Consumer Advocate Legal Update : Class Action Lawyers & Attorneys : Khorrami Pollard & Abir Law Firm : Mass Torts, Products Liability

Today, the United States Supreme Court issued its much-anticipated ruling in AT&T Mobility LLC v Conception. The holding is not favorable to consumers as it finds that the California Supreme Court ruling in Discovery Bank, which outlawed class action bans in many consumer contracts, is preempted by the Federal Arbitration Act (“FAA”) because it stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. The 5-4 decision, authored by Justice Scalia, is split along predictable lines, with Justices Roberts, Kennedy, Thomas and Alito joining the majority opinion.

This case was brought in federal court by the Concepcions, who entered into a cell phone agreement with AT&T, and who claimed that AT&T had engaged in false advertising and fraud by charging sales tax on “free” phones. The contract provided for arbitration of all disputes between the parties, but required that claims be brought in the parties’ individual capacity, and not as a plaintiff or class member in any purported class or representative capacity, in other words, a class action ban. AT&T moved to compel the case to arbitration, but the federal trial court and Ninth Circuit Court of Appeals refused, finding the class action ban unconscionable, citing the California Supreme Court decision in Discovery Bank v Superior Court, 36 Cal 4^th 148 (2005).  The Ninth Circuit also found that Discover Bank was not preempted by the FAA because it was a refinement of the unconscionability analysis to contracts generally in California and section 2 of the FAA permits arbitration agreements to be not enforced “upon such grounds as exist at law or in equity for the revocation of any contract.”

The U.S. Supreme Court disagreed finding that section 2’s saving clause preserves generally contract defenses, but does not preserve state law rules that stand as an obstacle to the accomplishment of the FAA’s objectives to enforce arbitration agreements according to their terms to facilitate an informal streamlined procedure proceeding. However, as Justice Breyer pointed out in dissent, “a single class proceeding is surely more efficient than thousands of separate proceedings for identical claims. Thus, if speedy resolution of disputes were all that mattered, then the Discover Bank rule would reinforce, not obstruct, that objective of the Act.”

The opinion is an example of the conservative majority of the court siding with big business against the rights of consumers. The decision’s impact on class action litigation could be far reaching because it is hard to envision any company not wanting to capitalize on the decision by inserting class action bans in the fine print of their boilerplate arbitration contracts. Class actions are one of the few swords that consumers hold against big business and are often the only tool to meaningful recovery and a change to an unlawful corporate practice.

For more information about the underlying case see this previous blog post, this blog post and this article in the firm's Newsletter.

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A recent ruling by the California Supreme Court has unleashed a rash of lawsuits against big retailers that ask their customers to provide zip codes when making purchases with a credit card.

Lawyers representing store customers filed lawsuits last week against Best Buy Co., Coach Inc., Nordstrom Inc. and Macy's Inc., among other retailers.

The lawsuits come on the heels of a Feb. 10 ruling by California's highest court that found Williams-Sonoma Inc. violated the state's credit-card law by asking a customer for her zip code when making a purchase in 2008. The customer sued the home-goods retailer, contending that it used the zip code to determine her address, which is now contained in the company's database.

Stores regularly mine customer data as a way to measure buying habits and target promotions. They also sometimes sell the information to other companies.

Companies that violate the state law face fines of $250 for the first violation and as much as $1,000 for each subsequent violation. Plaintiffs in the cases are seeking those penalty fees.

The case was based on the state's 1971 credit-card law that prohibits merchants from requesting or requiring a cardholder's "personal identification information" as a condition of accepting the card for payment. The court determined that a zip code qualifies as that type of information because it is part of the cardholder's address.

Retailers routinely ask customers for their zip codes as a security measure to guard against fraudulent transactions. The practice is particularly common at gas stations, where customers often must enter their zip codes when filling up their own tanks.

After handing down its ruling, the California Supreme Court sent the Williams-Sonoma case back to a lower court, which will rule on a motion for class-action status. The lower court will also determine potential civil penalties in the case.

More information on lawsuits over zip code question can be found here and here.

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If you use a credit card, you’ve almost certainly been asked to provide your ZIP code when processing the transaction. Yesterday, the California Supreme Court ruled in Pineda v Williams Sonoma Stores, Inc. 2011 LEXIS 1355 (Feb. 10, 2011) that the collection of a ZIP code violates California Civil Code §1747.08, (Credit Card Act), thereby subjecting the retailer to maximum penalties of $250 for the first violation and $1000 for subsequent violations. The Supreme Court reversed a Court of Appeal finding otherwise.

Justice Moreno, writing for the Court, found that in light of the statute's plain language, protective purpose, and legislative history, a ZIP code constitutes "personal identification information" as that phrase is used in section 1747.08. Thus, requesting and recording a cardholder's ZIP code, without more, violates the Credit Card Act.

Justice Moreno sought to quell concerns of possible financial ruin expressed by the business community by noting that the Supreme Court had already held that section 1747.08, subdivision (e), "does not mandate fixed penalties; rather, it sets maximum penalties and that the amount of such penalties. Linder v. Thrifty Oil Co. 23 Cal.4th 429, 448. (2000). Moreover, many consumer class action settlements do not provide the payment of monetary penalties but rather provide for the award of a gift card to the consumer as compensation.

The Court also noted that Section 1747.08 contains some exceptions permitting the collection of ZIP code information, including when a credit card is being used as a deposit or for cash advances, when the entity accepting the card is contractually required to provide the information to complete the transaction or is obligated to record the information under federal law or regulation, or when the information is required for a purpose incidental to but related to the transaction, such as for shipping, delivery, servicing, or installation.

Finally, and very significantly, the Supreme Court rejected Williams-Sonoma’s request that its decision not be applied retroactively because Williams-Sonoma claimed it was operating under the assumption that its conduct was legal. The Supreme Court held that a single Court of Appeal decision could not provide a basis to depart from rule that opinions apply retrospectively.

Accordingly, this important decision protecting the privacy of California consumers brings life to more than a dozen class actions filed several years ago against various retailers who collected and recorded ZIP codes. It will likely spur more given the prevalence of the practice and the significant penalties for violating the statute.

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In a previous article for the KPA newsletter, I wrote about the Third District’s decision in Kirby v. Immoos Fire Protection, Inc., 186 Cal. App. 4th 1361 (2010) and its implications on plaintiffs including meal and rest break claims in misclassification cases.  Today, the California Supreme Court granted review of the Kirby decision.

In Kirby, the court upheld a fee award in favor of an employer who successfully defended a rest period claim, concluding that meal and rest period claims were governed by Labor Code section 218.5’s two-way fee shifting provisions, rather than the one-way fee shifting of Section 1194.

As Matt Bailey discussed in a post today on the Bailey Dailey, this holding poses a significant issue, as two-way fee shifting would severely chill private enforcement of an employee’s statutory right to recover meal and rest period premium wages. The thrust of the argument in opposition to the court’s ruling in Kirby is that Section 226.7 premium wages should be governed by Section 1194, not only because Section 226.7 proscribes a statutorily mandated wage, but also because the California Supreme Court concluded in Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094 (2007) that meal and rest break premium pay is itself a form of overtime compensation.

According to the California Supreme Court’s website, the issues on review are as follows:

(1) Does Labor Code section 1194 apply to a cause of action alleging meal and rest period violations (Lab. Code, 226.7) or may attorney's fees be awarded under Labor Code section 218.5, (2) Is our analysis affected by whether the claims for meal and rest periods are brought alone or are accompanied by claims for minimum wage and overtime?
 

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On September 28th the Second District Court of Appeal affirmed the trial court's denial of class certification in Cohen v. Direct TV, Inc.  The Court's Opinion, which is unpublished, concluded that the trial court correctly denied class certification of a class action under California’s Unfair Competition Law (“UCL”) because the proposed class included persons who had not viewed alleged deceptive promotions by Direct TV. 

However, this decision conflicts with the California Supreme Court’s analysis in In Re Tobacco II Cases, 46 Cal.4th 298 (2009), which recently rejected the argument that a UCL class action could not be certified absent a showing that all class members relied on an alleged deceptive promotion to their detriment.  Under settled California law, the public is entitled to broad protections under the UCL regardless of whether absent class members sustained a direct injury as the result of alleged deceptive advertising.

A detailed discussion of the issues presented by Cohen is addressed at the Bailey Class Action Daily.

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In its recent opinion in the Tobacco II Cases, the California Supreme Court rejected extension of Proposition 64 standing requirements to putative class members on the grounds that doing so would invalidate the “patently less stringent” remedies afforded under Business & Professions Code Section 17203.  See In re Tobacco II Cases, 46 Cal. 4th 298, 320 (2009).  In practical terms, the Court’s decision requires only the named plaintiff in a UCL action to establish that he or she in fact “has lost money or property as a result of the unfair competition”, whereas putative class members would be entitled to restitution of money or property “which may have been acquired’ [] by means of the unfair practice.” See id. (italics in original). This distinction has been the subject of significant debate – leading some to reject a literal reading of the Court’s analysis based on the perception that it would improperly permit a certified UCL restitution class to include putative class members who may not have actually been injured. Such a criticism is unfounded, as it disregards fundamental tenants of the UCL reaffirmed in the Court’s opinion. 

Unlike other tort remedies, the UCL is intended to uproot burgeoning deceptive business practices before they have an opportunity to bloom. To achieve this objective, the UCL focuses solely on a defendant’s business conduct – imposing liability based on a liberal “likely to deceive” standard without any concern as to whether consumers were actually deceived or sustained an injury by relying on a deceptive practice. Yet, that a UCL class includes persons who did not act in reliance on the challenged practice does not mean that the class includes members who were not injured. Such a conclusion is flawed, as it disregards the fact that the overall impact of a deceptive business practice will generally be distributed evenly among the entire purchaser/client base. For example, even when only a handful of consumers purchase a product based on a deceptive advertising campaign, the cost of the deceptive advertising campaign itself is passed on to all purchasers as a component of the purchase price of that product. Similarly, where a business promotes a deceptive feature of a product to justify a purchase price that is above the price of the competing brand, all purchasers are damaged by having to pay the enhanced price whether they relied on the deceptive representation or not. Permitting restitution in such cases is consistent with the UCL’s objective that “wrongdoers not retain the benefits of their misconduct….” Id.

In short, Tobacco II does not create an issue as to whether a class action may be certified on behalf of a class encompassing persons who never relied on a deceptive business practice – that is the question the Court resolved. Efforts to reframe the issue by claiming the Court’s decision left unsolved the issue of whether a UCL class may include members that are uninjured conflates the clear distinction drawn by the Court between standing requirements imposed on the named plaintiff versus the broad relief afforded to member of the class.

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