United States: 2017 Annual Overview Of California's Unfair Competition Law And Consumers Legal Remedies Act

OVERVIEW OF DEVELOPMENTS1

Class action lawyers in California wield two powerful tools: the Unfair Competition Law, California Business and Professions Code sections 17200 - 17209 ("UCL"); and the Consumers Legal Remedies Act, California Civil Code sections 1750 - 1784 ("CLRA"). The UCL forbids "unlawful, unfair or fraudulent" conduct in connection with virtually any type of business activity.2 With its sweeping liability standards and broad equitable remedies, the UCL has long been a weapon of choice for plaintiffs' lawyers. The CLRA is more defined in structure, but no less potent. The CLRA applies to any "consumer" transaction involving the "sale or lease of goods or services"3 and authorizes recovery of actual, statutory and punitive damages.4 The CLRA, which explicitly prohibits 24 separate business acts or practices, provides for streamlined class certification and dispositive motion proceedings.

Decisions from California and Federal courts in 2016 provided important direction in areas of liability, reliance and causation, preemption, injunctive relief, and other issues under the UCL and CLRA.

First, the trial courts are constantly fleshing out what is an "unfair" business practice under the UCL. In Bickoff v. Wells Fargo Bank N.A.,5 the United States District Court, Central District of California, determined that it was not unfair for a bank to foreclose on an overdue construction loan where it could show, contrary to the borrower's claims, that it had not guaranteed permanent financing. In Abramson v. Marriott Ownership Resorts, Inc.,6 another Central District court found that a timeshare "points" system was not unfair, even if it allegedly made it more difficult to reserve higher quality rooms. In both Hodsdon v. Mars, Inc.7 and McCoy v. Nestle USA, Inc.,8 courts found that the UCL does not require candy companies to disclose on packaging that their chocolate products may contain cocoa beans picked under child or slave labor conditions, drawing a distinction between the deplorable conditions themselves and the companies' duties to disclose on candy wrappers. But in In re Anthem, Inc. Data Breach Litigation,9 the court allowed members of a health care plan who alleged their personal information had been hacked to pursue a UCL claim against health insurance companies based on "California's public policy of protecting consumer data."

Second, the gatekeeping concepts of reliance and causation were stretched to allow a consumer to challenge a retailer's alleged "bait and switch" scheme in Veera v. Banana Republic, LLC.10 In that case, a clothing retailer advertised a 40% off sale, but customers alleged they were not informed that certain goods were not included in the sale until they reached the register, where they faced the dilemma whether to buy the goods anyway, knowing at that point the goods were not on sale. After the trial court granted summary judgment on behalf of the retailer, the California Court of Appeal, Second District, reversed and remanded, allowing the UCL claim to proceed. The court reasoned that if a consumer is "influenced by the momentum to buy," there is a factual question whether they suffered economic injury caused by the false advertising.11 A dissent in Veera challenged whether the plaintiff could show reliance: "I see the majority's 'momentum to buy' theory as both a departure from well-settled principles regarding reliance in ordinary fraud actions and as a dilution of the Prop. 64 requirement that the plaintiff suffer economic injury as a result of the defendant's improper conduct."12

Third, courts continue to define the contours of preemption of UCL and CLRA claims. In In re Fontem US, Inc.,13 for example, plaintiffs' claims regarding omissions of material fact regarding e-cigarettes were preempted by the Family Smoking Prevention and Tobacco Control Act with respect to product labeling, but not with respect to off-label warning requirements under California's Proposition 65. In Fisher v. Monster Beverage Corp.,14 the United States Court of Appeals, Ninth Circuit, determined that the federal Food, Drug and Cosmetic Act preempted plaintiff's claim that a drink manufacturer failed to warn consumers about caffeine content, but in Monster Beverage Corp. v. Herrera,15 the Ninth Circuit applied the Younger abstention doctrine and the Anti-Injunction Act to allow UCL claims filed by a city attorney to proceed in state court against the same manufacturer. In People ex rel. Harris v. Delta Air Lines, Inc.,16 the federal Airline Deregulation Act preempted a UCL action for enforcement of California's Online Privacy Protection Act's privacy policy requirements for an airline's consumer mobile application. In Roberts v. United Healthcare Services, Inc.,17 the California Court of Appeal, Second District, held that UCL claims for misrepresentation in a medical insurer's marketing materials were preempted by the Medicare Act, possibly teeing up a split with two other California appellate districts that have held otherwise regarding the scope of preemption with respect to Medicare.

Fourth, several cases focused on the availability of injunctive relief for UCL and CLRA claims in the face of consumer awareness of the challenged practice. In In re Fluidmaster, Inc.,18 the court dismissed claims for injunctive relief under the UCL and CLRA because there was a disconnect between the alleged harm and the requested relief, such that prohibiting further sales and requiring notices regarding design modification would not reduce the probability of the plaintiff's future harm due to allegedly faulty plumbing hoses. In Le v. Kohls Dep't Stores, Inc.,19 the court allowed plaintiff to seek injunctive relief to prohibit an alleged deceptive pricing practice, finding that the plaintiff's general awareness of the practice did not deprive him of Article III standing. But in Strumlauf v. Starbucks Corp.,20 consumers alleging that their lattes were underfilled (a First World problem) lacked standing to pursue injunctive relief because, in light of their allegation they would not have purchased the drinks on the same terms had they known the drinks were underfilled, the court reasoned they could not allege a threat of repeated injury.21 And in Moss v. Infinity Ins. Co.,22 the court dismissed an insured's UCL claim to the extent that it was based on an alleged breach of contract, reasoning that the restitutionary remedy available under the UCL was "entirely inconsistent" with the primary remedy sought by the insured, which was the payment of damages.

Litigation trends included more cases challenging claims relating to food products and nutritional supplements,23 complaints about "slack-fill" in packaging,24 and false price referencing in retail stores.25

Other important cases involved when the "learned intermediary" doctrine applies in UCL suits,26 when principals may be liable under the UCL for the actions of their agents,27 whether subsequent purchasers can be consumers under the CLRA,28 and whether timeshares29 or an online authentication program30 are "goods" or "services" under the CLRA.

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Footnotes

1 The research in this Overview is current through January 31, 2017. The purpose of the Overview is to provide information and perspective. As a result, we sometimes reference unpublished and/or noncitable opinions to demonstrate reasoning, illustrate trends, etc. The authors thank Stroock special counsel Shannon Dudic, associates Holly Farless, Erick Kuylman and Donny Simkin, paralegal Andrew Aquino and librarian Evelyn Egbeighu for their invaluable assistance with this year's Overview.

2 Cal. Bus. & Prof. Code § 17200.

3 Cal. Civ. Code §§ 1770(a) (stating prohibited practices), 1761 (definitions).

4 See Cal. Civ. Code § 1780(a).

5 No. 14CV1065 BEN (WVG), 2016 WL 3280439, at *15-16 (S.D. Cal. June 14, 2016), appeal filed, No. 16-55965 (9th Cir. July 6, 2016); see also Harris v. Wells Fargo Bank N.A., No. 5:16-cv-00645- CAS(KKx), 2016 WL 3410161, at *4 (C.D. Cal. June 15, 2016) (not unfair for bank to record notice of default against secured real property prior to completion of borrower's loan modification application).

6 155 F. Supp. 3d 1056 (C.D. Cal. 2016).

7 162 F. Supp. 3d 1016, 1026 (N.D. Cal. 2016), appeal filed, No. 16-15444 (9th Cir. Mar. 16, 2016).

8 173 F. Supp. 3d 954, 967 (N.D. Cal. 2016), appeal filed, No. 16-15794 (9th Cir. Apr. 29, 2016).

9 162 F. Supp. 3d 953, 990 (N.D. Cal. 2016).

10 6 Cal. App. 5th 907 (2016).

11 Id. at 921-22 (finding that plaintiffs raised a triable issue of fact as to standing and causation when they were "lured" into a store by signs proclaiming a 40% off sale, but, after learning at the register that the sale did not apply to every item in the store, chose to purchase certain items at full price).

12 Id. at 926 (Bigelow, P.J., dissenting).

13 No. SACV 15-01026 JVS (RAOx), 2016 WL 6520142, at *6 (C.D. Cal. Nov. 1, 2016).

14 656 F. App'x 819, 823 (9th Cir. 2016).

15 650 F. App'x 344, 346 (9th Cir. 2016) (explaining that the Younger abstention doctrine applied because "[t]here was an ongoing state proceeding when the district court considered the motion to dismiss at issue," and that application of the doctrine was appropriate because "the People of California have a strong interest in ensuring that a company providing consumer products is doing so in a manner consistent with the state's unfair business practices laws").

16 247 Cal. App. 4th 884, 906 (2016).

17 206 Cal. Rptr. 3d 158, 160 (2016).

18 149 F. Supp. 3d 940, 951 (N.D. Ill. 2016).

19 160 F. Supp. 3d 1096, 1109 (E.D. Wis. 2016).

20 192 F. Supp. 3d 1025, 1034-35 (N.D. Cal. 2016).

21 Accord Machlan v. Procter & Gamble Co., 77 F. Supp. 3d 954, 960-62 (N.D. Cal. 2015) (plaintiff asserting a UCL claim based on a deceptive business practice of describing moistened wipes as "flushable" did not have Article III standing to pursue injunctive relief).

22 No. 15-CV-03456-JSC, 2016 WL 3753109 (N.D. Cal. July 14, 2016).

23 See, e.g., Lengen v. Gen. Mills, Inc., 185 F. Supp. 3d 1213, 1221 (E.D. Cal. 2016) (challenging gluten levels in cereal product marketed as "gluten-free"); Quesada v. Herb Thyme Farms, Inc., 62 Cal. 4th 298, 323-24 (2015) (challenging marketing of "organic" herbs); Vasic v. PatentHealth, L.L.C., 171 F. Supp. 3d 1034, 1043 (S.D. Cal. 2016) (challenging marketing claims regarding joint health for glucosamine-based supplements).

24 See, e.g., Ebner v. Fresh, Inc., 838 F.3d 958 (9th Cir. 2016) (amount of accessible product in lip balm packaging); Strumlauf, 192 F. Supp. 3d 1025 (volume in lattes); Hafer v. Nestlé U.S.A., Inc., No. 2:17- cv-00034 (C.D. Cal. Jan. 3, 2017) (alleging 40% slack-fill in Raisinets); Vigil v. Mars, Inc., No. 16-cv- 03818-VC (N.D. Cal. Jan. 9, 2017) (denying motion to dismiss mislabeling claim regarding number of servings of Ready Rice per container).

25 See, e.g., Spann v. J.C. Penney Corp., No. SACV 12-0215 FMO (KESx), 2016 WL 5844606 (C.D. Cal. Sept. 30, 2016) (challenging advertising of sale prices); Veera, 6 Cal. App. 5th 907 (challenging advertising of 40% off sale); Le, 160 F. Supp. 3d at 1109.

26 Andren v. Alere, Inc., No. 16-cv-1255-GPC (NLS), 2016 WL 4761806 (S.D. Cal. Sept. 13, 2016) (if medical device was prescribed to plaintiff by doctor, California's "learned intermediary" doctrine would apply because the manufacturer's duty to warn users of risks associated with the device runs to the physician, not the patient or public).

27 Daniels v. Select Portfolio Servs., Inc., 246 Cal. App. 4th 1150, 1188 (2016) (allowing appellants to amend UCL claims against several principals based on alleged conduct of agent).

28 In re Fluidmaster, Inc., 149 F. Supp. 3d at 951 (homebuyers allowed to pursue CLRA claims against manufacturer of water supply lines).

29 Abramson, 155 F. Supp. 3d at 1066 (questioning whether a dispute regarding a timeshare involved "goods" or "services" under the CLRA).

30 Rojas-Lozano v. Google, Inc., 159 F. Supp. 3d 1101, 1116-17 (N.D. Cal. 2016) (Google's reCAPTCHA identification program was not a "good" or "service" under the CLRA).

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