The tort of "Trespass to Chattel," by itself, does not support a UCL violation

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I just wanted to write “trespass to chattel,” so this case gets a post just for that. In Pneuma International, Inc. v. Cho (June 24, 2019), the Court of Appeal (First Appellate District, Division One) was asked to review an assortment of complaints about the outcome of a trial. One issue was whether the failure to transfer ownership of a domain, the “trespass to chattel” that was at issue, constituted a fraudulent or unfair practice under the UCL. While Pneuma argued that the UCL’s “unlawful” prong is construed broadly, so there should be no resistance to borrowing the tort to serve as the predicate violation, the Court was not persuaded. After noting the dearth of authority on that particular tort, the Court said:

Although not directly relevant to whether Pneuma may “borrow” a tort as a basis for a UCL cause of action, respondents correctly observe that Pneuma may not recover damages under a UCL cause of action because remedies under the act are purely equitable in nature. (E.g., Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1150-1151 [remedies provided under UCL “are limited” and “it is well established that individuals may not recover damages”].) Pneuma does not identify what additional relief it would be entitled to if it prevailed on its UCL cause of action. The trial court already ordered the equitable relief of transferring the egpak.com website to Pneuma after it prevailed on a cause of action for trespass to chattel.

Slip op., at 15. So, does this mean that, where the UCL could supply some additional relief, a common law tort could serve as a predicate violation of the UCL? More realistically, can you even concoct a scenario where it would make sense to say that a common law tort constituted the predicate violation?

Court of Appeal examines "economic injury" and "causation" under the UCL in Veera v. Banana Republic, LLC

Very briefly, I direct your attention to Veera v. Banana Repulic, LLC (December 15, 2016), decided by the California Court of Appeal (Second Appellate District, Division Four).  In Veera, the Court examined the evidence necessary to create a triable issue of fact as to whether an advertisement of a sale resulted in an actionable economic injury caused by an unfair business practice.

The plaintiffs alleged that signs in Banana Republic store windows advertising a 40 percent off sale were false or misleading because they did not state that the discount applied only to certain items. The plaintiffs introduced evidence indicating that, in reliance on the allegedly false advertising, they were induced to shop at certain Banana Republic stores and selected various items for purchase at the advertised discount. However, as the items were being rung up at the cash register, they were told for the first time that the advertised discount did not apply to their chosen merchandise. The plaintiffs claimed that, after waiting in line to purchase the selected items, and due to frustration and embarrassment, they just bought some of the items they chose even though the discount did not apply.  Applying Kwikset, the Court of Appeal concluded that this evidence was sufficient to create a triable issue and defeat summary judgment.

One Justice dissented in the result. The dissent raises the interesting question of whether lost opportunity costs and time are sufficient to create injury under the UCL and/or the FAL.

Appellants were represented by Jones, Bell, Abbott, Fleming & Fitzgerald, William M. Turner, Asha Dhillon; Grignon Law Firm, Anne M. Grignon and Margaret M. Grignon.

In Ebner v. Fresh, Inc., the Ninth Circuit affirms dismissal of a putative consumer class action

The Ninth Circuit, by virtue of geography, periodically has to rule on claims based upon California's consumer protection laws.  In Ebner v. Fresh, Inc. (Sept. 27, 2016), the Ninth Circuit reviewed a District Court's dismissal with prejudice of a putative class action alleging that the defendant deceived consumers about the quantity of lip balm in the defendant's product line.

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Overreach results in rare class action dismissal via demurrer in Schermer v. Tatum

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While getting a class certified is often a serious fight, defeating class allegations at the demurrer stage is generally rare.  But never say never.  In Schermer v. Tatum (March 18, 2016), the Fourth Appellate District, Division One, affirmed a trial court ruling sustaining a demurrer to class allegations in the plaintiffs' second amended complaint (SAC).  The plaintiffs brought a class action on behalf of residents who live in the 18 mobilehome parks.  The plaintiffs alleged they were subjected to uniform unconscionable lease agreements and leasing practices by a collection of related defendants.  The SAC involved 18 mobilehome parks allegedly owned and/or operated by two defendants (Tatums and Kaplan), and were managed through defendant Mobile Community Management Company (MCM).  The plaintiffs also named as defendants the 18 "single-purpose" business entities that are each described as the owners of one of the mobilehome park in California.

The Court of Appeal began by summarizing the first amended complaint, the demurrer hearing related to it, and the SAC. And that summary is all you need to read to know where things are headed.  The Court described the "highlights" of the FAC as follows:

In the FAC, plaintiffs again alleged defendants Tatum and Kaplan, through MCM, engaged in unlawful conduct at each of the 18 mobilehome parks.  Specifically, they alleged defendants "charg[ed] excessive rent, pursu[ed] arbitrary evictions, and implement[ed] unreasonable polices."  Plaintiffs further alleged in their FAC that defendants Tatum and Kaplan took "advantage of vulnerable prospective and current residents" including "non-[E]nglish speaking and elderly residents" who, plaintiffs claimed, were "especially susceptible" to defendants' unlawful business practices.  Plaintiffs alleged defendants "most egregious practice" was the use of a "one-sided, standardized lease" agreement.  Plaintiffs provided 32 examples of lease clauses that allegedly violated California's Mobilehome Residency Law (Civ. Code, § 798 et seq.; MRL).
 Plaintiffs' FAC also set forth about 11 "factors" that plaintiffs alleged showed procedural unconscionability between plaintiffs and the putative class, on the one hand, and defendants, on the other.  Such factors included among others "residents' poor socio-economic background" and defendants' "knowledge of residents' vulnerability to oppression."  Plaintiffs also listed about 17 examples of substantive unconscionability in their FAC in connection with defendants' use of the standardized lease agreement in the 18 mobilehome parks.  As before, plaintiffs' class action allegations included any person who had an ownership interest in a mobilehome in any of the 18 parks, and a senior citizen and non-English-speaking subclass. 

Slip op., at 3-4.  Then, discussing the hearing on the demurrer to the FAC, the Court said, "At the demurrer hearing, plaintiffs' counsel agreed with the court that plaintiffs' FAC was 'a mess' and counsel admitted they 'did a horrible job in succinctly and systematically putting forth facts that show what the [FAC] -- what the case is about and how it shows a pattern of conduct that is deserving of being treated in a class action.' "  Slip op., at 4.  Not looking good.

Describing the subsequently issued Order on the demurrer to the FAC, the Court set forth key parts of the trial court's ruling:

"Plaintiffs allege multiple causes of action, all of which related in some way to the Lease Agreements utilized at the Defendants['] parks.  Based upon the allegations in the [FAC], it appears that some of the claims involved the alleged unconscionability of the contracts themselves, while others involve each Defendant's alleged actions in executing or enforcing the individual contracts as to individual Plaintiffs.  [¶]  The Court finds that multiple factual allegations predominate.  Plaintiffs['] measure of damages will be unique to each park.  The proposed class does not all reside at the same location or under the same circumstances.  Each putative class member is/was a resident at one of the eighteen separate mobilehome parks located throughout the State of California, giving rise to individualized factual questions related to causation, liability, and damages.
"Example of the individualized issues include the remedy (determining excess rents paid at each space requires a factual showing of fair market values for rents in a particular area [at] a particular time and park-by[-]park appraisal).  Further, there appear to be multiple lease agreements.  Although Plaintiffs allege Defendants used a 'standardized' Lease Agreement, they attach at least five different variations of the Lease Agreement and/or Amendments to the Lease Agreement.  (See Exhibits 'A,' 'B,' 'C,' 'D,' and 'E,' attached to the [FAC].)

Slip op., at 5. The trial court went on to identify additional issues, including the fact that many class members would not be able to state certain claims if they had not attempted to sell their homes, and there were no putative class representative plaintiffs for many of the mobilehome parks.

The SAC filed by the plaintiffs attempted to address many of the trial court's concerns, but a number of its allegations were found by the trial court to be conclusory assertions about defendants, and not allegations of fact.  The SAC did not address damage issues that would arise, which included the fact that several of the mobilehome parks were in cities with their own rent control ordinances.  The trial court was particularly concerned by the fact that each agreement at each park with each potential class member was individually negotiated and by the fact that a unique damage calculation would be required for each park and each person at each park. Moreover, the trial court took notice of the fact that many individuals were involved in their own litigation with their own park.

After discussing the procedural background, the Court made sure to note that it is undisputed that class allegations can be decided on demurrer:

It is beyond dispute that trial courts are permitted to decide the issue of class certification on demurrer.  (Tucker, supra, 208 Cal.App.4th at p. 212; see Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 440 [noting the issue is "settled" that courts are authorized to "weed[] out" legally meritless class action suits prior to certification by demurrer or pretrial motion].)  A trial court may sustain a demurrer to class action allegations where " 'it concludes as a matter of law that, assuming the truth of the factual allegations in the complaint, there is no reasonable possibility that the requirements for class certification will be satisfied.  [Citations.]'  [Citations.]"  (Tucker, at p. 211, italics added; see Canon U.S.A., Inc. v. Superior Court (1998) 68 Cal.App.4th 1, 5 [noting that when the "invalidity of the class allegations is revealed on the face of the complaint, and/or by matters subject to judicial notice, the class issue may be properly disposed of by demurrer or motion to strike," and noting that "[i]n such circumstances, there is no need to incur the expense of an evidentiary hearing or class-related discovery"].)

Slip op., at 14. Much of the discussion that follows is unsurprising, given the discussion of the trial court's analysis.  The Court did wade into the murky waters of attempting to categorize an allegation as either an "ultimate fact" or a "conclusion":

We conclude plaintiffs' allegations in their SAC—which were noticeably absent from their original complaint—that defendants implemented a uniform policy and procedure in each and every lease transaction with plaintiffs and the putative class members over a four-year period (i.e., the proposed class period), in each of the 18 mobilehome parks owned and/or operated by Tatum and Kaplan, are not properly admitted for purposes of demurrer because such allegations are not ultimate facts but rather merely contentions and/or improper factual conclusions.

Slip op., at 17-18. In my experience, this is very much an eye-of-the-beholder call that deserves a clarifying opinion with more objective guidance as to how to distinguish between the two.

In any event, the Court agreed with the trial court's assessments, finding, in particular, that the individual nature of the transactions was such that each course of dealing is unique, and damages, because of different circumstances, park locations, and local ordinances, are also unique to each potential class member.  The Court declined to grant leave to amend to the plaintiffs, agreeing with the trial court that the problems were insurmountable.  The lesson here is that overreach can be fatal.  It might have been more workable to describe uniform leasing practices at one mobilehome park and seek class relief for the aspects of the transaction that were common to all of the residents, while, at the same time, addressing how damages will be calculated and distributed.

The "separate location" argument seems better suited to this sort of consumer circumstance than it is in the wage & hour context, where defendants nevertheless try the "each of our stores is unique and different" argument, as if they have no uniform policies regulating employees and allow each store to run their own affairs like the wild West. Hey, at least this Court cited Brinker (but it felt like an ironic cite to me).

In Ramirez v. Balboa Thrift and Loan, Court of Appeal directs reconsideration of certification denial in UCL case

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The Rees-Levering Motor Vehicle Sales and Finance Act protects consumers involved in, you guessed it, motor vehicle sales and finance transactions.  In Ramirez v. Balboa Thrift and Loan (pub. Ord. April 12, 2013 and published April 22, 2013), the Court of Appeal (Fourth Appellate District, Division One) concluded that the trial court's decision to deny class certification of Plaintiffs' UCL claim asserting violation of the Rees-Levering Act was predicated upon an erroneous legal analysis.

Ramirez financed a car, but didn't make many payments in a timely manner.  Ramirez then voluntarily surrendered the car.  Balboa sold the car and asserted a deficiency.  Ramirez then sued, contending that the NOI failed to comply with the Act.

On the legal issue, the Court said:

[A] seller cannot recover a deficiency unless the NOI specifically and timely notifies the buyer of the conditions precedent to loan reinstatement OR timely notifies the buyer that there is no right of reinstatement and provides a statement of reasons for this conclusion. Reading together sections 2983.2 and 2983.3, a seller/holder who wishes to preserve its rights to claim a deficiency must determine within a 60-day period after repossession whether a buyer is entitled to a reinstatement, and then notify the buyer of this decision. Given the Legislature's manifest intent to set forth the exclusive process for creditors to obtain a deficiency balance after a vehicle repossession or surrender, there is no room for reading additional exceptions into the statutory scheme.

Slip op., at 18.  More interesting for class purposes, the Court also noted the following:

Equally important for class certification purposes, even assuming the statutory exception could be asserted after the statutory time period had expired, Balboa did not proffer any facts showing that any such exception would apply to any of the other class members. Instead, it merely stated that individual issues would predominate because it should be provided the right to "investigate" each class member to determine whether it could find any facts showing the applicability of any of the statutory exceptions. Without any foundational basis showing that such evidence could or would be discovered, this possibility does not raise a likelihood that individual issues would predominate over common issues in the litigation. (See Brinker, supra, 53 Cal.4th at p. 1025 [in deciding certification question court must examine the plaintiff's theory of recovery and "assess the nature of the legal and factual disputes likely to be presented," italics added].)

Slip op., at 20.  While plaintiffs often consider their obligations only at the time of certification, this is a reminder to examine the defendant's showing in opposition carefully; if the defendant failed to support a contention, point it out.

Ordinary agency principles apply in UCL and FAL cases

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And now I get to try and play catch-up after spending so much time with the back-end issues that have to be ironed out to start a podcast.  To many visitors, this may be old news, but I'd like to note significant cases from the last month so they are here for reference.  I've faced down the issue of whether agency principles apply in UCL and FAC cases.  In People v. JTH Tax, Inc. (January 17, 2013), the Court of Appeal (First Appellate District, Division Two) tackled that exact issue.  Of primary significance as far as I am concerned is the fact that the Court criticized two cases commonly cited by defendants on this issue, People v. Toomey, 157 Cal.App.3d 1 (1985) and Emery v. Visa Internat. Service Assn., 95 Cal. App. 4th 952 (2002).

The background is complex, but a brief summary puts the discussion in context.  Liberty provides certain tax preparation and related loan services throughout the United States.  Liberty had more than 2,000 franchised and company-owned stores throughout the United States.  Liberty offered tax preparation services, e-filing, “refund anticipation loans” (RAL) and “electronic refund checks” (ERC).  The Attorney General filed a complaint against Liberty, alleging that Liberty had violated the UCL and the FAL.  The lawsuit claimed there were misleading or deceptive statements in print and television advertising by Liberty and its franchisees regarding Liberty's RAL's and ERC's and inadequate disclosures to customers in Liberty's RAL and ERC applications regarding debt collection, certain costs and interest on the extension of credit, the time it takes to receive money under refund options offered, and other matters. The remedies the People sought included injunctive relief, civil penalties, and an order of restitution.

When the Court turned to the legal issue of agency liability for UCL and FAL violations, the Court said:

Also, as the People point out, our Supreme Court has held, without the limitations urged by Liberty in the present case, that “section 17500 [the FAL] incorporates the concept of principal-agent liability.” (Ford Dealers Assn. v. Department of Motor Vehicles (1982) 32 Cal.3d 347, 361 ( Ford Dealers ).) Since violations of the UCL “include any . . . unfair, deceptive, untrue or misleading advertising and any act prohibited by [the FAL]” (§ 17200), Ford Dealers establishes that persons can be found liable for misleading advertising and unfair business practices under normal agency theory. To the extent that Toomey, supra, 157 Cal.App.3d 1, or Emery, supra, 95 Cal.App.4th 952 hold otherwise, which defendant implies without stating outright in the course of arguing its limiting theories, these cases are mistaken.

It is clear that, as the trial court recognized, we must be mindful that we are applying agency theory in the context of the franchisor-franchisee relationship. A franchisee, by definition, operates a business “under a marketing plan or system prescribed in substantial part by a franchisor,” which operation “is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor . . . .” (Corp. Code, § 31005, subd. (a)(1), (2).) Accordingly, “the franchisor's interest in the reputation of its entire [marketing] system allows it to exercise certain controls over the enterprise without running the risk of transforming its independent contractor franchise into an agent.” (Cislaw , supra, 4 Cal.App.4th at p. 1292, quoted in Kaplan, supra, 59 Cal.App.4th at p. 745.) Thus, a franchisor may exercise a right of control over such activities as advertising to protect its marks and goodwill.

However, it is equally clear that the franchisor's unique interests do not eliminate or alter the application of agency theory if the franchisor exercises a right of control that goes beyond its interests in its marks and goodwill. It is a question of fact as to whether, as the court considered in Cislaw, the franchisor retains " 'the right to control the means and manner in which the result is achieved' " and exercises "complete or substantial control over the franchisee." ( Cislaw, supra, 4 Cal.App.4th at p. 1288.) This is precisely the standard applied by the trial court. Therefore, Liberty's argument that the court applied the wrong legal standard to determine that it was liable for its franchisees' misleading advertising lacks merit.

Slip op., at 24-25.  The opinion, overall, is massive, since much of the discussion focuses on the factual record in the trial court.  The legal discussion of principle-agent liability for UCL and FAL violations is sure to work its way into civil litigation.

Continuing accrual applies to UCL claims

When does a claim under the UCL accrue?  When the first wrong occurs?  No so, says the California Supreme Court!  Recurring wrongs give rise to continuing accrual.  In Aryeh v. Canon Business Solutions, Inc. (January 24, 2013), the Supreme Court examined continuing accrual, concluding that the theory applies to actions brought under the UCL:

The common law theory of continuous accrual posits that a cause of action challenging a recurring wrong may accrue not once but each time a new wrong is committed. We consider whether the theory can apply to actions under the unfair competition law (Bus. & Prof. Code, § 17200 et seq.; hereafter UCL) and, if so, whether it applies here to save plaintiff Jamshid Aryeh‟s suit from a limitations bar. We conclude: (1) the text and legislative history of the UCL leave UCL claims as subject to the common law rules of accrual as any other cause of action, and (2) continuous accrual principles prevent Aryeh‟s complaint from being dismissed at the demurrer stage on statute of limitations grounds. Accordingly, we reverse the Court of Appeal‟s judgment.

Slip op., at 1.  The plaintiff leased a copier under terms that required montly payments with a copoy cap.  After noting discrepancies between copies made and copies billed, the plaintiff concluded that during service visits, Canon employees were running test copies (at least 5,028 copies over the course of 17 service visits). These copies resulted in the plaintiff exceeding his monthly allowances and owing excess copy charges and late fees to Canon.  The issue was whether the UCL claim accrued at the first instance of plaintiff's discovery of the overcharge, or whether each overcharge was an independent wrong, giving rise to a new claim.  The trial court and a divided court of appeal agreed that the UCL claim accrues with the first wrong.

But it's not how you start, it's how you finish.  Congratulations to my colleagues on this result.  Jennifer L. Connor wrote the appellate briefs while at her prior firm, and J. Mark Moore and Denise Diaz authored portions of an amicus brief on behalf of CAOC, in support of plaintiff.  Jennifer's sister, Sarah, took no part in the briefing due to her demanding project defending humanity from evil, self-aware robots bent on the destruction.

Certiorari denied in Ticketmaster, et al. v. Stearns, et al.

On the consumer litigation front, today the United States Supreme Court denied certiorari in Ticketmaster, et al. v. Stearns, et al. (Sup. Ct. Case No. 11-983).  Stearns v. Ticketmaster Corp., 655 F.3d 1013 (9th Cir. 2011) examined a number of consumer law concepts in the class context.  For example, the Ninth Circuit shot down the federal court standing challenge attempted in UCL actions post-Tobacco II.  And, on the issue of reliance in CLRA claims, the Court said:

A CLRA claim warrants an analysis different from a UCL claim because the CLRA requires each class member to have an actual injury caused by the unlawful practice. Steroid Hormone Prod. Cases, 181 Cal.App.4th 145, 155-56, 104 Cal. Rptr.3d 329, 337 (2010). But "[c]ausation, on a classwide basis, may be established by materiality. If the trial court finds that material misrepresentations have been made to the entire class, an inference of reliance arises as to the class." Vioxx, 180 Cal.App.4th at 129, 103 Cal.Rptr.3d at 95; see also Vasquez v. Superior Court, 4 Cal.3d 800, 814, 484 P.2d 964, 973, 94 Cal.Rptr. 796, 805 (1971); Steroid, 181 Cal. App.4th at 156-57, 104 Cal.Rptr.3d at 338. This rule applies to cases regarding omissions or "failures to disclose" as well. See McAdams v. Monier, Inc., 182 Cal.App.4th 174, 184, 105 Cal.Rptr.3d 704, 711 (2010) (holding that because of defendant's failure to disclose information "which would have been material to any reasonable person who purchased" the product, a presumption of reliance was justified); Mass. Mut. Life Ins. Co. v. Superior Court, 97 Cal. App. 4th 1282, 1293, 119 Cal.Rptr.2d 190, 198 (2002) ("[H]ere the record permits an inference of common reliance. Plaintiffs contend Mass Mutual failed to disclose its own concerns about the premiums it was paying and that those concerns would have been material to any reasonable person contemplating the purchase...." If proved, that would "be sufficient to give rise to the inference of common reliance on representations which were materially deficient.").

Stearns, at 1022.

"Hot gas" case against Chevron lives to fight another day in Klein v. Chevron U.S.A., Inc.

Hot gas.  This is not a term of art describing oral argument.  It literally refers to gasoline, and its propensity to expand as it gets warmer.  In Klein v. Chevron U.S.A., Inc. (January 25, 2012), the Court of Appeal (Second Appellate District, Division Seven) dispensed wisdom, a drop at a time, about the viability of claims related to hot gas.  Before I pump up this case any more, allow me to fuel your appetite with some background.  After that we'll motor on to the significant holdings.

How does hot gas work again?  The Court explained:

Motor fuel expands in volume as it is heated. As a result of this thermal expansion, a gallon of motor fuel at a warmer temperature has less mass and less energy content than a gallon of motor fuel at a cooler temperature. A temperature increase of 15 degrees causes motor fuel to expand in volume by approximately one percent, with a corresponding one percent decrease in energy output. For example, when 231 cubic inches of motor fuel, which equals one volumetric gallon, is heated from 60 degrees Fahrenheit to 75 degrees Fahrenheit, the motor fuel will expand to occupy a volume of approximately 233 cubic inches.

Slip op., at 4.  Ahh.  Anyhow, after a lot of discussion about regulations, and how fuel must be temperature adjusted if sold in amounts about 5,000 gallons, the Court turned to the theories impacted by the trial court's rulings on a demmurer and motion for judgment on the pleadings.

First, the Court held that the trial court erred when it dismissed the plaintiffs' claims arising under the CLRA and UCL:

Chevron's arguments are predicated on the assumption that the only possible form of relief in this case is a court order mandating that Chevron offer its retail consumers temperature-adjusted motor fuel through the implementation of ATC technology or other similar technologies. The plaintiffs' complaint, however, seeks other relief, including a disclosure requirement that, if granted, might not require substantial changes to the way Chevron currently sells motor fuel at the retail level.

Slip op., at 26.  That "other relief" mentioned by the Court includes injunctive relief compelling disclosure to consumers.  The Court next concluded that no alternative means exist for addressing the plaintiffs' issues.  On that basis, the Court concluded that judicial abstention was improper.

The Court then turned to specific claims, beginning with a half-hearted standing challenge.  The Court wasn't impressed: "Chevron concedes that, at the pleading stage, a plaintiff asserting a UCL or CLRA claim 'satisfies its burden of demonstrating standing by alleging an economic injury.' (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 254.)"  Slip op., at 35.  (Had to get that Boschma cite in there - my colleague, J. Mark Moore, argued that appeal.)

Next, the Court tackled the prongs of the UCL, beginning with the "unfair" prong:

At the pleading stage, we cannot presume that these alleged harms are not “substantial” or are otherwise outweighed by benefits that consumers derive from Chevron's practice of selling non-temperature adjusted motor fuel at the retail level. (Camacho, supra, 142 Cal.App.4th at p. 1403.) Although the evidence in this case may show that consumers do not suffer any substantial injury from the sale of nontemperature adjusted fuel or that the costs associated with remedying such injuries outweigh any benefit to consumers, we agree with the trial court‟s conclusion that such issues must “be determined on a developed factual basis.”

Slip op., at 37.  Chevron argued that it was not obligated to pass along or disclose its profit margins.  The Court distinguished Chevron's authority:

There are, however, important distinctions between this case and McCann. First, the holding in McCann has no relevance to plaintiffs' claim that, by selling non-temperature adjusted fuel at retail, Chevron is able to charge consumers more in purported motor fuel tax than it is required to pay to the government. Plaintiffs' tax-based claim has nothing to do with Chevron's failure to disclose its profit margins or the price at which it procures motor fuel at wholesale.

Second, unlike in McCann, the “gist” of plaintiffs‟ unfairness claim is not that Chevron was required to “disclose their own costs or profit margins” to consumers. (McCann, supra, 129 Cal.App.4th at pp. 1387, 1395 [“gist” of plaintiff's claim was that defendant “fails to disclose . . . that it gets a more advantageous rate of exchange on the wholesale market than it gives the customer”].) Instead, plaintiffs argue that, by failing to compensate for temperature variations in retail motor fuel, Chevron is engaging in a practice that misleads consumers as to the actual amount of motor fuel they are purchasing and the actual price that they are paying for that fuel. By contrast, the plaintiffs in McCann were informed of the specific exchange rate they would receive in their retail transactions (id. at p. 1382), but argued that the money transmitter had a duty to disclose the more favorable wholesale rate at which it was able to purchase foreign currency and pass those benefits on to consumers.

Were plaintiffs in this case simply alleging that Chevron had a duty to disclose the price at which it procured motor fuel at wholesale, McCann might foreclose such a claim. However, nothing in McCann suggests that the UCL does not, as a matter of law, apply to conduct that allows a retailer to charge more in taxes than it is required to pay to the government or to obscure the true cost of goods at retail.

Slip op., at 39.  The Court then dismantled a "safe harbor" argument, explaining that the "safe harbor" statute must "explictly" prohibit liability for the conduct.  Chevron's attempt to fashion a "safe harbor" by implication was rejected.

The Court then concluded that plaintiffs stated a claim under the "fraudulent" prong:

At the pleadings stage, we cannot say, as a matter of law, that consumers are not likely to be deceived in the manner alleged by plaintiffs. As the trial court observed, plaintiffs have alleged “facts which, if true, may reveal that members of the public . . . [assumed] that . . . they were receiving standardized units of motor fuel when, in fact, the energy content of each gallon depended on the temperature of the motor fuel at the time of purchase.” Plaintiffs have also alleged facts that, if true, may reveal that consumers were deceived as to the true price of motor fuel, which may vary depending on the temperature at which it is sold.

Slip op., at 43.  The Court distinguished Bardin v. Daimlerchrysler Corp. (2006) 136 Cal.App.4th 1255 on the ground that the plaintiffs alleged a specific expectation in the public about what they receive at a gasoline pump.  Following that discussion, the Court immediately turned to the CLRA, noting that conduct which is "fraudulent" under the UCL also violates the CLRA.  And, stay with me here, since the plaintiffs stated a claim under the CLRA, based on the same deceptive conduct that satisfied a UCL "fraudulent" claim, they, by definition, stated a UCL claim under the "unlawful" prong, since it borrows the CLRA violation.  Presto.

The breach of contract and unjust enrichment claims didn't do so well.  Saved you eight pages of reading right there.

And to think that I was not impressed with the "hot gas" theory when I heard it years ago.  What was I thinking?

Court revives claims of failure to disclose and active concealment of defects from computer purchasers

Reporting on this case pains me greatly.  I should be pleased to report on a CLRA and UCL decision that revives consumer claims.  But all I feel is pain.  Let me explain by quoting from the case.  The very first sentence says, "In this class action alleging a failure to disclose a computer defect involving a microchip that controlled floppy disk data transmission, plaintiffs Tammy Collins and Rudolph Roma appeal from a judgment on the pleadings."  Huh?  Floppy disk data transmission.  Rings a bell.  Nope, can't place it.  Must be some highfalutin, newfangled technology.  I recognize "data."  Anyhow, in Collins v. eMachines, Inc. (pub. ord. December 21, 2011), the Court reviewed a trial court order granting a motion for judgment on the pleadings.

It was alleged that defendant failed to disclose and actively concealed the disk controller defect from potential purchasers. Despite knowing of the defect and knowing that the defect could result in critical data corruption, executives of eMachines directed the company to continue to sell the defective computers after October 31, 1999. eMachines actively concealed the existence of the defect from purchasers by, among other practices specified in the FAC, continuing to issue the warranty knowing the computers had the defect, and engaging in misleading “customer service” practices that concealed the defect in online “customer support” guides, in customer service diagnoses of computer problems, and at call centers.  The case was stayed for four years while cases in other states moved forward.

Turning first to the CLRA, the Court restated the LiMandri circumstances giving rise to actionable deceit.  The Court recognized the FAC as alleging factor (2), when the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff, and factor (3), when the defendant actively conceals a material fact from the plaintiff.  The Court then agreed that a "reasonable" consumer would certainly find data corruption to be material information in connection with a computer.

Next, the Court distinguished Daugherty, observing that, in Daugherty, the only represetation made was the warranty, and the vehicles performed adequately as warranted.  The Court was similarly dismissive of Bardin, in which it was alleged that exhaust manifolds were likely to fail after the warranty period.  The Court explained that the manifolds in Bardin worked they way they were supposed to under the warranty.  Contrasting the circumstances, the Court said, "Because a floppy disk, at the time of the complaint, was integral to the storage, access, and transport of accurate computer data, the floppy disk was central to the function of a computer as a computer. The exhaust manifolds at issue in Bardin, by contrast, were just blowing smoke."  Slip op., at 12.  That's funny.  You see, the exhaust manifold vents combustion byproducts...

Regarding the UCL, the Court relied on its discussion about Daugherty and Bardin to conclude that a claim under the UCL was easily stated as well.  The Court agreed that consumers certainly had an expectation about data integrity when they purchased the affected computers.

After also concluding that the allegations supported a claim for common law fraud, the Court concluded that legal remedies were adequate, rendering an unjust enrichment claim unnecessary.

I should also tag this one with "Dinosaurs," given the discussion of floppy disk drives.  That reminds me that I should tell you about the time I saved data on a bent floppy disk drive by removing the casing and putting the raw disk in a disk drive.  The year was 1985.  Madonna, Huey Lewis, Duran Duran and Wham! were dominating the charts...

[extended period of blank stares]

...and that's how I saved all that data!