Ninth Circuit Applies California UCL Standards, Confirming Recent State Law Precedents

Posted on July 28, 2010 by James Castle

In a follow up to last week’s post regarding the Nelson v. Pearson opinion, the Ninth Circuit has now applied similar principles when applying California state law. In Rubio v. Capital One Company, the Ninth Circuit further confirmed that all that is required to establish a plaintiff’s standing under the California Unfair Competition Law (“UCL”) is an allegation of some lost “money or property” fairly traceable to unlawful, unfair, and/or fraudulent conduct by the defendant.

Raquel Rubio (“Rubio) received a credit card solicitation from Capital One Bank (“Capital One”) offering a 6.99% fixed rate. The fixed rate was further explained in smaller text on the page as being fixed, so long as none of three conditions occurred: (1) a late payment; (2) charges are made over the credit limit; and (3) a payment is returned for any reason. Rubio did not allow any of those conditions to occur; however, three years later, Rubio received a letter noting that her APR of 6.99% would increase to 15.9%. Rubio could avoid the increase only by closing her credit card account and paying off the balance on the card by the end of the next month. Capital One defended the hike in interest rate by referring to additional language in eight-point type, found under the heading “Terms of Service,” that stated “[m]y Agreement terms (for example, rates and fees) are subject to change.”

Rubio brought suit alleging violations of the federal Truth in Lending Act (“TILA”), the UCL and breach of contract. The Ninth Circuit agreed with the District Court by finding that there was no breach of contract because the solicitation was not a contract, and therefore, Capital One was not bound by its terms. The Ninth Circuit found however that it was error for the District Court to dismiss Rubio’s TILA claims because Capital One failed to show that its APR disclosure in the solicitation was “in a reasonably understandable form and readily noticeable to the consumer.” Therefore, the Court reversed the trial court’s decision to dismiss the TILA claim, sending it back for further proceedings.

 As for standing to assert the UCL claim, the Court noted that “a private plaintiff needs to have ‘suffered injury in fact and … lost money or property as a result of the unfair competition.” In other words, Rubio needs to be able to show that she has lost “money or property” sufficient to constitute an “injury in fact” under Article III of the Constitution. The Court found that Rubio had sufficiently alleged a loss of money or property. More specifically, the Court held:

Rubio has alleged a loss of money or property. When Capital One increased the APR from 6.99% to 15.9%, it gave Rubio a choice either to close the account and pay off the outstanding balance, or to keep the account open and accept the increased APR. Rubio does not allege which choice she accepted, though either would cause a loss of money or property. If she closed the account, she would have suffered a monetary loss by losing the credit that Capital One extended. If she kept her account open, she would have accepted a higher APR and thus also lost money. This “actual economic injury” is enough to create standing under the UCL. 

Having found that Rubio had sufficiently alleged standing to pursue the UCL claim, the Ninth Circuit next turned to the merits of that cause of action. The Court found that Rubio had properly alleged a UCL cause of action under any of its three prongs because: (1) by alleging a TILA violation, Rubio had also properly alleged a UCL violation under the “unlawful” prong of the UCL; (2) by alleging the facts of the solicitation, she may show “that reasonable members of the public are likely to be deceived,” thus establishing the “fraudulent” prong; and (3) by alleging that the potential for deceit outweighs the public utility of the solicitation, Rubio had stated a claim under the UCL’s “unfair” prong. Therefore, the Ninth Circuit reversed the district court’s dismissal of Rubio’s UCL claim.

The Ninth Circuit’s opinion reconfirms the standing and merit requirements for a plaintiff to bring a UCL claim. When reading the opinion, there is nothing novel about the use of UCL standards and prior precedents. Indeed, the Ninth Circuit applied UCL requirements that likely all of the parties agreed upon. However, what is interesting is how the District Court and the Ninth Circuit are able to come to diametrically conflicting results, when both are applying the same “law.” For example, the trial judge found that the inclusion of “terms are subject to change” completely undermined Rubio’s lawsuit, while the Ninth Circuit found the solicitation potentially fraudulent, despite the same language. Both courts had to apply their own subjective judgments and opinions about what is deceitful, resulting is vastly differing results. Thus, this case demonstrates that it is an advocate’s job in not only pointing out to the court what the law is, but also the more artful (and harder to practice) task of explaining to the decision-maker why his or her preexisting beliefs and viewpoints already comport with the story the advocate is offering.

Barger & Wolen has extensive experience arguing UCL actions on behalf of its clients, in both state and federal court. 
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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.
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California Supreme Court Precludes Pass-On Defense in Clayton Act Claim and Finds Standing Under the UCL

Posted on July 12, 2010 by Larry Golub

The Supreme Court of California today issued its decision in Clayworth v. Pfizer, Inc., addressing issues raised under California’s antitrust statute, The Clayton Act, and California’s Unfair Competition Law (“UCL”). Under each statute, the Court rejected defenses raised by the defendants and reversed a summary judgment issued in their favor.

An array of retail pharmacies brought suit against pharmaceutical manufacturers over the defendants’ alleged price-fixing in the sale of brand-name pharmaceuticals in the United States, whereby the cost of such drugs sold in this country were artificially inflated. The manufacturers contended that the pharmacies were not damaged since they were able to pass along the forced overcharges to third party customers or their health insurance plans. In cross-motions for summary judgment, the manufacturers urged that the “pass-on defense” precluded the pharmacies’ claims under both the Clayton Act and the UCL. 

The trial court agreed with the manufacturers and held that the pass-on defense was available under the Clayton Act to show the pharmacies suffered no compensable damages and further demonstrated the lack of standing under the UCL since the pharmacies could not show any “lost money or property.”  After the Court of Appeal affirmed the ruling, the Supreme Court granted review.

The bulk of the Supreme Court’s decision addressed the Cartwright Act claim. After discussing the statutory language of both federal (i.e., the Sherman Act) and state antitrust law, and the development of the pass-on defense under each, the Court found that, unlike federal law, the Cartwright Act provides that indirect purchasers as well as direct purchasers may sue for price fixing. As a consequence, with the exception of a few situations not applicable in the case before it, antitrust violators may not assert as a defense that any illegal overcharges had been passed on by a direct purchaser plaintiff to indirect purchasers, and therefore the full measure of the overcharge is recoverable by the direct purchaser.  

In turning to the UCL claim, the issue was primarily one of standing. The Court concluded that the plaintiff pharmacies possessed standing even under the more restrictive standard established in 2004 by Proposition 64 since the pharmacies had “lost money or property as a result of the defendant’s unfair business practices,” with the lost money being the overcharges they had paid due to the price-fixing scheme. That the pharmacies may have passed along their increased costs to consumers and thus not be able to prove any right to restitution was beside the point, since the Court would not “conflate[] the issue of standing with the issue of the remedies to which a party may be entitled.” The same rule applied as to the defense of mitigation of damages – it is not a basis to extinguish standing. 

As for the issue of “remedies” under the UCL claim, and for which the pharmacies sought only restitution and injunctive relief, the Court avoided the issue of restitution and focused solely on the issue of injunctive relief, finding the asserted lack of monetary loss to be no obstacle to the clam for injunctive relief. Since there was standing, there was the right to pursue injunctive relief, and there was no need for the plaintiffs to have a viable claim for restitution in order to seek injunctive relief. The Court found that there is nothing in the UCL that “conditions a court’s authority to order injunctive relief on the need in a given case to also order restitution” because the “two are wholly independent remedies.” Since a finding that the pharmacies could pursue injunctive relief was sufficient to preclude summary judgment for the manufacturers, the Court expressed “no opinion . . . . [as to] whether the pharmacies may eventually be entitled to restitution.” 

Clayworth is but the first of several UCL cases pending before the California Supreme Court, as discussed in one of our prior blogs.

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Second District Court of Appeal Confirms That Plaintiff Must Prove Reliance When Bringing Misrepresentation Claim Under UCL, FAL and CLRA

Posted on November 23, 2009 by Lee Cirsch

 

In the recently issued decision Princess Cruise Lines, LTD v. Superior Court, plaintiffs sued Princess Cruise Lines, Ltd. (“Princess”) over charges added to the price of shore excursions taken during a cruise. They alleged causes of action for violation of California’s Unfair Competition Law (UCL), False Advertising Law (FAL), Consumers Legal Remedies Act (CLRA) and common law fraud and negligent misrepresentation.

Princess moved for summary judgment and summary adjudication. The trial court granted summary adjudication on the fraud and negligent misrepresentation claims because plaintiffs could not show they relied on Princess’ alleged misrepresentations. It denied summary judgment because it concluded that on the UCL, FAL and CLRA causes of action, plaintiffs did not have to show that they relied on Princess’ alleged misrepresentations.

Princess took a writ of mandate to the Court of Appeal. Citing to the recent California Supreme Court decision in In Re Tobacco II Cases, the Court of Appeal confirmed that

a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions.

Relying further on language from Tobacco II, the Court of Appeal specified that reliance must be proven only in situations where a UCL action is based on a fraud theory involving false advertising and misrepresentations to consumers. It further held that the Tobacco II’s analysis of the phrase “as a result” in the UCL was equally applicable to identical language in the CLRA statute.

 

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California Supreme Court Accepts Review of Case that Allowed Trebling of UCL Restitution

Posted on September 9, 2009 by Larry Golub

On September 9, 2009, a unanimous panel of the California Supreme Court accepted review of the Court of Appeal decision in Clark v. Superior Court (National Western Life Insurance Company). In so doing, the Supreme Court will address an issue of first impression under California law – whether a statute that provides for trebling of penalties and fines can be applied to private actions under California’s Unfair Competition Law (UCL) that allows only restitution as the sole monetary remedy.

In the Court of Appeal decision issued May 21, 2009, the appellate panel found that Civil Code section 3345, which permits trebling of penalties and fines in cases involving seniors, could be applied to restitution awards under the UCL. No case had ever so held this trebling remedy to apply to private UCL actions since the enactment of section 3345 in 1988, and no case had ever permitted any sort of damages, be they compensatory, treble or punitive, under the UCL. On June 29, 2009, National Western Life Insurance Company filed its Petition for Review with the Supreme Court, raising a number of arguments as to why the Court of Appeal decision was in error and that the case raised an important question of law. Several parties submitted amicus curiae letters in support of the Petition.

With the granting of review, the Court of Appeal decision is now automatically de-published and no longer citable as precedent. Briefing before the Supreme Court will occur over the next several months, but a decision from the Supreme Court is not expected until at least the end of 2010.

Kent Keller and Larry Golub of Barger & Wolen are counsel for National Western Life Insurance Company and filed the Petition for Review.
 

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Ninth Circuit Rules Complaint Must Specifically Allege Conduct Amounting To Fraud

Posted on June 30, 2009 by Lee Cirsch

In Kearns v. Ford Motor Company, --- F.3d ----, 2009 WL 1578535 (9thCir. June 8, 2009), plaintiff William Kearn sued Ford for alleged violations of California’s Consumers Legal Remedies Act (“CLRA”) and California’s Unfair Competition Law (“UCL”) arising out of Ford’s Certified Pre-Owned (“CPO”) vehicle program. Kearn’s complaint generically alleged that Ford had made false and misleading statements concerning the safety and reliability of its CPO vehicles (without identifying who made the statements, the specific content of the statements, or when and how Kearn was exposed to such statements), and failed to disclose to consumers Ford’s lack of actual oversight in determining whether used vehicles qualify for the CPO program.  Kearn alleged that he was harmed by the foregoing conduct because he had paid a higher price for a CPO vehicle then he would have paid for a non-CPO vehicle, even though there was no difference between the two. While Kearn alleged that Ford’s conduct constitutes an unfair business practice under California law, he did not assert any claims for fraud in the complaint.

In the district court, Ford brought a motion to dismiss Kearn’s complaint for failure to comply with the heightened pleading standards of Federal Rule of Civil Procedure 9(b). The district court granted the motion and Kearn appealed, principally arguing that Rule 9(b) does not apply to California’s consumer protection statutes because California courts have not applied Rule 9(b) to such statutes, and that Rule 9(b) does not apply to his CLRA and UCL claims because they are not grounded in fraud. 

 

In rejecting Kearn’s arguments, the Ninth Circuit held that it is well established that the Federal Rules of Civil Procedure – including Rule 9(b) – apply in federal court, “irrespective of the source of the subject matter jurisdiction, and irrespective of whether the substantive law at issue is state or federal.” The Court further noted that while a federal court examines state law to determine whether the elements of fraud have been sufficiently pled to state a cause of action, the Rule 9(b) requirement that fraud be pled with specificity is a federally imposed rule. The Court also held that, while fraud is not a necessary element of a claim under the CLRA or UCL, if the plaintiff nevertheless alleges a unified course of fraudulent conduct and relies entirely on that course of conduct as the basis of the CLRA or UCL claim, the CLRA or UCL claim is considered to be “grounded in fraud” or sounding in fraud such that the complaint as a whole must satisfy the particularity requirement of Rule 9(b).

     

Get a copy of the opinion here.

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