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

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

How does hot gas work again?  The Court explained:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"Actual cash value" isn't fair market value, says George v. Automobile Club of Southern California

Here's one from the backlog stack, but it isn't too exciting, so you didn't miss much.  In George v. Automobile Club of Southern California (December 12, 2011), the Court of Appeal (Second Appellate District, Division Eight) reviewed the trial court's decision to sustain a demurrer without leave to amend in a putative class action alleging it was impropre for defendant to declare the "actual cash value" of a vehicle in an insurance policy but then refuse to pay that amount in the event of a total loss, instead paying the fair market value of the car at the time of the loss.   The result didn't seem to be in doubt, based on the policy language noted by the trial court and Court of Apeal:

The declarations page, when read together with the rest of the policy, unambiguously provides that in the event of a total loss, the policy will pay the actual cash value of the car up to $25,000, less the deductible. The ordinary meaning of these words is that if the car is stolen and forever lost, the policy will pay the fair market value, or actual cash value, of the car on the date of the claim, less the deductible, but in any event, not more than $25,000.

Slip op., at 16.  This isn't really a class action case in that the issue was solely one of contractual interpretation, but I include it as a cautionary note for anyone else looking into bringing such a claim. 

Bank of America avoids some liability for Countrywide's evil, destruction of America

Slowly but surely, the fallout from the meltdown in the financial and real estate sectors is showing up in the Courts of Appeal.  This next sentence is a bit tricky, so watch my hands carefully.  In Bank of America v. Superior Court (Ronald) (August 24, 2011), the Court of Appeal (Second Appellate District, Division Three) considered whether borrowers that obtained Countrywide-originated home loans could state fraudulent concealment claims against Countrywide because Countrywide sold investors (not the borrowers) pools of mortgages at inflated values, resulting in the destruction of the housing market and subsequent loss of home values across California.  That is a spectucular theory.  But the Court of Appeal didn't think so:

Due to the generalized decline in home values which affects all homeowners (borrowers of Countrywide, borrowers who dealt with other lenders, and homeowners who owned their homes free and clear), there is no nexus between Countrywide's alleged fraudulent concealment of its scheme to bilk investors and the diminution in value of the instant borrowers' properties.

Slip op., at 2.  The Court examined the inentional tort of fraudulent concealment, finding that, on the facts, the theory failed for several reasons:

"Although 'inferentially, everyone has a duty to refrain from committing intentionally tortious conduct against another' [citation], it does not follow that one who intends to commit a tort owes a duty to disclose that intention to his or her intended victim. The general duty is not to warn of the intent to commit wrongful acts, but to refrain from committing them. We are aware of no authority supporting the imposition of additional liability on an intentional tortfeasor for failing to disclose his or her tortious intent before committing a tort." (Id. at p. 338; accord Deteresa v. American Broadcasting Companies, Inc. (9 th Cir. 1997) 121 F.3d 460, 467-468 [even if audiotaping and videotaping were wrongful, defendant was not liable for failing to disclose its intention to commit those wrongful acts]; In re MRU Holdings Securities Litigation (S.D.N.Y. 2011) 769 F.Supp.2d 500, 515 [it is "'rather circular' to say that . . . Defendants 'committed fraud by concealing their intent to commit fraud'"].)

Slip op., at 11.  The Court then found defects in causation, explaining that essentially all homeowers suffered a loss in equity when the overall market declined, whether borrower with Countrywide or not.  Although the comment at the end about how the holding is limited in nature, focused solely on the viability of the claim as alleged, suggests that, deep down, the Justices might actually believe that Countrywide had a major hand in the real estate implosion in some meaningful way.  Of course, that's my fantastical speculation and not reflective of any actual insight or knowledge on my part.

Strong-ARM tactics dealt a stunning setback in Boschma v. Home Loan Center, Inc.

After the great real estate implosion, lenders have been very busy, attempting to justify a number of questionable practices and products.  One such loan product, the Option ARM, has been challenged in state and federal courts.  Option ARM loans are complex forms of adjustable rate loans that generally include several payments options during the early years of the loan.  One payment option includes the ability to make a "minimum" payment for several years.  However, many Option ARM loan minimum payments are insufficient to pay accruing interest after an initial "teaser" interest rate that is very low.  Once the "teaser" rate period expires, the unpaid interest is added onto the loan, increasing the principal balance owed on the loan (negative amortization).  Because of their complexity, clear disclosures to borrowers are essential.  In Boschma v. Home Loan Center, Inc. (August 10, 2011), the Court of Appeal (Fourth Appellate District, Division Three) held that a complaint alleging a lender's failure to disclose that negative amortization would definitely occur (instead describing that scenario as merely possible), was sufficient to state violations of the UCL and common law fraud.

The Court described the claims of the Second Amended Complaint:

The gravamen of plaintiffs' operative complaint is that defendant failed to disclose prior to plaintiffs entering into their Option ARMs: (1) "the loans were designed to cause negative amortization to occur"; (2) "the monthly payment amounts listed in the loan documents for the first two to five years of the loans were based entirely upon a low 'teaser' interest rate (though not disclosed as such by Defendants) which existed for only a single month and which was substantially lower than the actual interest rate that would be charged, such that these payment amounts would never be sufficient to pay the interest due each month"; and (3) "when [plaintiffs] followed the contractual payment schedule in the loan documents, negative amortization was certain to occur, resulting in a significant loss of equity in borrowers' homes, and making it much more difficult for borrowers to refinance the loans [because of the prepayment penalty included in the loan for paying off the loan within the first three years of the loan]; thus, as each month passed, the homeowners would actually owe more money than they did at the outset of the loan, with less time to repay it."

Slip op., at 13.  The Court began its analysis by explaining what was not at issue in the case at this time:

It is important to demarcate the boundaries of this dispute. The following is not at issue in this case: (1) should it be legal to offer Option ARMs to typical mortgage borrowers; and (2) should it be legal to utilize "teaser" ("discounted") interest rates (here 1.25 percent for the first month of a 30 year loan), which bear no relation to the actual cost of credit? Our only concern in this case is whether plaintiffs stated a cause of action under state law based on defendant‘s allegedly misleading, incomplete, and/or inaccurate disclosures in the Option ARM documents provided to plaintiffs.

Slip op., at 15.  The Court then observed that no California state court had addressed the exact issues presented in the case.  However, the Court noted that a number of federal courts had examined similar issues.

The Court began by addressing the Defendant's contention that strict compliance with TILA provided it with a safe harbor of sorts:

A string of cases (involving strikingly similar Option ARM forms/disclosures to those used in the instant case) have held that a borrower states a claim for a violation of TILA based on, among other disclosure deficiencies, the failure of the lender to clearly state that making payments pursuant to the TILDS payment schedule will result in negative amortization during the initial years of the loan.

Slip op., at 18.  The Court concluded that, since the allegations could support a cause of action for TILA violations, it would be nonsensical to dismiss the claims at this stage, based on a claim of compliance with TILA disclosure obligations.  Note:  There was no TILA claim asserted in this action, only UCL and fraudulent concealment claims.

Next, the Court considered the state law fradulent concealment claims.  The Court began its discussion by citing a number of federal cases that allowed state law claims to proceed along with TILA claims.  The Court then turned to the sufficiency of the fraud pleading.  The Court found that the failure to disclose the exceedingly low teaser rate adequately was a sufficient omission to suppor the fraudulent concealment claim: "The teaser rate creates an artificially low (compared to the actual cost of credit) initial payment schedule and guarantees that the actual applicable interest rate (after the first month of the loan) will exceed the interest rate used to calculate the payment schedule for the initial years of the loan."  Slip op., at 24.

Turning to the UCL, the Court found that the allegations were sufficient to support a UCL under all three prongs.  The "unfair" prong discussion was the most interesting of the three:

As noted above in our discussion of damages, it may be difficult for plaintiffs to prove they could not have avoided any of the harm of negative amortization — they could have simply paid more each month once they discovered their required payment was not sufficient to pay off the interest accruing on the loan. But plaintiffs may show they were unable to avoid some substantial negative amortization. And we see no countervailing value in defendant's practice of providing general, byzantine descriptions of Option ARMs, with no clear disclosures explaining that, with regard to plaintiffs' particular loans, negative amortization would certainly occur if payments were made according to the payment schedule. To the contrary, a compelling argument can be made that lenders should be discouraged from competing by offering misleading teaser rates and low scheduled initial payments (rather than competing with regard to low effective interest rates, low fees, and economically sustainable payment schedules). Finally, to the extent an "unfair" claim must be "tethered" to specific statutory or regulatory provisions, TILA and Regulation Z provide an adequate tether even though plaintiffs are not directly relying on federal law to make their claims.

Slip op., at 29.

Fun fact: the Court cited Kwikset when rejecting the Defendant's contention that the Plaintiffs did not adequately allege standing under the UCL.

Disclosure:  J. Mark Moore of Spiro Moss argued this matter before the Court of Appeal and contributed significantly to the briefing on appeal.

California Supreme Court activity for the week of November 8, 2010

The California Supreme Court held its (usually) weekly conference on November 10, 2010. Notable results include:

• On a Petition for Review, review was denied in Walnut Producers v. Diamond Foods (August 16, 2010), discussed briefly on this blog here.  [Arbitration agreement with class arbitration ban not unconscionable]
• On a Petition for Review, with an associated request to depublish, review and depublication were both denied in Gutierrez v. Commerce Club (August 23, 2010), discussed on this blog here.  [Reversal of Order sustaining demurrer to class allegations]

In Gutierrez v. California Commerce Club, Inc., Court of Appeal reverses order sustaining a demurrer to class allegations in a wage & hour suit

Those corporate employers are nothing if not a tenacious lot.  They keep challenging class action allegations at the pleading stage despite a substantial weight of authority finding that approach to be improper in most class actions.  In Gutierrez v. Commerce Club, Inc. (August 23, 2010), the Court of Appeal (Second Appellate District, Division One) reviewed a trial court order sustaining a demurrer to class allegations without leave to amend in a suit alleging, among other things, that the plaintiffs and other similarly situated members of the putative class were injured by the Club's unlawful policy and practice of denying meal and rest breaks to certain hourly, non-union employees.

After stating the procedural history in fair detail, the Court restated some of the purposes for class action litigation:

The wisdom of permitting the action to survive a demurrer is elementary.  "'Class action litigation is proper whenever it may be determined that it is more beneficial to the litigants and to the judicial process to try a suit in one action rather than in several actions. . . . It is clear that the more intimate the judge becomes with the character of the action, the more intelligently he may make the determination. If the judicial machinery encourages the decision to be made at the pleading stages and the judge decides against class litigation, he divests the court of the power to later alter that decision . . . . Therefore, because the sustaining of demurrers without leave to amend represents the earliest possible determination of the propriety of class action litigation, it should be looked upon with disfavor.' [Citation.]" (Tarkington, supra, 172 Cal.App.4th at p. 1511; see also Prince, supra, 118 Cal.App.4th at p. 1326.)

Slip op., at 7-8.  The Court then agreed with the defendant that there have been occasions where class allegations were resolved at the demurrer phase.  But the Court went on to explain that wage & hour cases were not amongst those relatively rare examples:

The Club is correct that there are circumstances in which granting a motion to strike or sustaining a demurrer without leave to amend a class action complaint will be appropriate. A review of the cases in which courts have approved the use of demurrers to determine the propriety of class actions, however, reveals that the majority of those actions involved mass torts or other actions in which individual issues predominate.

Slip op., at 8.  In contrast to mass tort actions, the Court found that wage & hour cases were generally unsuited to evaluation of class claims on the pleadings:

There is no discernible difference between this action and the wage and hour cases (or their type) at issue in Prince and, more recently, in Tarkington. As we explained in Prince and reiterated in Tarkington, such cases "'routinely proceed as class actions' because they usually involve '"a single set of facts applicable to all members,"' and '"one question of law common to class members."'" (Tarkington, supra, 172 Cal.App.4th at p. 1511, quoting Prince, supra, 118 Cal.App.4th at pp. 1327–1328.) As long as the lead plaintiff "'alleges institutional practices . . . that affected all of the members of the potential class in the same manner, and it appears from the complaint that all liability issues can be determined on a class-wide basis,'" no more is required at the pleading stage. (Tarkington at p. 1511.)

Slip op., at 9.  The Court finished its discussion with emphasis:

We return again to and rely upon the well-established principle, that "only in mass tort actions (or other actions equally unsuited to class action treatment) [should] class suitability . . . be determined at the pleading stage. In other cases, particularly those involving wage and hour claims, [such as the instant action,] class suitability should not be determined by demurrer." (Prince, supra, 118 Cal.App.4th at p. 1325, italics added; see also Tarkington, supra, 172 Cal.App.4th at p. 1512.)

Slip op., at 11.

While their message should be clear, somehow I doubt that it will appreciably reduce that massive waste of resources devoted to pleadings challenges.

Companion opinions involving billing practices by Sharp Healthcare (Durell and Hale) examine UCL standing

Sharp Healthcare is responsible for two of the three published decisions issued today that concern class action issues.  Hale v. Sharp Healthcare (April 19, 2010) and Durell v. Sharp Healthcare (April 19, 2010) both concern putative class actions.  Both involve billing practices by Sharp Healthcare related to its "regular" billing rate.  Both concern trial court orders sustaining demurrers to UCL causes of action.  And both pronounce new situations where "reliance" is required for UCL claims.  However, the outcomes in the two appeals differ by the width of, at most, a couple of sentences of allegations; one passes muster as a "reliance" allegations and one does not.

Both cases concern the basic theory that Sharp engaged in deceptive and unfair practices by billing uninsured patients its full standardized rates for services, when it substantially discounts those rates for patients covered by Medicare or private insurance.  Both cases questioned, in slightly different ways, what actually constitutes the "regular rates" charged to patients.

In the Durell opinion, the Court focused on the causation aspect of standing:

The court sustained the demurrer to the UCL cause of action without leave to amend on the ground Durell lacks standing to pursue the claim. The court found the SAC insufficiently alleges "injury in fact" and causation. (Bus. & Prof. Code, § 17204.) As to causation, the court explained the SAC fails to allege Durell was harmed "as a result of" Sharp's conduct. (Ibid.) For instance, the SAC does not allege he "relied on Sharp charging its 'usual and customary rates' in receiving treatment." We turn first to the causation issue, which we find dispositive.

Durell, at 12.  The Court found the absence of allegations of "reliance" to be the key defect in Durell's pleading: 

The SAC does not allege Durell relied on either Sharp's Web site representations or on the language in the Agreement for Services in going to Sharp Grossmont Hospital or in seeking or accepting services once he was transported there. Indeed, the SAC does not allege Durell ever visited Sharp's Web site or even that he ever read the Agreement for Services.

Durell, at 14.

Plaintiff Hale, on the other hand, alleged facts that satisfied the Court's examination of "injury in fact" and standing: 

Even though the SAC alleges Hale has paid only $500 of her $14,447.65 medical bill, it also alleges the Admission Agreement obligates her to pay Sharp the balance on her account. Thus, she faces at least an imminent invasion or injury to a legally protected interest. (See Troyk, supra, 171 Cal.App.4th at p. 1346.) The term "imminent" is defined as "ready to take place," "hanging threateningly over one's head," and "menacingly near." (Webster's 3d New Internat. Dict. (1993) p. 1130.) Certainly, this is not the type of action Proposition 64 was intended to squelch. Hale was a bona fide consumer of medical services.

Hale, at 11.  Though thin, the Court agreed that Hale did plead a form of "reliance" sufficient to withstand demurrer: 

We agree with Hale, however, that "to the extent [she] is bringing a fraud-based claim under the UCL, she has reasonably pled reliance." The SAC alleges Hale signed the Admission Agreement, and "at the time of signing the contract, she was expecting to be charged 'regular rates,' and certainly not the grossly excessive rates that she was subsequently billed." (Italics added.) This allegation appears in the breach of contract cause of action, but the UCL cause of action incorporates the allegations of all other causes of action. We must interpret the complaint reasonably, "reading it as a whole and its parts in their context." (Stearn v. County of San Bernardino (2009) 170 Cal.App.4th 434, 439.) As Hale notes, the "difference between 'expecting' to be charged regular rates and 'relying' on being charged regular rates is a distinction without a difference." We see no utility in requiring Hale to amend her complaint to exchange the term "expecting" for the term "relying."

Hale, at 14-15.  Lesson one from these cases is that small differences in pleading facts can make a big difference.

But discussing allegations was not the headline-worthy event in these two opinions.  The Court extended the concept of "reliance" discussed in Tobacco II's discussion of the UCL "fraudulent" prong to any "unlawful" prong claim asserting a legal violation that involves deception:

Construing the phrase "as a result of" in Business and Professions Code section 17204 in light of Proposition 64's intention to limit private enforcement actions under the UCL, we conclude the reasoning of Tobacco II applies equally to the "unlawful" prong of the UCL when, as here, the predicate unlawfulness is misrepresentation and deception. A consumer's burden of pleading causation in a UCL action should hinge on the nature of the alleged wrongdoing rather than the specific prong of the UCL the consumer invokes. This is a case in which the "concept of reliance" unequivocally applies (Tobacco II, supra, 46 Cal.4th at p. 325, fn. 17), and omitting an actual reliance requirement when the defendant's alleged misrepresentation has not deceived the plaintiff "would blunt Proposition 64's intended reforms." (Cattie v. Wal-Mart Stores, Inc. (S.D.Cal. 2007) 504 F.Supp.2d 939, 948.)

Durell, at 14.

With a new category of "reliance" pleading required for certain "unlawful" prong claims, the Court turned its high-powered, neutrino-powered conservative ray on the "unfair" prong of the UCL.  Durell's "unfair" prong claim also found no success.  After reviewing the post-Cel-Tech hairball, the Court applied its own prior precedent that defines a very strict test for "unfair" conduct:

Here, the court's order does not specifically address the "unfair" prong of the UCL. The SAC alleges Sharp's conduct violates public policy, and is "immoral, unethical, oppressive, and unscrupulous," a vague test of unfairness this court rejects. The SAC does not allege the conduct is tethered to any underlying constitutional, statutory or regulatory provision, or that it threatens an incipient violation of an antitrust law, or violates the policy or spirit of an antitrust law. In his briefing, Durell does not address Cel-Tech, supra, 20 Cal.4th 163, and its affect on the definition of "unfair" in consumer UCL cases, or this court's opinions in Scripps Clinic, supra, 108 Cal.App.4th 917, and Byars, supra, 109 Cal.App.4th 1134. We conclude the court properly granted the demurrer as to the claim under the "unfair" prong of the UCL.

Durell, at 19.

On the flip side, Hale's CLRA claim lives to fight another day, benefiting from the Court's "reliance" pleading analysis set forth in its discussion of Hale's UCL claim:

Again, however, to the extent Hale's CLRA claim is fraud-based, the SAC adequately alleges the reliance element. Thus, the court erred by sustaining the demurrer to the CLRA cause of action.

Hale, at 16.

I will look forward to reading The UCL Practitioner's assessment of these two opinions.

Court of Appeal reverses trial court order sustaining demurrer to class allegations for lack of commonality

The Seventh Division of the Second Appellate District has been lucky (or unlucky - I don't know what they think about it) to draw a number of major class-related appeals in the past several year.  Today, they add another to their growing list.  In Arce v. Kaiser Foundation Health Plan, Inc. (January 27, 2010) the Court of Appeal (Second Appellate District, Division Seven) reviewed a trial court order sustaining a demurrer without leave to amend to a claim arising under the UCL.  The plaintiff alleged that Kaiser breached its health plan contract and violated the Mental Health Parity Act (Health & Saf. Code,1 § 1374.72) by categorically denying coverage for behavioral therapy and speech therapy to plan members with autism spectrum disorders.  The trial court's ruling sustaining the demurrer was based on the doctrine of judicial abstention and the lack of commonality among class members.

In this instance, rather than clip elements from the opinion, I am going to quote one section, discussing the community of interest standard, in its entirety:

A. Community of Interest among Class Members

Section 382 of the Code of Civil Procedure authorizes class action suits “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court . . . .” (Code Civ. Proc., § 382.) The party seeking certification of a class must establish the existence of both an ascertainable class and a well-defined community of interest among the class members. (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326.) “The 'community of interest' requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. [Citation.]” (Ibid.) “'[T]his means “each member must not be required to individually litigate numerous and substantial questions to determine his [or her] right to recover following the class judgment; and the issues which may be jointly tried, when compared with those requiring separate adjudication, must be sufficiently numerous and substantial to make the class action advantageous to the judicial process and to the litigants.” ' [Citation.]” (Lockheed Martin Corp. v. Superior Court (2003) 29 Cal.4th 1096, 1108.) “Other relevant considerations include the probability that each class member will come forward ultimately to prove his or her separate claim to a portion of the total recovery and whether the class approach would actually serve to deter and redress alleged wrongdoing. [Citation.]” (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435.)

It is often premature for a trial court to make determinations pertaining to class suitability on demurrer. Rather, “all that is normally required for a complaint to survive demurrers to the propriety of class litigation is that the complaint allege facts that tend to show: (1) an ascertainable class of plaintiffs, and (2) questions of law and fact which are common to the class.” (Beckstead v. Superior Court (1971) 21 Cal.App.3d 780, 784.) As our Supreme Court has recognized, for purposes of determining whether a demurrer should have been overruled, “it is sufficient that there is a reasonable possibility plaintiffs can establish a prima facie community of interest among the class members . . . .” (Vasquez v. Superior Court (1971) 4 Cal.3d 800, 813; see also Beckstead v. Superior Court, supra, at p. 783 [“[T]he California Supreme Court has mandated that a candidate complaint for class action consideration, if at all possible, be allowed to survive the pleading stages of litigation.”].) Accordingly, “[w]here there is a 'reasonable possibility' that the plaintiff in a class action can establish a community of interest among class members, 'the preferred course is to defer decision on the propriety of the class action until an evidentiary hearing has been held on the appropriateness of class litigation. ' [Citation.]” (Canon U.S.A. v. Superior Court (1998) 68 Cal.App.4th 1, 5; see also Prince v. CLS Transportation, Inc. (2004) 118 Cal.App.4th 1320, 1329 [demurrer to class action complaint improper where the plaintiff “alleges institutional practices . . . that affected all of the members of the potential class in the same manner, and it appears from the complaint that all liability issues can be determined on a class-wide basis”].)

“The wisdom of allowing survival is elementary. Class action litigation is proper whenever it may be determined that it is more beneficial to the litigants and to the judicial process to try a suit in one action rather than in several actions . . . . It is clear that the more intimate the judge becomes with the character of the action, the more intelligently he [or she] may make the determination. If the judicial machinery encourages the decision to be made at the pleading stages and the judge decides against class litigation, he [or she] divests the court of the power to later alter that decision . . . . Therefore, because the sustaining of demurrers without leave to amend represents the earliest possible determination of the propriety of class action litigation, it should be looked upon with disfavor.” (Beckstead v. Superior Court, supra, 21 Cal.App.3d at p. 783.)

In sustaining Kaiser's demurrer to the UCL claim, the trial court concluded that Arce could not establish a predominance of common issues because resolution of the claim would require the court to make individualized determinations as to whether the therapies at issue were “medically necessary” for each member of the putative class. However, based on the allegations in the second amended complaint, the UCL claim presents two central legal issues that are common to all putative class members. First, does Kaiser's health plan contract exclude from coverage Applied Behavior Analysis therapy or speech therapy for autism spectrum disorders on the grounds that such therapies are “non-health care services,” “academic or educational interventions,” or “custodial care”? Second, assuming that the therapies are excluded from coverage by the health plan contract, does the Mental Health Parity Act allow Kaiser to categorically apply such exclusions on the basis that the therapies are not health care services, or are provided by persons not licensed or certified by the state? While these issues clearly raise questions of contractual and statutory interpretation, neither would require the court to make individualized determinations of medical necessity for class members.

Slip op., at 13-15.  The Court's discussion of the Doctrine of Judicial Abstention is even more detailed, but I confess that my Diet Coke supply is insufficient to keep me conscious through that discussion.

Impressive work by Scott C. Glovsky.

Banks can require U.S. citizens to provide social security numbers on credit card applications, despite accepting alternative forms of identification from foreign nationals

In Howe v. Bank of America N.A., plaintiffs, on behalf of a putative class of “individuals of U.S. national origin and/or ancestry, as well as naturalized individuals,” sued Bank of America and other companies. They alleged that Bank of America and other defendants had discriminated against the class in violation of the Unruh Civil Rights Act (Civ. Code, § 51 et seq.) by requiring that United States citizens provide a Social Security number to open a particular type of credit card account, while allowing foreign nationals to open such accounts with only alternative forms of identification.  Slip op. at 2.  The trial court sustained the defendants' demurrer.  The Court of Appeal (Fourth Appellate District, Division Three), affirmed, finding that Bank of America's actions were facially reasonable in that they complied with federal minimum identification regulations.

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.