The UCL Practitioner

Supreme Court holds UCL and CLRA claims survive SLAPP challenge: Serova v. Sony Music Entertainment

Last Thursday, August 18, 2022, the Supreme Court held that commercial sellers may not misrepresent the authorship of artistic works.  Accordingly, the Court determined, the trial court had improperly granted the defendant's anti-SLAPP motion in an action involving disputed representations that Michael Jackson was the vocalist on three tracks included in a posthumously-issued album.  Serova v. Sony Music Entertainment, ___ Cal.5th ___ (Aug. 18, 2022).

The unanimous opinion concludes:

Serova has sufficiently demonstrated, for purposes of the anti-SLAPP proceedings before us, that her CLRA and UCL claims related to [the album]'s packaging and promotional video have sufficient merit.  Perhaps in another context the First Amendment would limit the reach of our consumer protection laws, but Sony’s album-back promise and video are commercial advertising making claims about a product, and we will not place them beyond the reach of state regulation. 

Slip op. at 43.  Both the San Francisco Chronicle and the Los Angeles Times covered the opinion. This blog's prior coverage of the case is here and here.

Supreme Court takes up UCL/anti-SLAPP case: Serova v. Sony Music Entertainment

During this week's conference, the Supreme Court granted review in Serova v. Sony Music Entertainment, No. S260736.  The statement of the issue on review has not yet been added to the main docket page, but the case involves UCL and CLRA claims based on allegedly false statements about whether Michael Jackson actually performed all the songs on an album marketed as a "Michael Jackson" album.  The Court will address whether these claims can survive an anti-SLAPP attack.  See this prior blog post for more on the rather lengthy procedural history of the case, which includes a prior review petition and a "grant and transfer" order.  

The Court took this action after giving itself an extension of time, to May 18, to grant or deny review.  With assistance from attorney David Arbogast, I filed CAOC's letter in support of review on the first day of the Bay Area's shelter-in-place orders.  The petition for review, answer, and reply are also of interest. Congratulations to plaintiffs' counsel, Jeremy Bollinger and Dennis Moss, on this result, and many thanks for sharing copies of these briefs. 

Recent decision addresses UCL in anti-SLAPP context: Serova v. Sony Music Entertainment

Last week (on April 8, 2020), the Supreme Court granted itself an extension of time to grant or deny review in Serova v. Sony Music Entertainment, No. S260736.  Serova involves the interplay between the UCL (and the CLRA) and the anti-SLAPP statute (Code Civ. Proc. § 425.16).  The action alleges that Sony Music (and related entities) marketed and sold an album by falsely attributing all ten songs on the album to Michael Jackson, when in fact, a cover singer performed three of the songs.  The action seeks injunctive relief, restitution and damages on behalf of a proposed class of California purchasers of the album (or of any of the three mis-attributed songs). 

This case has been to the Supreme Court once before.  In 2018, the Court of Appeal (Second Appellate District, Division Two) reversed the trial court's order denying Sony's anti-SLAPP motion, holding that the attribution of the songs to Michael Jackson "did not simply promote sale of the album, but also stated a position on a disputed issue of public interest."  Serova v. Sony Music Entertainment, 26 Cal.App.5th 759, 764 (2018). 

The Supreme Court issued a "grant and hold" order in December 2018.  In September 2019, the Court transferred the case back to the Court of Appeal with directions to reconsider the matter in view of FilmOn.com Inc. v. Double Verify Inc., 7 Cal.5th 133 (2019).   Serova v. Sony Music Entertainment, No. S251822.

After the parties filed supplemental briefing, the Court of Appeal issued its new opinion on January 8, 2020.  Serova v. Sony Music Entertainment, 44 Cal.App.5th 103 (2020).  The new opinion essentially adopted the same analysis and came to the same conclusion as the earlier opinion. 

A second petition for review was filed in February 2020.  On the day after the Bay Area "shelter in place" orders went into effect, I submitted a letter in support of review on behalf of CAOC.  (This is the case I mentioned in my post on March 19, 2020).  The current deadline for the Supreme Court to grant or deny review is Monday, May 18, 2020.  As a practical matter, that means the Court will act by no later than its conference scheduled for Wednesday, May 13, 2020. 

Probable cause to pursue a UCL mislabeling action? Citizens of Humanity, LLC v. Hass

In Citizens of Humanity, LLC v. Hass, ___ Cal.App.5th ___ (Feb. 21, 2020; pub. ord. Mar. 16, 2020), the Court of Appeal (Fourth Appellate District, Division One) considered an appeal from orders denying an anti-SLAPP motion in a malicious prosecution case.  The trial court determined that the plaintiff (Citizens of Humanity, maker of expensive designer jeans) "met its burden to establish a probability of prevailing on the merits."  Slip op. at 2, 7-8.  On a 2-1 vote, the Court of Appeal reversed affirmed.

The opinion is of interest for its discussion of the underlying lawsuit, which the plaintiff claimed was maliciously prosecuted.  The underlying action (which was commenced in federal court under CAFA) alleged that Citizens of Humanity falsely labeled its jeans "Made in the U.S.A." when, in fact, the fabric used to make the jeans was imported.  This conduct, the plaintiff in the underlying case alleged, violated former Business and Professions Code section 17533.7, and thus the UCL's "unlawful" prong.  The case also asserted a CLRA violation.  Slip op. at 4. 

While the action was pending, the Legislature amended section 17533.7 (effective Jan. 1, 2016) to allow "Made in the U.S.A." labels on products "if foreign parts comprise no more than 5 percent of the product's final wholesale value" or "if foreign-sourced materials could not be domestically sourced and comprise no more than 10 percent of the product's final wholesale value."  Slip op. at 4-5.  Motion practice ensued on whether these amendments applied retroactively.  Id. at 5.  After the district court held that they did (applying the "statutory repeal" rule; see these blog posts), and also that standing was not adequately alleged, the remaining named plaintiff elected not to amend her complaint, and the action was subsequently dismissed with prejudice.  Id. at 5-6.

The Court of Appeal decided that Citizens of Humanity had shown that it would probably prevail on the merits of its malicious prosecution claim against the attorneys who brought this case and the remaining named plaintiff.  Slip op. at 13-24.  Evidence adduced in the underlying action supported the conclusion that the first named plaintiff (Clark, who subsequently withdrew) was a "shill plaintiff" who lacked standing, and "no reasonable attorney" would have represented her.  Id. at 13-16.  As for the second named plaintiff (Hass), the record included evidence that she also lacked standing and had conducted no investigation into her claims before agreeing to serve as a class representative.   Id. at 17-24. 

As to the element of "malice," the Court of Appeal determined that "[t]he record contains some evidence that would support a reasonable inference by a trier of fact that [the attorneys and their client Hass] were pursuing the litigation against Citizens with an improper purpose."  Id. at 24; see id. at 24-26 (summarizing this evidence).  Finally, the Court of Appeal determined that Citizens had shown a "favorable termination on the merits" in the underlying action.  Id. at 27-31.

Justice Dato filed a dissenting opinion in which he strongly disagreed with the Court of Appeal's "probable cause" analysis.  From the introduction:

In my view, Citizens failed to make a prima facie showing that the underlying mislabeling lawsuit was instituted or maintained without probable cause.  As such, the anti-SLAPP motions should have been granted.  (See JSJ Limited Partnership v. Mehrban (2012) 205 Cal.App.4th 1512, 1527 [reversing for failure of proof as to a single essential element].)

At its core, this case turns on the distinction between a reasonable inference and a speculative one.  My colleagues and I broadly agree on the facts and applicable law.  We part ways in how we view those facts in the context of this anti-SLAPP motion.  Although the disagreement appears on some level mundane—what credence to afford a given set of facts—the import of today's decision implicates the ability of lawyers to zealously advocate for their clients.

Slip op. (Dato, J., dissenting) at 1-2.  He goes on, summarizing the evidence on which the majority relied as to the first plaintiff (Clark) and expressing his view that it is not enough to support a prima facie case for malicious prosecution:

Crediting Citizens's proffer, the majority suggest there is "significant evidence to support the reasonable inference that Clark was a shill plaintiff, and the Del Mar Attorneys were aware of this fact." (Maj. opn., ante, at p. 14.) What evidence specifically?  One of the Del Mar Attorneys (but not the one in charge of the case) is Clark's brother-in-law, and Clark has been a named plaintiff in several of the firm's prior mislabeling lawsuits.  Clark testified at her deposition that she left the tags on the jeans after coming home, as she prepared to wash them.  She also testified that she purchased a lot of jeans but, under normal circumstances, rarely looked to see where they were made.  And after Clark was deposed, she sought to withdraw because she was no longer comfortable being in the spotlight.  We are told that in their totality, these facts support a reasonable inference that Clark was a "shill" plaintiff, whose lawsuit was entirely contrived. 

But can such facts, even in their totality, truly suffice to support a judgment at trial?  Although an inference can serve as substantial evidence for a factual finding on appeal, " ' "the inference must be a reasonable conclusion from the evidence and cannot be based upon suspicion, imagination, speculation, surmise, conjecture or guesswork." ' "  (Shandralina G. v. Homonchuk (2007) 147 Cal.App.4th 395, 411; see Evid. Code, § 600, subd. (b).)  In the SLAPP context specifically, courts have confirmed that although we do not "weigh the credibility or comparative probative strength of competing evidence," we disregard evidence that is "argumentative, speculative, impermissible opinion, hearsay, or conclusory."  (Gilbert v. Sykes (2007) 147 Cal.App.4th 13, 26−27.) 

Clark's participation in other mislabeling suits does not support a nonspeculative finding that she was a "shill," as opposed to someone who relied on the labels of the products she purchased.  Many consumers leave tags on newly purchased clothing until they wash or wear them—the fact that the tags were still on the jeans as Clark prepared the wash does not support a nonspeculative finding that her purchase was a ruse.  For budgetary reasons Clark bought many foreign-made goods; this hardly means she did not place a premium on jeans specifically labeled "Made-in-the-USA."²  And Clark's decision to withdraw as named plaintiff after facing accusations about her family ties does not permit us to conclude why she withdrew, and it is certainly not enough to allow a jury to find she withdrew because her disingenuous motives were about to be exposed. 

² I may buy most of my clothing without looking at a tag to see where the item was made.  But if I splurge on an expensive suit or pair of shoes labeled "Made in Italy," it would hardly be fair to say I didn't care about that label.

These observations are not an impermissible weighing of the evidence.  Courts always perform an essential gatekeeping role in deciding how much is enough evidence to allow a jury to reach a reasonable conclusion.  Here, respectfully, the inferences relied on by the majority opinion are too inconclusive and speculative to carry Citizens' burden.  Although Citizens may harbor a suspicion based on these facts that Clark was a shill whose lawsuit was contrived, it has in my view failed to produce sufficient evidence as would support such a finding at trial.

Id. at 5-7 (footnotes 3 and 4 omitted).  The dissent includes a similar discussion of the claims against the second named plaintiff (Hass).  Id. at 8-10. 

The dissent then concludes as follows:

Defendants regularly complain of being forced to incur substantial expense to defend against meritless lawsuits.  In most cases, we understandably balance the costs and benefits in favor of permitting plaintiffs their day in court.  The costs of defense are the costs we accept for the ability to freely seek redress of grievances. 

But the context of this case is very different, because permitting this malicious prosecution plaintiff its day in court will, I fear, do much to chill the ability of other plaintiffs in all types of cases to seek fair redress of their grievances.  Even more troubling, in my view, is the chilling effect this may have on lawyers asked to represent them.  Will attorneys now infer they would be advised not to represent family members on something less than open-and-shut cases?  Or that a law firm should cease to represent a client after filing a few similar lawsuits on her behalf?  If a client becomes confused and performs poorly at a deposition, will a reasonable attorney feel compelled to jump ship?  And must an attorney direct a heightened level of scrutiny to information provided by a client before filing suit? 

I hope these are not the inferences that are drawn by most lawyers.  No doubt they are not the inferences intended by the majority.  But if we learn nothing else from this case, we should certainly understand that the strength and reasonableness of inferences often lies in the eye of the beholder.

To be sure, today's holding simply permits a malicious prosecution action to move forward, without in any way suggesting Citizens will ultimately prevail.  But this is precisely the sort of harm the anti-SLAPP statute was designed to target and precisely the result the procedure is designed to forestall.  Based on Citizens's conduct, this case was "arguably meritorious" when it was filed.  (See Wilson, supra, 28 Cal.4th at p. 822.)  Although plaintiffs ultimately did not succeed when the law changed, I believe the anti-SLAPP procedure should have enabled them and their counsel to defeat this speculative malicious prosecution action at an early stage of litigation.

Id. at 9-10 (emphasis added).  I share Justice Dato's assessment of the facts of this case. 

Recent opinion addresses CLRA's pre-lawsuit demand and correction procedures: Valdez v. Seidner-Miller, Inc.

In Valdez v. Seidner-Miller, Inc., ___ Cal.App.5th ___ (Mar. 27, 2019), the Court of Appeal (Second Appellate District, Division Seven) considered Civil Code section 1782, which states that a CLRA action for damages cannot be maintained unless (a) the plaintiff has made an appropriate pre-filing demand that the defendant "correct, repair, replace, or otherwise rectify" the violation; and (b) the defendant failed to "give" the consumer "an appropriate correction, repair, replacement, or other remedy ... within 30 days after receipt of the notice." 

As a preliminary matter, the Court considered what happens if "30 days after receipt of the notice" falls on a Saturday or other "holiday."  Under Code of Civil Procedure section 12a, the Court held, the defendant has until the following business day to respond.  Hence, the defendant's offer, made 32 days "after receipt of the notice," was timely.  Slip op. at 14-16 & n.13. 

Next, the Court held that the defendant's correction offer, which took the form of a detailed proposed settlement agreement, "was not an appropriate correction offer as contemplated by section 1782, subdivision (b)" because the offered relief was conditioned on the plaintiff's agreement to release other claims beyond his CLRA claim for damages.  Id. at 16.  The Court explained:

Th[e] broad release language and covenant not to sue [included in the defendant's correction offer] would have prohibited Valdez from asserting his [Civil Code] section 1632, UCL, and fraud claims and his claim for injunctive relief under the CLRA.  Yet Valdez had a right to bring those claims without first providing notice under the CLRA.  As to a CLRA claim, a timely and appropriate correction under section 1782, subdivision (b), only bars a claim for damages, not injunctive relief.  [Citations.]

Here, Valdez sought injunctive relief under the CLRA and UCL, prohibiting [defendant] “from entering into lease agreements without providing appropriate translations, prior to execution, when negotiations are conducted primarily in a language other than English ....”  Injunctive relief is available under both the CLRA and the UCL.  [Citations.]  Because [defendant]’s draft settlement agreement did not provide the requested injunctive relief, it was not appropriate for [defendant] to condition its correction offer on release of Valdez’s claims for injunctive relief.

Id. at 17 (citations and footnotes omitted).

The opinion favorably cites and discusses Flores v. Southcoast Automotive Liquidators, Inc., 17 Cal.App.5th 841 (2017), which also held that a "reasonable" CLRA correction offer cannot bar the plaintiff "from pursuing remedies based on other statutory violations or common law causes of action based on conduct under those laws."  Slip op. at 18-19 (quoting Flores, 17 Cal.App.5th at 850)  (For more on Flores, see this blog post and accompanying comment.)  The opinion also reconfirms Flores's holding that the UCL and CLRA provide independent remedies and are "independently actionable."  Id. at 20-21. 

Finally, the opinion declined to follow Benson v. Southern California Auto Sales, Inc., 239 Cal.App.4th 1198 (2015), in which a CLRA correction offer was held to bar non-CLRA claims that "were 'inextricably intertwined with the CLRA claim and based on the same conduct.'"  Slip op. at 22 (quoting Benson, 239 Cal.App.4th at 1210).  Such a holding, Valdez held, would be inconsistent with the plain text of sections 1782(a) and (b), as well as other CLRA provisions (namely sections 1752 and 1760), and "would lead to incongruous results."  Id. at 23-24. 

UCL remedies for Labor Code violations and UCL claim "splitting": Zakaryan v. Men's Warehouse, Inc.

While Zakaryan v. Men's Warehouse, Inc., ___ Cal.App.5th ___ (Mar. 28, 2019), is primarily an arbitration decision, it includes some interesting observations about the UCL.   

Seeking to recover unpaid wages as restitution under the UCL is now so routine, the Zakaryan opinion says, that this enforcement mechanism is properly described as one of several "[t]raditionally" pursued by aggrieved employees: 

Traditionally, the Labor Code provides several mechanisms for three different actors to enforce the above described labor laws. 

First, the aggrieved employee may seek judicial or administrative relief.  In terms of judicial relief, the employee may “file[] an ordinary civil action against the employer” for (1) breach of contract (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1084 (Reynolds), abrogated on other grounds in Martinez v. Combs (2010) 49 Cal.4th 35), (2) restitution under the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 177-178), or (3) violation of the Labor Code provision at issue if (and only if) the Code authorizes individual employees to bring a claim based on that provision (§§ 1194, subd. (a) [authorizing civil suit to recover “unpaid balance” of overtime premium pay], 218 [authorizing civil suit to recover pay for missed meal and rest periods and waiting time penalty]). .... 

Slip op. at 6-7 (emphasis added). 

Zakaryan also had this to say about permissible "splitting" of UCL and CLRA claims:

Broughton held that an individual plaintiff’s claim under the Consumer Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.) could be split into two and shunted into two different fora—namely, his claim for damages sent to arbitration and his claim for injunctive relief to “enjoin[][the defendant’s allegedly] deceptive [methods, acts and] practices” to remain in court.  (Boughton, at pp. 1079-1084.)  Following on Broughton’s heels, Cruz held that an individual plaintiff’s claim under the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.) could likewise be split into two and shunted into two different fora—namely, his claim for restitution to arbitration and his claim for injunctive relief to “‘enjoin[] [the defendant’s allegedly] wrongful acts and practices’” to remain in court.  (Cruz, at pp. 308-309, 312-313, 315.)  Broughton and Cruz sanctioned the claim splitting because the individual plaintiff’s CLRA and UCL claims, respectively, involved two primary rights—namely, the individual plaintiff’s right to be made whole (through damages or restitution) and the public’s right to be protected from deceptive or wrongful practices (through a “public injunction” sought by the individual plaintiff “act[ing] in the purest sense as a private attorney general”).  (Cruz, at p. 312; Broughton, at pp. 1079-1080, 1084; see also McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, 961 [“the public injunctive relief available under the UCL [and] the CLRA . . . is primarily ‘for the benefit of the general public’ . . . [and] ‘not to resolve a private dispute’”].)  In other words, individual CLRA and UCL plaintiffs sometimes wear two hats while the employee who brings a solitary PAGA action always wears but one; the former may accordingly be split while the latter may not.

Id. at 13-14 (emphasis added) (citing Cruz v. PacifiCare Health Systems, Inc., 30 Cal.4th 303 (2003); Broughton v. Cigna Healthplans, 21 Cal.4th 1066 (1999)). 

New UCL/CLRA opinion considers the "reasonable consumer": Brady v. Bayer Corp.

In Brady v. Bayer Corp., ___ Cal.App.5th ___ (Sept. 7, 2018), the Court of Appeal (Fourth Appellate District, Division Three) held that the plaintiff's complaint adequately alleged that the defendant's product label was misleading to a reasonable consumer under both the CLRA and the UCL. 

The front of the label called the product "One A Day" multivitamin gummies, but you had to read the back of the label to find out that you're supposed to take two gummies per day to get the recommended daily nutritional value.  The opinion includes images of the front and back of the product label. 

Among other past cases, the opinion considers and favorably cites the Ninth Circuit's decision in Williams v. Gerber Prods. Co., 552 F.3d 934 (9th Cir. 2008) (discussed in these blog posts).

Supreme Court takes up UCL/CLRA class case: Noel v. Thrifty Payless, Inc.

On Wednesday, the Supreme Court granted review in Noel v. Thrifty Payless, no. S246490.  In this case, the Court of Appeal (First Appellate District, Division Four) affirmed the trial court's order denying class certification of UCL, CLRA, and FAL claims.  Noel v. Thrifty Payless, Inc., ___ Cal.App.5th ___ (2017).  The opinion was handed down in December.  It addressed several different issues, and it is unclear at this time which one(s) caught the Supreme Court's eye.  The docket does not yet indicate the issues for review.

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

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

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

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

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

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

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

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

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

Id. at 27. 

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

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

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

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

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

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

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

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

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

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

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

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

Ninth Circuit reverses nationwide class action settlement: In re Hyundai and Kia Fuel Economy Litigation

On Tuesday, the Ninth Circuit handed down a lengthy opinion in a UCL and CLRA class action in which it reversed, on a 2-1 vote, the district court's order granting certification of a nationwide settlement class.  In re Hyundai and Kia Fuel Economy Litigation, ___ F.3d ___ (9th Cir. Jan. 23, 2018). 

The opinion extensively analyzes Mazza v. American Honda Motor Co., 666 F.3d 581 (9th Cir. 2012) (discussed in this blog post), in which certification of a similar nationwide class was also reversed.  

I have not yet had a chance to fully absorb the new opinion, but Perry Elizabeth Cooper wrote up an interesting report at bna.com.  I would imagine that a petition for en banc rehearing is in the offing, and it might even be granted.  On the other hand, en banc rehearing was denied in Mazza, which was also decided on a 2-1 vote.

New opinion confirms UCL and CLRA remedies are cumulative to each other: Flores v. Southcoast Automotive Liquidators, Inc.

In Flores v. Southcoast Automotive Liquidators, Inc., ___ Cal.App.5th ___ (Nov. 27, 2017), the Court of Appeal (Second Appellate District, Division Five) held that "an appropriate correction offer under the Consumers Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq.) does not prevent a consumer from pursuing causes of action for fraud and violation of the UCL based on the same conduct, because the remedies are cumulative."  Slip op. at 2 (footnote omitted). 

New UCL, FAL and CLRA opinion: Rubenstein v. The Gap, Inc.

In Rubenstein v. The Gap, Inc., ___ Cal.App.5th ___ (Aug. 24, 2017), the plaintiff alleged that the defendant should have disclosed that clothing sold at its "Factory Stores" (including Gap and Banana Republic factory stores) was of inferior quality compared to the clothing sold at its "traditional" stores, and that the lesser-quality merchandise had never been offered for sale at the "traditional" stores.  Slip op. at 2-3.  The trial court sustained the defendant's demurrer without leave to amend.  Id. at 4.

The Court of Appeal (Second Appellate District, Division One) held, as a matter of law, on the pleadings, that this conduct did not violate the FAL, the UCL, or the CLRA:

As a matter of law, Gap’s use of its own brand name labels on clothing that it manufactures and sells at Gap-owned stores is not deceptive, regardless of the quality of the merchandise or whether it was ever for sale at other Gap-owned stores.  Retailers may harm the value of their brands by selling inferior merchandise at factory stores, but doing so does not constitute false advertising.  Under these allegations, the trial court properly dismissed the FAL cause of action.

 Slip op. at 6-7.  The Court's reasoning was similar for the UCL claim:

As explained in discussing the FAL cause of action, the SAC alleges no statement by Gap about the quality of factory store merchandise or that it was previously for sale in traditional Gap-owned stores.  Gap’s use of its own brand names in factory store names and on factory store clothing labels is not likely to deceive a reasonable consumer for the simple reason that a purchaser is still getting a Gap or Banana Republic item.  

Id. at 8.  

The opinion goes on to say this: 

The SAC states that “[r]easonable consumers believe outlet stores sell products that were previously available for purchase at retail stores,” but alleges no facts showing this to be true.  Moreover, a consumer for whom the retail history of factory store items is material can ask Gap employees about this.  A reasonable consumer would also inspect the quality of factory store clothing items before buying them and could return items after purchase if they turn out to be unsatisfactory.  In the end, the allegation that Gap is not living up to the quality standards it has set for Gap and Banana Republic brands fails to state a cause of action for a fraudulent business practice under the UCL.

Id. 

This part of the Court's reasoning appears to me inconsistent with a number of principles articulated in Kwikset.  The Court even says that it is rejecting a series of contrary arguments made by the Attorney General in an amicus curiae brief in support of the plaintiff.  See slip op. at 10-12. 

On the UCL "unfair" prong claim, the Court applied the "section 5" test, without acknowledging the three-way split in authority (see this blog post).  Slip op. at 13 (citing Klein v. Chevron U.S.A., Inc., 202 Cal.App.4th 1342 (2012); Camacho v. Automobile Club of Southern California, 142 Cal.App.4th 1394 (2006)). 

Under the "section 5" test:

“[A] business practice is ‘unfair’ if (1) the consumer injury is substantial; (2) the injury is not outweighed by any countervailing benefits to consumers or competition; and (3) the injury could not reasonably have been avoided by consumers themselves.”  (Klein, at p. 1376 & fn. 14 [applying and following Camacho].)

The SAC fails to allege an unfair business practice.  The injury alleged is not substantial because consumers are getting Gap and Banana Republic brand name items for low prices, and there is no allegation that Gap ever made any representations about the retail history or quality of factory store merchandise.  A consumer who cared about whether the items were identical to other Gap merchandise could have asked a sales associate whether this is true.  As for any quality issues, consumers could have examined factory store apparel before purchasing it, read the clothing labels for materials used in manufacture, and returned merchandise after purchase if it was unsatisfactory.  Indeed, [the plaintiff] does not allege that any of the clothing items she purchased at Gap and Banana Republic Factory Stores had any quality issues.

Slip op. at 13-14.  I have to respectfully disagree with this analysis.  The allegation is that the stores are using their brand names to pass off inferior merchandise--not that the merchandise has obvious defects in materials or workmanship.  If it did, and the customer returned it, the deception would have been insufficiently subtle, and would have failed.  A merchant should not be allowed to get away with concealing material information by instituting a return policy, or one that says, "We'll tell you the truth but only if you ask."   

Finally, the Court found no CLRA violation because no affirmative misrepresentations were made and the defendant had no duty to disclose.  Slip op. at 14-15. 

Class certification not required for broad-ranging "public" injunctive relief under the UCL: McGill v. Citibank, N.A.

This morning, the California Supreme Court handed down its long-awaited opinion, McGill v. Citibank, N.A., ___ Cal.5th ___ (Apr. 6, 2017). 

In McGill, the Court was expected to address whether the Federal Arbitration Act, as construed in Concepcion, preempts the Broughton-Cruz rule (see this blog post for more on that rule).  However:

[I]t is now clear that the Broughton-Cruz rule is not at issue in this case.  As detailed above, late in the Court of Appeal proceedings, McGill asserted that the arbitration provision purports to preclude her from seeking public injunctive relief in any forum.  She repeats that assertion in this court ....   At oral argument before us, Citibank agreed with McGill’s reading of the arbitration provision.

Slip op. at 7 (emphasis in original).

Accordingly, the opinion addressed whether such a contractual provision—one purporting to completely eliminate the right to seek public injunctive relief under the UCL, FAL, and CLRA—was void, under ordinary contract-law principles, as contrary to public policy.  The Court held that it was.  Id. at 14. 

The opinion then addressed whether the FAA, construed in Concepcion, preempted this principle of California contract law.  It held that Concepcion did not.  Slip op. at 14-22. 

Here's the part that's really interesting.   The opinion addresses, at length, whether Prop. 64 eliminated the ability of private plaintiffs to seek broad-ranging public injunctive relief.  Not only did the Court say "no" to that (id. at 10-14), it also held that class certification is not required of a UCL or FAL claim seeking such relief!  Id. at 13-14. 

This has been an open question for the past twelve years, since Prop. 64 passed in November 2004.  (For example, see this 2005 blog post, this one from 2006, and this one from 2007.) 

Truthfully, I did not expect the Court to reach or decide it in McGill, but I think the Court's conclusion is absolutely the correct one.  Attempting to apply class certification principles to forward-reaching injunctive relief claims just doesn't make any sense, procedurally:  

[W]e have held that the phrase “compl[y] with Section 382 of the Code of Civil Procedure” (Bus. & Prof. Code, §§ 17203, 17535) “imposes a requirement that the action be brought as a class action.”  (Arias v. Superior Court (2009) 46 Cal.4th 969, 978.)  This requirement has never been imposed with regard to requests to enjoin future wrongful business practices that will injure the public, and we find nothing in the ballot materials for Proposition 64 suggesting an intent to link or restrict such relief to the class action context.  Indeed, imposing this requirement would largely eliminate the ability of a private plaintiff to pursue such relief, because class certification requires “the existence of both an ascertainable class and a well-defined community of interest among the class members” (Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 913), and “ ‘the general public’ . . . fails to meet” this requirement (Czap v. Credit Bureau of Santa Clara Valley (1970) 7 Cal.App.3d 1, 6). 

Slip op. at 13 (emphasis added).  The opinion holds that the class certification requisite added by Prop. 64 applies only to claims by private plaintiffs "seek[ing] disgorgement and/or restitution on behalf of persons other than or in addition to the plaintiff.'"  Id. at 13-14 (quoting Kraus v. Trinity Management Services, Inc., 23 Cal.4th 116, 126 n.10 (2000))(emphasis in original). 

The opinion also strongly suggests that a defendant's "voluntary cessation of wrongful conduct" does not automatically preclude forward-reaching injunctive relief.  Id. at 10.  Notably, the opinion favorably cites Robinson v. U-Haul of California, 4 Cal.App.4th 304 (2016) (discussed in this blog post), in which the Court of Appeal rejected an argument that no injunction may issue under the UCL if the defendant voluntarily stops engaging in wrongful acts. 

For those interested in a general overview of the McGill opinion, this is the Court's introductory paragraph:

In previous decisions, this court has said that the statutory remedies available for a violation of the Consumers Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq.), the unfair competition law (UCL; Bus. & Prof. Code, § 17200 et seq.), and the false advertising law (id., § 17500 et seq.) include public injunctive relief, i.e., injunctive relief that has the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public.  (Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 315-316 (Cruz); Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1077 (Broughton).)  The question we address in this case is the validity of a provision in a predispute arbitration agreement that waives the right to seek this statutory remedy in any forum.  We hold that such a provision is contrary to California public policy and is thus unenforceable under California law.  We further hold that the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) does not preempt this rule of California law or require enforcement of the waiver provision.  We therefore reverse the judgment of the Court of Appeal.

Slip op. at 1.

Ninth Circuit considers CLRA attorneys' fees: Gonzales v. CarMax Auto Superstores, LLC

Back in October, I reported on an opinion in which the Ninth Circuit determined that the defendant had violated the CLRA and directed that summary judgment be entered in the plaintiff's favor on the CLRA claim.  Gonzales v. CarMax Auto Superstores, LLC, 840 F.3d 644 (9th Cir. 2016). 

Thereafter, the plaintiff invoked the CLRA's attorneys' fees provision by moving for fees incurred on appeal. In response, the defendant argued that fees could not be awarded because it offered to correct the violation after receiving the plaintiff's CLRA notice letter, in accordance with Civil Code section 1782.  The Ninth Circuit disagreed, observing that the plaintiff's complaint sought injunctive relief only, and not damages:

In the present case, Gonzales’ Second Amended Complaint did “not seek damages of any kind” on his CLRA claim, but rather sought only an “injunction prohibiting acts or practices which violate the CLRA.” As the California Supreme Court noted, “section 1782, subdivision (d) contemplates the filing of a CLRA action for injunctive relief alone, and such actions are not subject to the requirements of subdivisions (a) and (b) of notice and allowance for voluntary correction,” which apply only to an action for damages. Meyer v. Sprint Spectrum L.P., 200 P.3d 295, 301 (Cal. 2009). Because Gonzales sought only injunctive relief for violation of the CLRA, CarMax’s correction offer does not bar Gonzales from recovering attorney’s fees.

Gonzales v. CarMax Auto Superstores, LLC, ___ F.3d ___ (9th Cir. Jan. 6, 2017), slip op. at 6 (footnotes omitted).  The panel remanded the case to the district court for it to rule in the first instance on the other questions raised by the fee motion.

Ninth Circuit hands down UCL "unlawful" prong and CLRA decision: Gonzales v. CarMax Auto Superstores, LLC

In Gonzales v. CarMax Auto Superstores, LLC, ___ F.3d ___ (9th Cir. Oct. 20, 2016), the Ninth Circuit considered a UCL "unlawful" prong claim and a CLRA claim predicated on alleged violations of Vehicle Code section 11713.18, which is part of the "Car Buyer's Bill of Rights," enacted in 2005.  That section prohibits a car dealer from describing a used car as "certified" unless the dealer provides the buyer with a "completed inspection report" prior to sale, and expressly makes any violation actionable under both the UCL and the CLRA: 

A violation of this section is actionable under the Consumers Legal Remedies Act (Title 1.5 (commencing with Section 1750) of Part 4 of Division 3 of the Civil Code), the Unfair Competition Law (Chapter 5 (commencing with Section 17200) of Part 2 of Division 7 of the Business and Professions Code), Section 17500 of the Business and Professions Code, or any other applicable state or federal law. The rights and remedies provided by this section are cumulative and shall not be construed as restricting any right or remedy that is otherwise available.

Veh. Code § 11713.18(b).  In other words, it adds an item to the CLRA's laundry list of deceptive conduct. 

The panel reversed the district court's grant of summary judgment in the dealer's favor, and remanded with directions to enter summary judgment for the plaintiff instead.  Slip op. at 9-22.  The opinion delves deeply into the purpose and legislative history of the Car Buyer's Bill of Rights, and is worth a read for anyone handling litigation involving that Act. 

New Ninth Circuit UCL, FAL and CLRA opinion: Ebner v. Fresh, Inc.

In Ebner v. Fresh, Inc., ___ F.3d ___ (9th Cir. Sept. 27, 2016), the plaintiff asserted UCL, FAL and CLRA claims based on the defendant's labeling and marketing of its "Sugar" lip balm.  According to the plaintiff, the statements of "net weight" are wrong and the "oversize" tubes and boxes in which the lip balm is sold "create the misleading impression that each unit has a larger quantity of lip product than it actually contains." Slip op. at 6.  The district court dismissed the action in its entirety.  Id. at 4-5. 

The Ninth Circuit held that claims based on misstatements of "net weight" were properly dismissed because the federal Food, Drug and Cosmetic Act created a Cel-Tech safe harbor for such statements.  Slip op. at 8-9.  However, plaintiff also argued that the defendant omitted any "supplemental or clarifying statement" explaining that part of the next weight would be inaccessible to the consumer because of the tube design.  Claims based on this omission theory enjoyed no safe harbor, nor were they expressly or impliedly preempted.  Id. at 9-12.

Nevertheless, the omission claim failed, the Court held, because "Plaintiff cannot plausibly allege that the omission of supplemental disclosures about product weight rendered Sugar’s label 'false or misleading' to the reasonable consumer."  Id. at 12.  Basically, the Court held that reasonable consumers know how lip balm tubes with screw mechanisms work, and that they know the tubes can end up leaving some product behind at the bottom.  See id. at 13-15.  In this portion of the opinion, the Court distinguished Williams v. Gerber Products Co., 552 F.3d 934 (9th Cir. 2008) (discussed in these blog posts).

The Court then held that claims based on misleading packaging (as opposed to labeling) also failed "for largely the same reasons that the label-based claims fail."  Id. at 16.  In "the high-end cosmetics market, Sugar's elaborate packaging and the weighty feel of the tub is commonplace and even expected by a significant portion of Fresh's 'targeted consumers.'"  Id. (citing Lavie v. Procter & Gamble Co., 105 Cal.App.4th 486 (2003) (discussed in this blog post)). 

This opinion accompanies an order denying the plaintiff's petition for panel rehearing or en banc rehearing, which challenged an earlier opinion handed down in March.   The main difference between the current opinion and the earlier opinion (which has been superseded) is that the current opinion spends more time distinguishing Williams. 

(Hat tip: The Complex Litigator.)

Recent opinion addresses class notice in CLRA settlements: Choi v. Mario Bodescu Skin Care, Inc.

In the published portion of Choi v. Mario Bodescu Skin Care, Inc., 248 Cal.App.4th 292 (Jun. 21, 2016), the Court of Appeal (Second Appellate District, Division Three) affirmed final approval of a class action settlement involving UCL, CLRA and other claims. 

In so doing, the panel rejected the objector's argument that, for purposes of the CLRA claim, the published notice was deficient because it failed to comport with Civil Code section 1781(d).  Id. at 298-300.  That section, the Court held, does not apply to settlement notices, which are governed by section 1781(f).  Id. at 299.  The published notice was fully compliant with the latter provision, which grants the trial court broader "discretion to fashion notice of a settlement class."  Id.  The trial court did not abuse its discretion in approving one-time published notice in Parade magazine.  See id.

The panel also questioned whether the CLRA's notice provisions were intended to apply to nationwide class actions, or in actions asserting both CLRA and other claims:

Furthermore, it is infeasible to comply with the requirement in Civil Code section 1781, subdivision (d) to give notice in “a newspaper of general circulation in the county in which the transaction occurred.” Determining in which counties around the United States sales of the creams occurred in this case would be impossible. Civil Code section 1781 does not appear to govern nationwide consumer class actions. The McLaren Objectors have not demonstrated that Civil Code section 1781, subdivision (d) applies to require four-times notice to a nationwide settlement class, particularly where other class claims were alleged and all of the remedies were obtained under causes of action other than the CLRA.

Id. at 300. 

New Ninth Circuit opinion on CAFA and standing: Polo v. Innoventions International, LLC

In Polo v. Innoventions International, LLC, ___ F.3d ___ (9th Cir. Aug. 18, 2016), the plaintiff brought UCL, CLRA, and other claims, alleging that she purchased the defendant's allegedly mislabeled diabetes medication, and that taking the medication made her diabetes worse.   The district court held that Article III standing was lacking, and dismissed the case.  The plaintiff appealed as to the CLRA class claim only, arguing that instead of being dismissed, the case should have been remanded back to state court, where it was initially filed before the defendant removed it under CAFA.  Slip op. at 4.  The Ninth Circuit agreed:

The rule that a removed case in which the plaintiff lacks Article III standing must be remanded to state court under § 1447(c) applies as well to a case removed pursuant to CAFA as to any other type of removed case.

Slip op at 7. The court then explained that the CLRA class claim might be viable in state court even if the plaintiff did not suffer "injury in fact" for Article III purposes: 

A plaintiff who purchased goods in light of deceptive practices has standing to sue pursuant to the CLRA if she alleges (a) that she purchased a product from the defendant, and (b) that “the purchase would not have been made but for the misrepresentation.” Kwikset Corp. v. Superior Court, 246 P.3d 877, 890 (Cal. 2011); see also Hinojos v. Kohl’s Corp., 718 F.3d 1098, 1108 (9th Cir. 2013). The injury Polo asserts with respect to her CLRA claim fits these requirements:

Plaintiff and California Class members suffered injuries caused by Defendants’ misrepresentations about DiabeStevia because: (a) Plaintiff and the California Class members would not have purchased DiabeStevia on the same terms had they known the true facts; (b) Plaintiff and the California Class paid a premium price due to the false and misleading advertising of DiabeStevia; and (c) DiabeStevia did not have the level of safety, quality, effectiveness or value as promised.

Polo’s standing to bring her CLRA claim does not depend upon her allegation that taking DiabeStevia made her diabetes worse. Indeed, with respect to Polo’s CLRA claim, when Polo ceased taking her diabetes medication—or whether she had diabetes at all—is irrelevant. What matters are her allegations that she thought she had diabetes; that Innoventions marketed DiabeStevia as a treatment for diabetes; and that but for that marketing, she would not have bought DiabeStevia.

Were that the end of the allegations, Polo would likely have standing under Article III. See Hinojos, 718 F.3d at 1104 n.3. But the district court held that because Innoventions fully compensated Polo for “her entire purchase price,” her CLRA claim is moot.⁵ Under California law, however, that sort of “picking off” of class plaintiffs is ineffective: “[O]nce a person has been the victim of a proscribed practice under the CLRA and makes a demand on behalf of a class, remedying the plaintiff’s individual complaint does not disqualify her as class representative.” Meyer v. Sprint Spectrum, L.P., 200 P.3d 295, 300 (Cal. 2009). Instead, to defeat a class action based on practices proscribed under the CLRA, the defendant “must adequately notify the members of the class and provide an opportunity for an appropriate remedy for the defective goods or services.” Id. (citing Cal. Civ. Code § 1782(c)).

Polo made a demand on behalf of a class on April 6, 2012. Innoventions refunded Polo’s purchase price on May 11, 2012, but does not contend that it provided the notice and remedy to class members required by the CLRA. See Cal. Civ. Code § 1782(c); Meyer, 200 P.3d at 300. Thus, Polo likely retains standing under California law. At a minimum, we cannot say with “absolute certainty” that remand would be futile. Therefore, the district court should have remanded this case to state court pursuant to 28 U.S.C. § 1447(c).

⁵ This conclusion is questionable, see Chen v. Allstate Ins. Co., 819 F.3d 1136, 1141–43 (2016), but Polo expressly waived any argument to the contrary on appeal. ....

Slip op. at 10-12 (footnote 4 omitted). 

It seems to me that the district court erred by dismissing the action in the first place. The "no-pickoff" rule applies in federal court, too.  See Gomez v. Campbell-Ewald Co., 768 F.3d 871, 874-75 (9th Cir. 2014) (discussed here); Diaz v. First American Home Buyers Protection Corp., 732 F.3d 948 (9th Cir. 2013) (discussed here); Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011) (discussed here).  Even if the medication did not worsen plaintiff's diabetes, if she purchased the mislabeled product, she probably has a viable CLRA claim, and if she doesn't, the defendant can't eliminate the case by picking her off, regardless of whether the case is in federal or state court.  The good news is the plaintiff can now proceed with the case in state court, which is where she wanted to be in the first place. It's too bad about all the wasted time and effort in federal court, though. 

Supreme Court depublishes UCL and CLRA standing opinion: Brooks v. CarMax Auto Superstores California LLC

On August 10, 2016, the Supreme Court issued an order depublishing the Court of Appeal's opinion in Brooks v. CarMax Auto Superstores California LLC, 246 Cal.App.4th 973 (2016), which was handed down in April. 

The opinion, which is now uncitable, summarizes the claims and trial court's ruling as follows:

After a court trial on stipulated facts, the court ruled Brooks had suffered no damage from CarMax's alleged violations of [Vehicle Code] section 11713.18 [which governs mandatory CQI Certificates for "certified" used vehicles], and therefore concluded she did not have standing to pursue claims under the CLRA or the UCL.  The court entered judgment for CarMax.  Brooks asserts on appeal that reversal is required because she adequately demonstrated the type of damage necessary to prosecute a claim under the CLRA or the UCL or, alternatively, she was entitled to prosecute her claims under the CLRA or the UCL without showing any injury.

Slip op. at 2. The Court of Appeal (Fourth Appellate District, Division One) disagreed with the trial court on the standing points, but affirmed the judgment after finding no deficiency in the defendant's CQI Certificate:

We agree with Brooks that the legislative scheme contemplates certain minimal standards must be met before a dealer may promote or sell a vehicle as certified, among which is that a dealer must provide a "completed inspection report indicating all the components inspected" to the buyer.  We also agree that, if those standards are not satisfied, a vehicle marketed and sold as certified has been mislabeled, and a buyer who establishes they would not have purchased the vehicle absent that "certified" label has standing to pursue claims for violation of the CLRA and UCL under the rationale of Kwikset, regardless of whether the particular vehicle purchased might be as mechanically sound or intrinsically valuable as a certified vehicle.

However, we conclude the trial court correctly entered judgment against Brooks (Rappleyea v. Campbell, supra, 8 Cal.4th at p. 981) because we reject Brooks's claim that the CQI Certificate was deficient in its content. ....

.....

Although the trial court premised its judgment on Brooks's lack of actual injury, we affirm the judgment as correct (Rappleyea v. Campbell, supra, 8 Cal.4th at p. 981) because we conclude both the content of the CQI Certificate and the mode it was provided to Brooks satisfied the requirements of section 11713.18, subdivision (a)(6).

Id. at 12-13, 20 (emphasis in original).

The successful depublication request was filed by Consumers for Auto Reliability and Safety, which presumably disagreed with the Court of Appeal's reading of the CQI certification requirements.

Supreme Court hands down long-awaited arbitration opinion: Sanchez v. Valencia Holding Co.

Almost three and a half years ago, the Supreme Court granted review in Sanchez v. Valencia Holding Co., no. S199119, in order to address whether the Federal Arbitration Act, as construed in Concepcion, preempts generally applicable state-law rules of contractual unconscionability. 

The Court of Appeal said no (Sanchez v. Valencia Holding Co., LLC, 201 Cal.App.4th 74 (2011)), and the question was since authoritatively answered in the negative in several opinions, including Sonic-Calabasas A, Inc. v. Moreno, 57 Cal.4th 1109 (2013) (discussed in this blog post).  As a result, Sanchez became a vehicle for the Supreme Court instead to revisit what it means for a contract to be "unconscionable" under California law. The Court ordered supplemental briefing on that issue in February 2014. 

In an opinion handed down yesterday, the Supreme Court held, in a fact-specific analysis, that the contract of adhesion between the plaintiff car buyer and his used car dealer was not "unconscionable," contrary to the Court of Appeal's conclusion in 2011.  Sanchez v. Valencia Holding Co., __ Cal.4th ___ (Aug. 3, 2015).  The Court held that the various formulations of substantive "unconscionability," "used throughout our case law, all mean the same thing."  Slip op. at 9.

Probably the most significant part of the opinion, from a consumer class action perspective, is its holding that the FAA, as construed in Concepcion, preempts the CLRA's "no-waiver" provision (Civil Code section 1751) "insofar as [that provision] bars class waivers in arbitration agreements covered by the FAA."  Slip op. at 26.  This issue had previously been the subject of a split in authority among the Courts of Appeal.

New UCL opinion: Rutledge v. Hewlett Packard Co.

The Court of Appeal (Sixth Appellate District) handed down an important new UCL opinion last week. 

In Rutledge v. Hewlett Packard Co., ___ Cal.App.4th ___ (Jul. 22, 2015), the Court of Appeal reinstated a UCL "fraudulent" prong claim, and a CLRA claim, against a product manufacturer for failing to disclose material information about the product -- even though the nondisclosure was not about a safety-related defect, and even though for some class members the product did not fail until after the expiration of the manufacturer's warranty.  Slip op. at 6-12. 

Put another way, the opinion places some important limitations on Daugherty v. American Honda Co., 144 Cal.App.4th 824 (2006), and its successor opinion, Bardin v. DaimlerChrysler Corp., 136 Cal.App.4th 1255 (2006).  (For more on Daugherty, see these blog posts.  For more on Bardin, see this one.)  Before this new opinion, the Court of Appeal's most recent word on these issues had been Collins v. eMachines, Inc., 202 Cal.App.4th 249 (2011).

This is what the opinion has to say about the warranty issue:

HP argues [one of the named plaintiffs] and class members similar to him do not have a claim for fraudulent concealment under the UCL, because they received notebooks with inverters that functioned for the duration of the one-year warranty, and were not damaged by HP’s alleged failure to disclose the fact of the faulty inverter.  However, a claim for fraudulent business practices “reflects the UCL’s focus on the defendant’s conduct, rather than the plaintiff’s damages, in service of the statute’s larger purpose of protecting the general public against unscrupulous business practices.”  (In re Tobacco II Cases (2009) 46 Cal.4th 298, 312.)  The question under the UCL is related to HP’s conduct in failing to disclose the faulty inverter, not on whether the notebook’s computer functioned for one-year.  HP’s argument that the expiration of the warranty period precludes a claim for fraudulent concealment under the UCL is incorrect.

Slip op. at 10-11 (emphasis added).

Back in 2008, the same division of the Court of Appeal declined to disturb the trial court's order granting class certification of the UCL claim in the same case.   My post on the 2008 opinion is here.  In the opinion handed down last week, the Court of Appeal not only reaffirmed that result, but also held that certification should have been granted of a nationwide class.  Slip op. at 23-29.

New UCL Prop. 64 standing opinion: Sarun v. Dignity Health

In Sarun v. Dignity Health, ___ Cal.App.4th ___ (Dec. 15, 2014; pub. ord. Jan. 6, 2015), the plaintiff's UCL and CLRA causes of action alleged that the defendant hospital failed to disclose that it charged uninsured patients more for emergency medical care than it charges other patients.  The plaintiff himself received emergency medical care for which the defendant billed him over $23,000.  By the time he filed suit, however, he had paid only a portion of the balance due, and he had not applied for any available discounts from the defendant.   Slip op. at 1-4. 

Based on the latter facts, the trial court sustained the defendant's demurrer without leave to amend, holding that the plaintiff had not suffered injury in fact or lost money or property, and therefore lacked standing.  Id. at 5-6. 

The Court of Appeal (Second Appellate District, Division Seven) disagreed, and reversed.

Citing both Kwikset Corporation v. Superior Court, 51 Cal.4th 310 (2011) and Clayworth v. Pfizer, Inc., 49 Cal.4th 758 (2010), the Court of Appeal explained that the plaintiff had adequately alleged an economic injury based on the defendant's assertion against him of an obligation to pay, and on the transaction costs that wold be required to avoid the injury:

To satisfy Proposition 64 a plaintiff “must now establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that that economic injury was the result of, i.e. caused by, the unfair practice or false advertising that is the gravamen of the claim.”  (Kwikset, at p. 322.) 

“Injury in fact” as used in Proposition 64 has the same meaning as under federal law:  “‘[A]n invasion of a legally protected interest which is (a) concrete and particularized, [citations]; and (b) “actual or imminent, not ‘conjectural’ or ‘hypothetical,’” [citations].’”  (Kwikset, supra, 51 Cal.4th at p. 322.)  Proposition 64, however, imposes the additional requirement that the plaintiff have lost money or property.  (Ibid.)  Indeed, loss of money or property—that is, “economic injury”— “is itself a classic form of injury in fact.”  (Id. at p. 323; see id. at p. 325, fn. 8 [“proof of lost money or property will generally satisfy the element of injury in fact”].)  Economic injury may be shown in many ways including a plaintiff  “surrender[ing] in a transaction more, or acquir[ing] in a transaction less, than he or she otherwise would have”; “hav[ing] a present or future property interest diminished”; and “be[ing] required to enter into a transaction, costing money or property, that would otherwise have been unnecessary.”  (Id. at p. 323.)

....

....  Although Dignity had not begun any collection activity, the existence of an enforceable obligation, without more, ordinarily constitutes actual injury or injury in fact.  (See Hale, supra, 183 Cal.App.4th at pp. 1383-1384; see generally Adams v. Paul (1995) 11 Cal.4th 583, 591, fn. 5 [“actual injury . . . may well precede quantifiable financial costs”].)

....

.... [And, a]lthough a further discount from Dignity’s “full charges”—even a complete elimination of the charges in excess of what Sarun already had paid—may have been available, the invoice as presented to Sarun (which was before the trial court after it granted Dignity’s unopposed motion for judicial notice) stated a $23,487.90 balance was due.  Sarun was not merely “exposed” to the allegedly unlawful pricing system—that is, a list price expressly subject to negotiation like the sticker price on an automobile on a dealer’s lot or a shouted offer at the souk—Dignity’s invoice told him to pay the full remaining sum unless he sought relief.  Indeed, the form admissions agreement Sarun had signed after arriving by ambulance at the hospital obligated him to pay Dignity’s full charges unless other discounts applied, but did not obligate him to apply for such discounts, and further provided he would be liable for attorney fees and collection expenses if the matter was referred for collection.  As in Hale, upon receipt of this bill Sarun faced at least an imminent invasion of a legally protected interest. 

Moreover, the Meyer Court, in discussing its earlier decision in Kagan v. Gibraltar Sav. & Loan Assn. (1984) 35 Cal.3d 582, also explained that incurring transaction costs to avoid the consequences of a deceptive practice “falls within the broad meaning of suffering ‘any damage as a result of the use or employment’ of an unlawful practice, whether or not those transaction costs are cognizable as ‘actual damages.’”  (Meyer v. Sprint Spectrum, L.P, supra, 45 Cal.4th at p. 643.)  Sarun was faced with just such transaction costs:  To avoid the consequences of its allegedly unlawful “full charges” pricing structure for uninsured emergency care patients, Dignity required Sarun to apply for financial assistance, including providing tax return information and other personal financial data.  The tangible burden of such an application process is far more than the “identifiable trifle” required to confer injury-in-fact standing.

Slip op. at 7-11 (italics in original; bold added). 

Also of interest is the Court of Appeal's recognition that mitigation of damages is not an element of a UCL or CLRA claim, nor is it a prerequisite to standing:

Our conclusion is reinforced by Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758 in which the Supreme Court held retail pharmacies had standing to assert UCL claims against pharmaceutical companies that had allegedly engaged in price fixing even though the retail pharmacies were able to pass on any overcharges to their customers.  (Id. at p. 788 [pharmacies “lost money:  the overcharges they paid”].)  The Court rejected the pharmaceutical companies’ argument the pharmacies ultimately “suffered no compensable loss because they were able to mitigate fully any injury by passing on the overcharges,” explaining “[t]he doctrine of mitigation, where it applies, is a limitation on liability for damages, not a basis for extinguishing standing.  [Citation.]  This is so because mitigation, while it might diminish a party’s recovery, does not diminish the party’s interest in proving it is entitled to recovery.”  (Id. at p. 789.)  Dignity’s argument Sarun was required to apply for financial assistance to perfect his claim (that is, to allege injury in fact) would be akin to requiring Sarun to mitigate his damages as a precondition to suit.  As in Clayworth, that is unnecessary here.

Id. at 11 (bold added).

"Appeals court revives suit against Skype"

Yesterday's San Francisco Chronicle had this article (subscription) by Bob Egelko on the Court of Appeal's latest UCL and CLRA opinion, Chapman v. Skype Inc., ___ Cal.App.4th ___ (Oct. 4, 2013).

Chapman stands in rather stark contrast to Simpson v. The Kroger Corp., ___ Cal.App.4th ___ (Sept. 25, 2013), decided the preceding week (see this blog post).  More details on Chapman can be found on Professor Tushnet's blog, which also had a post on Simpson.

Recent class arbitration and CLRA opinion: Flores v. West Covina Auto Group

In Flores v. West Covina Auto Group, ___ Cal.App.4th ___ (Jan. 11, 2013), the Court of Appeal (Second Appellate District, Division Eight) affirmed an order compelling arbitration in a putative class action brought under the CLRA. 

The panel held (among other things) that under Concepcion, the FAA preempts the CLRA's no-waiver provision (Civil Code section 1751) and, accordingly, the no-class-action arbitration clause in the vehicle installment sale contract was enforceable.  Slip op. at 10-15. This part of the opinion concludes: 

In sum, the CLRA’s prohibition against class waivers is preempted by the FAA.  The waiver of class arbitration rights in appellants’ sales contract is not unenforceable under the CLRA.  The poison pill provision ‑‑ which makes the arbitration clause unenforceable if the class arbitration waiver is unenforceable ‑‑ is thus not triggered.

Id. at 15. 

The Court of Appeal reached a similar conclusion in Caron v. Mercedes-Benz Financial Services USA LLC, 145 Cal.Rptr.3d 296 (2012) (discussed in this blog post).  The Supreme Court granted review in Caron on October 24, 2012.  Caron v. Mercedes-Benz Fin. Servs. USA, No. S205263.  Briefing has been deferred in Caron pending resolution of Iskanian v. CLS Transportation, No. S204032. 

Like Caron, Flores creates a split in authority with Fisher v. DCH Temecula Imports LLC, 187 Cal. App. 4th 601 (2010) (discussed in this blog post).  A "grant and hold" order is very possible here as well, if a petition for review is filed. 

"Software and the CLRA"

The December 2012 issue of California Lawyer has an article, "Software and the CLRA," by Daniel K. Slaughter of Stein & Lubin.

New Ninth Circuit UCL and CLRA opinion: Sateriale v. R.J. Reynolds Tobacco Co.

In Sateriale v. R.J. Reynolds Tobacco Co., ___ F.3d ___ (9th Cir. Jul. 13, 2012), the Ninth Circuit affirmed dismissal, for lack of standing, of UCL and CLRA claims based on alleged misrepresentations surrounding R.J. Reynolds' termination of its "Camel Cash" customer rewards program. 

Before addressing the UCL and CLRA claims, the court held that plaintiffs' complaint did adequately allege breach of contract and promissory estoppel.  Slip op. at 8090-8105.

The opinion's detailed discussion of those claims is quite interesting and brings back many pleasant memories of first-year contracts class.  Who could forget that the doctrine of mutuality of obligation, while fully applicable to bilateral contracts, does not apply to unilateral contracts?  Id. at 8102.  Or that "an enforceable termination clause that gives a promisor an unrestricted power to terminate a contract at any time" renders that contract illusory and unenforceable, at least so long as the contract remains wholly executory?  Id. at 8103.

The court then turned to the UCL and CLRA claims: 

Because the plaintiffs’ UCL claim sounds in fraud, they are required to prove “actual reliance on the allegedly deceptive or misleading statements,” Kwikset Corp. v. Superior Court, 246 P.3d 877, 888 (Cal. 2011) (quoting In re Tobacco II Cases, 207 P.3d 20, 26 (Cal. 2009)) (internal quotation marks omitted), and that “the misrepresentation was an immediate cause of [their] injury-producing conduct,” In re Tobacco II Cases, 207 P.3d at 39. The complaint does not satisfy these requirements.

In particular, the plaintiffs do not allege reliance.  They do not allege that they purchased additional Camel cigarettes in reliance on the October 1 announcement [that the rewards program would terminate six months later]. They also do not allege that they delayed redeeming their saved Camel Cash certificates in reliance on the announcement. Even if they had alleged delay, they do not explain how this delay could have caused their injury: under the allegations of the complaint, RJR ceased accepting C-Notes for redemption as soon as it delivered the October 1 announcement, so delay could not have caused the plaintiffs’ loss. Given the absence of an alleged causal connection between the alleged misrepresentations
and the plaintiffs’ injuries, the district court properly dismissed the UCL claim.

....

As with the UCL, consumers seeking to recover damages under the CLRA based on a fraud theory must prove “actual reliance on the misrepresentation and harm.” Nelson v. Pearson Ford Co., 112 Cal. Rptr. 3d 607, 638 (Ct. App. 2010); accord Durell v. Sharp Healthcare, 108 Cal. Rptr. 3d 682, 697 (Ct. App. 2010); In re Vioxx Class Cases, 103 Cal. Rptr. 3d 83, 94 (Ct. App. 2009).  

The plaintiffs have not satisfied these requirements here ...  as we explained in connection with the plaintiffs’ UCL claim. We therefore affirm dismissal of the plaintiffs’ CLRA claim as well.

Slip op. at 8105-06, 8107 (footnote omitted).

New CLRA attorneys' fees opinion: Pierce v. Western Surety Co.

In Pierce v. Western Surety Co., ___ Cal.App.4th ___ (Jun. 22, 2012), the Court of Appeal (Fifth Appellate District) addressed the CLRA and its attorneys' fees provision in the context of evaluating the scope of a surety's liability for acts of its principal.  Slip op. at 8-10.

The Court of Appeal summarized its opinion:

In sum, [Vehicle Code] section 11711 does not provide for attorney fees.  Therefore, attorney fees are not recoverable based on that section.  However, a surety that issues a bond pursuant to section 11711 is subject to general surety law.  Under Civil Code section 2808, a surety’s liability is commensurate with that of the principal within the express terms of the bond and any applicable statutes.  Thus, if the principal would have been liable for attorney fees based on conduct secured by the bond, the surety is liable for such fees.

Slip op. at 10.  Because the principal would have been liable for attorneys' fees under the CLRA, the surety was similarly "liable for such fees." See id.

[Via California Personal Property Finance Law]

"Why Materiality Does Not Equal a Safety Risk"

The Spring 2012 issue of Competition, journal of the Antitrust and Unfair Competition Law Section of the State Bar of California, is just out.

The issue has an interesting article called "Revisiting Materiality in the Context of CLRA and UCL Claims:  Why Materiality Does Not Equal a Safety Risk" by James C. Shah and Rose F. Luzon.  Here is an excerpt from the introduction:

Some practitioners and courts now take the position that, in order to establish materiality in an omission-based claim under the CLRA and UCL, a plaintiff must allege that the subject product poses a safety risk.  ....

As this discussion will demonstrate, given what is and has been the prevailing materiality standard for years, the existence of a safety risk is clearly not a required element of this standard, and its absence should not be a basis for precluding otherwise viable CLRA and UCL claims that are brought to redress consumer wrongs.  This article discusses why the imposition of a "safety" requirement for pleading materiality in omission-based consumer fraud claims is both contrary to controlling legal authority and to the express legislative purpose of the CLRA and UCL.

The article is worth a read.  This is an important area of law and one in which we are seeing what is perhaps CAFA's most problematic side effect:  federal judges making California law.  Federal judges construe the law in removed class-action cases raising no federal questions, their rulings are cited by litigants in state courts, and those rulings are followed by state-court judges.  The intermediate Court of Appeal opinion in Brinker is another example of this phenomenon.  

New UCL and CLRA "safe harbor" decision: Alvarez v. Chevron Corp.

In Alvarez v. Chevron Corp., ___ F.3d ___ (9th Cir. Sept. 1, 2011), the Ninth Circuit applied the Cel-Tech safe harbor to a UCL claim and, citing Bourgi v. West Covina Motors, Inc., 166 Cal.App.4th 1649 (2008), applied a similar safe harbor to the CLRA claim.

Recent UCL "fraudulent" prong decision: Hill v. Roll Int'l Corp.

In Hill v. Roll International Corp., 195 Cal.App.4th 1295 (May 26, 2011), the Court of Appeal (First Appellate District, Division Two) held as a matter of law that "no reasonable consumer would be misled to think that the green drop on Fiji water represents a third party organization's endorsement or that Fiji water is environmentally superior to that of the competition."  Id., slip op at 5 (emphasis in original).  

The Court discussed the "reasonable consumer" standard in some detail (id. at 8-10), and concluded that "in these days of inevitable and readily available Internet criticism and suspicion of virtually any corporate enterprise, ... a reasonable consumer ... does not include one who is overly suspicious."  Id. at 9.

The Court also held that Kwikset did not dictate a contrary result:

We agree wholeheartedly that “labels matter,” all labels, including that here.  Defendants obviously put the green drop on the label for a purpose, as their counsel had to necessarily concede at oral argument:  that the green drop was for a “marketing” purpose, to signify “something to do with the environment.”  Such concession notwithstanding, we hold—and it is all we hold—that no reasonable consumer would be misled to think that the green drop represents a third party organization’s endorsement or that Fiji water is environmentally superior to that of the competition.

Id. at 12.

Accordingly, the Court affirmed the judgment of dismissal following the trial court's order sustaining the defendant's demurrer to the UCL, FAL, and CLRA claims without leave to amend.