The UCL Practitioner

Yesterday's Supreme Court arguments: Pineda v. Williams-Sonoma and Bruns v. E-Commerce

I attended yesterday morning's arguments, which were the first over which new Chief Justice Tani Cantil-Sakauye presided.  Associate Justice Kennard, the most senior of the associate justices, delivered a very nice welcoming address, which she said will be reported in the official reports.  She talked about the history of discrimination experienced in this country by immigrants of Filipino and other Asian descent, and said that Chief Justice Cantil-Sakauye represents the embodiment of the American dream.

The Clerk, Mr. Ohlrich, told us before the justices took the bench that they had received an email Tuesday from former Chief Justice Ronald George, who is currently vacationing in the antarctic, heading soon to Chile.  (Will this impact the timing of the eagerly-anticipated opinion in the Kwikset case, or the other cases in which Chief Justice George heard arguments last year?  I don't know.  If anyone deserves a vacation, he does!)

My purpose in attending the arguments today was not to provide the kinds of reports that I normally do.  But I will briefly share some of my thoughts on the first two cases on the calendar.

The first case argued was Pineda v. Williams-Sonoma Stores, Inc., no. S178241, which raises this issue:

Does a retailer violate the Song-Beverly Credit Card Act of 1971 (Civ. Code, § 1747 et seq.), which prohibits retailers from recording a customer’s “personal identification information” when the customer uses a credit card in a transaction, by recording a customer’s zip code for the purpose of later using it and the customer’s name to obtain the customer’s address through a reverse search database?

The trial court and the Court of Appeal both answered "no."  In the Supreme Court, the questioning largely focused on whether part of a person's address (namely, the zip code) was "personal identification information," which "means information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder's address and telephone number."  Civ. Code § 1747.08(b) (emphasis added). 

Based on the questions, I think most of the justices are leaning in favor of the plaintiff on this issue.   These days, a person's name plus their zip code is enough information to find out their address, which is precisely what the Legislature meant to prevent retailers from obtaining from credit card customers.  The justices' questions revealed keen interest not only in the plain text but also the legislative history.  Justices Kennard and Werdegar both quoted from legislative history reports during the argument. 

The only defense point that seemed to make any headway was offered by counsel for the Gap, participating as amicus curiae.  She explained that the Gap collects zip codes from customers but does not use them to obtain addresses.  Instead, the Gap uses them for market analysis and making decisions such as where to open new stores.  She said that in the twenty years since the statute was enacted, no enforcement actions were ever brought on the theory that collecting zip codes was unlawful, and no judicial decision had ever so held.  She argued it would be unfair (perhaps rising to the level of a due process violation) to impose civil penalties on retailers under such circumstances. 

(This reminded me of the Supreme Court's decision some years ago in Kearney v. Salomon Smith Barney, Inc. , 39 Cal.4th 95 (2006).  There, the Court held that California law prohibited recording telephone calls without both parties' consent (and that California law trumped Georgia law, which permitted recording with just one party's consent).  The Court further held, however, that this ruling would apply only to future conduct.) 

That argument was well presented and the justices were definitely listening to it.  On balance, however, I think the questioning suggests that the plaintiff has a very good chance of prevailing in this case.

The second case argued was Bruns v. E-Commerce Exchange, Inc., no. S172684, which presents this issue:

Does a stay of discovery constitute a stay of the action within the meaning of Code of Civil Procedure section 583.340, subdivision (c), such that the period during which discovery was stayed should be excluded in determining the time within which the action had to be brought to trial?

I did not focus on this case when the Court of Appeal decided it in March 2009, but it could be highly relevant in class action litigation.  The action itself was a putative class action, one of several coordinated actions pending in Los Angeles County Superior Court.  The Court of Appeal opinion details a series of stays, some of discovery, some of law and motion, some of all proceedings, beginning almost immediately after the case was filed.  Bruns v. E-Commerce Exchange, Inc., 72 Cal.App.4th 488 (2009).

Discovery stays are not unusual in complex litigation, so the Supreme Court's decision could impact how the five-year rule is calculated in many class action cases.  Based on the questioning (which was somewhat quieter than in Pineda), I think many of the justices were open to the argument that periods during which a case is partially stayed, and discovery cannot be conducted, should not be counted as part of the five years. 

Oral argument preview: AT&T Mobility LLC v. Concepcion

Today at 10:00 a.m. Eastern, the U.S. Supreme Court will hear oral argument in AT&T Mobility LLC v. Concepcion, no. 09-893.   AT&T's reply brief (which consists mainly of a frontal attack against the validity of Discover Bank) was only just filed eleven days ago, on October 29, 2010. 

Transcripts of U.S. Supreme Court arguments are generally available within hours after the argument takes place.  When it is posted online, the argument transcript in Concepcion should be available at this link.  (Also, here's the link to the main argument transcripts page.)

Sunday's San Francisco Chronicle had an opinion piece called "Supreme Court case could end class action suits," and on November 5 the Los Angeles Times reported that "Consumers' right to file class actions is in danger."  The American Bar Association's preview of the case summarizes the proceedings and holdings below and the arguments made in the briefs.   [Links via SCOTUSblog.]

Oral argument report: Kwikset Corp. v. Superior Court (Benson)

The Supreme Court heard oral argument on November 3, 2010 in Kwikset Corp. v. Superior Court (Benson), no. S171845.  Jonathan W. Cuneo of Cuneo Gilbert & DaLuca, LLP in Washington, D.C. argued for the plaintiffs.  Fredrick A. Rafeedie of Jones, Bell, Abbott, Fleming & Fitzgerald LLP in Los Angeles argued for the defendant. 

Mr. Cuneo began: This Court must reverse the Court of Appeal to confirm the power of Californians who every day vote with their wallets by choosing products in whole or in part based on how the products were made.  Consumers care about process as well as the final result.

Justice Werdegar:  Our concern is that after Proposition 64 it’s required that the consumer has lost money or property.  If the consumer buys a product, and it works as it’s supposed to work, and it’s not defective, even if the consumer preferred a made in the USA product how would they have lost money? 

Cuneo: People buy things for lots of reasons.  Sometimes to support a social cause.

Justice Corrigan:  I agree, but it seems a more tenuous argument when you’re talking about locksets.  Cuneo:  It applies across the board.  There are many people who want to purchase products made in the US. 

Justice Corrigan:  What if there are two locksets, side by side, they both cost $50.  They are the same except one is labeled made in the USA.  How have I lost money or property?

Cuneo:  Because you made a purchase decision based on a misrepresentation.  You have lost $50.  Justice Moreno:  Is that the measure of restitution?  Cuneo:  No.  Justice Moreno:  How would you measure it?  Cuneo: Restitution under the UCL is flexible.  In this case we never sought rescission.  Justice Moreno:  You’re not seeking the full amount of out-of-pocket loss?  Cuneo:  Absolutely not.  One of the beauties of the UCL is that it allows the judge to fashion an appropriate remedy. That is what happened here.  [And he described the three forms of injunctive relief ordered by the trial court, described at 171 Cal.App.4th at 649.]  This discretion is a significant limitation on the UCL’s reach.  Restitution is necessarily a flexible remedy.  Sometimes the defendant receives a benefit in circumstances in which the plaintiff is not harmed – did not pay extra.  In that case, the court has the ability to fashion injunctive relief and grant limited restitution as in this case.

Justice Kennard: What Prop. 64 says is [and she quoted it].  As I listen to your argument in response to questions from the bench, you said your client lost money when your client paid for a particular lock.  Cuneo:  Yes. Justice Kennard: But so long as your client received a lock that’s working, where’s the harm?  Cuneo:  The harm is he did not get the benefit of the bargain—which is a lockset made in America. 

Justice Kennard: So your argument is that this was fraud?  Justice Chin (interjecting):  But the locksets weren’t inferior?  Cuneo: No.  Justice Chin: They were not overpriced?  Cuneo: We are prepared to amend our complaint to allege a price differential. 

Justice Kennard:  I’m trying to find an argument that is implicit in the rest of your argument.  Is the implicit argument this:  Is it your view that that would allow defendants to make misrepresentations with impunity?  Cuneo:  Yes. 

Justice Baxter:  How much was paid for the locksets?  Let’s say $50, and the consumer relies on the representation made in the US and then discovers later that parts were not—a misrepresentation.  And let’s assume that it’s clear that you could put it on eBay and it would sell for at least what the consumer paid.  Is it your position that that’s irrelevant to your suit?  Cuneo:  I think the answer’s no.  That’s almost a man bites dog story.  Justice Baxter: Let’s say a watch represented to be a Rolex and it’s not.  Cuneo: In that case you’d be very badly damaged.  There is a category of products where you can’t tell by looking at something whether it’s been misrepresented.  Justice Baxter:  Knockoffs.  But let’s say it’s worth more or equal in value to what you paid.  Is that relevant?

Cuneo:  In the ordinary case the answer is no.  There are extreme examples, where you might have lost money or property but were not injured in fact.  If you bought a piece of costume jewelry and found out later it’s the Hope diamond.  You have lost money or property but were not injured in fact.

Justice Chin:  So injury in fact is something different from lost money or property?  Cuneo:  Yes.  In this case, both are met.  Justice Corrigan: And that’s where the issue is joined.  I don’t disagree that they suffered injury in fact.   But if those two are different, where’s the lost money or property?  Cuneo:  No, by putting down your credit card or cash, you’ve lost money. 

Justice Moreno: Is any part of our claim for ill-gotten gains vis-à-vis the defendant’s gaining a competitive advantage?  Cuneo:  Yes.  What the defendant was able to save by shifting jobs to Mexico.  The thing about this case is there’s a statute that makes it a per se offense.  People cared enough about products made in the US that the legislature enacted a statute.  Suppose your religion requires you to eat only kosher foods.  You buy a hot dog mislabeled as kosher.  You’ve lost money or property.  If one examines the language of Prop. 64, its background and what the voters were told, it supports our position.

Justice Corrigan:  With misrepresentation off the table, it’s your position that when I bought a lock, I lost money or property?  Cuneo:  In the context of Prop. 64, what lost money means is you had a business transaction with the defendant.  In your hypothetical, there would be no violation because it doesn’t meet the “as a result of” requirement.

Justice Corrigan:  In my opinion it doesn’t meet “lost money or property” either.   Cuneo:  Pre-Prop. 64 we had unusually broad standing.  Prop. 64 meant to ensure that the plaintiff had a business dealing with the defendant.  The standing requirements don’t say anything about having to prove damages.  Lots of impractical things would result from defendant’s position.  One is valuation and damages would have to be decided at the outset.  Every UCL case would turn into a trial on market pricing.  There’s nothing in the legislative history that said the consumer would be stripped of the right to sue unless they prove a defect or a price differential.  [Then he turned to an example from the ballot materials involving bottled water that had not been properly tested, but was not necessarily bad water.]  There was no indication that the water was dangerous or overpriced.  But the proponents assured the voters that that case would survive.

Justice Corrigan: Well that case could survive if someone lost money or property because of the failure to test.  Cuneo:  But there was nothing about any additional proof.  Justice Corrigan:  No—the requirements are set out in the threefold test.  Cuneo:  In your hypothetical it doesn’t pass the “as a result of” test. 

Justice Baxter:  What if we didn’t have the UCL and the plaintiff sued for restitution under the common law.  What would the result be?  Cuneo:  It’s hard to answer because we’ve had the UCL for so long.  We should not throw out the baby with the bathwater.  [At this point in the argument I felt that the question of standing was being conflated with the question of restitution and how it might be measured.]  Justice Baxter: My question is whether rescission and restitution, in their common-law form, can be obtained if there’s a material misrepresentation that’s relied on.  Cuneo:  Under those circumstances you’re positing a situation in which the streamlined remedies of the UCL, which don’t require the same showing as fraud, would be gone and that would be a significant loss to the people of California. 

That was the end of Mr. Cuneo’s opening argument.  Before Mr. Rafeedie could say anything, Justice Baxter interjected:

Justice Baxter: In that hypothetical we were just discussing, why wouldn’t a consumer who discovered the misrepresentation about made in the USA, why couldn’t that person go into court and get rescission and restitution?  Rafeedie:  I’m not sure they couldn’t do that.  That’s not a cause of action alleged in this case.  Justice Baxter:  Would it be conditioned on proof that that they paid more for the product than it was worth?  Rafeedie:  No.  It would be conditioned on returning the product.

Chief Justice George:  That’s a pretty heavy burden.  Rafeedie:  I’m not sure you would have to go to court to do that.  You could go back to the store and say I found out this product was mislabeled and get your money back.  Chief Justice George:  In some cases a legal action might be required.  Justice Corrigan:  If you had to spend money to go to court then would you have lost money or property?  Rafeedie:  Yes, if you had to spend money to go to court. 

Justice Werdegar:  The purpose of the UCL is to protect consumers and competitors by promoting fair competition.  The mislabeling in this case is unfair competition.  Consumers are motivated to buy products made in the USA.  Prop. 64 requires economic damage.  If someone buys a lockset because it was labeled made in the USA, why have they not suffered economic injury if the implication is they would not have parted with their money for that lockset?  Rafeedie: That would satisfy injury in fact but not money or property.  Justice Werdegar:  The money is gone and the consumer would not have purchased the product.  Rafeedie:  One does not necessarily lose money or property under those circumstances.  Here, plaintiffs purchased locksets and they have had no problems with them.

Justice Kennard:  What is your response to the argument that manufacturers could engage in deceit with impunity so long as the product does what it’s supposed to do?  Rafeedie:  To the extent it does involve monetary loss, consumers can bring UCL actions.  If it does not, public prosecutors can bring the action.  Justice Kennard: But here we’re dealing with Prop. 64 standing.  Is your argument that under the language of Prop. 64, the consumer has not alleged injury in fact?  Rafeedie:  No.  The Court of Appeal found injury in fact satisfied and we have not argued against that.  We argue no lost money resulted from the misrepresentation.

Justice Werdegar:  But if I allege I would not have bought this property except for the misrepresentation, why have I not suffered economic loss?  Rafeedie:  You were in the market for a lock and you got one.  Justice Werdegar:  I don’t think the UCL requires a defect. We’re looking at defective products.  Rafeedie:  The Court of Appeal’s use of the term defective, if the misrepresentations induced you to buy something. 

Justice Werdegar:  You might have paid more for the label.  If kosher is important to me, even though the hot dog is delicious and has full nutritional value, have I not suffered injury because I would not have suffered the economic loss but for the label?  Rafeedie:  Not necessarily.  It depends on the circumstances.  Maybe the label allowed the manufacturer to command a premium price. 

Justice Moreno:  Is the plaintiff allowed a claim for ill-gotten gains due to the competitive advantage gained over other competitors?  Does the consumer have a UCL claim for that profit?  Rafeedie:  No, the consumer does not.  Justice Chin:  But a competitor might?  Rafeedie: Yes, a competitor might, but not a consumer. 

Chief Justice George:  Is your answer the same if the claim is a product was labeled organically grown?  Is it inconsequential that it was falsely labeled? Rafeedie: Yes.  Justice Chin:  Unless a premium was paid.  Rafeedie: Yes.

Justice Corrigan:  If you lost money or property returning the item; because you had to consult with a spiritual adviser because you ate non-kosher food; if you got sick.  There are lots of ways a consumer could lose money or property.  Rafeedie:  I agree.  Not necessarily limited to paying a premium.  That’s one type.  There might be consequential damages, conceivably lost profits.  These are the sorts of things fraud law allows recovery for. 

Chief Justice George:  There is a recent case that this Court decided called Bronco Wine.  In that case wine was labeled as from Napa Valley when it should have been labeled Lodi.  Assume the wine was just as good.  How would you recover restitution?  Rafeedie:  If that’s the only allegation it depends on the circumstances whether a loss was suffered.  If I wasn’t in the marketplace and wouldn’t have bought anything but for the misrepresentation.

Justice Werdegar: Whose burden is it to show that the plaintiff was really going to buy wine or a hot dog?  That they would not have bought something exactly comparable?  Rafeedie:  The plaintiff’s.  Justice Werdegar:  But the plaintiff has already alleged he would not have bought the product.  Does he have to show he never would have bought anything comparable?  Rafeedie:  Yes.  That’s what the plaintiff has to prove. Here we have no allegations that the plaintiff would have paid less for a comparable lockset.  Justice Werdegar: But they do allege they would not have given money for those locksets.  Rafeedie: That is part of the greater allegation that if we had known, we would not have bought. 

Justice Moreno: How is this case different from the Napa wine case? Would it be easy to measure restitution?  Rafeedie: Because there are no allegations of any differential in price.  Justice Moreno: Would you agree that in the Napa/Lodi example there is a difference?  Rafeedie: If there’s a differential in price that would be the difference.  Justice Moreno:  You’re saying here because the locksets are equal in quality there is no loss.  Rafeedie:  Yes, no allegation the locks are any different than they would have been if they had been made in the US.

Justice Baxter: But we’re not talking about damages under the UCL; were talking about restitution and injunctive relief.  If the purchaser can mitigate damages by selling on eBay, does that have any impact on the ability to proceed under the UCL?  Rafeedie:  Yes. 

Justice Corrigan: If the plaintiff alleged that he had lost money because he had to pay a fee to sell the product on eBay, pay shipping costs, then that would be sufficient?  Rafeedie:  Consequential damages could be.  Justice Corrigan:  If they could prove they suffered those damages then the expenditure of those moneys could constitute lost money or property?  Rafeedie:  Yes it could.  It’s not recoverable as restitution, however. 

That was the end of Mr. Rafeedie’s argument.  The rebuttal:

Cuneo:  In response to Justice Baxter’s questions about eBay, and I think Justice Chin had the same question.  If you can resell it for more on eBay, that is the same circumstance this Court just considered in Clayworth.  The pharmacists passed on the overcharge.  The holding of that case was they lost money or property when they paid for the price-fixed pharmaceuticals.  Clayworth was also—  Justice Chin (interrupting): This is not a question of passing on the value by selling on eBay.  If you get the value of the property, where’s the loss? 

Cuneo:  The second you pay for it you’ve got the loss under Clayworth.  The primary purpose of the UCL is injunctive relief, to enable people to stop misrepresentations in their tracks.  On the less than meritorious cases, let’s bear in mind that the UCL gives courts tremendous discretionary power to limit the remedies. The court can find a violation and the judge can say it’s not substantial enough for any relief.  Or the court can issue an injunction only, but nothing to the consumers.  The courts have the tools to address the concerns raised in the Tobacco II dissent by Justice Baxter.  What adoption of the Court of Appeal opinion would do is impose vast new burdens at the front end of UCL actions.  On the public prosecutor point, public prosecutors have their hands full.  That’s why the DAs filed an amicus brief on our side.

Justice Werdegar:  What remedies did the trial court order in this case.  Cuneo: [he described the three forms of injunctive relief].  Justice Werdegar: It denied restitution to consumers, correct?  Cuneo:  It did.  Justice Werdegar: It engaged in the discretionary, nuanced remedies you referenced, didn’t it?  Cuneo:  It did. 

And that was the end of the argument.  

It's not hard to guess where Justice Corrigan will come down on this question, but I don't think any of the other justices feel as strongly as she does.  Justices Werdegar and Kennard and even the Chief Justice appear to favor the plaintiff's position.  The one thing that I think can be safely predicted is a split decision.

The opinion will be due in 90 days.

Oral argument report coming on Kwikset v. Superior Court (Benson)

First of all it was a complete and total madhouse at the Civic Center this morning.  My husband drove me through an obstacle course including part of the parade route on McAllister just to get to the courthouse (mind you, this was 8:15 a.m.), and then afterwards (at about 10:15) to get to the BART station I had to walk all the way around City Hall, up Van Ness, past the Bill Graham auditorium.  Yeah, it was exciting.

This is a much better picture than the one I got on my phone.  If you're not familiar with the area, that's the state building to the left where the Supreme Court is:

[photo from sfgate.com]

The sidewalk in front of the building was packed.  As for the argument, it was not very heavily attended (hard to imagine why), but it was very interesting. I'll be typing up my report and posting it here later.  For now I'll just say it's going to be a split decision. 

Oral argument preview: Kwikset Corp. v. Superior Court (Benson)

This morning at 9:00 a.m., the Supreme Court will hear oral argument in in Kwikset Corp. v. Superior Court (Benson), no. S171845, in which the issue on revivew is as follows:

Does a plaintiff's allegation that he purchased a product in reliance on the product label's misrepresentation about a characteristic of the product satisfy the requirement for standing under the Unfair Competition Law (Bus. & Prof. Code, section 17200 et seq.) that the plaintiff allege a loss of money or property, or is such a plaintiff unable to allege the required loss of money or property because he obtained the benefit of his bargain by receiving the product in exchange for the payment?

The Court of Appeal opinion, which found no standing under those facts, is here: Kwikset Corp. v. Superior Court (Benson), 171 Cal.App.4th 645 (2009) (rev. granted 06/10/09). 

I'm planning to attend the argument and will endeavor to provide a report later in the week.

Supreme Court briefs in Kwikset Corp. v. Superior Court (Benson)

The Supreme Court has posted online copies of the briefs in Kwikset Corp. v. Superior Court (Benson), no. S171845, which is scheduled for oral argument in San Francisco on Wednesday, November 3, 2010 at 9:00 a.m.:

S171845 - KWIKSET CORPORATION v. S.C. (BENSON)

• Real Parties' in Interest Petition for Review
• Petitioners' Answer to Petition for Review
• Real Parties' in Interest Reply to Answer to Petition for Review
• Real Parties' in Interest Opening Brief on the Merits
• Petitioners' Answer Brief on the Merits
• Real Parties' in Interest Reply Brief on the Merits
• Real Parties' in Interest Supplemental Brief

This case will address important questions relating to the proper interpretation of the UCL's post-Prop. 64 standing requirement.  Chief Justice George is not recused in this case, which is one factor that distinguishes it from Tobacco II.

After the case is argued on November 3, the opinion will be due in 90 days.  That works out to February 1, 2011.  However, Chief Justice George's term ends on January 2, 2011.  Will the Court expedite decision in the cases on the November calendar?  How will it handle the December calendar (scheduled for the week of December 6, 2010)?  I don't have an answer to either of these questions. 

UPDATE:  In response to my questions, the folks from At the Lectern undertook a review of opinions issued after the retirements of other Supreme Court justices. They found that many of the retired justices continued to sign opinions for several months after they departed from the Court.  At the Lectern predicts that the Acting Chair of the Judicial Council will assign Chief Justice George as a pro tem justice in all of the cases that he hears through the December calendar.  This is a logical prediction and is one solution that had crossed my mind.

Supreme Court sets UCL restitution case for oral argument: Pineda v. Bank of America

Yesterday, the Supreme Court posted its oral argument calendar for October.  One case of interest, Pineda v. Bank of America, no. S170758, has been set for argument, on Tuesday, October 5, 2010 at 1:30 p.m.  The Court is holding a special oral argument session that week at the Fifth District Court of Appeal in Fresno.

These are the issues on review in Pineda:  

(1) When a worker files an action to recover penalties for late payment of final wages under Labor Code section 203, but does not concurrently seek to recover any other unpaid wages, is the statute of limitations the one-year statute for penalties under Code of Civil Procedure section 340, subdivision (a), or the three-year statute for unpaid wages under Labor Code section 202? (2) Can penalties under Labor Code section 203 be recovered as restitution in an Unfair Competition Law action (Bus. & Prof. Code, § 17203)?

(Emphasis added.)  My original post on the Court of Appeal opinion in Pineda is at this link.

Three cases of interest set for oral argument in late May and June

The Supreme Court has set three cases of interest for argument on its late May and June calendars.

Tuesday, May 25, 2010, 9:00 a.m. (San Francisco): Lu v. Hawaiian Gardens Casino, Inc., no. S171442. This case addresses whether Labor Code section 351, which prohibits employers from taking "any gratuity or part thereof that is paid, given to, or left for an employee by a patron," creates a private right of action for employees.

Wednesday, May 26, 2010, 9:00 a.m. (San Francisco):  Reid v. Google, Inc., no. S158965.  This is the case involving summary judgment motion standards.

Wednesday, June 2, 2010, 9:00 a.m. (Los Angeles): Clark v. Superior Court (Western Life Ins. Co.), no. S147229.  This case addresses whether statutory penalties for elder abuse are recoverable as restitution under the UCL.  It was set for argument amazingly fast.   

I am not planning to attend any of these arguments. If you would like to do so and provide a report for posting here, please let me know by email ([email protected]).

Oral argument report: County of Santa Clara v. Superior Court (Atlantic Richfield Co.)

On Wednesday, May 5, 2010, the Supreme Court heard oral argument in County of Santa Clara v. Superior Court (Atlantic Richfield Co.), no. S163681. 

Justices Baxter and Corrigan were both recused.  Justice Maria P. Rivera of the First Appellate District, Division Four, and Justice James A. Richman of the First Appellate District, Division Two, sat in their stead.

Philip Curtis of Arnold & Porter (representing Atlantic Richfield Co.) and Elwood Lui of Jones Day (representing Sherwin-Williams Co.) divided the defense argument time.  San Francisco Deputy City Attorney Owen Clements presented the public entities' position.  [Note:  Messrs. Curtis and Clements also argued this case in the Sixth District in 2008.  See this blog post for my report on that argument.] 

Mr. Curtis argued first.  The Court, he began, should reverse the Court of Appeal's judgment and reinstate the trial court's order disapproving the public entities' contingency-fee agreement with outside counsel.  He briefly summarized the basic background facts of these public nuisance actions, emphasizing that the actions sought a form of relief -- an order of abatement -- available only to government plaintiffs.  He then gave three reasons why the public entities should not be permitted to retain outside contingency-fee counsel to handle the case: (1) the need for prosecutorial neutrality, even-handedness, and balance; (2) the destructive effect of a contingency-fee arrangement on that neutrality; and (3) the incurability of the problem and the inefficacy of contract provisions purporting to limit the outside lawyers' control.

Chief Justice George then interrupted:  I assume you'll address the extent to which the government lawyers' control over the litigation is relevant and the extent to which the Clancy case applies.  [People ex rel. Clancy v. Superior Court, 39 Cal.3d 740 (1985).]  Mr. Curtis said he would address that now.  The payment of contingency fees would destroy neutrality.  Can some form of control by government lawyers restore neutrality? The answer is no for three reasons. First, control is not realistic.  As the lower court said, the lawyer is not a potted plant.  There are any number of acts that can affect the outcome of a case.  This Court has repeatedly pointed out that the need for neutrality goes to so many decisions such as which witnesses to call, trial strategy, and more.

Chief Justice George:  Aren't those akin to the tasks performed by a deputy city attorney?  Curtis:  It would be improper for a deputy city attorney to receive a contingency fee.  Chief Justice George:  But we're talking now about the ability to form independent judgments and the extent to which you have to be subject to control.  The same decisions would be subject to the control of one's supervisor in a public office.  Curtis:  They would be subject to the supervision or control of the superior or the client.  All attorneys are subject to the control of the client.  It doesn't eliminate the lawyer exercising influence over the outcome.  In part one of the Eubanks case, it said having an interest runs afoul of neutrality.  [People v. Eubanks, 14 Cal.4th 580 (1996).] 

Chief Justice George:  But Eubanks was a criminal case.  Are you equating these civil cases with that?  Curtis:  I am doing so and this court did in Clancy.  Public nuisance cases should require neutrality in the same way as criminal cases.

Justice Moreno:  Isn't the control here quite distinct from the lack of control in Clancy?  Curtis: It was not.  The facts are very much like the facts here.  We asked the Court to take judicial notice of the contract in that case.  

Justice Moreno:  You're saying it's virtually impossible to get sufficient control.  Curtis:  Yes, it's unrealistic and therefore impossible.  This is so for two other reasons.  Circumstances can arise during the course of the prosecution. It's inherent in the contingency-fee agreement.  It provides an opportunity to profit from a successful prosecution.

Chief Justice George:  But your position is that not all civil prosecutions are subject to the Clancy rule.  Curtis:  Not all are subject to the neutrality requirement, that's correct.

Chief Justice George:  I'm having trouble equating a criminal proceeding, where someone's freedom is at stake, with the proceeding here against a manufacturer of lead paint.  Curtis:  There are two sources for a neutrality requirement in civil matters.  First, Clancy talks about the prosecutor's need for weighing competing interests.  In a public nuisance case, the question is whether the conduct is a reasonable invasion of the public interest.  Second, in the first section of Eubanks, where it says the neutrality rule arises from the fact that the lawyer is representing the public as a whole.  That is especially so here.  Those are the origins of the application of the neutrality rule in a civil case.

Justice Richman:  The balance in a public nuisance case is between the public and the property owners who would be affected by the abatement order.  Are the defendants property owners?  Curtis:  That was true in Clancy.  The defendants aren't property owners but the question will be whether many members of the public who own property will be affected.  Justice Richman:  And your client has the right to assert those interests?  Curtis:  We have the right to assert a neutrality requirement.

Justice Chin:  You have asked for discovery on the question of control and you ran into the attorney-client privilege.  What problems does that raise?  Curtis:  This leads to my third point.  It's not possible to cure lack of neutrality through control.  It would have to get into the most sensitive strategy matters.  When we tried to get to this we were stopped. 

Chief Justice George:  The language of the declaration of the public officer says we have complete control of the litigation.  Isn't that pretty comprehensive or are you saying unless you're a fly on the wall you would not have the assurance you need?  Curtis:  We would not and the public and the court would not.  This is not about the integrity of the public officials.  This is about letting an outside actor in. 

Mr. Curtis then yielded the floor to Mr. Lui. 

First, Mr. Lui referenced Chief Justice George's initial question, and distinguished the control of a district attorney over his deputy.  That relationship is unaffected by any contingency-fee arrangement, he said.  One failing of the Sixth District's opinion was they accepted blindly that these statements in the contract and declarations mean what they say and that there can be this type of supervision.  What Clancy stands for -- and we think it's good law -- is ensuring the integrity of the judicial process.  So whether you strip aside the attorney-client privilege you still have a contingency.  There is an absolute bar to the court's reviewing the conversations about strategy and control.  The harm that can result is not worth the risk. 

He went on.  Clancy lays down a bright line, a prophylactic rule.  The government lawyer said you must trust us, have the trial court judge supervise.  But the trial court judge can't ask the questions that would be necessary.  Then he discussed a number of cases including Vasquez.  [People v. Vasquez, 39 Cal.4th 47 (2006).]

Justice Moreno:  But aren't those criminal cases?  Lui: Because the case involves the state's soveriegn powers it's the same as the criminal cases.  He then quoted language from Eubanks and other cases, and also mentioned the Rhode Island Supreme Court case.  [Rhode Island v. Lead Industries Ass'n, 951 A.2d 428 (R.I. 2008).]  Justice Moreno:  But these are all criminal cases.  You're saying that in this civil case we should import those principles.  Lui:  Yes. 

Chief Justice George:  The Rhode Island case seems in every respect the same as this one.  The Rhode Island case involved the control exception and said Clancy was not a bright-line rule, didn't it?  Lui:  Yes and that takes us back to the origins of Clancy.  This court is the best court to decide what Clancy means.

Justice Moreno:  It's evidence that public counsel does not have enough resources because they are asking private lawyers to come in.  Chief Justice George:  If we're comparing resources I have a hard time seeing this as a David and Goliath situation when you have Atlantic Richfield and Sherwin-Williams on one side and a cash-strapped government agency on the other.  It's not like you're facing a huge government power.  Lui: But the government agencies choose which cases to prioritize. 

Justice Rivera:  In Clancy, the issues of concern to the court were the delicate balance of harms.  The interest of the public vs. the landowner.  In this case where would that misalignment occur? Where could there be a misalignment between the plaintiffs' lawyers' interests and the public?  What outcome could create that? 

Lui:  Knowing what's happened in other states, these cases have not been successful.  Contingency lawyers are not going to want to dismiss because they want to protect their investment.  For six years the contingency lawyers have been litigating this case.  Justice Rivera:  What are the realistic potential outcomes?  Lui:  An abatement order directed to the defendants for injunctive relief, not monetary.  There could be a difference of opinion with the public prosecutors.

Chief Justice George:  Should we not presume such an agreement is valid and consider that these are attorneys, they are officers of the court, with ethical duties?  You seem to assume they're not telling the truth.  Lui:  The risk of harm is too high even if they are telling the truth.  And in Clancy you didn't accept the same types of clauses re control.  They should not be accepted now because of the risk. 

[Note:  I have to say that's a very good answer to that difficult question and a strong note on which to end his argument.]

Mr. Clements then argued for the public entities.  Defendants, he said, are arguing for an absolute rule where all public agencies would be precluded from hiring outside lawyers.  This would negatively impact our ability to bring such cases. 

Justice Chin: Don't you have to rely heavily on private counsel's judgment and recommendations?  And aren't you going to private counsel because of their expertise in those areas?  Clements:  That's one of the reasons.  Also, the amount of work was not sustainable by a public office.  Also these particular counsel had past experience and knowledge of these issues.  So yes we do.  Just as we would with hourly lawyers.  But that's not financially viable. 

Chief Justice George:  You yourself are a deputy and your boss directs how you handle this prosecution.  Clements:  Absolutely.  The public lawyers have appeared, taken a very active role, and they have veto power. 

Justice Werdegar: Contingency fee means monetarily something has to be awarded, doesn't it?  Clements:  Typically, yes.  Justice Werdegar:  So, so far there's no basis for fees?  Clements:  Yes.  Justice Werdegar:  You are now seeking an order of abatement.  Clements:  Yes.  Justice Werdegar:  What are the other remedies?  Clements:  That's not clear yet.  Justice Werdegar:  Would the attorneys be influenced in deciding what relief to argue for?  Clements:  Yes, and that's where we would exercise control. 

Justice Werdegar:  If the outside lawyers invested money, would not the city be influenced by loyalty to them?  Clements:  No, we understand our responsibility.  Werdegar:  But wouldn't it impact the remedies you decide to seek?  Clements: There could be many available remedies and the government attorneys would decide.  Werdegar:  Wouldn't you be influenced and like to see those attorneys compensated?  Clements:  Yes, there are always incentives even with hourly lawyers and we would monitor those as well.  In Clancy, a private attorney appeared instead of the public one.  That's improper under any fee arrangement.  It's an excessive delegation of public authority.

Justice Werdegar:  Your opponent argues for a bright-line rule.  What rule would you advance?  Clements:  One bright-line rule is the one in the Rhode Island case.  Contingency-fee contracts are allowed in civil cases and not criminal cases.  We've advocated a case-by-case analysis.  The court should look at the fee contract.  And it's not true that we gave no discovery.  We produced the agreements and the correspondence surrounding their formation. 

Justice Chin:  But discovery regarding strategy was withheld.  Clements:  In part.  Justice Chin:  So how do we monitor control?  Clements:  First, look at the contingency agreement and make sure there's no improper delegation.  Next, look at the declarations from the private and public attorneys on foundational facts regarding who exercises control.  For example, as in the Anaheim case involving Priceline.  [Priceline.com v. City of Anaheim, 180 Cal.App.4th 1130 (2010).]  [See this blog post for a discussion of that case.] 

Justice Rivera:  Are those the only things?  Clements:  You'd require the public attorney to appear in the case as counsel of record.  If defendants come forward with evidence of improper delegation then you go into case-by-case analysis.  Justice Rivera:  Under Clancy there's no element other than control?  Clements:  The contract and control.  Justice Rivera:  Anything else?  Clements:  Actual likelihood of a miscarriage of justice.  Overlap with criminal case ramifications.

Justice Rivera:  Regarding remedies, wouldn't use of the common fund or substantial benefit doctrine be an end-run around the cases saying that public entities aren't entitled to fees in a public nuisance case.  Clements:  No.  That's cost spreading vs. cost shifting.  Justice Rivera:  Where do you get a fund?  Clements:  There could be a fund created when property owners apply for a share of money to make repairs.  Justice Rivera:  Can you cite a case where such a fund was created?  Clements:  Not off the top of my head.

Justice Chin:  Why should this case be treated differently from Clancy?  Clements:  The main reason is the public attorneys appear as counsel of record.  Justice Chin:  How do we ensure that the public attorneys are appropriately monitoring the case?  What do we write in the opinion?  Clements:  You can do what the Court of Appeal did in the Priceline case.  The parties' declarations.  The public attorneys affirm they have maintained control and there's not an excess delegation of authority.  Justice Chin:  How does the other side show excess delegation of authority?  Clements:  From their observations during the course of the case as in any other case of prosecutorial misconduct.

Chief Justice George:  Would it help if there were guidelines as in the Rhode Island case, such as control, veto power by the public attorneys, public attorneys involved in all stages?  Perhaps adding public attorneys must be involved in all decisions to settle or dismiss?  This could be included in the opinion. 

[Note: So here, the Chief Justice simply answered Justice Chin's question himself.]

Clements:  Absolutely.  It would give private attorneys every incentive not to overstep the bounds or risk disqualification.  Justice Chin:  Do you have any other factors?  Clements:  Those are sufficient.  You're relying on the professional judgment and good faith of the public attorneys and the ethics of the outside lawyers not to let their interests trump those of the clients.  This is precisely what courts presume.  Absent a prima facie showing that the public attorneys are not exercising control, then the arrangement should be allowed.  That is how courts handle all cases of prosecutorial misconduct.  This is strictly a civil case and the attorneys have no power to seek warrants etc. 

He went on.  Authorities following Clancy have been unanimous in allowing these arrangements except in one nonpublished superior court order issued by Judge Ikola who later authored the Priceline decision as Justice Ikola. 

Justice Rivera:  But the facts were different.  Clements:  In the twenty years since Clancy you have an absence of authority for the rule defendants advance.  We are talking about a balancing vs. a per se test.  A per se test would assume the conduct in question is necessarily bad.  The Rhode Island case recognized that there are some cases that can only be brought with this arrangement.  A rule prohibiting it is unwarranted.

And Mr. Clements ended his argument there, although his time was not up.

Before Mr. Curtis began his rebuttal, Justice Chin made a request:  Please address whether the protections adopted in the Rhode Island case are adequate.  Curtis:  They are not adequate.  They are window-dressing.  They are explicit but they are not specific.  They don't come to grips with the reality that there are myriad instances in the prosecution of a case where an attorney with an interest can influence the case. 

Justice Werdegar:  In this case where would that come up?  Curtis:  What remedies to seek; what witnesses to call; how to question them.  Justice Werdegar:  How would those decisions be impacted?  Witnesses, I don't see that.  Curtis:  Whether the case should be dismissed.  Whether to proceed with the case at all.  Contingency fee lawyers would have a natural tendency to expand the litigation and interpret the law as broadly as possible.

[Note:  I have to disagree with that.  In deciding what cases to take, the strength of the legal arguments and the likelihood of success on the merits are critical considerations.  No contingency-fee lawyer is going to take a dud case.  It makes no sense to take on the risk.  The goal is to take cases with as little risk as possible, which means the strongest possible cases based on existing law, not the reverse.]  

Chief Justice George:  But if the public entity has veto power; and requiring a senior member of the public office to participate; allowing them to decide to settle without any input from the private attorney: those aren't specific?  Curtis:  They are not adequately specific.  Chief Justice George: Does your argument stand or fall with the analogy to criminal cases?  Curtis:  It does indeed.  We believe Clancy was correctly decided and properly put the facts of that case in the criminal column.

Justice Chin:  If we were to adopt the Rhode Island factors what would you change or add to them?  Curtis:  I don't know how to answer that.  Justice Chin: Answer quickly.  [The courtroom laughed.]  Curtis at this point reiterated that he couldn't say what should be changed or added because he did not think any protections were adequate. 

Justice Moreno asked the final question:  Can you describe the remedy from which attorneys' fees might come?  Curtis:  I cannot; we don't know yet.

And then Mr. Curtis, likewise, concluded before his time was up.

I think Chief Justice George agrees with the Rhode Island analysis and will follow it.  The question is whether his colleagues will go along.  Justice Chin obviously has serious concerns about how to monitor the attorneys.  On the other hand, the Chief Justice ends up in the majority in nearly every case.  They say that appellate judges use the questioning to communicate with each other as much as to gain information from the attorneys.  This argument exemplified that.  We'll find out what happens in 90 days. 

Oral argument preview: County of Santa Clara v. Superior Court (Atlantic Richfield Co.)

This morning at 9:00 a.m., the Supreme Court will hear oral argument in County of Santa Clara v. Superior Court (Atlantic Richfield Co.), no. S163681.  This case addresses whether governmental entities may hire outside counsel on a contingency-fee basis.  I am planning to attend and hope to post a report here tomorrow.

On Monday, I mentioned the announcement that Justice Kennard would miss a number of oral arguments in May and June because she is having surgery.  The docket in this case indicates that by letter dated April 28, 2010, all counsel were asked to stipulate that Justice Kennard may participate by reviewing the video recording of the argument.  All parties advised the Court that they had "no objection to Justice Kennard's participation in the deliberations and decision in this matter notwithstanding her absence from oral argument."

The docket also indicates two pro tem assignments: "Hon. Maria Rivera, CA 1/4 (for Baxter, J.) Hon. James Richman, CA 1/2 (for Corrigan, J.)."

Oral argument report: Clayworth v. Pfizer, Inc.

On Monday, May 3, 2010, the Supreme Court heard oral argument in Clayworth v. Pfizer, Inc., no. S166435.

The seven-Justice court included three pro tem members.  Justice Ignazio J. Ruvolo of the First Appellate District, Division Four, sat in for Justice Kennard.  Justice Ronald B. Robie of the Third Appellate District sat in place of Justice Chin.  And Justice Douglas P. Miller of the Fourth Appellate District, Division Two, took Justice Corrigan's seat. 

Joseph M. Alioto, Jr. of the Alioto Law Firm argued for the plaintiffs, while William J. Fenrich of Davis Polk & Wardwell presented the defense position.  Procedurally, the case was before the court following entry of summary judgment in the defendants' favor on Cartwright Act and UCL claims. 

Mr. Alioto began by restating the question on review -- whether the Court should recognize a "pass-on" defense that would allow defendants to escape all liability for their wrongful conduct.

Justice Werdegar interrupted, wanting to know if that was a fact, that there would be no way the defendant would be accountable.  Mr. Alioto replied that it was a fact, and that it was one of four facts he wanted to impress upon the Court.  First, plaintiffs paid an overcharge.  Second, plaintiffs passed it on as any reasonable business would do.

Justice Moreno then interrupted asking when do you maintain the injury was suffered?  Alioto:  At the moment the purchase was made.  Justice Moreno: Do you agree there was no net loss because it was passed on?  Alioto:  You could say that if later events are taken into account; but defendants have not made a showing that the plaintiffs have suffered no injury; only that the overcharge was passed on.  And there is a difference.

He went on.  Third, defendants are presumed liable for purposes of this appeal.  They are presumed to have fixed prices.  Fourth, no other plaintiff (such as an end-user) has brought suit, which goes to Justice Werdegar's question a moment ago.

The Cartwright Act must be interpreted such that the plaintiff suffers injury at the moment of purchase.  Justice Baxter then interjected:  Are you saying that the pass-on defense does not apply only if the ultimate consumers are not involved, or that it would not apply in any case?  Alioto:  We contend the latter but as an alternative holding, adopt the reasoning of the dissent in Illinois Brick.  Baxter:  Then how does the court avoid the issue of duplication of damages?  Alioto: That's what drove the decision in Illinois Brick, and some history behind that decision may be helpful.  He discussed three lines of authority leading up to that decision.  In one line of cases, the one adopted by the Illinois Brick dissent, the courts held that the possiblity of duplication of damages can be avoided through existing procedural mechanisms such as compulsory joinder.

Justice Moreno: How did our Legislature react to Illinois Brick?  Alioto:  They roundly rejected it.  In fact, 25 states rejected Illinois Brick.  And, eleven of those jurisdictions have considered the pass-on defense, and every one of those rejected it. 

Chief Justice George put in his first question:  Are you relying on legislative acquiescence?  Alioto:  Not exactly because the Legislature acted so quickly as to overrule Illinois Brick, but what we are relying on is the purpose behind the law, which should drive the interpretation; on the fact that the Legislature did seem to adopt certain parts of Hanover Shoe in several enactments; and that in 1978 the Legislature added a provision to deal with multiple liability in parens patriae actions, one patterned after the Hart-Scott-Rodino Antitrust Improvements Act of 1976.  Justice Robie:  You mean the provision that says no double recovery?  Alioto:  Yes. 

Justice Ruvolo:  Regarding your argument that no pass-on defense should ever be allowed, in your case the plaintiffs used percentage-based pricing so that when the price went up so would the profit.  Would you exclude that profit from the recovery or would you allow that and treble it? 

Alioto:  No.  The damages are those calculated at the time plaintiff made the purchase.  Ruvolo:  So would the defendant be entitled to an offset for profit?  Alioto:  No.  Nothing that happens after the purchase should be considered.  This effectuates the purpose of the law.  This is no different than what California law already provides.  It's no different from the collateral source rule.

Justice Ruvolo:  Then how do you account for consequential damages?  Doesn't your theory wipe that remedy out?

Alioto:  No because there are three types of damages in Cartwright Act cases.  First, the overcharge.  Second, lost sales (i.e., when prices are higher you sell less).  Third, loss of the business value as a going concern.  Those are all available.  Justice Ruvolo:  The first one is the only type calculated at the time of purchase?  Alioto:  Yes.  The other two we've waived in this case. 

Justice Werdegar:  In other cases where they are not waived they would be available if proven?  Alioto:  That's correct. 

Alioto then discussed the UCL claim.  He said the first issue is one of standing.  The First District said in its opinion that the plaintiffs lacked standing because restitution was not an available remedy.  Justice Robie here interrupted:  Standing depends on whether the plaintiff suffered damage or not.  Is the damage suffered under the Cartwright Act enough to confer standing?  Alioto:  There are two parts to standing.  The first is injury in fact under the U.S. Constitution. Plaintiffs have standing by virtue of the purchase.  Justice Robie:  Are you saying that's not enough?  Alioto:  No.  The second element is lost money.  This Court has not had an opportunity to address this elelement.  The Court of Appeal has in Aron v. U-Haul and Hall v. Time, Inc.

[Note:  As a plaintiffs' attorney I would not have chosen those particular cases to illustrate the "lost money "element of UCL standing.  They are not exactly the most plaintiff-favorable cases.] 

Justice Ruvolo:  Is there any difference between the standing requirements under the UCL and the Cartwright Act?  Alioto:  Not for all practical purposes.  I'm arguing that the Court should adopt the reasoning of Aron and Hall.  Here, it's uncontroverted that plaintiffs paid more for the drugs than they were worth and they did not get the benefit of their bargain.  [Note:  I guess I can see why he thought those cases were good ones to cite given the particular facts of his case, but this leads straight into the Benson v. Kwikset problem.]

Alioto:  Now on to the restitition issue.  The First District relied almost exclusively on Madrid v. Perot Systems.  The defendants have abandoned Madrid and not cited it in their briefs.   In Tobacco this Court said that the restitution language is "patently less stringent" than the standing language.  If the plaintiffs have standing then they necessarily can recover restitution. 

And that was the end of his time.

Mr. Fenrich began by observing that at the beginning of Mr. Alioto's presentation he conceded that the plaintiffs have not sustained damage.  He said the lower courts properly applied the plain meaning of the Cartwright Act and the UCL under the unique facts of this case.  On this unique record, plaintiffs strategically chose only to seek one kind of damages -- the overcharge.  The record is undisputed that plaintiffs passed on 100% of the overcharge.

Justice Werdegar:  But the argument they make is depending on when the overcharge was paid.   Fenrich:  We think they've conflated two elements, injury and damages.  Justice Miller:  So are you conceding they have standing and suffered injury?  Fenrich:  Well it's an interesting issue on these unique facts.  This Court need not decide it because for the Cartwright Act claim, they have suffered no damages that could be recovered under the Cartwright Act's private right of action.  This centers on plaintiffs' ability to recover damages.  For the UCL claim, it's fair to say plaintiffs have not lost money or property, but again the Court need not reach that issue because they can't recover restitution. 

Justice Werdegar:  You keep saying this case is unique. Why is this case unique?  Fenrich: In another case a plaintiff might seek a variety of damages for an antitrust violation, but here, for strategic reasons, they chose to waive much of it and also concede that they passed on 100%.  It's only in this case and on this record that the result would be that the defendant escapes liability.  Nor do we concede that defendants should be presumed to have violated the law.  Whenever defendants' prices went up so too did plaintiffs'.  This would not be the result in other cases.

Chief Justice George:  What interpretation do you have of the State legislative history?  Fenrich:  You're referring to the 1978 amendments?  [The Chief Justice nods.]  It's California's reaction to Illinois Brick.  Chief Justice George:  What about Hanover Shoe?   Fenrich: There's no mention of Hanover Shoe surrounding the 1978 amendments.  Nor can it be interpreted as consistent with Hanover Shoe because once indirect purchasers have standing California is implicitly disagreeing with the policy underpinnings of Illinois Brick and Hanover Shoe, including (a) that pass-on is too difficult to show; and (b) the choice to place full recovery in the hands of the direct purchasers.  California is free to make different policy choices and this is reflected in what the Legislature did.

Justice Miller:  What is the purpose of the Cartwright Act?  Is it deterrence, compensation, disgorgement?  Fenrich:  All of the above.  Justice Miller:  Then there'd be no deterrence in this case.  Fenrich:  Compensation is the primary purpose.  Our argument would continue to allow damaged persons to recover treble damages.  Therefore our argument is consistent with all three purposes.  Plaintiffs' would denigrate the compensation purpose.  It's the Legislature's job to balance these purposes.  When a court is faced with two interpretations, one consistent with one purpose and the other three with all three purposes, the court should choose the one consistent with all three.

Justice Ruvolo:   Do you agree that for purposes of damage one looks solely at the time of purchase, and if so, what do you do with the Hanover Shoe language about cost-plus contracts?  Fenrich:  No we do not agree.  Going back to the 1800s (and he cited cases) damages has meant actual loss and recoupment.  One must necessarily look at what happened after.  Nothing shows that the Legislature in 1907 when it enacted the Cartwright Act meant to adopt some other rule.

Justice Robie:  Isn't passing it on a subsequent act?  They paid too much for the product so they then charge too much.  They are two separate actions.  Fenrich:  That's injury, but not damages.  (And then he discussed several cases to support this point.)  California did not adopt Hanover Shoe in 1978 or otherwise.  It's a rule based on policy not text.  California made other policy choices regarding where the incentives should lie in the distribution chain.  As for other states, there is no uniformity.  In eleven states the pass-on defense was rejected through legislative action.  There's no authority for courts doing that when interpreting language that's silent.

Justice Ruvolo:  You would be better off if the end-user consumers had been joined because there would be an offset of the profit?  In response, Fenrich acknowledged that the consumers would have suffered that damage.  Ruvolo:  But you've got a different case here.  Where the consumer plaintiffs are barred by the statute oflimitations you've developed a case that's symmetrical with federal law.  Fenrich:  This case could not have been brought under federal law because the pharmacies are not direct purchasers.  They bought from wholesalers who were direct purchasers.  There may be less risk of multiple recovery where the ultimate purchasers have a statute of limitations problem.  Justice Ruvulo:  Federal courts would rather have direct purchasers recover than let defendants get away with it entirely.

Justice Werdegar:  You said that the issue was decided in the federal courts based on policy not language.  But here is a quotation, and she read some language from California v. ARC America Corp., which did appear to say that the holding in question was text-based.  Fenrich:  What the court did not do was start with the language.  Justice Werdegar:  But the language is similar isn't it?  Fenrich:  Yes.  Justice Werdegar:  So they've told us what it means.  Fenrich:  Yes as a matter of federal law but we think it's not a reasonable interpretation under state law. 

Fenrich: Plaintiffs' lost profit waiver is unequivocal.  So the lost profits argument is a distraction.  The Utilicorp (phonetic) decision cemented the Illinois Brick ban on indirect purchaser recovery.  Pass-on is too hard to prove.  Regarding the 1978 enactment of the parens patriae multiple-liability provision (Bus. & Prof. Code section 16760), plaintiffs say this reflects California's adoption of Hanover Shoe.  We say the Legislature would have done it explicitly.

Fenrich then turned to the UCL claim.  For the same reasons plaintiffs aren't entitled to damages, they are not entitled to restitution.

Justice Werdegar:  Are they entitled to an injunction?  Fenrich:  That claim has been waived in this case, so no.  The Court doesn't have to answer that question.  On restitution, though, it is our position that whatever interest they had in the overcharge was passed on.  Plaintiffs say they somehow kept it, but when the wholesalers sold to them ithe interest passed, and then it passed again.

Mr. Fenrich then concluded his argument before his time had been called.

In rebuttal, Mr. Alioto first addressed the UCL claim.  First, the Tobacco II case said that restitution must be read to prevent a wrongdoer from retaining the fruit of its illegality.  Second, regarding the injunction waiver, plaintiffs were opposing defendants' motion, which said nothing about the injunction claim.  And here he read from the statement of undisputed material facts.  Justice Ruvolo:  You pleaded that as an alternative?  Alioto:  That's correct.  Defendants' motion did not mention injunctive relief.  They waived it.

Justice Robie:  But if you have standing don't you have it regardless of the remedy?  I'd think if you have standing you can seek either remedy.  They are separate issues, standing and remedy, are they not?  Alioto:  That's correct.  That's what the Court said in Tobacco.  Restitution is patently less stringent.  Otherwise you violate the maxim that a wrongdoer shall not profit from his wrong.

Alioto then turned to the Cartwright Act and read a quotation from the 1978 amendment's legislative history.  It's a pro-enforcement amendment, he said.  It cannot be read to create a loophole for defendants.  Bruno rejected federal cases that said compensation was the only purpose.  Prevention and punishment is not an insignifcant purpose.  As for cost-plus contracts, that is not an issue in this case.  Plaintiffs have no contracts requiring them to buy a fixed amount regardless of price.  The issue was not briefed before the Court of Appeal and on rehearing, that court struck its discussion of that issue from its opinion. 

Alioto then turned back to Justice Ruvolo's question:  You are right this is a perfect case to apply Hanover Shoe.

Then he, too, concluded his argument before his time was up. 

If I were to try to read some tea leaves, I'd say the argument with the most traction was that the pass-on defense would allow a defendant to keep its ill-gotten gains.  Several of the justices' questions suggested that they did not think this should happen.  We can expect an opinion within 90 days (i.e., by August 1, 2010). 

Oral argument preview: Clayworth v. Pfizer, Inc.

This afternoon at 1:30 p.m., the Supreme Court will hear oral argument in Clayworth v. Pfizer, Inc., no. S166435.  In that case, the question is whether an intermediate purchaser (of, for example, price-fixed goods) may recover damages under the Cartwright Act or restitution under the UCL.  In other words, can the defendant assert a "pass-on" defense if the plaintiff resold the goods and passed on the overcharges?  I am planning to attend the argument and provide a report here tomorrow. 

Also, a recent article in the Recorder said that Justice Kennard is going to miss a number of upcoming arguments while she recovers from surgery, including this week's arguments:

An avid and persistent questioner, Kennard would still get to participate by viewing videotapes of the arguments, unless the parties refuse to stipulate to her absence. If that happens, Chief Justice Ronald George said he would need to decide on a case-by-case basis whether to continue the matter or appoint a pro tem justice from the appellate courts to hear it instead.

The Clayworth docket indicates that three pro tem justices have been assigned to the case: "Hon. Ignazio J. Ruvolo, CA 1/4 (for Kennard, J.); Hon. Ronald B. Robie, CA 3 (for Chin, J.); Hon. Douglas P. Miller, CA 4/2 (for Corrigan, J.) ." 

Two Supreme Court cases set for oral argument next week: Clayworth v. Pfizer and County of Santa Clara v. Superior Court (ARCO)

The Supreme Court has scheduled oral argument in two of the cases I've been following, Clayworth v. Pfizer and County of Santa Clara v. Superior Court (ARCO).  I'm going to try to attend both and provide reports here.

Monday, May 3, 2010, 1:30 p.m., San Francisco

Clayworth v. Pfizer, Inc., no. S166435 (review granted 11/19/08)

• Issues: (1) When plaintiffs pay overcharges on goods or services as a result of the anticompetitive conduct of defendant sellers but recover the overcharges through increased prices at which the goods or services are sold to end users, may defendants assert a "pass-on" defense and argue that plaintiffs were not injured because they did not suffer financial loss as a result of the anticompetitive conduct? (2) Is restitution available under the Unfair Competition Law (Bus. & Prof. Code, 17200 et seq.) to plaintiffs who recovered from third persons the overcharges paid to defendants? (3) When plaintiffs recover from third persons the overcharges paid to defendants, have they suffered actual injury and lost money or property for purposes of establishing standing under the Unfair Competition Law, as amended by Proposition 64?
• Court of Appeal Opinion: Clayworth v. Pfizer, Inc., 165 Cal.App.4th 209 (2008)

Wednesday, May 5, 2010, 9:00 a.m., San Francisco

County of Santa Clara v. Superior Court (Atlantic Richfield Co.), no. S163681 (review granted 07/23/08)

• Issue: May a public entity retain private counsel to prosecute a public nuisance abatement action under a contingent fee agreement?
• Court of Appeal Opinion: County of Santa Clara v. Superior Court (Atlantic Richfield Co.), 161 Cal.App.4th 1140 (2008)
• Briefs: Some of the briefs are collected at this link

Oral argument report: McAdams v. Monier, Inc.

On Monday, January 25, 2010, the Court of Appeal (Third Appellate District) in Sacramento held further oral argument in McAdams v. Monier, Inc., no. C051841, which is one of the Tobacco II "grant and hold" cases.  My post on the original McAdams opinion from 2007 (in which the Court of Appeal reversed the trial court's order denying certification of UCL and CLRA claims) is here.

Many thanks to the blog reader who attended the argument and provided the following anonymous report:

Spirited oral argument from a Panel consisting of Justices Sims, Butz and Sakauye in this case, which alleges that defendant Monier failed to disclose that its “slurry” coated cement tiles would lose their color and degrade down to bare concrete. The majority of questions came from Justice Sims, who was focused on whether subsequent purchasers of the product could be part of the class, asking about the situation where a family buys a home with the roofing tiles already installed. Justice Sims noted, they have no idea about any misrepresentations made by Monier, so could they get damages? Appellant’s counsel, after first noting that only restitution is available under the UCL, indicated that yes, those homeowners would be in the class but that restitution would only be provided once for any property and that no double recovery (i.e., for the original purchaser of the home/roofing tiles and any subsequent purchaser) would be sought.

Monier’s main argument to the panel, as in its briefs, was that post-Tobacco II, there still needed to be proof that individual class members actually received a misrepresentation as an element under the fraud prong of the UCL and Justice Sims wanted to know whether defendant is arguing that plaintiffs are not entitled to any class, or only a class of those who saw the misrepresentations. Defense counsel responded that the determination of whether a class is appropriate is one that should be made on remand, by the trail court.

On rebuttal, in response to further questions by Justice Sims about whether a class could include individuals who never received defendant’s representations and whether it is simply enough under the UCL to show a representation was misleading even if no one actually saw it, plaintiff’s counsel replied that post-Proposition 64, only the named plaintiff had to prove they received and relied on the misrepresentation. In closing, appellant’s counsel emphasized that that under both pre- and post-Tobacco II decisions courts have held that no individualized proof is necessary if a defendant’s advertisement is “likely to deceive.”

One interesting thing about this report is the fact that, apparently, none of the original three panelists is now assigned to the case.  The original opinion's author, Justice Davis, retired in early 2009.  It is unclear why the other two original justices are no longer on the panel.  In any event, it will be very interesting to see how this opinion comes out. 

I note that we still have not yet seen an opinion in the other Tobacco II "grant and hold" case, Pfizer v. Superior Court (Galfano), no. B188106, which was argued on December 7, 2009.  According to the "scheduled actions" page of the docket, the Pfizer opinion is due to be filed by March 1, 2010.

Oral argument report #2: Arias v. Superior Court (Angelo Dairy)

Many thanks to attorney Tom Kaufman for providing a second report on the Arias argument last week.  Read Tom's report after the jump.

Oral argument reports: Arias and Amalgamated

Many thanks to attorney Kelly Chen for attending the Arias and Amalgamated arguments last week and for providing very detailed reports.  Read Kelly's reports after the jump.

Report on Amalgamated and Arias arguments coming soon

I have received a report on the Amalgamated and Arias arguments as promised from attorney Kelly Chen, and a second surprise report from another blog reader. I will be getting these up as soon as I can, probably over the weekend. Check back on Monday.

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]). 

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.

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)

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. 

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.

California Channel to televise argument in In re Tobacco II Cases

Yesterday, the Supreme Court granted The California Channel's request for extended media coverage in In re Tobacco II Cases, no. S147345.  The California Channel's website does not mention Tobacco yet, but presumably they will provide coverage on their cable station as well as a live webcast.

Many thanks to the blog reader who informed me of this development and forwarded a copy of the order.

UPDATE:  The Supreme Court issued this press release today confirming that The California Channel will offer a live webcast as well as cable TV coverage:

The California Channel, a public affairs cable network, will broadcast live coverage of the oral argument on many cable stations throughout the state. It also will carry a live streaming Webcast at www.calchannel.com. California Channel reaches 5.5 million viewers statewide.

 

Chief Justice George recused from panel in In re Tobacco II Cases

According to the Supreme Court's oral argument calendar notice, Justice Eileen C. Moore of the Fourth Appellate District, Division Three, will be sitting in place of Chief Justice George in In re Tobacco II Cases, no. S147345.

A quick Westlaw search shows that Justice Moore has authored a few opinions involving UCL claims in recent years.  In R & B Auto Center, Inc. v. Farmers Group, Inc., 140 Cal.App.4th 327 (2006), for example, she touched on both of the issues on review in Tobacco:

Truck Insurance says that R & B lacks standing, under Business and Professions Code section 17204, to maintain the unfair competition cause of action because it has not alleged that it has “lost money or property as a result of unfair ... competition.” With this assertion, we certainly disagree. R & B alleges that it paid premiums for illusory coverage and it had to make payment on a lemon law claim that it would not have had to pay had the Truck Insurance policy said what it was represented to say. This is an allegation of loss caused by the purported misrepresentations concerning the scope of coverage. The standing requirement is met.

Next, Truck emphasizes that R & B cannot seek injunctive relief on behalf of the general public unless it meets the requirements of Code of Civil Procedure section 382, with reference to class actions. “Code of Civil Procedure section 382 authorizes class actions ‘when the question is one of common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court....’ The party seeking certification has the burden to establish the existence of both an ascertainable class and a well-defined community of interest among class members. [Citation.] The ‘community of interest’ requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. [Citation.]” (Sav-on Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326, 17 Cal.Rptr.3d 906, 96 P.3d 194.) Truck Insurance states that R & B may only seek class action injunctive relief if it can demonstrate compliance with these requirements. However, Truck Insurance does not assert that R & B cannot do so.

R & B contends that it can meet the class certification requirements and points us to its offer of proof with respect to the anticipated testimony of Fena, Rusich and Sweet. R & B requests that this court remand the matter so that it will have an opportunity to show that it can satisfy the requirements of Code of Civil Procedure section 382. It is only fair to grant this request, since at the time R & B filed its third amended complaint it was not required to comply with Code of Civil Procedure section 382.

Id. at 360-61.  (Here is my original blog post on R&B.)  The argument in Tobacco will take place on Tuesday, March 3, 2009 at 9:00 a.m. in San Francisco.

MORE BREAKING NEWS: Oral argument set in CLRA case, Fairbanks v. Superior Court

Thanks to the blog reader who pointed out that yet another case of interest has been set for argument during the first week of March.  In Fairbanks v. Superior Court, no. S157001, the Supreme Court will consider whether insurance is a "good" or a "service" within the meaning of the CLRA.  Fairbanks is set for argument on Wednesday, March 4, 2009 at 9:00 a.m.

The Court of Appeal's opinion is Fairbanks v. Superior Court, 154 Cal.App.4th 435 (2007), and some of the briefs are collected at these links.