Monday, January 31, 2011

More on the California Supreme Court’s Decision in Kwikset Corp. et al. v. Superior Court

Having had some time to digest the Court’s opinion (located here), it is evident that Prop 64 “injury in fact” standing requirement may be satisfied simply by allegations that the named plaintiff purchased a product as the direct result of reliance upon a material promotional misrepresentation. In making this determination, the Court reviewed the requisite elements of Prop 64 standing, as follows:

As an initial point, the Court reasoned that separate analysis of Prop 64’s “injury in fact” requirement was largely redundant of the “lost money or property” requirement, as the later (which the Court termed “economic injury”) was essentially a “type” or “subset” of “injury in fact”:
We offer a further observation concerning the order in which the elements of standing are best considered. Because, as noted, economic injury is itself a form of injury in fact, proof of lost money or property will largely overlap with proof of injury in fact. [] (See Troyk v. Farmers Group, Inc., supra, 171 Cal.App.4th at p. 1348 [where the alleged harm is economic injury, injury in fact and lost money or property are “one and the same”].) If a party has alleged or proven a personal, individualized loss of money or property in any nontrivial amount, he or she has also alleged or proven injury in fact. Because the lost money or property requirement is more difficult to satisfy than that of injury in fact, for courts to first consider whether lost money or property has been sufficiently alleged or proven will often make sense. If it has not been, standing is absent and the inquiry is complete. If it has been, the same allegations or proof that suffice to establish economic injury will generally show injury in fact as well (ibid.), and thus it will again often be the case that no further inquiry is needed.
Slip Opinion, at 9-14.

According to the Court, the degree of “economic injury” required by Prop 64 is minimal, as Prop 64’s “lost money or property” requirement only imposes a “qualitative” difference in the type of injuries required, not a “quantitative” difference in the degree of harm sustained. Slip Opinion, at 12-13. Thus, as applicable precedent only requires “a trifle” amount of injury to establish injury in fact, Prop 64’s “lost money or property” element necessarily must be read as requiring only a nominal amount of economic harm. Slip Opinion, at 13. The Court went on  to identify numerous forms which economic injury could take, which the Court was careful to note was not an “an exhaustive list”:
There are innumerable ways in which economic injury from unfair competition may be shown. A plaintiff may (1) surrender in a transaction more, or acquire in a transaction less, than he or she otherwise would have; (2) have a present or future property interest diminished; (3) be deprived of money or property to which he or she has a cognizable claim; or (4) be required to enter into a transaction, costing money or property, that would otherwise have been unnecessary. (See, e.g., Hall v. Time Inc., supra, 158 Cal.App.4th at pp. 854–855 [cataloguing some of the various forms of economic injury].) Neither the text of Proposition 64 nor the ballot arguments in support of it purport to define or limit the concept of “lost money or property,” nor can or need we supply an exhaustive list of the ways in which unfair competition may cause economic harm. It suffices to say that, in sharp contrast to the state of the law before passage of Proposition 64, a private plaintiff filing suit now must establish that he or she has personally suffered such harm.
Slip Opinion, at 11.

With regard to Prop 64’s “as a result of” requirement -- which the Court termed “causation or reliance” -- the Court referred to its ruling in Tobacco II, which the Court explained had previously resolved issues concerning the construction of this phrase in the context of the UCL’s fraud prong.  Slip Opinion, at 15-16.

Applying these standards, the Court concluded that “[a] consumer who relies on a product label and challenges a misrepresentation contained therein can satisfy the standing requirement of section 17204 by alleging, as plaintiffs have here, that he or she would not have bought the product but for the misrepresentation.” Slip Opinion, at 21. Stated differently, the Court concluded that the mere purchase of a fully functioning product based on an alleged misrepresentation is, standing alone, sufficient to establish the requisite “economic injury” necessary for UCL standing.

As reasoned by the Court, for “each consumer who relies on the truth and accuracy of a label and is deceived by misrepresentations into making a purchase, the economic harm is the same: the consumer has purchased a product that he or she paid more for than he or she otherwise might have been willing to pay if the product had been labeled accurately.” Slip Opinion, at 20. According to the Court, “[t]his economic harm—the loss of real dollars from a consumer's pocket—is the same whether or not a court might objectively view the products as functionally equivalent.” See id.

In rendering this conclusion, the Court gave due regard to the fact that in the advertising world, “labels matter.” As the Court explained, “[t]he marketing industry is based on the premise … that consumers will choose one product over another similar product based on its label and various tangible and intangible qualities they may come to associate with a particular source.” Slip Opinion, at 18-21. In this regard, the Court directly linked the policy objectives underpinning the UCL’s fraud prong as being contingent on the Court's liberal construction of economic injury. As the Court explained, “if we were to deny standing to consumers who have been deceived by label misrepresentations in making purchases, we would impair the ability of consumers to rely on labels, place those businesses that do not engage in misrepresentations at a competitive disadvantage, and encourage the marketplace to dispense with accuracy in favor of deceit.” Slip Opinion, at 22-23.

Moreover, the Court’s conclusion that “labels matter” also exposed the flaw in the CAP’s conclusion that the named plaintiff had received the “benefit of the bargain” notwithstanding the alleged misrepresentations, as Kwikset’s use of the alleged deceptive promotions was itself evidence that Kwikset likely viewed the representations to be material to the consumer's decision to purchase the product. Slip Opinion, at 25-26 (“Kwikset packaged its products with labels like ‘All American Made & Proud Of It’ and ‘Made in U.S.A.’ because it determined such marketing might sway reasonable people in their purchasing decisions.”).

Finally, the Court concluded that the CAP erred in equating standing and the remedy of restitution under the UCL, as standing and the right to recover restitution are not only distinct concepts, but permitting such a construction would eliminate completely any ability to pursue a UCL claim for purely injunctive relief. Slip Opinion, at 29-32. Based thereon, the Court expressly disapproved several cases which reached a contrary finding:
Accordingly, we hold ineligibility for restitution is not a basis for denying standing under section 17204 and disapprove those cases that have concluded otherwise. (See Silvaco Data Systems v. Intel Corp., supra, 184 Cal.App.4th 210, 245; Citizens of Humanity, LLC v. Costco Wholesale Corp., supra, 171 Cal.App.4th 1, 22; Buckland v. Threshold Enterprises, Ltd., supra, 155 Cal.App.4th 798, 817.)
Slip Opinion, at 32.

Thursday, January 27, 2011

California Supreme Court Holds that Reliance on Alleged Deceptive Promotional Statements May Alone Satisfy UCL Standing: Kwikset Corp. et al. v. Superior Court

On January 27, 2011, the California Supreme Court issued its opinion in Kwikset Corp. et al. v. Superior Court, __ Cal.4th __ (2011), reversing the Fourth District’s determination that UCL standing under the fraud prong was contingent on allegations that the product was overpriced or defective. The Court of Appeal had previously concluded that standing was lacking in that case because the named plaintiff, who purchased a lockset promoted as being made in America, received the benefit of the bargain, and as such was foreclosed from claiming any loss of money or property. The California Supreme Court reversed, concluding that “plaintiffs who can truthfully allege they were deceived by a product’s label into spending money to purchase the product, and would not have purchased it otherwise, have ‘lost money or property’ within the meaning of Proposition 64 and have standing to sue.” See Slip Opinion, at 2.

The Court’s opinion is fairly dense. However, based on my first read, it appears that the Court’s overarching conclusion is that the UCL’s provisions governing standing and restitution are not coterminous, and that equating the two improperly would limit the primary function of the UCL to enjoin deceptive conduct. I will post more on this important opinion in the next few days.

Ninth Circuit Rules CAFA “Local Controversy” Exception Elements to Be Established Based on Allegations in Complaint: Coleman v. Estes Express Lines

On January 25, 2011, the Ninth Circuit issued an opinion in Coleman v. Estes Express Lines, 2011 U.S. App. LEXIS 1538, concluding that a district court is limited to the complaint in deciding whether two of the criteria for CAFA’s “local controversy exception” are satisfied.  The local controversy exception requires remand notwithstanding establishment of the CAFA removal requirements when the plaintiff establishes the following:
(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;
(II) at least 1 defendant is a defendant —
     (aa) from whom significant relief is sought by members of the plaintiff class;
     (bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and
     (cc) who is a citizen of the State in which the action was originally filed; and
(III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed.
28 § 1332(d)(4)(A)(i).

As held by the Colman Court, a district court must make its determination on the issues under subsections (aa) and (bb) based on allegations in the complaint, as opposed to extrinsic evidence. The Court reasoned that this conclusion was not only required by the plain language of these subparts, but because a contrary holding would result in an expansive mini-trial, contrary to Congress’ intent that jurisdiction determinations be made quickly under CAFA. See Coleman, 2011 U.S. App. LEXIS 1538, at 12-15.

The Court's holding would appear to be a significant one from the plaintiff's perspective, as the Court basically found both subparts met in this case by virtue of the fact the complaint sought relief equally among both defendants for the same harm:
We hold that Coleman’s complaint seeks sufficient relief against Estes West to satisfy subsection (aa). The complaint seeks damages equally from Estes West and Estes Express. There is nothing in the complaint to suggest that Estes West is a nominal defendant, or that Estes West has so few assets (including, for instance, buildings and trucks) that Coleman is not seeking significant monetary relief from it. Further, the complaint seeks injunctive relief against Estes West. There is nothing in the complaint to suggest either that the injunctive relief sought is itself insignificant, or that Estes West would be incapable of complying with an injunction.
Coleman’s complaint also sufficiently alleges conduct of Estes West that forms a significant basis for the claims asserted on behalf of the class under subsection (bb). The complaint alleges that Estes West employed the putative class members during the relevant period, and that Estes West has violated California law in a number of ways with respect to those employees. The complaint also alleges that Estes Express has violated the same provisions of California law, but the allegations against Estes Express in no way make the allegations against Estes West, the actual employer, insignificant.
See Coleman, 2011 U.S. App. LEXIS 1538, at 23-25.

Significantly, the Court closed its opinion noting that in many cases a Plaintiff may be required to amend their complaint, as complaints originally filed in state court may not address these local controversy issues:
We are aware of the difficulties that can be created by different pleading requirements in state and federal courts. A plaintiff filing a putative class action in state court need satisfy only the pleading standards of that court. It is therefore possible that if a putative class action is removed from state to federal court under CAFA the complaint, as originally drafted, will not answer the questions that need to be answered before the federal court can determine whether the suit comes within the local controversy exception to CAFA jurisdiction. In that circumstance, the district court may, in its discretion, require or permit the plaintiff to file an amended complaint that addresses any relevant CAFA criteria.
See Coleman, 2011 U.S. App. LEXIS 1538, at 25-26.

Wednesday, January 26, 2011

California Supreme Court to Issue Opinion in Kwikset Corp. et al. v. Superior Court:

The California Supreme Court has issued a Notice that it will be issuing its opinion in Kwikset Corp. et al. v. Superior Court tomorrow. The issue in Kwikset is as follows:
Does a plaintiff’s allegation that he purchased a product in reliance on the product label’s misrepresentation about a characteristic of the product satisfy the requirement for standing under the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) that the plaintiff allege a loss of money or property, or is such a plaintiff unable to allege the required loss of money or property because he obtained the benefit of his bargain by receiving the product in exchange for the payment?

California Supreme Court Issues “Grant and Hold” in Hernandez v. Chipotle Mexican Grill Pending its Decision in Brinker:

On January 26, 2011, the California Supreme Court granted review of the Second District’s decision in Hernandez v. Chipotle Mexican Grill, 189 Cal. App. 4th 751 (2010), pending the Court decision in Brinker Restaurant Corp. v. Superior Court.  The Court's action should come as no surprise, as the Hernandez opinion essentially mirrored the Brinker decision. The Court’s Order, which deprives Hernandez of value as precedent, is was as follows:
The petition for review is granted. Further action is this matter is deferred pending consideration and disposition of a related issue in Brinker Restaurant Corp. v. Superior Court, S166350 (see Cal. rules of Court, rule 8.524 (c)), or pending further order of the court. Submission of additional briefing, pursuant to California Rules of Court, rule 8.528, is deferred pending further order of the court. Votes: Cantil-Sakauye, C.J., Kennard, Baxter, Werdegar, Chin, Moreno and Corrigan, JJ.

Southern District Certifies Rule 23 and FLSA “Off-the-Clock” Classes Based on Store Closing “Lockdown” Policy: Stiller v. Costco

On December 13, 2010, Southern District Court Judge, Marilyn L. Huff, certified a nationwide FLSA collective action and a California Rule 23 action arising from an alleged policy maintained by Costco which required closing shift hourly employees to remain locked inside Costco warehouses without pay while supervisors performed closing activities, such as removing jewelry from cases and emptying cash registers. See Stiller v. Costco, 2010 U.S. Dist. LEXIS 140297, at 3-4.

In certifying plaintiffs’ claims under Rule 23, the Court rejected Costco’s argument that off-the-clock claims are generally not certifiable based on (1) evidence that lockdowns occurred due to a centralized corporate policy, and (2) that issues regarding occurrences of off-the-clock work was a damages issue:
In opposing Plaintiffs' motion for class certification, Costco argues that common issues do not predominate over individualized issues, and that individual inquiries would govern attempts to determine liability arising from Costco's practices. (Doc. No. 98 at 20.) Costco argues that certification is inappropriate in cases where no uniform policy creates off-the-clock work. (Id.) In their reply, Plaintiffs point out that in this case, Costco had a centralized policy outlined in the 2004 Manual, which caused class members to be detained on a regular basis without pay during lockdowns. (Doc. No. 102 at 10.) Plaintiffs also brought substantial allegations of Costco's centralized policies that discouraged class members from seeking compensation for the recurring wait time. Thus, Plaintiffs argue that these generalized off-the-clock claims present a common, class-wide core of disputes between Costco and the class members. Plaintiffs argue that here, as in Local Joint Exec. Bd. of Culinary/Bartender Trust Fund v. Las Vegas Sands, Inc., 244 F.3d 1152 (9th Cir. 2001), the individualized issues are few. In Local Joint, the Ninth Circuit concluded that given the number and importance of the common issues, the need for individual damages determinations does not bar class certification, and the variation in individual damages was enough to defeat predominance under Rule 23(b)(3). 244 F.3d at 1163.
See Stiller, 2010 U.S. Dist. LEXIS 140297, at 20-22.

Another point of note involved the Court’s rejection of Costco’s argument that the plaintiffs proposed class action was barred by principles of collateral estoppel due to a February 1, 2010 decision in another action denying class certification pursued on behalf of all California non-exempt employees. The Court noted that Costco could not meet its heavy burden of demonstrating an identity of interest absent a detailed order in the prior action establishing that the precise issues were actually litigated and decided in the prior action:
The Court notes that that the state court in Castaneda did not issue a written opinion, or make findings of fact or conclusions of law. Here, Costco does not cite any portion of the Castaneda transcript where the court purportedly found a lack of predominating common issues as to all hourly, non-exempt, non-union employees who were subject to Costco's closing lockdown procedures. The Court concludes that Costco has not met its burden of establishing that the issues decided in Castaneda were identical to those in this case such that collateral estoppel would bar class certification in this case.
See Stiller, 2010 U.S. Dist. LEXIS 140297, at 24-25.

Wednesday, January 19, 2011

First District Holds No Conflict of Interest Created By Counsel’s Concurrent Representation of Settlement Objector and Overlapping Class Action: Kullar v. FootLocker

On January 18, 2011, the First District (Division 3) upheld a trial court order declining to disqualify counsel representing the plaintiff in an apparent tag-along class action based on counsel’s simultaneous representation of that individual in her objection (and subsequent appellate challenge) to the fairness of a settlement in the first-filed action. See Kullar v. FootLocker, __ Cal.App.4th __ (2011). The motion, brought by the defendant in both actions, claimed that “[b]y knowingly representing both the objectors to the Kullar v. Foot Locker settlement and putative class members in the Echeverria v. Foot Locker case who want to participate in that settlement, [counsel] has a conflict of interest that requires disqualification from both matters.” Slip Opinion, at 3. More simply stated, Foot Locker claimed that counsel could not represent the class in the tag-along action because it took a position adverse to that very same class by objecting to a settlement the class favored.

The Court disagreed. In addition to concluding that counsel had no attorney-client relationship with the class absent certification in the tag-along action (i.e. precluding the requisite “relationship” on which to hang an actual conflict) [id., at 5-6], the Court concluded that no actual conflict existed. The Court reasoned that Foot Locker’s claim of “conflict” was predicated upon on the false premise that there mere failure to object or opt-out equates to an affirmative showing of approval by the class as a whole. See id., at 6-7. According to the Court, something more is needed. By way of contrast, the Court explained that an actual conflict may be shown by evidence that counsel also represented other class members who submitted a claim in the settlement, as this would constitute a concrete conflict between actual clients. See id., at 7 (citing Moreno v. Autozone, Inc., 2007 U.S. Dist. Lexis 98250 (N.D.Cal. 2007)).

Although I believe that the Court's analysis may have gone a bit far hailing the virtues of the class action objector (as every settlement is a compromise, and thereon, susceptible to the claim that "more" recovery is in the interest of the class), the Court's above analysis does provide another basis to deal with unscrupulous objector counsel.  I previously wrote an article on this topic, which may be found here (although I don't take ownership for the horrible title the DJ assigned to it).

Friday, January 7, 2011

8th Circuit’s Disapproval of Tobacco II Deemed Unpersuasive by a Second California District Court: Chavez v. Blue Sky Natural Bev. Co.

On November 22, 2010, a second Northern District Court declined a request to follow the 8th Circuit’s recent decision in Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023 (8th Cir. 2010) as a basis for decertification of a UCL deceptive advertising class. As previously discussed here, Avritt disapproved of Tobacco II’s holding that absent class members are excused from establishing individual reliance on misrepresentations which form the basis of a UCL claim.

In Chavez v. Blue Sky Natural Bev. Co, 2010 U.S. Dist. LEXIS 138696 (N.D. Cal. Nov. 22, 2010), Judge Vaughn R. Walker denied defendant’s motion for leave to reconsider the Court’s order certifying a UCL deceptive advertising class (268 F.R.D. 365) based on Avritt, which defendant claimed constituted “new law” on the issue of “whether unnamed plaintiffs pursuing section 17200 claims must have independent Article III standing….” See id, at 4. The Court disagreed, citing to analysis contained in the Court’s certification order concluding that only the named plaintiff is required to establish standing. Id.

As previously discussed here, Judge Claudia Wilken similarly declined to follow Avritt in Greenwood v. Compucredit Corp., 2010 U.S. Dist. LEXIS 127719 (N.D. Cal. Nov. 19, 2010).

Further discussion of the Chavez Court’s certification order may be found at the UCL Practitioner here.