The UCL Practitioner

Oral argument report: Dukes v. Wal-Mart, Inc.

Yesterday afternoon, an eleven-judge en banc Ninth Circuit panel heard oral argument in Dukes v. Wal-Mart, Inc., nos. 04-16688 & 04-16720. Theodore Boutrous of Gibson Dunn & Crutcher argued for Wal-Mart.  Brad Seligman of the Impact Fund represented the certified class of female Wal-Mart workers. 

The eleven judges sat in two rows, eight in front and three (Chief Judge Kozinski and Judges Reinhardt and Rymer)  in an elevated row in back.  The acoustics in the room was poor and the system of microphones was not working very well.  It was sometimes hard to hear.  It was also not always immediately apparent which judge was speaking.  The following report should be read as a very broad-brush account of the argument and it may not be 100% accurate in every respect. 

By way of background, recall that class certification was granted under Rule 23(b)(2), which applies in cases in which injunctive relief is the predominant form of relief sought, as distinct from Rule 23(b)(3), which applies in cases involving damages claims, and has a more stringent predominance requirement.  The main question on appeal is whether the trial court erred by applying Rule 23(b)(2) rather than Rule 23(b)(3).  Recall, further, that this case involves gender discrimination in violation of Title VII, which assertedly resulted in both unequal pay and also inequitable promotions.  To facilitate certification under Rule 23(b)(3), the plaintiffs elected to waive compensatory damages, leaving injunctive relief, back pay (which is considered an equitable remedy), and punitive damages as the available remedies. 

Mr. Boutrous argued first and reserved five minutes for rebuttal.  He began by saying that the district court committed legal error by certifying a class under Rule 23(b)(2) instead of Rule 23(b)(3) because monetary relief predominated in the case.  He said that Rule 23(b)(2) was intended to apply to injunctive relief cases, and the quoted something from the Rules Advisory Committee.

Judge Marsha Berzon broke in and said something about the claim for back pay.  Boutrous responded by citing the Allison (phonetic) case.  Judge Berzon said let's talk about this case, and then I couldn't catch the rest of the exchange.  Boutrous said that the plaintiffs forfeited compensatory damages.  Judge Michael Daly Hawkins asked if that's the same as waived, and Boutrous said it was.  He then went on with the argument that punitive damages and back pay (both forms of monetary relief) clearly predominate over the injunctive relief claim.

Judge Raymond C. Fisher asked Boutrous whether he would be objecting to certification if the case were just an injunctive relief case.  Boutrous said that if it were purely an injunctive relief case, Rule 23(b)(2) would apply, but then you would still have the issue of the standard for evaluating the evidence [presented at the class certification stage].  Judge Fisher said but beyond that, the issue of battle of the experts etc., would you have a problem with certification under Rule 23(b)(2)?

Boutrous began to say yes when Judge Rymer broke in and asked, How in your mind should we decide predominance?  If there were fewer employees and less damages, you couldn't argue that punitive damages predominated just because they are big.  Boutrous said he's not arguing that Rule 23(b)(3) should have been applied just because the punitive damages claim is big or the class is big, but rather because of the nature of the claims.  He talked about the U.S. Supreme Court's opinion in the Teamsters case.  He said that a punitive damages award could conceivably be made that would be fair, but here, the problem is the nature of the claims.

Chief Judge Kozinski said that plaintiffs seek injunctive relief, back pay, and punitive damages.  Talk to me about the back pay; is that individualized?  Boutrous said it is in this case.  There would have to be a determination of whether each class member worked at a store that had discriminatory practices.  Judge Kozinski asked how do class members collect back pay.  Boutrous said as it's set up now, under the trial plan the district court proposed, Wal-Mart would have no participation in that determination.  The presumption of Teamsters would be applied. 

At this point I'm pretty sure Chief Judge Kozinski said, "Do you speak plain English?" and Boutrous said, "Yes."  Tell me in plain English what would happen.  Say you're a woman in Kansas City who works for Wal-Mart.  Boutrous replied that a special master or someone would sit down with the payroll records and determine whether her pay was less than the national average as determined by plaintiffs' expert.  Judge Kozinski said something like, so regarding the predominance of the back pay claim ....  Boutrous said that cuts against it because it's monetary, individualized.

Judge Kozinski then said so your full answer is that it's not just the punitive damages, but also the back pay, that makes this case inappropriate for certification under Rule 23(b)(2).  He asked would each woman have to apply to receive an award of back pay.  Boutrous said that ordinarily, they would have a minimum burden to come forward, but they wouldn't have to in this case.

Judge Susan Graber asked, Are we reviewing the trial plan now?  Won't it change?  Aren't we reviewing certification only?  Boutrous said that the trial plan goes to the question of manageability.  Judge Kozinski said something to the effect of, it doesn't matter that Wal-Mart can't participate, the point is if they want money they can come and apply.  I did not catch Boutrous' response to this.

Judge Hawkins asked whether it's really 1.5 million class members, a number Boutrous had previously mentioned.  Boutrous said if past employees are excluded [which is what the amended three-judge opinion suggested should be done] it's fewer.  Hawkins said so it's about 60% of 900,000.  Boutrous said yes.  Hawkins said so it's 2/3 less than 1.5 million.  Boutrous said yes. 

At this point, Judge Berzon had an exchange with Boutrous about the difference between the pay claim and the promotion claim.  Boutrous kept emphasizing that it was the nature of the particular claims in this case that made them inappropriate for certification.  Judge Berzon said that the liability stage will take care of the issue of whether the defendant had a pattern and practice of discrimination.  She said you keep losing sight of that.  They could lose that issue.  Boutrous said yes they could lose it, but in terms of the first stage, Teamsters creates a presumption that the pattern and practice injures.  He said Teamsters was not about back pay; it was about a seniority system; completely different.  As a matter of due process, you can't just take phase one and say that entitles you to monetary relief. 

Judge Berzon said yes, you have to identify the women, etc., but this is just a question of proof problem, how you're going to let someone prove something.  Boutrous said but that's important.  The defendant has a right to a defense.  That pushes Rule 23(b)(2) too far and takes away rights from defendants.  And here he cited an article by Professor Coffee apparently about this case.  He said that to get class certification, plaintiffs gave up their mixed-motive claim, which would have been their easiest path to injunctive relief.  The predominant relief sought is monetary.

Judge Berzon asked whether the problem would be solved if you had a notice and opt-out procedure as to the whole case (which is what you do under Rule 23(b)(3)).  She said that's the only difference between the two rules, isn't it?  Boutrous said that one of the crucial differences is the predominance requirement of Rule 23(b)(3).  Engrafting an opt-out requirement on (b)(2) creates a watered-down version of (b)(3).  The rule provides for discretionary notice under (b)(2) but not opt-out. 

Judge Hawkins asked, so what relief does your client want from us?  Boutrous said you can decertify, or you could vacate certification; and remand for the trial court to determine whether (b)(2) or (b)(3) can be appropriately applied in light of the fact that most class members are former employees, and for the principles of IPO and Hydrogen Peroxide to be applied to the evidence.  He said the law has changed significantly since the original class certification order.  The district court applied the rule of Caridad, but the Second Circuit has since disavowed that case.

[I will jump in with an editorial comment here.  First of all, the argument that the district court should revisit class certification is significant because everyone knows that the judge who originally granted class certification is no longer sitting and Chief Judge Vaughn Walker will take up the case on remand.  Second, not a single judge on the panel seemed remotely interested in the IPO or Hydrogen Peroxide cases or in revamping the way that class certification evidence is evaluated in the Ninth Circuit.  As mentioned here, the three-judge panel in this case did not even mention IPO, even though the case was decided two months before the original opinion and a year before its amended opinion (which mentions the case only in a footnote).]

Judge Hawkins said, then you're not challenging the commonality or typicality elements?  Boutrous said yes we are.  Backing up, as a matter of law plaintiffs' expert did not apply the correct procedures.  The only way to determine if discrimination is occurring is to look at each individual store.  Judge Fisher asked, Why is that the case?  If the plaintiff is arguing it's the culture, they'd be doing that in an individual case.  In an individual case you'd look upstream and argue it's not a rogue manager.  Boutrous said we're not saying plaintiffs couldn't introduce that evidence (although we'd probably oppose it). 

Judge Berzon then said they don't have to prove discrimination, they only have to prove commonality.  Boutrous said yes.  Judge Berzon said they only have to prove the common policy.  Why do they have to prove more?  Boutrous said if you prove the policy that doesn't prove that it had a common effect.  Judge Berzon said but why do they have to prove that now?  They have to at trial; if they don't, they lose.  Why do they have to prove more than that now?  Boutrous said under the Hydrogen Peroxide case, they have to be prove that impact can be established by common proof.  [Another editorial comment:  Hydrogen Peroxide was an antitrust case; here, Boutrous is borrowing the idea of antitrust impact and applying it to Title VII.]

Judge Berzon asked, Is there any Ninth Circuit or U.S. Supreme Court authority supporting that?  Boutrous said there are no published opinions in which the court has grappled with this.  He mentioned a case called something like Staten (phonetic), which involved a settlement class.  He said that in this case you're talking about the discretion of thousands of managers. 

Judge Berzon then said why isn't it good enough just to show the policy?  Boutrous replied that it shows that injunctive relief isn't the focus of this case.  Plaintiffs are focused only on the disparate impact part of the case (i.e., the part of the case that supports back pay and punitive damages).  Judge Berzon said but you can get back pay under a disparate impact claim.  Boutrous said yes.  But you would need to apply IPO and Hydrogen Peroxide and what the [Staten (phonetic)] case hinted at.  He then started making conclusion-like statements such as in Amchem, the Supreme Court said that courts need to exercise caution to protect not only the class members but also the defendant and to make sure that there's a fair procedure.

Judge Hawkins said, If we affirm, the case goes back to [Chief] Judge  [Vaughn] Walker, correct?  Boutrous: Yes.  Hawkins: Can he revisit the size of the class at that time?  Boutrous:  Yes.  Hawkins: Could he decide whether subclasses are appropriate?  Could he decide to modify the trial plan?  Could he decertify the class?  Boutrous answered yes to each question.  But I urge the court to adopt clear procedures for doing so.

Brad Seligman began his argument by saying that the evidence accepted below showed that in all 41 of Wal-Mart's regions, women got paid less than men, by a couple of thousand dollars, even though they had better performances and seniority. Wal-Mart's argument would mean they have no remedy.The size of the damages would make it impossible to pursue these claims.  Wal-Mart had a pay policy with no objective factors.

Judge Berzon jumped in here and said well they actually did.  They're fairly specific (and she went on to list some of them).  Seligman said there's a national policy, no question, but it doesn't say that a worker's experience level is a factor in pay.  Wal-Mart has a detailed personnel management system that includes every possible objective factor that Wal-Mart says is relevant to setting pay.

Chief Judge Kozinski said how does someone in the class go about getting paid?  (Same question he asked Boutrous.)  Seligman said that under the trial plan, if the plaintiffs prove adverse impact or pattern and practice, the damages would be based on Wal-Mart's objective data.  Kozinski said would this be true for everyone in the class?  Seligman said everyone in the class is entitled under the model.  Kozinski said, whatever that money is, that goes on the side of the balance for monetary relief, no injunctive relief.  Seligman said I respectfully disagree.  The model to determine back pay, Wal-Mart has every right to challenge it.  Kozinski said I'm trying to get a picture of what's on the other side of the balance.  Punitives?  Seligman said that punitive damages do not always go on the monetary side.  Back pay, every circuit has authority saying it's integral to the injunctive relief and fully consistent with Rule (b)(2).  And on this point, he quoted language from the Rules Advisory Committee.

Judge Berzon said that's pretty simple.  But the promotion claim creates problems.  In this case is it correct that none of the plaintiffs will get a promotion?  Seligman said we sought broad injunctive relief for both back pay and promotion.  Judge Berzon said again, there will be no injunctive relief requiring a promotion?  Seligman said we're seeking broad-based, not individualized, injunctive relief.  (Later he explained that this includes orders requiring Wal-Mart to change its promotion practices.)

Judge Richard A. Paez asked who decides what goes into the formula for calculating back pay.  Seligman said the trial judge.  Judge Paez asked whether the jury would be involved.  Seligman said no, it's an equitable remedy.  Judge Paez said so what's the role of the jury?  Seligman said they will decide punitive damages.  Judge Paez said so without punitive damages, no jury?  Seligman said that's correct.  Judge Paez asked whether the jury would be involved in the first phase of the case (which involves deciding whether Wal-Mart had a pattern and practice of discrimination).  Seligman said they would because it will be relevant to punitive damages and in fact the trial court would be bound by the jury's finding. 

Judge Graber asked what is the range of options available to the court?  Are you saying we just affirm everything?  It seems like there are lots of ways to slice and dice this.  Seligman said the court has a number of ways and he discussed several options. 

Here, Judge Carlos T. Bea spoke for the first time.  In a back pay case, one of the questions is always whether someone was about to be fired for other reasons.  Seligman said that information on performance is included in Wal-Mart's database.  Judge Bea said but what if Wal-Mart wants to argue that a particular women had higher absentee rates or something like that.  Seligman said there's no evidence Wal-Mart ever considered such factors in their pay decisions. 

Judge Bea also raised the punitive damages claim, saying doesn't it depend on the reprehensibility of the conduct of an individual actor?  Seligman said it depends on the state of mind of the corporation.  Judge Bea said wasn't the corporation's state of mind to delegate the decision to individual managers?   Seligman said, respectfully, no, and cited a case involving a reckless disregard standard.  Judge Bea asked is it reckless disregard to let each manager make up his own mind?  Is it too much delegation that you're complaining about?  Seligman said no, the question is Wal-Mart's overall state of mind. 

Judge Bea asked if only 14% of district managers are women, is that evidence of discrimination against women?  Seligman said it's evidence of a pattern and practice of discrimination.  Judge Bea said, another example of a body in which females are underrepresented are the U.S. Senate and House of Representatives.  Are you saying there's discrimination in the electorate?  [I think the answer on the tip of most everyone's tongue would be yes to that question. Seligman's answer was more politic.]  Seligman said no, that's not our claim. 

Judge Fisher said, you've been focused on back pay. On failure to promote, how do you prove that without individualzed proof? Seligman said it's a tougher case. But what courts have recognized, when it's too hard to prove who would have been promoted, then the steps are: Is there liability? And if so, the court acts as a Chancellor of Equity .... Judge Fisher interrupted. Is Wal-Mart at the table? Seligman said yes, in determining what factors are taken into account. Fisher said, so every woman in the class will get damages? Seligman said the court will refine it by looking at various factors such as performance minimums. It's not all or nothing. The case law says that the court has the duty to work substantial justice with the information that's avaialble. The alternative, which Wal-Mart is arguing for, is no relief at all.

Judge Fisher then asked when is the determination of the amount of money made and how does it get fixed? Seligman said everybody is at the table in arguing these factors. The first question is what's the aggregate number based on the women who earned less than they should? The next question is how to distribute it.

Judge Kozinski said the claim Boutrous is making is that it's really store by store. Some may not follow the national policy. What's your response? Seligman said I have several. I'll give you my favorite. Kozinski said don't give us your favorite response, give us your best one. Seligman said I'll give you my favorite one which is also my best one. Evidence of national policy and evidence of movement from store to store ....

Judge Rymer did not allow him to finish answering Judge Kozinski's question. She said in 25 words or less, what is the claim in this case? Seligman said uniform delegation of discretion regarding pay decisions in a business with a culture of discrimination. Judge Rymer said, first of all, Seligman's statement of the claim was internally inconsistent, and then said what's the culture that implicates Title VII and is it common? Judge Berzon interrupted before Seligman could answer. What is the connection between the culture and the employment practices? It is subjective but capable of being supervised. Seligman said it's known [by Wal-Mart] at every step. Every promotion is reviewed at higher levels. They've known exactly what's been going on for years.

Judge Fisher said where does the sexism come in? Seligman said you have to separate pay from promotion. For pay, every pay decision is approved by the district level and above. The info about pay decisions includes information on gender. For promotion, those are not done at the store level. Those decisions are made by the district manager or higher.

Judge Berzon asked where does the disparate impact claim come in? Seligman said the court would have to find no impact, or a business necessity, to avoid a finding of disparate impact. Judge Berzon then asked what's wrong with an opt-out procedure? Why not broaden the opt-out procedure to cover the entire case? Seligman said we promoted that idea. It's not clear that the current order wouldn't cover back pay claims. It could be done. We don't object to it.

Judge Berzon asked how do you have a trial for back pay before the punitive damages trial? Seligman said the trial court hasn't decided yet. Nothing prevents us from putting in evidence of harm. Case law doesn't require that compensatory damages be decided prior to punitive damages. In fact, the case law doesn't require any compensatory damages award as a prerequisite to punitive damages.

Judge Paez said you mean the jury could fix an amount of punitive damages without knowing what the compensatories are? Seligman reiterated that the case law doesn't require it. Judge Paez asked when do the class members get the money? Seligman said not until after the whole case is over and all damages have been determined. Judge Bea asked, Are you saying there is no relation between compensatory damages and punitive damages, and that a punitive damages award can be made independently of the compensatories without offending State Farm [and he recited the holding of that case regarding the ratio of punitives to compensatories]? It doesn't apply? Seligman said we don't think you have to go that far because we think the ratio will be reasonable.

[Another editorial comment here. Clearly Judge Paez and Judge Bea have some problems with the punitive damages claim, but I think Seligman is correct to point out that, at this stage of the case, it's impossible to know whether the punitive damages award will offend State Farm. Until the court knows what the two awards are, the ratio cannot be calculated or its reasonableness evaluated.]

Judge Bea went back to the standard for proving punitive damages. Don't you have to show the reprehensibility of the conduct suffered by the individual? Seligman said we're not suing the individual managers. The question is whether the corporation acted in reckless disregard. Judge Bea: The state of mind of the CEO? Seligman: Of the corporation as a whole.

Judge Kozinski said you have no answer to Boutrous' point. (Not exactly a fair comment given that Seligman was interrupted before he had a chance to answer.) Seligman said that studies show that aggregated data can sometimes be more probative. Kozinski said but his point is how can you decide back pay on a national level when the discrimination occurs at the store level? Seligman said it's a pattern of discrimination, a companywide policy of discrimination. Our burden will be to show a common pattern of discrimination. Kozinski said what if a woman worked at a store where there was no discrimination? Seligman said our model proposes an individual assessment when you get to remedies. Wal-Mart could try to prove there was such a store (although I don't know how they would do it) and that's a proper factor to take into account.

On rebuttal, Boutrous said that Wal-Mart's expert did a store-by-store analysis and 90% showed no evidence of a statistically significant difference in pay. Plaintiffs' expert never analyzed store-by-store. If 90% show no disparity, there can be no classwide way to prove disparate impact. We are not saying you could never have a class action in a Title VII case.

Judge Graber asked what is your answer to the question about the range of options. Is it an all-or-nothing proposition? Affirm or decertify? Or can we differentiate among [claims or elements]? Boutrous said it's not all-or-nothing. But if the court looked at [i.e., questioned] certain parts, the proper thing is to send the whole thing back to Judge Walker to apply the proper standards.  [Again, here Boutrous is urging the court to revise Ninth Circuit standards by adopting IPO or Hydrogen Peroxide, and also urging remand to a judge who may be less likely to certify any claim]

Next, Boutrous said that Seligman was wrong on punitive damages. He said the EEOC has argued that due process doesn't apply to Title VII cases. That's wrong. It's completely unmanageable to have a class action on the punitive damages and the back pay claims.

And that concluded the argument. I have to agree with the Recorder reporter that, although some of the judges made their views clear, it's difficult to say where the panel as a whole will come out.  Judges Graber was very focused on whether the court could do something less than order the class decertified.  One of Judge Hawkins' main points seemed to be it's pointless to pass on the propriety of a trial plan that the trial judge might completely revamp between now and judgment.  Judges Reinhardt, Silverman, and Ikuta said nothing at all during the entire argument. 

As I mentioned above, there may very well be significant errors or omissions in this report.  If you see any mistakes in my summary, please post a comment or send me an email ([email protected]). 

"Wal-Mart En Banc Session Packs House"

The Recorder already has this article, dated tomorrow, on this afternoon's argument in Dukes v. Wal-Mart.  The piece begins:

A feisty Ninth Circuit U.S. Court of Appeals peppered lawyers for Wal-Mart and a gigantic class suing over gender discrimination, with neither side emerging Tuesday as the clear victor.

I'm working on my own report of the argument and hope to have it up tomorrow morning.

A little bit of live-blogging: Dukes v. Wal-Mart

I'm now in the courtroom. I've got my mobile device. Unlike the Cal. Supreme Court, the Ninth Circuit allows electronic devices in the courtroom, at least for now, before the argument has begun. Seligman and Boutros are both here. The courtroom is filling up. We have about 45 minutes to wait. I've got a pretty good seat. The courtroom is beautiful, with sturdy wooden benches for seating.

I will need to revert to regular old-fashioned note-taking once the argument starts. The bench consists of two rows of seats, eight in front and three more, elevated, in back. There is no indication of who will sit where, so I must conclude that the judges will be seated based on seniority. The audience is also divided into preferred and non-preferred seating. There is a crowd of people around each counsel table. Then there are special seats for "invited guests" and the press. (I'm press, aren't I?) And then there are seats for the general public, which is where I'm sitting. We now have about 20 minutes left to wait. I've brought other work with me, to which I'm turning now.

Various staff members keep coming in through the back door and placing stuff in front of certain judges' seats. A moment ago someone came out and filled a cup with ice in front of what appears to be Chief Judge Kozinski's seat. Whenever the back door opens, there is a small hush until people realize the judges are not yet coming in. Now someone just brought in the hugest stack of papers yet and placed it in front of Kozinski's chair.

OK we've been told to turn off mobile devices so I'll be going now. Check back in the morning for my argument report.

Oral argument preview: Dukes v. Wal-Mart, Inc.

This afternoon at 2:00 p.m. in San Francisco, an eleven-judge en banc panel of the Ninth Circuit will hear oral argument on rehearing in Dukes v. Wal-Mart, Inc. (see this blog post for more).  In 2007, a three-judge panel (with one judge dissenting) affirmed the trial court's order granting class certification under Rule 23(b)(2) of plaintiffs' Title VII claims for gender discrimination. Dukes v. Wal-Mart, Inc., 509 F.3d 1168 (9th Cir. 2007).

Time permitting, I'm going to attend the Ninth Circuit argument today and provide a report here tomorrow. 

UPDATE:  This morning's Daily Journal reports on the upcoming argument and provides the names of the eleven judges on the en banc panel: Alex Kozinski; Stephen Reinhardt; Marsha Berzon; Michael Daly Hawkins; Barry G. Silverman; Susan P. Graber; Richard A. Paez; Raymond C. Fisher; Pamela Ann Rymer; Carlos T. Bea; and Sandra S. Ikuta.

According to the article, seven were appointed by Democratic presidents.  Kozinski, Rymer, Bea, and Ikuta are "[t]he conservatives on the panel."  John Roemer, "Wal-Mart Will Try (Again) to Block Class Action," Daily Journal (Mar. 24, 2009).   

Judge Hawkins was part of the two-judge majority in the original proceeding. Neither Judge Harry Pregerson, who wrote the majority opinion, nor Andrew J. Kleinfeld, who dissented, is part of the en banc panel.

Another "no class action" arbitration clause struck down: Sanchez v. Western Pizza Enterprises, Inc.

A week after Franco (see this blog post), the Court of Appeal handed down another opinion invalidating a "no class action" arbitration clause.  Sanchez v. Western Pizza Enterprises, Inc., ___ Cal.App.4th ___ (Mar. 17, 2009) (Second Appellate Distict, Division Three). 

Sanchez is the second case this month to apply principles derived from class action jurisprudence to the analysis of whether an arbitration clause that bans class actions is valid.  In Franco, the Court of Appeal adopted the rule of Linder  — that merits determinations may not be made at the class certification stage — and applied it to the arbitration stage of the case.  Franco, slip op. at 8. In Sanchez, the Court of Appeal adopted the standard of review from Sav-on — that class certification orders are reviewed for abuse of discretion — and applied that to the arbitration determination:

A trial court’s determination whether a class arbitration waiver is enforceable based on whether class arbitration would be significantly more effective than individual arbitrations as a means to vindicate unwaivable rights, under the rule established in Gentry, supra, 42 Cal.4th 443, depends largely on consideration of “ ‘the efficiencies and practicalities of permitting group action’ ” (id. at pp. 463-464) in the particular case. In light of the similarity of this inquiry to the inquiry a trial court makes in determining whether a class action is appropriate (ibid.), we conclude that the standard of review of the court’s ruling is the same. (Cf. Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 859 [“any determination underlying any order is scrutinized under the test appropriate to such determination”].)

A ruling on class certification is reviewed for abuse of discretion. (Sav-On Drug Stores, Inc. v. Superior Court, supra, 34 Cal.4th at p. 326.) “.... Similarly here, we will examine the trial court’s reasons for determining that the class arbitration waiver is unenforceable under the rule from Gentry, supra, 42 Cal.4th 443, and review that determination for abuse of discretion.

Sanchez, slip op. at 15-16. 

Another interesting aspect of Sanchez is its implicit conclusion that the Supreme Court's analysis of the validity of "no-class-action" arbitration clauses from Gentry applies only to "unwaivable statutory rights":

An employee’s statutory right to reimbursement of job expenses is unwaivable (Lab. Code, §§ 2802, 2804; Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 951-952), as is the statutory right to receive minimum wage (Lab. Code, § 1194; Gentry, supra, 42 Cal.4th at pp. 455-456). Because this action involves the enforcement of unwaivable statutory rights, the rule from Gentry applies. (Gentry, supra, at p. 457.)

Slip op. at 17.  Franco contains the same implicit holding, which the court dealt with by concluding that the meal period and rest break rights in question were also unwaivable. Franco, slip op. at 14-16.

This is not quite the correct approach (although it didn't affect the outcome in either case). In Discover Bank v. Superior Court (Boehr), 36 Cal.4th 148 (2005), decided two years before Gentry, the Supreme Court invalidated a "no-class-action" arbitration clause in a consumer case without considering whether the rights in question were "unwaivable." Rather, the Court focused on whether the class action ban was "exculpatory in practical terms" by "mak[ing] it very difficult for those injured by unlawful conduct to pursue a legal remedy." Gentry, 42 Cal.4th at 457 (citing Discover Bank, 36 Cal.4th at 161). Neither Gentry nor Discover Bank held that the rights in question must be technically or statutorily "unwaivable" for a class action ban to be invalid. Rather, the question is what "practical" impact the class action ban would have on the enforcement of those rights.

In any event, in both Franco and Sanchez, the courts determined that the rights in question were unwaivable, so this issue did not affect the outcome. 

Finally, as in Franco, the Court of Appeal in Sanchez held that the entire arbitration clause (not just the class action ban) was unenforceable because it was "permeated by an unlawful purpose." Sanchez, slip op. at 35.

EEOC files amicus brief supporting class certification in Dukes v. Wal-Mart

Today's Recorder reports that yesterday, the EEOC filed an amicus brief supporting class certification in Dukes v. Wal-Mart.  The case is still scheduled for argument before the Ninth Circuit en banc panel next Tuesday, March 24. 

"Wal-Mart Cuts Class Off at the Pass in Pet Food Case"

This article from Wednesday's Recorder provides an example of a federal case in which the court granted a defense motion to preemptively deny class certification. 

In Picus v. Wal-Mart Stores, Inc., No. 2:07-CV-00682 (order filed 03/16/09), a district judge in Nevada construed the Nevada Deceptive Trade Practices Act ("NDTPA"), and in denying certification, distinguished Wiener v. Dannon Co., ___ F.R.D. ___, 2009 WL 383650 (C.D. Cal. Jan. 30, 2009) (discussed in this blog post), in which a district judge in California granted class certification of UCL and CLRA claims based on alleged misrepresentations about the defendants' products.  The Nevada judge concluded that the Nevada Supreme Court would not adopt substantive elements of California law (specifically, presumed reliance based on materiality of the misrepresentation or nondisclosure) when construing the NDTPA.  Slip op. at 11-12.

The opinion also asserts that California law "require[s] individual proof of reliance and causation."  Id. at 13.  That's not correct.  Even if proof of reliance and/or causation is required under the UCL or CLRA, that proof is not necessarily, categorically, individualized, as the court seemed to conclude.  The opinion itself cites California case law (namely, the Supreme Court's decision in Vasquez) holding that reliance can sometimes be presumed on a classwide basis, even in cases involving common-law fraud. 

It's not clear why this decision warranted such extraordinary coverage in the Recorder. 

New UCL restitution opinion: Grodensky v. Artichoke Joe's Casino

In Grodensky v. Artichoke Joe's Casino, ___ Cap.App.4th ___ (Mar. 11, 2009), the Court of Appeal (First Appellate District, Division Two) held that employees may recover as UCL "restitution" tips that their employer unlawfully took from them, even though the employer then paid the tips to others (here, to shift managers whom the Labor Code prohibits from sharing in tips). Slip op. at  23-32.  The opinion also has an interesting discussion of attorneys' fees under the private attorney general doctrine (Code Civ. Proc. section 1021.5).  Id. at 34-42. 

Incidentally, the opinion creates a split in authority with Lu v. Hawaiian Gardens, 170 Cal.App.4th 466 (2009), respecting whether the Labor Code provisions governing tips carry a private right of action. Id. at 13-23. 

Fourth annual Bay Area law bloggers gathering tonight

Tonight is the fourth annual gathering of Bay Area law bloggers organized by the High Tech Institute at Santa Clara University School of Law and Professor Eric Goldman.  I'll be attending and am looking forward to it.  All lawyer-bloggers are welcome (including those not based in the Bay Area), as are members of the press.

Court of Appeal reissues its opinion in Troyk v. Farmers Group, Inc.

In December 2008, the Court of Appeal (Fourth Appellate District, Division One) handed down its original opinion in Troyk v. Farmers Group, Inc., 168 Cal.App.4th 1337 (2008) (see this blog post).  Then, in January 2009, the court granted rehearing pursuant to the parties' joint request "to facilitate settlement," and the opinion became uncitable (see this blog post). 

Last week, the court reissued what appears, on quick review, to be an identical opinion, Troyk v. Farmers Group, Inc., ___ Cal.App.4th ___ (Mar. 10, 2009).  Simultaneously, the court issued the following order (according to the docket):

The Notice of Settlement and Stipulation Regarding Dismissal of Appeal have been received and reviewed by the Court. The Stipulation for Dismissal of Appeal is denied. The Court exercises its discretion to proceed with its opinion because of the broad public interest in the matter and the likelihood of the issues to recur. "[A] reviewing court has inherent discretion to resolve issues of continuing public interest even though these issues may have become moot in the particular case before it." (DuBarry Internat., Inc. v. Southwest Forest Industries, Inc. (1991) 231 Cal.App.3d 552, 556, fn. 2.)

I will try to write up more thoughts on the newly-issued Troyk opinion in a later post. 

Another "no-class-action" arbitration clause bites the dust: Franco v. Athens Disposal Co.

In Franco v. Athens Disposal Co., ___ Cal.App.4th ___ (Mar. 10, 2009), the Court of Appeal (Second Appellate District, Division One) applied Gentry in a case for meal period and rest break violations:

[T]he primary issue on appeal is whether Gentry applies to claims for meal and rest periods under the Labor Code (§§ 512, 226.7) and the Wage Order (§§ 11, 12). We conclude it does. Discover Bank, a consumer case, laid the foundation for Gentry, an overtime case. And it is but a small step from the overtime claims in Gentry to the meal and rest period claims here. Although overtime compensation is undoubtedly important (see Gentry, supra, 42 Cal.4th at p. 456), the state has a significant interest in making sure that the drivers of commercial vehicles receive sufficient food and rest while on the job.

Slip op. at 11. After a detailed analysis, the court concluded that the entire arbitration clause (not just the class action ban) was unenforceable and that the claims would proceed "in a court of law." Id. at 27.

Other holdings of note: 

• An order enforcing a "no-class-action" arbitration clause, and ordering the claims to proceed on an individual basis, was "the 'death knell' of class litigation" and was therefore appealable under the general rule that orders denying certification of an entire class are final.  Slip op. at 8.  This is an important rule for litigants to remember because it means that to preserve your appellate rights, you have to file your notice of appeal mid-case whether you want to or not.
  
  
• The trial court contravened Linder by ruling on the merits of plaintiffs' overtime claim (and then disregarding that claim) in the course of deciding whether the arbitration clause was enforceable: "Here, the trial court granted a de facto summary adjudication motion on the overtime claim in determining the enforceability of a class arbitration waiver. That was error. Absent a demurrer or dispositive motion — [the defendant] brought none — Franco’s overtime claim had to be considered as part of the case in deciding the validity of the class arbitration provision."  Slip op. at 11; see id. at 20 (citing Linder and Gentry). 
  
  
• Contrary to the defendant's position, the laws governing meal periods and rest breaks are not waivable.  Slip op. at 14-16.  Therefore, "to the extent [if any] Gentry may be limited to unwaivable statutory rights [such as the right to overtime implicated in Gentry], under [Labor Code] section 219, the meal and rest period laws cannot be waived."  Id. at 16.  The court said in no uncertain terms that Labor Code section 226.7(a) "requires employers to comply with the meal and rest period provisions of the Wage Order[s]."  Slip op. at 15 (emphasis added). 
  
  
• The trial court incorrectly determined that the meal period and rest break claims would be "so individualized as to render class arbitration treatment significantly less effective than individual arbitrations."  Slip op. at 21.  To the contrary:

  At this early stage in the litigation, we know that [the defendant] uses a computer and an electronic timecard system to keep track of its employees’ work hours. By law, an employer must maintain time records showing an employee’s (1) “total daily hours worked” and (2) meal periods, unless “operations cease” during meals. (Wage Order, § 7(A)(3).) Further, [the defendant] allegedly engaged in a systematic course of illegal payroll practices and policies in violation of the Labor Code and subjected all of its hourly employees to the same unlawful conduct. As a result, common questions of law and fact predominate over individualized issues.

  Id.   (Incidentally, all of the Wage Orders, not just the one construed here, contain that same recordkeeping requirement.)
  
  
• The Wage Orders provide civil penalties for violation of section 226.7(b)'s requirement that employers pay premium wages for missed meal periods and rest breaks.  Slip op. at 25-27.  Those civil penalties are recoverable under the Private Attorney General Act ("PAGA").  Id. at 26.   The defendant's arbitration agreement "sought to nullify the PAGA" and purported to preclude all employees "from seeking civil penalties on behalf of other current and former employees, that is, from performing the court function of a private attorney general."  Id. at 27.  Hence, the entire agreement was "tainted with illegality" and "unenforceable."  Id.

Ninth Circuit sets Dukes v. Wal-Mart for en banc argument on March 24

As I reported in February (see these two posts), the Ninth Circuit granted en banc rehearing to revisit the 2-1 panel decision in Dukes v. Wal-Mart, Inc., 509 F.3d 1168 (9th Cir. 2007). 

Pursuant to paragraph (3) of the Circuit Advisory Committee Note to Ninth Circuit Rules 35-1 to 35-3, the eleven-judge en banc court decided to hear further argument, but apparently decided not to order further briefing (which appears to be the usual practice).  The argument will take place on Tuesday, March 24, 2009 at 2:00 p.m. in San Francisco (limited to thirty minutes per side).  I'm going to try to attend and report on it here. 

Dukes is currently the second case listed on the Ninth Circuit's "Status of Pending En Banc Cases" page.  The members of the en banc court will soon be listed there.  At this link, you can download a huge, 421-page pdf file with copies of the petition for en banc rehearing, the opposition, the reply, and the extensive amicus filings on both sides. 

More Supreme Court oral arguments set: Miller, Amalgamated, and Arias

This morning, the Supreme Court set the cases listed below for argument on April 7 and 8, 2009 in Los Angeles.  I will be seeking roving reporters to cover these arguments and provide reports, so please email me ([email protected]) if you are interested. 

April 7, 2009, 9:00 a.m.

Miller v. Bank of America, no. S149178 (review granted 03/21/07) (this case involves the UCL's "unlawful" prong)

• Issues: Does California law, which provides that a bank account into which public benefit funds or Social Security payments have been electronically deposited is exempt from attachment and execution, prohibit a bank from exercising its right to setoff as to charges - such as overdraft fees and insufficient fund fees - arising out of use of that same account?
• Court of Appeal opinion: Miller v. Bank of America, NT & SA, 144 Cal.App.4th 1301 (2006)

April 8, 2009, 9:00 a.m.: 

Amalgamated Transit Union v. Superior Court (First Transit) , no. S151615 (review granted 06/20/07) (this case involves whether associational standing survived Prop. 64)

• Issues: (1) Does a worker's assignment to the worker's union of a cause of action for meal and rest period violations carry with it the worker's right to sue in a representative capacity under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.) or the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.)? (2) Does Business and Professions Code section 17203, as amended by Proposition 64, which provides that representative claims may be brought only if the injured claimant "complies with Section 382 of the Code of Civil Procedure," require that private representative claims meet the procedural requirements applicable to class action lawsuits?
• Court of Appeal opinion: Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court, 148 Cal.App.4th 39 (2007)

Arias v. Superior Court (Angelo Dairy), no. S155965 (review granted 10/10/07)

• Issues: (1) Must an employee who is suing an employer for labor law violations on behalf of himself and others under the Unfair Competition Law (Bus. & Prof. Code, § 17203) bring his representative claims as a class action? (2) Must an employee who is pursuing such claims under the Private Attorneys General Act (Lab. Code, § 2699) bring them as a class action?
• Court of Appeal opinion: Arias v. Superior Court, 153 Cal.App.4th 777 (2007)

Delayed discovery rule applies to UCL "fraudulent" prong claims: Broberg v. The Guardian Life Ins. Co.

In Broberg v. The Guardian Life Ins. Co., ___ Cal.App.4th ___ (Mar. 2, 2009), the Court of Appeal (Second Appellate District, Division Seven) held that the delayed discovery rule applies to UCL claims, or at least those based on violation of the "fraudulent" prong:

A claim for unfair competition under Business and Professions Code section 17200 must be brought within four years of its accrual. (Bus. & Prof. Code, § 17208; Grisham v. Philip Morris, U.S.A., Inc. (2007) 40 Cal.4th 623, 639.) The Supreme Court has not yet decided, and the Courts of Appeal are in disagreement, whether the so-called delayed discovery rule applies to claims for unfair competition. (See Grisham, at p. 634, fn. 7; compare Snapp & Associates Ins. Services, Inc. v. Robertson (2002) 96 Cal.App.4th 884, 891 [delayed discovery rule does not apply] with Massachusetts Mutual Life Ins. Co. v. Superior Court (2002) 97 Cal.App.4th 1282, 1295 [delayed discovery rule “probably” applies to unfair competition claims based on alleged nondisclosure of material information regarding vanishing premium policies].) At least in the context of unfair competition claims based on the defendant’s allegedly deceptive marketing materials and sales practices, which is simply a different legal theory for challenging fraudulent conduct and where the harm from the unfair conduct will not reasonably be discovered until a future date, we believe the better view is that the time to file a section 17200 cause of action starts to run only when a reasonable person would have discovered the factual basis for a claim. (See April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 828 [“‘[the] nature of the right sued on, not the form of the action . . . determines the applicability of the statute of limitations’”]; id. at p. 832 [delayed discovery rule may be applied to breaches of contract that can be, and are, committed in secret and where the harm flowing from those breaches will not be reasonably discoverable until a future time].)

Slip op. at 7-8 (emphasis added).  Coincidentally, as mentioned in Harvey Rosenfield's report on the oral argument in Fairbanks, the opinion also passes on whether insurance is a "good" or a "service" within the meaning of the CLRA (and holds, based on pre-Fairbanks authority, that it is not). 

Yesterday’s Oral Argument in Fairbanks v. Los Angeles Superior Court (Farmers New World Life Insurance) S157001

by Harvey Rosenfield, Founder of Consumer Watchdog, author of Proposition 103

 

Yesterday’s oral argument before the California Supreme Court considered the question of whether the Consumers Legal Remedies Act (CLRA), one of the state’s two principal consumer protection laws, applies to the sale of an insurance policy. The fate of the other major consumer protection law – the Unfair Competition Law – will be determined by the Supreme Court in the Tobacco II case, which was heard a day earlier. The decisions in these two cases will determine the extent of California consumers’ access to the judicial branch to challenge abuses that are endemic to the California marketplace.

 

The Opening Argument

 

Robert Gerstein began his argument for the plaintiffs by posing the issue before the court as “whether California consumers should be denied the protection of the CLRA” when they sue for unfair and deceptive practices by an insurance company.

 

Justice Kennard, who proved to be an avid questioner, jumped in to suggest that the analysis had to begin with “the plain language” of the CLRA, which prohibits unfair practices in any transaction involving “goods or services,” in this case, “selling an insurance policy.” She asked Gerstein to “acknowledge that an insurance policy is not a good.” Securing his assent, Kennard said this left the court to the task of determining whether insurance fell within the “rubric of providing a service.” The Legislature, she noted, defined service as “labor.” Gerstein supplied the balance of the statutory language: “work, labor and services for other than for a commercial or business use...”

 

Gerstein responded by noting a decision issued Monday by the Second DCA (Broberg v Guardian Life Ins. Co.). It followed the Fairbanks opinion, describing an insurance policy as a “contract of indemnity” and concluding that it is not a service for purposes of the CLRA. Gerstein explained that the description of insurance policies as “simply agreements to pay if and when an identifiable event occurs” ignored the analyses in treatises and decisions of federal and California courts. These authorities, he said, revealed that an insurance policy provides two distinct services: the first is the “shifting of risk” from the consumer to the insurance company; the second is the “spreading of risk” among consumers.

 

But Gerstein wasn’t able to further explain his reasoning (he returned to it later) before Justice Kennard moved to a different issue: the Supreme Court’s dictum in the 1978 case, Civil Service Employees Ins. Co. v. Superior Court, 22 Cal.3d 362, 376, where the court made this statement: “insurance is technically neither a ‘good’ nor a ‘service.’” Justice Kennard asked Gerstein his view of the dictum, upon which the Court of Appeal in this case had relied. The dictum was “offhand and erroneous,” Gerstein replied. Kennard said that the federal courts had adopted the dictum, seeming to suggest that that in itself reinforced the validity of the dictum. Gerstein responded that federal courts had “gone both ways” on the issue and that those courts were in the position of trying to predict how the California Supreme Court would answer the question. The dictum, Gerstein suggested, was simply picked up by the federal courts as a clue, but without more analysis – which brought the issue back to the task and forum at hand.

 

During the colloquy with Justice Kennard, the Chief Justice had interjected a question about the legislative history, and Justice Chin asked Gerstein to return to it. Chief Justice George pointed to the Model National Consumer Act, drafted by the National Consumer Law Center in 1969, and upon which the California Legislature based the CLRA. (The Model Act explicitly included insurance in its definition of services: it defined “Services” to “include” privileges with respect to transportation, hotel and restaurant accommodations, education, entertainment, recreation, physical culture, hospital accommodations, funerals, cemetery “and insurance.”) But the California Legislature had “remodeled the definition of services entirely,” the Chief said, and the CLRA as enacted does not contain the language defining “services” to “include” insurance. This led the Chief Justice to conclude that the Legislature’s alteration of the Model Act was an affirmative expression of intent to exclude insurance. Further, he said, the Legislature expressly included “insurance” in the Unruh Act. This “conveyed some idea that the Legislature did not intend to include insurance,” he proposed.

 

Gerstein seemed to agree with the Chief that the California Legislature had taken an entirely different approach to the definitions section of the CLRA. But from that fact he drew the opposite conclusion. While the Model Act employed an expansive list of examples (“services…include (a) work, labor and other personal services…(c) insurance”) to help define its scope, the California Legislature proceeded a different way. The Legislature omitted, Gerstein pointed out, the list of examples set forth in the Model Act as being “include[ed]” within the definition of services. Instead, it opted for a one sentence definition: “services means….”  Gerstein noted that no one has suggested that any of the other items enumerated in the Model Act are not “services” under the CLRA. Gerstein’s point was that the CLRA’s shorter definition is broad enough to cover insurance and other related services without having to itemize them – and that the Legislature’s decision not to include a detailed definition ought not to be construed as an intention to exclude.

 

Justice Moreno asked if Gerstein could cite any “counter authorities from California” for the proposition that the CLRA applied to insurance. Gerstein pointed out a trilogy of cases, including the Supreme Court’s decision in Broughton v. Cigna Healthplans of California (1999), that “made the assumption” that the CLRA applied, but did not discuss the question. Further, he said that of the many states that considered the question, only one determined that “insurance” was not covered in their version of the Model Act.

 

Justice Chin then urged Gerstein to “enlighten us” as to how insurance might be considered a good or service, a question that would have allowed Gerstein to amplify on his initial point about risk sharing and shifting “services” – had not Justice Chin proceeded to raise once again the dictum in Civil Service Employees. Gerstein picked up on the dictum’s use of the word “technically.” Gerstein contrasted that term with the CLRA’s requirement that its language be “interpreted liberally in favor of the consumer,” which, he said, argued that the Court eschew a “technical” approach. Further, he said, Civil Service Employees was not a CLRA case and the issue was not before the court.

 

Justice Corrigan entered the discussion here, asking Gerstein to explain why insurance was a service. This gave Gerstein the opportunity, at last, to expand upon his analysis. Emphasizing the liberal construction mandate, Gerstein began by suggesting that the court utilize a common interpretation of the word “service.”  He then said that when an insurance company agrees to “shift risk” from the consumer to itself, it is “performing a service to each individual insured,” i.e., “making that person secure.”

 

Justice Corrigan asked Gerstein to address his second argument that spreading the risk among insureds was a form of “service” provided by an insurance company. He replied that to “spread and socialize risk that would otherwise fall onto the individual” was the quintessential service provided by insurance, i.e., the pooling mechanism.

 

Justice Moreno queried whether that argument could be applied to render the CLRA applicable to all “intangible goods.” Gerstein disagreed, noting that such intangibles as copyrights and stock shares could not be said to involve “service” in the same sense that insurance companies provide the services people rely upon. What about advice provided by stockholders? That would be a service, Gerstein replied.

 

Justice Corrigan went back to Gerstein’s explication of the “services” provided by an insurance company that sells a policy. She suggested that to the average consumer, it is “a matter of indifference” if the carrier has a contract with other consumers in order to pool risk. Spreading risk, she posited, is “not an inherent part of the contract” with the consumer; a consumer would have no right to rescind the contract if the company failed to spread the risk, for example.

 

Spreading the risk is the “business of insurance,” Gerstein responded. Consumers are “made secure” by an insurance policy; that’s the “service” that he argued the insurance companies provide.

 

Justice Werdegar interjected that she thought the discussion had gone far “afield” from the court’s task, which was to construe the statute. The Legislature’s excision of the term “insurance” in the Model Act was, she said, “one indication of legislative intent.” Another was the Legislature’s express use of the term “insurance” in the Unruh Act. Given these indicia of legislative intent, she said, “this Court would appear to be supplying something the Legislature did not include” were it to rule that the CLRA applied to insurance. This was an “argument better made to the Legislature,” she suggested. As he did before, Gerstein challenged the inference of intent from the omission of the Model Act’s language. Restaurant accommodations, education and entertainment were itemized in the Model Act but aren’t mentioned in the CLRA, he said, but no one has inferred they were not intended to be covered by the CLRA.

 

At this point, Justice Chin turned the discussion to a different subject: the role of insurance regulation.

 

[A personal aside: the Court of Appeal had concluded that the presence of a regulatory framework was a strong policy argument against the application of the CLRA to insurance. In fact, the panel below went so far as to suggest the CLRA would conflict with and undermine the power of the Insurance Commissioner under the Unfair Insurance Practices Act. It was this argument – potential fodder for mischief in the hands of insurance companies in the Proposition 103 context - that led Consumer Watchdog to submit an extensive amicus brief before the Supreme Court.]

 

Gerstein responded to Justice Chin by noting that Consumer Watchdog had submitted for judicial notice a number of briefs written by Insurance Commissioners since the early 1990s, each of which welcomed private enforcement of Proposition 103’s provisions in the civil courts as a “valuable complement to the regulatory scheme administered by the Commissioner.”

 

And with that comment, Mr. Gerstein turned the lectern over to Peter Mason, of the firm Fulbright and Jaworski, counsel for the defendants/respondents.

 

The Defendant’s Argument

 

The Chief Justice asked Mr. Mason to explain how the plain meaning of the CLRA was fleshed out by the legislative history. Mason explained that the legislation as first introduced in Sacramento would have applied to the “conduct of any trade,” but the ultimate legislation, he said, limited and narrowed the CLRA’s application – to exclude insurance.

 

Justice Kennard wondered whether Mason considered it important that the California Legislature had looked to the Model Act as a source for its drafting, yet did not refer to insurance in the CLRA. Mason easily handled this softball, first asserting that it wasn’t even necessary to look at the legislative history: on the plain meaning of the statute alone, the CLRA does not apply to insurance, he said. But if the legislative history is consulted, the absence of the Model Act language would be an important and relevant fact, he said. Next Kennard asked whether the Legislature’s decision to expressly apply the Unruh Act to insurance, in distinction its omission in the CLRA, supported his position. Finally, Justice Kennard made this observation: when the CLRA was about to be enacted, “it became a topic of enormous interest by various groups” of special interests. “All wanted a say,” she said. The Justice read a list of lobbying groups and corporations including General Motors, lenders, oil companies, household finance and the American Bankers Association that participated in the legislative process. But, she said, insurance interests were not on that list. “What inference do you draw” from their absence, she asked.

 

Mason played out the argument. It was unimaginable that the insurance industry would not have been interested, he said. Citing the legislative history recited in Berry v. American Express Publishing, Inc. (2007) 147 Cal.App.4th 224, Mason said that the legislature’s decision not to apply the CLRA to intangible products was the result of a grand “compromise.”

 

The Chief Justice asked Mason whether the inclusion of “insurance” in the Unruh Act and the Unfair Insurance Practices Act (UIPA) suggested that the Legislature was relying on those statutory schemes to regulate the insurance industry, and thus supported the inference that the Legislature intended to exclude insurance from the application of the CLRA. (This was the closest any justice got to the Court of Appeal’s argument that the CLRA would undermine UIPA.)

 

Mason responded by reinforcing an argument made by the Court of Appeal: UIPA was already in effect when the CLRA was enacted, so the Legislature decided that UIPA was all the oversight the industry required.

 

Justice Chin asked Mason to address Gerstein’s argument that “risk spreading” was a service. Mason rejected the notion that the “aggregation of risk” could be “elevated” to the level of a service to consumers.

 

Justice Moreno brought up an issue Consumer Watchdog raised in its amicus brief: the provision of Proposition 103 (Ins. Code section 1861.03(a)) that states that “the business of insurance shall be subject to the laws of California applicable to any other business, including, but not limited to, the Unruh Civil Rights Act [citation], and the antitrust and unfair business practices laws [citation].” Consumer Watchdog contended that if the there was some dispute as to whether the CLRA on its face applied to insurance, the 1988 voters’ desire to have the benefit of all state consumer protection laws would weigh in favor of the CLRA’s application to insurance. Justice Moreno queried Mason on this point.

 

Mason responded by noting that by its terms, Proposition 103 does not apply to life insurance, the subject of this case. He also cited the Supreme Court’s decision in Manufacturers Life Ins. Co. v. Superior Court (1995) 10 Cal.4th 257, in which the Court concluded that because Proposition 103 did not apply to life insurance, it was not authority for the application of the antitrust laws to the defendants in that case. Finally, Mason said, Proposition 103 would not require application of the CLRA because the issue here is not whether insurance is exempted from the CLRA but whether “intangibles” are exempted from the CLRA. The argument he seemed to be making is that the CLRA is not a law “applicable to any other business” for purposes of Proposition 103, because, he contends, it does not apply to certain “intangible goods” across the board.

 

In his first question (by my reckoning), Justice Baxter raised an issue of profound importance.  He asked whether “independent insurance brokers provide a service.” He elaborated: assume a consumer asks an insurance broker to secure a policy that provided certain benefits; the broker conducts an investigation and then sells the consumer an insurance policy. Is that a service?

 

Mason, who had obviously anticipated the question, first tried to distinguish this case from the one posited by Justice Baxter: here, he said, it was an agent of Farmers that sold the deceptive policy to the plaintiff, not an independent broker. Then Mason tried to draw a careful line that would still protect his insurance company client. If the “objective” of the transaction was advice, that might be “close to a service,” he ventured. But if the transaction is tied to the “securing of an intangible product,” then the entire transaction is not a service. Trying to further articulate a rule, Mason asserted that services that are “attendant to” the sale of a product cannot convert the sale of an “intangible good” to a service. Finally, he offered this hypothetical application of his rule: if a consumer goes into store to buy a flat screen TV (the objective) and gets advice from a salesperson, the consumer is paying for the flat screen, not the advice, so the transaction would not involve a service. (I’ll have more to say about this below.)

 

Justice Kennard asked Mason about the dictum in Civil Service Employees. Disagreeing with the plaintiffs’ position, Mason said that in fact the dictum was essential to resolving that case.

 

Mason concluded his argument by paraphrasing Berry to suggest that insurance was excluded as part of a legislative “compromise between consumers and business groups,” and that the Supreme Court was not the proper forum to “undo that compromise.”

 

The Rebuttal

 

In his rebuttal for the plaintiffs, Robert Gerstein again challenged the suggestion that the Legislature’s intent to exclude insurance could be inferred from the changes it made to the Model Act. He also pointed out that, contrary to some comments by the Court and counsel for the defendant, there is no express exclusion for “intangible goods.”

 

Justice Werdegar returned to the argument that “spreading the risk” is a service. She asked Gerstein if “peace of mind” was a service provided by an insurance policy. With Justice Baxter’s earlier query seemingly in mind, Gerstein explained that “insurance policies are bundles of services,” citing Mass Mutual and Hitz v. Interstate Bank (1995) 38 Cal.App.4th 274. A consumer would emphatically “need the services of an insurance agent to help ensure that insurance will be there when needed,” he told the Court. Gerstein also noted that insurance policies provide for “claims” services.

 

He then returned to the CLRA’s mandate that it be “liberally construed in favor of the consumer.” “If there is any plausible argument…any doubt…if it is a question of reading the tea leaves as to legislative intent….that doubt must be resolved in favor of the insured,” he said.

 

Gerstein then turned to the Proposition 103 question Justice Moreno put to Peter Mason. Manufacturers Life, he said, left open the question of whether section 1861.03(a) applied only to the lines of insurance regulated by Proposition 103, or across the board. “This Court should apply it to all lines of insurance,” Gerstein stated.  In a closing note, he reiterated that the Insurance Commissioner has long been supportive of dual civil and administrative enforcement of the Insurance Code.

 

 

Some Concluding Comments

 

Having attended only a handful of Supreme Court arguments, I can make no claim to being able to “read the tea leaves.” However, I heard very little support from the bench for the position of the consumer plaintiffs. And where the Court could have found support for application of the CLRA here, it did not do so.

 

For example, it seemed to me that the legislative history and the “liberal construction” mandate together would dictate that the CLRA applies. But the analyses seemingly adopted by the Court in the course of reviewing the legislative history – the inference of intent to exclude, for example – might be viewed as a departure from existing jurisprudence. Having spent a lot of time in Sacramento, I can say definitively that the absence of insurance industry letters of opposition in the historical file could just as easily reflect (a) the very scattershot filing systems used by legislative committees to this day, or (b) a preference by the insurance industry to communicate through lobbyists (and campaign donations) rather than correspondence, or (c) a strategic decision to preserve the legal argument that came to fruition today, decades later, by not confirming, in written opposition to the legislation, that the CLRA would apply to insurance.

 

Justice Baxter asked Peter Mason what I thought was the most important question of the day: don’t insurance companies and their agents and brokers provide a variety of services in connection with the sale of insurance policies? Given the amount of deception, misrepresentation and fraud we are only now uncovering in the financial marketplace, are all such abuses beyond the reach of the CLRA because the “objective of the transaction” is the sale of an insurance policy or other financial product? If so, the deterrent effect of the CLRA will be gravely undermined, and an awful lot of wrongdoing will evade accountability in the courts.

 

And the issue that really got our attention at Consumer Watchdog – the Court of Appeal’s hostility toward dual, private and public enforcement mechanisms – got almost no notice. Not a word was said about Justice Croskey’s view that Moradi-Shalal erected a shield around the insurance industry that bars most challenges to insurer misconduct in the civil courts. The oral argument made clear that the Court doesn’t need to expand Moradi-Shalal or engage in policy engineering to reach the conclusion that the CLRA does not apply here. As we explained in our amicus brief, whichever way the Court rules on Fairbanks, much mischief could result unless the Court rejects  the Court of Appeal’s discussion of Moradi-Shalal and its other policy assertions.

 

A final caveat: your scrivener has done his best to describe the arguments and the questions from the Court. If I’ve erred, please let me know.

 

[Harvey, thanks so much for spending hours writing up this fantastic report!  – KAK]

COMING SOON: Oral argument report in Fairbanks v. Superior Court

Later today, I hope to have a detailed report of yesterday's oral argument in Fairbanks v. Superior Court, no. S157001.  Neither the Recorder nor the Daily Journal seems to have reported on the case in this morning's papers.  Instead, all eyes are looking forward to today's three-hour argument in the Prop. 8 same-sex marriage cases.   The Recorder's blog, Legal Pad, will not only live-blog but also twitter that argument starting at 9:00 a.m.   The California Channel is also providing cable coverage and a live webcast. 

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. 

Oral argument report: In re Tobacco II Cases

Yesterday morning, the Supreme Court heard oral argument in In re Tobacco II Cases, no. S147345.  Attorney Mark P. Robinson of Robinson Calcagnie & Robinson argued for the plaintiffs.  Attorney Daniel P. Collins of Munger, Tolles & Olson argued for the defendants.  Court of Appeal Justice Eileen C. Moore sat in place of Chief Justice Ronald M. George, who was recused. 

Mr. Robinson began his argument by saying that with the UCL, the Legislature and the Supreme Court, for the past 35 years, have sought to protect consumers from deceitful marketing practices by use of the "likely to deceive" standard.  Case law, including Chern and Justice Tobriner in Fletcher, has not required individualized proof of reliance.  That is because, as the court in Fletcher pointed out, it is often impossible to prove in a class setting. The lightened burden of proof is part of the damages trade-off noted by the Court in Bank of the West.  The purpose of the lightened burden is to effectuate the intent of the Legislature.  Proposition 64 changed who can sue, it changed standing. 

Justice Kennard was the first justice to speak and she wanted to get right to "the threshold inquiry."  She asked whether the class was decertified because of the trial court's belief that the heightened standing requirement pertained to every class member.  Mr. Robinson said that Judge Prager read Proposition 64 to require individualized proof of reliance for every member of the class.  Justice Kennard:  So your short answer is yes.  Robinson: Yes. 

Justice Moreno then jumped in and asked whether the Court should make a distinction between the standing of the class representatives and the standing of the class members.  Robinson said that Prop. 64 changed the standing requirement for the class representative.  It also requires use of Code of Civil Procedure section 382 [the class action statute].  The inference would be "the same standing" for the class representative.  Justice Baxter said, "The same standing?" [And I confess I didn't get it either.]  Robinson said under Korea Supply, in order to recover, there has to be money "acquired by means of" the deceptive practice. [I think he meant this means the same thing as "lost money or property as a result of" the deceptive practice.]

Justice Baxter then asked whether there has to be "symmetry" between the class representatives and the class members.  Robinson said Prop. 64 only changed the standing requirement for the class representative.  Justice Kennard then asked, What support do you have for that? Is there plain language?

At this point, Mr. Robinson began talking about the language in Prop. 64's findings and declaration of purpose.  But what I was waiting for him to point out (and what I thought Justice Kennard was getting at) was that section 17203 says that "[a]ny person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of Section 17204 ...." (emphasis added).  That said, the findings and declarations of purpose also supported Robinson's argument.  They refer repeatedly, he pointed out, to "filing" of lawsuits.  The legislative analyst's report talks about "initiating" lawsuits.  The findings talk about preventing suits where "no client was injured."  It wasn't drafted well, he said, but when you look at the text, it talks about "the client," that is, the class representative.

Justice Kennard then asked what approach the federal courts had taken in this regard.  Robinson replied that the Lujan case talks about injury in fact being an invasion of a legally-protected interest.  And in another section of that case they talk about causation being an act fairly traceable to the defendant.  Justice Kennard then said that federal cases hold that standing under federal law applies solely to the named plaintiff and not the class members. 

At this point, Justice Chin asked Mr. Robinson what he meant when he said "yes" to Justice Baxter's question about symmetry.  Robinson said that Judge Prager found the class representatives' claims not only typical, but identical.  His problem was not that.  He read Prop. 64 as changing the reliance requirement, for every individual class member.  In Fletcher, this Court addressed this, Justice Tobriner was interpreting "acquired by means of," which is the same as "as a result of," and said under the UCL it's impossible to prove individualized reliance (and unnecessary).

Justice Chin asked, In this case what is sufficient to show reliance?  Robinson said that from Fletcher and Chern on down, it's "likely to deceive."  The reason for this is there was a trade-off; as said in Kraus, damages are not allowed.

Justice Moreno then threw out a couple of softballs:  Is there any indication in the initiative's history that it was doing away with the UCL substantively?  Robinson said no, nothing, it said nothing about the elements of proof or standards of liability.  Justice Moreno asked what was Prop. 64 aimed at deterring?  Robinson said Trevor Law Group shakedowns where an unaffected plaintiff files and tries to settle without court supervision.  So Prop. 64 changed standing.  The class representative has to be affected; has to have injury in fact; and has to follow section 382.  This changes standing only; it doesn't change the elements of proof or the guts of the UCL.  Robinson then said that Judge Selna in the Anunziato case said you'd change the UCL to common-law fraud if you adopted any other rule.  You'd be abandoning the purposes of the UCL.  Nothing in Prop. 64 says this was intended.

Justice Moreno then asked whether the ballot materials said how Prop. 64 might affect the UCL.  Robinson said the ballot materials reaffirmed that the UCL protects consumers.  Then the materials said that it's going to stop frivolous lawsuits but also make sure that legitimate claims can be brought.  Then the materials talk about standing, but they make no mention of the elements of proof or repealing the class action standards of Fletcher.

Justice Baxter said that this case involves false advertising; does this mean that the class would be defined to include those who may never have heard the ads?  Robinson said that here the class is defined as those who were exposed to the ads.  The test is whether those ads were likely to deceive members of the public or a reasonable consumer.  Under Fletcher, it's up to the trial judge to decide who will be class members.

Justice Baxter said, We have to weigh in on the definition of the class it seems to me.  One issue is whether the injury of the claimant would also pertain to members of the class; in other words, symmetry; must there be symmetry.  Robinson replied that in Vasquez and Massachusetts Mutual, the court used inferred reliance to determine damages. The focus for the liability standard is likely to deceive, were the statements likely to deceive?  You're going to take us back to common-law fraud, which is not appropriate because of the purpose of the UCL and the tradeoff it represents.

Justice Baxter then said, What if you had a prospective class member whose deposition testimony said yes I was exposed to the ads, but that's not why I bought the cigarettes.  Would this person be eligible because they were exposed?  Robinson cited a case called Boekan v. Philip Morris, in which an expert testified that the individual plaintiffs' inability to recall being exposed to any particular ad doesn't mean it didn't cause them to buy cigarettes.  That's the cleverness of advertising.  It's called associative learning.  This is the problem Justice Tobriner was talking about in Fletcher.  The standard is still whether the general public is likely to be deceived.

Mr. Robinson then mentioned that under Branick, the class representative can be changed if he or she isn't proper.

Justice Werdegar then said, You've been talking about the ultimate showing.  Have we addressed what showing the class representative has to make, what "as a result of" means? Robinson:  Justice Tobriner said it best.  It means "acquired by means of."  It's a mirror image, depending on the perspective.  One is from the manufacturer's perspective; the other is from the consumer's. 

Justice Werdergar then asked are you saying that the showing for the representative and the class members is the same?  Robinson said yes, as Mervyn's said, Prop. 64 did nothing to change the substance.  That was the law under Justice Tobriner's opinion in Fletcher.  Justice Werdeger said I'm trying to figure out the relevance of Fletcher.  After Prop. 64, the class rep has to have injury in fact standing as a consequence of an advertisement that was likely to deceive?  Robinson: Yes.

And that was the end of Mr. Robinson's time.  He reserved seven minutes for rebuttal. 

Mr. Collins pointed out, first of all, that Prop. 64, by requiring that the named class representatives must satisfy standing and section 362, establishes a requirement that both the class representatives and the class members must share.  Justice Kennard asked where do you get that from?  Mr. Collins replied it comes from settled class action principles.  We need to look at the language.  "Claimant" means the person bringing the suit.  The source of the requirement comes from settled class action law.  First, that all class members must have standing.  Second, that the claim can’t look different when looked at through the class action lens.  This is settled law under City of San Jose: when you aggregate claims, you can’t transform them. 

Justice Moore then spoke for the first time.  She asked, whatever we hold on the issue of class member standing, does the Court have to take into account the possibility that a lawsuit may be filed just for injunctive relief?  Mr. Collins said that in such a case, "as a result of" still has to be shown. 

Justice Moore pointed out that there was a lot of back and forth in the ballot materials about a suit for an injunction only.  (And here she gave an example of such a case involving tobacco products.)  It seems as though "as a result of" may be different in that situation.  For example, in a suit brought by the parents of a minor (they might have paid for an addiction program for their child), for members of the class they would be seeking an injunction only.  Do your arguments apply in cases where only injunctive relief is sought?

Mr. Collins said yes, there's no exception for injunctive relief cases.  The plaintiff must have lost money or property "as a result of" to obtain any relief under the UCL.  The theory presented in this case is that the plaintiff lost money by paying for cigarettes.  Trial court correctly found this is an individualized issue. 

Justice Moore then said that the statute does not say that defendant has acquired anything.  It says “lost” money or property.  Mr. Collins said that plaintiffs are incorrect in saying that the standard for causation is the same as in Fletcher.  There, Court relied on the “may have been acquired by means of” language from the UCL [section 17203].  This would not preclude certification in Fletcher.  The "as a result of" requirement is present in many statutes.  This is an ordinary causation requirement.

Justice Moreno said, You cite Massachusetts Mutual in which the court said no individualized proof was required.  Does Prop 64 change this?  Mr. Collins said that the substantive standard -- "likely to deceive" -- is unchanged under Mervyn’s.  The proposition was not intended to affect the Attorney General’s authority in any respect.  So the substantive standards are not changed.  Prop. 64 only changed the standing requirements for private parties.

Mr. Collins explained that Judge Prager made four class certification rulings in this case.  He initially denied certification; then, he granted certification of the UCL claim and denied the CLRA claim; then he decertified the UCL claim.  If causation is an element it will overwhelm any common issues.  The trial court initially found causation wholly outside the scope of the UCL.  When Prop 64 passed, that put the issue of causation into the case.  Then he went back to his analysis on the CLRA—a ruling clearly supported by substantial evidence.

Justice Kennard asked whether the misrepresentation must be a substantial factor in causing plaintiff’s injury?  Mr. Collins said yes, it means ordinary causation, proximate, legal causation.  Does this devolve into an issue of reliance into some cases?  Some courts say it does.  He said you don’t have to reach that here because causation was analyzed separately.  It’s academic on these facts whether reliance is also required.  Judge Prager held that causation applied to all members of the class, so it was "in the bucket of issues" to be considered.  There are still some cases in which class action would be appropriate, like Mass Mutual.  [That argument is a stretch in my opinion and not consistent with the overall thrust of the defense position.]

Justice Kennard asked whether the plaintiffs have to show reliance on a specific misrepresentation?  A case called Whiteley v. Philip Morris was mentioned.  Collins said that Judge Prager didn’t decertify based on that.  Justice Kennard:  But it is your view plaintiffs would have to show that?  Collins said that plaintiffs would have to show they received information by exposure and it had a causal effect on the purchasing decision.  Prager said that’s individualized.  Differences on the question of exposure; whether plaintiffs believed the ads; then with causation you have the influence of other factors.  Information about the effects of tobacco use comes from sources other than the ads.  Prager looked at all those issues and his decision was supported by substantial evidence.

Justice Moreno asked whether it was Collins' argument that class members must have injury in fact based on section 382 not section 17204?  Mr. Collins said the statute says "as a result of" and "the claimant," which means the person who filed.  Our position comes from section 382 and settled class action case law.  One of the justices then asked at what point do the absent class members have to show they have standing?  When ascertained?  When they prove their damages?  Collins replied when class certification is decided; that issue is in the bucket of issues that have to be decided. 

Justice Chin asked what is your response to the argument that “the claimant” means the class rep.?  Collins said I've conceded that.  But it says that the claimant must satisfy section 17203 and section 382, and that’s where the standing requirement comes from.  This is part of what it means to bring a UCL claim.  That requirement can’t be sheared off when you bring a class action.  He mentioned that some of the amici argued otherwise, but that's wrong because section 382 also addresses associational actions.  This was what Prop. 64 was meant to address.  Associational standing is no longer permitted after Prop. 64.  It’s not a redundancy for Prop. 64 to refer to section 382; different language would have had different meaning.

Justice Baxter said, so if an individual can’t satisfy standing, than that same individual should not be allowed to proceed as part of a class?  Mr. Collins said yes, this comes from the rule that the class action procedure can’t transform the claims it aggregates.  Justice Baxter then said when the class action cases talk about symmetry, is this what they mean?  [Not sure what cases he's referring to here.]  Collins said yes, otherwise there would be an odd atypicality.  This court's decision in Meyer and the decisions of other courts show that at the least, it's proximate or legal causation. 

He then mentioned that the question is whether the trial court abused its discretion under Sav-on.  He said the findings were supported by substantial evidence.  He said that the Whiteley case makes clear and confirms the individualized nature of the issue.  On page 39 of Whiteley, it says the plaintiff didn’t rely on any presumption of reliance.  The requirement was still there that information had to get through to her and did it change her behavior.  Whiteley supports the view that this is highly individualized.

And that was the end of Mr. Collins' time.

In rebuttal, Mr. Robinson said that on pages 680 to 681 of Whiteley, the court said defendants contended that the plaintiff did not show that she heard any of the misrepresentations.  Whiteley did not have to prove that she saw or heard the misrepresentations.  It is sufficient that they went to the public. 

Justice Kennard said, Turning to this case, on causation, I assume you disagree that causation is akin to proximate cause.  What is your view on this issue?  He said Mr. Collins relies on Collins v. Safeway, a case at law, not an equitable case.  He cites the CLRA, which is not applicable.  Justice Kennard:  What must be shown in your view?  Mr. Robinson:  Likely to deceive; then it is up to the trial court to decide who is in the class.  Justice Baxter:  How would you define it?  Mr. Robinson:  Altria v. Good gives us the right to reopen the preemption argument in our light cigarettes case.  [In other words, Robinson was saying that in Altria v. Good, the U.S. Supreme Court interpreted federal preemption less broadly than did the Cal. Supreme Court in the other Tobacco case, In re Tobacco Cases II, 41 Cal.4th 1257 (2007).]  Experts will testify to what proportion of people were likely to be affected by the fraud.  This is the way it has to be because otherwise you let it become common-law fraud.

Justice Corrigan: How would you define the class?  Mr. Robinson:  Those likely to be deceived by the representation.  Then it's up to the trial court.  Justice Kennard:  Isn’t that a broad standard?  Mr. Robinson:  Yes it is, since Korea Supply.  Otherwise the UCL becomes common-law fraud, but with no right to damages.  Justice Baxter:  But you would include likely to deceive [in the class definition]?  Robinson:  Yes, as a causation standard.  That’s been the law.  And you said in Mervyn’s nothing previously prohibited is now permitted.  Also Fletcher. 

Justice Werdegar then asked, what does it mean to you when it says the claimant must comply with section 382?  Mr. Robinson:  They didn’t want representative actions.  They wanted to eliminate those.  Justice Werdegar:  And what does section 382 require?  Mr. Robinson:  it depends on the underlying claim—e.g., UCL versus CLRA.  Justice Wendegar:  What are the practical differences between a class action and a representative action?  Mr. Robinson:  The practical impact is what it was in Fletcher.  No individualized proof of reliance.  [At this point, it might have been helpful to explain that, with a pre-Prop. 64 representative action, class notice was not required; court approval of any settlement was not required; the res judicata effect was different; etc.  The argument could have been that those are the changes Prop. 64 meant to impose by incorporating section 382, not to create a standing requirement that otherwise expressly applies only to "the claimant"; leads to imposition of new substantive elements (such as actual reliance instead of likely to deceive); and would, as a practical matter, eliminate the possibility that section 382 could ever apply to any UCL "fraudulent" prong case.] 

Mr. Robinson then invoked Branick, and asked that he be permitted to seek leave to amend and revisit the preemption issue. 

The final question was from Justice Kenard:  Must the misrepresentations be a substantial factor in causing the plaintiff’s conduct?  Mr. Robinson replied that the misrepresentation had to be material and likely to deceive the general public.  He cited Harper v. 24 Hour Fitness, then concluded it’s up to the trial court to decide how the class is defined. 

And that was the end of the argument.

"Justices Air Standing for UCL Class Actions"

Mike McKee's report on today's argument in the Tobacco case is already up on The Recorder's website:

Just a few weeks ago, the California Supreme Court ruled that lawsuits under the Consumer Legal Remedies Act can only be filed by individuals who suffer real damage from unlawful business practices.

But during oral arguments on Tuesday it wasn't clear where the court stood on applying that same rule to every participant of class actions filed under the state's Unfair Competition Law.

I'm working on typing up my notes and will have my complete report up tomorrow morning.

Oral argument previews: In re Tobacco II Cases and Fairbanks v. Superior Court

Today and tomorrow, the Supreme Court will hear oral argument in two cases of interest, In re Tobacco II Cases, no. S147345, and Fairbanks v. Superior Court, no. S157001.

The Tobacco case is third on this morning's calendar, and will be webcast live starting at approximately 11:00 a.m. on The California Channel. My plan is to attend the argument and provide my own written report here tomorrow.

I will not be able to attend the Fairbanks argument, but a blog reader who is planning to be there has promised to provide a report for posting here on Thursday. I would be very glad to receive additional reports from anyone who attends the Fairbanks argument. Please forward them to [email protected].

Meanwhile, here is background information about the two cases:

In re Tobacco II Cases, no. S147345 (review granted 11/1/06)

• Issues: (1) In order to bring a class action under Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.), as amended by Proposition 64 (Gen. Elec. (Nov. 2, 2004)), must every member of the proposed class have suffered "injury in fact," or is it sufficient that the class representative comply with that requirement? (2) In a class action based on a manufacturer's alleged misrepresentation of a product, must every member of the class have actually relied on the manufacturer's representations?
• Court of Appeal opinion: In re Tobacco II Cases, 142 Cal.App.4th 891 (2006) (Fourth Appellate District, Division One)
• Briefs: Some of the briefs are collected at these links.

Fairbanks v. Superior Court (Farmers New World Life Ins. Co.), no. S157001 (review granted 11/14/07)

• Issue: Is insurance a "good" or a "service" that is subject to the Consumers Legal Remedies Act (Civ. Code, § 1750)?
• Court of Appeal opinion: Fairbanks v. Superior Court, 154 Cal.App.4th 435 (2007)
• Briefs: Some of the briefs are collected at these links.

"Consumer Lawyers Fighting Against Legal Tide"

This morning's Daily Journal has an interesting article on the oral arguments this week in Tobacco and Fairbanks.  The article tells us why Chief Justice George will not hear Tobacco:

And while Chief Justice Ronald M. George is usually the swing vote in such close cases and a fair indicator of which way the decision will turn, he'll be sitting out Tuesday's oral argument and the decision because one of the defense firms in the case, Loeb & Loeb in Los Angeles, handles his estate planning.

His replacement, Justice Eileen C. Moore of the 4th District Court of Appeal, graduated from the conservative Pepperdine University School of Law and was honored a few years back by the Consumer Attorneys Association of Los Angeles.

The article also mentions the Supreme Court's opinion in Meyer and the recently-filed rehearing petition.

Court of Appeal gets out its blue pencil: Kwikset Corp. v. Superior Court (Benson)

Business and Professions Code section 17533.7 (part of the False Advertising Law) prohibits misreprentations about the geographic origin of goods:

It is unlawful for any person, firm, corporation or association to sell or offer for sale in this State any merchandise on which merchandise or on its container there appears the words "Made in U.S.A." "Made in America," "U.S.A.," or similar words when the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States.

Last week, the Court of Appeal (Fourth Appellate District, Division Three) picked up its blue pencil and crossed this provision out of the FAL.  Its opinion in Kwikset Corp. v. Superior Court (Benson), ___ Cal.App.4th ___ (Feb. 25, 2009), reads Prop.  64's standing requirement so narrowly that it is unlikely consumers will ever be able to assert a violation of this provision again.  Companies may as well start mislabeling all of their products as "Made in the U.S.A.," because unless the AG's office steps in, there is nothing anyone can do to stop them.

In Kwikset, plaintiffs alleged that they paid money for defendant's products in reliance on (false) representations that the products were "Made in U.S.A."  Plaintiffs alleged that they read and relied on that misrepresentation in deciding to make the purchase.  They alleged that they would not have bought the products at all if not for the "Made in U.S.A." misrepresentation.   They alleged that they spent good money on products they did not want, solely because of this misrepresentation.  Slip op.  at 5-6. 

Was this enough for the Court of Appeal?  No.  Those allegations established that the plaintiffs suffered "injury in fact," the Court determined, but not that they "lost money or property" as a result.  Id. at 8-13.  Why not?  Because the plaintiffs received functioning products in exchange for their money:

Absent a showing of some complaint about the cost, quality, or operation of the mislabeled [products] they purchased from petitioners, real parties received the benefit of their bargain and are not entitled to any restitution.

Id. at 11.  The benefit of the bargain?  The bargain was for a product Made in the U.S.A.  The plaintiffs were induced to make a purchase and did not get what they paid for, not by any stretch.  That is why misrepresentations about geographic origin are prohibited in the first place. 

The Court of Appeal cited several other recent cases in which courts determined that plaintiffs got the benefit of the bargain despite the defendants' misrepresentations about the products. Id. at 5, 12 (citing , e.g., Hall v. Time, Inc., 158 Cal.App.4th 847 (2008); Animal Legal Defense Fund v. Mendes, 160 Cal.App.4th 136 (2008)).   But those cases did not allege violations of specific, defined statutory prohibitions, such as those proscribing misrepresentations of geographic origin.  In those cases, the courts could, at least arguably, find that the plaintiffs lacked standing without interpreting Prop.64 as repealing entire substantive provisions of the False Advertising Law.  The effect of Kwikset is to substantively amend the FAL, contrary to Mervyn's.

The Kwikset plaintiffs offered to amend their complaint to allege that "there were other alternative ... products available ..., many of which were lower priced" than defendants' mislabeled ones; and that the value of defendants' mislabeled products "was less than what [they] paid" for them and less than "the value of the [products] as represented."  Id. at 14.  In other words, plaintiffs were prepared to amend their complaint to allege that by misrepresenting their products as "Made in U.S.A.," defendants were able to charge more for them than if truthfully labeled as foreign-made.  See id.

Instead of remanding for the trial court to consider permitting this amendment in the first instance (as the Supreme Court did in Branick), the Court of Appeal decided for itself to refuse to permit amendment.  The Court observed that plaintiffs "fail to provide any citation to the record or present any documentation to support the assertion there is evidence in the record supporting these proposed amendments."  Id.  The Court also focused in on the original plaintiff's deposition testimony that he had been reimbursed for his purchases (id.), without considering the fact that three new plaintiffs had joined in the action, and that they might not have been reimbursed (id. at 5).  The Court issued a writ of mandate directing the trial court to sustain the defendants' demurrer to the complaint without leave to amend and dismiss the case.  Id. at 15.

Since when must a plaintiff put "evidence in the record" to obtain leave to amend a complaint?  A demurrer is not an evidentiary hearing, and plaintiffs are supposed to be given leave to amend if there is any reasonable possibility that they can cure the defect in pleading.  Here, at least, they should have been given a chance to try. 

Eventually, the Supreme Court is going to need to decide whether Prop. 64's standing langauge was intended to "blue-pencil" substantive provisions of the False Advertising Law by making them, as a practical matter, unenforceable by private litigants.  This case may or may not be the Supreme Court's vehicle.  Meanwhile, if you see something labeled "Made in the U.S.A.," there's no longer any reason to trust it in California.