Continuing accrual applies to UCL claims

When does a claim under the UCL accrue?  When the first wrong occurs?  No so, says the California Supreme Court!  Recurring wrongs give rise to continuing accrual.  In Aryeh v. Canon Business Solutions, Inc. (January 24, 2013), the Supreme Court examined continuing accrual, concluding that the theory applies to actions brought under the UCL:

The common law theory of continuous accrual posits that a cause of action challenging a recurring wrong may accrue not once but each time a new wrong is committed. We consider whether the theory can apply to actions under the unfair competition law (Bus. & Prof. Code, § 17200 et seq.; hereafter UCL) and, if so, whether it applies here to save plaintiff Jamshid Aryeh‟s suit from a limitations bar. We conclude: (1) the text and legislative history of the UCL leave UCL claims as subject to the common law rules of accrual as any other cause of action, and (2) continuous accrual principles prevent Aryeh‟s complaint from being dismissed at the demurrer stage on statute of limitations grounds. Accordingly, we reverse the Court of Appeal‟s judgment.

Slip op., at 1.  The plaintiff leased a copier under terms that required montly payments with a copoy cap.  After noting discrepancies between copies made and copies billed, the plaintiff concluded that during service visits, Canon employees were running test copies (at least 5,028 copies over the course of 17 service visits). These copies resulted in the plaintiff exceeding his monthly allowances and owing excess copy charges and late fees to Canon.  The issue was whether the UCL claim accrued at the first instance of plaintiff's discovery of the overcharge, or whether each overcharge was an independent wrong, giving rise to a new claim.  The trial court and a divided court of appeal agreed that the UCL claim accrues with the first wrong.

But it's not how you start, it's how you finish.  Congratulations to my colleagues on this result.  Jennifer L. Connor wrote the appellate briefs while at her prior firm, and J. Mark Moore and Denise Diaz authored portions of an amicus brief on behalf of CAOC, in support of plaintiff.  Jennifer's sister, Sarah, took no part in the briefing due to her demanding project defending humanity from evil, self-aware robots bent on the destruction.

Certiorari denied in Ticketmaster, et al. v. Stearns, et al.

On the consumer litigation front, today the United States Supreme Court denied certiorari in Ticketmaster, et al. v. Stearns, et al. (Sup. Ct. Case No. 11-983).  Stearns v. Ticketmaster Corp., 655 F.3d 1013 (9th Cir. 2011) examined a number of consumer law concepts in the class context.  For example, the Ninth Circuit shot down the federal court standing challenge attempted in UCL actions post-Tobacco II.  And, on the issue of reliance in CLRA claims, the Court said:

A CLRA claim warrants an analysis different from a UCL claim because the CLRA requires each class member to have an actual injury caused by the unlawful practice. Steroid Hormone Prod. Cases, 181 Cal.App.4th 145, 155-56, 104 Cal. Rptr.3d 329, 337 (2010). But "[c]ausation, on a classwide basis, may be established by materiality. If the trial court finds that material misrepresentations have been made to the entire class, an inference of reliance arises as to the class." Vioxx, 180 Cal.App.4th at 129, 103 Cal.Rptr.3d at 95; see also Vasquez v. Superior Court, 4 Cal.3d 800, 814, 484 P.2d 964, 973, 94 Cal.Rptr. 796, 805 (1971); Steroid, 181 Cal. App.4th at 156-57, 104 Cal.Rptr.3d at 338. This rule applies to cases regarding omissions or "failures to disclose" as well. See McAdams v. Monier, Inc., 182 Cal.App.4th 174, 184, 105 Cal.Rptr.3d 704, 711 (2010) (holding that because of defendant's failure to disclose information "which would have been material to any reasonable person who purchased" the product, a presumption of reliance was justified); Mass. Mut. Life Ins. Co. v. Superior Court, 97 Cal. App. 4th 1282, 1293, 119 Cal.Rptr.2d 190, 198 (2002) ("[H]ere the record permits an inference of common reliance. Plaintiffs contend Mass Mutual failed to disclose its own concerns about the premiums it was paying and that those concerns would have been material to any reasonable person contemplating the purchase...." If proved, that would "be sufficient to give rise to the inference of common reliance on representations which were materially deficient.").

Stearns, at 1022.

"Hot gas" case against Chevron lives to fight another day in Klein v. Chevron U.S.A., Inc.

Hot gas.  This is not a term of art describing oral argument.  It literally refers to gasoline, and its propensity to expand as it gets warmer.  In Klein v. Chevron U.S.A., Inc. (January 25, 2012), the Court of Appeal (Second Appellate District, Division Seven) dispensed wisdom, a drop at a time, about the viability of claims related to hot gas.  Before I pump up this case any more, allow me to fuel your appetite with some background.  After that we'll motor on to the significant holdings.

How does hot gas work again?  The Court explained:

Motor fuel expands in volume as it is heated. As a result of this thermal expansion, a gallon of motor fuel at a warmer temperature has less mass and less energy content than a gallon of motor fuel at a cooler temperature. A temperature increase of 15 degrees causes motor fuel to expand in volume by approximately one percent, with a corresponding one percent decrease in energy output. For example, when 231 cubic inches of motor fuel, which equals one volumetric gallon, is heated from 60 degrees Fahrenheit to 75 degrees Fahrenheit, the motor fuel will expand to occupy a volume of approximately 233 cubic inches.

Slip op., at 4.  Ahh.  Anyhow, after a lot of discussion about regulations, and how fuel must be temperature adjusted if sold in amounts about 5,000 gallons, the Court turned to the theories impacted by the trial court's rulings on a demmurer and motion for judgment on the pleadings.

First, the Court held that the trial court erred when it dismissed the plaintiffs' claims arising under the CLRA and UCL:

Chevron's arguments are predicated on the assumption that the only possible form of relief in this case is a court order mandating that Chevron offer its retail consumers temperature-adjusted motor fuel through the implementation of ATC technology or other similar technologies. The plaintiffs' complaint, however, seeks other relief, including a disclosure requirement that, if granted, might not require substantial changes to the way Chevron currently sells motor fuel at the retail level.

Slip op., at 26.  That "other relief" mentioned by the Court includes injunctive relief compelling disclosure to consumers.  The Court next concluded that no alternative means exist for addressing the plaintiffs' issues.  On that basis, the Court concluded that judicial abstention was improper.

The Court then turned to specific claims, beginning with a half-hearted standing challenge.  The Court wasn't impressed: "Chevron concedes that, at the pleading stage, a plaintiff asserting a UCL or CLRA claim 'satisfies its burden of demonstrating standing by alleging an economic injury.' (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 254.)"  Slip op., at 35.  (Had to get that Boschma cite in there - my colleague, J. Mark Moore, argued that appeal.)

Next, the Court tackled the prongs of the UCL, beginning with the "unfair" prong:

At the pleading stage, we cannot presume that these alleged harms are not “substantial” or are otherwise outweighed by benefits that consumers derive from Chevron's practice of selling non-temperature adjusted motor fuel at the retail level. (Camacho, supra, 142 Cal.App.4th at p. 1403.) Although the evidence in this case may show that consumers do not suffer any substantial injury from the sale of nontemperature adjusted fuel or that the costs associated with remedying such injuries outweigh any benefit to consumers, we agree with the trial court‟s conclusion that such issues must “be determined on a developed factual basis.”

Slip op., at 37.  Chevron argued that it was not obligated to pass along or disclose its profit margins.  The Court distinguished Chevron's authority:

There are, however, important distinctions between this case and McCann. First, the holding in McCann has no relevance to plaintiffs' claim that, by selling non-temperature adjusted fuel at retail, Chevron is able to charge consumers more in purported motor fuel tax than it is required to pay to the government. Plaintiffs' tax-based claim has nothing to do with Chevron's failure to disclose its profit margins or the price at which it procures motor fuel at wholesale.

Second, unlike in McCann, the “gist” of plaintiffs‟ unfairness claim is not that Chevron was required to “disclose their own costs or profit margins” to consumers. (McCann, supra, 129 Cal.App.4th at pp. 1387, 1395 [“gist” of plaintiff's claim was that defendant “fails to disclose . . . that it gets a more advantageous rate of exchange on the wholesale market than it gives the customer”].) Instead, plaintiffs argue that, by failing to compensate for temperature variations in retail motor fuel, Chevron is engaging in a practice that misleads consumers as to the actual amount of motor fuel they are purchasing and the actual price that they are paying for that fuel. By contrast, the plaintiffs in McCann were informed of the specific exchange rate they would receive in their retail transactions (id. at p. 1382), but argued that the money transmitter had a duty to disclose the more favorable wholesale rate at which it was able to purchase foreign currency and pass those benefits on to consumers.

Were plaintiffs in this case simply alleging that Chevron had a duty to disclose the price at which it procured motor fuel at wholesale, McCann might foreclose such a claim. However, nothing in McCann suggests that the UCL does not, as a matter of law, apply to conduct that allows a retailer to charge more in taxes than it is required to pay to the government or to obscure the true cost of goods at retail.

Slip op., at 39.  The Court then dismantled a "safe harbor" argument, explaining that the "safe harbor" statute must "explictly" prohibit liability for the conduct.  Chevron's attempt to fashion a "safe harbor" by implication was rejected.

The Court then concluded that plaintiffs stated a claim under the "fraudulent" prong:

At the pleadings stage, we cannot say, as a matter of law, that consumers are not likely to be deceived in the manner alleged by plaintiffs. As the trial court observed, plaintiffs have alleged “facts which, if true, may reveal that members of the public . . . [assumed] that . . . they were receiving standardized units of motor fuel when, in fact, the energy content of each gallon depended on the temperature of the motor fuel at the time of purchase.” Plaintiffs have also alleged facts that, if true, may reveal that consumers were deceived as to the true price of motor fuel, which may vary depending on the temperature at which it is sold.

Slip op., at 43.  The Court distinguished Bardin v. Daimlerchrysler Corp. (2006) 136 Cal.App.4th 1255 on the ground that the plaintiffs alleged a specific expectation in the public about what they receive at a gasoline pump.  Following that discussion, the Court immediately turned to the CLRA, noting that conduct which is "fraudulent" under the UCL also violates the CLRA.  And, stay with me here, since the plaintiffs stated a claim under the CLRA, based on the same deceptive conduct that satisfied a UCL "fraudulent" claim, they, by definition, stated a UCL claim under the "unlawful" prong, since it borrows the CLRA violation.  Presto.

The breach of contract and unjust enrichment claims didn't do so well.  Saved you eight pages of reading right there.

And to think that I was not impressed with the "hot gas" theory when I heard it years ago.  What was I thinking?

Court revives claims of failure to disclose and active concealment of defects from computer purchasers

Reporting on this case pains me greatly.  I should be pleased to report on a CLRA and UCL decision that revives consumer claims.  But all I feel is pain.  Let me explain by quoting from the case.  The very first sentence says, "In this class action alleging a failure to disclose a computer defect involving a microchip that controlled floppy disk data transmission, plaintiffs Tammy Collins and Rudolph Roma appeal from a judgment on the pleadings."  Huh?  Floppy disk data transmission.  Rings a bell.  Nope, can't place it.  Must be some highfalutin, newfangled technology.  I recognize "data."  Anyhow, in Collins v. eMachines, Inc. (pub. ord. December 21, 2011), the Court reviewed a trial court order granting a motion for judgment on the pleadings.

It was alleged that defendant failed to disclose and actively concealed the disk controller defect from potential purchasers. Despite knowing of the defect and knowing that the defect could result in critical data corruption, executives of eMachines directed the company to continue to sell the defective computers after October 31, 1999. eMachines actively concealed the existence of the defect from purchasers by, among other practices specified in the FAC, continuing to issue the warranty knowing the computers had the defect, and engaging in misleading “customer service” practices that concealed the defect in online “customer support” guides, in customer service diagnoses of computer problems, and at call centers.  The case was stayed for four years while cases in other states moved forward.

Turning first to the CLRA, the Court restated the LiMandri circumstances giving rise to actionable deceit.  The Court recognized the FAC as alleging factor (2), when the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff, and factor (3), when the defendant actively conceals a material fact from the plaintiff.  The Court then agreed that a "reasonable" consumer would certainly find data corruption to be material information in connection with a computer.

Next, the Court distinguished Daugherty, observing that, in Daugherty, the only represetation made was the warranty, and the vehicles performed adequately as warranted.  The Court was similarly dismissive of Bardin, in which it was alleged that exhaust manifolds were likely to fail after the warranty period.  The Court explained that the manifolds in Bardin worked they way they were supposed to under the warranty.  Contrasting the circumstances, the Court said, "Because a floppy disk, at the time of the complaint, was integral to the storage, access, and transport of accurate computer data, the floppy disk was central to the function of a computer as a computer. The exhaust manifolds at issue in Bardin, by contrast, were just blowing smoke."  Slip op., at 12.  That's funny.  You see, the exhaust manifold vents combustion byproducts...

Regarding the UCL, the Court relied on its discussion about Daugherty and Bardin to conclude that a claim under the UCL was easily stated as well.  The Court agreed that consumers certainly had an expectation about data integrity when they purchased the affected computers.

After also concluding that the allegations supported a claim for common law fraud, the Court concluded that legal remedies were adequate, rendering an unjust enrichment claim unnecessary.

I should also tag this one with "Dinosaurs," given the discussion of floppy disk drives.  That reminds me that I should tell you about the time I saved data on a bent floppy disk drive by removing the casing and putting the raw disk in a disk drive.  The year was 1985.  Madonna, Huey Lewis, Duran Duran and Wham! were dominating the charts...

[extended period of blank stares]

...and that's how I saved all that data!

Lopez v. Nissan N.A. provides an example of Cel-Tech safe harbor under the UCL

In the realm of UCL jurisprudence, Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163 (1999) is a major decision, cited for numerous propositions, including the broad scope of the UCL. But Cel-Tech is also cited for something known as the "safe harbor" rule.   Under the "safe harbor" rule as enunciated in Cel-Tech, if the Legislature expressly declares conduct to be "lawful," or expressly forbids a claim for certain conduct, then that conduct falls within a "safe harbor" where no UCL claim may be asserted.  Cel-Tech, at 182.

In Lopez v. Nissan North America, Inc. (Dec. 5, 2011), the Court of Appeal (Second Appellate District, Division Four) considered a trial court decision granting summary judgment in a case alleging that Nissan calibrated odometers to over-register miles driven by at least two percent.  Nissan moved for summary judgment, arguing that California law considers an automobile odometer  "correct" if it registers the actual mileage within a tolerance of plus or minus four percent (Bus. & Prof. Code § 12500(c)).  The trial court granted summary judgment for Nissan, concluding that California's "safe harbor" provision – section 12500(c) – does not protect manufacturers from liability for intentional miscalibration, but that plaintiffs failed to raise a triable issue as to whether Nissan had deliberately designed its odometers to overregister mileage.

The Court of Appeal agreed, holding:

We hold that passenger vehicle odometers are "correct" if they register actual mileage within the four percent tolerance and the designer or manufacturer does not deliberately miscalibrate them to underregister or overregister mileage. This standard is substantially the same as that applied by the trial court in granting summary judgment for Nissan.

Slip op., at 2.  The Court found section 12500(c) to be a "safe harbor" provision, provided that intentional miscalibration was not demonstrated.  Explaining itself, the Court said:

Similarly, we conclude that section 12500, subdivision (c) provides a safe harbor against UCL claims complaining about the accuracy of odometers that qualify as “correct” under that provision. (§ 12500, subd. (c); Cel-Tech, supra, 20 Cal.4th at p. 183.) California law specifically permits a slight measure of inaccuracy in odometers because it is uniformly understood that “errorless value or performance of mechanical equipment [including odometers] is unattainable.” (NIST Handbook, Appx. A, § 2.1.) Just as “[n]o law generally requires a manufacturer to use the most expensive or most durable materials in the manufacture of its products” (Bardin v. DaimlerChrysler Corp. (2006) 136 Cal.App.4th 1255, 1273), neither the UCL nor any other law requires Nissan to employ the most accurate possible odometer design. (See Alvarez, supra, 656 F.3d at p. 935.) With respect to an odometer that qualifies as “correct” even though it may not be 100 percent accurate, the Legislature has implicitly determined that any slight injury to consumers does not outweigh the harm if more stringent requirements for precision were to apply. In deeming qualifying odometers “correct,” section 12500, subdivision (c) “clearly permit[s]” their design (CelTech, supra, 20 Cal.4th at p. 183), and we “may not use the unfair competition law to condemn actions the Legislature permits.” (Id. at p. 184.)

Slip op., at 25.

There are many pages of discussion about the evidence in the case.  Had the plaintiffs established an intentional miscalibration, it would have been a different game.   But they didn't, at least to any court's satisfaction.  Not much to say beyond that.