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

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

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

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

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

Ordinary agency principles apply in UCL and FAL cases

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

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

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

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

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

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

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

Degelmann v. Advanced Medical Optics applies Kwikset to support UCL standing but finds medical device preemption applies

I've been swamped at work, so posts around here have been few and far between.  But there haven't been many class-related decisions to write about either, so maybe you didn't miss much.  Today, however, when the legal profession is repenting, I at least have some time to write.  In Degelmann v. Advanced Medical Optics (9th Cir. Sept. 28, 2011), the Ninth Circuit examined UCL standing and medical device preemption.  In Degelmann, the plaintiffs sought to represent a putative class of purchasers of contact lens solution. Their suit alleged that defendant violated California’s Unfair Competition Law (“UCL”) and False Advertising Law (“FAL”) by marketing Complete MoisturePlus (“MoisturePlus”) as a product that cleans and disinfects lenses. The district court granted defendant's motion for summary judgment, ruling that plaintiffs lacked standing.

First, the Court examined the plaintiffs' standing under the UCL:

Here, as in Kwikset, the plaintiffs allege that they paid more for a product due to reliance on false advertising. The district court in this case was likely correct that Degelmann and Lin would have bought other contact lens solution had they not purchased MoisturePlus. However, as elucidated by the Kwikset court’s discussion, it does not necessarily follow that they did not suffer economic harm. Degelmann and Lin presented evidence that they were deceived into purchasing a product that did not disinfect as well as it represented. Had the product been labeled accurately, they would not have been willing to pay as much for it as they did, or would have refused to purchase the product altogether. The district court’s reasoning—that class members would have bought other contact lens solution, and therefore suffered no economic harm— conceived of injury in fact too narrowly.

Slip op., at 18565.  In that same discussion, the Court distinguished Birdsong v. Apple, Inc.:

The inquiry into injury in fact in this case, where the class makes claims under both the UCL’s fraud prong and the FAL, is not controlled by Birdsong v. Apple, Inc., 590 F.3d 955 (9th Cir. 2009). In that case, purchasers of iPod headphones pursued a claim under the UCL’s “unfair” and “unlawful” prongs, asserting that listening to loud music on the headphones could result in hearing loss. They did not allege economic harm from having purchased headphones in reliance on false advertising, but rather claimed that the inherent risk of the headphones reduced the value of their purchase and deprived plaintiffs of the benefit of their bargain. Id. at 961. The court in that case found that the claim of economic harm was not sufficient to plead injury in fact in part because, in distinct contrast to the MoisturePlus labeling at issue in this case, Apple had not represented that the headphones were safe at high volume. Rather, “Apple provided a warning against listening to music at loud volumes.” Id. Because there is allegedly false labeling and advertising at issue in this case, Birdsong does not aid our disposition here.

Slip op., at 18565-66.  So far, so good for the plaintiffs.  But then the Court discusses preemption.  The Court found that the lens solution at issue satisfied FDA requirements for labelling contact lens solution.  The Court concluded that, having met the standard, the UCL and FAL would necessarily have to impose additional obligations in order for the plaintiffs to state any claim, which would then invoke preemption, immediately precluding the claim:

In order for the class to recover in this lawsuit, a court would have to hold that California’s UCL and FAL required something different than what the FDA required in order for AMO to label MoisturePlus a disinfectant. Those California laws would have to require that AMO test for Acanthamoeba, and show that MoisturePlus kills it in sufficient quantities. That is, California law would have a requirement that is additional to the federal requirements.

Slip op., at 18569.  And that, as they say, was that.  You have standing, but you lose.  At least it's good to have some guidance from the Ninth Circuit on the application of Kwikset to federal standing arguments.

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.

More on Morgan, et al. v. AT&T Wireless Services, Inc.

As promised shortly after Morgan, et al. v. AT&T Wireless Services, Inc. (September 23, 2009) was published, here is a longer post on the first substantial application of In re Tobacco II Cases, 46 Cal. 4th 298 (2009) by a California Court of Appeal.  Before commenting on the analysis in Morgan, a brief summary of the facts of the case are in order.  The plaintiffs alleged that they were ripped off when they purchased the premium Sony Ericsson T68i cell phone for use on the AT&T network but weren't told that AT&T was abandoning the 1900 MHz GSM spectrum in favor of the 850 MHz spectrum, rendering the phones useless.  Then AT&T sent the T68i owners an inferior replacement that they called an "upgrade."  After three successive rounds of pleadings, the trial court held that plaintiffs could not state any actionable claims.  In case you were wondering, I just summarized 20 pages of opinion for you.

 First, the Court examined the UCL cause of action by recapitulating the elements of a valid UCL cause of action:

[D]espite the changes to the standing requirements, the Proposition 64 amendments to the UCL "'left entirely unchanged the substantive rules governing business and competitive conduct. Nothing a business might lawfully do before Proposition 64 is unlawful now, and nothing earlier forbidden is now permitted.'" (In re Tobacco II Cases (2009) 46 Cal.4th 298, 314 (Tobacco II).) Thus, pre-Proposition 64 caselaw that describes the kinds of conduct outlawed under the UCL is applicable to post-Proposition 64 cases such as the present case. The only difference is that, after Proposition 64, plaintiffs (but not absent class members in a class action) must establish that they meet the Proposition 64 standing requirements. (Tobacco II, supra, 46 Cal.4th at p. 320.)

Slip op., at 20.  Then the Court cut through the extraneous allegations of the Third Amended Complaint to determine whether any prong of the UCL was sufficiently alleged:

The definitions of unlawful and fraudulent business practices are straightforward and well established. An unlawful business practice under the UCL is "'"'anything that can properly be called a business practice and that at the same time is forbidden by law.'"'" (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 (Cel-Tech).) A fraudulent business practice is one in which "'"'members of the public are likely to be "deceived."'"'" (Tobacco II, supra, 46 Cal.4th at p. 312.)

Slip op., at 21-22.  The Court also noted the unsettled definition of "unfair" in cases not involving commercial competitors, but it did not need to resolve the dispute, concluding that the other two prongs were sufficient to resolve the appeal.  Returning to the fraudulent prong of the UCL, after underscoring that "fraudulent" under the UCL is distinct from common law fraud, the Court provided more detail about the type of conduct that is "fraudulent" under the UCL:

As noted above, a fraudulent business practice is one that is likely to deceive members of the public. (Tobacco II, supra, 46 Cal.4th at p. 312.) A UCL claim based on the fraudulent prong can be based on representations that deceive because they are untrue, but "'"also those which may be accurate on some level, but will nonetheless tend to mislead or deceive. . . . A perfectly true statement couched in such a manner that it is likely to mislead or deceive the consumer, such as by failure to disclose other relevant information, is actionable under"' the UCL." (McKell, supra, 142 Cal.App.4th at p. 1471.) For example, in Pastoria v. Nationwide Ins., supra, 112 Cal.App.4th 1490, the plaintiffs alleged: (1) they purchased insurance policies based upon the defendant insurance company's description of the premiums, lack of deductibles, and other policy benefits; (2) less than two months later the insurer notified them of significant changes to their policies, including material increases in premiums and substantial deductibles; and (3) the insurer knew of the impending changes to the policies at the time plaintiffs purchased them, but did not communicate that to the plaintiffs. (Id. at p. 1493.) We held that those allegations were sufficient to state a claim for relief under the fraudulent business practices prong of the UCL. (Id. at p. 1499.)

Slip op., at 23-24.  The Court then identified the allegation from Morgan that were comparable:

In the present case, plaintiffs alleged that (1) AT&T marketed and sold expensive T68i phones (which could be operated only on the AT&T GSM/GPRS network) in conjunction with multi-year service plans, and touted the improvements it was making to its GSM/GPRS network; (2) the improvements AT&T made to the network significantly degraded the portion of the network on which the T68i phones operated; and (3) AT&T knew at the time it sold the T68i phones that the improvements it was going make would soon render the T68i phones essentially useless.

Slip op., at 24.  Having concluded that a UCL fraudulent prong violation was alleged, the Court then determined that the plaintiffs had standing to bring the claim, citing Tobacco II:

In Tobacco II, supra, 46 Cal.4th 298, the Supreme Court held that this standing requirement applies only to the named plaintiffs in a class action (id. at pp. 320-321), and that it imposes an actual reliance requirement on named plaintiffs seeking relief under the fraudulent prong of the UCL (id. at p. 326). The court went on to explain what a plaintiff must plead and prove: “while a plaintiff must allege that the defendant's misrepresentations were an immediate cause of the injury-causing conduct, the plaintiff is not required to allege that those misrepresentations were the sole or even the decisive cause of the injury-producing conduct. Furthermore, where, as here, a plaintiff alleges exposure to a long-term advertising campaign, the plaintiff is not required to plead with an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements.” (Id. at p. 328.)

Slip op., at 27.  The Court found that the allegations of an extensive advertising campaign by AT&T, coupled with the plaintiffs' online research and similar representations made to them in AT&T stores sufficiently alleged the necessary reliance element.

The Court did not reach the same conclusion when it turned to the cause of action under the FAL (False Advertising Law), which was based on the claim that the T68i replacement phone was an "upgrade":

AT&T argues that plaintiffs do not have standing to bring this claim. AT&T is correct. Proposition 64 made identical changes to the standing requirements to bring an action under the FAL as it made to the requirements under the UCL. (Californians for Disability Rights v. Mervyn’s, LLC, supra, 39 Cal.4th at p. 229, fn. 2.) A person bringing an action under the FAL must establish that he or she “has suffered injury in fact and has lost money or property as a result of a violation of [the FAL].” (Bus. & Prof. Code, § 17535.) Even if it could be said that the return of a phone that plaintiffs alleged was “useless” constituted an injury in fact, plaintiffs alleged that each of them declined to return their T68i phone. Therefore, they cannot truthfully allege that they lost money or property as a result of AT&T's offer. Accordingly, the trial court did not err by sustaining the demurrer to the FAL cause of action.

Slip op., at 29.

Regarding the CLRA claim, the Court of Appeal clearly resolved a question with respect to CLRA notices for corrective action.  The question is whether the notice must be sent before the initial complaint is filed to permit an amendment seeking damages, or, alternatively, whether it can issue after the initial complaint is filed so long as at least 30 days pass before an amendment seeking damages is filed.  This question gained some traction when a federal district court ruled that the notice must be sent before the initial complaint is filed.  The Court of Appeal disagreed:

The federal district court cases upon which AT&T relies for its assertion that failure to comply with the notice requirement requires dismissal with prejudice fail to properly take into account the purpose of the notice requirement. That requirement exists in order to allow a defendant to avoid liability for damages if the defendant corrects the alleged wrongs within 30 days after notice, or indicates within that 30-day period that it will correct those wrongs within a reasonable time. (See, e.g., Meyer v. Sprint Spectrum L.P., supra, 45 Cal.4th at p. 642; Kagan v. Gibraltar Sav. & Loan Assn., supra, 35 Cal.3d at p. 590.) A dismissal with prejudice of a damages claim filed without the requisite notice is not required to satisfy this purpose. Instead, the claim must simply be dismissed until 30 days or more after the plaintiff complies with the notice requirements. If, before that 30-day period expires the defendant corrects the alleged wrongs or indicates it will correct the wrongs, the defendant cannot be held liable for damages.

Slip op., at 31.  I've been on the short end of this argument, and I'm glad that a California Court of Appeal put an end to what I viewed as an argument disconnected from the purpose of the statutory language.

Regarding the fraud cause of action, the Court of Appeal noted the general rule that fraud must be pled with particularity; however, it then described an important exception:

[T]he Supreme Court has noted, there are “certain exceptions which mitigate the rigor of the rule requiring specific pleading of fraud.” (Children’s Television, supra, 35 Cal.3d at p. 217.) For example, where a fraud claim is based upon numerous misrepresentations, such as an advertising campaign that is alleged to be misleading, plaintiffs need not allege the specific advertisements the individual plaintiffs relied upon; it is sufficient for the plaintiff to provide a representative selection of the advertisements or other statements to indicate the language upon which the implied misrepresentations are based. (Id. at p. 218.) But the court also noted that where a claim of fraud is based upon a long-term advertising campaign, which “may seek to persuade by cumulative impact, not by a particular representation on a particular date . . . [p]laintiffs should be able to base their cause of action upon an allegation that they acted in response to an advertising campaign even if they cannot recall the specific advertisements.” (Id. at p. 219.)

Slip op., at 33.

This opinion offers the first evidence that Tobacco II will prove to be yet another instance where the California Supreme Court has substantially redirected an anti-consumer trend in appellate and trial court rulings.

in brief: Morgan, et al. v. AT&T Wireless Services, Inc. analyzes the sufficiency of allegations under the UCL, CLRA, FAL and common law fraud in a consumer class action

While a more thorough analysis will follow, reader may be interested in taking a look at Morgan, et al. v. AT& T Wireless Services, Inc. (September 23, 2009).  In Morgan, the Court of Appeal (Second Appellate District, Division Four) is called upon to address the sufficiency of allegations in a consumer class action alleging causes of action under the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.), the False Advertising Law (FAL) (Bus. & Prof. Code, § 17500 et seq.), the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), and for fraud and declaratory relief.  You can wade through the decision yourself, or wait for the Executive Summary in the next day or so.