Wells Fargo ordered to repay an estimated $203 million in overdraft fees to customers

United Stated District Court Judge William Alsup (Northern District of California) issued a number of Orders, including injunctive relief and an order requiring refunds in the estimated amount of $203 million, after finding defendant Wells Fargo guilty of "gouging and profiteering" when it reordered bank charges from highest to lowest so as to maximize the number of overdrafts that could occur in an account.  Gutierrez v. Wells Fargo & Co.  See this previous post for more on the case.

Civil Code section 3345 cannot be used to treble restitutionary remedy under UCL

In Clark v. Superior Court, the California Supreme Court examined the interplay between the UCL and Civil Code section 3345, which provides that in an action brought by senior citizens to redress unfair competition, a trier of fact may award up to three times the amount imposed as “a fine, or a civil penalty or other penalty, or any other remedy the purpose or effect of which is to punish or deter.”  Without belaboring the extensive analysis of the legislative histories of the two statutes, the unanimous Court held:

We conclude that because Civil Code section 3345 authorizes the trebling of a remedy only when it is in the nature of a penalty, and because restitution under the unfair competition law is not a penalty, an award of restitution under the unfair competition law — which plaintiffs seek here — is not subject to section 3345's trebling provision.

Slip op., at 2.  You can find more analysis of the reversed decision from the Court of Appeal at The UCL Practitioner.

District Court grants unopposed motion to strike nationwide class allegations; denies attempt to impose actual reliance on California class members at pleading stage

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.

District Court certifies class of borrowers allegedly subjected to discrimination based on race

United States District Court Judge Thelton E. Henderson (Northern District of California) certified a class of African-American and Hispanic borrowers allegedly charged higher rates on mortgage loans compared to whites as a result of Defendant GreenPoint Mortgage Funding, Inc.'s practice of allowing its brokers to mark up the price of wholesale loans.  Ramirez v. Greenpoint Mortg. Funding, Inc., ___ F.R.D. ___, 2010 WL 2867068 (July 20, 2010).  The suit alleges violation of federal fair lending and housing laws.  The alleged conduct presents an interesting theory:

The pricing of GreenPoint's mortgage loans consisted of an objective and a subjective component. GreenPoint relied on objective risk factors-such as FICO score, property value, and loan-to-value ratio-to determine credit parameters and set prices for its loan products. This information was communicated to brokers on a rate sheet listing GreenPoint's “par” interest rate, which did not result in any broker compensation. That objective component of loan pricing is not at issue here.

Plaintiffs' allegations relate to GreenPoint's discretionary pricing policy, which governed brokers' compensation for their services. GreenPoint paid brokers a “yield spread premium” or “rebate” when they set the interest rate higher than par; brokers were also permitted to charge loan origination and processing fees. GreenPoint did not set any objective criteria for the imposition of these higher rates and fees, which were set by the brokers according to their discretion. Brokers were paid more for loans that cost more to the borrower, but their compensation was capped at 5 percent of the loan amount. GreenPoint monitored the fees charged by its brokers to ensure they complied with its policies.

Slip op., at 1-2.

Cellphone Fee Termination Cases affirms class action settlement with several instructive holdings

This initially unpublished opinion in Cellphone Fee Termination Cases (July 27, 2010) follows from a consolidated appeal in one of several coordinated class actions that challenged wireless telephone carriers' practice of charging early termination fees (ETF's) on customers seeking to cancel cellular telephone contracts. The defendant in this particular case is Cellco Partnership (doing business as Verizon Wireless ("Verizon")).  The class action case against Verizon went to a jury trial on June 16, 2008, in the Alameda County Superior Court. On July 8, 2008, after plaintiffs had rested their case and the defense presentation had commenced, the parties announced that they had signed a memorandum of understanding outlining the terms of a settlement. The settlement also encompassed claims of nationwide certified class claimants (excluding California class members) in a proceeding then pending before the American Arbitration Association (AAA), as well as two actions filed in federal district courts.

Objectors challenged the settlement at final approval, contending that the notice of the settlement was inadequate,  that the settlement terms were not fair, reasonable and adequate, and that incentive payments awarded to four named class representatives were improper.  The trial court overruled the objections and approved the settlement.  The objectors appealed, but the Court of Appeal (First Appellate District, Division Five) affirmed.

In an otherwise standard, but lengthy, discussion of appellate review standards, the Court offered some useful holdings:

• The appellants argued that the statement in the short-form publication notice was misleading in that it gave the impression that members of the Subscriber Class would share in a portion of the $21 million settlement fund.  The Court disagreed:  "That publication notice, however, (as well as the mail notice) directed potential settlement class members to the settlement Web site to learn more about the settlement, and the publication notice specifically referenced the ― detailed notice and claim form package which subscribers would need to submit to ― qualify for a payment."  Slip op., at 11.  Thus, the short form notice need not contain all information about the settlement, so long as it directs class members to a source of full information about the settlement.
• The appellants also argued that notice was defective in failing to disclose the enormous size of the class to the EFT Assessed Class, asserting that this interfered with an informed decision about whether to participate, object, or opt out.  The Court quickly disposed of that argument: "[Appellant] cites no authority for her position that information as to the size of the potential class, or the contingencies of recovery in any particular amount, is required. Courts which have considered such objections in the context of class settlement have rejected the claim."  Slip op., at 13.
• The appellants also contended that $10,000 incentive awards to the representatives constituted a breach of their fiduciary duty to the class. Specifically, appellant alleged that "Schroer and White received amounts grossly disproportionate to the average recovery to the ETF Assessed Class", and asserted that "Nguyen and Brown (members of the Subscriber Class) received 'pay-offs to induce them to sell out the Subscriber Class.'" Slip op., at 20. The Court commented: "While there has been scholarly debate about the propriety of individual awards to named plaintiffs, '[i]ncentive awards are fairly typical in class action cases.'"  Slip op., at 20. The Court went on, observing: "There is a surprising dearth of California authority directly addressing this question. The threshold question of whether a class representative is entitled to a fee in a California class action was recently answered in the affirmative in Clark v. American Residential Services LLC (2009) 175 Cal.App.4th 785 (Clark)." Slip op., at 21. After discussing the policies behind incentive awards and the evidence of representatives' efforts in this case, the Court concluded: "In contrast to the more detailed analysis given by the trial court to other aspects of the settlement, the discussion of the incentive awards was sparse. There is no 'presumption of fairness' in review of an incentive fee award. (Clark, supra, 175 Cal.App.4th at p. 806.) The court, however, found the awards justified in light of the total settlement on the 'substantial benefit/common fund approach' and the 'material support' provided by the named plaintiffs to the prosecution of the case. Given the familiarity of the trial court with the history of the lengthy litigation and the evidence before the court that the representatives had, over the course of the litigation, assisted with investigation, responded to discovery requests, reviewed documents and pleadings, and testified either in deposition or at trial, we find no abuse of discretion in these awards. Slip op., at 23.

In Nelson v. Pearson Ford Co., Court of Appeal reviews judgment in class action, clarifies "causation" in UCL "omission" cases

The opinion in Nelson v. Pearson Ford Co. (July 15, 2010) is hot off the presses and over 50 pages long.  Plaintiff Nelson sued Pearson Ford, alleging violations of the Automobile Sales Finance Act (ASFA) (Civ. Code, § 2981 et seq.), California's unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.), and the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.)  The trial court certified the matter as a class action, with two classes: the backdating class and the insurance class. After a bench trial, the trial court found Pearson Ford not liable under the ASFA to the backdating class, but liable under the ASFA to the insurance class. It also found Pearson Ford liable to both classes under the UCL, but not the CLRA. The trial court issued certain remedies under the ASFA and the UCL, and awarded Nelson his attorney fees and costs under the ASFA. Both parties appealed.

With a 50-page-plus opinion, there is a lot to digest, but the comments regarding UCL "causation" are so valuable in and of themselves that I wanted to post them in full immediately:

A. Liability

The UCL defines "unlawful competition" to include an "unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising . . . ." (Bus. & Prof. Code, § 17200.) "By proscribing 'any unlawful' business practice, '[Business & Professions Code,] 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 (Cel-Tech).) After the 2004 amendment of the UCL by Proposition 64, a private person has standing to sue only if he or she "'has suffered injury in fact and has lost money or property as a result of [such] unfair competition.'" (In re Tobacco II Cases (2009) 46 Cal.4th 298, 305 (Tobacco II), citing Bus. & Prof. Code, § 17204, italics added.) In the context of a class action, only the class representatives must meet Proposition 64's standing requirements of actual injury and causation. (Tobacco II, supra, at pp. 315-316.)

The actual payment of money by a plaintiff, as wrongfully required by a defendant, "constitute[s] an 'injury in fact' for purposes of Business and Professions Code section 17204. [Citations.]" (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1347 (Troyk).) Causation for UCL standing purposes is satisfied if "a causal connection [exists] between the harm suffered and the unlawful business activity." (Daro v. Superior Court (2007) 151 Cal.App.4th 1079, 1099 (Daro); accord, Troyk, supra, at p. 1349.) However, "[t]hat causal connection is broken when a complaining party would suffer the same harm whether or not a defendant complied with the law." (Daro, supra, at p. 1099.)

For example, in Troyk, an insured filed a class action against his automobile insurer alleging the insurer violated the UCL by requiring him to pay a service charge for payment of his automobile insurance policy premium and, because the service charge was not stated in his policy, the insurer violated Insurance Code section 381, subdivision (f), requiring that this be done. (Troyk, supra, 171 Cal.App.4th at p. 1314.) Although the Troyk court found that the insurer had violated the Insurance Code as alleged (id., at p. 1334), it concluded that causation under the UCL did not exist because plaintiff did not show that had the insurer disclosed the monthly service charges in the policy documents as required by the Insurance Code, he would not have paid them. (Id. at p. 1350.) Significantly, the lack of disclosure of proper charges, not illegal charges, violated the UCL in Troyk.

Here, the trial court impliedly found that Pearson Ford had violated the UCL as to both classes through its violations of the ASFA, and we have affirmed that Pearson Ford is liable for its violations of the ASFA. (Ante, part II.A.2.) 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, 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.

The failure of Pearson Ford to comply with the ASFA caused Nelson to suffer an injury and lose money as to both classes because he paid pre-consummation interest (the backdating class), and paid sales tax and financing charges on the insurance premium (the insurance class). Unlike Troyk, these illegal charges violated the UCL and Pearson Ford improperly collected additional funds from Nelson. UCL causation exists because Nelson would not have paid pre-consummation interest, or sales tax and financing charges on the insurance premium had Pearson Ford complied with the ASFA. Because Nelson had standing to pursue claims under the UCL, we reject Pearson Ford's argument that the judgment in favor of both classes should be vacated to the extent it grants relief under the UCL.

Slip op., at 32-34.  This discussion adds some clarity to the situation where an unlawful act underlies the imposition of a charge or fee.  The plaintiff need not plead that the product or service wouldn't have been purchased had the truth been disclosed.  Instead, it is enough to plead that money was spent on the product or service and that the amount charged included some unlawful component that would not have been charged had the law been followed.  This won't resolve all cases alleging fraud or omissions, but it does offer some blunt guidance about so-called "causation" under the UCL.

I don't know if I will get around to posting more about Nelson, but you can follow the link above to peruse it yourself if automobile financing just gets you crazy with anticipation.

California rejects pass-on defense for antitrust conspirators

In Hanover Shoe v. United Shoe Mach., 392 U.S. 481 (1968) (Hanover Shoe), the United States Supreme Court held that antitrust violators generally could not assert as a defense that any illegal overcharges had been passed on by a suing direct purchaser to indirect purchasers.  In Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) (Illinois Brick), the United States Supreme Court concluded that only direct purchasers, not indirect purchasers, could sue for price fixing.  In 1978, in direct response to Illinois Brick, the California Legislature amended the state's Cartwright Act (Bus. & Prof. Code, § 16700 et seq.) to provide that, contrary to federal law, indirect purchasers as well as direct purchasers could sue under California law (§ 16750, subd. (a)).  However, until July 12, 2010, California had not considered the other question: whether a pass-on defense was available.

In Clayworth v. Pfizer, Inc. (July 12, 2010), the California Supreme Court considered that unresolved question, holding that "under the Cartwright Act, as under federal law, generally no pass-on defense is permitted."  Slip op., at 2.  The Supreme Court also examined whether, under the UCL, the pharmacies alleging price fixing could state a claim.  The trial court and Court of Appeal concluded that the pharmacies lacked standing and were ineligible for relief.  The Supreme Court reversed:

While Manufacturers argue that ultimately Pharmacies suffered no compensable loss because they were able to mitigate fully any injury by passing on the overcharges, this argument conflates the issue of standing with the issue of the remedies to which a party may be entitled. That a party may ultimately be unable to prove a right to damages (or, here, restitution) does not demonstrate that it lacks standing to argue for its entitlement to them. (See Southern Pac. Co. v. Darnell-Taenzer Co., supra, 245 U.S. at p. 534 [“The plaintiffs suffered losses . . . when they [over]paid. Their claim accrued at once in the theory of the law and it does not inquire into later events.”]; Adams v. Mills, supra, 286 U.S. at p. 407 [“In contemplation of law the claim for damages arose at the time the extra charge was paid,” notwithstanding any subsequent reimbursement].) The doctrine of mitigation, where it applies, is a limitation on liability for damages, not a basis for extinguishing standing.

Slip op., at 39.  Turning to the separate issue of remedies, the Supreme Court said:

The Court of Appeal affirmed summary judgment on a second, overlapping ground: Pharmacies were not entitled to any remedy. Pharmacies' complaint seeks two forms of relief: restitution and an injunction. We need consider only the latter. If a party has standing under section 17204 (as Pharmacies do here), it may seek injunctive relief under section 17203. (See § 17204 [authorizing without limitation “[a]ctions for relief pursuant to this chapter” to be brought by parties who satisfy the provision‟s standing requirement].) Manufacturers‟ papers identify no obstacle that would preclude Pharmacies from obtaining injunctive relief if they establish Manufacturers were engaged in an unfair business practice.

Slip op., at 40.  "Section 17203 makes injunctive relief 'the primary form of relief available under the UCL,' while restitution is merely 'ancillary.' (In re Tobacco II Cases (2009) 46 Cal.4th 298, 319.)"  Slip op., at 41.

While the discussion about the pass-on defense issue is much longer, it leads inevitably to the unanimous conclusion that California would apply the federal approach of denying a pass-on defense.  Thus, unless you practice in that specific area, the discussion would not be interesting, despite the thoroughness.  There are also some brief comments about the respective burdens on summary judgment.  The decision is worth scanning for just the UCL and summary judgment remarks.

Mazza, et al. v. American Honda Motor Company was argued before the Ninth Circuit today

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.

AT&T's preemption argument based on Stolt-Nielsen is dead before it hits the floor

United States District Court Judge Claudia Wilken (Northern District of California) has already been gifted with the privilege of considering whether Stolt-Nielsen S. A. et al. v. AnimalFeeds International Corp. (discussed on this blog here) preempts any state law that would preclude enforcement of an arbitration agreement.  McArdle v. AT & T Mobility LLC, 2010 WL 1532334 (N.D.Cal. May 10, 2010).  Judge Wilken took care of that argument in one sharp paragraph:

Defendants assert that Stolt-Nielsen creates a substantial question as to whether the “FAA would preempt any holding that California law precludes enforcement of McArdle's agreement to arbitrate his disputes with” them on an individual basis. Mot. for Leave at 4. The Court disagrees. The issue presented in Stolt-Nielsen was “whether imposing class arbitration on parties whose arbitration clauses are ‘silent’ on that issue is consistent with the Federal Arbitration Act (FAA).” 2010 WL 1655826, at *4. The Supreme Court did not address FAA preemption. Nor did it overrule its precedent upon which the Ninth Circuit relied in Shroyer v. New Cingular Wireless Services, Inc., which held that California law on unconscionability could render an arbitration clause unenforceable, 498 F.3d 976, 986-87 (9th Cir.2007).  Stolt-Nielsen is distinguishable both on the facts and the law and, therefore, does not require this Court to reconsider its order on Defendants' motion to stay this action pending their appeal.

Slip op., at 1.  One interesting bit of information is also included in the Order.  The Ninth Circuit recently held that Shroyer continues to control the issue of unconscionability analysis under California law.  Laster v. AT & T Mobility LLC, 584 F.3d 849 (9th Cir.2009). AT&T filed a petition for certiorari in Laster, upon which they expect the Supreme Court to rule by May 24.  If the Supreme Court takes up Laster, they will be forced to explicitly address carve-outs alluded to by the dissent in Stolt-Nielsen but not addressed by the majority opinion.