Court revives claims of failure to disclose and active concealment of defects from computer purchasers

Reporting on this case pains me greatly.  I should be pleased to report on a CLRA and UCL decision that revives consumer claims.  But all I feel is pain.  Let me explain by quoting from the case.  The very first sentence says, "In this class action alleging a failure to disclose a computer defect involving a microchip that controlled floppy disk data transmission, plaintiffs Tammy Collins and Rudolph Roma appeal from a judgment on the pleadings."  Huh?  Floppy disk data transmission.  Rings a bell.  Nope, can't place it.  Must be some highfalutin, newfangled technology.  I recognize "data."  Anyhow, in Collins v. eMachines, Inc. (pub. ord. December 21, 2011), the Court reviewed a trial court order granting a motion for judgment on the pleadings.

It was alleged that defendant failed to disclose and actively concealed the disk controller defect from potential purchasers. Despite knowing of the defect and knowing that the defect could result in critical data corruption, executives of eMachines directed the company to continue to sell the defective computers after October 31, 1999. eMachines actively concealed the existence of the defect from purchasers by, among other practices specified in the FAC, continuing to issue the warranty knowing the computers had the defect, and engaging in misleading “customer service” practices that concealed the defect in online “customer support” guides, in customer service diagnoses of computer problems, and at call centers.  The case was stayed for four years while cases in other states moved forward.

Turning first to the CLRA, the Court restated the LiMandri circumstances giving rise to actionable deceit.  The Court recognized the FAC as alleging factor (2), when the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff, and factor (3), when the defendant actively conceals a material fact from the plaintiff.  The Court then agreed that a "reasonable" consumer would certainly find data corruption to be material information in connection with a computer.

Next, the Court distinguished Daugherty, observing that, in Daugherty, the only represetation made was the warranty, and the vehicles performed adequately as warranted.  The Court was similarly dismissive of Bardin, in which it was alleged that exhaust manifolds were likely to fail after the warranty period.  The Court explained that the manifolds in Bardin worked they way they were supposed to under the warranty.  Contrasting the circumstances, the Court said, "Because a floppy disk, at the time of the complaint, was integral to the storage, access, and transport of accurate computer data, the floppy disk was central to the function of a computer as a computer. The exhaust manifolds at issue in Bardin, by contrast, were just blowing smoke."  Slip op., at 12.  That's funny.  You see, the exhaust manifold vents combustion byproducts...

Regarding the UCL, the Court relied on its discussion about Daugherty and Bardin to conclude that a claim under the UCL was easily stated as well.  The Court agreed that consumers certainly had an expectation about data integrity when they purchased the affected computers.

After also concluding that the allegations supported a claim for common law fraud, the Court concluded that legal remedies were adequate, rendering an unjust enrichment claim unnecessary.

I should also tag this one with "Dinosaurs," given the discussion of floppy disk drives.  That reminds me that I should tell you about the time I saved data on a bent floppy disk drive by removing the casing and putting the raw disk in a disk drive.  The year was 1985.  Madonna, Huey Lewis, Duran Duran and Wham! were dominating the charts...

[extended period of blank stares]

...and that's how I saved all that data!

District Court grants unopposed motion to strike nationwide class allegations; denies attempt to impose actual reliance on California class members at pleading stage

United States District Court Judge Thelton E. Henderson (Northern District of California) granted in part and denied in part a motion to strike class allegations.  Collins v. Gamestop Corp., 2010 WL 3077671 (N.D.Cal. Aug. 6, 2010).  The case concerns the sale of used video games that promote additional, online features that are not available with the used game.  The discussion is short, so I quote the majority of the opinion here:

As GameStop correctly observes, Collins failed to oppose GameStop's motion to strike the nationwide class claims as to the first and second causes of action for violation of the CLRA and UCL, respectively, and also failed to oppose the motion to strike the third claim for violation of consumer protection laws in non-California jurisdictions. In particular, Collins does not contest that he does not have standing to pursue claims based on laws in jurisdictions besides California; that a class action based on laws of fifty-two jurisdictions would be unmanageable; or that a nationwide UCL or CLRA class would be improper because those statutes do not reach conduct lacking any connection to California. Accordingly, the Court GRANTS GameStop's motion to strike these class allegations from the complaint without leave to amend.

GameStop's motion to strike the remaining class allegations relies on its argument that Article III requires all members of the class to have standing, which in turn, according to GameStop, requires a showing of actual reliance. As a result, GameStop argues, a nationwide fraud claim would require individualized inquiries making class treatment inappropriate, and the UCL and CLRA putative classes cannot be certified because they include individuals who did not rely on the allegedly concealed facts and therefore lack standing.  

The Court finds GameStop's motion as to these claims to be premature and is not prepared to find, based on the pleadings alone, that Collins cannot state valid class claims. For example, although GameStop relies heavily on Sanders for the proposition that a nationwide fraud claim cannot be certified because individualized issues as to reliance would predominate, the Sanders court did not state that no such class could be certified; instead, the court granted leave to amend and “urge[d] Plaintiffs to consider whether a more narrowly defined class might be appropriate.” Sanders, 672 F.Supp.2d at 991 (emphasis added). Moreover, in a later case, the same court rejected an argument similar to GameStop's here:

Defendants argue that Plaintiffs cannot sustain classwide claims on their fraud-based claims because they must demonstrate individual reliance on the alleged concealment. However, “courts have recognized that this element, which is often phrased in terms of reliance or causation, may be presumed in the case of a material fraudulent omission.”

Tietsworth v. Sears, Roebuck & Co., Case No. C09-0288 JF (HRL), ---F.Supp.2d ----, 2010 WL 1268093, at *20 (N.D.Cal. Mar. 31, 2010) (quoting Plascensia v. Lending 1st Mortg., 259 F.R.D. 437, 447 (N.D.Cal.2009)).

More recently, another court in this district certified a nationwide class for UCL, CLRA, and common law fraud claims based on the defendants' alleged omissions. Chavez v. Blue Sky Natural Beverage Co., Case No. C06-6609 VRW, --- F.R.D. ----, 2010 WL 2528525 (N.D. Cal. June 18, 2010).FN1 The Chavez court specifically rejected defendants' arguments that the class could not be certified because no unnamed class members established Article III standing and that plaintiffs' UCL, CLRA, and common law fraud claims required individualized proof of reliance. Id. at *9-11, 13.

FN1. The court allowed nationwide UCL and CLRA claims because, unlike here, “Defendants are headquartered in California and their misconduct allegedly originated in California”; thus, “application of the California consumer protection laws would not be arbitrary or unfair to defendants.” Chavez, 2010 WL 2528525, at *14.

Another court in this district has similarly certified a class action that raised a UCL fraud claim among other causes of action. Estrella v. Freedom Fin. Network, LLC, Case No. C09-3156 SI, 2010 WL 2231790 (N.D. Cal. June 2, 2010). The defendant “argue[d] that neither plaintiff can show typicality under [the UCL fraud] claim because reliance is an individualized inquiry.” Id. at *10. The court rejected that argument, concluding that “[i]ndividualized reliance may be presumed ... where the alleged misrepresentation is material,” and that, “[f]or purposes of the class certification inquiry, plaintiffs have sufficiently alleged that the misrepresentations they have identified were material.” Id.

In light of the above case law, the Court does not find it clear from the complaint's allegations that a class action cannot be maintained. GameStop's motion to strike is therefore DENIED as to the fraud class allegations for the nationwide and California classes, and as to the UCL and CLRA class allegations for the California class.

Collins, slip op., at 2-3.

Mazza, et al. v. American Honda Motor Company was argued before the Ninth Circuit today

In the matter of Mazza, et al. v. American Honda Motor Company, the Ninth Circuit heard oral argument today.  Defendant's Rule 23 Petition was granted after the District Court certified UCL and CLRA claims on a nationwide basis.  The District Court's choice-of-law analysis was the primary focus.  If reports are accurate, The Ninth Circuit may very well send the matter back to the trial court for some adjustment to the choice of law analysis and further consideration of whether any other state's interests outweigh California's strong interests in regulating the conduct of its corporate citizens and ensuring that they deal appropriately with all consumers, wherever situated.  Or the Court might decide that, in this particular case, the comparison of interests was not shown to require the application of other laws.  You can listen and decide for yourself here.

Will the Ninth Circuit affirm nationwide certification of state law claims?

In the matter of Mazza, et al v. American Honda Motor Company, the Ninth Circuit will hear oral argument on June 9, 2010, at 9:30 a.m., in Pasadena, California.  Defendant's Rule 23 Petition was granted after the District Court certified UCL and CLRA claims on a nationwide basis.  The District Court's extensive discussion of choice-of-law analysis may be the primary focus.  The outcome may prove to be significant for the many Toyota acceleration cases assigned to Judge Selna in the same Central District from which Mazza was issued.  I would like to attend and provide a detailed account of the argument, but my schedule may not permit it.  If I cannot attend, I will try to arrange for someone to report in my absence.

Companion opinions involving billing practices by Sharp Healthcare (Durell and Hale) examine UCL standing

Sharp Healthcare is responsible for two of the three published decisions issued today that concern class action issues.  Hale v. Sharp Healthcare (April 19, 2010) and Durell v. Sharp Healthcare (April 19, 2010) both concern putative class actions.  Both involve billing practices by Sharp Healthcare related to its "regular" billing rate.  Both concern trial court orders sustaining demurrers to UCL causes of action.  And both pronounce new situations where "reliance" is required for UCL claims.  However, the outcomes in the two appeals differ by the width of, at most, a couple of sentences of allegations; one passes muster as a "reliance" allegations and one does not.

Both cases concern the basic theory that Sharp engaged in deceptive and unfair practices by billing uninsured patients its full standardized rates for services, when it substantially discounts those rates for patients covered by Medicare or private insurance.  Both cases questioned, in slightly different ways, what actually constitutes the "regular rates" charged to patients.

In the Durell opinion, the Court focused on the causation aspect of standing:

The court sustained the demurrer to the UCL cause of action without leave to amend on the ground Durell lacks standing to pursue the claim. The court found the SAC insufficiently alleges "injury in fact" and causation. (Bus. & Prof. Code, § 17204.) As to causation, the court explained the SAC fails to allege Durell was harmed "as a result of" Sharp's conduct. (Ibid.) For instance, the SAC does not allege he "relied on Sharp charging its 'usual and customary rates' in receiving treatment." We turn first to the causation issue, which we find dispositive.

Durell, at 12.  The Court found the absence of allegations of "reliance" to be the key defect in Durell's pleading: 

The SAC does not allege Durell relied on either Sharp's Web site representations or on the language in the Agreement for Services in going to Sharp Grossmont Hospital or in seeking or accepting services once he was transported there. Indeed, the SAC does not allege Durell ever visited Sharp's Web site or even that he ever read the Agreement for Services.

Durell, at 14.

Plaintiff Hale, on the other hand, alleged facts that satisfied the Court's examination of "injury in fact" and standing: 

Even though the SAC alleges Hale has paid only $500 of her $14,447.65 medical bill, it also alleges the Admission Agreement obligates her to pay Sharp the balance on her account. Thus, she faces at least an imminent invasion or injury to a legally protected interest. (See Troyk, supra, 171 Cal.App.4th at p. 1346.) The term "imminent" is defined as "ready to take place," "hanging threateningly over one's head," and "menacingly near." (Webster's 3d New Internat. Dict. (1993) p. 1130.) Certainly, this is not the type of action Proposition 64 was intended to squelch. Hale was a bona fide consumer of medical services.

Hale, at 11.  Though thin, the Court agreed that Hale did plead a form of "reliance" sufficient to withstand demurrer: 

We agree with Hale, however, that "to the extent [she] is bringing a fraud-based claim under the UCL, she has reasonably pled reliance." The SAC alleges Hale signed the Admission Agreement, and "at the time of signing the contract, she was expecting to be charged 'regular rates,' and certainly not the grossly excessive rates that she was subsequently billed." (Italics added.) This allegation appears in the breach of contract cause of action, but the UCL cause of action incorporates the allegations of all other causes of action. We must interpret the complaint reasonably, "reading it as a whole and its parts in their context." (Stearn v. County of San Bernardino (2009) 170 Cal.App.4th 434, 439.) As Hale notes, the "difference between 'expecting' to be charged regular rates and 'relying' on being charged regular rates is a distinction without a difference." We see no utility in requiring Hale to amend her complaint to exchange the term "expecting" for the term "relying."

Hale, at 14-15.  Lesson one from these cases is that small differences in pleading facts can make a big difference.

But discussing allegations was not the headline-worthy event in these two opinions.  The Court extended the concept of "reliance" discussed in Tobacco II's discussion of the UCL "fraudulent" prong to any "unlawful" prong claim asserting a legal violation that involves deception:

Construing the phrase "as a result of" in Business and Professions Code section 17204 in light of Proposition 64's intention to limit private enforcement actions under the UCL, we conclude the reasoning of Tobacco II applies equally to the "unlawful" prong of the UCL when, as here, the predicate unlawfulness is misrepresentation and deception. A consumer's burden of pleading causation in a UCL action should hinge on the nature of the alleged wrongdoing rather than the specific prong of the UCL the consumer invokes. This is a case in which the "concept of reliance" unequivocally applies (Tobacco II, supra, 46 Cal.4th at p. 325, fn. 17), and omitting an actual reliance requirement when the defendant's alleged misrepresentation has not deceived the plaintiff "would blunt Proposition 64's intended reforms." (Cattie v. Wal-Mart Stores, Inc. (S.D.Cal. 2007) 504 F.Supp.2d 939, 948.)

Durell, at 14.

With a new category of "reliance" pleading required for certain "unlawful" prong claims, the Court turned its high-powered, neutrino-powered conservative ray on the "unfair" prong of the UCL.  Durell's "unfair" prong claim also found no success.  After reviewing the post-Cel-Tech hairball, the Court applied its own prior precedent that defines a very strict test for "unfair" conduct:

Here, the court's order does not specifically address the "unfair" prong of the UCL. The SAC alleges Sharp's conduct violates public policy, and is "immoral, unethical, oppressive, and unscrupulous," a vague test of unfairness this court rejects. The SAC does not allege the conduct is tethered to any underlying constitutional, statutory or regulatory provision, or that it threatens an incipient violation of an antitrust law, or violates the policy or spirit of an antitrust law. In his briefing, Durell does not address Cel-Tech, supra, 20 Cal.4th 163, and its affect on the definition of "unfair" in consumer UCL cases, or this court's opinions in Scripps Clinic, supra, 108 Cal.App.4th 917, and Byars, supra, 109 Cal.App.4th 1134. We conclude the court properly granted the demurrer as to the claim under the "unfair" prong of the UCL.

Durell, at 19.

On the flip side, Hale's CLRA claim lives to fight another day, benefiting from the Court's "reliance" pleading analysis set forth in its discussion of Hale's UCL claim:

Again, however, to the extent Hale's CLRA claim is fraud-based, the SAC adequately alleges the reliance element. Thus, the court erred by sustaining the demurrer to the CLRA cause of action.

Hale, at 16.

I will look forward to reading The UCL Practitioner's assessment of these two opinions.

Breaking News: New appellate court decision in Steroid Hormone Product Cases at odds with Cohen panel's rebuke of Tobacco II

The initial appellate decisions in which In re Tobacco II Cases (2009) 46 Cal.4th 298, 311 (Tobacco II) was ignored or criticized are beginning to see an equalizing counterbalance from appellate decisions that approvingly apply Tobacco II.  Today, in Steroid Hormone Product Cases (January 21, 2010), the Court of Appeal (Second Appellate District, Division Four) reversed an order denying class certification.  While the Court didn't directly address Cohen, it did include this footnote with a very interesting choice of language that was ostensibly directed at the trial court's order:

GNC tries to avoid the required reversal by arguing in its respondent's brief that the trial court's ruling does not conflict with Tobacco II because Tobacco II addressed standing, while the trial court specifically stated that standing was irrelevant to the certification analysis.  Although the court did state that standing was irrelevant, it nevertheless found that Proposition 64 added actual injury as an element of a cause of action for restitution under the UCL, and therefore injury must be established for each class member. Tobacco II made clear, however, 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. (Tobacco II, supra, 46 Cal.4th at p. 321.)

Slip op., at 11, n. 8 (bold emphasis added).  This is a direct repudiation of Cohen's analysis.  The question this decision raises is whether it will encourage the California Supreme Court to depublish Cohen and send a signal that the analysis of Steroid Hormone Product Cases is the correct construction, take up Cohen to explicitly resolve this split, or let more Courts of Appeal weigh in on the issue.

I may write a longer summary and analysis of this decision at a later time, but, for now, the quote above is where most of the action can be found.

Breaking News: Denial of class certification affirmed in Vioxx Class Cases

With the holidays upon us, the topical and interesting news stories have been few and far between.  But the drought cannot last forever.  Today, the Court of Appeal (Second Appellate District, Division Three) issued an Opinion in which it affirmed the trial court's denial of class certification in the matter of In re Vioxx Class Cases (December 15, 2009).  I will need to read this Opinion with some deliberation before writing an extended post about it.  However, a few things jumped out immediately and are worth noting now.  Tobacco II is mentioned early in the Opinion, and I assumed that the Opinion would join the few recent Opinions that appear to conflict with Tobacco II.  That does not appear to be the case here:  "Nonetheless, it is clear from Supreme Court authority that recovery in a UCL action is available in the absence of individual proof of deception, reliance, and injury. (Tobacco II, supra, 46 Cal.4th at p. 320.)"  (Slip op., at 25 n. 19.)  Instead, the Court of Appeal affirmed the trial court's denial of class certification on the basis of damage-related issues: "The trial court’s findings with respect to the measure of damages are sufficient to support its denial of class certification with respect to the UCL and FAL causes of action."  (Slip op., at 25, emphasis added.)  This damages discussion, and some remarks about typicality, will require more reading and a longer post.

Update on Tuesday, December 15, 2009 at 3:26PM by The Complex Litigator

The trial court judge was Victoria Chaney.  Associate Justice Victoria Chaney now sits in Division One of the Second Appellate District.

California Supreme Court activity for the week of November 16, 2009

The California Supreme Court held its (usually) weekly conference on November 18, 2009.  The only notable event was:

• A Petition for Review was granted in Yabsley v. Cingular Wireless.  The matter was held pending the outcome of Loeffler v. Target Corp., S173972.  I briefly discussed Yabsley here.

Cohen panel tackles Tobacco II again in Princess Cruise Lines, Ltd. v. Superior Court

The Court of Appeal (Second Appellate District, Division Eight) generated a good bit of commentary with their construction of In re Tobacco II Cases, 46 Cal.4th 298 (2009).  Cohen v. DIRECTV, Inc. (October 28, 2009) was discussed in detail on this blog, and The UCL Practitioner had an extensive post as well.  In Princess Cruise Lines, Ltd. v. Superior Court (November 10, 2009), the Second Appellate District, Division Eight tackles reliance and Tobacco II for the second time.  But, in an interesting twist, Cohen receives no mention in this Opinion.

Princess Cruise Lines is, ostensibly, a summary judgment opinion.  Although it is not discussed in any detail, it appears that the summary judgment motion was brought pre-certification.  The Court described the causes of action asserted and the basics of the trial court's ruling:

The plaintiffs, real parties in interest in the proceedings before us, H. Roger Wang and Vivine Wang (from time to time collectively referred to as the Wangs), sued petitioner Princess Cruise Lines, Ltd., over charges added to the price of shore excursions taken during a cruise conducted by petitioner.  The Wangs asserted five causes of action.  The first three were based on Business and Professions Code sections 17200 (first cause of action) and 17500 (second) and on Civil Code section 1750 et seq. (third).  Respectively, these statutes are California’s Unfair Competition Law (UCL), False Advertising Law (FAL) and Consumers Legal Remedies Act (CLRA).  The fourth and fifth causes of action were based respectively on common law fraud and negligent misrepresentation.

Petitioner moved for summary judgment and summary adjudication.  The trial court granted summary adjudication on the fourth and fifth causes of action because the Wangs could not show they relied on petitioner’s alleged misrepresentations.  The trial court, however, denied the motion for summary judgment because it concluded that on the UCL, FAL and CLRA causes of action the Wangs did not have to show that they relied on petitioner’s alleged misrepresentations.

Slip op., at 2.  After summarizing the discovery in the action and the trial court's rulings, the Court of Appeal discussed the issue of reliance in UCL and CLRA actions:

The court in Tobacco II first concluded that only the class representatives must meet the standing requirement under California’s UCL.  The court then proceeded to the next topic, which was “the causation requirement for purposes of establishing standing under the UCL, and in particular what is the meaning of the phrase ‘as a result of’ in [Business and Professions Code] section 17204?  We conclude that a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions.”  (Tobacco II, supra, 46 Cal.4th 298, 306.)

There are two aspects to this holding.  First, it is very clear that reliance is required in a UCL action.  Second, it is also clear that this is true of UCL actions involving some form of fraud, but not all UCL actions.  As the court put it:  “We emphasize that our discussion of causation in this case is limited to such cases where, as here, a UCL action is based on a fraud theory involving false advertising and misrepresentations to consumers.  The UCL defines ‘unfair competition’ as ‘includ[ing] any unlawful, unfair or fraudulent business act or practice . . . .’  ([Bus. & Prof. Code,] § 17200.)  There are doubtless many types of unfair business practices in which the concept of reliance, as discussed here, has no application.”  (Tobacco II, supra, 46 Cal.4th 298, 325, fn. 17.)

Slip op., at 6-7.  Unlike Cohen, this Opinion presents as an effort to identify specific circumstances where it is valid to consider reliance in a UCL claim, using Tobacco II.  In fact, its almost as if the Court was sensitive to potential fallout from describing Tobacco II as irrelevant.  

In any event, the Court then, as one would expect in a summary judgment analysis, focused on the evidence presented by the plaintiffs:

The problem, from a pragmatic perspective, with the Wangs’ contentions about reliance is that it made no difference to them how much the excursions cost.  As Vivine Wang put it in her deposition, she told her travel agent that she wanted to go on the same excursions that her traveling group had booked and that “I want to go on the shore excursion . . . whatever it cost [sic].  It’s fine.”  At the threshold, therefore, it must be said that there was no reliance, i.e., the Wangs would have gone on the excursions whatever the price was and without reference to anything petitioner said or did in connection with the excursions.  It therefore follows that it is immaterial how the Wangs heard about the excursions and what, if anything, petitioner said or wrote about the excursions.

It must also be said that we are not inclined to ignore the Wangs’ repeated admissions that they had no contact with petitioner and received nothing from the petitioner.

Slip op., at 8.  The Court does its best to circumvent the reliance questions it raised in Cohen by citing Tobacco II for the contention that there is a limited area under the UCL where reliance can be an element of the claim, followed by a finding that the record contains admissions of absolutely no reliance.

Next, the Court issued an interesting holding that the Tobacco II discussion about reliance in certain limited situations in UCL cases applies to CLRA actions as well:

Civil Code section 1780, subdivision (a) provides:  “Any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 may bring an action against that person to recover or obtain any of the following:  [listing generic types of recoveries].”  (Italics added.)

It appears that the analysis of the phrase “as a result” found in Tobacco II, supra, 46 Cal.4th 298, 324-326, applies to this phrase in Civil Code section 1780, subdivision (a), which means that reliance is required for CLRA actions, with the limitations noted in Tobacco II.

Slip op., at 11-12.

So, if Cohen is enough of a lightning rod to elicit review, this one may escape that same fate.

Battle Royale: Latest round of lower court versus Supreme Court found in Cohen v. DIRECTV, Inc.

The more time I spend reviewing decisions in the complex litigation/class action arena, the more I am convinced that the lower Courts of California are, in many instances, at odds with the California Supreme Court.  The most recent decision to suggest this schism is Cohen v. DIRECTV, Inc. (October 28, 2009) from the Court of Appeal (Second Appellate District, Division Eight).   Cohen is the most recent California appellate court Opinion to comment on the treatment of UCL claims by In re Tobacco II Cases, 46 Cal.4th 298 (2009), the prior two decisions being Kaldenbach v. Mutual of Omaha Life Insurance Company, et al. (October 26, 2009) (discussed on this blog here) and Morgan, et al. v. AT&T Wireless Services, Inc. (September 23, 2009) (discussed on this blog here).  Cohen affirmed a trial court's denial of class certification of CLRA and UCL claims, but its analysis runs head first into Tobacco II and other Supreme Court decisions.  The UCL Practitioner has an extensive post analyzing Cohen against Tobacco II.  I will comment on the Cohen holding, but I also want to offer some thoughts as to why this divergence between California's highest court and the other courts throughout the state might be happening.

Since some of my comments depend upon the subject matter of Cohen, I begin by providing some background about the claims in that matter.  Cohen concerns an allegation that DIRECTV advertised that the channels in its HD Package were broadcast in the 1080i HD standard (an interlaced resolution of 1920x1080 pixels), at  19.4 Mbps, but later compressed each HD channel down to 6.6 Mbps.  The 19.4 and 6.6 figures refer to the volume of data being transmitted each second, expressed as Megabits per second.   So, expressed another way, the Cohen action complained that the quality of the video broadcast on HD channels was degraded by an increase in the amount of data compression.  By way of background, the raw data rate for uncompressed HD video in the 1080i format can be well in excess of 100 Mbps, depending on frame rate and color information.  This "raw" video is then compressed.  In fact, it must be compressed - there is no practical system in place to deliver 100 Mbps to your television right now.  The older mpeg-2 compression codec, or newer codecs, like H.264, compress the "raw" HD video into something smaller, using complex formulas that reduce the data used to transmit the images.  The goal of compression is to obtain the best video-quality-to-size compromise.  In the DIRECTV case, 19.4 Mbps is compressed video that would look very good, but "degradation" artifacts would still be visible on a good HD television (some "smearing" on fast action or a blocky, pixelated appearance in areas of solid color, blacks in particular).  6.6 Mbps is very compressed 1080i HD content; it is compressed to one third the size of the already compressed 19.4 Mbps feed.  You would see more compression artifacts on a good/larger HD television.

There are a number of certification issues in Cohen.  Ascertainability receives some significant discussion.  But the portion that is likely of greatest interest is the discussion of reliance under the UCL; it is the area in which Cohen diverges from Tobacco II.  Regarding reliance in UCL actions, the Trial Court in Cohen said: "Even pre-Prop. 64 cases only allow inferred reliance where the misrepresentations were common to all class members. An inference of classwide reliance cannot be made where there is no showing that representations were made uniformly to all members of the class."  Slip op., at 7.  The Cohen Court started its discussion about the UCL with this observation that presages the outcome:

Although the rules under the UCL may or may not be different following our Supreme Court's recent decision in In re Tobacco II Cases (2009) 46 Cal.4th 298 (Tobacco II), an issue which we address below, we do not understand the UCL to authorize an award for injunctive relief and/or restitution on behalf of a consumer who was never exposed in any way to an allegedly wrongful business practice.

Slip op., at 14.  The Cohen Court then stated its view of the holding from Tobacco II in two separate ways.  First, it offered a brief summary of the decision:

On review, the Supreme Court specifically addressed two questions: “First, who in a UCL class action must comply with Proposition 64's standing requirements, the class representatives or all unnamed class members, in order for the class action to proceed? . . . Second, what is the causation requirement for purposes of establishing standing under the UCL . . . ?” (Tobacco II, supra, 46 Cal.4th at p. 306, italics added.) This past spring, the Supreme Court answered these two questions by ruling (1) only the class representatives must meet Proposition 64's standing requirements of actual injury and causation; (2) only the class representatives must establish reliance in accordance with fraudulent inducement principles in order for the class action to proceed; and (3) the class representatives do not have to show reliance on particular advertisements or marketing materials with “unrealistic” specificity. (Tobacco II, supra, 46 Cal.4th at pp. 321-329.)

Slip op., at 15.  Then, the Cohen Court offered its own summary of what it believes that the California Supreme Court actually meant:

Viewed from the other direction, Tobacco II held that, for purposes of standing in context of the class certification issue in a “false advertising” case involving the UCL, the class members need not be assessed for the element of reliance. Or, in other words, class certification may not be defeated on the ground of lack of standing upon a showing that class members did not rely on false advertising. In short, Tobacco II essentially ruled that, for purposes of standing, as long as a single plaintiff is able to establish that he or she relied on a defendant‟s false advertising, a multitude of class members will also have standing, regardless of whether any of those class members have in any way relied upon the defendant's allegedly improper conduct.

Slip op. at 15.  Notice the interesting language used by the Cohen Court: "Tobacco II essentially ruled...."  One can say that the Supreme Court "did" or "did not" rule a certain way.  But saying that it "essentially" ruled a certain way is problematic for everyone.  This suggests an outcome that is implied by Tobacco II, but not stated.  To sort that out, we have to compare Cohen to Tobacco II and determine what Tobacco II does and does not say.

Returning to Cohen, the Court was more direct when it stated its intention to disregard Tobacco II as offering a controlling decision for the case before it:  "In the contextual setting presented by Cohen's present case, we find Tobacco II to be irrelevant because the issue of 'standing' simply is not the same thing as the issue of 'commonality.'"  Slip op., at 15.  The Court continued:  "In short, the trial court's concerns that the UCL and the CLRA claims alleged by Cohen and the other class members would involve factual questions associated with their reliance on DIRECTV's alleged false representations was a proper criterion for the court's consideration when examining 'commonality' in the context of the subscribers'motion for class certification, even after Tobacco II."  Slip op., at 16.  Thus, the Cohen Court devised an analysis that permits circumvention of Tobacco II, holding that a trial court can't use classwide reliance issues for a "standing" challenge, but can use those same issues to bar certification.  I posit that what we have here is most likely either a reverse engineered holding or a generally negative reaction to Tobacco II.  The limited analysis of reliance issues as they pertain to the UCL was devised to support the desired outcome.  The alternative is that the Cohen Court didn't examine Tobacco II carefully, and I find that less likely than the notion that the panel simply does not agree with the Tobacco II analysis or doesn't like the claims in the case.

I turn now to Tobacco II and argue that it directly addresses the contentions made in Cohen.  In Tobacco II, the Supreme Court summarized the trial court's decision in that matter:

The trial court found that the “simple language” of Proposition 64 required that “for standing purposes, a showing of causation is required as to each class member's injury in fact.... [T]he injury in fact that each class member must show for standing purposes in this case would presumably consist of the cost of their cigarette purchases. But significant questions then arise undermining the purported commonality among the class members, such as whether each class member was exposed to Defendants' alleged false statements and whether each member purchased cigarettes ‘as a result’ of the false statements. Clearly ... individual issues predominate, making class treatment unmanageable and inefficient.”

Tobacco II, 46 Cal. 4th at 310-311.  One can almost excuse the Cohen Court's narrow construction of Tobacco II as a "standing" decision.  After all, the paragraph above does talk quite a bit about standing.  But this overlooks the fact that causation is entangled with standing, and, for the named plaintiff, showing reliance is the method by which that plaintiff shows standing under a UCL claim asserting a "fraudulent" prong (likely to deceive) standard.  What Cohen ignores is the fact that, according to Tobacco II, the causation showing (in this instance, a reliance showing) is not an element of a UCL claim, except that, after Proposition 64, the named plaintiff must make that showing.  In fact, the next page of Tobacco II removes any doubt that pre-Proposition 64 decisions construing the UCL remain viable:  "'[T]o state a claim under either the UCL or the false advertising law, based on false advertising or promotional practices, "it is necessary only to show that 'members of the public are likely to be "deceived." ' " ' (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 951, 119 Cal.Rptr.2d 296, 45 P.3d 243.)"  Tobacco II, 46 Cal. 4th at 312.

Continuing, the Supreme Court said:

The fraudulent business practice prong of the UCL has been understood to be distinct from common law fraud. “A [common law] fraudulent deception must be actually false, known to be false by the perpetrator and reasonably relied upon by a victim who incurs damages. None of these elements are required to state a claim for injunctive relief” under the UCL. ( Day v. AT & T Corp.(1998) 63 Cal.App.4th 325, 332, 74 Cal.Rptr.2d 55; see State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1105, 53 Cal.Rptr.2d 229.) This distinction reflects the UCL's focus on the defendant's conduct, rather than the plaintiff's damages, in service of the statute's larger purpose of protecting the general public against unscrupulous business practices. (Fletcher v. Security Pacific National Bank (1979) 23 Cal.3d 442, 453, 153 Cal.Rptr. 28, 591 P.2d 51.)

Tobacco II, 46 Cal.4th at 312.  This discussion is at odds with Cohen's treatment of Tobacco II.  Tobacco II said that "the UCL class action is a procedural device that enforces substantive law by aggregating many individual claims into a single claim, in compliance with Code of Civil Procedure section 382, to achieve the remedial goals outlined above. It does not change that substantive law, however."   Tobacco II, 46 Cal.4th at 313.  And Tobacco II unambiguously holds (i.e., not "essentially" holds) that:

[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-“any 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” (Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d 442, 452, 153 Cal.Rptr. 28, 591 P.2d 51) has led courts repeatedly and consistently to hold that relief under the UCL is available without individualized proof of deception, reliance and injury. (E.g., Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267, 10 Cal.Rptr.2d 538, 833 P.2d 545; Committee on Children's Television, Inc. v. General Foods Corp., supra, 35 Cal.3d at p. 211, 197 Cal.Rptr. 783, 673 P.2d 660.)  Accordingly, to hold that the absent class members on whose behalf a private UCL action is prosecuted must show on an individualized basis that they have “lost money or property as a result of the unfair competition” (§ 17204) would conflict with the language in section 17203 authorizing broader relief-the “may have been acquired” language-and implicitly overrule a fundamental holding in our previous decisions, including Fletcher, Bank of the West and Committee on Children's Television.

Tobacco II, 46 Cal.4th at 320.  If "reliance" is not an element of a UCL claim, why is there still the perception that reliance has a role to play in UCL actions (outside of named plaintiff standing)?  The Tobacco II decision may have supplied that answer as well:

Our conclusion with respect to the remedies set forth in section 17203 has nothing to do with the nonrestitutionary disgorgement disallowed in Kraus v. Trinity Management Services, Inc., supra, 23 Cal.4th 116, 96 Cal.Rptr.2d 485, 999 P.2d 718. In Kraus, we concluded that section 17203 does not allow a court to order disgorgement into a fluid recovery fund, e.g., to “compel a defendant to surrender all money obtained through an unfair practice even though not all is to be restored to the persons from whom it was obtained or those claiming under those persons.” (Id. at p. 127, 96 Cal.Rptr.2d 485, 999 P.2d 718.) This prohibition against nonrestitutionary disgorgement did not overrule any part of Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d 442, 153 Cal.Rptr. 28, 591 P.2d 51, under which restitution may be ordered “without individualized proof of deception, reliance, and injury if necessary to prevent the use or employment of an unfair practice.” (Bank of the West, supra, 2 Cal.4th at p. 1267, 10 Cal.Rptr.2d 538, 833 P.2d 545.)

Tobacco II, 46 Cal.4th at 320, n. 14.  This suggests that, in some circumstances, the quantum of a restitution order might ultimately depend upon a showing of injury by class members.  Since reliance on an unfair practice can act as a surrogate of sorts for injury (under the the right facts and right species of UCL claim), this may explain why the belief persists that reliance is an unstated element of a UCL claim.  It's either that, or a petulant refusal to understand that the UCL's fraudulent prong has nothing to do with common law fraud.

Tobacco II has already been circumvented by two of three California Courts of Appeal to apply it.  The important question is why?  Options include, at least, a desire not to reverse a trial court, a dislike of the holding of Tobacco II, a dislike of the theory of the case, or a general resistance to class actions (or some amalgam of those options).

The first option exists as an element of all appeals.  Courts of Appeal begin their analysis with a presumption that the trial court will be affirmed.  I cannot conclude that this is the primary factor in the Cohen Court's dismissive analysis.

The second option is certainly possible.  The Cohen Court sounded almost disdainful of Tobacco II when it said, "In the contextual setting presented by Cohen's present case, we find Tobacco II to be irrelevant...."  Slip op., at 15.  I find this option to be a plausible explanation.

The third option is also possible.  I do not find it a stretch to imagine the initial judicial reaction being something akin to, "Megawho per second?  You're kidding, right?"  When that happens, I think it is human nature to look for reasons not to facilitate the case or claim.  If my comments offend any judicial sensibilities, I apologize for that.  But we must recognize every participant in the judicial system -- clerk, judge, lawyer -- are human beings, with all of our prejudices and predispositions.  I also find this option to be a plausible explanation.

The fourth option is also possible.  When the various Districts and Divisions are examined over time, I have little doubt that some find panels find great utility in the class action device, while others find them abusive.  Again, this has more to do with the predisposition of the observer than anything else, as it is as easy to find a class action of great social utility as it is to find one of questionable or zero worth.  It's also worth noting that the second of my proposed options can be a subset of this fourth option.  In other words, discomfiture about the Tobacco II opinion can be motivated either by that particular opinion or by an overall judicial fatigue regarding class actions generally.

I do not want to suggest that I know which of my theories, if any, explains Cohen.  I suspect that some combination of class action fatigue and specific resistance to the claims in this particular case are at work here, but that is speculative on my part.  However, I am certain that a growing rift exists between the Supreme Court's view of major legal questions and the views held by trial and intermediate appellate courts.  As I am doubtful that anything can be done about this issue other than to raise awareness and hope for the best from our courts, I do not believe it is an issue that will resolve itself any time soon.

It is my intention to write more about the nature of this judicial divide here or elsewhere.