Breaking News: Kwikset Corporation v. Superior Court clears up many issues regarding standing under the UCL

I haven't read the entire opinion yet, which has a 32 page majority opinion and a 12 page dissent, but the the summary of the Supreme Court's holding in Kwikset Corporation v. Superior Court (Jan. 27, 2011) says a lot about what this opinion has to say about the UCL and standing.  James Benson sued Kwikset under the unfair competition and false advertising laws, alleging that he purchased a lockset because of its false country of manufacture label.  The Court said:

Accordingly, plaintiffs who can truthfully allege they were deceived by a product‟s label into spending money to purchase the product, and would not have purchased it otherwise, have “lost money or property” within the meaning of Proposition 64 and have standing to sue. Because plaintiffs here have so alleged, we reverse.

Slip op., at 2.  Stay tuned.

Update on 2011-01-27 23:43 by The Complex Litigator

A link to the opnion has been added to this post.

District Court denies certification in consumer case involving appliance repair insurance

United States Magistrate Judge Jan M. Adler (Southern District of California) denied a motion for class certification in a suit alleging improper practices and representations about a home warranty insurance product.  Campion v. Old Republic Home Protection Co., Inc., 2011 WL 42759 (S.D.Cal. Jan. 06, 2011).  The Court found that individual issues would predominate because each denial of warranty coverage would reuqire an inquiry into the basis for the denial.  The Court also relied heavily on the construction of Tobacco II that was advanced in Cohen v. DirectTV, 178 Cal. App. 4th 966 (2009) when it refused to presume reliance on the part of absent class members.

District Court (N.D. Cal.) certifies class of consumers claiming Dell, Inc. misrepresented savings by stating false former prices

United States District Court Judge Ronald M. Whyte (Northern District of California) granted in part a motion to certify a class of citizens of California who on or after March 23, 2003, purchased via Dell's web site Dell-branded products advertised with a represented former sales price.  Brazil v. Dell, Inc., 2010 WL 5387831 (N.D. Cal. Dec. 21, 2010) [not to be confused with the Court's Order on a motion for judgment on the pleadings filed the same day].  The Court offered this interesting discussion concerning reliance:

In California, “a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material,” In re Tobacco II Cases, 466 Cal.4th 298, 397 (2009). Materiality is an objective standard, see U.S. v. Watkins, 278 F.3d 961, 967-68 (9th Cir.2002), and is susceptible to common proof in this case. There is no dispute that the alleged misrepresentations were communicated to all class members, because the representations were made at the point of sale as part of a standardized online purchasing process.

Plaintiffs point to common evidence sufficient to show that the representations were material to plaintiffs. Although Dell points to some testimony from plaintiffs that it says “fails to establish legally sufficient reliance for even their individual claims,” the court finds that testimony read in context sufficiently indicated that the plaintiffs relied. There is evidence that Dell considered the representations material, and that external reference prices and semantic clues impact customers' perceptions of value and purchase decisions. Dell's marketing expert contends that while some purchasers may attach importance to a discount off Dell's list price, others will base their decision on wholly unrelated factors. But under California law, plaintiffs need not establish that each and every class member based his or her decision on the represented discounts. Plaintiffs' common evidence that the representations were material satisfies California's reliance presumption and Rule 23(b) (3)'s predominance requirement.

Slip op., at 5.

A similar practice by Dell almost caught me about a year ago.  I ordered a computer on the basis of a claim that I was receiving a special, limited-time discount.  I then discovered through another source that the prevailing price at the time was lower.  I cancelled the order before it shipped and re-ordered at a significantly lower price.  I'm pretty happy with Dell computers from a hardware standpoint, but their sales tactics have some room for improvement.

In Greenwood v. Compucredit Corp., District Court denies motion to decertify, criticizing Cohen line of cases

United States District Court Judge Claudia Wilken (Northern District of California) denied defendants' motion to decertify a class alleging violations of the federal Credit Repair Organization Act (CROA), 15 U.S.C. § 1679 et seq., and California's Unfair Competition Law (UCL), Cal. Bus. and Prof.Code § 17200 et seq.  Greenwood v. Computcredit Corp., 2010 WL 4807095 (N.D. Cal. Nov. 19, 2010).  The defendant relied, in part, on Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023 (8th Cir.2010).  While my amicus briefing efforts were not successful in Avritt, this Court didn't pull any punches:

The decision in Avritt does not bind this Court, and it is unpersuasive. Avritt acknowledges that federal courts “do not require that each member of a class submit evidence of personal standing.” 615 F.3d at 1034.

Slip op., at 3.  The Court the criticized Avritt on another ground:

Defendants rely on Avritt for the additional argument that the class should be decertified for failure to satisfy Rule 23(b) (3), because of individualized issues of reliance. The present case is factually distinguishable on this point. First, class members in this case by definition have been exposed to Defendants' advertising, unlike the proposed class members in Avritt. The class in this case comprises California residents who were mailed a solicitation by CompuCredit Corporation for the issuance of an Aspire Visa by Columbus Bank and Trust. In Avritt, class members were not required to have received any promotional materials, and the named plaintiffs did not recall receiving any printed sales materials or brochures.

Slip op., at 4.  The Court then took exception with the analysis of Tobacco II supplied by Cohen:

To the extent that the court of appeal's decision in Cohen might be read to require individualized evidence of class members' reliance, it is inconsistent with Tobacco II. The California Court of Appeal made the same point in In re Steroid Hormone Product Cases, 181 Cal.App.4th 145, 158, 104 Cal.Rptr.3d 329 (2010). The court stated:

As Tobacco II made clear, Proposition 64 did not change the substantive law governing UCL claims, other than the standing requirements for the named plaintiffs, and “before Proposition 64, ‘California courts have repeatedly held that relief under the UCL is available without individualized proof of deception, reliance and injury.’ [Citation]” Id. (citing Tobacco II, 46 Cal.4th at 326, 93 Cal.Rptr.3d 559, 207 P.3d 20).

This is a question of the meaning of a California state law, on which the California Supreme Court's decision in Tobacco II is determinative.

Slip op., at 5.  Interesting that a District Court seems more clear on the weight given to California Supreme Court decisions than some Courts of Appeal.

Ninth Circuit defers the submission of Mazza v. American Honda Motor Company, Inc. pending outcome in Wal-Mart Stores, Inc. v. Dukes

In a somewhat dodgy maneuver, the Ninth Circuit, on December 7, 2010, issued an Order deferring submission of Mazza v. American Honda Motor Company, Inc. pending a decision in Wal-Mart Stores, Inc. v. Dukes, 603 F.3d 571 (9th Cir. 2010) (en banc), cert. granted, --- S.Ct. ----, 79 U.S.L.W. 3128 (U.S. Dec. 6, 2010) (No. 10-277).  Huh?  That seems like a stretch, unless you think that Wal-Mart will issue some sort of proclamation about all nationwide class actions, which seems to be far down on the list of likely outcomes.  More about Mazza here and here.

Supreme Court holds that a single statue of limitation governs Labor Code section 203 claims

California Labor Code § 203 provides that, if an employer willfully fails to timely pay final wages, “the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days.”  Lab. Code § 203(a).  Usually, a one-year statute of limitation governs actions to recover penalties (Code Civ. Proc. § 340(a)), but section 203 states that an employee may sue for “these penalties at any time before the expiration of the statute of limitations on an action for the wages from which the penalties arise.” Lab. Code § 203(b).  In Pineda v. Bank of America, N.A. (November 18, 2010), the California Supreme Court answered two questions related to section 203 claims:  first, whether a different statute of limitation applies when an employee seeks to recover only section 203 penalties (in this case, final wages were paid late but before the filing of the action), as opposed to when an employee seeks both final wages and penalties; and, second, whether section 203 penalties recoverable as restitution under California's Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.).  A unanimous Supreme Court answered both questions in the negative, holding that (1) the underlying wage claim statute of limitation is tied to the 203 cause of action, and (2) since employees have no ownership interest in section 203 penalties they cannot use the UCL to recover those penalties as a form of restitution.

The Court had little difficulty concluding that a single, longer statute of limitation applies to section 203 claims:

Plaintiff urges us to conclude the Legislature intended for a single statute of limitations — the one set forth in section 203(b) — to govern the filing of any and all suits for section 203 penalties, regardless of whether a claim for unpaid final wages accompanies the claim for penalties. He contends this is the only plausible construction of section 203, and his contention has merit.  Absent explicit statutory language to the contrary, common sense would suggest that, where the Legislature has set forth a statute of limitations in one part of a statute, the prescribed limitations period governs the filing of actions provided for in another part of the same statute. In providing when “[s]uit may be filed for [section 203] penalties” (§ 203(b)), the Legislature could have employed language unambiguously limiting the application of section 203(b)‟s limitations period to those suits that seek both unpaid wages and penalties. For example, it could have provided that “[s]uit for unpaid final wages and these penalties may be filed at any time before . . . .” It did not.

Slip op., at 5-6.  The Court then spent several pages dismissing the defendant's strained construction of the Legislature's grammatical choices, concluding by remarking on the important public policy served by the prompt payment of final wages.

As for the UCL, the Court was equally quick to reach its conclusion that 203 penalties cannot be recovered by means of restitution under the UCL:

By contrast, permitting recovery of section 203 penalties via the UCL would not “restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1149.) Section 203 is not designed to compensate employees for work performed. Instead, it is intended to encourage employers to pay final wages on time, and to punish employers who fail to do so.  In other words, it is the employers' action (or inaction) that gives rise to section 203 penalties. The vested interest in unpaid wages, on the other hand, arises out of the employees' action, i.e., their labor. Until awarded by a relevant body, employees have no comparable vested interest in section 203 penalties. We thus hold section 203 penalties cannot be recovered as restitution under the UCL.

Slip op.,  at 14-15.

Compared to many others from the Supreme Court, this was a short opinion.  The direct language suggests that the Court found little over which to disagree as the opinion was prepared.  Congratulations to my colleague, Mr. Greg Karasik, on obtaining this partial reversal.

Supreme Court activity for the week of November 15, 2010

The California Supreme Court held its (usually) weekly conference on November 17, 2010.  Notable results include:

• On a Petition for Review, review was granted in  in Kirby v. Immoos Fire Protection, Inc. (July 27, 2010), covered previously here.  The issue under review is limited as follows:  "Does Labor Code section 218.5 govern attorney's fees awarded on a cause of action alleging violation of the statutorily mandated wage payment for missed meal and rest periods (Lab. Code, [sec.] 226.7), or is an attorney's fee award governed by Labor Code section 1194?"
• On a Request for Depublication, depublication was denied in Nelson v. Pearson Ford Co. (July 15, 2010).  Prior comments from this blog are here.

BREAKING NEWS: Pineda v. Bank of America, N.A. decision to be released November 18, 2010

Earlier today, the California Supreme Court posted a notice of forthcoming filings, indicating that  Pineda v. Bank of America, N.A. will be filed on November 18, 2010, at approximately 10:00 a.m.

In Pineda v. Bank of America, N.A., plaintiff Pineda advanced the theory that restitution of "penalties" recoverable under Labor Code section 203 (waiting time penalties) was available under the UCL because the penalty was a vested property interest due upon failure to timely pay wages.  Pineda also argued that the correct statute of limitation was that for suits to recover wages (3 years), not the statute for recovery of penalties (generally 1 year).  The Court of Appeal rejected both theories.  My earlier post about Pineda is here.

In Sevidal v. Target Corporation, an unascertainable class dooms plaintiff

The purpose of the ascertainability requirement in class actions is to ensure that it is possible to give adequate notice to class members and to determine after the litigation has concluded who is barred from relitigating the resolved issues.  The ascertainability requirement can be satisfied either by defining a class in objective terms such that a review of the defendant's records or if the class definition would "allow a member of that group to identify himself or herself as having a right to recover based on the description." Bartold v. Glendale Federal Bank, 81 Cal. App. 4th 816, 828 (2000); and see Ghazaryan v. Diva Limousine, Ltd., 169 Cal. App. 4th 1524, 1533 (2008).  In Sevidal v. Target Corporation (October 29, 2010), the Court of Appeal (Fourth Appellate District, Division One) affirmed a trial court order denying certification on the ground that the class was hopelessly unascertainable.

Sevidal sued Target after he purchased through Target's website some clothing items misidentified as made in the United States.   Sevidal specifically argued that, under the California Supreme Court's recent opinion, In re Tobacco II Cases, 46 Cal. 4th 298 (2009) (Tobacco II), "the class could be certified on his unfair competition claim even if most of the proposed class members never relied on the 'Made in USA' designation in deciding to make their online purchases."  Slip op., at 2.  The trial court did not take issue with this contention.  Instead, the trial court found the class definition to be significantly overbroad and the class itself to be unascertainable.

Sevidal's difficulties in defining the class arose because a website coding error caused the Target website to misidentify the county of origin on some clothes on some occasions, but not on others.  This computer bug made it impossible to ascertain class membership:

In the proceedings below, Sevidal made clear that only those who purchased an item when the country of origin was misidentified are part of the proposed class. But he also defined the proposed class to include consumers who purchased an item from Target.com without selecting the " 'Additional Info' " icon, and thus who were never exposed to the country-of-origin information. These consumers would, by definition, have no way of knowing whether he or she purchased an item when it was misidentified, and thus would have no way of knowing whether he or she is a member of the class. And these individuals (those who would have no way of knowing he or she was a class member) represent a significant portion of the overall proposed class. Target's statistical evidence shows that approximately 80 percent of the proposed class falls within this category — individuals who purchased an item without viewing the country-of-origin information.

Slip op., at 19-20.  The Court found this degree of overbreadth sufficient to support the trial court's ruling:

Although class certification should not be denied on overbreadth grounds when the class definition is only slightly overinclusive (ibid.; see Aguiar, supra, 144 Cal.App.4th at p. 136), in this case the overbreadth is significant. The unrefuted evidence showed that approximately 80 percent of the online purchasers did not select the " 'Additional Info' " icon and were never exposed to the alleged misrepresentation.

Slip op., at 20.  A useful observation for both plaintiffs and defendants; slight overbreadth will not defeat certification, but overbreadth of this magnitude will support a denial of certification.

The Court went on to reject Sevidal's attempt to extend by analogy the evidentiary presumptions that can be imposed for failure to follow Labor Code record-keeping requirements.   The Court observed that Target had no statutory or contractual obligations to maintain records about who selected which links on its site.

Finally, the Court discussed the overbreadth issue under the UCL, separate from the ascertainability problem created by the class definition and the lack of records to identify class membership.  Treading gingerly into the minefield of Tobacco II, the Court said:

But the Tobacco II court did not state or suggest there are no substantive limits on absent class members seeking restitution when a defendant has engaged in an alleged unlawful or unfair business practice. Instead, the court recognized that under the UCL's statutory language, a person is entitled to restitution for money or property "which may have been acquired" by means of the unfair or unlawful practice. (§ 17203, italics added; see Tobacco II, supra, 46 Cal.4th at p. 320.) Although this standard focuses on the defendant's conduct and is substantially less stringent than a reliance or "but for" causation test, it is not meaningless. To conclude otherwise would violate the statutory interpretation principle that every word in a statute must be given operative effect. Even after the Tobacco II decision, the UCL and FAL still require some connection between the defendant's alleged improper conduct and the unnamed class members who seek restitutionary relief.

Slip op., 25.  Analyzing the post-Tobacco II cases, the Court concluded that undisputed evidence showed that most of the defined class never viewed the country-of-origin information.   Unlike Weinstat v. Dentsply Internat., Inc., 180 Cal. App. 4th 1213 (2010), there were no direct communications to every class member.  Unlike In re Steroid Hormone Product Cases, 181 Cal. App. 4th 145 (2010), there was no illegal conduct (inclusion of undisclosed controlled substances) to supply the means for unlawful acquisition of money from the class.  In essence, the Court concluded that, as to the majority of the defined class, Target didn't do anything wrong (again, the key issue being that, at many times, the Target website may was displaying the correct information - but most people didn't look at it in either case).

While the Court appears to favor the "conservative" line of post-Tobacco II cases (or, as some might say, the reactionary revolt line), the Court doesn't embroil itself too deeply into the post-Tobacco II cases, attempting as much as possible to harmonize the two lines of cases with each other and the record before it.  In this case, the Court's task is much easier as a result of the unique factual record.

California Supreme Court activity for the week of October 18, 2010

The California Supreme Court held its (usually) weekly conference on October 20, 2010. Notable results include: 

• On a Petition for Review, review was denied in Morgan v. United Retail (July 13, 2010) [obligations under Labor Code section 226], covered previously here.
• On a Petition for Review, review was granted in Aryeh v. Cannon Business Solutions (June 22, 2010).  In Aryeh, the plaintiff argued that a continuing violation theory applied to his UCL claim, extending the period during which he could bring a claim.  The Court of Appeal rejected that argument.