Supreme Court Ruling Favors of Class Action Plaintiffs in UCL Cases

In a close 4-3 vote, the Supreme Court has rendered its decision in the landmark case In re Tobacco II Cases (2009) __ Cal.App.4th __, and it's a huge victory for class action plaintiffs in California. Because the opinion has such broad implications for future unfair competition claims, it is of interest to wage and hour lawyers, even though the case has nothing to do with wages or employment disputes. 

Prior to the 2004 amendment of the unfair competition law by Proposition 64, “[a]ctions for relief [under the UCL could be] prosecuted ... by the Attorney General or any district attorney or by any county counsel ... [or] by a city prosecutor ... [or] by a city attorney ... or upon the complaint of any board, officer, person, corporation or association or by any person acting for the interests of itself, its members or the general public.”  Former Business & Professions Code § 17204; see also Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 227. After Proposition 64, the section provides

“[a]ny person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of Section 17204 and complies with section 382 of the Code of Civil Procedure”

In other words, the plaintiff must be a “person who has suffered injury in fact and has lost money or property as a result of [such] unfair competition.” Business & Professions Code § 17204, as amended by Prop. 64, § 3.

The plaintiffs in In re Tobacco Cases II alleged that the tobacco industry defendants 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.  Prior to passage of Proposition 64, the trial court had certified the case as a class action.  The class was defined as “All people who at the time they were residents of California, smoked in California one or more cigarettes between June 10, 1993 to April 23, 2001, and who were exposed to Defendants’ marketing and advertising activities in California.”  After Proposition 64 was approved, the trial court granted defendants’ motion to decertify the class on the grounds that each class member was now required to show an injury in fact, consisting of lost money or property, as a result of the alleged unfair competition.  The Court of Appeal affirmed.

On review, the Supreme Court addressed two questions: 

1. 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? 

We conclude that standing requirements are applicable only to the class representatives, and not all absent class members. 

2. What is 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 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.  Those same principles, however, do not require the class representative to plead or prove an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements when the unfair practice is a fraudulent advertising campaign.  Accordingly, we reverse the order of decertification to the extent it was based upon the conclusion that all class members were required to demonstrate Proposition 64 standing, and remand for further proceedings regarding whether the class representatives in this case have, or can demonstrate, standing. 

This doesn't entirely save the case for the plaintiffs just yet, but their prospects, as a class, seem good. In granting the motion to decertify the class, and in concluding that the entire class was required to demonstrate standing, the trial court’s order also stated, “Further, it appears from the record that not even Plaintiffs’ named representatives satisfy Prop[osition] 64’s standing requirement.”  The trial court did not elaborate on the basis for its conclusion, so the appellate courts cannot ascertain whether or not the named plaintiffs are adequate post-Proposition 64 class representatives. However, assuming that they are no longer adequate representatives of the class because they lack standing,

the proper procedure would not be to decertify the class but grant leave to amend to redefine the class or add a new class representative. “This rule is usually applied in situations where the class representative originally had standing, but has since lost it by intervening law or facts.”  (First American Title Ins. Co. v. Superior Court (2007) 146 Cal.App.4th 1564, 1574.)  We ourselves sanctioned this procedure in a post-Proposition 64 case.  (Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 243 [“courts have permitted plaintiffs who have been determined to lack standing, or who have lost standing after the complaint was filed, to substitute as plaintiffs the true parties in interest”].)  Accordingly, we reverse the order granting the decertification motion and remand the case for further proceedings to determine whether these plaintiffs can establish standing as we have now defined it and, if not, whether amendment should be permitted.

Taking all this in, one must conclude that the case is now likely to proceed as a class action with new or additional plaintiffs who can meet the new standing requirements. You can download the full text of the opinion here in PDF or Word format. For more detailed analysis, we recommend visiting the UCL Practitioner blog, where yesterday's post on the opinion is sure to be followed up with more links and analysis in the days to come.

People who read this blog often ask "where do you find the time?" The answer, sometimes, is "we can't." But now that we've taken our leave of absence, bookended by the argument and opinion in the Tobacco II Cases, we are working on catching up with all the really important wage and hour cases and developments that we've been tracking since March. There's been a lot to talk about, and we'll have it here soon.


In re Tobacco II Cases Argued Tuesday

The California Supreme Court will hear arguments Tuesday morning in the In re Tobacco II Cases, S147345 (George, C.J., not participating; Moore, J., assigned justice pro tempore) #06-120  In re Tobacco II Cases, S147345.  (D046435; 142 Cal.App.4th 891; Superior Court of San Diego County; JCCP 4042.) The statement of issues doesn't seem likely to reach any issues directly pertinent to wage and hour litigation, but many wage and hour lawyers handle other kinds of unfair competition cases, so like many of you, we are watching the progress of this case:

Petition for review after the Court of Appeal affirmed orders decertifying a class in a civil action.  This case includes the following issues:  (1) In order to bring a class action under Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.), as amended by Proposition 64 (Gen. Elec. (Nov. 2, 2004)), must every member of the proposed class have suffered “injury in fact,” or is it sufficient that the class representative comply with that requirement?  (2) In a class action based on a manufacturer’s alleged misrepresentation of a product, must every member of the class have actually relied on the manufacturer’s representations?

If any readers are attending and want to send us your notes from the argument, we would be happy to pass them along to the rest.


Sullivan v. Oracle Withdrawn, Certified to SCOTSOC

The Ninth Circuit's opinion in Sullivan v. Oracle Corp. (9th Cir. 2008) 547 F.3d 1177, 14 Wage & Hour Cas.2d (BNA) 321, has been withdrawn, and the Ninth Circuit has certified three questions to the California Supreme Court. Sullivan v. Oracle Corporation (9th Cir. 06-56649 2/17/09).

We certify the following questions to the California Supreme Court, corresponding to the three claims presented by the plaintiffs.

First, does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?

Second, does (California Business and Professions Code) § 17200 apply to the overtime work described in question one?

Third, does § 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the FLSA?

By separate order, we today withdraw our published panel opinion in this appeal, pending a decision by the California Supreme Court on the questions of California law that we now certify. If the California Supreme Court decides any or all of the certified questions, we will accept and rely on the Court’s decision of that question or those questions in any further proceedings in this court.

The order certifying these questions can be found at this link. The order withdrawing the prior published opinion can be found at this link. Our previous post about the original opinion can be found at this link.


Modification of Opinion in Lu v. Hawaiian Gardens Casino

The Second District Court of Appeal has modified its opinion in Lu v. Hawaiian Gardens Casino (2009) __ Cal.App.4th __ (Labor Code § 351 and Labor Code § 450 do not provide for a private right of action, but may serve as predicate statutes for suits under the unfair competition law). The modification does affect the judgment. The modification is as follows:

The opinion filed by this court on January 22, 2009 is hereby modified as follows:

On page 2, line three of the second full paragraph starting with “to sue, that they”, insert the word “may” before the word “nonetheless”.

On page 6, delete heading 1 and insert, “1.  Lu does not have a private right to sue directly under Labor Code sections 351 and 450 but said statutes may serve as predicates to causes of action under the UCL for violation thereof.”

On page 11, line one of the second full paragraph starting with “Nevertheless,” insert the word “possible” before the words “cause of action”.

On page 11, lines seven and eight of the second full paragraph, delete the sentence starting with “The UCL is a proper avenue”, and insert, “It therefore follows that sections 351 and 450 can serve as predicates for a UCL claim by Lu.”

On page 11, at the end of the second full paragraph, insert “We express no opinion about whether Lu’s UCL claim can withstand demurrer.  We simply hold that these statutes can serve as predicates to a UCL cause of action.”

On page 24, delete the first full sentence and insert, “The trial court’s order granting summary adjudication with respect to the UCL cause of action premised on a violation of Labor Code section 351 is reversed with directions to deny summary adjudication of that cause of action.”

The modifications affect the judgment.

We discussed the original opinion in a recent post found at this link.


Unconscionable Contract Terms, Without Actual Damage, Do Not Bestow Standing

Has a person suffered “damage” within the meaning of the Consumer Legal Remedies Act (Civil Code § 1780(a)), such as to allow that person to bring an action under the act, if that person is a party to an agreement containing an unconscionable term, but no effort has been made to enforce the unconscionable term? No; and without such damage, a person lacks standing to bring any action, including one for declaratory relief. Meyer v. Sprint Sprectrum L.P. (2009) __ Cal.4th __.

In this case, plaintiffs sued defendant cellular telephone company alleging that its arbitration agreement and other remedial provisions were unconscionable, although plaintiffs did not otherwise allege that these provisions had been enforced against them or caused them damage. There are two questions before us. First, whether under these circumstances, a plaintiff may obtain injunctive relief to compel the removal of the allegedly unconscionable provisions under the California Consumer Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq.). Second, whether a plaintiff may obtain declaratory relief pursuant to Code of Civil Procedure section 1060 to declare these provisions unlawful and unenforceable.

We conclude that a plaintiff has no standing to sue under the CLRA without some allegation that he or she has been damaged by an alleged unlawful practice, an allegation plaintiffs do not sufficiently make here. Moreover, we conclude the trial court did not abuse its discretion in ruling that declaratory relief was not appropriate under these circumstances. We therefore uphold the Court of Appeal’s judgment affirming the trial court’s order sustaining a demurrer to plaintiffs’ complaint.

You can download the opinion in Meyer v. Sprint Sprectrum L.P. here in PDF or Word format. The opinion has little applicability to wage-and-hour class actions or labor law claims brought under the UCL, but we've been following it, so we followed it to its conclusion.


Tip Pooling and Private Rights of Action

Labor Code § 351 does not prohibit mandatory tip pooling in California casinos. Labor Code § 351 and Labor Code § 450 do not provide for a private right of action, but either may serve as predicates for suits under the unfair competition law (Business & Professions Code § 17200). Lu v. Hawaiian Gardens Casino (2009) __ Cal.App.4th __. Therefore, most of the trial court's order granting summary judgment of this casino worker wage-and-hour class action is upheld.

A triable factual issue about whether some tip pool recipients are “agents” in contravention of section 351 precludes summary judgment of the UCL cause of action based on that statute only. In all other respects, summary judgment was properly granted. Accordingly, we affirm the judgment in part and reverse it in part.

There was a prior District Court case holding that Labor Code § 351 does not contain a private right of action. Matoff v. Brinker Restaurant Corp. (C.D.Cal. 2006) 439 F.Supp.2d 1035. Labor Code § 351 reads:

“No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. An employer that permits patrons to pay gratuities by credit card shall pay the employees the full amount of the gratuity that the patron indicated on the credit card slip, without any deductions for any credit card payment processing fees or costs that may be charged to the employer by the credit card company. Payment of gratuities made by patrons using credit cards shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment.”

Labor Code § 450 reads, in relevant part,

“No employer, or agent or officer thereof, or other person, may compel or coerce any employee, or applicant for employment, to patronize his or her employer, or any other person, in the purchase of any thing of value.”

We still believe that there is a private right of action under Labor Code § 450 as it applies to the compelled purchase of clothing that constitutes a uniform. See Department of Industrial Relations v. UI Video Stores, Inc. (1997) 55 Cal.App.4th 1084, 1088, 1091-1092 (where the employer requires its employees to wear uniforms at work, the employer must furnish the uniform and pay for its upkeep; these payments are "wages." 8 CCR § 11070, ¶9(A).) There is clearly a private right of action to recover wages. Labor Code § 218.

You can read the entire text of Lu v. Hawaiian Gardens Casino here in PDF or Word format.


No Waiting Time Penalties Under the UCL

The First District Court of Appeal has held that penalty wages (waiting time penalties) are not recoverable under the Unfair Competition Law as restitution. Pineda v. Bank of America (2009) __ Cal.App.4th __.

Plaintiff Jorge A. Pineda appeals an adverse judgment entered after the trial court granted a motion for judgment on the pleadings by defendant Bank of America, N.A. He contends that the court applied the wrong statute of limitations to his claim under Labor Code section 203 for penalties incurred for the late payment of wages; that the court erred in concluding that section 203 penalties are not restitution within the meaning of Business and Professions Code section 17203; and that the court abused its discretion in denying him leave to amend. ... In the published portion of the opinion we affirm the trial court’s conclusion that section 203 penalties may not be recovered as restitution under Business and Professions Code section 17203.

The plaintiff acknowledged that all wages due him were paid before the complaint was filed, therefore, the Court of Appeal followed McCoy v. Superior Court(2007) 157 Cal.App.4th 225, and rejected his contention that the court erred in applying the one-year statute of limitations on actions to recover penalties (Code of Civil Procedure § 340(a)). Furthermore, the Court of Appeal found that the trial court did not abuse its discretion in denying plaintiff leave to amend his putative class action complaint to substitute or add a plaintiff for whom the waiting time penalties would be timely under the one-year statute.

the dictum in Murphy, supra, 40 Cal.4th at pages 1108-1109 (“the Legislature expressly provided that a suit seeking to enforce the section 203 penalty would be subject to the same three-year statute of limitations as an action to recover wages”) does not require a contrary conclusion. (McCoy, supra, 157 Cal.App.4th at p. 233.) 
...
Leave to amend a complaint is thus entrusted to the sound discretion of the trial court. ‘. . . The exercise of that discretion will not be disturbed on appeal absent a clear showing of abuse. More importantly, the discretion to be exercised is that of the trial court, not that of the reviewing court. Thus, even if the reviewing court might have ruled otherwise in the first instance, the trial court’s order will yet not be reversed unless, as a matter of law, it is not supported by the record.’ ” (Haley v. Dow Lewis Motors, Inc. (1999) 72 Cal.App.4th 497, 506.) Here, the trial court explained that “given that plaintiff has had several months to locate a substitute plaintiff/class representative and had thus far been unable to do so, if I granted leave to amend, this case would effectively become a lawsuit in search of a plaintiff, which while within my discretion to allow, I fail to see why I should. Plaintiff and his counsel have known since late November 2007 [when McCoy was decided] that there were serious questions as to the viability of the plaintiff as a class representative.”

The opinion was issued in December and ordered published last week. You can download the full text of Pineda here in PDF or Word format.


Oral Argument Set for Meyer v. Sprint

The Supreme Court has scheduled oral argument for Wednesday, December 3, 2008, at 9:00 a.m., in Los Angeles, in Meyer v. Sprint Spectrum L.P. (2007) 150 Cal.App.4th 1136 (Supreme Court No. S153846). In Meyer, the Fourth District Court of Appeal held that Proposition 64 created a two-part, standing test, and applied that test to bar claims by plaintiffs who were unable to show that the defendant had attempted to enforce the unlawful and unconscionable provisions in their agreements. The formal statement of issues on review reads as follows:

Petition for review after the Court of Appeal affirmed a judgment of dismissal of a civil action. This case presents the following issues: (1) Has a person suffered "damage" within the meaning of the Consumer Legal Remedies Act (Civil Code, section 1780, subd. (a)), such as to allow that person to bring an action under the Act if that person is a party to an agreement containing an unconscionable term (see Civil Code, section 1770, subd. (a)(19)), even though no effort has been made to enforce the unconscionable term? (2) Did plaintiffs have standing to seek declaratory relief?

Given that statement of issues, the opinion might be completely inapplicable to wage and hour cases, but it might also be broad enough to affect some unfair competition claims arising from illegal employment policies that have never resulted in discipline, as long as voluntary compliance by the employees has caused a monetary loss of some sort. Believe it or not, the scenario is not that unusual. We're following the case, therefore, for that reason and because we just like the idea of someone suing Sprint and winning.

Review was granted in August 2007.