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.

The Ninth Circuit agrees: if you play your iPod at 115 decibels for 12 hours and nuke your ears, it's your own fault

Plaintiffs Joseph Birdsong and Bruce Waggoner filed a class action complaint claiming that Apple, Inc.’s iPod is defective because it poses an unreasonable risk of noise-induced hearing loss to users.  The district court, concluding that the plaintiffs failed to state any claim and lacked standing under the Unfair Competition Law ("UCL"), dismissed.  In Birdsong v. Apple, Inc. (December 30, 2009) the Ninth Circuit affirmed.

First, the Court noted the warning that accompanied every iPod:

Permanent hearing loss may occur if earphones or headphones are used at high volume. You can adapt over time to a higher volume of sound, which may sound normal but can be damaging to Permanent hearing loss may occur if earphonesor headphones are used at high volume. You can adapt over time to ahigher volume of sound, which maysound normal but can be damaging to your hearing. Set your iPod’s volume to a safe level before that happens. If you experience ringing in your ears, reduce the volume or discontinue use of your iPod.

Slip op., at 16870-71.  The Court then concluded that the Implied Warranty of Merchantability claim failed on the pleadings:

The district court did not err. The plaintiffs admit that the iPod has an “ordinary purpose of listening to music,” and nothing they allege suggests iPods are unsafe for that use or defective. The plaintiffs recognize that iPods play music, have an adjustable volume, and transmit sound through earbuds. The third amended complaint includes statements that (1) the iPod is capable of playing 115 decibels of sound; (2) consumers may listen at unsafe levels; and (3) iPod batteries can last 12 to 14 hours and are rechargeable, giving users the opportunity to listen for long periods of time. Taken as true, such statements suggest only that users have the option of using an iPod in a risky manner, not that the product lacks any minimum level of quality. See Am. Suzuki, 37 Cal. App. 4th at 1296.

Slip op., at 16873.  After identifying claims that were apparently abandoned on appeal, the Court then examined standing under the UCL.  First, the Court noted that because the underlying Implied Warranty claim failed, the plaintiffs could not state a UCL claimed predicated upon unlawful conduct, leaving only the assertion of "unfair" practices.  Slip op., at 16876.  Next, the Court concluded that the plaintiffs had not alleged an injury of any form to themselves:

Although the plaintiffs allege that Apple has sold more than 100 million iPods, they do not claim that they, or anyone else, have suffered or are substantially certain to suffer hearing loss from using an iPod. As discussed above, as a result of this omission, the plaintiffs fail to state an implied warranty claim, and they have no standing to assert a UCL claim. The plaintiffs simply do not plead facts showing that hearing loss from iPod use is actual or imminent, as required. Buckland, 155 Cal. App. 4th at 814. To the contrary, the plaintiffs’ third amended complaint reveals the conjectural and hypothetical nature of the alleged injury as the plaintiffs merely assert that some iPods have the “capability” of producing unsafe levels of sound and that consumers “may” listen to their iPods at unsafe levels combined with an “ability” to listen for long periods of time.

Slip op., at 16878.  The plaintiffs tried to work around this problem by claiming that they did not receive the benefit of their bargain, but the Court noted that the plaintiffs admitted they received the volume warning and received no promises of performance that were not fulfilled.

I've had at least 5 iPods of varying types.  I still hear fine.  It's my daughter I worry about.  Me:  "Eat your dinner!"  Her:  Glassy-eyed stare into the distance.  It must be hearing loss.  I just can't figure out how my iPods did it, seeing as how she is 4 and doesn't listen to my iPods.

Breaking News: Denial of class certification affirmed in Vioxx Class Cases

With the holidays upon us, the topical and interesting news stories have been few and far between.  But the drought cannot last forever.  Today, the Court of Appeal (Second Appellate District, Division Three) issued an Opinion in which it affirmed the trial court's denial of class certification in the matter of In re Vioxx Class Cases (December 15, 2009).  I will need to read this Opinion with some deliberation before writing an extended post about it.  However, a few things jumped out immediately and are worth noting now.  Tobacco II is mentioned early in the Opinion, and I assumed that the Opinion would join the few recent Opinions that appear to conflict with Tobacco II.  That does not appear to be the case here:  "Nonetheless, it is clear from Supreme Court authority that recovery in a UCL action is available in the absence of individual proof of deception, reliance, and injury. (Tobacco II, supra, 46 Cal.4th at p. 320.)"  (Slip op., at 25 n. 19.)  Instead, the Court of Appeal affirmed the trial court's denial of class certification on the basis of damage-related issues: "The trial court’s findings with respect to the measure of damages are sufficient to support its denial of class certification with respect to the UCL and FAL causes of action."  (Slip op., at 25, emphasis added.)  This damages discussion, and some remarks about typicality, will require more reading and a longer post.

Update on 2009-12-15 23:27 by The Complex Litigator

The trial court judge was Victoria Chaney.  Associate Justice Victoria Chaney now sits in Division One of the Second Appellate District.

California Supreme Court activity for the week of November 16, 2009

The California Supreme Court held its (usually) weekly conference on November 18, 2009.  The only notable event was:

• A Petition for Review was granted in Yabsley v. Cingular Wireless.  The matter was held pending the outcome of Loeffler v. Target Corp., S173972.  I briefly discussed Yabsley here.

Cohen panel tackles Tobacco II again in Princess Cruise Lines, Ltd. v. Superior Court

The Court of Appeal (Second Appellate District, Division Eight) generated a good bit of commentary with their construction of In re Tobacco II Cases, 46 Cal.4th 298 (2009).  Cohen v. DIRECTV, Inc. (October 28, 2009) was discussed in detail on this blog, and The UCL Practitioner had an extensive post as well.  In Princess Cruise Lines, Ltd. v. Superior Court (November 10, 2009), the Second Appellate District, Division Eight tackles reliance and Tobacco II for the second time.  But, in an interesting twist, Cohen receives no mention in this Opinion.

Princess Cruise Lines is, ostensibly, a summary judgment opinion.  Although it is not discussed in any detail, it appears that the summary judgment motion was brought pre-certification.  The Court described the causes of action asserted and the basics of the trial court's ruling:

The plaintiffs, real parties in interest in the proceedings before us, H. Roger Wang and Vivine Wang (from time to time collectively referred to as the Wangs), sued petitioner Princess Cruise Lines, Ltd., over charges added to the price of shore excursions taken during a cruise conducted by petitioner.  The Wangs asserted five causes of action.  The first three were based on Business and Professions Code sections 17200 (first cause of action) and 17500 (second) and on Civil Code section 1750 et seq. (third).  Respectively, these statutes are California’s Unfair Competition Law (UCL), False Advertising Law (FAL) and Consumers Legal Remedies Act (CLRA).  The fourth and fifth causes of action were based respectively on common law fraud and negligent misrepresentation.

Petitioner moved for summary judgment and summary adjudication.  The trial court granted summary adjudication on the fourth and fifth causes of action because the Wangs could not show they relied on petitioner’s alleged misrepresentations.  The trial court, however, denied the motion for summary judgment because it concluded that on the UCL, FAL and CLRA causes of action the Wangs did not have to show that they relied on petitioner’s alleged misrepresentations.

Slip op., at 2.  After summarizing the discovery in the action and the trial court's rulings, the Court of Appeal discussed the issue of reliance in UCL and CLRA actions:

The court in Tobacco II first concluded that only the class representatives must meet the standing requirement under California’s UCL.  The court then proceeded to the next topic, which was “the causation requirement for purposes of establishing standing under the UCL, and in particular what is the meaning of the phrase ‘as a result of’ in [Business and Professions Code] section 17204?  We conclude that a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions.”  (Tobacco II, supra, 46 Cal.4th 298, 306.)

There are two aspects to this holding.  First, it is very clear that reliance is required in a UCL action.  Second, it is also clear that this is true of UCL actions involving some form of fraud, but not all UCL actions.  As the court put it:  “We emphasize that our discussion of causation in this case is limited to such cases where, as here, a UCL action is based on a fraud theory involving false advertising and misrepresentations to consumers.  The UCL defines ‘unfair competition’ as ‘includ[ing] any unlawful, unfair or fraudulent business act or practice . . . .’  ([Bus. & Prof. Code,] § 17200.)  There are doubtless many types of unfair business practices in which the concept of reliance, as discussed here, has no application.”  (Tobacco II, supra, 46 Cal.4th 298, 325, fn. 17.)

Slip op., at 6-7.  Unlike Cohen, this Opinion presents as an effort to identify specific circumstances where it is valid to consider reliance in a UCL claim, using Tobacco II.  In fact, its almost as if the Court was sensitive to potential fallout from describing Tobacco II as irrelevant.  

In any event, the Court then, as one would expect in a summary judgment analysis, focused on the evidence presented by the plaintiffs:

The problem, from a pragmatic perspective, with the Wangs’ contentions about reliance is that it made no difference to them how much the excursions cost.  As Vivine Wang put it in her deposition, she told her travel agent that she wanted to go on the same excursions that her traveling group had booked and that “I want to go on the shore excursion . . . whatever it cost [sic].  It’s fine.”  At the threshold, therefore, it must be said that there was no reliance, i.e., the Wangs would have gone on the excursions whatever the price was and without reference to anything petitioner said or did in connection with the excursions.  It therefore follows that it is immaterial how the Wangs heard about the excursions and what, if anything, petitioner said or wrote about the excursions.

It must also be said that we are not inclined to ignore the Wangs’ repeated admissions that they had no contact with petitioner and received nothing from the petitioner.

Slip op., at 8.  The Court does its best to circumvent the reliance questions it raised in Cohen by citing Tobacco II for the contention that there is a limited area under the UCL where reliance can be an element of the claim, followed by a finding that the record contains admissions of absolutely no reliance.

Next, the Court issued an interesting holding that the Tobacco II discussion about reliance in certain limited situations in UCL cases applies to CLRA actions as well:

Civil Code section 1780, subdivision (a) provides:  “Any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 may bring an action against that person to recover or obtain any of the following:  [listing generic types of recoveries].”  (Italics added.)

It appears that the analysis of the phrase “as a result” found in Tobacco II, supra, 46 Cal.4th 298, 324-326, applies to this phrase in Civil Code section 1780, subdivision (a), which means that reliance is required for CLRA actions, with the limitations noted in Tobacco II.

Slip op., at 11-12.

So, if Cohen is enough of a lightning rod to elicit review, this one may escape that same fate.

The UCL's "unlawful" prong receives a little boost in Zhang v. Superior Court

The least loved may be the greedy insurance companies.  In Zhang v. Superior Court (California Capital Insurance Company) (October 29, 2009), the Court of Appeal (Fourth Appellate District, Division Two) was called upon to determine whether the alleged failure of an insurance company to adequately pay a loss claim was actionable in light of Insurance Code section 790.03 et seq., Moradi-Shalal v. Fireman’s Fund Ins. Companies, 46 Cal.3d 287 (1988) and Textron Financial Corp. v. National Union Fire Ins. Co., 118 Cal.App.4th 1061 (2004):

This case presents the question of whether fraudulent conduct by an insurer, which is connected with conduct that would violate Insurance Code section 790.03 et seq.—sometimes referred to as the “Unfair Insurance Practices Act”—can also give rise to a private civil cause of action under the Unfair Competition Law (UCL), Business and Professions Code section 17200 et seq. The trial court ruled that it does not and, therefore, sustained defendant and real party in interest California Capital Insurance Company's demurrer to a cause of action under the UCL. We disagree and will direct the trial court to reinstate the cause of action.

Slip op., at 2.  After a thorough analysis of Moradi-Shalal in particular, the Court concluded that, because the plaintiff had also alleged false advertising, a prohibition on a private claim arising under the Unfair Insurance Practices Act was not at issue:

We take from Manufacturers Life that there is no reason to treat insurers differently from other businesses when it comes to actions under the UCL except as required by Moradi-Shalal. We understand that if a plaintiff relies on conduct that violates the Unfair Insurance Practices Act but is not otherwise prohibited, Moradi-Shalal requires that a civil action under the UCL be considered barred. Thus, if the plaintiff in this case had attempted to sue California Casualty under the UCL because the latter had “[n]ot attempt[ed] in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear” (Ins. Code, § 790.03, subd. (h)(5)) or “failing, after payment of a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under which payment [was] made” (Ins. Code, § 790.03, subd. (h)(9)), a somewhat closer question would be presented. (But see fn. 1, ante.) But that is not this case.

Slip op., at 8-9.

The UCL Practitioner, with the focus on all things UCL, has much more on this decision and cross-referenced material about Textron.  By the way, I asked The UCL Practitioner if her blog was the UCL Practitioner or The UCL Practitioner (the URL giving me pause as to which was right), and the definitive blog name is The UCL Practitioner.  I obviously burn a lot of calories wondering about fringe issues.

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.

Consumer Attorneys of San Diego offers its Second Annual Class Action Symposium on October 23-24

The educational opportunities for class action practitioners in California improved greatly in recent years (oddly coincident with significant increase in the number of attorneys trying their hand at class action litigation).  One of those great new opportunities for class action CLE occurs this Friday and Saturday in San Diego's gaslamp quarter.  Consumer Attorneys of San Diego will present its 2nd Annual Class Action Symposium.  The speakers include judges, mediators, and practitioners from both sides of the "v."

The blogosphere will be well represented by speaker Kim Kralowec, The UCL Practitioner and a Partner at Schubert Jonckheer Kolbe & Kralowec LLP.  And speaking of The UCL Practitioner, her blog now notes that you can register for one day of the two day symposium.  If obligations on Friday prevent you from attending, consider attending on Saturday.  You can also save money by registering more than one attendee from the same firm.

If nothing else, send the youngest attorneys in your firm so they can learn first hand from the people that do it right.  Because of the special nature of representative litigation, we have an obligation to maintain the highest possible practice standards.

More coverage of the decision in Morgan v. AT&T Wireless Services, Inc.

As the first published California appellate court decision to apply Tobacco II, the Opinion in Morgan, et al. v. AT&T Wireless Services, Inc. (September 23, 2009) (covered on this blog here) is receiving quite a bit of attention. On October 9, 2009, the Bureau of National Affairs, Inc. ("BNA") published an article entitled "Court Applies Tobacco II: Prop 64 Changed Standing Requirements, Not Substantive Law" in the Class Action Litigation Report. Kimberly Kralowec, partner at Schubert Jonckheer Kolbe & Kralowec and The UCL Practitioner, and I were both quoted in the article. The article is reproduced below with the gracious permission of BNA.

Reproduced with permission from Class Action Litigation Report, 10 CLASS 906 (Oct. 10, 2009). Copyright 2009 by The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com:

If flash is not available in your browser, the article can be accessed here.