Battle Royale: Latest round of lower court versus Supreme Court found in Cohen v. DIRECTV, Inc.

The more time I spend reviewing decisions in the complex litigation/class action arena, the more I am convinced that the lower Courts of California are, in many instances, at odds with the California Supreme Court.  The most recent decision to suggest this schism is Cohen v. DIRECTV, Inc. (October 28, 2009) from the Court of Appeal (Second Appellate District, Division Eight).   Cohen is the most recent California appellate court Opinion to comment on the treatment of UCL claims by In re Tobacco II Cases, 46 Cal.4th 298 (2009), the prior two decisions being Kaldenbach v. Mutual of Omaha Life Insurance Company, et al. (October 26, 2009) (discussed on this blog here) and Morgan, et al. v. AT&T Wireless Services, Inc. (September 23, 2009) (discussed on this blog here).  Cohen affirmed a trial court's denial of class certification of CLRA and UCL claims, but its analysis runs head first into Tobacco II and other Supreme Court decisions.  The UCL Practitioner has an extensive post analyzing Cohen against Tobacco II.  I will comment on the Cohen holding, but I also want to offer some thoughts as to why this divergence between California's highest court and the other courts throughout the state might be happening.

Since some of my comments depend upon the subject matter of Cohen, I begin by providing some background about the claims in that matter.  Cohen concerns an allegation that DIRECTV advertised that the channels in its HD Package were broadcast in the 1080i HD standard (an interlaced resolution of 1920x1080 pixels), at  19.4 Mbps, but later compressed each HD channel down to 6.6 Mbps.  The 19.4 and 6.6 figures refer to the volume of data being transmitted each second, expressed as Megabits per second.   So, expressed another way, the Cohen action complained that the quality of the video broadcast on HD channels was degraded by an increase in the amount of data compression.  By way of background, the raw data rate for uncompressed HD video in the 1080i format can be well in excess of 100 Mbps, depending on frame rate and color information.  This "raw" video is then compressed.  In fact, it must be compressed - there is no practical system in place to deliver 100 Mbps to your television right now.  The older mpeg-2 compression codec, or newer codecs, like H.264, compress the "raw" HD video into something smaller, using complex formulas that reduce the data used to transmit the images.  The goal of compression is to obtain the best video-quality-to-size compromise.  In the DIRECTV case, 19.4 Mbps is compressed video that would look very good, but "degradation" artifacts would still be visible on a good HD television (some "smearing" on fast action or a blocky, pixelated appearance in areas of solid color, blacks in particular).  6.6 Mbps is very compressed 1080i HD content; it is compressed to one third the size of the already compressed 19.4 Mbps feed.  You would see more compression artifacts on a good/larger HD television.

There are a number of certification issues in Cohen.  Ascertainability receives some significant discussion.  But the portion that is likely of greatest interest is the discussion of reliance under the UCL; it is the area in which Cohen diverges from Tobacco II.  Regarding reliance in UCL actions, the Trial Court in Cohen said: "Even pre-Prop. 64 cases only allow inferred reliance where the misrepresentations were common to all class members. An inference of classwide reliance cannot be made where there is no showing that representations were made uniformly to all members of the class."  Slip op., at 7.  The Cohen Court started its discussion about the UCL with this observation that presages the outcome:

Although the rules under the UCL may or may not be different following our Supreme Court's recent decision in In re Tobacco II Cases (2009) 46 Cal.4th 298 (Tobacco II), an issue which we address below, we do not understand the UCL to authorize an award for injunctive relief and/or restitution on behalf of a consumer who was never exposed in any way to an allegedly wrongful business practice.

Slip op., at 14.  The Cohen Court then stated its view of the holding from Tobacco II in two separate ways.  First, it offered a brief summary of the decision:

On review, the Supreme Court specifically addressed two questions: “First, who in a UCL class action must comply with Proposition 64's standing requirements, the class representatives or all unnamed class members, in order for the class action to proceed? . . . Second, what is the causation requirement for purposes of establishing standing under the UCL . . . ?” (Tobacco II, supra, 46 Cal.4th at p. 306, italics added.) This past spring, the Supreme Court answered these two questions by ruling (1) only the class representatives must meet Proposition 64's standing requirements of actual injury and causation; (2) only the class representatives must establish reliance in accordance with fraudulent inducement principles in order for the class action to proceed; and (3) the class representatives do not have to show reliance on particular advertisements or marketing materials with “unrealistic” specificity. (Tobacco II, supra, 46 Cal.4th at pp. 321-329.)

Slip op., at 15.  Then, the Cohen Court offered its own summary of what it believes that the California Supreme Court actually meant:

Viewed from the other direction, Tobacco II held that, for purposes of standing in context of the class certification issue in a “false advertising” case involving the UCL, the class members need not be assessed for the element of reliance. Or, in other words, class certification may not be defeated on the ground of lack of standing upon a showing that class members did not rely on false advertising. In short, Tobacco II essentially ruled that, for purposes of standing, as long as a single plaintiff is able to establish that he or she relied on a defendant‟s false advertising, a multitude of class members will also have standing, regardless of whether any of those class members have in any way relied upon the defendant's allegedly improper conduct.

Slip op. at 15.  Notice the interesting language used by the Cohen Court: "Tobacco II essentially ruled...."  One can say that the Supreme Court "did" or "did not" rule a certain way.  But saying that it "essentially" ruled a certain way is problematic for everyone.  This suggests an outcome that is implied by Tobacco II, but not stated.  To sort that out, we have to compare Cohen to Tobacco II and determine what Tobacco II does and does not say.

Returning to Cohen, the Court was more direct when it stated its intention to disregard Tobacco II as offering a controlling decision for the case before it:  "In the contextual setting presented by Cohen's present case, we find Tobacco II to be irrelevant because the issue of 'standing' simply is not the same thing as the issue of 'commonality.'"  Slip op., at 15.  The Court continued:  "In short, the trial court's concerns that the UCL and the CLRA claims alleged by Cohen and the other class members would involve factual questions associated with their reliance on DIRECTV's alleged false representations was a proper criterion for the court's consideration when examining 'commonality' in the context of the subscribers'motion for class certification, even after Tobacco II."  Slip op., at 16.  Thus, the Cohen Court devised an analysis that permits circumvention of Tobacco II, holding that a trial court can't use classwide reliance issues for a "standing" challenge, but can use those same issues to bar certification.  I posit that what we have here is most likely either a reverse engineered holding or a generally negative reaction to Tobacco II.  The limited analysis of reliance issues as they pertain to the UCL was devised to support the desired outcome.  The alternative is that the Cohen Court didn't examine Tobacco II carefully, and I find that less likely than the notion that the panel simply does not agree with the Tobacco II analysis or doesn't like the claims in the case.

I turn now to Tobacco II and argue that it directly addresses the contentions made in Cohen.  In Tobacco II, the Supreme Court summarized the trial court's decision in that matter:

The trial court found that the “simple language” of Proposition 64 required that “for standing purposes, a showing of causation is required as to each class member's injury in fact.... [T]he injury in fact that each class member must show for standing purposes in this case would presumably consist of the cost of their cigarette purchases. But significant questions then arise undermining the purported commonality among the class members, such as whether each class member was exposed to Defendants' alleged false statements and whether each member purchased cigarettes ‘as a result’ of the false statements. Clearly ... individual issues predominate, making class treatment unmanageable and inefficient.”

Tobacco II, 46 Cal. 4th at 310-311.  One can almost excuse the Cohen Court's narrow construction of Tobacco II as a "standing" decision.  After all, the paragraph above does talk quite a bit about standing.  But this overlooks the fact that causation is entangled with standing, and, for the named plaintiff, showing reliance is the method by which that plaintiff shows standing under a UCL claim asserting a "fraudulent" prong (likely to deceive) standard.  What Cohen ignores is the fact that, according to Tobacco II, the causation showing (in this instance, a reliance showing) is not an element of a UCL claim, except that, after Proposition 64, the named plaintiff must make that showing.  In fact, the next page of Tobacco II removes any doubt that pre-Proposition 64 decisions construing the UCL remain viable:  "'[T]o state a claim under either the UCL or the false advertising law, based on false advertising or promotional practices, "it is necessary only to show that 'members of the public are likely to be "deceived." ' " ' (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 951, 119 Cal.Rptr.2d 296, 45 P.3d 243.)"  Tobacco II, 46 Cal. 4th at 312.

Continuing, the Supreme Court said:

The fraudulent business practice prong of the UCL has been understood to be distinct from common law fraud. “A [common law] fraudulent deception must be actually false, known to be false by the perpetrator and reasonably relied upon by a victim who incurs damages. None of these elements are required to state a claim for injunctive relief” under the UCL. ( Day v. AT & T Corp.(1998) 63 Cal.App.4th 325, 332, 74 Cal.Rptr.2d 55; see State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1105, 53 Cal.Rptr.2d 229.) This distinction reflects the UCL's focus on the defendant's conduct, rather than the plaintiff's damages, in service of the statute's larger purpose of protecting the general public against unscrupulous business practices. (Fletcher v. Security Pacific National Bank (1979) 23 Cal.3d 442, 453, 153 Cal.Rptr. 28, 591 P.2d 51.)

Tobacco II, 46 Cal.4th at 312.  This discussion is at odds with Cohen's treatment of Tobacco II.  Tobacco II said that "the UCL class action is a procedural device that enforces substantive law by aggregating many individual claims into a single claim, in compliance with Code of Civil Procedure section 382, to achieve the remedial goals outlined above. It does not change that substantive law, however."   Tobacco II, 46 Cal.4th at 313.  And Tobacco II unambiguously holds (i.e., not "essentially" holds) that:

[T]he language of section 17203 with respect to those entitled to restitution-“to restore to any person in interest any money or property, real or personal, which may have been acquired ” (italics added) by means of the unfair practice-is patently less stringent than the standing requirement for the class representative-“any person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” (§ 17204, italics added.) This language, construed in light of the “concern that wrongdoers not retain the benefits of their misconduct” (Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d 442, 452, 153 Cal.Rptr. 28, 591 P.2d 51) has led courts repeatedly and consistently to hold that relief under the UCL is available without individualized proof of deception, reliance and injury. (E.g., Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267, 10 Cal.Rptr.2d 538, 833 P.2d 545; Committee on Children's Television, Inc. v. General Foods Corp., supra, 35 Cal.3d at p. 211, 197 Cal.Rptr. 783, 673 P.2d 660.)  Accordingly, to hold that the absent class members on whose behalf a private UCL action is prosecuted must show on an individualized basis that they have “lost money or property as a result of the unfair competition” (§ 17204) would conflict with the language in section 17203 authorizing broader relief-the “may have been acquired” language-and implicitly overrule a fundamental holding in our previous decisions, including Fletcher, Bank of the West and Committee on Children's Television.

Tobacco II, 46 Cal.4th at 320.  If "reliance" is not an element of a UCL claim, why is there still the perception that reliance has a role to play in UCL actions (outside of named plaintiff standing)?  The Tobacco II decision may have supplied that answer as well:

Our conclusion with respect to the remedies set forth in section 17203 has nothing to do with the nonrestitutionary disgorgement disallowed in Kraus v. Trinity Management Services, Inc., supra, 23 Cal.4th 116, 96 Cal.Rptr.2d 485, 999 P.2d 718. In Kraus, we concluded that section 17203 does not allow a court to order disgorgement into a fluid recovery fund, e.g., to “compel a defendant to surrender all money obtained through an unfair practice even though not all is to be restored to the persons from whom it was obtained or those claiming under those persons.” (Id. at p. 127, 96 Cal.Rptr.2d 485, 999 P.2d 718.) This prohibition against nonrestitutionary disgorgement did not overrule any part of Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d 442, 153 Cal.Rptr. 28, 591 P.2d 51, under which restitution may be ordered “without individualized proof of deception, reliance, and injury if necessary to prevent the use or employment of an unfair practice.” (Bank of the West, supra, 2 Cal.4th at p. 1267, 10 Cal.Rptr.2d 538, 833 P.2d 545.)

Tobacco II, 46 Cal.4th at 320, n. 14.  This suggests that, in some circumstances, the quantum of a restitution order might ultimately depend upon a showing of injury by class members.  Since reliance on an unfair practice can act as a surrogate of sorts for injury (under the the right facts and right species of UCL claim), this may explain why the belief persists that reliance is an unstated element of a UCL claim.  It's either that, or a petulant refusal to understand that the UCL's fraudulent prong has nothing to do with common law fraud.

Tobacco II has already been circumvented by two of three California Courts of Appeal to apply it.  The important question is why?  Options include, at least, a desire not to reverse a trial court, a dislike of the holding of Tobacco II, a dislike of the theory of the case, or a general resistance to class actions (or some amalgam of those options).

The first option exists as an element of all appeals.  Courts of Appeal begin their analysis with a presumption that the trial court will be affirmed.  I cannot conclude that this is the primary factor in the Cohen Court's dismissive analysis.

The second option is certainly possible.  The Cohen Court sounded almost disdainful of Tobacco II when it said, "In the contextual setting presented by Cohen's present case, we find Tobacco II to be irrelevant...."  Slip op., at 15.  I find this option to be a plausible explanation.

The third option is also possible.  I do not find it a stretch to imagine the initial judicial reaction being something akin to, "Megawho per second?  You're kidding, right?"  When that happens, I think it is human nature to look for reasons not to facilitate the case or claim.  If my comments offend any judicial sensibilities, I apologize for that.  But we must recognize every participant in the judicial system -- clerk, judge, lawyer -- are human beings, with all of our prejudices and predispositions.  I also find this option to be a plausible explanation.

The fourth option is also possible.  When the various Districts and Divisions are examined over time, I have little doubt that some find panels find great utility in the class action device, while others find them abusive.  Again, this has more to do with the predisposition of the observer than anything else, as it is as easy to find a class action of great social utility as it is to find one of questionable or zero worth.  It's also worth noting that the second of my proposed options can be a subset of this fourth option.  In other words, discomfiture about the Tobacco II opinion can be motivated either by that particular opinion or by an overall judicial fatigue regarding class actions generally.

I do not want to suggest that I know which of my theories, if any, explains Cohen.  I suspect that some combination of class action fatigue and specific resistance to the claims in this particular case are at work here, but that is speculative on my part.  However, I am certain that a growing rift exists between the Supreme Court's view of major legal questions and the views held by trial and intermediate appellate courts.  As I am doubtful that anything can be done about this issue other than to raise awareness and hope for the best from our courts, I do not believe it is an issue that will resolve itself any time soon.

It is my intention to write more about the nature of this judicial divide here or elsewhere.