lot of press, including an article (subscription) from the Recorder entitled "Court: Arbitrators Not Immune From Suits."

In the unpublished portion of the decision, the Court of Appeal held that the plaintiff's UCL "fraudulent" prong claim should be allowed to proceed as well:

If we understand the claim correctly, it is that JAMS permits arbitrators with whom it contracts to retain a “secret right” to withdraw from the arbitration without legal cause. JAMS’ failure to disclose that secret right is misleading, because JAMS’ advertising suggests that its arbitrators reach binding decisions based on the facts and law. We are bound to accept these allegations at face value.

JAMS argues that the law requires arbitrators to withdraw because of a conflict of interest, and that the failure to advertise the law on disqualification cannot be deemed deceptive advertising or an unfair business practice. The flaw in JAMS’ argument is that Morgan Phillips alleges that arbitrators provided by JAMS withdraw from the arbitration without legal cause. Thus, Morgan Phillips does not complain of a failure to disclose the circumstances in which the law requires an arbitrator to withdraw. It complains, rather, that JAMS-affiliated arbitrators have a “secret” practice of withdrawing without legal cause, and that JAMS fails to disclose that practice. Morgan Philips adequately pleads violations of Business and Professions Code section 17200 and 17500.

Slip op. at 12-13.

New UCL "fraudulent" prong decision: People ex rel. DMV v. Cars for Causes

In People ex rel. Dept. of Motor Vehicles v. Cars 4 Causes, ___ Cal.App.4th ___ (May 23, 2006), the Court of Appeal (Second Appellate District, Division Six) once again applied the pre-Prop. 64 formulation of "fraudulent" conduct ("likely to deceive" a reasonable consumer) in a post-Prop. 64 case. (Slip op. at 10-11.) That makes at least five post-Prop. 64 cases in which an appellate court continued to apply the pre-Prop. 64 formulation of "fraudulent" conduct. See Wayne v. Staples, Inc., 135 Cal.App.4th 466, 484 (2006); Progressive West Insurance Co. v. Superior Court, 135 Cal.App.4th 263, 284 (2005); Bell v. Blue Cross, 131 Cal.App.4th 211, 221 (2005); Blakemore v. Superior Court, 129 Cal.App.4th 36, 41 (2005).

New UCL "unfair" prong decision: Bardin v. DaimlerChrysler Corp.

In Bardin v. DaimlerChrysler Corp., ___ Cal.App.4th ___ (Feb. 23, 2006), the Court of Appeal (Fourth Appellate District, Division Three) was very concerned about whether the pre- or post-Cel-Tech formulation of "unfair" applied to consumer actions. According to the docket, the Court went out of its way to request supplemental briefs from the parties and amicus briefs from Consumer Attorneys of California on that very question. The opinion discusses both formulations in detail, then lists Cel-Tech's unanswered questions:

Did the Supreme Court limit its holding in Cel-Tech to UCL actions brought by competitors simply because the circumstance of a consumer UCL action was not before it, or because the definition of “unfair” should be different depending on whether the action is brought by a consumer or a competitor? Was the Supreme Court expressing the view that regulation of competitive conduct is contained in existing legislation, but there is no analogous law pertaining to consumers? Should a broader definition of “unfair” apply in consumer actions because consumers require more protection than competitors even though such a distinction between consumers and competitors is not reflected in the language of the statute? Is the Cel-Tech definition of “unfair” too narrow to sufficiently protect consumers? Is the definition of “unfair” applied in Smith [v. State Farm Mut. Auto. Ins. Co.], 93 Cal.App.4th 700 [(2001)] too amorphous in the consumer context, and does it provide “too little guidance to courts and businesses”? (Cel-Tech [Communications, Inc. v. Los Angeles Cellular Tel. Co.], 20 Cal.4th [163,] 184-185 [(1999)].)

(Slip op. at 20 (hyperlinks added).) Finally, the Court asked the Legislature or the Supreme Court to help:

In light of the uncertain state of the law regarding the proper definition of “unfair” in the context of consumer UCL actions, we urge the Legislature and the Supreme Court to clarify the scope of the definition of “unfair” under the UCL.

(Id.) Ultimately, the Court applied both formulations to the facts before it, and determined (in a very fact-specific analysis) that the plaintiff's complaint did not state a claim for relief under either. The opinion also addresses the UCL's "fraudulent" prong and the CLRA.

New UCL "fraudulent" prong decision: Wayne v. Staples, Inc.

On Wednesday, January 4, 2006, the Court of Appeal (Second Appellate District, Division Seven) applied the traditional formulation of the "fraudulent" prong—"likely to deceive consumers"—in a post-Prop. 64 case. Wayne v. Staples, Inc., ___ Cal.App.4th ___ (Jan. 4, 2006). UPDATE: On March 15, 2006, the Supreme Court denied review and depublication. UPDATE: The official citation is Wayne v. Staples, Inc., 135 Cal.App.4th 466 (2006).

New UCL decision: Progressive West Ins. Co. v. Superior Court

Last week, the Court of Appeal (Third Appellate District) handed down Progressive West Ins. Co. v. Superior Court, ___ Cal.App.4th ___ (Dec. 28, 2005). The decision has a lengthy discussion of each of the three prongs of the UCL—"unfair," "fraudulent" and "unlawful." This is a post-Prop. 64 case that was filed after the effective date of the amendments. Accordingly, the fact that the opinion applies the ordinary definition of "fraudulent" conduct—"likely to be deceived"—is significant. (Slip op. at 30-31 & n.4.) Also, the Court held, after careful analysis, that the pre-Cel-Tech formulation of "unfair" governs consumer actions. (Slip op. at 32-35.) The final interesting thing about this opinion is that the Court determined that a violation of a common-law doctrine will support an "unlawful" prong claim (although such a violation was not pleaded in the case before it). (Slip op. at 35-36.) There are plenty of published cases that say, in general terms, that "any law," including "court-made" laws, will support a UCL "unlawful" prong claim, but there are very few cases in which the Court actually analyzed that type of "unlawful" prong claim.

Unpublished Prop. 64 opinion ordered published: Bivens v. Gallery Corp.

On Wednesday, the Court of Appeal issued a publication order in Bivens v. Gallery Corp., ___ Cal.App.4th ___ (Nov. 22, 2005). My original post on the unpublished opinion is here. After holding (consistent with its prior rulings) that Prop. 64 applied retroactively to the case, the Court of Appeal affirmed the judgment of dismissal that followed an order sustaining the defendant's demurrer without leave to amend. The Court of Appeal determined that leave to amend to substitute an affected plaintiff would not be granted because the underlying claims lacked merit as a matter of law. Applying the "reasonable consumer" standard, the Court determined that the defendant's allegedly misleading advertising was not misleading as a matter of law. Interestingly, throughout the opinion, the Court repeatedly applied the "likely to deceive" or "likely to mislead" standard when discussing the UCL's "fraudulent" prong (as well as the CLRA and the False Advertising Act), suggesting that the new "injury in fact and lost money or property" language does not alter that substantive liability standard. See, e.g., slip op. at 4, 5, 6, 16, 17, 18, 20, 21.

New Ninth Circuit UCL decision: Arizona Cartridge Remanufacturers Assn. v. Lexmark Int'l

In Arizona Cartridge Remanufacturers Assn., Inc. v. Lexmark Int'l, Inc., ___ F.3d ___ (9th Cir. Aug. 30, 2005), the Ninth Circuit addressed the UCL's "unfair" and "fraudulent" prongs, and affirmed an order granting summary judgment in the defendant's favor.

New UCL decision: Bell v. Blue Cross of California

Yesterday, the Court of Appeal (Second Appellate District, Division One), decided Bell v. Blue Cross of California, ___ Cal.App.4th ___ (July 21, 2005). In reversing the trial court's order sustaining the defendant's demurrer to the plaintiff's UCL class action complaint, the Court: (a) rejected the defendants' "primary jurisdiction" argument (which was predicated on Samura v. Kaiser Foundation Health Plan, Inc., 17 Cal.App.4th 1284 (1993)) and followed Coast Plaza Doctors Hospital v. UHP Healthcare, 105 Cal.App.4th 693 (2002) instead; (b) applied the ordinary "likely to deceive" formulation of the "deceptive" prong, despite Proposition 64 (slip op. at 13); and (c) found a way to avoid addressing the defendant's contention that "the UCL claim fails because there must be an allegation that an act violated a specific statute" (slip op. at 13 n.9). The latter contention is ridiculous. The Supreme Court's holding in Cel-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163 (1999) is unequivocal:

The statutory language referring to "any unlawful, unfair or fraudulent" practice (italics added) makes clear that a practice may be deemed unfair even if not specifically proscribed by some other law. "Because Business and Professions Code section 17200 is written in the disjunctive, it establishes three varieties of unfair competition-acts or practices which are unlawful, or unfair, or fraudulent. 'In other words, a practice is prohibited as "unfair" or "deceptive" even if not "unlawful" and vice versa.' "

Id. at 180 (citations omitted).