Source: https://www.uclpractitioner.com/the_clra/
Timestamp: 2019-04-23 06:19:30+00:00

Document:
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).
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.
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.
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.
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.
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)).
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
.... [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).
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).
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.
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.
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.
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.
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.
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.
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.
"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.
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.
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.
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.
Two new opinions on no-class-action arbitration clauses: Fisher v. DCH Temecula Imports LLC and Walnut Producers of California v. Diamond Foods, Inc.
The Court of Appeal has recently handed down two new decisions addressing arbitration clauses with class action bans.
[T]he clear language of the CLRA does not allow a consumer to waive the provisions of the CLRA in advance, including the right to bring a class action. Since the plain language of the statute provides that a consumer “may” bring a class action if there is damage to other consumers similarly situated, he or she cannot be asked to waive this class action right in advance.
Slip op. at 24. This is an interesting argument that no appellate court had expressly adopted before. The Court held the entire arbitration clause unenforceable. Id. at 24-25.
In the second case, Walnut Producers of California v. Diamond Foods, Inc., ___ Cal.App.4th ___ (Aug. 16, 2010), the Court of Appeal (Third Appellate District) held that an arbitration clause with a class action ban in a commercial contract was not unconscionable. Slip op. at 12-25. The Court also held that an order striking class allegations from a complaint is appealable and reviewed de novo. Id. at 5-8.
The Complex Litigator also has a short post on these two decisions.
New CLRA and UCL "unlawful" prong decision: Vitug v. Alameda Point Storage, Inc.
In Vitug v. Alameda Point Storage, Inc., ___ Cal.App.4th ___ (Aug. 10, 2010), the Court of Appeal affirmed a judgment entered following a demurrer to CLRA and UCL "unlawful" prong claims predicated on alleged violations of the California Self-Service Storage Facility Act (Bus. & Prof. Code §§ 21700 et seq.).
New UCL "unlawful" prong decision: Nelson v. Pearson Ford Co.
In Nelson v. Pearson Ford Co., ___ Cal.App.4th ___ (Jul. 15, 2010), the Court of Appeal (Fourth Appellate District, Division One) addressed a number of interesting UCL-related issues. The most interesting one is the class representative's standing in an "unlawful" prong case. Slip op. at 32-34.
Pearson Ford does not challenge the conclusion that its violations of the ASFA support Nelson's UCL claims; rather its appeal is limited to the trial court's finding that Nelson had standing to pursue claims under the UCL. Pearson Ford focuses its argument on whether Nelson suffered injury "as a result of" its unfair competition under the UCL. (Bus. & Prof. Code, § 17204.) Relying on Troyk [v. Farmers Group, Inc., 171 Cal.App.4th 1305 (2009)], Pearson Ford contends that Nelson needed to prove he would not have bought the car if he had known that the second contract: (1) charged him pre-consummation interest; (2) misstated the APR; and (3) failed to separately itemize the $250 insurance premium. We disagree.
Slip op. at 34 (emphasis added).
This holding is consistent with the Tobacco II footnote explaining that "the concept of reliance" will have "no application" in many UCL cases. In re Tobacco II Cases, 46 Cal.4th 298, 325 n.17 (2009). In Nelson, the defendant violated the law, which meant that additional charges and incorrect interest calculations were incorporated into the plaintiff's sales contract. This occurred wholly apart from any "reliance" by the plaintiff. By contrast, "the lack of disclosure of proper charges, not illegal charges, violated the UCL in Troyk." Nelson, slip op. at 33.
The Nelson opinion goes on to discuss UCL restitution (slip op. at 35-38) (worth reading); UCL rescission (slip op. at 39-40) (which it holds is not an available remedy); unclaimed residual funds under Code of Civil Procedure section 384 (slip op. at 40-42) (see this blog post for more on that topic); the CLRA (slip op. at 45-47); and 998 offers in the class action context (slip op. at 48-52).
Another case interpreting Tobacco II has been handed down, and this one, like Weinstat a couple of weeks ago, refutes the Cohen court's interpretation.
In Steroid Hormone Product Cases, ___ Cal.App.4th ___ (Jan. 21, 2010), the Court of Appeal (Second Appellate District, Division Four) reversed an order denying class certification of UCL and CLRA claims. The case alleged that the defendant (GNC) sold nutritional supplements containing a controlled substance that was illegal to sell or possess without a prescription, and that the defendant failed to disclose to consumers that its product contained this illegal ingredient. Slip op. at 3-4. The plaintiff class consisted of all those who purchased the supplements. See id., passim.
The trial court denied class certification "on the ground that, with regard to both the UCL claim and the CLRA claim, an individualized inquiry would have to be conducted into whether the illegality of androstenediol products was material to each purchaser, to determine whether GNC’s alleged conduct caused injury to that purchaser." Id. at 8.
The Court of Appeal disagreed. Under Tobacco II made clear that "the standing provision added by Proposition 64 'was not intended to have any effect at all on unnamed class members.'" Id. at 10 (quoting Tobacco II, 46 Cal.4th at 321.) "Therefore, while a named plaintiff in a UCL class action now must show that he or she suffered injury in fact and lost money or property as a result of the unfair competition, once the named plaintiff meets that burden, no further individualized proof of injury or causation is required to impose restitution liability against the defendant in favor of absent class members." Id. (emphasis added).
This holding is directly contrary to Cohen.
GNC tries to avoid the required reversal by arguing in its respondent’s brief that the trial court’s ruling does not conflict with Tobacco II because Tobacco II addressed standing, while the trial court specifically stated that standing was irrelevant to the certification analysis. Although the court did state that standing was irrelevant, it nevertheless found that Proposition 64 added actual injury as an element of a cause of action for restitution under the UCL, and therefore injury must be established for each class member. Tobacco II made clear, however, that Proposition 64 only affected the named plaintiff’s standing in a UCL class action seeking restitution; it did not add an additional element to be satisfied by all class members.
Martinez’s UCL claim presents two predominate issues (other than Martinez’s individual standing), both of which are common to the class: (1) whether GNC’s sale of androstenediol products was unlawful; and if so, (2) the amount of money GNC “may have . . . acquired by means of” those sales that must be restored to the class (Bus. & Prof. Code, § 17203).
Id. at 13 (citing Vasquez v. Superior Court, 4 Cal.3d 800 (1971); Massachusetts Mutual Life Ins. Co. v. Superior Court, 97 Cal.App.4th 1282 (2002)) (footnote omitted).
the question that must be answered in this case is whether a reasonable person would find it important when determining whether to purchase a product that it is unlawful to sell or possess that product. It requires no stretch to conclude that the proper answer is “yes” -- we assume that a reasonable person would not knowingly commit a criminal act.
Id. at 14 (citing Civ. Code § 3548; Garnette v. Mankel, 71 Cal.App.2d 783, 787 (1945)). Finally, the court rejected the argument that a "reasonable bodybuilder" standard should apply instead, as well as the argument that "as a rule, bodybuilders care less about legality than non-bodybuilders." Id. Bodybuilders as a class will no doubt appreciate the vindication.
New Ninth Circuit UCL/CLRA pleading decision: Kearns v. Ford Motor Co.
In Kearns v. Ford Motor Co., 567 F.3d 1120 (9th Cir. Jun. 8, 2009), the Ninth Circuit held that "the heightened pleadings standards of Rule 9(b)" applied to UCL and CLRA claims that were "grounded in fraud."
In a recent post-Tobacco decision, a federal district court followed Kearns but determined that the complaint's allegations satisfied the heightened pleading standard because they "sufficiently identified 'the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations.'" Germain v. J.C. Penney Co., 2009 WL 1971336, *3-*5 (C.D. Cal. Jul. 06, 2009) (quoting Walling v. Beverly Enterprises, 476 F.2d 393, 397 (9th Cir.1973)).

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