The UCL Practitioner

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The opinion did have one interesting footnote that should remove any doubts concerning the propriety of citing unpublished federal district court rulings in California state courts:

In their briefs, the parties discuss an unpublished federal district court opinion which came to the same conclusion when considering nearly identical facts.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?

New UCL/CLRA preemption decision: Hood v. Santa Barbara Bank & Trust

Last week, the Court of Appeal (Second Appellate District, Division Six) handed down another preemption decision. Hood v. Santa Barbara Bank & Trust, ___ Cal.App.4th ___ (Sept. 28, 2006) holds that the National Bank Act and implementing OCC regulations did not preempt the plaintiffs' UCL, CLRA and other state-law claims. One justice filed a dissenting opinion.

Supreme Court grants review in UCL preemption case: WFS Financial v. Superior Court (De La Cruz)

Last week, the Supreme Court granted review in a UCL preemption case, WFS Financial, Inc. v. Superior Court (De La Cruz), no. S145304. According to the main case screen, the case raises the following issue:

Are the provisions of the Rees-Levering Automobile Sales Finance Act (Civ. Code, § 2981 et seq.) that require a creditor to include certain disclosures in a notice of intent to dispose of a vehicle after it has been repossessed and that condition the creditor's right to seek a deficiency judgment on compliance with these requirements (Civ. Code, § 2983.2), preempted by the federal Home Owners' Loan Act (12 U.S.C. § 1461 et seq.) when the creditor is a federally chartered savings institution?

As explained in my original post on this case, the Court of Appeal held that because HOLA preempted the Rees-Levering Act as applied to federal savings and loan associations, the defendant's alleged Rees-Levering violation could not support a UCL "unlawful" prong claim. WFS Financial, Inc. v. Superior Court (De La Cruz), ___ Cal.App.4th ___, 44 Cal.Rptr.3d 561 (June 15, 2006) (Third Appellate District).

De La Cruz is to be contrasted with the McKell case, decided last week (and discussed in this post), in which the Court of Appeal held that HOLA did not preempt the plaintiff's UCL "unlawful" prong claim. In McKell, the "unlawful" prong claim was predicated on an alleged violation of a federal law (RESPA), whereas in De La Cruz, the "unlawful" prong claim was predicated on an alleged violation of a state law (the Rees-Levering Act):

Insofar as plaintiffs are using the UCL to enforce federal law as set forth in RESPA, they are not seeking to enforce “state laws affecting the operations of federal savings associations.” ([12 C.F.R.] § 560.2(a) [HOLA's preemption provision].) The UCL does not “purport[] to regulate or otherwise affect [a savings association’s] credit activities” (ibid.) but only provides a means of enforcing federal requirements. It thus is the type of state law not preempted by federal law.

McKell v. Washington Mutual, Inc., ___ Cal.App.4th ___ (Sept. 18, 2006) (slip op. at 29).

Many thanks to the reader who emailed to advise of this development.

New UCL/CLRA preemption decision: In re Farm Raised Salmon Cases

In In re Farm Raised Salmon Cases, ___ Cal.App.4th ___ (Aug. 31, 2006), the Court of Appeal (Second Appellate District, Division Three) held that the federal Food, Drug, and Cosmetic Act (21 U.S.C. §§ 301 et seq.) preempted the plaintiffs' UCL and CLRA claims.

New UCL preemption decision: WFS Financial, Inc. v. Superior Court

In WFS Financial, Inc. v. Superior Court (De La Cruz), ___ Cal.App.4th ___ (June 15, 2006), the plaintiff alleged that the defendant (an operating subsidiary of a federal savings association) violated the disclosure requirements of the Rees-Levering Automobile Sales Finance Act (Civ. Code §§ 2981 et seq.) and thus the UCL's "unlawful" prong. The Court of Appeal (Third Appellate District) held that the Home Owners’ Loan Act (12 U.S.C. §§ 1461 et seq.) preempted both claims: "De La Cruz cannot use the UCL to enforce a statutory violation where the underlying statute is preempted by federal law." Slip op. at 26.

New UCL preemption decision: Harris v. Investor's Business Daily

In Harris v. Investor's Business Daily, Inc., ___ Cal.App.4th ___ (Mar. 29, 2006), the UCL claim was predicated on an alleged violation of the federal Fair Labor Standards Act (29 U.S.C. §§200 et seq.). The Court of Appeal (Second Appellate District, Division Four) held that the FLSA's "opt-in" requirement did not preempt the "opt-out" requirement of Code of Civil Procedure section 382, which would govern a UCL class action. Harris is virtually identical to Bahramipour v. Citigroup Global Markets, Inc., 2006 WL 499132 (N.D. Cal. 2006), in which Judge Claudia Wilken reached the same conclusion. My original post on Bahramipour is here.

New federal UCL order: Bahramipour v. Citigroup Global Markets, Inc.

Thanks to Jessica for handing me a copy of the Order Denying Defendant's Motion for Partial Summary Judgment in Bahramipour v. Citigroup Global Markets, Inc., No. C 04-440 CW (N.D. Cal.). In this case, the plaintiff's UCL "unlawful" prong cause of action is predicated on alleged violation of the federal Fair Labor Standards Act (29 U.S.C. §§200 et seq.). Judge Claudia Wilken held that the FLSA did not preempt either (a) the UCL's four-year statute of limitations or (b) the "opt-out" class certification procedure that would apply under Rule 23 to UCL claims in federal court: "By allowing 'opt-out' class actions and longer statute of limitations for UCL claims, California provides increased protections for its workers, furthering the central purpose of the FLSA. The UCL as invoked in Plaintiff's claim does not stand as an obstacle to the purposes of the FLSA." (Slip op. at 13.)

If the FLSA claim had been brought directly, rather than through the UCL, it would have been subject to a two-year statute of limitations (or three years, if willful misconduct is proven), and special "opt-in" rules would have limited the size of the class. This case illustrates the procedural benefits of UCL claims, even after Proposition 64.

UPDATE: The Westlaw citation is Bahramipour v. Citigroup Global Markets, Inc., 2006 WL 449132 (N.D. Cal. 2006).

Supreme Court grants review of UCL preemption decision: Viva v. Adidas

Yesterday, the Supreme Court granted review in Viva International v. Adidas Promotional Retailer (no. S140064). In Viva, the Court of Appeal held that a UCL "unlawful" prong claim was preempted by federal law. The defendant also raised Prop. 64 retroactivity, but the Court of Appeal did not reach that issue in light of its preemption ruling. The Court of Appeal's opinion is here, and my original post on the opinion is here.

UCL preemption decision ordered published: Smith v. Wells Fargo Bank

On January 26, 2006, the Court of Appeal (Fourth Appellate District, Division One) issued a publication order in Smith v. Wells Fargo Bank, N.A., ___ Cal.App.4th ___ (Dec. 29, 2005). My original post on the Smith decision is here.

New unpublished UCL preemption decision: Smith v. Wells Fargo Bank

Last week, the Court of Appeal (Fourth Appellate District, Division One) handed the plaintiff a complete and total victory in Smith v. Wells Fargo Bank, case no. D045487. The decision has a lengthy discussion of federal preemption in UCL actions against financial institutions, including an interpretation of a new OCC preemption regulation. The Court held that neither the UCL claim nor the CLRA claim was preempted and reversed the trial court's order granting summary judgment to the bank. The opinion also applies summary judgment law in a very plaintiff-favorable way. I'm really not sure why this opinion wasn't published, because it appears to satisfy the requirements of Rule of Court 976. UPDATE: On January 26, 2006, the opinion was ordered published.

New UCL preemption decision: Viva! v. Adidas

On Monday, the Court of Appeal (First Appellate District, Division One) held that federal law preempted a UCL "unlawful" prong claim predicated on an alleged violation of Penal Code section 653o, which "bans the import of products made from certain animals, including kangaroos, into California." Viva! International Voice for Animals v. Adidas Promotional Retail Operations, Inc., ___ Cal.App.4th ___ (Nov. 21, 2005) (slip op. at 1). This is the case that was argued on the same day that I argued the Prop. 64 retroactivity issue before the same Division in the Insurance Broker cases. The Prop. 64 retroactivity issue was also argued in the Viva! case, but the Court determined that "[i]n light of this conclusion, we need not reach ... other issues raised by defendants, including the applicability of Proposition 64, pending before the