The UCL Practitioner

CAFA in action

You might have read some of the news reports last week about a new nationwide class action against Apple alleging that the iPod Nano is defective because the display screen scratches too easily. A copy of the first amended complaint is accessible here. The action was filed in the Northern District of California in San Jose, and includes claims based on the warranty and consumer protection laws of the 50 states (except California, a notable omission; the original complaint, which is no longer available online, included California and a UCL claim). I'm not at all privy to the plaintiffs' strategy here, but this case has CAFA written all over it.

New UCL preemption decision: Steinberg v. International Commission on Holocaust Era Insurance Claims

In Steinberg v. International Commission on Holocaust Era Insurance Claims, ___ Cal.App.4th ___ (Oct. 20, 2005), the Court of Appeal held that "the foreign policy of the United States" preempts claims for Holocaust-era insurance claims brought under the UCL and Civil Code section 354.5.

Comments sought on proposed revisions to Rule of Court 976

As I previously reported, the Supreme Court has convened an Advisory Committee on Rules for Publication of Court of Appeal Opinions whose charge is to "review the publication practices that exist within the Court of Appeal districts and their divisions" and to "consider whether the existing publication rules could be amended to better assist the courts in making their initial determination of whether to certify an opinion for publication." On October 19, the Committee released its Preliminary Report and Recommendations on Rules for Publication of Court of Appeal Opinions, including a proposal to amend Rule of Court 976. Public comments have been requested and are due by January 6, 2006. The preliminary report has a lot of interesting tidbits, such as the fact that a publication request by a party carries far more weight than a publication request by a non-party.

Please participate in an informal Prop. 64 poll

In Friday's article in the San Diego Daily Transcript, blog reader Michael Mallow of Kirkpatrick & Lockhart Nicholson Graham LLP was quoted as saying that "to a great extent the impact has already been felt and adjustments have already been made by those pursing unfair competition claims." I think that's probably true, and I'd like to hear from other people about what they've experienced. Please post a comment or drop me an email if you know about a UCL case in which any of the following has happened:

(1) A UCL complaint has been amended to add a new, affected plaintiff;
(2) A UCL complaint has been amended to add class action allegations;
(3) The trial court has stayed a case pending Supreme Court resolution of the Prop. 64 retroactivity question;
(4) The parties have stipulated to a stay pending Supreme Court action;
(5) The parties have tacitly agreed to take a wait-and-see approach in a pending case.

Personally, I know of at least one case in which the parties stipulated to a formal stay, and of another case in which no formal stay has been entered, but everyone has sort of tacitly agreed to await the Supreme Court's ruling. I'd be particularly interested to hear about cases in which a trial court has granted leave to amend. If I receive copies of trial court orders, I'll put them up.

New class action decision: Fireside Bank v. Superior Court

Last Friday, the Court of Appeal (Sixth Appellate District) issued a significant new class certification decision addressing the problem of "one-way intervention." Fireside Bank v. Superior Court, ___ Cal.App.4th ___ (Oct. 21, 2005). The appellate courts haven't addressed this issue for quite a long time.

The concept of one-way intervention originated in California in the two Home Savings cases, Home Sav. & Loan Assn. v. Superior Court, 42 Cal.App.3d 1006 (1974) ("Home Savings I") and Home Sav. & Loan Assn. v. Superior Court, 54 Cal.App.3d 208 (1976) ("Home Savings II"). These cases basically held that if the defendant objects, merits rulings may not be made until after class certification. Defendants typically invoke this rule to prevent plaintiffs from seeking summary adjudication before they have sought class certification. As Home Savings I explained:

The vice in the procedure followed by the trial court is that it allows so-called "one-way intervention," a procedure under which potential members of the class can reserve their decision to become part of the class until the validity of the cause asserted by the named plaintiffs on behalf of the class has been determined. While one-way intervention has obvious attractions for members of the class on whose behalf an action has been brought in that it creates for them a no-lose situation, for a defendant it holds the terrors of an open-ended lawsuit that cannot be defeated, cannot be settled, and cannot be adjudicated. To him it presents a classic no-win option.

42 Cal.App.3d at 1011. The reasoning is that if merits determinations are made before class certification and class notice, the members of the putative class who are deciding whether to "opt out" will already know what the outcome will be. Presumably, if the representative plaintiff has won a favorable summary judgment ruling, the putative class members will choose not to "opt out." By contrast, if the plaintiff has lost a significant merits issue, the putative class members will (presumably) "opt out" and perhaps refile a new action against the defendant. They can do that because rulings made before class certification and class notice are not binding on them. The defendant has no similar escape route. The Home Savings courts thought that this was so unfair to the defendant as to rise to the level of a due process violation.

The Fireside Bank court sequentially addressed each rationale underlying the rule against "one-way intervention," and found none of them valid. As one example:

At bottom the decision [in Home Savings] appears to rest not on any ponderable injury to a concrete interest, but on a perceived lack of symmetry in conducting a proceeding that exposes the defendant to liability on numerous claims without guaranteeing a reciprocal opportunity to conclusively defeat those claims should the merits be decided for the defendant. But the class action procedure is designed in the interests of judicial efficiency, not in recognition of some right in defendants to be “subjected to only one lawsuit.” [Citation.] A purely conceptual asymmetry cannot properly be relied upon to impose categorical constraints on the trial court’s power to manage a putative class action in a manner most conducive to substantial justice and judicial economy. The court in Home Savings I, supra, 42 Cal.App.3d at p. 1014, wrote that “[d]ue process of law calls for a certain degree of logic and order in the trial of an action.” But while logic is always orderly, “order” is not always logical, especially when it involves slavish devotion to abstract conceptions of symmetry divorced from practical experience. “Order” of this kind, unlike logic, is entirely in the eye of the beholder.

Slip op. at 17. The court also determined that there never really was any "rule" against "one-way intervention" in the federal courts:

It thus appears that the “rule” against one-way intervention was never categorically applied in federal courts. At most, federal courts have encouraged an early determination of class issues, and may not permit—or may not until recently have permitted—the postponement of class certification, over a defendant’s clear and consistent objection, for the purpose of rendering a decision on the merits. Whatever its erstwhile status, the putative federal “rule” against deciding the merits before certification has become little more than a jurisprudential derelict, the hollow shell of a rule, suffered by virtue of judicial inertia to drift upon the surface currents of federal law.

Id. at 27 (emphasis in original). Ultimately, the court held that "there is no categorical prohibition against" merits rulings before class certification, that instead "there exists at most a preference for resolving class issues before entering a dispositive order on the merits," and that trial courts have discretion to determine the proper order of proceedings. Id. at 1, 7, passim.

The opinion is worth reading. I also think a petition for review is virtually guaranteed. Whether it will be granted is another question.

"State's high court to untangle voter-modified Unfair Competition Law"

I was quoted in this article in Friday's San Diego Daily Transcript. Unfortunately, a paid subscription is necessary to access articles online. Here's an excerpt:

Critics contend there's no language in materials promoting the ballot measure or the bill itself indicating that Proposition 64 regulations were to be applied to pending cases.

"The general rule is new legislation applies prospectively only unless there is a clear indication (otherwise)," said Kimberly Kralowec of San Francisco's Furth Firm. "The ballot materials, the summary of the amendment itself, the ballot arguments ... there's nothing in there [indicating] that anyone wanted it to apply to [pending] cases."

Kralowec, who represents plaintiffs in class-action lawsuits, has a blog devoted to the ongoing debate. She argues the bill contains "prospective-type language" and has been touted as a way to stop attorneys from filing future cases.

Pamela Parker, an attorney for the San Diego office of class-action giant Lerach Coughlin Stoia Geller Rudman & Robbins LLP, agrees. "It all comes down to voter intent and there's no evidence whatsoever that the voters intended to terminate existing UCL litigation," she said. "The focus was frivolous lawsuits, which constitutes a regrettable but small portion of UCL litigation. They thought they were doing something to help curtail that in the future."

Upcoming MCLE program on standards of appellate review

The Rutter Group will present "Mastering the Standards of Appellate Review" on October 25, 2005 in San Francisco and on November 9, 2005 in downtown Los Angeles. Registration will begin at 5:30 p.m. and the program will go from 6:00 to 9:15 p.m. Justices Haller and Marciano will be on the panel. This one should be good. (Thanks to the Chair of the BASF Appellate Practice Section for the heads up.)

How to snatch defeat from the jaws of victory

An odd development yesterday in Shapell Industries, Inc. v. Superior Court, ___ Cal.App.4th ___ (Sept. 19, 2005). My original post on Shapell is here.

As you may recall, this case was decided in the context of a petition for a writ of mandate. Yesterday, the Court of Appeal issued a modification order explaining that after it issued its alternative writ, the trial court vacated the challenged order, thereby complying with the alternative writ. Unfortunately, nobody told the Court of Appeal about this. If the petitioners had done so, the Court of Appeal would have dismissed the proceeding as moot, and the petitioners would have achieved their goal. Instead, the Court of Appeal went on to fully analyze the merits. Ultimately, it issued an opinion discharging the alternative writ and denying the petition. In other words, the petitioners lost, and the trial court's original order was, in effect, affirmed. The Court of Appeal chastized the petitioners for not advising it of the trial court's action sooner:

We strongly caution petitioners against engaging in such conduct in the future, which would justify an award of sanctions against them were we inclined to impose them.

Ordinarily, we would dismiss a petition as moot if the trial court complies with the terms of the alternative writ. However, when a pending case involves a question of public interest that is likely to recur between the parties or others, “the court may exercise an inherent discretion to resolve that issue even though an event occurring during its pendency would normally render the matter moot.” (In re William M. (1970) 3 Cal.3d 16, 23.) We find the issues in this case warrant our consideration. Further, given the conclusion that we reach, our failure to resolve the issue would result in a miscarriage of justice, since the outcome would be inconsistent with the conclusion we reach on the specified legal issue before us.

Modification Order, slip op. at 2-3 (emphasis added). If I were a trial judge, I would also take away this important lesson: An interim order granting an alternative writ—even one that stays all trial-level proceedings—doesn't necessarily indicate where the Court of Appeal is going. (The one part of this that's not entirely clear is how the trial court could have vacated its prior order after the alternative writ was issued if the Court of Appeal also stayed all proceedings.)

Another upcoming Prop. 64 oral argument

The Court of Appeal (First Appellate District, Division Five) recently scheduled Dunham v. Memberworks, Inc., no. A107261, for oral argument on November 17, 2005 at 11:00 a.m. The Prop. 64 retroactivity issue was raised in a motion to dismiss in that case (the opposition to which is available here). The Court of Appeal denied the motion to dismiss without opinion, perhaps for reasons explained in United Investors v. Waddell & Reed, Inc., 125 Cal.App.4th 1300 (2005), which presumably means that the Prop. 64 issue has been deferred and will be decided concurrently with the merits. Given Division Five's recent decision in Wise v. Pacific Gas & Electric Co., ___ Cal.App.4th ___ (Sept. 12, 2005) (Prop. 64 portion of opinion unpublished), the outcome here probably won't be a surprise.

New classwide and UCL arbitration decision: Independent Assn. of Mailbox Center Owners, Inc. v. Superior Court

Last Thursday, October 13, 2005, the Court of Appeal (Fourth Appellate District, Division One) ordered publication of International Association of Mailbox Center Owners, Inc. v. Superior Court (Mail Boxes Etc. USA, Inc.), ___ Cal.App.4th ___ (Sept. 16, 2005). The Court applied Discover Bank v. Superior Court, 36 Cal.4th 148 (2005) in a non-consumer context. Its holding invalidates a no-class-action arbitration clause in certain franchise agreements, permitting group arbitration of the franchisees' claims against the franchisor. Significantly, one of those claims is for UCL violations.

First of all, the Court explained why it granted writ review of the trial court's order denying consolidation of the arbitrations (under Code of Civil Procedure section 1281.3), rather than awaiting an ordinary appeal:

One important public policy reason for allowing class actions is to promote judicial economy and streamline the litigation process in appropriate cases, involving common issues of law and fact, and this policy is also evidently promoted through an arbitration forum. To allow appropriate consideration to these policies, we have issued an order to show cause (OSC), obtained further briefing on the Discover Bank authority, and heard oral argument. Under these unusual circumstances, writ relief is proper.

Slip op. at 10-11 (citations omitted) (emphasis added).

Next, the Court determined that "franchise agreements, in some cases, have the same qualities of adhesion contracts as do certain consumer contracts ... with regard to the availability of group arbitration." Id. at 18. Accordingly, the Court applied Discover Bank:

For the reasons outlined in Discover Bank, supra, 36 Cal.4th 148 and [Green Tree Financial Corp. v.] Bazzle [2003] 539 U.S. 444, group arbitration can be a valid means of dispute resolution where the statutory and case law criteria for consolidation are satisfied. Here, the franchisees made an adequate showing under section 1281.3 that there were common issues of law and fact and that group arbitration would be a preferred means of dispute resolution. The trial court should have accepted that showing, ... and it was error not to strike the ban on group arbitration from the JAMS agreement on this record.

Id. at 19-20.

The Court did not address the arbitrability of the injunctive relief component of the UCL claim, presumably leaving that to the trial court to decide in the first instance. See Cruz v. Pacificare Health Systems, Inc., 30 Cal.4th 303 (2003). It did hold, however, that because the franchisees sought arbitration of unwaivable statutory claims, including their UCL claims, the arbitration agreement's fee-shifting clause was unenforceable, and that a pre-arbitration fee award might even be appropriate:

[A]t this point in the proceedings, franchisees have made a prima facie showing that some of their statutory claims are the type which should be entitled to an advance fee allocation ruling, before the arbitration proceedings take place, to the extent that fee allocation is necessary to enable those statutory rights to be vindicated. We believe that the franchise factual context is sufficiently similar to mandatory employee/employer arbitration, or consumer arbitration, to allow these principles to be applied in this case. .... The trial court must accordingly conduct further appropriate proceedings regarding the requests for fee shifting with respect to determining what appropriate fee allocation orders must be made, if any, to enable the franchisees to go forward in arbitration to vindicate any unwaivable statutory claims that affect the public interest and therefore are not personal to the franchisees.

Slip op. at 29-30.

In sum, this case has implications both for classwide arbitration and arbitration of UCL claims. Interestingly, the Court did not mention Proposition 64, or the amended UCL's so-called "class action" requirement. It also appears that Discover Bank is becoming a very powerful precedent. [Hat tip: May it Please the Court]

Two new law blogs

I'm happy to give a long-overdue mention to CAFA Law Blog, new to the blogosphere and devoted to the Class Action "Fairness" Act. This blog has been posting some of the district court decisions that would otherwise be unavailable online, much as I did with early trial court orders on Prop. 64 retroactivity.

I also recently discovered a new California-based law blog, The IP Law Blog. It's refreshing to see lawyers looking more like a rock group than a practice group.

New class certification decision: Bennett v. Regents of the University of California

On Wednesday, the Court of Appeal (Second Appellate District, Division Two) ordered publication of Bennett v. Regents of the University of California, ___ Cal.App.4th ___ (Sept. 21, 2005), which affirmed an order denying class certification.

The Court pointed out that "[i]n an exceptional case, where the parties have had notice and an opportunity to brief the issue, class certification may be refused because a claim lacks merit as a matter of law." Slip op. at 7 (citing Linder v. Thrifty Oil Co., 23 Cal.4th 429, 443 (2000)). The Court then determined that the case before it was "exceptional," and an inquiry into the merits proper, because of "[t]he narrowing of plaintiffs' claims, in combination with testimony regarding the nature of [the defendant's challenged program]." Id. (emphasis added). The Court went on to say that "[i]t would be unjust to allow the parties to continue litigating this matter on a legal theory that cannot ultimately be sustained." Id. In effect, the Court held that if a case is not meritorious, then merits questions may be decided at the class certification stage.

This case goes a step beyond Conley v. Pacific Gas & Electric Co., 131 Cal.App.4th 260 (2005), another recent opinion in which the Court of Appeal construed Linder's "exceptional case" language. As I previously explained, in Conley, the Court of Appeal decided to address a merits question in the context of class certification because the plaintiffs had "invited us" to do so and because the "defense has no other reasonable pretrial means to challenge the merits." Conley, 131 Cal.App.4th at 263, 268 n.7 (citing Linder, 23 Cal.4th at 443).

I am concerned that Bennett, more so than Conley, may have the unintended effect of creating an exception that swallows the rule. The rule, as expressed in Linder, is that class certification is "essentially a procedural [question] that does not ask whether an action is legally or factually meritorious." Linder, 23 Cal.4th at 439-40. Under Bennett, however, if the court perceives that "plaintiffs have failed to establish" that their case has merit, then the case is "exceptional" and merits questions may be decided. Bennett, slip op. at 7, 11. Of course, all such merits questions will be decided against the plaintiffs.

What defendant will not argue, at the class certification stage, that "[i]t would be unjust to allow the parties to continue litigating this matter on a legal theory that cannot ultimately be sustained"? And what plaintiff, in an excess of caution, will not feel obligated to present significant merits evidence as part of his or her class certification motion? And how can the plaintiff present such evidence if the trial court has bifurcated merits discovery from class discovery? Bifurcation of discovery cannot, in fairness, be ordered after Bennett.

Linder was very careful to explain that an "exceptional case" exists only "where the defense has no other reasonable pretrial means to challenge the merits of a claim to be asserted by a proposed class" and/or "where both sides jointly request such action." 23 Cal.4th at 443. Nothing in Bennett indicates that either of these factors was present. Bennett, I believe, dramatically broadens Linder's "exceptional case" language.

Another Mervyn's amicus brief

Many thanks to the reader who sent me yet another amicus brief in Mervyn's:

• Amici Curiae Brief of National Association of Consumer Advoates and Trial Lawyers for Public Justice (accepted for filing 09/29/05)

This brief makes two intriguing arguments: (1) the so-called "stautory repeal rule" should not be applied to voter initiatives; and (2) the so-called "statutory repeal rule" has been impliedly, and should be expressly, repudiated. The brief points out that the Supreme Court has not even mentioned this so-called "rule" since 1978—twenty-seven years ago—and that "in several cases, the Court discussed retroactivity in settings where, if of any remaining vitality, the statutory repeal doctrine would surely have been at least mentioned." NACA Amicus Brief at 7, 11-12 (citing Myers v. Philip Morris Cos., 28 Cal.4th 828 (2002); Hoffman v. Board of Retirement, 42 Cal.3d 590 (1986); and Balen v. Peralta Junior College District, 11 Cal.3d 821 (1974)).

Upcoming MCLE programs

A reminder about some upcoming MCLE programs of interest:

• Thursday, October 20, 8:00 a.m. - 5:00 p.m.: 13th Annual Golden State Antitrust and Unfair Competition Law Institute (State Bar of California, Antitrust and Unfair Competition Law Section)
  
• Saturday, November 5, 9:00 a.m. - 3:30 p.m.: Appellate Practice in the First District (Bar Association of San Francisco, Appellate Practice Section)
  
• Thursday-Friday, November 10-11: Mealey's California Section 17200 Conference: A New Era
  
• Wednesday-Thursday, November 16-17: 15th Annual Litigation & Resolution of Complex Class Actions Institute (LegalWorks)

All of these are in San Francisco except the Mealey's conference, which is in Santa Barbara.

Law blogs: "Opening Arguments, Endlessly"?

Today's New York Times has this story on the proliferation of lawyer-written blogs [via The Volokh Conspiracy].

Wednesday's oral argument

As I mentioned the other morning, I argued the Prop. 64 retroactivity question before the Court of Appeal (First Appellate District, Division One) this week. If I had been simply an observer, I would now summarize what occurred and give you a prediction as to the outcome. As an attorney representing one of the parties, I can't speak with that much candor. I will say that I was pleased with the presentation I gave, and anxiously await the court's decision. I can also tell you that the Prop. 64 issue was argued in another case while I was waiting for mine to be called. That case primarily involved another substantive issue, so the parties spent very little time on Prop. 64. Justice Stein observed in both cases that Court of Appeal opinions, whether published or unpublished, are merely "words written on the wind" until the Supreme Court speaks.

Supreme Court grants review in Kintetsu

Last week, on September 28, the Supreme Court issued a "grant and hold" order in Consumer Advocates Group, Inc. v. Kintetsu Enterprises, case no. S135587. Briefing is deferred pending the outcome of Branick and Mervyn's. The Court of Appeal's opinion, which held that Prop. 64 may not be applied to pending cases, was published at 129 Cal.App.4th 450 540 (2005). Like all the other cases in which the Supreme Court has granted review, and to quote Justice Stein from Wednesday's argument, it is now merely "words written on the wind."

Court of Appeal says: "This must stop"

Even though it's off the topic, I can't resist posting about Kaufman & Broad Communities, Inc. v. Performance Plasterin, Inc., ___ Cal.App.4th ___ (Oct. 3, 2005), decided on Monday by the Third District. That Court is apparently exasperated by the voluminous requests for judicial notice it receives of legislative history materials:

Many attorneys apparently believe that every scrap of paper that is generated in the legislative process constitutes the proper subject of judicial notice. They are aided in this view by some professional legislative intent services. Consequently, it is not uncommon for this court to receive motions for judicial notice of documents that are tendered to the court in a form resembling a telephone book. The various documents are not segregated and no attempt is made in a memorandum of points and authorities to justify each request for judicial notice. This must stop.

Slip op. at 2. The Court went on to provide a very useful list of the kinds of legislative history materials courts may judicially notice, and the kinds of materials they may not:

Upcoming Prop. 64 oral argument

I've been retained to handle the oral argument for the plaintiffs/respondents in Hartford Fire Ins. Co. v. Superior Court, First Appellate District, Division One, case no. A109257, which is scheduled for this afternoon at 1:30. I'm looking forward to it. We haven't heard yet from the First District, Division One on Prop. 64 retroactivity. The issue was raised, but not decided, in Wilson v. Braun of California, Inc., ___ Cal.App.4th ___ (Sept. 2, 2005).

Court of Appeal reverses itself on unconscionability after Discover Bank

In an unpublished opinion issued yesterday, the Court of Appeal (First Appellate District, Division Five) in Parrish v. Cingular Wireless reexamined its view of a no-class-action arbitration clause in light of Discover Bank v. Superior Court, 36 Cal.4th 148 (2005). As you may recall, the original Parrish opinion held that the clause in question was "not unduly one-sided, harsh, or in violation of public policy." Now, the new opinion holds that: "Pursuant to the rule of Discover Bank, we conclude that the class arbitration ban effectively operates to exculpate Cingular from responsibility for its own willful injury to a large class of consumers, and the class arbitration ban is thereby unconscionable." Slip op. at 10.