The UCL Practitioner

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I'm in San Diego at a CAOC Board meeting this morning, and I learned about this:

New class settlement decision: In re Cellphone Fee Termination Cases

Yesterday, the Court of Appeal (First Appellate District, Division Five) certified for partial publication its opinion in In re Cellphone Fee Termination Cases, ___ Cal.App.4th ___ (Jun. 28, 2010; pub. ord. July 27, 2010).  The opinion affirms an order granting final approval to a class action settlement (including $10,000 incentive awards to the named class representatives). 

This was my publication request on behalf of CAOC in this case.

New UCL attorneys' fees decision: Kirby v. Immoos Fire Protection, Inc.

In Kirby v. Immoos Fire Protection, Inc., ___ Cal.App.4th ___ (Jul. 27, 2010), the Court of Appeal (Third Appellate District) reversed, in part, an order awarding attorneys' fees to a successful defendant in a wage and hour case. 

The panel's discussion of the defendant's claim for fees incurred defending the UCL claim appears at pp. 23-26.  Strangely, the opinion does not cite either of the two recent Court of Appeal cases on this subject, People ex rel. City of Santa Monica v. Gabriel, ___ Cal.App.4th ___ (Jul. 14, 2010) or Davis v. Ford Motor Credit Co., 179 Cal.App.4th 581 (2009).  Both of those cases hold that the UCL does not allow fee-shifting even if the "borrowed" law does.  Davis is particularly pertinent because it also involved a prevailing defendant.  The holding in Kirby should have been predicated on this simple principle. 

Instead, the Court examined the "borrowed" laws and determined that one of them allowed fee-shifting.  The complaint also included a cause of action brought directly under that law, however, and fees incurred to defend that claim had already been awarded.  To award fees for the UCL claim as well would constitute improper double recovery "for the same work."  Slip op. at 25.  In other words, the defendant had already been adequately compensated.  See id.

The outcome is correct but the analysis is wrong conceptually.  It should not matter whether any of the "borrowed" laws allowed fee-shifting, because the UCL does not "borrow" the remedies.  It only "borrows" the liability principles. 

[Hat tip to Phyllis Cheng for her awesome Labor and Employment Case Law Alerts, where I first saw this opinion mentioned.  To receive Phyllis's alerts, join the State Bar's Labor and Employment Law Section.]

Supreme Court addresses contingency-fee arrangements in County of Santa Clara v. Superior Court (Atlantic Richfield Co.)

The Supreme Court's opinion yesterday in County of Santa Clara v. Superior Court (Atlantic Richfield Co.), ___ Cal.4th ___ (Jul. 26, 2010), is largely focused on contingency-fee agreements between public prosecutors and private counsel in public nuisance cases.  If the fee agreements include certain provisions, the Court held, they will be proper.  Slip op. at 28-30.  The decision narrowly interprets People ex rel. Clancy v. Superior Court, 39 Cal.3d 740 (1985), holding:

[T]o the extent our decision in Clancy suggested that public-nuisance prosecutions always invoke the same constitutional and institutional interests present in a criminal case, our analysis was unnecessarily broad and failed to take into account the wide spectrum of cases that fall within the public-nuisance rubric. In the present case, both the types of remedies sought and the types of interests implicated differ significantly from those involved in Clancy and, accordingly, invocation of the strict rules requiring the automatic disqualification of criminal prosecutors is unwarranted.

Slip op. at 17.

The opinion has this passage on contingency-fee arrangements in "ordinary civil cases":

As set forth above, neutrality is a critical concern in criminal prosecutions because of the important constitutional liberty interests at stake. On the other hand, in ordinary civil cases, we do not require neutrality when the government acts as an ordinary party to a controversy, simply enforcing its own contract and property rights against individuals and entities that allegedly have infringed upon those interests. Indeed, as discussed above, we specifically observed in Clancy that the government was not precluded from engaging private counsel on a contingent-fee basis in an ordinary civil case. Thus, for example, public entities may employ private counsel on such a basis to litigate a tort action involving damage to government property, or to prosecute other actions in which the governmental entity’s interests in the litigation are those of an ordinary party, rather than those of the public. (Clancy, supra, 39 Cal.3d at p. 748.)

The present case falls between these two extremes on the spectrum of neutrality required of a government attorney.

Id. at 17 (emphasis added).  Depending on the relief sought, a UCL public prosecutor action could conceivably be held to "fall between these two extremes on the spectrum."  But the opinion is carefully worded to focus on public nuisance cases.  While obviously of critical importance for those cases, the opinion is something less of a watershed than it might have been.

The Recorder reported yesterday afternoon that "Cities and Counties Can Use Contingency Lawyers, State Justices Rule" (subscription).  The San Francisco Chronicle also reports: "Court: Private lawyers can help governments sue."

BREAKING NEWS: Supreme Court to hand down County of Santa Clara v. Superior Court (ARCO) on Monday

The Supreme Court announced today that it will be handing down its opinion in County of Santa Clara v. Superior Court (Atlantic Richfield Co.), no. S163681, on Monday at 10:00 a.m.  This is the case addressing whether public entities may retain outside attorneys on a contingency-fee basis.  My report on the oral argument, which took place on May 5, 2010, is at this link.

When the opinion is posted, it will be available here:

• County of Santa Clara v. Superior Court (Atlantic Richfield Co.), ___ Cal.4th ___ (Jul. 26, 2010)

UPDATE: The broken link in the citation above has been fixed.

"Defending the Class Action Trial"

Monday's Daily Journal had an interesting Perspective article, "Defending the Class Action Trial" (link not available), by attorney James Donato of Shearman & Sterling in San Francisco.  It begins:

Class action trials. It is probably safe to say that more lawyers have seen a double rainbow or climbed Mt. Everest than have tried a class action case. Most practice guides offer little or no commentary on the unique trial issues that can arise in class cases.

The article goes on to discuss (from a defense perspective, as the title promises) some of those issues, including "how to explain the class action to the jury," "the absence of a strong plaintiff representative at trial," and "the predominance of live witnesses on the defense side."  For plaintiffs' attorneys, the lesson is to be sure you make a strong showing of aggrieved plaintiff-side witnesses. 

Second Circuit strikes down no-class-action arbitration clause under California law: Fensterstock v. Education Finance Partners

In Fensterstock v. Education Finance Partners, ___ F.3d ___ (2d Cir. Jul. 12, 2010), the Second Circuit, applying California law (including Discover Bank), struck down a no-class-action arbitration clause as unconscionable.  

The court invalidated the entire arbitration clause, holding that under the U.S. Supreme Court's recent decision in Stolt-Neilsen, the court had "no authority to order class-based arbitration" unless the contract authorized it.  Slip op. at 31.  Because the contract did not authorize class arbitration (on the contrary, the contract was silent on that topic once the unconscionable class action ban was excised), the class action could not proceed in arbitration and would have to proceed in the district court instead.  Id. at 31-32. 

[HT: Blawgletter]  UPDATE:  There was an error in the link to the opinion, which has been fixed. 

BREAKING NEWS: Third District Court of Appeal Justice Tani Cantil-Sakauye Nominated by Schwarzenegger to Supreme Court

Governor Schwarzenegger has just announced his nomination of Third District Court of Appeal Justice Tani Cantil-Sakauye to succeed Ronald M. George as Chief Justice of the California Supreme Court.  Here is the official press release, and here is Justice Cantil-Sakauye's profile.  The Los Angeles Times has this article on the news and the Sacramento Bee has this report. 

The press release says that she attended U.C. Davis School of Law, which is also my alma mater!

Hat tip to Southern California Appellate News, who had it first, and to JM for passing it along.

UPDATE:  Nate Smith of Southern California Appellate News included Justice Cantil-Sakauye on his short list last week based on three factors: (1) Schwarzenegger had appointed her to the Court of Appeal (which addresses his need to make a nomination very quickly); (2) she has court administration experience, having served on the Judicial Council and on various administrative committees; and (3) she is a Republican.  Nice going, Nate! 

Third Circuit class settlement opinion: Sullivan v. DB Investments, Inc.

In Sullivan v. DB Investments, Inc., ___ F.3d ___, 2010 WL 2736947 (3d Cir. Jul. 13, 2010), the Third Circuit (with one judge concurring only in the disposition) reversed an order granting final approval of a nationwide settlement in an antitrust class action.  The majority's quarrel was with certification of the settlement class under the standards set forth in In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 316 (3d Cir. 2008), and in particular with certification of a nationwide class of indirect purchaser plaintiffs for settlement purposes:

In short, this is not a case in which a class of plaintiffs possesses numerous disparate claims but shares an overriding common cause of action under a common body of law. Instead, all parties agree that the claims within the indirect purchaser class implicate the law in every jurisdiction in the nation and that no jurisdiction provides a claim shared by all, or even by a majority, of the class members. These variations in state antitrust law are not trivial. They represent fundamental policy differences among the several states, and they are in consequence as different as it is possible to be, with some states giving substantive antitrust rights to indirect purchasers, other states giving more limited rights, and others denying such rights altogether.

....  The natural result of those differences is that there can be no certification of a nationwide class of state indirect purchaser plaintiffs because there is no common question of law or material fact.

Slip op. at 31-33 (footnote omitted). 

Notwithstanding that language, the majority offers a caveat: "Our holding today is not a repudiation of all nationwide class actions based upon state law." Id. at 41.  Later in the opinion, the majority suggests that the antitrust and consumer protection statutes in a more limited number of states [may be] sufficiently similar that common issues of law or fact would predominate with respect to plaintiffs in those jurisdictions."  Id. at 47.  The opinion also reverses certification of a nationwide settlement class for injunctive relief under Rule 23(b)(2), holding that the indirect purchasers lacked standing to seek an injunction because they faced no threat of future harm.  See id. at 50-55.

The decision has garnered a fair amount of press coverage.  The National Law Journal reported on July 14, 2010 that "3rd Circuit Tosses $275 Million Antitrust Deal in De Beers Case." 

I wonder, though, what the objector has really accomplished here.  The majority opinion contains a lengthy footnote suggesting that it could be difficult to attain class certification of any indirect purchaser claims, either for litigation or settlement purposes, in this particular case.  Slip. op. at 45-47 n.17.  If the settlement is scuttled, or if class certification is ultimately denied, then thanks to the objector, no indirect purchasers—even those in states whose laws permit them to recover—will gain anything (unless they file thousands of individual actions).  So the objector has done those purchasers more harm than good.  What's more, no settlement fund or fees award will be created from which to compensate the objector's counsel if this happens. 

Objectors can and should challenge inadequate settlements and attempt to enhance the class members' recovery in appropriate cases.  But attacking the certification component of the final approval order is not a productive way to do that because of the risks of such a line of attack, which this case exemplifies.  It would make sense only if the objector thinks that no possible settlement or judgment could appropriately compensate the class.  In other words, objectors (and perhaps more importantly, their counsel) should be careful what they wish for. 

Class certification order in Chavez v. Blue Sky Natural Beverage Co. published in F.R.D.

Judge Walker's recent nationwide class certification ruling is now available on Westlaw and has been assigned a Federal Rules Decisions citation:  Chavez v. Blue Sky Natural Beverage Co., ___ F.R.D. ___, 2010 WL 2528525 (N.D. Cal. 2010).  My earlier blog post on this decision is here.

New UCL "unlawful" prong decision: Nelson v. Pearson Ford Co.

In Nelson v. Pearson Ford Co., ___ Cal.App.4th ___ (Jul. 15, 2010), the Court of Appeal (Fourth Appellate District, Division One) addressed a number of interesting UCL-related issues.  The most interesting one is the class representative's standing in an "unlawful" prong case.   Slip op. at 32-34.

The first 30+ pages of the opinion focus on whether the defendant auto dealer violated various provisions of the Automobile Sales Finance Act (Civ. Code §2981 et seq.) ("ASFA").  After concluding that it had, the Court of Appeal turned to the UCL and CLRA claims.  The first question was Prop. 64 standing:

Pearson Ford does not challenge the conclusion that its violations of the ASFA support Nelson's UCL claims; rather its appeal is limited to the trial court's finding that Nelson had standing to pursue claims under the UCL. Pearson Ford focuses its argument on whether Nelson suffered injury "as a result of" its unfair competition under the UCL. (Bus. & Prof. Code, § 17204.) Relying on Troyk [v. Farmers Group, Inc., 171 Cal.App.4th 1305 (2009)], Pearson Ford contends that Nelson needed to prove he would not have bought the car if he had known that the second contract: (1) charged him pre-consummation interest; (2) misstated the APR; and (3) failed to separately itemize the $250 insurance premium. We disagree.

The failure of Pearson Ford to comply with the ASFA caused Nelson to suffer an injury and lose money as to both classes because he paid pre-consummation interest (the backdating class), and paid sales tax and financing charges on the insurance premium (the insurance class). Unlike Troyk, these illegal charges violated the UCL and Pearson Ford improperly collected additional funds from Nelson. UCL causation exists because Nelson would not have paid pre-consummation interest, or sales tax and financing charges on the insurance premium had Pearson Ford complied with the ASFA. Because Nelson had standing to pursue claims under the UCL, we reject Pearson Ford's argument that the judgment in favor of both classes should be vacated to the extent it grants relief under the UCL.

Slip op. at 34 (emphasis added). 

This holding is consistent with the Tobacco II footnote explaining that "the concept of reliance" will have "no application" in many UCL cases.  In re Tobacco II Cases, 46 Cal.4th 298, 325 n.17 (2009).  In Nelson, the defendant violated the law, which meant that additional charges and incorrect interest calculations were incorporated into the plaintiff's sales contract.  This occurred wholly apart from any "reliance" by the plaintiff.  By contrast, "the lack of disclosure of proper charges, not illegal charges, violated the UCL in Troyk." Nelson, slip op. at 33.   

The Nelson opinion goes on to discuss UCL restitution (slip op. at 35-38) (worth reading); UCL rescission (slip op. at 39-40) (which it holds is not an available remedy); unclaimed residual funds under Code of Civil Procedure section 384 (slip op. at 40-42) (see this blog post for more on that topic); the CLRA (slip op. at 45-47); and 998 offers in the class action context (slip op. at 48-52). 

Southern California Appellate News speculates on possible Supreme Court nominees

Nate Scott, a Senior Attorney for the Fourth Appellate District, Division Three, is the author of Southern California Appellate News, providing "news and resources for the Southern California appellate lawyer, featuring the Second and Fourth District Courts of Appeal." 

He has two recent posts ("Replacing the Chief: The Elite Eight" and "Supreme Speculation") with thoughtful discussion of possible nominees to the California Supreme Court in place of Chief Justice George, who is retiring. 

UPDATE:  Yesterday's Recorder also has an article, "They Might Be Chief" (subscription), by Mike McKee and Cheryl Miller.  Justices Corrigan, Chin and Baxter are all mentioned in the Recorder article as possible candidates for Chief Justice. 

New UCL public prosecutor decision: People ex rel. City of Santa Monica v. Gabriel

The Court of Appeal's opinion in People ex rel. City of Santa Monica v. Gabriel, ___ Cal.App.4th ___ (Jul. 14, 2010) (Second Appellate District, Division One) has two holdings of note. 

First, sexual harassment of a residential tenant by her landlord constitutes a "business act or practice" remediable under the UCL.  Slip op. at 5-6.  Landlord-tenant sexual harassment violates several statutes and municipal ordinances, and the city attorney brought the case as a UCL "unlawful" prong claim.  See id. at 2.  (Of course, the city attorney need not worry about Prop. 64 standing or whether anyone "lost money or property" as a result of the defendant's conduct.  See Bus. & Prof. Code § 17204.) 

Second, attorneys' fees are not recoverable under the UCL, even if the "borrowed" law has a fee-shifting provision.  Slip op. at 7-10.  The Court of Appeal reached a similar conclusion last November in Davis v. Ford Motor Credit Co., 179 Cal.App.4th 581 (2009), affirming denial of a prevailing defendant's attorneys' fees motion in an "unlawful" prong case in which the "borrowed" law would have permitted fee-shifting if the action had been brought directly under that law.  Id. at 599-601.  The Gabriel opinion does not mention Davis. 

See this blog post for a discussion of the attorneys' fees holding in Davis.

Chief Justice Ronald George announces he will retire in January

News is passing across the wire that Chief Justice George has announced that he will not seek reelection in November and will retire in January.

UPDATE:  Here is the Court's official press release.  It says his last day on the bench will be January 2, 2011. 

"Price-Fixing Defense Gets Thumbs Down"

Yesterday's Daily Journal had a story (no link available) by Laura Ernde on Monday's Supreme Court ruling in Clayworth v. Pfizer, Inc., ___ Cal.4th ___ (Jul. 12, 2010).  An excerpt:

The ruling could prompt more retailers to file price-fixing suits against manufacturers of all kinds of products, said Craig Corbitt, a partner in the San Francisco office of Zelle Hofmann Voelbel & Mason. Corbitt wrote a friend-of-the-court brief on behalf of Pharmacists Planning Services Inc. in support of the plaintiffs.

"This now allows intermediaries such as the pharmacies and other retailers who buy from manufacturers and resell to the public to pursue their own claims," he said. "There should be an enhancement of antitrust enforcement in California."

....

The ruling will help consumers pursue class action lawsuits brought under the Unfair Competition Law (UCL), said Kimberly Kralowec of the Kralowec Law Group in San Francisco, who had written a friend-of-the-court brief on behalf of the Consumer Attorneys of California.

The court held that plaintiffs can seek an injunction under the UCL even if they aren't necessarily entitled to restitution, which was in question since the passage of Proposition 64, a 2004 ballot initiative that limited private lawsuits against companies.

"We argued in our amicus brief that a right to get an injunction shouldn't be tied in that way to the right to recover restitution," Kralowec said.

To give credit where credit is due, Pamela Parker of Robbins Geller Rudman & Dowd really should have been mentioned as the person who wrote CAOC's brief. While my name also appeared on the brief, the majority of the work was hers and she did a great job on it.

Yesterday's Recorder also had an article by Mike McKee, "No Pass-0n Defense in California Antitrust Cases" (subscription). 

More thoughts on Clayworth v. Pfizer

Another notable part of Clayworth v. Pfizer, Inc., ___ Cal.4th ___ (Jul. 12, 2010) is its confirmation that plaintiffs who did not purchase a product "directly" from the defendant may nonetheless bring a UCL claim and recover restitution if the plaintiff's loss can be traced to the defendant's pockets.  This was an issue in some cases involving purchases of products from retail intermediaries, until the Court of Appeal rejected the argument in Shersher v. Superior Court, 154 Cal.App.4th 1491 (2007) (discussed in this blog post).

The Supreme Court adopted the rule of Shersher in Clayworth:

While the voters clearly intended to restrict UCL standing, they just as plainly preserved standing for those who had had business dealings with a defendant and had lost money or property as a result of the defendant’s unfair business practices. (Prop. 64, § 1, subds. (b), (d); see § 17204.) Under that standard, Pharmacies have established standing. To distribute their pharmaceuticals, Manufacturers depend on a network of wholesalers and retailers. Pharmacies acted as retailers for Manufacturers’ drugs and thus had indirect business dealings with Manufacturers. (See Shersher v. Superior Court (2007) 154 Cal.App.4th 1491, 1499-1500 [indirect purchases may support UCL standing].) They lost money: the overcharges they paid. (See Hall v. Time Inc. (2008) 158 Cal.App.4th 847, 854 [§ 17204 standard is satisfied when the plaintiff has “expended money due to the defendant’s acts of unfair competition”].) Finally, that loss was the result of an unfair business practice: Pharmacies paid more than they otherwise would have because of a price-fixing conspiracy in violation of state law. The voters’ intent that under Proposition 64 suits be limited to those who suffer injury in fact is satisfied here. (See Chattanooga Foundry v. Atlanta, supra, 203 U.S. at p. 396 [“A person whose property is diminished by a payment of money wrongfully induced is injured in his property.”].)

Slip op. at 38-39 (emphasis added).

Supreme Court hands down significant UCL decision: Clayworth v. Pfizer

The Supreme Court's decision in Clayworth v. Pfizer is now up.  Clayworth v. Pfizer, Inc., ___ Cal.4th ____ (Jul. 12, 2010). 

After discussing the Cartwright Act claim in depth, the Court turned to the UCL, and confirmed that, to have standing to seek an injunction, the plaintiff need not have suffered a loss that would be recoverable as restitution: 

The Court of Appeal held Pharmacies were barred from seeking injunctive relief because, it concluded, they had suffered no monetary loss. To the extent this holding rests on the conclusion Pharmacies lacked standing under section 17204, it is erroneous; as discussed ante, Pharmacies have standing. To the extent the holding rests on the conclusion that even if Pharmacies had standing, they could not seek injunctive relief unless they could also seek restitution, it similarly is erroneous. Section 17203 makes injunctive relief “the primary form of relief available under the UCL,” while restitution is merely “ancillary.” (In re Tobacco II Cases (2009) 46 Cal.4th 298, 319.) Nothing in the statute’s language conditions a court’s authority to order injunctive relief on the need in a given case to also order restitution. Accordingly, the right to seek injunctive relief under section 17203 is not dependent on the right to seek restitution; the two are wholly independent remedies. (See ABC Internat. Traders, Inc. v. Matsushita Electric Corp. (1997) 14 Cal.4th 1247, 1268 [§ 17203 “contains . . . no language of condition linking injunctive and restitutionary relief”]; Prata v. Superior Court (2001) 91 Cal.App.4th 1128, 1139 [plaintiff could pursue injunctive relief even though restitution was unavailable].)

Slip op. at 41. This overrules a number of decisions, such as Buckland and Citizens for Humanity, holding that the only type of monetary loss that can confer standing is a restitutionary loss. This is going to be very important for preserving competitor vs. competitor UCL cases.

I'm still reviewing the opinion and hope to have more on it later.  The Court also held that the pass-on defense does not bar either the Cartwright Act or the UCL claims. 

Clayworth v. Pfizer opinion to be handed down Monday

Many thanks to the blog reader who emailed to advise that the Supreme Court's opinion in Clayworth v. Pfizer, Inc., no. S166435, will be handed down on Monday at 10:00 a.m., according to the Notice of Forthcoming Filings posted today. 

When it is issued, the opinion should be available at this link:

• Clayworth v. Pfizer, Inc., ___ Cal.4th ___ (Jul. 12, 2010).

New class settlement decision: Munoz v. BCI Coca-Cola Bottling Co.

In Munoz v. BCI Coca-Cola Bottling Co., ___ Cal.App.4th ___ (Jun. 10, 2010; pub. ord. Jul. 2, 2010), the Court of Appeal (Second Appellate District, Division Eight) affirmed an order granting final approval of a class action settlement of wage and hour claims. The opinion's discussion of Kullar is of interest.

MCLE teleseminar on Dukes v. Wal-Mart

On Thursdsay, July 22, 2010 at noon, the State Bar's Antitrust and Unfair Competition Law Section will present a one-hour teleseminar, "The Potential Impact of Dukes on Class Certification in Antitrust and UCL Cases in the Ninth Circuit."  While Dukes is an employment case, it makes law that can be expected to impact class certification in the federal courts generally.  This teleseminar will discuss implications for UCL and antitrust class actions in particular. 

I will be a speaker, along with Craig Corbitt of Zelle Hofmann, Ken O'Rourke of O'Melveny & Myers, and John Landry of Sheppard Mullin (moderator). 

The teleseminar offers 1 hour of MCLE credit and costs $45.