Lesson: Match Your Class Definition to the Advertising Campaign

Posted on June 29, 2010 by Robert Drexler

On June 17, 2010, the California Supreme Court denied the petition for review and request for depublication in Pfizer, Inc. v. Superior Court, 182 Cal. App. 4th 622 (2d Dist., 2010). Accordingly, this important post-Tobacco II appellate opinion remains good authority.  Pfizer provides a cautionary tale of attempting to certify too broad a class. The lesson here is to tailor your proposed class definition to the scope and manner in which the alleged misrepresentations were made. 

In Pfizer, a consumer sued a mouthwash manufacturer pursuant to the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.) and the false advertising law (Bus. & Prof. Code, § 17500 et seq.). The consumer alleged the manufacturer marketed its mouthwash in a misleading manner by representing the use of mouthwash could replace the use of dental floss in reducing plaque and gingivitis.

The trial court certified a class of "all persons who purchased Listerine, in California, from June 2004 through January 7, 2005." The Court of Appeal granted Pfizer's petition for writ of mandate, concluding the trial court's class definition was overbroad. The Supreme Court granted review. On August 19, 2009, the Supreme Court transferred the matter back to the Court of Appeal with directions to vacate the decision and reconsider the matter in light of In re Tobacco II Cases (2009) 46 Cal.4th 298 [93 Cal.Rptr.3d 559, 207 P.3d 20] (Tobacco II). Having done so, The Court of Appeal again concluded the class definition is overbroad and granted Pfizer's petition.  

In reaching its decision, the Court of Appeal noted that with respect to the remedy of restitutionary disgorgement, Tobacco II holds:

"[T]he language of section 17203 with respect to those entitled to restitution--'to restore to any person in interest any money or property, real or personal, which may have been acquired' (italics added) by means of the unfair practice--is patently less stringent than the standing requirement for the class representative--'a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.' (§ 17204, italics added.) This language, construed in light of the 'concern that wrongdoers not retain the benefits of their misconduct' [citation] has led courts repeatedly and consistently to hold that relief under the UCL is available without individualized proof of deception, reliance and injury. [***16] [Citations.]" (Tobacco II, supra, 46 Cal.4th at p. 320.)”

Nevertheless, the Court of Appeal found the class definition too broad because it included persons who were not entitled to restitution because they were never exposed to the “effective as floss’ representation. The appellate court wrote:

“Be that as it may, one who was not exposed to the alleged misrepresentations and therefore could not possibly have lost money or property as a result of the unfair competition is not entitled to restitution. Here, the class certified by the trial court, i.e., all purchasers of Listerine in California during a six-month period, is grossly overbroad because many class members, if not most, clearly are not entitled to restitutionary disgorgement. The record reflects that of 34 different Listerine mouthwash bottles, 19 never included any label that made any statement [*632] comparing Listerine mouthwash to floss. Further, even as to those flavors and sizes of Listerine mouthwash bottles to which Pfizer did affix the labels which are at issue herein, not every bottle shipped between June 2004 and January 2005 bore such a label. Also, although Pfizer ran four different television commercials with the "as effective as floss" campaign, the commercials did not run continuously and there is no evidence that a majority of Listerine consumers viewed any of those commercials. Thus, perhaps the majority of class members who purchased Listerine during [***17] the pertinent six-month period did so not because of any exposure to Pfizer's allegedly deceptive conduct, but rather, because they were brand-loyal customers or for other reasons.”

The Court contrasted the limited six-month Listerine marketing scheme with the extensive and lengthy campaign used by the tobacco industry to sell cigarettes.

“The circumstances herein stand in stark contrast to those in Tobacco II, where the tobacco industry defendants allegedly violated the UCL "by conducting a decades-long campaign of deceptive advertising and misleading statements about the addictive nature of nicotine and the relationship between tobacco use and disease." (Tobacco II, supra, 46 Cal.4th at p. 306.) Tobacco II allows a class representative who actually relied on the defendants' misleading advertising campaign to represent other class members who may have lost money by means of the unfair practice. Tobacco II does not stand for the proposition that a consumer who was never exposed to an alleged false or misleading advertising or promotional campaign is entitled to restitution.”

“As Pfizer argues, it is one thing to say that restitution can be awarded to purchasers of cigarettes where the cigarettes were marketed as part of a massive, sustained, decades-long fraudulent advertising campaign on the grounds the tobacco industry defendants "may have ... acquired" [***18] (§ 17203) the purchase price as a [**804] result of such a pervasive fraudulent campaign. It is entirely another to say that restitution can be awarded to all purchasers of Listerine in California over a six-month period where the undisputed evidence shows many, if not most, class members were not exposed to the "as effective as floss" campaign and therefore did not purchase Listerine because of it.”

In other words, large numbers of persons in the class defined by the trial court were never exposed to the “effective as floss” representations and, accordingly, there is zero likelihood they were deceived by the claimed misrepresentation or that Pfizer obtained money from them by the alleged UCL violation. Had the class definition been limited to persons exposed to the “effective as floss” representation (as opposed to all purchasers) the definition might have withstood appellate scrutiny
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California Supreme Court Grants Review in Zhang v. Superior Court

Posted on February 16, 2010 by Bevin Allen

On February 10, 2010, the California Supreme Court granted review of the decision rendered by the Court of Appeal (Fourth Appellate District, Division Two), in Zhang v. Superior Court,178 Cal.App.4th 1081 (review granted, ordered depublished February 10, 2010). In Zhang, the Court of Appeal determined that an insured was not precluded from bringing a cause of action under California’s Unfair Competition Law (“UCL”) (Cal.Bus.Prof. §17200, et seq.). This decision directly contradicted insurance companies’ long-standing argument that the California Supreme Court holding in Moradi-Shalal v. Fireman’s Fund Ins. Companies, 46 Cal.3d 287 (1988), precludes all private causes of action against insurers.

In ruling for the insured, the California Court of Appeal determined that Moradi-Shalal did not bar a UCL “fraudulent” prong claim against an insurance company, and on a writ petition, reversed a trial court order holding otherwise. Zhang v. Superior Court, 178 Cal.App.4th 1081 (2009). The Court of Appeal’s decision turned on the allegations of the Plaintiff’s claims that the insured had “made fraudulent misrepresentations and promulgated misleading advertising with respect to its intentions to ‘pay provide coverage in the even the insured suffered a covered loss.’” Id. at 1089.

Should the Supreme Court uphold the Court of Appeal’s decision in Zhang, consumers will celebrate a small victory. Essentially, insurance companies will no longer be protected by such a broad umbrella under Moradi-Shalal, and may be held liable for claims of unfair conduct and false and misleading advertising. 

 

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Anticipating Defenses to UCL Claims

Posted on January 8, 2010 by Crystal Yagoobian

It has become common practice in class action litigation, particularly in cases concerning consumer fraud, to include a cause of action for violation of California Business & Professions Code § 17200, also known as the Unfair Competition Law (“UCL”). Section 17200 states

As used in this chapter, unfair competition shall mean and include any unlawful,unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.

In order to successfully assert a cause of action under section 17200, it is important to anticipate the defenses that may be raised against such a claim. One of the most common defense arguments is that the UCL claim is preempted by federal law. Because the preemption issue is so complicated, this issue arises frequently in UCL cases with often unpredictable results. For instance, the California Supreme Court reversed itself on the issue with respect to claims against tobacco companies allegedly targeting minors with their advertising. In 1994, in Mangini v. R.J. Reynolds Tobacco Co., 7 Cal.4th 1057 (1994) the Supreme Court held that such a claim was not preempted by the Federal Cigarette Labeling and Advertising Act. Thirteen years later in In re Tobacco Cases II, 41 Cal.4th 1257 (2007), the court overruled Mangini and held that such claims are preempted by that federal law.

Another defense is that there can be no claim under the UCL if the underlying law specifically bars a claim. For example, in Safeco Ins. Co. v Superior Court, 216 Cal.App.3d 1491 (1990) the court held that an alleged violation of Insurance Code § 790.03(h) cannot be the predicate for a section 17200 claim because that would circumvent the Supreme Court’s holding in Moradi-Shalal v. Fireman’s Fund Insurance. Companies., 46 Cal.3d 287, 250 (1988), which bars direct actions against insurers for such claims.

Additionally, a UCL claim will not succeed if the alleged unlawful conduct is specifically permitted by law. As an example, in Shvarts v. Budget Group, Inc., 81 Cal.App.4th 1153 (2000), the rental car industry’s practice of allegedly charging unfairly high prices for refueling returned cars was held to be expressly permitted by Civil Code § 1936(m)(2) and so a section 17200 claim challenging the practice could not proceed.

Finally, certain types of claims are simply not recognized under the UCL. For example, in People for the Ethical Treatment of Animals, Inc. v. California Milk Producers Advisory Board, 125 Cal.App.4th 871 (2005), PETA alleged that the Board’s “happy cows” campaign constituted false advertising. The court held the Board is not a “person” within the meaning of the UCL and therefore could not be sued under section 17200.

In essence, the UCL is a powerful tool for plaintiffs and in order to succeed under the statute, plaintiffs should anticipate the various defenses that may be asserted.
 

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Another split in authority on the definition of "unfair" under the UCL

Posted on December 22, 2009 by Bevin Allen

For years, there has been a split in authority over the definition of “unfair” in consumer actions brought under California’s Unfair Competition Laws (“UCL”). Recently, the Court of Appeal (Second Appellate District, Division Three) discussed this split of authority in detail, and adopted a third formulation for the definition. Davis v. Ford Motor Credit Co., ___ Cal.App.4th ___, 2009 WL 3859327 (Nov. 19, 2009).

The UCL establishes three types of unfair competition – unlawful, fraudulent and unfair. (See Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 (Cel-Tech). However, the UCL language is in the disjunctive, so that “a practice is prohibited as ‘unfair’ or ‘deceptive’ even if not ‘unlawful’ and vice versa.” (Cel-Tech, supra, 20 Cal.4th at p. 180.)

Defining the definition of the term "unfair” has remained unresolved as applies to consumer suits. While courts have created different balancing tests for unfair competition claims by competitors alleging anticompetitive practices, they have specifically excluded consumer actions from the reach of these tests. Cel-Tech, supra at 187, fn. 12. Until Davis, there were two main tests applicable to the definition of the term “unfair”.

Davis applied a third test to consumer actions that was first established in Camacho v. Automobile Club of Southern California, 142 Cal.App.4th 1394 (2006) (Second Appellate District, Division Eight). The Davis court held that Defendant’s demurrer was properly sustained without leave to amend because, as a matter of law, plaintiff could not satisfy the Camacho test. Slip op. at 19-20. The most significant barrier was the requirement of "an injury that consumers themselves could not reasonably have avoided." Id. at 19 (citing Camacho). The court determined that Davis could have avoided the injury alleged, i.e. the imposition of late fees, by making timely payments to his auto loan despite the fact that plaintiff alleged that defendant’s interpretation of the contracts and method of applying payments to the load allowed defendant to assess multiple late fee charges for a single late payment.

Before Davis, very few courts followed the Camacho analysis. In fact, many have explicitly declined to follow it. See, e.g., Lozano v. AT&T Wireless Services, Inc., 504 F.3d 718 (9th Cir. 2007); Overstock.com v. Gradient Analytics, Inc., 151 Cal.App.4th 688, 715 (2007). The Supreme Court, however denied the petition for rehearing on December 8, 2009, leaving the question unresolved of what “unfair” means under the UCL in consumer cases.
 

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