In Weinstat v. Dentsply International, Inc., Court of Appeal reverses decertification order based on Tobacco II decision

While the appellate court opinions that have avoided Tobacco II received extensive commentary in the media, including here, not all Courts of Appeal have followed that course.  In Weinstat v. Dentsply International, Inc. (January 7, 2010), the Court of Appeal (First Appellate District, Division Four) considered an appeal from an order decertifying a class of dentists as to their causes of action under the unfair competition law (UCL) and for breach of express warranty against the manufacturer of the Cavitron ultrasonic scaler (Cavitron).   The trial court decertified the class, based upon an "appellate court decision interpreting the Proposition 64 amendments to the UCL as requiring that all class members—not just the representatives—show an injury in fact."  Slip op., at 1.  The Court was swift in rejecting that basis for decertification:  "Recently, the state's high court issued its decision in In re Tobacco II Cases (2009) 46 Cal.4th 298 (Tobacco II). Tobacco II rejects the legal premises underpinning the decertification order as to the UCL claim and mandates reversal."  Slip op., at 1.

The Court of Appeal continued with its summary of its Order reversing the decertification order:

We must also reverse the order decertifying the class as to the breach of express warranty claims. Procedurally, the order was improper because it was rendered in the absence of new law or evidence. Substantively, the order was contrary to law because it improperly grafted an element of prior reliance onto the express warranty claims; this error infected the entire ruling as to those claims.

Slip op., at 1.  As did the Court of Appeal in Vioxx, the Court here outlined the contours of a UCL claim after Tobacco II:

In Tobacco II, our Supreme Court rejected the rationale that informed the trial court's decertification order. First, it held that Proposition 64's standing requirements for UCL actions apply only to the class representatives. (Tobacco II, supra, 46 Cal.4th at p. 306.) Second, the standing requirements as modified by Proposition 64 impose an actual reliance requirement on representative plaintiffs prosecuting a private enforcement action under the fraud prong of the UCL. (Id. at p. 326.) Further, while only the class representative need establish personal reliance on the defendant's misrepresentation or nondisclosure resulting in damage, the representative need not show that such reliance was “ ' “the sole or even the predominant or decisive factor in influencing his conduct. . . . It is enough that the representation has played a substantial part, and so has been a substantial factor, in influencing his decision.” [Citation.] [¶] Moreover, a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material. [Citations.]' ” (Id. at pp. 326-327.) A misrepresentation is “material” if a reasonable person would attach importance to its existence or nonexistence in deciding his or her course of action in the transaction in question. (Id. at p. 327.) Finally, the class representative need not demonstrate individualized reliance on a specific misrepresentation. (Ibid.)

Slip op., at 7.  The defendant, at oral argument, "took a different tack" and argued that the Court of Appeal should "affirm the UCL decertification order because one of the trial court's UCL decertification rulings was untainted by Proposition 64 standing concerns, namely the ruling that the UCL claims were inappropriate for class treatment because individual issues about the nature and extent of any material misrepresentation would predominate over common issues," citing Kaldenbach v. Mutual of Omaha Life Ins. Co., 178 Cal.App.4th 830, 844 (2009).  Slip op., at 7, n. 8.  While not directly commenting on Kaldenbach, the Court said:

First, procedurally this ruling was improper because Dentsply offered no new law or newly discovered evidence regarding the nature and extent of any material misrepresentation. (See post, pt. II.B.2.) Second, the ruling was substantively wrong.

The UCL prohibits as unfair competition “any unlawful, unfair or fraudulent business act or practice . . . .” (Bus. & Prof. Code, § 17200.) The act focuses on the defendant’s conduct, rather than the plaintiff's damages, in keeping with its larger purpose of protecting the general public against unscrupulous business practices. (Tobacco II, supra, 46 Cal.4th at p. 312.) This case involves alleged uniform fraudulent practices—misrepresentations regarding the Cavitron's safety for surgical use and the concomitant nondisclosure of biofilm risk—by Dentsply, directed to the entire class. To sustain a UCL cause of action based on such fraudulent or deceptive practices, a plaintiff must show that “ ' “members of the public are likely to be deceived.” ' ” (Aron v. U-Haul Co. of California (2006) 143 Cal.App.4th 796, 806, quoting Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 211; Massachusetts Mutual Life Ins. Co. v. Superior Court (2002) 97 Cal.App.4th 1282, 1291; accord, Kaldenbach v. Mutual of Omaha Life Ins. Co., supra, 178 Cal.App.4th at p. 847.)

A plaintiff's burden thus is to demonstrate that the representations or nondisclosures in question would likely be misleading to a reasonable consumer. (See Aron v. U-Haul Co. of California, supra, 143 Cal.App.4th at p. 807.) The question of materiality, in turn, is whether a reasonable person would attach importance to the representation or nondisclosure in deciding how to proceed in the particular transaction—in other words, would a reasonable dentist attach importance to Dentsply's claim that the Cavitron was safe for use in surgery. (Tobacco II, supra, 46 Cal.4th at p. 327.) The safety of the Cavitron would be material to any dentist regardless of when the representation was made. The materiality of Dentsply's representations concerning the Cavitron's safety for surgical uses was established objectively by appellants' actual use of the device for oral surgery, in accordance with those representations, regardless of whether appellants saw the Directions before or after purchasing the device. There are no individual issues concerning the nature and extent of material misrepresentations.

Slip op., at 8, n. 8.  The Court then directed the trial court to consider the limited question of whether the plaintiffs could meet the standing requirement outlined in Tobacco II:  "We remand for the limited purpose of determining whether the named representatives can meet the UCL standing requirements announced in Tobacco II and if not, whether amendment should be permitted."  Slip op., at 9.

The Court of Appeal then considered the decertification ruling as it related to the breach of warranty claim.  In doing so, the Court held that a party seeking to decertify a certified class must demonstrate new facts and circumstances, as with any other motion for reconsideration:

Dentsply is adamant that there is no requirement of changed circumstances or new evidence when the trial court revisits certification prior to a decision on the merits. The dicta in Green v. Obledo, supra, 29 Cal.3d 126, quoted above, concerning prejudgment decertification, would suggest otherwise. The standard announced in Green allows flexibility while curtailing defendant abuse. In the case at hand, Dentsply's motion for decertification was accompanied by changed circumstances, most notably the Pfizer decision. However, this circumstance only pertained to the UCL cause of action. Nevertheless, the trial court went on to address Dentsply's reassertions as to why the breach of warranty class should be decertified as well. Decertifying one theory should not sanction decertifying another absent some commonality with the changed circumstance or some other situation justifying reconsideration. Here there was none.

Slip op., at 11-12.  Then, over another 11 pages of opinion, the Court of Appeal explained the basis for the following observation:

The lower court ruling rests on the incorrect legal assumption that a breach of express warranty claim requires proof of prior reliance. While the tort of fraud turns on inducement, as we explain, breach of express warranty arises in the context of contract formation in which reliance plays no role.

Slip op., at 12.  Does this opinion add any fuel to the Cohen Petition for Review currently before the California Supreme Court?

More on the Vioxx decision

In December, I promised more detailed comments about In re Vioxx Class Cases (December 15, 2009), decided by the Second Appellate District, Division Three.  As promised, I provide more pithy commentary (or blather, as you see fit to classify it).  The Court's discussion began with a reminder that is worth repeating.  The standard of review on a appeal challenging a trial court's decision to grant or deny certification is reviewed for an abuse of discretion, absent certain specific errors:

“ ‘Because trial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action, they are afforded great discretion in granting or denying certification. . . . "[I]n the absence of other error, a trial court ruling supprted by substantial evidence generally will not be disturbed “unless (1) improper criteria were used [citation]; or (2) erroneous legal assumptions were made [citation].” ’ ”

Slip op., at 14, citing Tobacco II.  Next, the Court stated the requisites for class certification.  The discussion was the usual stuff, but for one statement regarding predominance of common issues of law or fact:  "To determine whether the questions of fact and law at issue in the litigation are common or individual, it is necessary to consider the individual causes of action pleaded, and the issues raised thereby."  Slip op., at 15.  It is difficult to find any guidance about how to assess predominance.  Here, the Court indicates that the analysis proceeds on a cause-of-action by cause-of-action basis.

Turning to the various casues of action, the Court first addressed the claim arising under the CLRA.  The Court followed decisions that permit an inference of reliance when a misrepresentation is material:

The language of the CLRA allows recovery when a consumer “suffers damage as a result of” the unlawful practice. This provision “requires that plaintiffs in a CLRA action show not only that a defendant’s conduct was deceptive but that the deception caused them harm.” (Massachusetts Mutual Life Ins. Co. v. Superior Court, supra, 97 Cal.App.4th at p. 1292.) Causation, on a class-wide 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. (Id. at p. 1292.) This is so because a representation is considered material if it induced the consumer to alter his position to his detriment. (Caro v. Proctor & Gamble Co., supra, 18 Cal.App.4th at p. 668.) That the defendant can establish a lack of causation as to a handful of class members does not necessarily render the issue of causation an individual, rather than a common, one. “ ‘[P]laintiffs [may] satisfy their burden of showing causation as to each by showing materiality as to all.’ ” (Massachusetts Mutual Life Ins. Co. v. Superior Court, supra, 97 Cal.App.4th at p. 1292.) In contrast, however, if the issue of materiality or reliance is a matter that would vary from consumer to consumer, the issue is not subject to common proof, and the action is properly not certified as a class action. (Caro v. Proctor & Gamble Co., supra, 18 Cal.App.4th at p. 668.)

Slip op., at 16.

The Court then discussed claims arising under the UCL. The authority cited by the Court was described in a manner that was fairly favorable to consumers.  For example, the Court said, "Consumer class actions under the UCL serve an important role in the enforcement of consumers’ rights."  And, as to remedies, the Court observed, "The UCL balances relaxed liability standards with limits on liability."  Slip op., at 18.  The fraudulent prong of the UCL received a similarly broad construction through the authority noted by the Court:

In order to obtain a remedy for deceptive advertising, a UCL plaintiff need only establish that members of the public were likely to be deceived by the advertising.  (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267; Massachusetts Mutual Life Ins. Co. v. Superior Court, supra, 97 Cal.App.4th at p. 1290.) The question has arisen as to which members of the public need be likely to be deceived. The law focusses on a reasonable consumer who is a member of the target population. (Lavie v. Proctor & Gamble Co. (2003) 105 Cal.App.4th 496, 508.) “Where the advertising or practice is targeted to a particular group or type of consumers, either more sophisticated or less sophisticated than the ordinary consumer, the question whether it is misleading to the public will be viewed from the vantage point of members of the targeted group, not others to whom it is not primarily directed.”

Slip op., at 18.  The Court then discussed the countours of the restitution remedy under the UCL.  Here, Tobacco was cited, but the Court's summary of the extent of restitution foreshadowed the Court's determination that a means for proving a restitutionary value were lacking:

As to restitution, the UCL provides that “[t]he court may make such orders or judgments . . . as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.”15 (Bus. & Prof. Code, § 17203.) This language, providing restitution of funds which “may have been acquired,” has been interpreted to allow recovery without proof that the funds were lost as a result of actual reliance on defendant’s deceptive conduct. (Tobacco II, supra, 46 Cal.4th at p. 320; Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d at p. 450-451; Prata v. Superior Court (2001) 91 Cal.App.4th 1128, 1144.) While the “may have been acquired” language of Business and Professions Code section 17203 is so broad as to allow restitution without individual proof of injury, it is not so broad as to allow recovery without any evidentiary support. (Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 697.) The difference between what the plaintiff paid and the value of what the plaintiff received is a proper measure of restitution. (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 174.) In order to recover under this measure, there must be evidence of the actual value of what the plaintiff received. When the plaintiff seeks to value the product received by means of the market price of another, comparable product, that measure cannot be awarded without evidence that the proposed comparator is actually a product of comparable value to what was received. (Colgan v. Leatherman Tool Group, Inc., supra, 135 Cal.App.4th at p. 675.)

Slip op., at 19.

Having discussed what must be established for CLRA and UCL claims, the Court then analyzed predominance as to each cause of action.  For the CLRA, the Court agreed that reliance/materiality issues could not be resolved on a classwide basis:

The trial court found that the decision to prescribe Vioxx is an individual decision made by a physician in reliance on many different factors, which vary from patient to patient. The trial court quoted from Dr. Silver’s declaration, indicating eight individual factors which a physician must assess in determining whether and what to prescribe for pain.

Slip op., at 22.  In reality, this decision is an example of why tort-type issues frequently undermine attempts to certify classes.  The Court noted some of the complicated reliance variables:

On appeal, plaintiffs draw this court’s attention to Merck’s alleged common campaign of hiding the cardiovascular risks of Vioxx, arguing that such common misrepresentations support a common inference of reliance. Plaintiffs suggest that Merck hid “an increased risk of death,” associated with Vioxx, and argue, “there can be nothing more material than an increased risk of death.” Plaintiffs’ argument is a vast oversimplification of the matter, and one which overlooks all of the evidence to the contrary on which the trial court relied.

First, evidence indicated that Vioxx did not present “an increased risk of death” compared to traditional NSAIDs for all patients. Traditional NSAIDs killed 16,500 people per year due to gastrointestinal bleeds. For patients with stomach ulcers or other gastrointestinal risk factors, traditional NSAIDs presented a higher risk of death than the risk of cardiovascular death posed by Vioxx. Second, evidence indicated that the cardiovascular risks of Vioxx were not material for all patients. Some patients would still take Vioxx today if it were on the market; some physicians would still prescribe it regardless of risks. Indeed, it cannot be disputed that other drugs pose similar, or even greater, risks of death than Vioxx, but are still in use – because, for some patients, the benefits outweigh the risks. Third, Merck introduced substantial evidence that all physicians are different and obtain their information about prescriptions from myriad sources. For those physicians with a distrust of statements made by the pharmaceutical industry, Merck’s statements could not have been material. For those patients whose TPPs required pre-approval of Vioxx (or would only pay for Vioxx under certain circumstances), the TPP’s decision likely would override any patient or physician reliance on Merck’s statements. Fourth, physicians consider many patient-specific factors in determining which drug to prescribe, including the patient’s history and drug allergies, the condition being treated, and the potential for adverse reactions with the patient’s other medications – in addition to the risks and benefits associated with the drug. When all of these patient-specific factors are a part of the prescribing decision, the materiality of any statements made by Merck to any particular prescribing decision cannot be presumed. All of this evidence supports the trial court’s conclusion that whether Merck’s misrepresentations were material, and therefore induced reliance, is a matter on which individual issues prevailed over common issues, justifying denial of class certification with respect to the CLRA claim.

Slip op., at 23-24.

Similar problems with the UCL were then discussed by the Court:

[T]he court specifically found that class damages are not subject to common proof. The court concluded that the monetary value plaintiffs wish to assign to their claim – the difference in price between Vioxx and a generic, non-specific NSAID, implicates a patient-specific inquiry and therefore fails the community of interest test. In short, the trial court rejected the entire premise of plaintiffs’ class action. While the trial court allowed the possibility that plaintiffs could recover for having been exposed to misrepresentations, the trial court concluded that the theory that the entire class was harmed because Vioxx was no more effective, and less safe, than naproxen implicated individual issues of proof.

On appeal, plaintiffs mount a two-pronged challenge to the trial court’s conclusions. First, they argue that they offered sufficient factual evidence that naproxen is a valid comparator to Vioxx. Specifically, they rely on the declaration of their medical expert to the effect that, based on the VIGOR study, Vioxx was, overall, no more effective, and less safe, than generic naproxen. The trial court did not err in rejecting naproxen as a valid class-wide comparator. Defendants introduced substantial evidence that, after Vioxx was withdrawn from the market, most Vioxx patients switched to another COX-2 inhibitor, not a generic NSAID such as naproxen. As this evidence indicates that Vioxx was worth more than naproxen to a majority of class members, it is more than sufficient to support the trial court’s conclusion that naproxen is not a valid comparator on a class-wide basis.

Plaintiffs’ second argument is that the validity of naproxen as a comparator goes to the merits of the action, and should not be addressed on a motion for class certification. Plaintiffs argue that since the UCL and FAL allow an award of restitution without individualized proof of deception, reliance and injury, the trial court should not have been considering the validity of naproxen as a comparator. We do not disagree that a trial court has discretion to order restitution even in the absence of individualized proof of injury. (Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d at p. 452.) However, in order to obtain class wide restitution under the UCL, plaintiffs need establish not only a misrepresentation that was likely to deceive (Corbett v. Superior Court, supra, 101 Cal.App.4th 649, 670) but the existence of a “measurable amount” of restitution, supported by the evidence. (Colgan v. Leatherman Tool Group, Inc., supra, 135 Cal.App.4th at p. 698.) The failure of naproxen as a viable class-wide comparator thus defeats the claim for class-wide restitution.

Slip op., 26-27.  With accepted reasons for denying certification as to each cause of action, the trial court was affirmed.  I skipped one other basis for the Court's decision that a denial of certification was appropriate.  The Court found that a typicality problem was created by the interaction with third-party payors.  Some TPPs would only pay for Vioxx when other NSAIDs did not work for the patient.  Some co-pay situations with flat rate copays rendered the economic comparison argument moot.  Generally, the Court noted that the defined class was overbroad, creating a number of problems for itself that could not be reconciled.  See, Slip op, at 20-22.  Here is yet another example why tort-type issues routinely sink class actions.

in brief: Evans v. Lasco Bathware, Inc. has a little something for everyone

While it deserves a more substantial discussion, Evans v. Lasco Bathware, Inc. (November 6, 2009) requires at least a brief mention.  In Evans, the Court of Appeal (Fourth Appellate District, Division One) reviewed an Order denying class certification.  The Court of Appeal affirmed.  The interesting elements of the opinion include (1) a discussion of when, in the Evans Court's view, damages become an issue of sufficient complexity to justify a denial of certification and (2) a discussion of "liability only" certification.  In this case, the complications arising when a defective shower pan caused varying degrees of damages in different homes convinced the Court to reject the "liability only" certification option in this case.  Nevertheless, that aspect of class actions is so infrequently discussed in California that it is of note that it was even considered here.

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.

In re Tobacco II Cases receives more attention in Kaldenbach v. Mutual of Omaha

In re Tobacco II Cases hasn't been out long, but its significance is already hard to deny.   Morgan, et al. v. AT&T Wireless Services, Inc. (September 23, 2009) was the first published opinion by a California Court of Appeal to apply In re Tobacco II Cases.  See blog post.  In Kaldenbach v. Mutual of Omaha Life Insurance Company, et al. (October 26, 2009), the Court of Appeal (Fourth Appellate District, Division Three) had occasion to discuss In re Tobacco II Cases in the context of an appeal of the denial of class certification in a "vanishing premiums" action.

Before discussing the opinion, a definition is in order.  “Generally speaking, so called ‘[v]anishing premium policies are paid dividends which in some instances can be sufficient to cause the premium to “offset” whereby dividend values are used to pay the premium. In such an instance, the cash premium “vanishes” and is no longer due from the insured.’”  Keyes v. Guardian Life Ins. Co. of America, 194 F.R.D. 253, 254, n. 1 (S.D. Miss. 2000), quoting Phillips v. New England Mut. Life Ins. Co., 36 F.Supp.2d 345, 347 (S.D. Miss. 1998).)  In other words, the theory is that a larger sum is paid into a policy for a few years, and then the investment of those funds should generate a dividend that is sufficient to pay the premium thereafter.

Returning to the opinion, the Court of Appeal spent significant time discussing the facts of the case and the nature of "vanishing premium" policies before summarizing the Trial Court's Order denying class certifiation:

The trial court denied the motion for class certification. It concluded Kaldenbach had not demonstrated numerosity other than his assertion that over 4,000 policies were sold.  Kaldenbach had not shown ascertainability as there was no evidence as to how it could be shown which of the policyholders had received illustrations during the sales presentation.

The court concluded Kaldenbach had not shown typicality because Meyerson testified in his deposition that the sale to Kaldenbach was not typical as he had a clearly defined dominant need, Kaldenbach testified he never received any explanation from Meyerson about how the policy worked, how interest rates or costs of insurance were determined, what the extent of his obligation to pay annual premiums was, and what might happen if he stopped paying premiums. By contrast, Meyerson testified he fully explained the policy to Kaldenbach. “If [Kaldenbach] and Meyerson cannot even agree as to what was stated during the [sales] presentation to [Kaldenbach], how can [Kaldenbach's] claim be typical [and] be used to prove 4,000 claims? . . . It will take . . . individual evaluation of each claim to determine liability.”

The court also found Kaldenbach had not established commonality. Kaldenbach primarily relied upon uniformity in Mutual‟s sales materials, training, and illustrations, but there was no evidence linking those common tools to what was actually said or demonstrated in any individual sales transaction. The training materials and methods were not uniform throughout the class period. None of the allegedly scripted or memorized sales materials covered the alleged misrepresentations. And there was no evidence that uniform training or sales materials were used with each putative class member. There was no evidence all independent agents were required to take the offered training, took the offered training, had the same training, or used the same training or materials in their sales presentations. In fact “[t]here was evidence that the agents were free to ignore the training and written manuals.” Mutual‟s agents were independent contractors over whom Mutual had little or no control. Meyerson testified he did not follow his training or manuals in making the presentation to Kaldenbach. Kaldenbach had argued commonality could be found based solely on the use of illustrations, but Kaldenbach testified he never looked at the entire illustration, he only looked at the part of the illustration that showed the premium could vanish in four years because that was what Kaldenbach wanted.

The court also believed varying applicability of the statute of limitations and the delayed discovery rule to each putative class member‟s claim precluded class certification. The court noted the 70 percent lapse rate Kaldenbach alleged occurred with the policy at issue did not establish class-wide liability. There was no evidence it was an unusual lapse rate and no evidence as to why the policies had lapsed. For example, individual policyholders may have taken loans out against the cash accumulation, they may have decided to purchase a different product, or no longer needed the coverage. “[A]nalysis of why a policy lapsed is just one more issue that would need to be addressed on an individual and not class wide basis.”

Finally, the court listed the individualized issues that predominated and which could not be proven on a class-wide basis including: (1) did the agent take Mutual‟s training and read Mutual‟s manuals; (2) did the agent always use the training and materials; (3) what materials, disclosures, representations, and explanations were given to any given purchaser; (4) was an illustration used; (5) what information was input into the illustration; (6) did the purchaser rely on representations made in the sales presentation; (7) what were the customer‟s individual needs; (8) when did each class member‟s cause of action accrue; and (9) did the individual class member‟s policy lapse, and if so, why?

Slip op., at 11-13.   After describing the valuable benefits of class actions, and noting that the reasoning of the Trial Court is scrutinized when reviewing an order denying certification, the Court of Appeal observed:  "We may not reverse, however, simply because some of the court's reasoning was faulty, so long as any of the stated reasons are sufficient to justify the order. (Caro v. Procter & Gamble Co. (1993) 18 Cal.App.4th 644, 655-656 (Caro).)"  Slip op., at 14-15.

As the Court of Appeal turned to the merits, it began its discussion by cataloging a number of federal court decisions where class certification was denied on the same theory.  Parenthetically, the placement of this discussion suggests that the conclusions of those federal cases persuaded the Court of Appeal to affirm the Trial Court.

Eventually, the Court of Appeal turned to the promised discussion of In re Tobacco II Cases as it analyzed the denial of class certification for the UCL Cause of Action.  The language selected by the Court of Appeal for italicization clearly suggests the outcome:

A private person “may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements . . . and complies with [s]ection 382 of the Code of Civil Procedure.” (Bus. & Prof. Code, § 17203.) Recently, in In re Tobacco II Cases (2009) 46 Cal.4th 298, 3245, the Supreme Court held in the UCL class action context, the “injury in fact” standing requirement imposed by Proposition 64 applies only to the class representative and not to “absent class members in a UCL class action where class requirements have otherwise been found to exist.” (Italics added.) UCL relief is available on a class basis “without individualized proof of deception, reliance and injury. [Citations.]” (Id. at p. 320.)

Slip op., at 20.  The Plaintiff argued that the Trial Court incorrectly "premised its order denying class certification on the complexities of establishing each absent class members' reliance on the representations made and their injury."  Slip op., at 20.  The Court of Appeal wasn't concerned with this error:

There were myriad other individualized issues the court found to predominate including whether any given agent took Mutual's training, read its manuals, and routinely followed the training and materials; and what materials, disclosures, representations, and explanations were given to any given purchaser. These individualized issues go not to the injury suffered by a purchaser, but to whether there was in fact an unfair business practice by Mutual. Neither In re Tobacco II Cases, supra, 46 Cal.4th 298, nor Massachusetts Mutual, supra, 97 Cal.App.4th 1282, compel a different result.

Slip op., at 21.  The Court of Appeal went on to distinguish Kaldenbach's case from In re Tobacco II Cases and Massachusetts Mutual:

[B]oth In re Tobacco II Cases and Massachusetts Mutual involved identical misrepresentations and/or nondisclosures by the defendants made to the entire class. In re Tobacco II Cases targeted the tobacco industries' deceptive advertisements and statements disseminated to the public about the health effects of tobacco use. Massachusetts Mutual concerned the insurer's failure to disclose to policy purchasers and its agents its plan to decrease its discretionary dividend. In other words, there was no issue about defendants' uniform business practices giving rise to the UCL claim.

But here there is no such uniformity. Although Kaldenbach claimed Mutual's presentations relating to ALPs were uniform, it utilized standardized training methods, materials, and scripts to which agents were required to adhere, the evidence showed the opposite. Mutual's policies were sold by independent agents, and during the class period, they were not required to attend training or utilize any given sales materials. Agents were not required to adhere to a scripted sales presentation. Indeed Meyerson, who sold Kaldenbach his policy, testified at his deposition he did not use a scripted sales presentation or any training materials in making the sale to Kaldenbach.

Slip op., at 22.  If nothing else, analyses like this will encourage sales policies that state vague guidelines and some variation in sales approaches to eliminate uniformity of representations to consumers.  In any event, Kaldenbach's argument that he was entitled to an "inference of injury" for his fraud claim met with a similar fate, as the Court of Appeal noted that the inference is only available where the misrepresentations are uniform.

The Court of Appeal ignored the balance of the Trial Court's Order, concluding that the predominance of individualized issues was a sufficient ground for denying class certification.  A complicated set of facts coupled with a seemingly conservative Court of Appeal made this outcome all but a formality.

Another day, another liberal Ninth Circuit decision?

I’ve long heard the opinion that the Ninth Circuit is the most “liberal” of the Circuits. The basis for this theory appears to be rooted in a cursory analysis of reversal rates by the Supreme Court in different years. I’ve spent very little of my precious free time examining this contention (okay, none). But I’ve heard the assertion with such regularity that I’ve made the mistake of presuming that it might be accurate. However, analyses by individuals that are recognized as experts suggests that this conventional wisdom is simply wrong. For example, Erwin Chemerinsky, in The Myth Of The Liberal Ninth Circuit (2004), finds that the Ninth Circuit is reversed at the mean rate for all Circuits and has a roughly equal distribution of Justices viewed as liberal or conservative. Andreas Broscheid reaches a similar conclusion in his article entitled Is The 9th Circuit More Liberal Than Other Circuits? (2008). Looking at how class action appeal have fared in recent years suggests that the Ninth Circuit is not the plaintiff’s playground that conventional wisdom describes.

In Desai, et al. v. Deutsche Bank Securities Limited, et al. (July 29, 2009), the Ninth Circuit affirmed a trial court’s denial of class certification in a securities action filed by Hector’s father. In an unusual twist, the unanimous panel issued three opinions to reach the unanimous result, differing only as to the ramifications of the correct standard of review.

The plaintiffs alleged an interesting scheme to manipulate stock prices and avoid the issue of rapid price drops when large blocks of shares are sold:

A common way to manipulate the market in a security is to cause its price to increase by creating the illusion of more investor interest than really exists. The manipulator acquires shares of the security before the price increase, then slowly sells them off and reaps the profit. The problem with this model, however, is that as the manipulator sells off his shares he depresses the price, which lessens his profit. Investors here allege a scheme that varied the theme in a way designed to cure this problem. It involved a commercial arrangement known as a securities loan.

Slip op., at 9904. The details of the scheme are both ingenious and appalling:

Officers of GENI first issued themselves unregistered shares of the company. Such shares may not be publicly traded, but the GENI officers loaned them to a broker-dealer called Native Nations Securities, Inc., receiving cash collateral in return. Richard Evangelista, an employee of Native Nations and apparently a longtime associate of Breedon, falsified the records of his employer to make it look like the GENI shares had come from other broker-dealers. Native Nations then lent the shares (cash collateral coming back) to Deutsche Bank. Breedon was in charge of this account, which continued to absorb unregistered shares of GENI stock. Eventually, Breedon and his associates at GENI developed a chain of broker-dealers that came between Native Nations and Deutsche Bank in order to increase the amount of capital for the scheme and to insulate Deutsche Bank from any fallout should the scheme collapse.

The GENI officers used the cash collateral to day-trade in GENI’s publicly traded shares. This created the appearance of investor demand. That appearance inflated the stock price, which in turn required the borrowers of GENI stock, from Native Nations to Deutsche Bank, to provide more cash collateral to feed the cycle. It also increased the rebate payments to the borrowers, from Native Nations down the line to Deutsche Bank. It seems Deutsche Bank gained the most from the rebate payments, however, because the intermediary brokerdealers in the chain paid out a percentage of the rebates they received to the next party in the chain. Deutsche Bank, being the last in line, did not have to do that.

To ensure that GENI’s price kept climbing, Breedon and his associates at GENI allegedly paid off two stock analysts to recommend GENI stock in order to drum up demand. One of the analysts was Courtney Smith, a one-time defendant in this litigation; the Longs claim that they purchased GENI stock in February of 2000 on the basis of Smith’s bogus recommendations. The secret deal between GENI and Smith later came to light in the news media.

Slip op., at 9905-6, footnote omitted. Much financial anguish then ensued, and that’s just the “simplified” version of the scheme. Evil genius never dies.

In any event, the district court denied a motion for class certification, focusing on reliance issues:

The California district court concluded that individual questions of law or fact predominated over common ones, which sufficed to take the putative class outside of Rule 23(b)(3). The district court focused on the element of reliance, which is required to prove a violation of § 10(b) of the 1934 Act. The district court’s denial of class certification depended on its belief that Investors would have to prove reliance on an individual basis because they could not prove it class-wide. See Basic Inc. v. Levinson, 485 U.S. 224, 242 (1988) (recognizing that such individualized proof of reliance effectively makes it impossible to proceed as a class, because “individual issues then would . . . overwhelm[ ] the common ones”).

Slip op., at 9910, footnotes omitted. To deal with the issue of class-wide reliance, plaintiffs generally have two avenues available to them:

Reliance can be presumed in two situations. In omission cases, courts can presume reliance when the information withheld is material pursuant to Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54 (1972). Reliance can also be presumed in certain circumstances under the so-called “fraud on the market theory.” Basic, 485 U.S. at 241-49. Precisely to which cases this presumption applies—that is, to misrepresentation, to omission, to manipulation cases, or to some combination of the three—is an issue the parties contest on appeal. The two presumptions are conceptually distinct.

Slip op., at 9914. The Court then examined the two reliance presumption avenues. First, it concluded that the omission-based theory was unavailable:

Investors allege that this is an omissions case because “the case as a whole is . . . overwhelmingly non-statement based— in other words, omission-based.” In other words, they seem to assume that as long as liability is not based on misrepresentations, then it must be based on omissions. Relatedly, they argue that because Deutsche Bank and the other former defendants “failed to disclose their active manipulation of GENI stock,” they have made an actionable omission. This approach would collapse manipulative conduct claims and omission claims.

Slip op., at 9916. The Court then declined to create a new “integrity of the market” reliance presumption where the plaintiffs conceded that the market for the securities was not efficient:

We are chary. No authority required the district court to adopt Investors’ integrity of the market presumption. Indeed, the Supreme Court has adopted a rather restrictive view of private suits under § 10(b), noting that, “[t]hough it remains the law, the § 10(b) private right should not be extended beyond its present boundaries.” Stoneridge, 128 S. Ct. at 773. In Stoneridge, the Court listed the Affiliated Ute presumption and the fraud on the market presumption as the two reliance presumptions it has recognized. Id. at 769. After concluding that “[n]either presumption appli[ed],” it did not inquire into any other presumption that seemed appropriate, but simply analyzed whether the plaintiffs could prove reliance directly. Id. These passages may not forbid the recognition of new presumptions, but they do illustrate that the district court did not have to recognize this one.

Slip op., at 9920.  So no class action and no new theories of reliance presumptions in the somewhat arcane securities class action context.  And no plaintiffs bailed out by an activist, liberal Court.

Ninth Circuit makes overtime misclassification cases a little bit tougher with opinions in Vinole v. Countrywide Home Loans, Inc. and In re: Wells Fargo Home Mortgage

Overtime misclassification cases were first out of the blocks when wage & hour employment class actions surged in the last decade or so.  Misclassification cases, when successful, usually generate larger per-class member recoveries than other wage & hour class actions.  But their early success was eventually met with more sophisticated defense tactics in the perpetual chess match of move and counter-move.  For those misclassification cases unfortunate enough to end up in federal court, the Ninth Circuit has just made them a bit harder than they were a few days ago.

The first of this duo, In re: Wells Fargo Home Mortgage (July 7, 2009), considered whether the trial " court abused its discretion in finding that the predominance requirement of Federal Rule of Civil Procedure 23(b)(3) was satisfied, based — in large part — on an employer’s internal policy of treating its employees as exempt from overtime laws."  Slip op., at 8328.  The Trial Court though that Wells Fargo was unfairly trying to have its cake and eat it too:

Wells Fargo’s uniform policies regarding HMCs weigh heavily in favor of class certification. As numerous courts have recognized, it is manifestly disingenuous for a company to treat a class of employees as a homogenous group for the purposes of internal policies and compensation, and then assert that the same group is too diverse for class treatment in overtime litigation.

Slip op., at 8330.  The Ninth Circuit focused its review on whether the Trial Court's treatment of that classification policy was correct:

District courts within this circuit have split on the relevance of exemption policies. The district court relied primarily on Wang v. Chinese Daily News, Inc., 231 F.R.D. 602, 612-13 (C.D. Cal. 2005), which found predominance of common issues based on an employer’s policy of treating all employees in a certain position as uniformly exempt from overtime compensation requirements. In contrast, another district court has expressed doubt about Wang, and found that uniform exemption policies are merely a minor factor in the predominance analysis. See Campbell v. PricewaterhouseCoopers,, 253 F.R.D. 586, 603-04 (E.D. Cal. LLP 2008) (rejecting “estoppel” position of Wang).

Slip op., at 8333.  The Ninth Circuit concluded that the approach in Wang went too far, but then emphasized that employer policies remain very important in the majority of certification analyses in this area of law:

Of course, uniform corporate policies will often bear heavily on questions of predominance and superiority. Indeed, courts have long found that comprehensive uniform policies detailing the job duties and responsibilities of employees carry great weight for certification purposes. Damassia v. Duane Reade, Inc., 250 F.R.D. 152, 160 (S.D.N.Y. 2008) (“Where . . . there is evidence that the duties of the job are largely defined by comprehensive corporate procedures and policies, district courts have routinely certified classes of employees challenging their classification as exempt, despite arguments about ‘individualized’ differences in job responsibilities.”).  Such centralized rules, to the extent they reflect the realities of the workplace, suggest a uniformity among employees that is susceptible to common proof.

Slip op., at 8334-35.  So too much Wang is no good, but some Wang is okay.  Got it.  The Ninth Circuit concluded that exemption policies, in particular, are less likely to have a "transformative" power that turns an otherwise individual issue into a common one.

In Vinole v. Countrywide Home Loans, Inc. (July 7, 2009), the Ninth Circuit considered two primary issues, one of which matters.  Countrywide filed a motion to deny class certification before the plaintiffs could file their motion for class certification.  The defendant's motion was granted.  As an issue of first impression, the Ninth Circuit was asked to determine whether it was per se improper for the trial court to hear defendant's motion.  The Ninth Circuit concluded that it was not per se improper:

Rule 23(c)(1)(A) addresses the timing of a district court’s class certification determination, and states: “Time to Issue: At an early practicable time after a person sues or is sued as a class representative, the court must determine by order whether to certify the action as a class action.” Fed. R. Civ. P. 23(c)(1)(A). Nothing in the plain language of Rule 23(c)(1)(A) either vests plaintiffs with the exclusive right to put the class certification issue before the district court or prohibits a defendant from seeking early resolution of the class certification question. The only requirement is that the certification question be resolved “[a]t an early practicable time.”  The plain language of Rule 23(c)(1)(A) alone defeats Plaintiffs’ argument that there is some sort of “per se rule” that precludes defense motions to deny certification, and Plaintiffs have produced no authority to the contrary.

Slip op., at 8307-8.  That seems simple enough.  But these things rarely are.  The Ninth Circuit was particularly interested in the fact that the plaintiffs had (1) failed to bring their motion in almost a year, (2) admitted during a hearing that they didn't need additional discovery to file their motion, and (3) didn't request any sort of continuance of the hearing of defendant's motion:

First, at the time of the hearing Plaintiffs had conducted significant discovery and did not intend to propound any additional discovery seeking information from Countrywide regarding the propriety of class certification. Second, it is evident that Plaintiffs had made a strategic choice to limit the amount of evidence it presented to the district court in opposition to Countrywide’s motion; they proffered their class certification arguments through their “preview” declarations. Third, Plaintiffs’ real complaint is not that they were deprived of adequate time in which to complete discovery, but that they “didn’t want to be on defendants’ schedule.” But, again, this is just a variation on Plaintiffs argument in favor of a per se rule.

Slip op., at 8314.  I can only assume that Defendants will now race to be the first to file a motion related to certification.  Plaintiffs will need to be diligent in their litigation and discovery efforts to fend off this counter-assault.  One thing is certain - different trial courts will deal with this complication in a wide variety of ways.

Tobacco II Opinion generates widespread media coverage and commentary

Monday's Tobacco II Cases Opinion has generated extensive media coverage and commentary.  Here's a sample of the reactions:

• Courthouse News Service said, in a brief commentary, "Plaintiffs in a class-action lawsuit against the tobacco industry are not required to show that every member has relied on the tobacco industry's claims about cigarettes, the California Supreme Court ruled."
• In a press release issued through PRWeb's emediawire.com, commentary included: "This new ruling will clarify a number of legal issues, and will reject the idea that in a class action, each and every class member will have to show "reliance" on a fraudulent act to win a class action. This will mean that the hundreds of thousands of California residents who have been harmed by tobacco companies may seek relief in court."
• LegalNewsline primarily focused its coverage on the Tobacco II Cases, "The California Supreme Court, in a 4-3 vote Monday, has reinstated a class action lawsuit against tobacco companies accused of misleading advertising."
• Jon Hood, at consumeraffairs.com, discussed the significant implications for consumer class actions, "Justice Carlos Moreno, writing for the majority, said that the law was only intended to stop 'shakedown' lawsuits against businesses, and was passed in response to the practice of small business paying lawyers off to make threatened suits go away. Moreno said that the Court of Appeals' view 'would effectively eliminate the class action lawsuit as a vehicle for vindication of (consumer) rights.' Moreno also pointed out that Prop 64's sponsors explicitly provided in ballot arguments that they did not intend to weaken consumer protection laws."
• Metnews.com also focused on the facts of the case itself, but delved further into the rationale of the majority opinion, "Proposition 64, Moreno elaborated, amended the UCL by requiring a showing that the plaintiff has suffered injury 'as a result of' an unfair, unlawful, or fraudulent act or practice. The initiative does not, he said, make 'any reference to altering class action procedures to impose upon all absent class members the standing requirement imposed upon the class representative.'"
• The UCL Practitioner collected blog and news commentary in posts here and here.  I find it particularly amusing that Will Stern, an architect of Proposition 64, seems surprised that the ballot measure promise that the amendment was not intended to weaken consumer protections should come back as a basis for the Supreme Court's Tobacco II Cases Opinion.

Despite all this coverage, one comment that I find particulary significant has received little in the way of analysis:

Moreover, Proposition 64 left intact provisions of the UCL that support the conclusion that the initiative was not intended to have any effect on absent class members. Specifically, Proposition 64 did not amend the remedies provision of section 17203. This is significant because under section 17203, the primary form of relief available under the UCL to protect consumers from unfair business practices is an injunction, along with ancillary relief in the form of such restitution “as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.” (§ 17203.)

(Slip op., at p. 21)  Over the last several years, I have contended in many class certification motions that UCL classes could be certified under the less stringent Fed. R. Civ. P. 23(b)(2) class (recognized by California Courts) because the essence of a UCL claim is injunctive relief, including any Order of restitution.  I contend that this is particularly valid where a minimum amount of restitution can be identified.  Under the policy that unjust enrichment cannot be tolerated under the UCL, an equitable order directing disgorgement in that circumstance is primarily injunctive in nature.  Circumstances have conspired to deprive me of a trial court ruling on the issue.  Perhaps I shall have a further opportunity to pursue this theory in the near future.