The UCL Practitioner

New UCL "unfair" prong opinion: In re Insurance Installment Fee Cases

In In re Insurance Installment Fee Cases, ___ Cal.App.4th ___ (Dec. 13, 2012), the Court of Appeal (Fourth Appellate District, Division One) discussed the three-way split in authority regarding the test for "unfair" conduct in UCL cases brought by consumers. Slip op. at 28-30. 

The Court held that the complaint did not allege conduct by the defendant that violated the UCL under any of the tests.  Id. at 30-31.  The opinion also briefly addresses the "unfair" and "fraudulent" prongs. 

New Ninth Circuit UCL and FAL opinion: Davis v. HSBC Bank Nevada, N.A.

In Davis v. HSBC Bank Nevada, N.A., ___ F.3d ___ (9th Cir. Aug. 31, 2012), the Ninth Circuit affirmed dismissal of UCL and FAL claims at the pleading stage:

Turning to the claims in the FAC, Davis first alleges that Best Buy’s advertising was misleading because it failed to disclose the existence of an annual fee. We agree with the district court that no reasonable consumer would have been deceived by these advertisements into thinking that no annual fee would be imposed.

Slip op. at 10377. 

The opinion also addresses and applies the Cel-Tech "safe harbor."  Id. at 10382-88.  The last sections cover the UCL's "unlawful" prong (here, the "unlawful" prong claim was predicated, interestingly, on a federal regulation requiring national banks to comply with section 5 of the FTC Act) and the "unfair" prong (here, the court noted the three-way split but found the complaint stated no claim under any formulation).  Id. at 10389-94. 

Reply brief on the merits filed in Rose v. Bank of America

The reply brief on the merits was filed on August 21, 2012 in in Rose v. Bank of America, no. S199074.  The merits briefing is now complete.

• Opening Brief on the Merits (filed 05-15-12)
• Answer Brief on the Merits (filed 07-17-12)
• Reply Brief on the Merits (filed 08-21-12)

Amicus briefs, if any, will be due 30 days after the reply was filed (or by approximately September 20, 2012).  See Rule of Court 8.520(f). 

Recent UCL "unfair" prong decision: Wilson v. Hynek

In Wilson v. Hynek, ___ Cal.App.4th ___ (Jun. 20, 2012; pub. ord. Jul. 16, 2012), the Court of Appeal (Fourth Appellate District, Division One) applied the post-Cel-Tech formulation of the "unfair" prong, and held that the trial court had properly sustained the defendant's demurrer to the UCL claim without leave to amend:

The Wilsons do not assert on appeal that any of the defendants' actions were "unlawful" or "fraudulent."  Rather, the sole basis for their assertion they have adequately pled such a cause of action under section 17200 is that the defendants' actions were "unfair."  This contention is unavailing.  

"Determination of whether a business practice or act is 'unfair' within the meaning of [section 17200] entails examination of the impact of the practice or act on its victim, '" ... balanced against the reasons, justifications and motives of the alleged wrongdoer.  In brief, the court must weigh the utility of the defendant's conduct against the gravity of the harm to the alleged victim ...."  [Citation.]'  [Citation.]  In general the 'unfairness' prong 'has been used to enjoin deceptive or sharp practices ....'"  (Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969-970.)  

There is a split of authority in California as to the proper definition of "unfair."  The Wilsons assert the proper test for the unfairness prong is whether the practice "'offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.'"  (State Farm Fire & Casualty Co. v. Superior Court, supra, 45 Cal.App.4th at p. 1104.)

However, this court has, on three occasions, rejected that test and has applied a much narrower test, the so-called "Cel-Tech test" for establishing unfairness.  (See Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1366; Scripps Clinic v. Superior Court (2003) 108 Cal.App.4th 917, 940; Byars v. SCME Mortgage Bankers, Inc. (2003) 109 Cal.App.4th 1134, 1147.)  Under that test, a plaintiff must prove that the defendant's "conduct is tethered to an[] underlying constitutional, statutory or regulatory provision, or that it threatens an incipient violation of an antitrust law, or violates the policy or spirit of an antitrust law."  (Durell, at p. 1366.)

In both their opening and reply briefs, the Wilsons ignore these cases.  Moreover, they do not even attempt to show how their allegations in the second amended complaint can meet this test.  Nor can they.  As detailed, ante, their claims of alleged wrongdoing are directly contradicted by the terms of the deeds of trust, which they omitted as exhibits to their second amended complaint.  Accordingly, the court did not err in sustaining the defendants' demurer to the section 17200 claim.

Slip op. at 11-12 (footnote omitted).

Answer brief on the merits filed in Rose v. Bank of America

Many thanks to the blog reader who forwarded the answer brief on the merits filed last week in Rose v. Bank of America, no. S199074.

• Opening Brief on the Merits (filed 05-15-12)
• Answer Brief on the Merits (filed 07-17-12)

Opening brief on the merits filed in Rose v. Bank of America

The opening brief on the merits was filed last Tuesday in Rose v. Bank of America, no. S199074.

• Opening Brief on the Merits (filed 05-15-12)

The review petition, answer and reply are available at this post.  This is the statement of the issue on review in Rose:

Can a cause of action under the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) be predicated on an alleged violation of the Truth in Savings Act (12 U.S.C. § 4301 et seq.), despite Congress's repeal of the private right of action initially provided for under that Act?

Review petition in Rose v. Bank of America

Here are the review petition and other documents from Rose v. Bank of America, no. S199074, in which the Supreme Court granted review on March 14, 2012:

• Petition for review (filed 12/30/11)
• Answer to petition for review (filed 01/20/12)
• Reply in support of petition for review (filed 01/31/12)
• Amicus letter of AG's office in support of petition for review (dated 01/31/12)

I have not seen the answer to the petition for review.  If you have a copy, please forward it and I will add it to the list above.  [UPDATE:  Many thanks to the blog reader who provided a copy of the answer to the petition for review. ]

The AG's letter is interesting.  According to the letter (at p. 4), the Court of Appeal in Rose held that a UCL "unlawful" prong claim may not be "predicated on violations of federal laws where Congress did not provide a private right of action."  I did not read the Rose opinion quite so broadly, but if this is what it held, that is certainly inconsistent with California Supreme Court precedents.  The letter makes a series of excellent arguments in support of review. 

Here is the docket's statement of the issue on review in Rose:

Can a cause of action under the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) be predicated on an alleged violation of the Truth in Savings Act (12 U.S.C. § 4301 et seq.), despite Congress's repeal of the private right of action initially provided for under that Act?

Two new UCL economic abstention doctrine decisions: Willard v. AT&T and Klein v. Chevron

The Court of Appeal reached opposite conclusions in two opinions addressing the UCL economic abstention doctrine this year.  (See this blog post for more on that doctrine.)

In Willard v. AT&T Communications of Cal., Inc., ___ Cal.App.4th ___ (Mar. 6, 2012), the Court of Appeal (Second Appellate District, Division Five) held that the trial court did not abuse its discretion in declining to entertain the plaintiff's UCL action based on the economic absention doctrine. It affirmed the judgment of dismissal that followed the trial court's order sustaining the defendant's demurrer without leave to amend.

Justice Mosk dissented.  His dissenting opinion argues that the court cannot evaluate, at the demurrer stage, whether the action would implicate questions of complex economic policy.  He would have allowed the case to proceed to discovery. 

Earlier this year, in Klein v. Chevron U.S.A., Inc., 202 Cal.App.4th 1342 (Jan. 25, 2012), the Court of Appeal (Second Appellate District, Division Seven) held that the trial court erred by invoking the economic abstention doctrine at the pleading stage and dismissing the plaintiffs' UCL and CLRA claims.  Id. at 1361-66.  Justice Mosk cited Klein in his dissenting opinion in Willard.

Statement of issue on review in Rose v. Bank of America

The Supreme Court's docket in Rose v. Bank of America, no. S199074, has been updated to include a statement of the issue on review:

Can a cause of action under the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) be predicated on an alleged violation of the Truth in Savings Act (12 U.S.C. § 4301 et seq.), despite Congress's repeal of the private right of action initially provided for under that Act?

This is rather a narrow statement, and tells us little about the extent to which the Court may elaborate on the scope of the UCL's "unlawful" prong, as the Court of Appeal did in its now-uncitable opinion. 

California Supreme Court grants review in UCL "safe harbor" case: Rose v. Bank of America

Yesterday, the Supreme Court granted review in Rose v. Bank of America, no. S199074.  In that case, the Court of Appeal held that a UCL "unlawful" prong claim could not be predicated on alleged violations of the federal Truth in Savings Act (TISA), 12 U.S.C. § 4301 et seq.  Rose v. Bank of America, N.A., 200 Cal.App.4th 1441 (2011). 

The opinion's discussion of the UCL's "unlawful" prong and the scope of the Cel-Tech "safe harbor" was quite interesting.  My original blog post on Rose is here. 

The Supreme Court docket has not yet been updated with a description of the issue(s) on review. 

New UCL "safe harbor" decision: Rose v. Bank of America, N.A.

In Rose v. Bank of America, N.A., ___ Cal.App.4th ___ (Nov. 21, 2011), the Court of Appeal (Second Appellate District, Division Two) held that a UCL "unlawful" prong claim could not be predicated on alleged violations of the federal Truth in Savings Act (TISA), 12 U.S.C. § 4301 et seq.

The Court reasoned that Congress evinced a clear intent not to allow private enforcement of that Act by repealing the statute creating a private right of action:

We do not believe that California consumers can seek injunctive relief and restitution against a bank for “unlawful” conduct when Congress has clearly rejected a private right to enforce TISA.  Congress indicated its intent in 1996, when it enacted a sunset clause that expressly repealed the statute allowing individuals to enforce TISA.  It reconfirmed that intent when, in 2001, it rebuffed legislation to reinstate civil liability suits against noncompliant banks.  When the legislative history shows that legislators expressly considered and rejected specific legislation, we need not speculate about legislative intent.  (City of Santa Cruz v. Municipal Court (1989) 49 Cal.3d 74, 88-89.)  Only federal authorities have standing to enforce bank compliance with TISA.  Allowing private plaintiffs to recover on a UCL claim based solely on TISA violations would constitute an “end run” around the limits on enforcement set by Congress.  (Gunther v. Capital One, N.A., supra, 703 F.Supp.2d at pp. 270-271.)

Slip op. at 9-10.   The opinion's discussion of the limits on UCL "unlawful" prong claims is quite interesting.  Id. at 5-8.  The opinion also addresses the UCL's "unfair" prong, holding that the complaint failed to state a claim under any of the three formulations that have developed in the case law.  Id. at 10-11.

New UCL "unfair" prong decision: In re Cipro Cases I & II

In In re Cipro Cases I & II, ___ Cal.App.4th ___ (Nov. 1, 2011), the Court of Appeal (Fourth Appellate District, Division One) followed Chavez v. Whirlpool Corp., 93 Cal.App.4th 363 (2001) and held that conduct not unlawful under the Cartwright Act could not be deemed "unfair" under the UCL.  Slip op. at 50.

In my opinion, that holding (like the holding in Chavez) is inconsistent with the California Supreme Court's decision in Cel-Tech.  In 2005, another appellate panel declined to follow Chavez for that very reason.  Eddins v. Redstone, 134 Cal.App.4th 290 (2005) (discussed in this blog post).

UPDATE:  On February 15, 2012, the Supreme Court granted review in this case.  In re Cipro Cases I & II, no. S198616.  The statement of issues mentions only the Cartwright Act claim, but as plenary review was granted, the Court may also address the above UCL issue. 

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.

New UCL "fraudulent" and "unfair" prong decision: Boschma v. Home Loan Center, Inc.

In Boschma v. Home Loan Center, Inc., ___ Cal.App.4th ___ (Aug. 10, 2011), the Court of Appeal (Fourth Appellate District, Division Three) reversed the judgment entered after an order sustaining a demurrer to UCL "fraudulent" and "unfair" prong claims without leave to amend.  The Court of Appeal also reversed as to the common-law fraud claims. 

The claims were predicated on partial omissions by a lender in connection with option adjustable rate mortgage loans ("Option ARM" loans).   The Court criticized the lender's "byzantine descriptions" of the loan terms, which were "hidden in the complexity" of the various loan documents and TILA disclosures.  Slip op. at 23, 29.  In other words, although the material facts were, technically speaking, fully disclosed, the deceptive manner in which they were allegedly disclosed made them actionable: 

Keeping in mind the procedural posture of this case, we conclude plaintiffs have adequately pleaded that material facts were concealed by inaccurate representations and half-truths.  If plaintiffs can show defendant intentionally used its Option ARM forms to deceive borrowers, plaintiffs may be able to establish a fraud claim.  Plaintiffs’ actual interest rates and monthly payments sufficient to amortize the loan (or at least pay the accruing interest) were hidden in the complexity of the Option ARM contract terms.  “‘The fact that a false statement may be obviously false to those who are trained and experienced does not change its character, nor take away its power to deceive others less experienced.  There is no duty resting upon a citizen to suspect the honesty of those with whom he [or she] transacts business.  Laws are made to protect the trusting as well as the suspicious.  [T]he rule of caveat emptor should not be relied upon to reward fraud and deception.’”  (Thompson v. 10,000 RV Sales, Inc. (2005) 130 Cal.App.4th 950, 976.)

Slip op. at 23.

The opinion also discusses the three-way split in authority over the proper formulation of the UCL's "unfair" prong.  Id. at 27.  While the opinion is a little ambiguous, the Court appears to hold that the allegations satisfied all three formulations.  See id. at 29. 

Recent UCL "fraudulent" prong decision: Levine v. Blue Shield of California

We have been having a slow period for new UCL- and class-action-related cases.  So here's an older case on which I hadn't previously reported.

In Levine v. Blue Shield of California, 189 Cal.App.4th 1117 (Nov. 5, 2010), the Court of Appeal (Fourth Appellate District, Division One) stated without analysis that a UCL "fraudulent" prong claim predicated on an omission (as opposed to an affirmative misrepresentation) does not lie absent a duty to disclose.  Id. at 1136 (citing Buller v. Sutter Health, 160 Cal.App.4th 981, 986 (2008)).  (Here's my post from 2008 on the Buller decision, in which I explained that the idea that an omissions claim must involve a duty to disclose is a recent development and not quite so well settled as some assume.)

The court also applied the post-Cel-Tech formulation of "unfair," without mentioning the three-way split in authority that continues to persist on this issue.  Id. at 1137 (citing Durell v. Sharp Healthcare, 183 Cal.App.4th 1350, 1366 (2010).  (See this post for more on the split.)

New Ninth Circuit UCL opinion: Rubio v. Capital One Bank

In Rubio v. Capital One Bank, ___ F.3d ___ (9th Cir. Jul. 21, 2010), the Ninth Circuit addressed UCL standing and held that loss of a line of credit constitutes a loss of money or property sufficient to confer Prop. 64 standing.  Slip op. at 10400-01. 

The court also noted the split in authority on the definition of "unfair," but found it unnecessary to choose between the different definitions because the defendant's conduct was unfair under both.  Id. at 10402.

Finally, the court applied the pre-Prop. 64 formulation of the "fraudulent" prong (conduct likely to deceive a reasonable consumer).  Id.  at 10402 (citing Tobacco II and Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008)). 

New Ninth Circuit FTC Act opinion: FTC v. Neovi, Inc.

In Federal Trade Commission v. Neovi, Inc., ___ F.3d ___ (9th Cir. May 14, 2010), the Ninth Circuit construed the Federal Trade Commission Act, 15 U.S.C. § 45(n). 

The opinion is an interesting one, especially to the extent that some Court of Appeal panels may be adopting the FTC Act standard as a third formulation of the UCL's "unfair" prong.  See, e.g., Davis v. Ford Motor Credit Co., 179 Cal.App.4th 581 (2009). But see Overstock.com, Inc. v. Gradient Analytics, Inc., 151 Cal.App.4th 688, 715 (2007) ("the California UCL contains no directive to interpret our consumer protection statute consistently with the FTC Act"). 

Here is a notable passage:

To support its argument that the FTC’s showing of causation was insufficient, Qchex urges us to seek interpretive guidance from several California state cases that were decided under California Business & Professions Code § 17200—the so-called “Little FTC Act.” We decline the invitation. While it is common practice for states with consumer protection statutes modeled on the FTC Act to rely on federal authority when interpreting those statutes, the reverse is not the case. As the FTC points out, given the abundance of state laws on which such interpretations could be based, this practice would likely result in a sea of inconsistent rulings. See Orkin Exterminating Co., Inc. v. FTC, 849 F.2d 1354, 1363 (11th Cir. 1988) (noting that there is nothing constraining the FTC “to follow judicial interpretations of state statutes in construing the agency’s section 5 authority”).

Slip op. at 6994.  I have not seen the briefs, so I don't know whether the defendant cited Davis and Camacho, which expressly adopted the FTC Act standard for "unfair" conduct (creating a three-way split in authority), or other UCL cases that did not.

Recent UCL "unfair" prong case: Drum v. San Fernando Valley Bar Association

In Drum v. San Fernando Valley Bar Association, ___ Cal.App.4th ___ (Feb. 24, 2010), the Court of Appeal (Second Appellate District, Division Five) upheld a judgment entered after the defendant's demurrer to the plaintiff's UCL claim was sustained without leave to amend. 

Plaintiff was a former attorney and private mediator who sought to buy the San Fernando Valley Bar Association's membership list so that he could market his services to its members.  Slip op. at 2.  The Association refused to sell it to him, so he filed suit under the UCL seeking a mandatory injunction.  Id.  The Court of Appeal held (without deciding whether this was a "consumer" or a "competitor" action) that the Association's conduct was not "unfair" under any of the three formulations:

A voluntary bar association’s unilateral refusal to sell its membership list to any particular buyer, even if the association’s reason was to protect some of its members from price competition, is not an “unlawful, unfair or fraudulent business act or practice” under the UCL (§ 17200).

Id. at 5.  The Court of Appeal also observed that plaintiff "did not allege that he lost or expended or was denied any money or property as the result of the Association’s refusal to sell him its membership mailing list," and therefore lacked Prop. 64 standing to bring the action.  Id. at 4.

Court of Appeal panel adopts third formulation of "unfair": Davis v. Ford Motor Credit Co.

In Davis v. Ford Motor Credit Co., ___ Cal.App.4th ___, 2009 WL 3859327 (Nov. 19, 2009), the Court of Appeal (Second Appellate District, Division Three) discussed in detail the split in authority over the definition of "unfair" in UCL consumer actions.  Slip op. at 14-17.  The court decided to adopt the third formulation, first established in Camacho v. Automobile Club of Southern California, 142 Cal.App.4th 1394 (2006) (Second Appellate District, Division Eight).   Slip op. at 17-19.   As explained in my original blog post on Camacho, the third formulation borrows the definition of "unfair" from section 5 of the Federal Trade Commission Act (15 U.S.C. § 45(n)).  

The Davis court held that the trial court had properly sustained the defendant's demurrer without leave to amend because, as a mattter of law, plaintiff could not satisfy the third formulation.  Slip op. at 19-20.  The most significant barrier was the third formulation's requirement of "an injury that consumers themselves could not reasonably have avoided."  Id. at 19 (citing Camacho). 

Before Davis, the only other case to follow Camacho's lead was another decision of the same three-judge panel, Daugherty v. American Honda Motor Co., 144 Cal.App.4th 824 (2006).  Other courts have declined to follow Camacho.  See, e.g., Lozano v. AT&T Wireless Services, Inc., 504 F.3d 718 (9th Cir. 2007); Overstock.com v. Gradient Analytics, Inc., 151 Cal.App.4th 688, 715 (2007) ("the California UCL contains no directive to interpret our consumer protection statute consistently with the FTC Act." Id. at 715.

This case might be a good vehicle for the Supreme Court to finally take up the question of what "unfair" means in consumer cases.  I note from the docket that a rehearing petition was filed last Friday. 

New UCL "safe harbor" decision: Yabsley v. Cingular Wireless, LLC

In Yabsley v. Cingular Wireless, LLC, ___ Cal.App.4th ___ (Aug. 18, 2008), the Court of Appeal (Second Appellate District, Division Six) held that an administrative regulation (specifically, a provision of the California Code of Regulations) can provide a Cel-Tech "safe harbor" for conduct that might otherwise violate the UCL.

New UCL "unfair" prong decision: In re Red Light Photo Enforcement Cases

In In re Red Light Photo Enforcement Cases, 13 Cal.App.4th 1314 (Jun. 13, 2008), the Court of Appeal (Fourth Appellate District, Division One) appeared to assume without deciding that a UCL claim may be predicated on an attempt to enforce a contract between the defendant and a third party with provisions that are void as contrary to public policy:

Plaintiffs contend the court erred by finding for ACS, because the contingency fee contracts between it and the municipalities were void as against public policy and thus were predicates for UCL claims.

Business and Professions Code section 17200 does not proscribe specific practices, but broadly prohibits "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." The UCL "governs 'anti-competitive business practices' as well as injuries to consumers, and has as a major purpose 'the preservation of fair business competition.' [Citations.] By proscribing 'any unlawful' business practice, 'section 17200 "borrows" violations of other laws and treats them as unlawful practices' that the unfair competition law makes independently actionable." (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.) " 'Because Business and Professions Code section 17200 is written in the disjunctive, it establishes three varieties of unfair competition — acts or practices which are unlawful, or unfair, or fraudulent. "In other words, a practice is prohibited as 'unfair' or 'deceptive' even if not 'unlawful' and vice versa." ' " (Ibid.)

"It is well established that our courts, like those of other states, may, in appropriate circumstances, void contracts on the basis of public policy. Of course '[t]he determination of public policy of states resides, first, with the people as expressed in their Constitution and, second, with the representatives of the people — the state Legislature.' [Citation.] . . . ' "[U]nless it is entirely plain that a contract is violative of sound public policy, a court will never so declare. 'The power of the courts to declare a contract void for being in contravention of sound public policy is a very delicate and undefined power, and . . . should be exercised only in cases free from doubt.' " ' " (City of Santa Barbara v. Superior Court (2007) 41 Cal.4th 747, 777, fn. 53, italics added.) "[A] contract should be construed to be valid and enforceable rather than void as against public policy." (Underground Constr. Co. v. Pacific Indemnity Co. (1975) 49 Cal.App.3d 62, 67; Civ. Code, §§ 1643, 3541.)

Slip op. at 22-23 (footnote omitted) (emphasis in original). Neither of the two cases cited in that last paragraph were UCL cases. The opinion goes on to discuss contract law principles and does not mention the UCL again. I suppose the predicate for the UCL claim is the idea that conduct sufficiently contrary to public policy so as to render a contract void is also "unfair" conduct within the meaning of the UCL. The trial court had earlier found no statutory violation, which would seem to have eliminated any "unlawful" prong claim. Id. at 6-7 n.3. The Court of Appeal ended up affirming the judgment in the defendant's favor.

New UCL "fraudulent" prong decision: Buller v. Sutter Health

In Buller v. Sutter Health, ___ Cal.App.4th ___ (Mar. 5, 2008), the plaintiff challenged the defendant's failure to disclose its practice of providing discounts, on request, to customers who timely paid their bills in full. This practice was "fraudulent" and "unfair" under the UCL, the plaintiff claimed, because the defendant did not disclose the practice and did nothing that "'would lead a reasonable consumer ... to seek the discount, or discern that the prompt-pay discount is available to all who pay promptly.'" Slip op. at 2. The Court of Appeal (First Appellate District, Division One) held that the trial court correctly sustained the defendant's demurrer to the plaintiff's UCL claim without leave to amend.

The most unfortunate part of this opinion is its discussion of the UCL's "fraudulent" prong. According to the opinion, "it appears settled that 'Absent a duty to disclose, the failure to do so does not support a claim under the fraudulent prong of the UCL.' (Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544, 1557 [62 Cal.Rptr.3d 177] [failure to disclose detailed listings or breakdowns of specific escrow charges comprising transfer or document fees did not violate the UCL].) This is because a consumer is not 'likely to be deceived' by the omission of a fact that was not required to be disclosed in the first place." Slip op. at 5. The opinion goes on to explain that the alleged nondisclosure was not actionable because "[consumers] in [plaintiff's] position are not likely to be operating under the expectation that they are entitled to a discount." Slip op. at 5-6 (citing Daugherty v. American Honda Motor Co., 144 Cal.App.4th 824 (2006); Bardin v. DaimlerChrysler Corp., 136 Cal.App.4th 1255 (2006)).

I would not call it "settled law" that a "duty to disclose" analysis has any place in UCL jurisprudence. The first case to use "duty to disclose" language in discussing a UCL claim is Daugherty, decided on October 31, 2006, less than 18 months ago. What the Buller opinion does not acknowledge is that nondisclosures are actionable if the concealed information would be material to a reasonable consumer. See, e.g., Massachusetts Mutual Life Ins. Co. v. Superior Court, 97 Cal.App.4th 1282, 1292 (2002) (whether the concealed information “should have been disclosed given the characteristics” of the transaction); see also Day v. AT&T Corp., 63 Cal.App.4th 325, 333 (1998) (“failure to disclose other relevant information”); Podolsky v. First Healthcare Corp., 50 Cal.App.4th 632, 651 (1996) (failure to disclose “all the pertinent facts”); Schnall v. Hertz Corp., 78 Cal.App.4th 1144, 1164 (2001) (concealment of information “relevant to the … decision” faced by the consumer). Perhaps the outcome in Buller would have been the same under that standard. Nonetheless, the settled decisions do not use "duty to disclose" terminology.

Incidentally, the Buller opinion applied the pre-Prop. 64 "likely to deceive" formulation of the "fraudulent" prong, rather than requiring proof of actual reliance. Slip op. at 5-6.

The Court then turned to the "unfair" prong, noting the split in authority regarding whether the pre- or post-Cel-Tech formulation applies. The Court resolved the matter thus: "[A]s we have noted in prior opinions, '[t]his court ... has followed the line of authority that ... requires the allegedly unfair business practice be "tethered" to a legislatively declared policy or has some actual or threatened impact on competition.' (Belton v. Comcast Cable Holdings, LLC (2007) 151 Cal.App.4th 1224, 1239–1240 [60 Cal.Rptr.3d 631], citing to Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 853–854 [128 Cal.Rptr.2d 389].)" Slip op. at 10-11. "[Plaintiff] makes no argument on appeal that his allegations are directly connected to any legislatively declared policy or threatened competition [and] has given us no reason to depart from our prior holdings in Belton and Gregory ...." Id. at 11.

The concluding paragraph of the analysis section shows that the Court simply did not think this was a good case:

Finally, we note that it is fairly common for consumers to ask for and receive discounts on products and services. The amount of these discounts may vary depending on many factors. Arguably, requiring a business to state a discount on its initial invoice runs counter to the purpose of having discretionary discounts in the first place. Indeed, taken to their logical conclusion, appellant’s arguments would effectively require a business to disclose all discretionary discounts it might offer. While we sympathize with appellant’s frustration over his failure to benefit from respondents’ discount policy, when viewed from the standpoint of consumers in general we believe respondents’ practice is beneficial rather than harmful, inasmuch as they apparently are not required to offer privately insured patients any discounts whatsoever.

Id. at 11.

New UCL "unfair" and "fraudulent" prong decision: Puentes v. Wells Fargo Home Mortgage, Inc.

In Puentes v. Wells Fargo Home Mortgage, Inc., ___ Cal.App.4th ___ (Feb. 28, 2008), the Court of Appeal (Fourth Appellate District, Division One), held that the trial court did not err by granting the defendant's summary judgment motion as to the plaintiffs' UCL claim. The claim challenged the way the defendant mortgage company, Wells Fargo, calculated interest on plaintiffs' home loans. Slip op. at 2-3. The Court of Appeal:

• Discussed the Cel-Tech "safe harbor" in some detail. Wells Fargo argued that federal Regulation Z (12 C.F.R. sections 226 et seq.) authorized their method of calculating interest. The Court, however, decided that "[w]e need not resolve the issue." Plaintiffs' challenge to the interest calculation was predicated on the deed of trust, a contract, which they said prohibited Wells from calculating interest the way it did. Quoting a federal case, Watson Laboratories v. Rhone-Poulenc Rorer, Inc., 187 F. Supp.2d 1099, 1117 n.12 (C.D. Cal. 2001), the Court said that "[a] breach of contract may ... form the predicate for Section 17200 claims, provided it also constitutes conduct that is 'unlawful, unfair, or fraudulent.'" Slip op. at 8.

• The Court then applied the pre-Prop. 64 formulation of "fraudulent," and held that Wells' interpretation of the trust deed provisions respecting interest calculations was "reasonable and not likely to deceive members of the public." Slip op. at 9.

• The Court then discussed the pre- and post-Cel-Tech formulations of "unfair" at some length. Slip op. at 10-12. It determined, however, that "[w]e are not required to adopt a particular definition of 'unfair' here, however, because Wells Fargo's practice is not actionable under any of the definitions." Id. at 12. The opinion concludes:

  The consumer benefit of Wells Fargo's adherence to Regulation Z and Appendix J in calculating equal monthly payments — and not recalculating interest during the year of payoff to retrospectively make monthly payments unequal — far outweighs the de minimus injury to some consumers who, like the Puenteses, may pay for a day or two of additional interest than if actual days in the month were used.

  Wells Fargo met its burden of persuasion that its practice is not fraudulent or unfair within the meaning of the UCL, and the Puenteses raised no triable issues of material fact in their opposing papers. Accordingly, summary judgment was proper.

  Slip op. at 18-19.

The full text of the opinion appears after the jump.

New unpublished UCL/CLRA auto defect opinion: Hunter v. General Motors Corp.

Yesterday, in an opinion worthy of publication, the Court of Appeal (Second Appellate District, Division Five) held that the trial court had improperly sustained without leave to amend the defendant's demurrer to the plaintiffs' UCL and CLRA claims. Hunter v. General Motors, no. B190809.

The putative class action challenged the defendant's "development, design, manufacture, and sale of certain vehicles with a defective rear brake system." Slip op. at 2. The opinion addresses, among other things, the Federal Motor Vehicle Safety Standards promulgated by NHTSA. The Safety Standards are often the central focus of non-injury consumer class actions involving safety-related auto defects. This opinion is the first to interpret them in the context of UCL and CLRA claims. For example:

Plaintiffs allege that defendant violated section 1770, subdivision (a)(3) of the CLRA when it knowingly affixed a certification label or tag to each of the subject vehicles falsely stating, “This Vehicle Conforms to All Applicable U.S. Federal Motor Vehicle Safety Standards in Effect on the Date of Manufacture Show[n] above.” Defendant’s defective braking system, plaintiffs allege, violated Federal Motor Vehicle Safety Standards 105 and 135.

....

The trial court ruled that plaintiffs’ Federal Motor Vehicle Safety Standards allegations do not state a basis for a misrepresentation under the CLRA because they fail to allege that “the parking brake systems were not ‘capable’ of holding the subject vehicles stationary for 5 minutes in both a forward and reverse direction on a 30 percent grade, nor is there an allegation that the parking brake system did not hold the vehicle stationary for 5 minutes in both a forward and reverse direction on the grade.” The trial court’s reading of plaintiffs’ allegations is unduly narrow and inconsistent with the mandate to construe the CLRA liberally (§ 1760; Wang v. Massey Chevrolet, supra, 97 Cal.App.4th at p. 869) and to give the complaint a reasonable interpretation (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at pp. 966-967). Plaintiffs allege that the label or tag affixed to each of the subject vehicles certifying that the vehicle conformed to all effective Federal Motor Vehicle Safety Standards was false because the parking brake system was defective. Liberally construed, that allegation alleges that the parking brakes could not hold the subject vehicles as required by 49 C.F.R. part 571.105, subpart 5.2.1 and 49 C.F.R. part 571.135, subpart 7.12.3 and, accordingly, is sufficient to establish a misrepresentation under the CLRA.

Also, plaintiffs’ allegations establish a misrepresentation under the CLRA based on 49 C.F.R. part 571.135, subpart 5.6(a) which provides, in pertinent part, “[a]ll mechanical components of the braking system shall be intact and functional.” Plaintiffs allege that defendant knew that “the parking brakes on the Subject Vehicles were defective in that they did not work.” We must accept that allegation as true. (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at pp. 966-967.) If the parking brakes “did not work,” then they were not “functional” as required by subpart 5.6(a), and a certification that a vehicle equipped with such parking brakes conformed to “All Applicable U.S. Federal Motor Vehicle Safety Standards in Effect on the Date of Manufacture” is an actionable misrepresentation under the CLRA.

Plaintiffs also allege that defendant violated section 1770, subdivisions (a)(5) and (a)(7) of the CLRA when defendant represented that the subject vehicles had characteristics and benefits they did not have and were a particular standard, quality, or grade they were not. In support of their CLRA cause of action, plaintiffs allege that defendant made representations about the quality, safety, and performance of the parking brake system on the subject vehicles while failing to disclose information it knew about the defect in the parking brakes. The list of proscribed practices in section 1770 includes the concealment or suppression of material facts. In the CLRA context, “[f]raud or deceit may consist of the suppression of a fact by one who is bound to disclose it or who gives information of other facts which are likely to mislead for want of communication of that fact.” (Outboard Marine Corp. v. Superior Court (1975) 52 Cal.App.3d 30, 37; compare with Bardin v. DaimlerChrysler Corp. (2006) 136 Cal.App.4th 1255 and Daugherty v. American Honda Motor Co., Inc. (2006) 144 Cal.App.4th 824, 835 [“although a claim may be stated under the CLRA in terms constituting fraudulent omissions, to be actionable the omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose”].) Plaintiffs’ allegations are sufficient to state a violation of the CLRA based on defendant’s alleged representations about the parking brakes and concealment of the defect. (See Outboard Marine Corp. v. Superior Court, supra, 52 Cal.App.3d at p. 37.)

Slip op. at 12-14 (footnotes omitted). The discussion of the plaintiffs' claims under the UCL's three prongs is equally interesting, including the holding that the plaintiffs "need not wait for a catastrophic event such as brake failure to bring an action under the UCL based on the facts alleged in the fourth amended complaint." Id. at 19. I would not be surprised to see publication requests filed here.

By the way, thanks again to JS, who continues to tirelessly mine the unpublished Court of Appeal opinions and send me the gems like this one.

New Ninth Circuit UCL/class certification decision: Lozano v. AT&T Wireless

Yesterday, the Ninth Circuit affirmed class certification of a UCL "unfair" prong claim in Lozano v. AT&T Wireless Services, Inc., ___ F.3d ___ (9th Cir. Sept. 20, 2007). I have not had time to review the decision in detail, but I did notice this paragraph on restitution, which is particularly interesting in light of the recent Shersher decision:

The next question we address is whether these injuries are recoverable under the UCL. The only types of relief available under the UCL actions are injunctive and restorative. Cal. Bus. & Prof. Code § 17203; see also Cel-Tech, 83 Cal. Rptr. 2d at 560. While restoring Lozano's overage payments, if any, fits squarely within the restorative context of the UCL, we question whether restoring Lozano's "reserved" minutes falls into this category. Restitution in the UCL context, however, includes restoring money or property that was not necessarily in the plaintiff's possession. The California Supreme Court has stated that the concept of restoration or restitution, as used in the UCL, is not limited only to the return of money or property that was once in the possession of that person. Instead, restitution is broad enough to allow a plaintiff to recover money or property in which he or she has a vested interest. See Juarez v. Arcadia Fin., Ltd., 61 Cal. Rptr. 3d 382, 400 (Cal. Ct. App. 2007) (citing Korea Supply Co. v. Lockheed Martin Corp., 131 Cal. Rptr. 2d 29, 42 (2003)). Here, Lozano has a vested interest in 400 free anytime minutes. Due to out-of-cycle billing, however, Lozano found it necessary to reserve, and therefore lose, a certain number of those minutes each billing period. Accordingly, we find that Lozano has properly stated an injury that he did not receive the full value of his contract with AWS due to its alleged failure to disclose out-of-cycle billing, and that this injury is redressable under the UCL. See Daghlian v. DeVry Univ., Inc., 461 F. Supp. 2d 1121, 1155 (C.D. Cal. 2006) (accepting plaintiff's theory that he suffered injury under the UCL because he paid thousands of dollars of tuition to defendant university and "did not receive what he had bargained for" due to its alleged unfair business practices).

Slip op. at 12772. The court also declined to employ the third, intermediate formulation of "unfair" adopted by the Court of Appeal in Camacho v. Automobile Club of Southern California, 142 Cal.App.4th 1394 (2006). Instead, it held that the district court did not err by applying the pre-Cel-Tech formulation set forth in South Bay Chevrolet v. General Motors Acceptance Corp., 72 Cal.App.4th 861 (1999) (and other cases). Slip op. at 12775-77.

"The UCL's 'Unfair' Prong: Recent Case Law Muddies the Waters Even More"

The July/August 2007 issue of Forum (the magazine of Consumer Attorneys of California) has an article by yours truly called "The UCL's 'Unfair' Prong: Recent Case Law Muddies the Waters Even More" (members-only link; login required). It is my first in a regular monthly column that I'm going to be writing for Forum called "The UCL/Class Action Zone."

If you are a plaintiffs' attorney (or a judge, judicial research attorney, etc.) and would like to receive a copy of the article, please email me at [email protected] and I'll be happy to send it to you.

New UCL/CLRA nondisclosure decision: Falk v. General Motors Corp.

In Falk v. General Motors Corp., 2007 WL 1970123 (N.D. Cal. Jul. 3, 2007), the plaintiffs alleged that GM knowingly sold vehicles with defective speedometers. Judge William Alsup denied GM's motion to dismiss the plaintiffs' CLRA and UCL claims.

Analyzing the CLRA claim, Judge Alsup distinguished both Daugherty and Bardin, then held that the alleged problem with the speedometers was material and that GM had a duty to disclose it. As for the UCL claim, Judge Alsup applied the ordinary "likely to be deceived" formulation of the "fraudulent" prong and the pre-Cel-Tech formulation of the "unfair" prong. He concluded that a claim was stated under all three prongs of the UCL. The opinion concludes:

In closing, it is worth saying that ordinarily an express warranty begins and ends the manufacturer’s duty to replace an item like the one in question. Here, however, the large number of articulate and credible Internet postings set forth in the complaint strongly indicates that GM knew of the problem and very likely had far more information on a material defect. At least at the pleading stage, this complaint states a claim that GM knew and concealed that its speedometers were defective and likely to fail far more often than expected by the consuming public. Discovery may or may not bear this claim out. But enough is alleged to authorize plaintiffs and their counsel to proceed to take discovery.

For the reasons given, defendant’s motion to dismiss plaintiffs’ unjust enrichment claim is GRANTED without leave to amend. Plaintiffs, however, allege sufficient factual support for all of their other claims. Although Daugherty and Bardin bar CLRA claims for omissions when there is no duty to disclose and when defendants have made no representations to the contrary, plaintiffs adequately plead that GM had a duty to disclose here, which it violated. Defendant’s motion to dismiss under Rules 12(b)(6) and 9(b) is therefore DENIED as to plaintiffs’ CLRA, UCL and fraud by omission claims. Discovery may begin immediately.

Falk, 2007 WL 1970123 at *10 (slip op. at 14). Thanks to the blog reader who emailed a copy of this decision.

New UCL/CLRA decision: Belton v. Comcast Cable Holdings, LLC

In Belton v. Comcast Cable Holdings, LLC, ___ Cal.App.4th ___ (June 8, 2007), the Court of Appeal (First Appellate District, Division One) addressed the interplay between the UCL, the CLRA, and the Unruh Act (Civ. Code §51). Among other things, the Court applied the post-Cel-Tech formulation of "unfair" to this consumer action:

[Plaintiffs] rely upon the definition of “unfair” set forth in Cel-Tech, supra, 20 Cal.4th 163. In Cel-Tech, the court, in the context of an unfair competition claim by a competitor, defined “unfair” as “conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.” (Id. at p. 187.) The Cel-Tech court further required “that any finding of unfairness to competitors under [Business and Professions Code] section 17200 be tethered to some legislatively declared policy or proof of some actual or threatened impact on competition.” (Id. at pp. 186-187.) The court left open the question whether this definition should also apply in the context of unfair competition claims brought by consumers (id. at p. 187, fn. 12), leading to a split of authority on this question among the courts of appeal. (See Bardin v. DaimlerChrysler Corp. (2006) 136 Cal.App.4th 1255, 1273-1274 [noting the split of authority and urging the California Supreme Court to resolve it].) This court, however, has followed the line of authority that also requires the allegedly unfair business practice be “tethered” to a legislatively declared policy or has some actual or threatened impact on competition. (See Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 853-854.)

Slip op. at 14. The Court of Appeal affirmed the judgment in the defendant's favor on all causes of action.

New Cel-Tech "safe harbor" decision: Fladeboe v. American Isuzu Motors, Inc.

In Fladeboe v. American Isuzu Motors, Inc., ___ Cal.App.4th ___ (Apr. 23, 2007) (modified Apr. 24, 2007), cross-complainant American Isuzu Motors, Inc. prevailed at trial on its individual UCL claim against a company that fraudulently posed as an authorized Isuzu dealership. The UCL claim was tried to the judge, while a jury separately found the defendant liable for fraud and negligent misrepresentation. The jury awarded $114,642.87 in damages, and the judge awarded $214,300 in restitution. Judgment was entered for "a total of $214,300 in damages and restitution." Slip op. at 8-10. (Given the facts of this case, that result sounds right, but damages and restitution do not always overlap as they did here. In some cases, the two sums would be added together.)

On appeal, the defendant raised a Cel-Tech "safe harbor" argument. The Court of Appeal (Fourth Appellate District, Division Three) rejected it:

[Cross-defendant] Fladeboe AG argues Vehicle Code section 11713.3, subdivision (d) and Corporations Code section 2010, subdivision (a) gave it a “safe harbor” for its conduct. In Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 184, the California Supreme Court concluded “a plaintiff may not bring an action under the unfair competition law if some other provision bars it.” This statutory safe harbor must “actually bar” the action, and not “merely fail to allow it.” (Ibid.) “Acts that the Legislature has determined to be lawful may not form the basis for an action under the unfair competition law, but acts may, if otherwise unfair, be challenged under the unfair competition law even if the Legislature failed to proscribe them in some other provision.” (Id. at p. 183.)

Fladeboe AG argues Vehicle Code section 11713.3, subdivision (d) provided it a safe harbor by permitting a motor vehicle dealer to transfer its dealership, subject to the manufacturer’s consent. “[I]t is evident,” Fladeboe AG argues, “that attempts to consummate a transfer do not have the quality of wrongfulness that [Business and Professions Code] section 17200 was designed to redress.” But Isuzu did not assert, and the trial court did not find, wrongful conduct based on the attempt to transfer RFLM’s Isuzu dealership. The trial court found Fladeboe AG engaged in wrongful conduct by fraudulently representing itself as an authorized Isuzu dealer—both to the public and to Isuzu—without obtaining Isuzu’s consent and without the requisite form .... Vehicle Code section 11713.3 does not provide a safe harbor for such conduct; to the contrary, subdivision (f)(1) of section 11713.1 prohibits it.

Slip op. at 29-30.

Supreme Court grants review in UCL/CLRA case: Miller v. Bank of America

Yesterday, the Supreme Court granted review in Miller v. Bank of America, no. S149178. In Miller, the Court of Appeal reversed an enormous judgment, approaching $300 million in compensatory damages and restution, plus even more in statutory penalties, holding that the defendant bank's conduct did not violate the UCL or the CLRA. Miller v. Bank of America, NT & SA, 144 Cal.App.4th 1301 (2006). My original post on Miller is here, and today's Recorder reports that "Supreme Court Takes Up $1B Banking Case" (subscription). UPDATE: Here is a non-subscription version of the Recorder article.