Court Offers Guidance as to Requirements for Alleging Harm to Establish UCL Standing

Posted on July 22, 2010 by James Castle

The California Court of Appeal, in Nelson v. Pearson Ford Co., issued a lengthy 50-page opinion on July 15 addressing numerous issues, including violations of the Automobile Sales Finance Act (“ASFA”), the Unfair Competition Law (“UCL”), the Consumer Legal Remedies Act (“CLRA”), class treatment and the right to recover fees in class actions.

Most poignant for insurers were the portions of the opinion addressing the UCL claim, and more specifically, the named plaintiff’s standing to pursue his UCL claim.

Reginald Nelson (“Plaintiff”) decided to purchase a used vehicle from Pearson Ford (“Pearson”) and executed a sales contract to that effect. Because, at the time of purchase, Plaintiff lacked auto insurance, an insurance broker was summoned to the dealership and sold Plaintiff an auto policy. A premium of $250 was added to the vehicle’s price. 

One week after the parties had completed the agreement, Pearson had additional paperwork for Plaintiff to sign. The new paperwork rescinded the original contract and entered the parties into a new agreement. The parties backdated the second contract to the date they signed the original contract. As a result of changing interest rates between the time the first and second contracts were entered, the backdating resulted in Plaintiff having to pay an additional $27 finance charge. The second contract disclosed the total finance charge, but the additional $27 was not separately itemized. Additionally, the second contract improperly added the $250 insurance premium to the cash price of the vehicle, which caused Plaintiff to pay $30 in additional sales tax and financing charges on the insurance premium.

Plaintiff later filed a class action complaint seeking to establish two distinct classes (both of which would ultimately be certified): (1) a class regarding the backdating of financing agreements (the “backdating class”); and (2) the improper inclusion of the price of insurance into the price of the vehicle (the “insurance class”). 

Following a bench trial, the court found Pearson had violated the UCL with regard to the backdating class, granting injunctive relief and setting restitution in the amount of $50 per class member. 

For the insurance class, the court found that Pearson violated the ASFA and the UCL by failing to disclose the cost of insurance and adding the insurance cost to the cash price of the car. It also enjoined Pearson from adding the price of insurance to the cash price of a vehicle in the future. Following the entry of judgment, Pearson appealed on numerous grounds. 

A majority of the Court of Appeal opinion focuses on whether the Pearson violated various provisions of the ASFA. After concluding that it had, the court turned to the UCL.   

Most notably, the Court addressed whether Plaintiff possessed Proposition 64 standing to sue under the UCL. 

After the 2004 amendment of the UCL by Proposition 64, a private person has standing to sue only if he or she "'has suffered injury in fact and has lost money or property as a result of [such] unfair competition.'" (In re Tobacco II Cases (2009) 46 Cal.4th 298, 305 (Tobacco II), citing Bus. & Prof. Code, § 17204, italics added.) 

On appeal, Pearson argued that Plaintiff did not suffer an injury “as a result of” its unfair competition under the UCL. More specifically, Pearson argued that Plaintiff was required to show that he would not have purchased the car had he been aware of (1) the additional interest and financing fees; and (2) the lumping of the insurance cost into the sales price of the vehicle. In support of this argument, Pearson cited Troyk v. Farmers Group, Inc., 171 Cal.App.4th 1305 (2009). 

In Troyk, an insured filed a class action against his automobile insurer alleging the insurer violated the UCL by requiring him to pay a service charge for payment of his automobile insurance policy premium and, because the service charge was not stated in his policy, the insurer violated Insurance Code section 381, subdivision (f), requiring that this be done. (Troyk, supra, 171 Cal.App.4th at p. 1314.)  

Although the Troyk court found that the insurer had violated the Insurance Code as alleged, it concluded that causation under the UCL did not exist because plaintiff did not show that had the insurer disclosed the monthly service charges in the policy documents as required by the Insurance Code, he would not have paid them. Significantly, the lack of disclosure of proper charges, not illegal charges, violated the UCL in Troyk.  

Pearson’s argument was, essentially, that Plaintiff would have purchased the car even if he was aware he was paying the extra $57 dollars that was obfuscated by the signing of the second contract – therefore any subversion was harmless.

The Court of Appeal disagreed with Pearson’s argument that there was no standing because Plaintiff suffered no injury “as a result of” its unfair competition.”  More specifically, the Court held:

The failure of Pearson Ford to comply with the ASFA caused Nelson to suffer an injury and lose money as to both classes because he paid pre-consummation interest (the backdating class), and paid sales tax and financing charges on the insurance premium (the insurance class).  Unlike Troyk, these illegal charges violated the UCL and Pearson Ford improperly collected additional funds from Nelson.  UCL causation exists because Nelson would not have paid pre-consummation interest, or sales tax and financing charges on the insurance premium had Pearson Ford complied with the ASFA.  Because Nelson had standing to pursue claims under the UCL, we reject Pearson Ford's argument that the judgment in favor of both classes should be vacated to the extent it grants relief under the UCL.  

 - Slip op. at 34 (emphasis added).

In short, the court held that UCL causation existed because Plaintiff would not have paid the additional fees and costs had Pearson complied with the ASFA. The court found this holding consistent with the Tobacco II footnote explaining that "the concept of reliance" will have "no application" in many UCL cases.  In re Tobacco II Cases, 46 Cal.4th 298, 325 n.17 (2009).   

The above discussion provides some illumination as to what is required of a Plaintiff when alleging harm in the situation where an unlawful act underlies the imposition of a charge or fee. 

According to the court, the plaintiff need not plead that the product or service wouldn't have been purchased had the truth been disclosed; rather, it is enough to plead that money was spent on the product or service and that the amount charged included some unlawful component that would not have been charged had the law been followed.

The parties also disputed on appeal the trial court’s award of attorney’s fees and costs. In particular, the trial court denied Pearson’s request to recover its attorney’s fees and costs under Code Civ. Proc. §998 on the ground that Pearson’s lump-sum offer to settle both class claims and Plaintiff’s individual claims was invalid. For more on that aspect, please see our firm’s Litigation Management and Attorney Fee Analysis Blog.
Tags: , , , , , , , , , , , , , , , ,

California Supreme Court Further Clarifies Scope of UCL Claims Following Proposition 64

Posted on June 30, 2009 by Larry Golub

On June 29, 2009, the California Supreme Court issued two decisions that restrict the use of California Business & Professions Code section 17200, otherwise known as the Unfair Competition Law (UCL). Both cases addressed aspects of the UCL as it now exists since the passage of Proposition 64, which occurred in November 2004. 

In one case, the Court, relying on the ballot materials that accompanied the proposition, confirmed that a private party may only pursue a representative claim under the UCL if that party complies with class action requirements. In the other case, the Court held that a labor union, which itself has not suffered actual injury, may not bring a UCL claim on behalf of its members, even if such members have assigned their rights to the union or if those rights are based on the doctrine of “associational standing.” These two nearly unanimous decisions come just weeks after the Court, in a divided 4-3 decision, In Re Tobacco II Cases (decided May 18, 2009), found that following Proposition 64 only the class representatives (and not the absent class members) need to meet the “actual injury” standing requirement of the UCL.

The first decision, Arias v. Superior Court (Angelo Dairy) (pdf), involved a dairy employee who sued his former employer and others for a variety of California Labor Code violations and other labor regulatory violations. He also brought claims under the UCL on behalf of himself and other current and former employees of the defendants. The trial court struck the UCL claims on the grounds that plaintiff had failed to satisfy the pleading requirements for a class action.  The Court of Appeal agreed, and the Supreme Court accepted review. In affirming the judgment below, the Court reviewed the Proposition 64 portion of the Voter Information Guide prepared by the Secretary of State issued in connection with the November 2, 2004 election, observing that there is “no doubt” that “one purpose of Proposition 64 was to impose class action requirements on private plaintiffs’ representative actions brought under the” UCL. In California, those class action requirements arise out of California Code of Civil Procedure section 382.

The second decision, Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (First Transit, Inc.) (pdf), also addressed another aspect of the UCL modified by the passage of Proposition 64, specifically the standing requirement under Business & Professions Code section 17203 that a private party claim may only be brought by a “person who has suffered injury in fact and has lost money or property as a result of the unfair competition.”

 

In this case, 17 individuals and two labor unions brought an action against the defendants, with the unions alleging “representative” claims under the UCL on behalf of themselves and “all aggrieved transportation industry employees and former employees employed by” the defendants. The unions also alleged that they had received from 150 employees an assignment of their rights under the UCL. The trial court found that the unions did not have standing to sue in a representative capacity under the UCL since the unions did not suffer actual injury, and that the assignment did not rectify the lack of actual injury. The Supreme Court affirmed this trial court decision as well, concluding (1) that an assignment of rights by an injured employee cannot confer UCL standing on an uninjured assignee, and (2) that the doctrine of "associational standing,” wherein an association that does not have standing in its own right may nevertheless have standing to bring a claim on behalf of its members, was not incorporated into the amendments to the UCL made by Proposition 64, which, again, requires “actual injury” by the person bringing the UCL action.

These two actions decided June 29, 2009, along with the In Re Tobacco II Cases action decided May 18, 2009, are but the latest Supreme Court decisions that have addressed the changes brought to the UCL by Proposition 64 over the past several years since the November 2, 2004 election. See also Branick v. Downey Savings & Loan Ass’n., 39 Cal. 4th 234 (2006); Californians for Disability Rights v. Mervyn’s, LLC, 39 Cal. 4th 223 (2006). And there are still further cases in the pipeline. Just weeks ago, the Court accepted review in Kwikset Corp. v. Superior Court, No. S171845 (review granted 6/11/09), a case that will address further standing requirements under the UCL, and late last year the Court accepted review in Clayworth v. Pfizer, Inc., No. S166435 (review granted 11/19/08), which among other things is set to address the scope of restitution under the UCL as well as the whether UCL standing exists when a plaintiff recovers claimed overcharges from third persons. 
Tags: , , , , , , , , ,