The Ninth Circuit, by virtue of geography, periodically has to rule on claims based upon California's consumer protection laws. In Ebner v. Fresh, Inc. (Sept. 27, 2016), the Ninth Circuit reviewed a District Court's dismissal with prejudice of a putative class action alleging that the defendant deceived consumers about the quantity of lip balm in the defendant's product line.Read More
Opinions concerning arbitration issues seem less about uniformity of analysis these days and more about the politics of arbitration. Sophistry comes to mind. Consider the following observation: "Section 2 of the Federal Arbitration Act (FAA) provides that an arbitration provision 'shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.' 9 U.S.C. § 2." AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1753, 179 L. Ed. 2d 742 (2011), J. Thomas conc. This seems straightforward enough. And yet, in Caron v. Mercedes-Benz Financial Services USA LLC (July 30, 2012), the Court of Appeal (Fourth Appellate District, Division Three), managed to conclude that the Consumer Legal Remedies Act (CLRA) prohibition on class action waivers in any consumer contract was pre-empted by the FAA. A rule prohibiting class action waivers in any form of consumer contract is, according to this reasoning, not a ground in law for the revocation of such contracts. It is, instead, a provision that "interferes" with the FAA.
I could walk through the analysis and discuss it in a neutral and dispassionate tone, but that would waste precious minutes of my life. Blunt will serve just as well here. The reasoning in Caron is nonsensical. The Supreme Court claims that its FAA jurisprudence is intended only to "place arbitration agreements on an equal footing with other contracts...." Concepcion, 131 S. Ct. at 1742. That's not what is happening here. Instead, the FAA is being used to grant a superior status to arbitration agreements. Case in point? The Caron decision:
Defendants argue the trial court erred because the FAA preempts the CLRA's prohibition against class action waivers and therefore the trial court could not rely on the CLRA as a ground for denying Defendants' petitions. Based on the United State Supreme Court's decision in AT&T Mobility LLC v. Concepcion (2011) ___ U.S. ___, ___; 131 S.Ct. 1740 (AT&T Mobility), we agree the FAA preempts the CLRA's anti-waiver provision because the provision acts as an obstacle to the FAA's intention of enforcing arbitration agreements according to their terms.
Slip op., at 2. What? The FAA, in section 2, limits the FAA's reach. The Caron Court doesn't ensure that an arbitration agreement is judged on an equal footing with other contracts. It is placing arbitration agreements before a state's right to specify the lawful subject matter of contracts. The reasoning used in Caron could be used to vitiate section 2 of the FAA. After all, every defense to a contract is an "obstacle" to the FAA's intention of enforcing arbitration agreements according to their terms, even if those terms are unlawful. Caron dismisses this limitation on the FAA's reach by simply concluding that the case before it presents the same situation as Concepcion:
The plaintiffs in AT&T Mobility “argue[d] that the Discover Bank rule, given its origins in California's unconscionability doctrine and California's policy against exculpation, is a ground that 'exist[ed] at law or in equity for the revocation of any contract' under FAA § 2” and therefore the FAA did not preempt the rule. (AT&T Mobility, supra, 131 S.Ct. at p. 1746.) The Supreme Court rejected that argument, explaining the FAA's preemptive effect may “extend even to grounds traditionally thought to exist '"at law or in equity for the revocation of any contract"'" when those grounds “have been applied in a fashion that disfavors arbitration.” (Id. at p. 1747.)
Slip op., at 13. From this, the Caron Court concludes that the same reasoning would apply here. However, that distorts the facts. In Caron, the agreement at issue contained the following "poison pill" clause:
If any part of this Arbitration Clause, other than waivers of class action rights, is deemed or found to be unenforceable for any reason, the remainder shall remain enforceable. If a waiver of class action rights is deemed or found to be unenforceable for any reason in a case in which class action allegations have been made, the remainder or this Arbitration Clause shall be unenforceable.
Slip op., at 4. This agreement anticipates the potential illegality of the clause at issue. By its own terms, the agreement chooses to reject arbitration if it must occur in the class context. There is no law banning arbitration here. There is a general rule govering consumer contracts that specifies the lawful terms of those agreements. The agreement contains a self-executing kill switch. Had the agreement been silent, the Stolt-Neilsen analysis should have concluded that, aware of California law, the parties anticipated the potential for a class action. But how the Court concludes that the CLRA's regulation of consumer contracts constitutes "interference" with consumer contracts sufficient to pre-empt the CLRA's general regulation of consumer contracts is beyond me.
Section 2 of the FAA is not a nugatory clause. Efforts to interpret it out of existence should be rejected. Given that Caron diverges from Fisher v. DCH Temecula Imports LLC, 187 Cal. App. 4th 601 (2010), it appears that further guidance from the California Supreme Court would benefit parties to consumer contracts.
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. 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?
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!
United States District Court Judge Thelton E. Henderson (Northern District of California) granted in part and denied in part a motion to strike class allegations. Collins v. Gamestop Corp., 2010 WL 3077671 (N.D.Cal. Aug. 6, 2010). The case concerns the sale of used video games that promote additional, online features that are not available with the used game. The discussion is short, so I quote the majority of the opinion here:
As GameStop correctly observes, Collins failed to oppose GameStop's motion to strike the nationwide class claims as to the first and second causes of action for violation of the CLRA and UCL, respectively, and also failed to oppose the motion to strike the third claim for violation of consumer protection laws in non-California jurisdictions. In particular, Collins does not contest that he does not have standing to pursue claims based on laws in jurisdictions besides California; that a class action based on laws of fifty-two jurisdictions would be unmanageable; or that a nationwide UCL or CLRA class would be improper because those statutes do not reach conduct lacking any connection to California. Accordingly, the Court GRANTS GameStop's motion to strike these class allegations from the complaint without leave to amend.
GameStop's motion to strike the remaining class allegations relies on its argument that Article III requires all members of the class to have standing, which in turn, according to GameStop, requires a showing of actual reliance. As a result, GameStop argues, a nationwide fraud claim would require individualized inquiries making class treatment inappropriate, and the UCL and CLRA putative classes cannot be certified because they include individuals who did not rely on the allegedly concealed facts and therefore lack standing.
The Court finds GameStop's motion as to these claims to be premature and is not prepared to find, based on the pleadings alone, that Collins cannot state valid class claims. For example, although GameStop relies heavily on Sanders for the proposition that a nationwide fraud claim cannot be certified because individualized issues as to reliance would predominate, the Sanders court did not state that no such class could be certified; instead, the court granted leave to amend and “urge[d] Plaintiffs to consider whether a more narrowly defined class might be appropriate.” Sanders, 672 F.Supp.2d at 991 (emphasis added). Moreover, in a later case, the same court rejected an argument similar to GameStop's here:
Defendants argue that Plaintiffs cannot sustain classwide claims on their fraud-based claims because they must demonstrate individual reliance on the alleged concealment. However, “courts have recognized that this element, which is often phrased in terms of reliance or causation, may be presumed in the case of a material fraudulent omission.”
Tietsworth v. Sears, Roebuck & Co., Case No. C09-0288 JF (HRL), ---F.Supp.2d ----, 2010 WL 1268093, at *20 (N.D.Cal. Mar. 31, 2010) (quoting Plascensia v. Lending 1st Mortg., 259 F.R.D. 437, 447 (N.D.Cal.2009)).
More recently, another court in this district certified a nationwide class for UCL, CLRA, and common law fraud claims based on the defendants' alleged omissions. Chavez v. Blue Sky Natural Beverage Co., Case No. C06-6609 VRW, --- F.R.D. ----, 2010 WL 2528525 (N.D. Cal. June 18, 2010).FN1 The Chavez court specifically rejected defendants' arguments that the class could not be certified because no unnamed class members established Article III standing and that plaintiffs' UCL, CLRA, and common law fraud claims required individualized proof of reliance. Id. at *9-11, 13.
FN1. The court allowed nationwide UCL and CLRA claims because, unlike here, “Defendants are headquartered in California and their misconduct allegedly originated in California”; thus, “application of the California consumer protection laws would not be arbitrary or unfair to defendants.” Chavez, 2010 WL 2528525, at *14.
Another court in this district has similarly certified a class action that raised a UCL fraud claim among other causes of action. Estrella v. Freedom Fin. Network, LLC, Case No. C09-3156 SI, 2010 WL 2231790 (N.D. Cal. June 2, 2010). The defendant “argue[d] that neither plaintiff can show typicality under [the UCL fraud] claim because reliance is an individualized inquiry.” Id. at *10. The court rejected that argument, concluding that “[i]ndividualized reliance may be presumed ... where the alleged misrepresentation is material,” and that, “[f]or purposes of the class certification inquiry, plaintiffs have sufficiently alleged that the misrepresentations they have identified were material.” Id.
In light of the above case law, the Court does not find it clear from the complaint's allegations that a class action cannot be maintained. GameStop's motion to strike is therefore DENIED as to the fraud class allegations for the nationwide and California classes, and as to the UCL and CLRA class allegations for the California class.
Collins, slip op., at 2-3.
In the matter of Mazza, et al. v. American Honda Motor Company, the Ninth Circuit heard oral argument today. Defendant's Rule 23 Petition was granted after the District Court certified UCL and CLRA claims on a nationwide basis. The District Court's choice-of-law analysis was the primary focus. If reports are accurate, The Ninth Circuit may very well send the matter back to the trial court for some adjustment to the choice of law analysis and further consideration of whether any other state's interests outweigh California's strong interests in regulating the conduct of its corporate citizens and ensuring that they deal appropriately with all consumers, wherever situated. Or the Court might decide that, in this particular case, the comparison of interests was not shown to require the application of other laws. You can listen and decide for yourself here.
In the matter of Mazza, et al v. American Honda Motor Company, the Ninth Circuit will hear oral argument on June 9, 2010, at 9:30 a.m., in Pasadena, California. Defendant's Rule 23 Petition was granted after the District Court certified UCL and CLRA claims on a nationwide basis. The District Court's extensive discussion of choice-of-law analysis may be the primary focus. The outcome may prove to be significant for the many Toyota acceleration cases assigned to Judge Selna in the same Central District from which Mazza was issued. I would like to attend and provide a detailed account of the argument, but my schedule may not permit it. If I cannot attend, I will try to arrange for someone to report in my absence.
Sharp Healthcare is responsible for two of the three published decisions issued today that concern class action issues. Hale v. Sharp Healthcare (April 19, 2010) and Durell v. Sharp Healthcare (April 19, 2010) both concern putative class actions. Both involve billing practices by Sharp Healthcare related to its "regular" billing rate. Both concern trial court orders sustaining demurrers to UCL causes of action. And both pronounce new situations where "reliance" is required for UCL claims. However, the outcomes in the two appeals differ by the width of, at most, a couple of sentences of allegations; one passes muster as a "reliance" allegations and one does not.
Both cases concern the basic theory that Sharp engaged in deceptive and unfair practices by billing uninsured patients its full standardized rates for services, when it substantially discounts those rates for patients covered by Medicare or private insurance. Both cases questioned, in slightly different ways, what actually constitutes the "regular rates" charged to patients.
In the Durell opinion, the Court focused on the causation aspect of standing:
The court sustained the demurrer to the UCL cause of action without leave to amend on the ground Durell lacks standing to pursue the claim. The court found the SAC insufficiently alleges "injury in fact" and causation. (Bus. & Prof. Code, § 17204.) As to causation, the court explained the SAC fails to allege Durell was harmed "as a result of" Sharp's conduct. (Ibid.) For instance, the SAC does not allege he "relied on Sharp charging its 'usual and customary rates' in receiving treatment." We turn first to the causation issue, which we find dispositive.
Durell, at 12. The Court found the absence of allegations of "reliance" to be the key defect in Durell's pleading:
The SAC does not allege Durell relied on either Sharp's Web site representations or on the language in the Agreement for Services in going to Sharp Grossmont Hospital or in seeking or accepting services once he was transported there. Indeed, the SAC does not allege Durell ever visited Sharp's Web site or even that he ever read the Agreement for Services.
Durell, at 14.
Plaintiff Hale, on the other hand, alleged facts that satisfied the Court's examination of "injury in fact" and standing:
Even though the SAC alleges Hale has paid only $500 of her $14,447.65 medical bill, it also alleges the Admission Agreement obligates her to pay Sharp the balance on her account. Thus, she faces at least an imminent invasion or injury to a legally protected interest. (See Troyk, supra, 171 Cal.App.4th at p. 1346.) The term "imminent" is defined as "ready to take place," "hanging threateningly over one's head," and "menacingly near." (Webster's 3d New Internat. Dict. (1993) p. 1130.) Certainly, this is not the type of action Proposition 64 was intended to squelch. Hale was a bona fide consumer of medical services.
Hale, at 11. Though thin, the Court agreed that Hale did plead a form of "reliance" sufficient to withstand demurrer:
We agree with Hale, however, that "to the extent [she] is bringing a fraud-based claim under the UCL, she has reasonably pled reliance." The SAC alleges Hale signed the Admission Agreement, and "at the time of signing the contract, she was expecting to be charged 'regular rates,' and certainly not the grossly excessive rates that she was subsequently billed." (Italics added.) This allegation appears in the breach of contract cause of action, but the UCL cause of action incorporates the allegations of all other causes of action. We must interpret the complaint reasonably, "reading it as a whole and its parts in their context." (Stearn v. County of San Bernardino (2009) 170 Cal.App.4th 434, 439.) As Hale notes, the "difference between 'expecting' to be charged regular rates and 'relying' on being charged regular rates is a distinction without a difference." We see no utility in requiring Hale to amend her complaint to exchange the term "expecting" for the term "relying."
Hale, at 14-15. Lesson one from these cases is that small differences in pleading facts can make a big difference.
But discussing allegations was not the headline-worthy event in these two opinions. The Court extended the concept of "reliance" discussed in Tobacco II's discussion of the UCL "fraudulent" prong to any "unlawful" prong claim asserting a legal violation that involves deception:
Construing the phrase "as a result of" in Business and Professions Code section 17204 in light of Proposition 64's intention to limit private enforcement actions under the UCL, we conclude the reasoning of Tobacco II applies equally to the "unlawful" prong of the UCL when, as here, the predicate unlawfulness is misrepresentation and deception. A consumer's burden of pleading causation in a UCL action should hinge on the nature of the alleged wrongdoing rather than the specific prong of the UCL the consumer invokes. This is a case in which the "concept of reliance" unequivocally applies (Tobacco II, supra, 46 Cal.4th at p. 325, fn. 17), and omitting an actual reliance requirement when the defendant's alleged misrepresentation has not deceived the plaintiff "would blunt Proposition 64's intended reforms." (Cattie v. Wal-Mart Stores, Inc. (S.D.Cal. 2007) 504 F.Supp.2d 939, 948.)
Durell, at 14.
With a new category of "reliance" pleading required for certain "unlawful" prong claims, the Court turned its high-powered, neutrino-powered conservative ray on the "unfair" prong of the UCL. Durell's "unfair" prong claim also found no success. After reviewing the post-Cel-Tech hairball, the Court applied its own prior precedent that defines a very strict test for "unfair" conduct:
Here, the court's order does not specifically address the "unfair" prong of the UCL. The SAC alleges Sharp's conduct violates public policy, and is "immoral, unethical, oppressive, and unscrupulous," a vague test of unfairness this court rejects. The SAC does not allege the conduct is tethered to any 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. In his briefing, Durell does not address Cel-Tech, supra, 20 Cal.4th 163, and its affect on the definition of "unfair" in consumer UCL cases, or this court's opinions in Scripps Clinic, supra, 108 Cal.App.4th 917, and Byars, supra, 109 Cal.App.4th 1134. We conclude the court properly granted the demurrer as to the claim under the "unfair" prong of the UCL.
Durell, at 19.
On the flip side, Hale's CLRA claim lives to fight another day, benefiting from the Court's "reliance" pleading analysis set forth in its discussion of Hale's UCL claim:
Again, however, to the extent Hale's CLRA claim is fraud-based, the SAC adequately alleges the reliance element. Thus, the court erred by sustaining the demurrer to the CLRA cause of action.
Hale, at 16.
I will look forward to reading The UCL Practitioner's assessment of these two opinions.
The initial appellate decisions in which In re Tobacco II Cases (2009) 46 Cal.4th 298, 311 (Tobacco II) was ignored or criticized are beginning to see an equalizing counterbalance from appellate decisions that approvingly apply Tobacco II. Today, in Steroid Hormone Product Cases (January 21, 2010), the Court of Appeal (Second Appellate District, Division Four) reversed an order denying class certification. While the Court didn't directly address Cohen, it did include this footnote with a very interesting choice of language that was ostensibly directed at the trial court's order:
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. (Tobacco II, supra, 46 Cal.4th at p. 321.)
Slip op., at 11, n. 8 (bold emphasis added). This is a direct repudiation of Cohen's analysis. The question this decision raises is whether it will encourage the California Supreme Court to depublish Cohen and send a signal that the analysis of Steroid Hormone Product Cases is the correct construction, take up Cohen to explicitly resolve this split, or let more Courts of Appeal weigh in on the issue.
I may write a longer summary and analysis of this decision at a later time, but, for now, the quote above is where most of the action can be found.