The UCL Practitioner

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.

Supreme Court grants review in UCL preemption case: People ex rel. Harris v. Pac Anchor Transportation, Inc.

Last week, on August 10, 2011, the Supreme Court granted review in a UCL preemption case, People ex rel. Harris v. Pac Anchor Transportation, Inc., no. S194388.  This is the issue on review:

Is an action under the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) that is based on a trucking company's alleged violation of state labor and insurance laws "related to the price, route, or service" of the company and, therefore, preempted by the Federal Aviation Administration Authorization Act of 1994 (49 U.S.C. § 14501)?

The Court of Appeal (Second Appellate District, Division Five) said no.  People ex rel. Harris v. Pac Anchor Transportation, Inc., 195 Cal.App.4th 765 (May 18, 2011) (review granted).

This case has been added to my list of pending Supreme Court cases.

New Ninth Circuit UCL preemption decision: Aguayo v. U.S. Bank

In Aguayo v. U.S. Bank, ___ F.3d ___ (9th Cir. Aug. 1, 2011), the Ninth Circuit held that federal law (namely, the National Bank Act and implementing OCC regulations) did not preempt a UCL "unlawful" prong claim predicated on violation of the Rees-Levering Act.

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 preemption decision: Parks v. MBNA America Bank, N.A.

Many thanks to the blog reader who wrote to draw my attention to Parks v. MBNA America Bank, N.A., ___ Cal.App.4th ___ (May 12, 2010).  In Parks, the Court of Appeal (Fourth Appellate District, Division Three) held that federal law did not preempt plaintiffs' UCL "unlawful" prong claim, which was predicated on alleged violations of Civil Code section 1748.9. 

Interestingly, in so holding, the Court expressly declined to follow a contrary Ninth Circuit decision, Rose v. Chase Bank USA, N.A., 513 F.3d 1032 (9th Cir. 2008):

Although we are reluctant to create a split of authority with the Ninth Circuit Court of Appeals on a point of federal law, our understanding of the authorities discussed above requires us to do so. It is still possible MBNA may demonstrate that section 1748.9 imposes burdens on national banks that significantly impair the authority granted to it by the [National Bank Act]. But there is no basis for preempting section 1748.9 without a factual record.

Slip op. at 19-20 (footnote omitted).

New U.S. Supreme Court preemption decision: Wyeth v. Levine

This morning, the Supreme Court just handed down its opinion in Wyeth v. Levine, ___ U.S. ___ (Mar. 4, 2009).   The Court held, by a vote of 6 to 3, that the FDA's approval of the defendant's labeling of its medical device prescription drug did not preempt plaintiffs' state law product liability (failure to warn) claim.  This decision is generally viewed as a companion to Altria Group, Inc. v. Good, ___ U.S. ___, 129 S.Ct. 538 (Dec. 16, 2008) (discussed in this blog post), in which the Court held that the Federal Cigarette Labeling and Advertising Act (15 U.S.C. §§1331 et seq.) did not preempt a state-law claim for deceptive advertising of light cigarettes.

The New York Times has more on the Wyeth decision in this article.

CORRECTION:  I wrote my post above a little too hurriedly.  I should have said that the Wyeth case is considered a companion to Riegel v. Medtronic, Inc., ___ U.S. ___, 128 S. Ct. 999 (2008), in which the Supreme Court held that state-law product liability claims for FDA-approved medical devices were preempted.  With Altria and Wyeth, perhaps the preemption tide is turning. 

Recent federal UCL preemption decision: Lockwood v. Conagra Foods, Inc.

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.

Id. at *6.

U.S. Supreme Court preemption decision: Altria Group, Inc. v. Good

By now, you have probably already read the Supreme Court's new preemption decision, Altria Group, Inc. v. Good, ___ U.S. ___, 129 S.Ct. 538 (Dec. 16, 2008). (See this blog post for my original coverage of this case.) In Altria, the Supreme Court held that the Federal Cigarette Labeling and Advertising Act ("FCLAA") (15 U.S.C. §§1331 et seq.) did not preempt a claim under the Maine Unfair Trade Practices Act (a statute very similar to the UCL) for deceptive advertising of "light" cigarettes.

I have been thinking about the impact of this case, if any, on the pending Tobacco case, in which we expect the California Supreme Court to interpret Prop. 64. The California Supreme Court's earlier preemtion decision was, if anything, narrower than Altria. In In re Tobacco Cases II, 41 Cal.4th 1257 (2007) (discussed in this post), the California Supreme Court held that the FCLAA did partly preempt the UCL claims in that case -- to the extent they had to do with marketing cigarettes to minors. The Supreme Court considered itself bound by Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001), but in Altria v. Good, the U.S. Supreme Court distinguished that case:

Reilly involved regulations promulgated by the Massachusetts attorney general “‘in order to address theincidence of cigarette smoking and smokeless tobacco use by children under legal age ... [and] in order to prevent access to such products by underage customers.’” 533 U. S., at 533 (quoting 940 Code Mass. Regs. §21.01 (2000)).  The regulations did not pertain to the content of any advertising; rather, they placed a variety of restrictions on certain cigarette sales and the location of outdoor and point-of-sale cigarette advertising. The attorney general promulgated those restrictions pursuant to his statutory authority to prevent unfair or deceptive trade practices. Mass. Gen. Laws, ch. 93A, §2 (West 1996). But although the attorney general’s authority derived from a general deceptive practices statute like the one at issue in this case, the challenged regulations targeted advertising that tended to promote tobacco use by children instead of prohibiting false or misleading statements. Thus, whereas the “prohibition” in Cipollone was the common-law fraud rule, the “prohibitions” in Reilly were the targeted regulations. Accordingly, our holding in Reilly that the regulations were pre-empted provides no support for an argument that a general prohibition of deceptive practices is “based on” the harm caused by the specific kind of deception to which the prohibition is applied in a given case.

Altria, slip op. at 12.  

The outcome of Altria is consistent with the Supreme Court's decision in March 2008 to deny cert. in the Tobacco preemption case. Review had already been granted in Altria in January 2008.  And in supplemental letter briefs in Tobacco, the parties both took the position that the preemption case has no bearing on the Prop. 64 case. Even so, Altria may well prove to limit the precedential value of the California Supreme Court's Tobacco preemption decision going forward.

U.S. Supreme Court preemption case: Wyeth v. Levine

SCOTUSBlog reports that the U.S. Supreme Court heard oral argument yesterday in Wyeth v. Levine, no. 06-1249.  In Wyeth, the Court will address whether FDA approval of warning labels precludes consumers from bringing state-law tort claims against drug manufacturers for failure to adequately warn of a drug's risks.

The transcript of the oral argument is available at this link, and here is my prior coverage of a similar preemption case, Riegel v. Medtronic, Inc., 128 S. Ct. 999 (2008), addressing medical devices.

UPDATE:  Dahlia Lithwick has an interesing article in Slate about the Wyeth argument.  Also, Law.com reports that "High Court Appears Torn Over Drug Labeling Case."  [Hat tip: How Appealing.]

New Third Circuit preemption decision: Fellner v. Tri-Union Seafoods, L.L.C.

In Fellner v. Tri-Union Seafoods, L.L.C., ___ F.3d ___ (Aug. 19, 2008), the Third Circuit held that the FDA's "regulatory actions" did not preempt certain non-disclosure claims brought under New Jersey law. On Aug. 20, The Legal Intelligencer reported that "3rd Circuit Revives Mercury-in-Tuna Class Action."

This decision is of interest to California practitioners in light of this paragraph:

The factual landscape of this case is colored by recent litigation in California. On June 21, 2004, then-Attorney General of California, Bill Lockyer, filed a lawsuit against Tri-Union and other defendants under California’s “Proposition 65,” CAL. HEALTH & SAFETY CODE § 25249.6, seeking an injunction and civil penalties for defendants’ failure to warn consumers that their tuna products contain dangerous mercury compounds. While that suit was pending, the Commissioner of the FDA sent a letter to Mr. Lockyer expressing the opinion that the FDA’s prior regulatory actions preempt the State’s lawsuit. In the Commissioner’s view, the defendants would be unable to comply both with that approach and state law and the existence of the lawsuit would “frustrate the [FDA’s] carefully considered federal approach” to the issue of mercury in fish. See People v. Tri-Union Seafoods, 2006 WL 1544377 (Cal. Super. Ct. May 12, 2006) (taking judicial notice of the letter). In May 2006, following a bench trial, the Superior Court of California found the Attorney General’s lawsuit preempted by federal law. People v. Tri-Union Seafoods, 2006 WL 1544384 (Cal. Super. Ct. May 11, 2006), appeal docketed, No. A116792 (Cal. Ct. App. 1st Dist. Feb. 20, 2007).

Slip op. at 4-5. The Third Circuit panel disagreed, at least with respect to the particular New Jersey claims before it:

This is a situation in which the FDA has promulgated no regulation concerning the risk posed by mercury in fish or warnings for that risk, has adopted no rule precluding states from imposing a duty to warn, and has taken no action establishing mercury warnings as misbranding under federal law or as contrary to federal law in any other respect. Fellner’s lawsuit does not conflict with the FDA’s “regulatory scheme” for the risks posed by mercury in fish or the warnings appropriate for that risk because the FDA simply has not regulated the matter. Fellner’s duty-to-warn claim does not conflict with an FDA determination deliberately to forego warnings because the FDA took no action to preclude state warnings – at least, no binding action via ordinary regulatory procedures, and no action whatsoever until after Tri-Union allegedly wrongfully failed to warn. Finally, Fellner’s lawsuit does not conflict with the FDCA’s food misbranding provision or the FDA’s actions thereunder because the FDA has not exercised its misbranding authority under the FDCA with respect to methylmercury warnings for fish.

Id. at 37-38.

UCL/CLRA preemption case on remand: Farm Raised Salmon Cases (unpublished)

In February, in Farm Raised Salmon Cases, 42 Cal.4th 1077 (2008), the Supreme Court held that the Federal Food, Drug, and Cosmetic Act (21 U.S.C. §§ 301 et seq.) did not preempt plaintiffs' UCL and CLRA claims. Those claims rested on the argument that the defendants improperly failed to disclose that they used artificial coloring to turn the flesh of their salmon pink before selling it. (For more on that decision, see these two blog posts.)

On remand, the Court of Appeal (Second Appellate District, Division Three) held in an unpublished opinion that the primary jurisdiction doctrine did not apply and that the trial court improperly sustained defendants' demurrer without leave to amend. Farm Raised Salmon Cases, No. B182901a (May 16, 2008). Respecting the primary jurisdiction doctrine, the court explained:

The primary jurisdiction doctrine does not apply ... if the issues involved are of a type ordinarily resolved by the courts in the first instance, an administrative agency has no particular expertise with regard to the issues, and the issues do not require the application of complex regulations. (Cundiff v. GTE California Inc., supra, 101 Cal.App.4th at p. 1413.) In those circumstances, concerns about the uniform application of regulatory laws ordinarily are not implicated.

We conclude that the sustaining of the demurrer based on the primary jurisdiction doctrine was an abuse of discretion. ....

The alleged violations of the [Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 301 et seq.)] and parallel provisions of the Sherman Law [(Health & Saf. Code, § 109875 et seq.)] concern “false and misleading” labeling of salmon offered for sale and the failure to state on the labeling that the salmon contains artificial coloring. Federal and state regulations expressly and unequivocally require the disclosure of canthaxanthin and astaxanthin as artificial coloring agents. (21 C.F.R. §§ 73.35(d)(3), 73.75(d)(4); Health & Saf. Code, § 110100, subd. (a).) There are no complex regulations at issue in this regard, but only straightforward requirements. The determination whether the salmon offered for sale by defendants contained those chemicals and whether the labeling failed to disclose that fact requires neither the application of complex regulations nor any particular administrative expertise. Rather, those questions are the sorts of factual questions that ordinarily are committed to the courts. Moreover, the FDCA and the regulations under that act provide no administrative procedure (and certainly no “ ‘pervasive and self contained system of administrative procedure’ [citation] to deal with the precise questions involved” as in Farmers, supra, 2 Cal.4th at page 396) to determine whether a food is misbranded, but only provide for the FDA to enforce the act by filing an action in court. (21 U.S.C. § 337(a).) Although the Sherman Law provides for an administrative proceeding to determine whether a food is misbranded (Health & Saf. Code, § 111855), we conclude that any advantage that the DHS may have in resolving the issues presented here is not particularly strong. For these reasons, we conclude that the primary jurisdiction doctrine does not apply.

Slip op. at 8-10. The Court went on to hold that the complaint adequately alleged a CLRA violation:

The CLRA prohibits, among other things, “Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have or that a person has a sponsorship, approval, status, affiliation, or connection which he or she does not have.” (Civ. Code, § 1770, subd. (a)(5).) Liberally construing this provision as the Legislature intended (id., § 1760), we conclude that by allegedly displaying and offering for sale farm-raised salmon that was artificially colored to resemble wild salmon, without disclosing the artificial coloring, defendants were “representing” that the salmon had the same origin and characteristics as wild salmon. We therefore conclude that the complaint alleges “representing” within the meaning of Civil Code section 1770, subdivision (a)(5) and that the sustaining of the demurrer to the count for violation of the CLRA was error. (Daugherty v. American Honda Motor Co., Inc. (2006) 144 Cal.App.4th 824, 834 [stating, “the CLRA proscribes a concealment of characteristics or quality ‘contrary to that represented’ ”].) In light of our conclusion, we need not decide whether the complaint adequately alleges other prohibited acts or practices under the CLRA.

Id. at 11. Many thanks to the blog reader who emailed with news of this opinion.

U.S. Supreme Court preemption decision: Riegel v. Medtronic, Inc.

You've probably already heard about the U.S. Supreme Court's decision in Riegel v. Medtronic, Inc., ___ U.S. ___ (Feb. 20, 2008), earlier this year. Last Thursday, The American Lawyer had an interesting article, "For Defendants Alone?" (subscription), about that and other preemption cases now before the Supreme Court: "All three cases turn on the court's developing view of federal preemption of state torts. Specifically, whether or not approval by the Food and Drug Administration immunizes the makers of pharmaceuticals and medical devices from state court damages claims."

Sunday's New York Times also reported that "Drug Makers Near Old Goal: A Legal Shield." The article points out that the FDA is not in a position to substitute for products liability lawsuits:

A series of independent assessments have concluded that the agency is poorly organized, scientifically deficient and short of money. In February, its commissioner, Andrew C. von Eschenbach, acknowledged that the agency faces a crisis and may not be “adequate to regulate the food and drugs of the 21st century.”

The F.D.A. does not test experimental medicines but relies on drug makers to report the results of their own tests completely and honestly. Even when companies fail to follow agency rules, officials rarely seek to penalize them. “These are scientists, not cops,” said David Vladeck, a professor at Georgetown Law School.

"High Court OKs Suit Over Pink Salmon"

Today's Recorder has an article (subscription) on the Salmon decision. The Daily Journal also reports that "High Court Allows Suits Over Salmon" (subscription).

Looking at the decision more closely last night, it doesn't really say anything particularly new or interesting about the UCL or CLRA. The rationale for the decision was that the California law on which the UCL claim was predicated (i.e., the Sherman Food, Drug and Cosmetic Law (Health & Saf. Code §§ 109875 et seq.)) was "identical" to the relevant provisions of the Federal Food, Drug and Cosmetic Act (21 U.S.C. §§ 301 et seq.). The opinion did not analyze the CLRA claim separately from the UCL claim.

The opinion did have one interesting footnote that should remove any doubts concerning the propriety of citing unpublished federal district court rulings in California state courts:

In their briefs, the parties discuss an unpublished federal district court opinion which came to the same conclusion when considering nearly identical facts. (Vermont Pure Holdings, Ltd. v. Nestle Waters North America, Inc. (D.Mass., Mar. 28, 2006, No. Civ. A. 03-11465) 2006 WL 839486, *6, fn. 3.) Citing unpublished federal opinions does not violate our rules. (Cal. Rules of Court, rule 8.1115.) We find the court’s reasoning persuasive.

Slip op. at 22 n.18 (emphasis in original).

New Supreme Court preemption decision: Farm Raised Salmon Cases

As I reported last Friday, the Supreme Court is due to post its opinion in Farm Raised Salmon Cases, no. S147171, by this morning at 10:00 a.m. When the decision is up, it will be accessible at this link: Farm Raised Salmon Cases, ___ Cal.4th ___ (Feb. 11, 2008). I will try to update this post later today with a summary of the holding.

UPDATE: As Kelly Chen predicted in her report on the argument, the Supreme Court has held that the Federal Food, Drug, and Cosmetic Act does not preempt plaintiffs' UCL and CLRA claims:

Plaintiffs filed a class and representative action alleging that various grocery stores violated state law by selling artificially colored farmed salmon without disclosing to their customers the use of color additives. Defendants successfully demurred in the trial court, arguing the action was preempted by section 337(a) of title 21 of the United States Code, a provision of the Federal Food, Drug, and Cosmetic Act (FDCA) (21 U.S.C. § 301 et seq.). The Court of Appeal affirmed the resulting judgment of dismissal.

We granted review to decide whether plaintiffs’ action was preempted by the FDCA. We conclude that section 337(a) does not preempt the action as plaintiffs do not seek to “enforce[ ], or to restrain violations” of, the FDCA. (§ 337(a).) Rather, plaintiffs’ claims for deceptive marketing of food products are predicated on state laws establishing independent state disclosure requirements “identical to” the disclosure requirements imposed by the FDCA, something Congress explicitly approved in section 343-1. (§ 343-1(a)(3).) Accordingly, we reverse the Court of Appeal’s judgment and remand the matter to that court for further proceedings consistent with our opinion.

Slip op. at 1-2.

BREAKING NEWS: Supreme Court to issue opinion Monday in UCL preemption case: Farm Raised Salmon Cases

Today, the Supreme Court announced that it will be issuing its opinion Monday morning in an important preemption case, Farm Raised Salmon Cases, no. S147171. This case raises the following issue: "Does the Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 301 et seq.) impliedly preempt plaintiffs’ state law claims [including a UCL claim] against defendants for deceptive marketing of food products by failing to disclose that farmed salmon sold in their stores contains artificial coloring?" The Court of Appeal answered yes. See Farm Raised Salmon Cases, 142 Cal.App.4th 805 (2006).

Attorney Kelly Chen attended the Supreme Court argument in December and wrote up a report, which is available at this link. Kelly reported that the justices' questions suggested that they are leaning against a finding of preemption.

When the opinion is posted online Monday morning at 10:00 a.m., it should be available here: Farm Raised Salmon Cases, ___ Cal.4th ___ (Feb. 11, 2008).

U.S. Supreme Court takes up UDAP statute preemption case: Altria Group v. Good

On January 18, 2008, the U.S. Supreme Court granted cert. in Altria Group v. Good, no. 07-562. In that case, the Court will address whether the Federal Cigarette Labeling and Advertising Act ("FCLAA") (15 U.S.C. §§1331 et seq.) preempts a consumer protection claim based on a state UDAP statute** very similar to the UCL. The First Circuit held that the FCLAA did not preempt the claim to the extent it challenged defendants' marketing of cigarettes as "light" or containing "lower tar and nicotine." Good v. Altria, Inc., ___ F.3d ___, 2007 WL 246003 (1st Cir. Aug. 31, 2007). SCOTUSBlog provides a collection of links to the Supreme Court briefs filed to date (scroll down).

The case is worth following because it will probably inform California state courts' analyses of federal preemption issues. In In re Tobacco Cases II, 41 Cal.4th 1257 (2007), for example, the California Supreme Court held that the FCLAA preempted a UCL claim to the extent that it "seeks to impose on defendant tobacco companies a duty not to advertise in a way that could encourage minors to smoke," citing Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001). (See these blog posts for more.)

**A "UDAP statute" is a state statute prohibiting unfair and deceptive acts and practices, such as the UCL.

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

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

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

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

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

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

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

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

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

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

Id. at 7-8.

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

Oral argument report: Farm Raised Salmon Cases

My sincere thanks to Kelly Chen, who just passed the bar (congratulations, Kelly!), for attending Tuesday's argument in Farm Raised Salmon Cases, no. S147171, and for providing the following detailed report (complete with an outcome prediction):

Case Name: FARM RAISED SALMON CASES
California Supreme Court
Case No.: S147171 December 4, 2007 -- 9 a.m.

This morning in Los Angeles, the California Supreme Court heard oral argument in Farm Raised Salmon Cases. The issue presented before the court is: Does the Federal Food, Drug, and Cosmetic Act (“FDCA”) impliedly preempt plaintiffs' state law claims, including claims based on the UCL and CLRA?

Craig R. Spiegel argued on behalf of the plaintiffs (i.e., consumers). Rex S. Heinke argued for the defendants. Justice George recused himself from the case, and Justice Mihara from the court of appeal was assigned as justice pro tempore for this case. Justice Kennard took over the role as chief justice in this session.

Mr. Spiegel started his argument by discussing the reasoning behind the court of appeal’s holding that section 337(a) of the FDCA preempts plaintiffs’ state claims. Citing to the history of the regulation on the use of coloring on food, Mr. Spiegel discussed how California enacted regulations concerning this area as early as in 1905, long before the FDCA (which was enacted in 1938).

Justice Kennard then interjected and asked: Isn’t there another section of the FDCA that would help the argument against preemption? Specifically, Kennard referred to section 343-1, which permits states to establish standards concerning the use of coloring on food so long as those standards are “identical” to those imposed by FDCA. She asked: “Am I right to say that the language of these provisions helps your position?” Mr. Spiegel affirmed.

Note: Congress enacted section 343-1 in the Nutrition Labeling and Education Act of 1990 (“NLEA”).

Mr. Spiegel then discussed how Congress enacted section 337 in 1938, but in 1990, Congress via the enactment of section 341-1 permitted the states to establish and continue in effect regulations that are identical to the federal requirements.

Justice Moreno then jumped in and asked: “Are you relying on any of the FDCA violations?” Spiegel: “No.” Spiegel then explained that plaintiffs are relying on UCL violations, and that plaintiffs are only claiming that Congress via the enactment of section 341-1 says that states may establish or continue in effect regulations that are identical to the FDCA requirements.

Justice Kennard interjected and asked whether Spiegel’s reasoning is based on the language in section 341-1, which says that no states may establish or continue in effect a requirement for labeling of food “that is not identical to the requirement” of FDCA. Spiegel affirmed.

Justice Kennard continued: “So section 343-1 expressly preempts only non-identical state labeling requirements?” Spiegel: “Yes.”

Justice Kennard then asked: “What about the police power … as being another argument?” Spiegel agreed that the police power is another argument against preemption.

At this time, Justice Mihera jumped in (but I missed the question). Mr. Spiegel’s response talked about two cases that were cited against plaintiffs’ position, one of which is Buckman (where the USSC held that section 337(a) is clear evidence that Congress intended FDCA be enforced exclusively by the federal government). Spiegel nicely distinguished Buckman from the present case, explaining that the plaintiff in Buckman alleged “fraud on the FDA” -- thus, there was no police power argument in Buckman, because fraud on a federal agency is not within the realm of the police power.

Justice Moreno asked Spiegel whether FDA has a position regarding state enforcement. Spiegel was very prepared to answer this question. He cited a 1993 official rule and quoted “nothing in this act will preclude the states from enforcing their own requirement under their own [law].”

Spiegel then went on to talked about the interplay between sections 343 and 343-1 and 337(b), noting that 343 and 343-1 were adopted as part of the FDCA in 1990. I think his main idea was that if Congress meant to create FDCA preemption in section 337, then why did Congress bother to enact section 343-1, which permits states to “establish or continue in effect” state requirements?

Justice Mihera noted that barring non-identical state requirements seems to infer that identical state requirements will be okay. He then asked about defendants’ argument based on NLEA section 343-1, subsection 6(c)(3).

At this point, Justice Kennard pointed to subsection 6(c) of section 343-1 which states that NLEA “shall not be construed to preempt any provision of State law, unless such provision is expressly preempted….” Justice Kennard asked: “Is there any express preemption in the statute?” Response: “No.”

Mr. Heinke then argued on behalf of the defendants.

Justice Baxter jumped in with his first question: “Why wouldn’t Congress want private enforcement of these requirements?” Justice Chin then asked about the plain language of NLEA which seems to say there is no preemption if state requirements are identical to those required by NLEA. Mr. Heinke responded by explaining that the question presented is whether there can be private enforcement, citing section 337. Mr. Heinke noted that Congress in 1938 via section 337 said there is no private enforcement of FDCA. He added: “Did Congress really intend to change that by section 334-1? If yes, then Congress would have just said that it overturned the bar on private enforcement instead.”

Mr. Heinke then emphasized that section 334-1 didn’t say anything about “private enforcement.”

Justice Kennard, at this point, interjected and asked about the language in NLEA. She specifically asked why this court should agree with defendants’ arguments? Mr. Heinke’s response was that NLEA is not the basis for defendants’ argument. Instead, he noted that defendants are arguing section 337 as the basis for preemption. He then argued that Congress didn’t change a word in section 337 (since its enactment).

Justice Mihera jumped in: “But they added section 334-1!” Mihera then asked: “Who bears the burden?” Response: “There is no burden.” Mihera: “There is!”

Justice Mihera then explained that because there is no express preemption, the defendants are relying on “implied” preemption -- which means that the defendants will need to establish an “obstacle to a federal objective.” He then asked what is the obstacle that will result in the private enforcement of state law that is identical & parallel to FDCA?

In response, Heinke cited the preamble of NLEA and talked about legislative history of what Congress is doing concerning private enforcement.

Justice Kennard then asked about the two USSC cases cited by the plaintiffs (i.e., Bates and Medtronics, in both cases the USSC upheld state private actions as long as they are not inconsistent to the federal requirement). Mr. Heinke’s response focused on 337 and the idea that there is no private enforcement of FDCA. First, he indicated Bates is not about FDCA. Second, he noted Medtronics was an FDCA case, but Medtronics did not discuss section 337, and therefore is not controlling here. Heinke then noted it is Buckman that should be looked at here.

Justice Moreno asked: “But one of the principles of Medtronics is to allow private enforcement of claims?” Response: “Yes, but that’s without looking at section 337.”

Justice Mehera and Mr. Heinke then had some discussion back and forth about the language in 334-1. Mr. Heinke said that Congress changed the language to “state enforcement” and not “private enforcement.” Justice Mehera corrected him by noting that section 334 does not use the word “enforcement” -- rather, it only talks about state “establishment” of it own requirements.

At this point, Justice Werdegar asked her first question: “What’s the policy reason [for no private enforcement]?” Response: Congress wants to ensure expertise -- private parties don’t have expertise in this area (and I think he mentioned something about plaintiffs’ lawyers and fees!).

Justice Baxter then said: “Congress did not provide private enforcement in the federal courts?” Response: “Exactly.”

Justice Kennard then jumped in: “You were saying you are not relying on NLEA, right? But just a moment ago you cited Congressman Waxman's comment which started out with ‘The NLEA….’” Justice Kennard was basically saying that in one context Mr. Heinke is relying on NLEA; whereas, in another context, he chose not to rely on NLEA.

At this time, it was Mr. Spiegel’s turn again. He started out indicating that the defendants had mischaracterized plaintiffs’ argument. Spiegel clarified that plaintiffs are basically arguing that defendants’ claim concerning section 337 is incorrect.

He then talked about how defendants are arguing Congress in 1938 through section 337 basically decided that there should be no more state law claims (without saying a word about it in the statute). He also noted that the cases defendants have cited all concerned FDA “approval” process and that states have never regulated such approval processes.

Justice Werdegar then asked questions that focused on “private enforcement” and the policy reason of whether private enforcement is a problem. Mr. Spiegel indicated the issue of private enforcement of FDCA has nothing to do with this case.

Justice Baxter then asked why shouldn’t section 334(b)[??] control? Mr. Spiegel explained because that section says “enforcement of FDCA.” Justice Baxter followed up with a question on section 337. Spiegel’s response talked about Buckman. He again explained that the claim in Buckman is preempted because the plaintiff there only relied on FDCA violations (and not state claims).

Predictions:
Mihera, Kennard, Chin, Moreno: for the plaintiffs.
Werdgar, Baxter: for defendants.
Corrigan: not sure.

Thank you, Kelly, for providing such a detailed and interesting report of the argument! Yesterday's Daily Journal also had a (much less detailed) report on the argument, and also predicted that the plaintiffs are the likely winners: "Court Backs Salmon-Labeling Suit" (subscription). The decision is due by early March.

UCL/CLRA preemption case set for oral argument: Farm Raised Salmon Cases

The Supreme Court announced last week that it would hear oral argument in Farm Raised Salmon Cases, no. S147171, on Tuesday, December 4, 2007 at 9:00 a.m. in Los Angeles. In that case, the Court of Appeal held that the federal Food, Drug, and Cosmetic Act (21 U.S.C. §§ 301 et seq.) preempted the plaintiffs' UCL and CLRA claims. Farm Raised Salmon Cases, 142 Cal.App.4th 805 (2006). My two prior posts on this case are here and here. If anyone attends the argument, I would be glad to receive a report.

Supplemental briefing ordered in In re Tobacco II Cases

Thanks to the blog reader who emailed me to point out that on October 10, 2007, the Supreme Court issued a supplemental briefing order in In re Tobacco II Cases, no. S147345. The order indicates that the Court is considering whether its decision in the other Tobacco case, which addressed preemption, impacts the Prop. 64 case:

The court requests that the parties file supplemental letter briefs addressing the impact of this court's recent opinion in In re Tobacco II (2007) 41 Cal.4th 1257 on the issues presented in this case, and particularly our conclusion that certain claims advanced under Unfair Competition Law regarding advertising by tobacco companies to minors are preempted by federal law. Supplemental briefing is to proceed as follows: The parties may file simultaneous letter briefs on or before November 16, 2007, 2007. Each party may then file an additional letter brief in response on or before November 29, 2007. No further extensions of time for the filing of these briefs are contemplated by the Court.

In a blog post on the Tobacco II (preemption) decision, I explained why I didn't think the Tobacco II (Prop. 64) case was affected:

According to the Court of Appeal's opinion, Tobacco II (Prop. 64) involves both CLRA and UCL claims "that the tobacco companies had made false and misleading statements denying or disputing the health hazards and addictiveness of cigarette smoking" in addition to "their targeting of minors." In re Tobacco II Cases, 142 Cal.App.4th 891, 896 (2006) (review granted). In other words, Tobacco II (Prop. 64) is predicated on allegedly misleading advertisements, not on the problem of truthful marketing to minors. According to the Supreme Court in Tobacco II (preemption), the FCLAA does not preempt state-law claims that "[seek] to regulate cigarette advertising on the basis that it contained false assertions of fact—a content-neutral basis—and [that] sought to impose a duty—the duty not to deceive—that was broader and more general than concerns about smoking and health." Slip op. at 14 (citing Cipollone v. Liggett Group, Inc., 505 U.S. 504, 528-29 (1992); Lorillard, 533 U.S. at 552).

Also, the representative plaintiffs in Tobacco II (Prop. 64) (Willard R. Brown, Damien Bierly and Michelle Denise Buller-Seymore) are different from those in Tobacco II (preemption) (Devin Daniels, Bryce Clements, Daimon Fullerton, Nicole Morrow, and Maren Sandler), indicating that these are wholly separate cases.

In sum, the two cases appear to involve different claims and, indeed, different cases from among the group coordinated under J.C.C.P. no. 4042. Nothing on the face of the two opinions suggests that Tobacco II (preemption) will moot any of the issues pending on review in Tobacco II (Prop. 64).

Still, it is certainly prudent for the Supreme Court to ask the parties for supplemental briefing and there may be relevant facts that are not apparent from the publicly-available information.

More thoughts on Tobacco II preemption decision

The Supreme Court's opinion in In re Tobacco Cases II, ___ Cal.4th ___ (Aug. 2, 2007), has very little to say about the UCL, but much to say about preemption. One notable thing is that the Court relied entirely on pre-Prop. 64 precedents in its single-paragraph description of the UCL:

The state unfair competition law (Bus. & Prof. Code, § 17200 et seq.) authorizes civil suits for “unfair competition” (id., § 17204), which it defines to “include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” (id., § 17200). “It governs ‘anti-competitive business practices’ as well as injuries to consumers, and has as a major purpose ‘the preservation of fair business competition.’ ” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.) “By defining unfair competition to include any ‘unlawful . . . business act or practice’ [citation], the [unfair competition law] permits violations of other laws to be treated as unfair competition that is independently actionable.” (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 949.)

Slip op. at 6-7 (alterations in original).

The UCL "unlawful" prong claim in this case was predicated on alleged violations of Penal Code section 308, which prohibits sale of tobacco to minors. Id. at 3. The Supreme Court determined that it was bound by Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001), which held that the Federal Cigarette Labeling and Advertising Act ("FCLAA") (15 U.S.C. §§1331 et seq.) preempted state regulations enacted based on "concerns about smoking and health." Slip op. at 12-13, 16. In so holding, the Supreme Court overruled its prior contrary conclusion in Mangini v. R.J. Reynolds Tobacco Co., 7 Cal.4th 1057 (1994).

The Court explained that the particular UCL claim that these plaintiffs sought to pursue was based on "concerns about smoking and health" and thus preempted under Lorillard:

The state unfair competition law is a law of general application, and it is not based on concerns about smoking and health. Therefore, the FCLAA does not preempt that law on its face; nor would the FCLAA preempt a claim under that law that sought to impose only content-neutral restrictions on cigarette advertising—such as a requirement that the advertising not contain false statements of fact—that were unrelated to concerns about smoking and health. To the extent we so concluded in Mangini, supra, 7 Cal.4th 1057, we were correct, and we reaffirm those conclusions.

Here, however, as in Mangini, plaintiffs’ claim is based not only on the state unfair competition law but also on Penal Code section 308, which prohibits sales of tobacco products to minors and possession of tobacco products by minors. The purpose of Penal Code section 308 is to prevent minors from smoking or otherwise using tobacco products. ....

Plaintiffs’ unfair competition claim here seeks to impose on defendant tobacco companies a duty not to advertise in a way that could encourage minors to smoke. That is precisely the duty that the United States Supreme Court in Lorillard, supra, 533 U.S. 525, held subject to FCLAA preemption because it is necessarily and inherently based on concerns about smoking and health. Accordingly, plaintiffs’ unfair competition claim is preempted ....

Slip op. at 15-17. This language led me to wonder if the outcome would have been different if the UCL claim had been predicated on the "unfair" or "fraudulent" prongs, instead of the "unlawful" prong coupled with Penal Code section 308. On reflection, I don't think it would have. Any argument that marketing to minors was "unfair" because it was either (a) unscrupulous or (b) contrary to a legislatively-declared public policy (to briefly summarize the pre- and post-Cel-Tech formulations of "unfair") would have to be "based on concerns about smoking and health." As for the "fraudulent" prong, "plaintiffs have not alleged that [the advertising directed to minors] was misleading." Slip op. at 19.

This case, which I will call "Tobacco II (preemption)," does not appear to affect the other Tobacco case now pending before the Supreme Court, which I will call "Tobacco II (Prop. 64)." In re Tobacco II Cases, no. S147345. According to the Court of Appeal's opinion, Tobacco II (Prop. 64) involves both CLRA and UCL claims "that the tobacco companies had made false and misleading statements denying or disputing the health hazards and addictiveness of cigarette smoking" in addition to "their targeting of minors." In re Tobacco II Cases, 142 Cal.App.4th 891, 896 (2006) (review granted). In other words, Tobacco II (Prop. 64) is predicated on allegedly misleading advertisements, not on the problem of truthful marketing to minors. According to the Supreme Court in Tobacco II (preemption), the FCLAA does not preempt state-law claims that "[seek] to regulate cigarette advertising on the basis that it contained false assertions of fact—a content-neutral basis—and [that] sought to impose a duty—the duty not to deceive—that was broader and more general than concerns about smoking and health." Slip op. at 14 (citing Cipollone v. Liggett Group, Inc., 505 U.S. 504, 528-29 (1992); Lorillard, 533 U.S. at 552).

Also, the representative plaintiffs in Tobacco II (Prop. 64) (Willard R. Brown, Damien Bierly and Michelle Denise Buller-Seymore) are different from those in Tobacco II (preemption) (Devin Daniels, Bryce Clements, Daimon Fullerton, Nicole Morrow, and Maren Sandler), indicating that these are wholly separate cases.

In sum, the two cases appear to involve different claims and, indeed, different cases from among the group coordinated under J.C.C.P. no. 4042. Nothing on the face of the two opinions suggests that Tobacco II (preemption) will moot any of the issues pending on review in Tobacco II (Prop. 64).

Supreme Court holds UCL claim preempted: In re Tobacco Cases II

I've only very quickly skimmed the opinion, but the bottom line is that the Supreme Court held that the UCL claim is preempted:

We summarize: Plaintiffs’ cause of action against defendant tobacco companies is based on two laws: Penal Code section 308 (which does not itself regulate advertising but is based on concerns about smoking and health) and the state unfair competition law (which does regulate advertising but is not itself based on concerns about smoking and health). By combining these two laws in a single claim, plaintiffs seek to regulate cigarette advertising on the ground that it targets minors and encourages them to begin smoking. As the United States Supreme Court made clear in Lorillard, supra, 533 U.S. 525, the FCLAA preempts any state law or cause of action that seeks to regulate cigarette advertising on that basis. To the extent it concluded otherwise, our opinion in Mangini, supra, 7 Cal.4th 1057, has been superseded by the high court’s later decision in Lorillard, and Mangini is therefore overruled.

In re Tobacco Cases II, ___ Cal.4th ___ (Aug. 2, 2007) (slip op. at 20). I do not know what impact, if any, this ruling will have on the other Tobacco II case pending in the Supreme Court.

BREAKING NEWS: Supreme Court to decide UCL preemption case tomorrow

Today, the Supreme Court announced that its opinion in In re Tobacco Cases II (no. S129522) will be posted online tomorrow morning at 10:00 a.m. This is the UCL preemption case, not the Prop. 64 case:

IN RE TOBACCO CASES II
S129522 (D041356 – San Diego County Superior Court – 719446/JCCP No. 4042)
Argued in Los Angeles 6-06-07

This case presents the following issue: Does the Federal Cigarette Labeling and Advertising Act (15 U.S.C. § 1331 et seq.) preempt claims under the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) for advertising that allegedly targeted minors?

When the opinion is posted, it will be available at this link. The Court of Appeal's opinion is In re Tobacco Cases II, 123 Cal.App.4th 617 (2004), and my prior posts on the case are here, here, and here.

New Supreme Court UCL preemption decision: Viva! v. Adidas

In Viva! International Voice for Animals v. Adidas Promotional Retail Operations, Inc., ___ Cal.4th ___ (Jul. 23, 2007), the Supreme Court held that the Endangered Species Act (16 U.S.C. §§ 1531 et seq.) did not preempt a UCL "unlawful" prong claim predicated on violation of a Penal Code section that prohibits importation or sale of products made from kangaroo hide. The Supreme Court remanded the case back to the Court of Appeal "to address Adidas’s remaining claims." Slip op. at 29. One of Adidas's "remaining claims" on appeal is the argument that Viva! lost standing to pursue this case after Prop. 64. However, as in Californians for Disability Rights v. Mervyn's, the association still has standing to pursue its appeal because it remains an "aggrieved party." It may have to substitute plaintiffs at the trial court level.

In the legal press, the Daily Journal reports that "Court OKs Kangaroo-Product Ban" (subscription). In the mainstream press, the San Francisco Chronicle reports that "State Supreme Court nixes sales of shoes made with kangaroo hide" and the Los Angeles Times reports that "Adidas' use of kangaroo hide is illegal, state justices say."

UCL preemption decision to be handed down Monday: Viva! v. Adidas

Today, the Supreme Court announced that on Monday at 10:00 a.m., it will hand down its decision in Viva! v. Adidas, a UCL preemption case previously discussed on the blog here, here, and here. When the opinion comes down, it should be available at this link.

VIVA! INTERNATIONAL VOICE FOR ANIMALS, ET AL. v. ADIDAS PROMOTIONAL RETAIL OPERATIONS, ET AL. S140064 (A106960 – City and County of San Francisco – 420214) Argued in San Francisco 5-29-07

This case presents the following issue: Does the doctrine of conflict preemption preclude California from prohibiting importation and trade of wildlife that have been delisted under the federal Endangered Species Act and thus are not currently regulated by federal law?

UCL public prosecutor action: People ex rel. Brown v. Powerex Corp.

In People ex rel. Brown v. Powerex Corp., ___ Cal.App.4th ___ (Jun. 11, 2007; pub ord. Jul. 11, 2007), the Court of Appeal (Third Appellate District) held that the filed rate doctrine barred the Attorney General's UCL claim in its entirety. The Court specifically rejected the AG's argument that the UCL claim did not "rely on any filed tariff term, directly affect a filed rate or tarriff provision, nor collaterally attack the reasonableness of any filed rate":

The complaint sought restitution, disgorgement of profits, civil penalties and damages as a result of Powerex’s trading activities, alleging the gaming of the market resulted in unfair payments to Powerex which harmed California electricity consumers and de-stabilized the power delivery system. Any monetary relief would be in excess of the tariffs eventually applied by FERC and therefore are barred by the filed rate doctrine. (Snohomish, supra, 384 F.3d at pp. 760-762; Dynegy, supra, 375 F.3d at p. 853; Grays Harbor, supra, 379 F.3d at pp. 651-652; TANC, supra, 295 F.3d at pp. 929-932; Enron, supra, 327 B.R. at pp. 535-537 [barring California Attorney General’s claims under UCL and CCL based on gaming the market].) Further, civil penalties are regulatory and “to impose a civil penalty upon an incident or event, without regard to whether injury was suffered, is to regulate the activity that gave rise to the incident or event.” (People v. Union Pacific Railroad Co. (2006) 141 Cal.App.4th 1228, 1257-1258.) Regulating gaming schemes by imposing penalties would grant relief in excess of the tariffs and conflict with FERC’s exclusive regulatory power over the wholesale energy market. (See Duke Energy Trading and Marketing, L.L.C. v. Davis (9th Cir. 2001) 267 F.3d 1042, 1056-1057 [state “commandeering orders directly nullify the security and default mitigation provisions of the FERC-approved CTS rate schedule, and hence cross the ‘bright line’ between state and federal jurisdiction established by the FPA”].)

The claim of entitlement to injunctive relief, too, is barred by the filed rate doctrine. (Snohomish, supra, 384 F.3d at pp. 760-762; Dynegy, supra, 375 F.3d at pp. 836-839, 852-853; see Norwood, supra, 202 F.3d. at pp. 419-420.) Further, we rejected an injunctive claim arising from the energy crisis, for lack of any “threat that the misconduct to be enjoined is likely to be repeated in the future.” (Madrid v. Perot Systems Corp. (2005) 130 Cal.App.4th 440, 465.) The Attorney General’s complaint and briefing predicates liability on conduct during the energy crisis. Gaming could not be successfully attempted now, when the ISO, FERC and the Attorney General are all watching the power companies like hawks.

Because the complaint fails to state any good claim for relief the trial court properly sustained the demurrer.

Slip op. at 21-23.

One of the people who responded to The UCL Practitioner Reader Survey said they would like to see more reports about government use of the UCL. Truth be told, very few published opinions involve public prosecutor actions, which is the primary reason why I don't report much on them. It's difficult to gather information about trial-level cases. Most of the time I know nothing about them until a published opinion comes down from an appellate court.

By the way, thanks to everyone who has participated in the reader survey so far. The survey is still open and you can click here to participate.

New Ninth Circuit UCL preemption decision: Burnside v. Kiewit Pacific Corp.

In Burnside v. Kiewit Pacific Corp., ___ F.3d ___, 2007 WL 1760747 (9th Cir. Jun 20, 2007), the Ninth Circuit held that section 301 of the Labor Management Relations Act (29 U.S.C. § 185(a)) did not preempt the plaintiffs' UCL and other claims. Accordingly, it reversed the district court's order granting summary judgment in the defendants' favor, and ordered the case remanded to San Diego County Superior Court (from which it had been removed).

New UCL preemption decision: Wholesale Electricity Antitrust Cases I & II

In Wholesale Electricity Antitrust Cases I & II, ___ Cal.App.4th ___ (Feb. 26, 2007), the Court of Appeal (Fourth Appellate District, Division One), held that the Federal Power Act and implementing regulations of the Federal Energy Regulatory Commission preempted the plaintiffs' UCL and Cartwright Act claims. From a UCL standpoint, this is the most interesting paragraph in the opinion:

In the UCL context, in Spielholz[v. Superior Court], 86 Cal.App.4th 1366 [2001], those plaintiffs were allowed to proceed with false advertising allegations that a telecommunications carrier had falsely advertised a "seamless calling area" existed, where in reality, there were gaps where wireless telephone users were unable to connect calls. The Court of Appeal found no federal preemption of such claims, because the main allegations dealt with false advertising, such that any effect on rates was merely incidental. Here, however, as stated by the trial court, "This can be contrasted to the instant case, involving the FPA, where Plaintiffs' allegations concern conduct directly related to rates charged and ultimately paid." We agree with the trial court's analyses of the California case law claims, because plaintiffs have been unable to show why the alleged anticompetitive conduct by defendants inflicted any different kind of injury on them, that is separate from the rates charged and ultimately paid. This is not a case in which incidental damages are claimed to arise from conduct that is not covered by the federal legislation, such as false advertising.

Slip op. at 26-27.

This week at the Supreme Court: review denied in three cases, while a fourth is transferred

On Wednesday, January 3, 2007, the Supreme Court denied review in three cases involving plaintiff-favorable, published Court of Appeal opinions:

1. Aron v. U-Haul Co., ___ Cal.App.4th ___ (Oct. 3, 2006) (review denied 01/03/07, no. S148020). As explained in my original post, the Aron court reversed an order granting judgment on the pleadings of the plaintiff's UCL and CLRA claims.

2. Hood v. Santa Barbara Bank & Trust, ___ Cal.App.4th ___ (Sept. 28, 2006) (review and depublication denied 01/03/07, no. S147931). There, the Court of Appeal held that federal law did not preempt the plaintiff's UCL, CLRA or other state-law claims. (Here is my original post on Hood.)

3. Cohen v. DirecTV, Inc., 142 Cal.App.4th 1442 (Sept. 18, 2006) (review denied 01/03/07, no. S147997). Cohen held that a no-class-action arbitration provision was unconscionable under Discover Bank. (Click here for my original post on Cohen.) This order is consistent with the Supreme Court's other recent activity in no-class-action arbitration clause cases. It has been granting review in cases upholding such clauses, and denying review in cases striking them down.

In a fourth, defendant-favorable preemption case, WFS Financial, Inc. v. Superior Court (De La Cruz), 140 Cal.App.4th 637 (June 15, 2006), in which review was granted in September, the Supreme Court issued the following order, according to the docket:

In light of the parties' settlement, their stipulated request that the court vacate the Court of Appeal's judgment is granted. (Code Civ. Proc. § 128, subd. (a)(8).) The court finds there is no reasonable possibility that the interests of nonparties or the public will be adversely affected by vacating the judgment. (Ibid.) The court further finds that the reasons of the parties for requesting the vacating of the judgment outweigh any countervailing considerations. (Ibid.) The Court of Appeal is directed to dismiss the writ proceeding so that the superior court may consider the class settlement.

Accordingly, the Supreme Court will no longer be deciding the UCL preemption issue raised in this case, and the Court of Appeal's opinion remains uncitable. (See my prior posts on the opinion here and here.)

Supreme Court grants review in UCL preemption case: Farm Raised Salmon Cases

On December 13, 2006, the California Supreme Court granted review in Farm Raised Salmon Cases, no. S147171. The case raises the following issue:

Does the Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 301 et seq.) impliedly preempt plaintiffs’ state law claims against defendants for deceptive marketing of food products by failing to disclose that farmed salmon sold in their stores contains artificial coloring?

My original post on the Court of Appeal's opinion, Farm Raised Salmon Cases, 142 Cal.App.4th 805 (2006), is here. As the post points out, the underlying state-law claims included UCL and CLRA claims.

Query: The Court of Appeal's opinion in In re Tobacco II Cases includes the "In re" prefix, but the Court of Appeal's opinion in Farm Raised Salmon Cases does not. Why?