Chinese Wang decision is big news

Wrong, but necessary somehow.  A little later than promised, but Wang v. Chinese Daily News, Inc. (9th Cir. Sept. 27, 2010) has too much going on not to receive some additional attention.  At the outset, Wang was a basic wage & hour case.  The plaintiffs alleged that employees were made to work in excess of eight hours per day and/or forty hours per week. They alleged that they were wrongfully denied overtime compensation, meal and rest breaks, accurate and itemized wage statements, and penalties for wages due but not promptly paid at termination.  The subsequent procedural twists and turns were anything but standard.  But despite the many moving parts in the decision, the Ninth Circuit summarized the case in a few sentences:

The district court certified the FLSA claim as a collective action. It certified the state-law claims as a class action under Rule 23(b)(2) and, alternatively, under Rule 23(b)(3). In the state-law class action, it provided for notice and opt out, but subsequently invalidated the opt outs. It granted partial summary judgment to plaintiffs; held jury and bench trials; entered judgment for plaintiffs; awarded attorney’s fees to plaintiffs; and conducted a new opt-out process. CDN appeals, challenging aspects of each of these rulings, as well as the jury’s verdict.

Slip op., at 16393.  After the trial court certified a narrowed class under Rule 23(b)(2) (finding that injunctive relief was on "equal footing" with monetary relief), the trial court approved a notice that authorized class members to opt into the FLSA action and out of the state law-based class action.  The notice precipitated the first major upheaval in the case:

Forms were mailed to 187 individuals, and notice was posted and forms made available at CDN’s Monterey Park facility. Plaintiffs received back about 155 opt-out forms, including 18 from individuals not on the original list of class members.  Plaintiffs filed a motion to invalidate the opt outs, for curative notice, and to restrict CDN’s communication with class members. On June 7, 2006, the court granted the motion, finding that “the opt out period was rife with instances of coercive conduct, including threats to employees’ jobs, termination of an employee supporting the litigation, the posting of signs urging individuals not to tear the company apart, and the abnormally high rate of opt outs.” Wang v. Chinese Daily News, Inc., 236 F.R.D. 485, 491 (C.D. Cal. 2006). The district court deferred any future opt-out procedure until after the trial on the merits.

Slip op., at 16395.  Facing cross-motions for summary judgment, the trial court then ruled that news reporters were not exempt professionals.  Next, the matter proceeded to a trial.  The defendant contended that only the FLSA claims should be tried and that UCL claims were pre-empted by the FLSA, but the trial court elected to retain supplemental jurisdiction, rejected the pre-emption argument and tried the state law claims as well.

The Court of Appeal first tacked the exemption analysis.  After examining decisions from other Circuits, the Court concluded that the reporters did not satisfy the creative professionals exemption.

Although the evidence submitted revealed disputes over how to characterize CDN’s journalists, we agree with the district court that, even when viewing the facts in the light most favorable to CDN, the reporters do not satisfy the criteria for the creative professional exemption.

Slip op., at 16400.  Next, the Court examined whether the trial court had applied the correct criteria for determining whether certification under Rule 23(b)(2) was appropriate.  The Court concluded that, although the matter was decided prior to Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010) (en banc), the trial court applied essentially identical standards and correctly decided the issue.

The Court then turned to the invalidation of opt-outs.  The Court first held that a trial court's authority to regulate class communications and the notice process implicitly confers that power to take corrective action when that process has been tainted.  The Court then considered whether the evidence submitted was sufficient to support the trial court's decision.  The Court noted in particular the evidence submitted by a class action notice company regarding normal opt-out rates:

Finally, plaintiffs submitted a declaration from the president of a class action notice company explaining that ordinarily opt-out rates do not exceed one percent. In this case, the district court found that current employees opted out at a 90 percent rate, whereas former employees opted out at a 25 percent rate.

Slip op., at 16407.  After concluding that the decision to invalidate the opt-outs was supported, the Court examined whether deferring a new opt-out period until after the trial was appropriate.  Again the Court noted the trial court's broad discretion to regulate the notice process: "The ordinary procedure is to give notice at the time of class certification. But the rule does not mandate notice at any particular time. See Fed. R. Civ. P. 23(c)(2)."  Slip op., at 16408.  The Court then affirmed the trial court's conclusion that it was necessary to delay a new notice and opt-out process in order to avoid the taint imposed during the initial process.

Finally, after observing that the evidence supported the jury verdict regarding meal periods under either the "provide" or "ensure" standards currently up for review by the California Supreme Court, the Court ended its Opinion by explicitly holding what most courts in the Ninth Circuit had already concluded: the FLSA does not preempt state law claims like the UCL.

Breaking News: Ninth Circuit issue two class action opinions addressing novel issues in the Ninth Circuit

After a bit of a lull on the class action front, the Ninth Circuit had a busy morning.  Two major opinions on class action issues were just issued by Ninth Circuit panels, and both opinions are sure to generate a good deal of discussion.  Both address areas of unsettled law among various federal courts.  The first is of interest to wage & hour practitioners and the second addresses the argument that large statutory damage awards defeat "superiority" of the class action procedure:

• Wang v. Chinese Daily News, Inc. (9th Cir. Sept. 27, 2010) is something of a kitchen sink of class action issues.  Among other things, the Ninth Circuit affirmed (1) the concurrent prosecution of a FLSA opt-in collective action and a Rule 23 opt-out class action, (2) the invalidation of Rule 23 opt-outs due to coercion, (3) the decision to conduct a corrective opt-out process after the trial, and (4) certification under Rule 23(b)(2).  The Court also held that the UCL was not preempted by the FLSA.
• Bateman v. American Multi-Cinema, Inc. (9th Cir. Sept. 27, 2010) concerned the singular issue of a class certification denial on superiority grounds.  The Ninth Circuit concluded that none of the three grounds relied upon by the district court — the disproportionality between the potential statutory liability and the actual harm suffered, the enormity of the potential damages, or AMC’s good faith compliance — justified the denial of class certification on superiority grounds.

Both opinions are substantial, and I will try to give both an extended treatment this evening.  Full disclosure: Greg Karasik of Spiro Moss represents Plaintiff Bateman.

State Court Docket Watch Summer 2010 now available from the Federalist Society

Like the headline says, State Court Docket Watch Summer 2010 is now available here on the The Federalist Society website.   The newest edition includes thoughts on Business and Professions Code section 17200 after the passage of Proposition 64.  Pay no attention to the odd coincidence that one of the contributors has a name very similar to mine.  I would never engage in shameless self-promotion and how dare you say that.

Article III standing not shown and claims lacking necessary facts leads to dismissal of consumer class action alleging carcinogens in baby bath products

United States District Court Judge Claudia Wilken (Northern District of California) granted a motion to dismiss plaintiffs' Second Amended Complaint in a consumer class action alleging various defendants knowingly manufactured and sold bath products for children that contain probable carcinogens and other unsafe substances.  Herrington v. Johnson & Johnson Consumer Companies, Inc., 2010 WL 3448531 (Sept. 1, 2010).  The Court found the allegations related to the risk of harm too remote to satisfy the plaintiffs' Article III burden:

Plaintiffs do not cite controlling authority that the “risk of harm” injury employed to establish standing in environmental cases applies equally to product liability actions. At least two out-of-circuit cases are instructive on the nature of the increased risk of harm necessary to create an injury-in-fact. In Sutton v. St. Jude Medical S.C., Inc., a product liability case, the Sixth Circuit concluded that a plaintiff had standing when he alleged that the implantation of a medical device exposed him to “a substantially greater risk” of harm. 419 F.3d 568, 570-75 (6th Cir.2005). In Public Citizen, Inc. v. National Highway Traffic Safety Administration, the D.C. Circuit, addressing a petitioner's standing to challenge agency action, expressed doubts about finding that any increased risk of harm inflicted an injury-in-fact. 489 F.3d 1279, 1293-96 (D.C.Cir.2007). The court recognized that, under its precedent, standing was appropriate in such cases “when there was at least both (i) a substantially increased risk of harm and (ii) a substantial probability of harm with that increase taken into account.” Id. at 1295. These cases and Central Delta suggest that, to the extent that an increased risk of harm could constitute an injury-in-fact in a product liability case such as this one, Plaintiffs must plead a credible or substantial threat to their health or that of their children to establish their standing to bring suit.

Plaintiffs have not alleged such a threat. In essence, they complain that (1) 1,4-dioxane and formaldehyde are probable human carcinogens; (2) “scientists believe there is no safe level of exposure to a carcinogen,” 2AC ¶ 68; (3) children are generally more vulnerable to toxic exposure than adults; and (4) 1,4-dioxane and formaldehyde have been detected in Defendants' products. However, Plaintiffs do not allege that 1,4-dioxane and formaldehyde are in fact carcinogenic for humans. Nor do they plead that the amounts of the substances in Defendants' products have caused harm or create a credible or substantial risk of harm.  This contrasts with the showing in Central Delta, in which the landowners cited the defendant agency's own reports, which predicted that “the majority of the months during which the standard would be exceeded are projected to be peak-irrigation months during plaintiffs' growing seasons.” Central Delta, 306 F.3d at 948. The plaintiffs also cited reports showing “the negative effects of increased salinity on the various crops that they grow” and themselves reported that “their harvests were damaged in the past due to high salinity in the water.” Id. Here, Plaintiffs do not plead facts to suggest that a palpable risk exists. They only allege that 1,4-dioxane and formaldehyde may be carcinogenic for humans, that there could be no safe levels for exposure to carcinogens and that Defendants' products contain some amount of these substances. Indeed, as Plaintiffs plead, the Consumer Product Safety Commission (CPSC) has stated that, although the presence of 1,4-dioxane “is cause for concern,” the CPSC is merely continuing “to monitor its use in consumer products.” 2AC ¶ 64. The risk Plaintiffs plead is too attenuated and not sufficiently imminent to confer Article III standing.

Opinion, at 3.  The Court granted leave to amend, so it is unclear whether the plaintiffs can meet the challenging task of alleging facts that will satisfy their Article III standing.

The Court also offered some interesting remarks about Rule 9(b) as it pertains to the plaintiffs' fraud and UCL claims:

Herrington and Haley cite In re Tobacco II Cases, 46 Cal.4th 298, 93 Cal.Rptr.3d 559, 207 P.3d 20 (2009), to argue that they are not required to allege which representations they specifically saw. There, addressing the allegations necessary to plead reliance to establish standing to bring a UCL claim, the California Supreme Court stated that “where ... a plaintiff alleges exposure to a long-term advertising campaign, the plaintiff is not required to plead with an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements.” Id. at 328, 93 Cal.Rptr.3d 559, 207 P.3d 20; see also Morgan, 177 Cal.App.4th at 1257-58, 99 Cal.Rptr.3d 768. However, Plaintiffs have not plead that they viewed any of Defendants' advertising, let alone a “long-term advertising campaign” by Defendants. Even if they did, In re Tobacco II merely provides that to establish UCL standing, reliance need not be proved through exposure to particular advertisements; the case does not stand for, nor could it, a general relaxation of the pleading requirements under Rule 9(b). See, e.g ., In re Actimmune Mktg. Litig., 2009 WL 3740648, at *13 (N.D.Cal.).

As for alleged non-disclosures, a modified pleading standard applies “on account of the reduced ability in an omission suit ‘to specify the time, place, and specific content’ relative to a claim involving affirmative misrepresentations.” In re Apple & AT & TM Antitrust Litig., 596 F.Supp.2d 1288, 1310 (N.D.Cal.2008) (quoting Falk v. Gen. Motors Corp., 496 F.Supp.2d 1088, 1099 (N.D.Cal.2007)). Herrington and Haley's primary complaint is that Defendants did not disclose information concerning the presence of 1,4-dioxane and formaldehyde. See, e.g., 1AC ¶¶ 32, 198. Their failure to plead the time and place of these omissions will not defeat their claims. And reliance on these nondisclosures could be presumed if their allegations suggested that the omitted facts were material. See, e.g., Blackie v. Barrack, 524 F.2d 891, 906 (9th Cir.1975). However, Herrington and Haley have not made such allegations. Although they plead that they would not have purchased Defendants' products had they known of the presence of 1,4-dioxane and formaldehyde, a fact is material if a reasonable person “would attach importance to its existence or nonexistence in determining” whether to purchase the product. Morgan, 177 Cal.App.4th at 1258, 99 Cal.Rptr.3d 768 (citation and internal quotation marks omitted). Because Herrington and Haley have not averred facts that show that the levels of these substances caused them or their children harm, under the objective test for materiality, the alleged non-disclosures are not actionable.

Opinion, at 8.  Hmmm.  It's just a tiny bit of formaldehyde in your baby's bubble bath.  It's not a material fact.

Gutierrez v. Wells Fargo Bank Findings of Fact and Conclusions of Law now available

The Findings of Fact and Conclusions of Law After Bench Trial by United Stated District Court Judge William Alsup (Northern District of California) in Gutierrez v. Wells Fargo & Co. is now available for review - all 90 pages of it.

You can view the embedded opinion in the acrobat.com flash viewer below:

If the viewer isn't working for you (say, if you are viewing this on an iPad or iPhone), you can download the opinion here.

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.

Kirby v. Immoos Fire Protection, Inc. examines fee shifting triggers in wage & hour litigation

After a very brief trip to the Windy City (aka, the Humid City in Need of a Breeze and my apologies to JB for not visiting), I bring you the first of yesterday's opinions related to class actions.  In Kirby v. Immoos Fire Protection, Inc. (July 27, 2010), the Court of Appeal (Third Appellate District) examined an award of attorney fees to the defendant following a dismissal by the plaintiff when certification was denied.  Fees were awarded by the trial court on causes of action for UCL violations (first cause of action), rest period violations (sixth cause of action) and section 2810 violation for entering into contracts while knowing them to be insufficient to pay all wages owed (seventh cause of action).

The plaintiff argued that bilateral attorney fee awards are precluded in any "action" where a claim arising under section 1194 is included as one of the claims.  The Court explained why it rejected that construction:

Although Kirby advances a plausible reading of the legislative history, we reject it in favor of construing the section 1194 exception as applying only to causes of action for unpaid minimum and overtime wages. (Accord Earley, supra, 79 Cal.App.4th at p. 1430.) To adopt Kirby‟s statutory construction would allow the exception of section 1194's unilateral fee shifting to eviscerate the rule of section 218.5.

We harmonize sections 218.5 and 1194 by holding that section 218.5 applies to causes of action alleging nonpayment of wages, fringe benefits, or contributions to health, welfare and pension funds. If, in the same case, a plaintiff adds a cause of action for nonpayment of minimum wages or overtime, a defendant cannot recover attorney's fees for work in defending against the minimum wage or overtime claims. Nonetheless, the addition of a claim for unpaid minimum wages or overtime does not preclude recovery by a prevailing defendant for a cause of action unrelated to the minimum wage or overtime claim so long as a statute or contract provides for fee shifting in favor of the defendant.

Slip op., at 16-17.

More interesting is the Court's conclusion that section 218.5 applies to rest break claims:

Kirby's sixth cause of action alleged that Kirby was “owed an additional one hour of wages per day per missed rest period.”  As a claim seeking additional wages, the sixth cause of action was subject to section 218.5's provision of attorney's fees for “any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions . . . .” (Italics added.)

Slip op., at 19 (footnotes omitted).  The Court explained why the plaintiff was incorrect that section 1194 controlled the fee issue:

Kirby's claim was not based on a failure to pay the statutory minimum wage for hours he actually worked. Instead, the cause of action was one for failure to provide rest periods. If his claim had succeeded, Kirby would have been entitled to an additional wage “at the employee's rate of compensation.” (See fn. 25, ante.) The “employee's rate of compensation” refers to the contractual rate of compensation, not the legal minimum wage. Consequently, the claim is not one premised on failure to pay the minimum wage.

Slip op., at 19.  The Court relied, in part, on Murphy, which, oddly enough, seems to provide the answer to virtually all wage & hour mysteries.  It wouldn't be surprising to see an increase in minimum wage claims and a concurrent reduction in contractual wage payment claims.

The Court had less difficulty analyzing the arguments related to the UCL claim and the section 2810 claim for underfunded contracts.  Regarding the UCL, the Court observed that it was a settled issue that attorney's fees were not specified as available under the UCL.  As for the last claim, the Court found that the fee provision in the statute was a unilateral fee-shifting statute.

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.