Thursday, January 21, 2010

Second District Reverses Order Denying Class Certification in Steroid Hormone Product Cases

On January 21, 2010, the Second District CAP issued an opinion overturning the trial court's denial of certification in the Steroid Hormone Product Cases.  Plaintiff’s sought certification of UCL and CLRA claims against defendant GNC for violation arising out of the “sale of products that contained androstenediol, a substance defined as a Schedule III controlled substance under California law.” Slip Opinion, at 1. The theory of plaintiff’s case was predicated upon GNC’s sale of products containing androstenediol without requiring a prescription and without notifying customers that the products contained a controlled substance. See id., at 3.

The trial court denied plaintiff’s motion to certify based on the premise that establishing causation and injury under both the CLRA and the UCL would require an individualized inquiry into whether the illegality of the androstenediol products was material to each class member (and thus individual issues predominated over common issues):
In its ruling on Martinez’s motion, the court reiterated that “the central issue” under both the CLRA and the UCL was “whether the illicit nature of defendant’s products was material to those who purchased them,” and that “[t]o recover, . . . each class member must demonstrate, or it must be inferable classwide, that the alleged injury was material.” The court concluded that materiality could not be inferred classwide, observing that it “requires no imaginative leap” to conclude that there exist “person[s] to whom legality is immaterial,” because “andro[stenediol] products are classified only as Schedule III substances; the proscriptions asserted by plaintiffs apply only against distributors, not buyers; and at any rate, a substantial black market exists in disregard of any proscription.”
Slip Opinion, at 6-7.

The CAP disagreed, reversing the court’s order. With regard to plaintiff’s claim under the UCL, the Court concluded that the trial court’s predominance analysis was based on an erroneous, pre-Tobacco II construction of Prop 64 standing, which required absent class members to establish reliance and injury individually:
In the present case, the trial court -- without the benefit of the Supreme Court decision in Tobacco II, which was issued several months after the class certification ruling at issue here -- concluded that Proposition 64 did have an effect on unnamed class members. The court noted that “[b]efore November 2004, ‘relief under the UCL, including restitution, [was] available without proof of individual deception, reliance and injury,’” but “after Proposition 64, the class may obtain restitution only upon a showing of reliance and causation.” Based upon this legal assumption, the court found that individual issues predominated because each class member would need to show that he or she was injured by GNC’s alleged unlawful sale of androstenediol products, which the court determined was dependant upon whether the legality of the sale was material to him or her. Because that legal assumption was erroneous, reversal of the order denying class certification as to the UCL claim is required. (Linder, supra, 23 Cal.4th at pp 435-436.)
Slip Opinion, at 10.

The Court concluded that, putting aside named plaintiff standing, plaintiff's UCL claim "presents two predominate issues ..., both of which are common to the class: (1) whether GNC's sale of androstenediol products was unlawful; and if so, (2) the amount of money GNC “may have . . . acquired by means of” those sales that must be restored to the class (Bus. & Prof. Code, § 17203)."  See id., at 11.

[As a side note, the Court's footnote 8 appears to take a position that knocks out a fundamental premise of its sister division’s analysis in Cohen v. Directv, as the Court concluded that “Tobacco II made clear … that Proposition 64 only affected the named plaintiff’s standing in a UCL class action seeking restitution; it did not add an additional element to be satisfied by all class members.”]

The Court’s analysis on the CLRA is very interesting. As a starting point, the Court acknowledged that the “CLRA claim requires a different analysis than the UCL claim, because the CLRA requires a showing of actual injury as to each class member.” See id., at 11.  However, the trial court was deemed to have nonetheless abused its discretion in finding that individualized issues of reliance and injury would predominate.

As reasoned by the CAP, the trial court erred by ascribing a narrow construction to meaning of “damage,” rather than a more broad construction that would encompass a restitutionary measure tethered to the alleged deceptive conduct:
In ruling that the materiality question depended upon each class member’s subjective belief regarding value, the trial court was led astray by GNC’s erroneous legal assumption. GNC’s argument that the examination of each class member’s subjective belief was necessary was based upon its assumption that the showing of “damage” required under the CLRA is governed by Civil Code section 3343, i.e., the measure of actual damages for persons defrauded in the purchase of property. That assumption is incorrect. The “damage” that a plaintiff in a CLRA action must show under Civil Code section 1780, subdivision (a) is “any damage,” which “is not synonymous with ‘actual damages’” and “may encompass harms other than pecuniary damages.” (Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 640.)

The “damage” Martinez alleged in this case is that, in reliance on GNC’s deceptive conduct, he bought an illegal product he would not have bought had he known it was illegal. He does not seek actual damages, but instead seeks restitution.
Slip Opinion, at 12-13.

As reasoned by the Court, the plaintiff “is entitled to show that GNC’s alleged deceptive conduct caused the same damage to the class by showing that the alleged misrepresentation was material”, which “is judged by a 'reasonable man' standard.” See id., at 13. Under this lens, the materiality of the omissions regarding illegality of the product naturally gave rise to an inference of reliance by the class as a whole:
the question that must be answered in this case is whether a reasonable person would find it important when determining whether to purchase a product that it is unlawful to sell or possess that product. It requires no stretch to conclude that the proper answer is “yes” -- we assume that a reasonable person would not knowingly commit a criminal act. (Cf. Garnette v. Mankel (1945) 71 Cal.App.2d 783, 787; Civ. Code, § 3548.)
Slip Opinion, at 13-14.

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