Another new Prop. 64 "injury in fact"/reliance decision: McAdams v. Monier, Inc.

Yesterday, in McAdams v. Monier, Inc., ___ Cal.App.4th ___ (May 30, 2007), the Court of Appeal (Third Appellate District) reaffirmed that UCL and CLRA class actions alleging failure to disclose material information are alive and well in California. The Court reversed a trial court order denying class certification of such claims, holding that they may be established through a classwide inference of reliance, and that individualized proof of each class member's actual reliance is not required. The Supreme Court is expected to decide this precise question in In re Tobacco Cases II.

Regarding the CLRA claim, the McAdams court explained:

The court in Massachusetts Mutual concluded ... that th[e] causation requirement under the CLRA did not render the case before it unsuitable for class treatment. Drawing from two state Supreme Court decisions, Vasquez v. Superior Court (1971) 4 Cal.3d 800 (Vasquez) and Occidental Land, Inc. v. Superior Court (1976) 18 Cal.3d 355 (Occidental), Massachusetts Mutual concluded that this causation requirement can be satisfied if the record permits an “inference of common reliance” to the class. (Massachusetts Mutual, supra, 97 Cal.App.4th at pp. 1292-1293.)

Slip op. at 10. After carefully considering Vasquez, Occidental, and Massachusetts Mutual, the Court of Appeal concluded that "[t]he record here permits an inference of common reliance among the CLRA class." Slip op. at 12. "The class action is based on a single, specific, alleged material representation. Monier knew but failed to disclose that its color roof tiles would erode to bare concrete long before the life span of the tiles was up. ... [I]n this context, class treatment is appropriate." Id. at 9.

As for the UCL claim, it was "based on the same material misrepresentation" as the CLRA claim — "Monier's failure to disclose the premature color erosion of the roof tiles" (slip op. at 20) — so the same analysis applied:

The real nub of the issue of UCL class suitability here turns on the element of reliance (causation). As amended by Proposition 64, section 17204 requires, for purposes of standing, that a private plaintiff have “suffered injury in fact and [have] lost money or property as a result of such unfair competition.” Furthermore, it is a basic principle of standing that “‘[t]he definition of a class cannot be so broad as to include individuals who are without standing to maintain the action on their own behalf. Each class member must have standing to bring the suit in his own right.’” (Collins v. Safeway Stores, Inc. (1986) 187 Cal.App.3d 62, 73, quoting McElhaney v. Eli Lilly & Co. (D.S.D. 1982) 93 F.R.D. 875, 878; Feitelberg v. Credit Suisse First Boston, LLC (2005) 134 Cal.App.4th 997, 1018.) As we shall explain, the concept of “inference of common reliance” (as opposed to “actual reliance”) can be applied here to satisfy these two quoted principles of standing, rendering plaintiff’s UCL action suitable for class treatment.

Massachusetts Mutual again points the way. As we discussed in the previous section of this opinion, that decision applied an “inference of common reliance” in determining that a fraud-based class action under the CLRA was suitable for class treatment.

Slip op. at 22-23. The Court of Appeal found no reason why the "inference of reliance" analysis should not apply to both the CLRA claim and the UCL claim for class certification purposes:

Several factors support our conclusion that this standard of “inferred reliance” from the CLRA class context may also be applied to the Proposition 64 UCL class context, instead of requiring a showing of “actual reliance.” The CLRA and the UCL are both consumer protection statutes with traditionally less rigorous proof burdens than common law fraud. (See Civ. Code, § 1760; § 17200; Consumer Advocates v. Echostar Satellite Corp. (2003) 113 Cal.App.4th 1351, 1360; Comment, The California Consumers Legal Remedies Act (1973) 10 Cal. Western L. Rev. 161.) After Proposition 64, the two acts’ language on reliance is similar (i.e., suffer “damage” (CLRA), or “injury in fact” (UCL), “as a result of”). (Civ. Code, § 1780, subd. (a); § 17204.) The two acts are often alleged in the same lawsuit, and a CLRA violation can serve as the “unlawful” prong and furnish the “fraudulent” basis of a UCL action. (See Daugherty, supra, 144 Cal.App.4th at pp. 837-838.) The Proposition 64 amendments on UCL standing at issue here were designed simply to close a “loophole” that allowed private persons to bring UCL actions on behalf of the abstract “general public,” even though no one had been damaged or misled. (Voter Information Pamp., supra, analysis by Legislative Analyst, pp. 38-39; argument in favor of Prop. 64, p. 40; see Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 232 (Mervyn’s) [Proposition 64 “left entirely unchanged the substantive rules governing business and competitive conduct”].) And if the principle of inferred reliance is sufficient to satisfy the element of reliance/causation as to a CLRA fraud-based class action, in which damages can be awarded, it certainly is sufficient to satisfy that element for a similar UCL class action where the remedies are essentially limited to injunctive and restitutionary relief.

Slip op. at 25-26 (footnote omitted). McAdams is the first opinion that comes anywhere close to acknowledging the holding in Mervyn's that Prop. 64's amendments were "procedural," not substantive. However, any reliance requirement, whether inferred or actual, would be a substantive change to the UCL, not a procedural one. This opinion gamely tries to find a middle ground by holding that reliance on material omissions may be inferred. But any holding that Prop. 64 imports reliance as an element still runs afoul of Mervyn's.

Comments

[Mantiellace]

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