The UCL Practitioner

Supreme Court hands down new UCL preemption opinion: Solus Industrial Innovations, LLC v. Superior Court

Yesterday, the Supreme Court reversed the Court of Appeal and held that an action by the Orange County District Attorney for civil penalties under the UCL was not preempted by Fed/OSHA (the federal Occupational Safety and Health Act (29 U.S.C. § 651 et seq.)).  Solus Industrial Innovations, LLC v. Superior Court, ___ Cal.5th ___ (Feb. 8, 2018). The ruling allows public prosecutors to invoke the UCL to pursue civil penalties and injunctive relief against employers who fail to comply with workplace safety regulations.  As reported in the San Francisco Chronicle, "State Supreme Court unanimous ruling allows big fines for unsafe workplaces."

This case has rather a long history.  In 2014, I wrote this blog post on the Court of Appeal's original opinion, which, in the Supreme Court's words, "was based in part on a misapprehension concerning the date that unfair competition penalty provisions were enacted compared with the date the federal Secretary of Labor approved California’s occupational safety and health plan."  Solus, slip op. at 4.  

In early 2015, the Supreme Court issued a "grant and transfer" order, directing the Court of Appeal to reconsider.  It did so, and in September 2015, handed down a second opinion in which it again found the claims preempted.  Thereafter, the Supreme Court granted plenary review. 

For those of us who follow the UCL and FAL, but who may not be especially interested in Fed/OSHA preemption issues, here are the passages of greatest interest: 

The UCL concerns unfair competition, a term that “mean[s] and include[s] any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by [the false advertising law].”  (Bus. & Prof. Code, § 17200.)  The purpose of the UCL “is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.”  (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 949.)  As we have said, “the act provides an equitable means through which both public prosecutors and private individuals can bring suit to prevent unfair business practices and restore money or property to victims of these practices.”  (Zhang v. Superior Court (2013) 57 Cal.4th 364, 371, italics added.)  The FAL, for its part, makes actionable “untrue or misleading” statements made to “induce the public to enter into any obligation” to purchase goods and services.  (Bus. & Prof. Code, § 17500.)  Actions to enforce the UCL or FAL, which may be brought by government officials and by individuals who have suffered injury in fact (Bus. & Prof. Code, § 17203), address the “ ‘ “overarching legislative concern . . . to provide a streamlined procedure for the prevention of ongoing or threatened acts of unfair competition.”  [Citation.]’ ”  (Zhang, supra, 57 Cal.4th at p. 371, italics added.)  And the remedies are “cumulative . . . to the remedies or penalties available under all other laws of this state.”  (Bus. & Prof. Code, § 17205.) 

As noted above, under state law, these actions are not considered on their face to be a means of enforcing the underlying law.  “ ‘By proscribing “any unlawful” business practice, “[the UCL] ‘borrows’ violations of other laws and treats them as unlawful practices” that the [UCL] makes independently actionable.  [Citations.]’ ”  (Rose v. Bank of America, N.A. (2013) 57 Cal.4th 390, 396.)  We have explained that “by borrowing requirements from other statutes, the UCL does not serve as a mere enforcement mechanism.  It provides its own distinct and limited equitable remedies for unlawful business practices, using other laws only to define what is ‘unlawful.’  [Citation.]  The UCL reflects the Legislature’s intent to discourage business practices that confer unfair advantages in the marketplace to the detriment of both consumers and law-abiding competitors.”  (Id. at p. 397; see People ex rel. Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772, 783 [Federal Aviation Administration Act does not on its face preempt UCL claims against motor carriers for misclassification of drivers]; In re Tobacco Cases II (2007) 41 Cal.4th 1257, 1272 [a federal law governing cigarette sales to minors on its face did not expressly preempt the UCL, which “is a law of general application, and it is not based on concerns about smoking and health”]; Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1150; Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180; Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 560, 566 576.)  Thus, the UCL and FAL are laws of general application.

We acknowledge that in some instances, a UCL claim may fall within a field of preemption.  For example, in In re Tobacco Cases II, supra, 41 Cal.4th 1257, a UCL claim based on advertising activities alleged to violate Penal Code section 308 (prohibiting sale of tobacco products to minors and possession of such products by minors) was preempted as applied under the particular terms of a federal law governing cigarette labeling and advertising.  (Id. at pp. 1272-1273.)  Under the federal law involved, preemption turned on whether the particular UCL claim would impose a duty necessarily and inherently based on concerns about smoking and health.  (Id. at p. 1273.)  But here, the UCL and FAL claims are based on standards set forth in an approved state plan, and which therefore preempt any federal standards.  Because these claims do not impose any duty on employers that is subject to federal preemption, they do not come within the principles articulated in Tobacco Cases II.

Slip op. at 25-27.  I see no new ground broken here. 

Ninth Circuit affirms approval of Trump University settlement: Sampson v. Trump University LLC

Yesterday, the Ninth Circuit affirmed the well-publicized $25 million settlement in the fraud and false advertising class action against Trump University.  Sampson v. Trump University, LLC, ___ F.3d ___ (Feb. 6, 2018). 

After the class was certified, the class members were provided with notice and an opportunity to opt out.  Slip op. at 7-8.  Thereafter, the case settled.  Id. at 9-10.  The class members were then given a second notice, summarizing the settlement terms and providing an opportunity to object, but no second opportunity to opt out.  Id.  The objector argued that the original notice led her to believe that a second opt-out opportunity would be afforded.  Id. at 10.  She also argued that as a matter of due process, she should have been given a second chance to opt out.  Id. at 18. 

The Ninth Circuit disagreed with both contentions.  Id. at 12-20.

On the due process issue, the panel pronounced: "Our precedent squarely forecloses this argument."  Id. at 18-19 (citing Officers for Justice v. Civil Service Commission, 688 F.2d 615, 622-23 (9th Cir. 1982)).  "[W]hile some class action settlements allow a second opt-out opportunity, 'they are unusual and probably result from the bargaining strength of the class negotiators[]' rather than any due process concerns." Id. at 19 (quoting Officers for Justice, 688 F.2d at 635).

New opinion on class action objector standing: Hernandez v. Restoration Hardware, Inc.

As briefly mentioned in this (updated) blog post, the California Supreme Court ruled last week that to have standing to appeal a final judgment, a class action objector must formally intervene in the litigation.  Hernandez v. Restoration Hardware, Inc., ___ Cal.5th ___ (Jan. 29, 2018).  The Court discussed a couple of different procedural ways to accomplish this.  Id., slip op. at 7-8.  In so holding, the Court declined to overrule a 75-year-old precedent authored by Justice Traynor.  Id. at 8-15 (citing Eggert v. Pacific States S. & L. Co., 20 Cal.2d 199 (1942)). 

Last week, Bloomberg Law reported that "California Won't Join Federal Courts on Objector Appeals," and quoted me as saying that Hernandez would "preserve 'the ability of those with legitimate objections to raise them and if necessary, to appeal.'"  I do think it will, and that the opinion strikes a fair balance between the need to deter frivolous objections while also enabling valid ones to be presented.  (Having recently represented an objector for the first time in my career, while also having opposed many a frivolous objection, I can see both sides of this question.)  

In Hernandez, the Supreme Court had this to say about deterring frivolous objections: 

Meritless objections “can disrupt settlements by requiring class counsel to expend resources fighting appeals, and, more importantly, delaying the point at which settlements become final.”  (Fitzpatrick, The End of Objector Blackmail? (2009) 62 Vand. L.Rev. 1623, 1634.)  These same objectors who appear and object to proceedings in different class actions—also known as “professional objectors,” are thought to harm the class members whose interests they claim to protect.  “First, professional objectors’ almost invariably groundless objections delay the provision of relief to class members who, in most instances, have already waited years for resolution.  Second, by feeding off the fees earned by class counsel who took the risk of suing defendants on a purely contingent basis, as is the normal practice in class actions, professional objectors create a disincentive for class counsel to take on such risky matters.  That disincentive clashes with the public interest, repeatedly recognized by courts, to incentivize class counsel to handle such cases.”  (Greenberg, Keeping the Flies out of the Ointment:  Restricting Objectors to Class Action Settlements (2010) 84 St. John’s L.Rev. 949, 951.) 

Slip op. at 15 (hyperlinks added). 

"VW class counsel: Nationwide deal won’t be undone by 9th Circuit’s Hyundai ruling"

This is a very interesting article by Alison Frankel about the Ninth Circuit's recent opinion in In re Hyundai and Kia Fuel Economy Litigation, ___ F.3d ___ (9th Cir. Jan. 23, 2018) (discussed briefly in this blog post). 

Among other things, the article says that "proponents of the settlement intend to ask the full 9th Circuit to rehear the case." It also quotes a statement by Elizabeth Cabraser explaining the myriad reasons why the Hyundai case shouldn't derail the VW emissions settlements.

Alison Frankel also wrote a second article about the impact of Hyundai a few days after her earlier one.

(h/t: How Appealing)

New CLRA and UCL opinion: Gutierrez v. CarMax Auto Superstores California

On Tuesday, the Court of Appeal (Fifth Appellate District) handed down a new opinion, Gutierrez v. CarMax Auto Superstores California, ___ Cal.App.5th ___ (Jan. 30, 2018), which contains a lengthy and interesting discussion of the CLRA.

The complaint alleged that the defendant sold plaintiff a used car without disclosing that important safety systems in the car were defective and subject to an active recall.  Slip op. at 3-5.  After considering and rejecting the breach of implied warranty claim (id. at 12-14), the Court turned to the CLRA.  

The question presented was whether certain subsections of the CLRA's laundry list of prohibited acts--namely, those prohibiting specified types of "representations"--encompass non-disclosures in addition to affirmative misstatements.  Id. at 14 ("whether concealment, omissions or failures to disclose are prohibited").

Following a lengthy analysis, the Court arrived at the following answer (with which the dissenting justice disagreed):

Based on the statutory text, legislative history (which includes the National Consumer Act), the judicial decisions and statutes that existed when the CLRA was enacted, the subsequent case law, and the many amendments to the CLRA from 1975 through 2016, we join Klein, McAdams and the other cases concluding that failures to disclose material facts are actionable under the CLRA.  In particular, we conclude paragraphs (5), (7) and (9) of subdivision (a) of Civil Code section 1770 proscribe material omissions in certain situations.

Id. at 26-27 (emphasis added) (citing Klein v. Chevron U.S.A., Inc., 202 Cal.App.4th 1342 (2012); McAdams v. Monier, Inc., 182 Cal.App.4th 174 (2010); Bardin v. DaimlerChrysler Corp., 136 Cal.App.4th 1255 (2006)).  (These three cases are discussed in these three blog posts.) 

The Court then went on to hold that not all material omissions are actionable--a conservative construction of the CLRA that I think is inconsistent with the Act's purposes (and is supported by only some past opinions):

Not every omission or nondisclosure of fact is actionable.  Consequently, we must adopt a test identifying which omissions or nondisclosures fall within the scope of the CLRA.  Stating that test in general terms, we conclude an omission is actionable under the CLRA if the omitted fact is (1) “contrary to a [material] representation actually made by the defendant” or (2) is “a fact the defendant was obliged to disclose.”  (Daugherty, supra, 144 Cal.App.4th at p. 835; see Rubenstein, supra, 14 Cal.App.5th at p. 881; Collins v. eMachines, Inc. (2011) 202 Cal.App.4th 249, 255 (Collins).) 

Id. at 27. 

The Court then elaborated on "the second type of omitted fact and the question of whether CarMax had a duty to disclose a fact not made known to the plaintiff."  Id.

In Collins, the court identified four situations in which a failure to disclose a fact constitutes a deceptive practice actionable under the CLRA.  (Collins, supra, 202 Cal.App.4th at p. 255.)  Those situations arise when the defendant is plaintiff’s fiduciary, when the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff, and when the defendant actively conceals a material fact.  In addition, the duty to disclose exists “when the defendant makes partial representations that are misleading because some other material fact has not been disclosed.”  (Ibid.)  In the context of the CLRA, a fact is “material” if a reasonable consumer would deem it important in determining how to act in the transaction at issue.  (Collins, supra, at p. 256.)  In other words, a defendant has a duty to disclose when the fact is known to the defendant and the failure to disclose it is “‘misleading in light of other facts … that [the defendant] did disclose.’”  (Klein, supra, 202 Cal.App.4th at p. 1382; see Civ. Code, § 1710, subd. 3.) 

Id. (See this blog post for a discussion of Collins.)

The next section of the opinion addresses safety-related defects, à la Bardin and Daugherty v. American Honda Motor Co., 144 Cal.App.4th 824 (2006) (discussed here).  The Court held that a defendant has a duty to disclose a "material" safety-related defect if the defendant had exclusive knowledge of the defect or if the defendant "actively concealed" it.  Id. at 29-30.  Two other circumstances creating a duty to disclose such a defect would be if a fiduciary relationship exists or if the defendant "makes partial misrepresentations but also suppresses a material fact."  Id. at 30 (citation omitted). 

The Court then turned to the complaint, holding that it alleged facts sufficient to support the conclusion that the defendant had "made partial representations" about the vehicle's (defective) systems, and that these were "likely to mislead" because the defendant had concealed other information about the systems (namely, that they were defective and the subject of a recall).  These facts, in turn, stated an actionable CLRA violation (and a UCL "unlawful" prong violation).  Id. at 30-33, 36-37. 

However, "causes of action under the CLRA and UCL must be stated with reasonable particularity, which is a more lenient pleading standard than is applied to common law fraud claims."  Id. at 31.  (I believe this rule would apply only to CLRA and UCL violations sounding in fraud.  Many UCL "unlawful" prong claims do not.)

The dissenting justice would have held that in cases involving sales of goods under warranty, the CLRA should not be construed to prohibit non-disclosures (with the exceptions stated in the CLRA's text):

The best way to harmonize the CLRA with implied warranty jurisprudence is to adopt the plain meaning of “representing” in the CLRA.  Implied warranty law addresses the situation of goods failing to meet minimum levels of merchantability, regardless of what the seller did or did not say; and the CLRA, with its threat of punitive damages, steps in only when the seller acts deceptively.

By creating expansive omission-based liability under the CLRA, the majority is supplanting implied warranty law and upsetting the delicate balance it achieves.

....  In sum, the CLRA applies only to misrepresentations and specific, inapplicable omissions. Since the operative complaint does not successfully allege any affirmative misrepresentations under CLRA, the sustaining of the demurrer should be upheld.

Id., dissenting opn. of Poochigian, J., slip op. at 7-8 (footnote omitted).

These are all very interesting issues.  I could see the Supreme Court becoming involved at some point. 

"Dating app can't base fee on age, court decides"

This morning's print issue of the Daily Journal has an article, including my photo, on my Unruh Act case for age discrimination against Tinder.  A similar article is available to subscribers on the Daily Journal's website.  An excerpt:

In a loss for Tinder Inc., the 2nd District Court of Appeal has swiped right to approve a putative class action alleging the popular dating app discriminates by charging users over 30 more money.  .... 

"The Court of Appeal was very careful to adhere to California Supreme Court precedent on the Unruh Act," Kralowec said.  Other opinions have supported differential treatment, but those decisions are justified by a social policy, the appellate court observed. For example, laws allow for seniors and children to get discounts in certain situations. 

"Law recognizes that those groups have reduced income. Children can't work. But there aren't similar statutory enactments ... to protect adults under 30," said Kralowec.

For more on the UCL aspects of the case, see this blog post.  A link to the opinion is available here:  Candelore v. Tinder, Inc., ___ Cal.App.5th ___ (Jan. 29, 2018).