Just the Facts, Appellant

People v. Ashford University, No. D080671 (D4d1 Mar. 8, 2024).

This is a UCL/FAL case that the Cal. AG brought against an online university for deceptive marketing practices. By the Court’s description, it was a high pressure boiler-room type operation where the University’s marketing employees were encouraged to make a hard sell to perspective students. As part of that, the school’s admissions people made a bunch of false statements on telephone solicitations regarding myriad aspects of the costs and benefits of enrollment and the credential to be obtained. The trial court found that the University made nine different kinds of misrepresentations. Based on a statistical sample taken by the AG’s expert, it determined that that there were 1,243,099 violations of the UCL and FAL and assessed civil penalties of about $22.4 million.

University doesn’t appeal liability, but it challenges the penalty calculation in a bunch of ways. It succeeds in an argument that some of the calls were outside of the UCL or FAL statutes of limitations (4 and 3 years, respectively) and manages to get about $900k of the fine tossed. But it fails on several other challenges to the penalty. Chief among them is the fact that what counts as the unit of a UCL or FAL “violation”—each of which is subject to a $2,500 penalty—is essentially governed by a rudderless gestalt rule of “whatever the trial court thinks it is.” Defendants never win on that (although sooner or later there has to be a 14th amendment issue) and the University doesn’t improve the defense bar’s batting average here.

But the noteworthy procedural point in this case is the six pages the Court spends detailing “Defendants’ Briefing Violations.” In particular, the Court says that the Defendants’ statement of facts in the AOB presented a slanted and unduly argumentative version of the facts, particularly in context of a standard of review that does not view the facts in a light most favorably to an appellant. Rule of Court 8.204(a)(2)(C) requires an AOB to contain summary of significant facts. That has been interpreted to require the appellant to be accurate and fair in dealing with the record. California courts take the requirement seriously.

The Court further dings the University for making factual statements with no support in the record, for citing materials that were not appropriately part of the appellate record, and for seeking judicial notice in a procedurally improper manner.

Reversed in part.

The Cops Don't Arbitrate

People v. Maplebear, Inc., No. D079209 (D4d1 Jul. 28, 2022)

The San Diego City Attorney sued Instacart under the UCL for misclassifying its Shoppers as independent contractors. Almost all of the Shoppers are parties to a form a agreement that contains an arbitration clause. Instacart claims it can enforce that obligation against the People. That does not make any sense. The People never agreed to arbitrate with Instacart. The fact that the People’s UCL claim is premised on violations of the Shoppers’ rights under state employment law does not make the People the Shoppers’ agent or bind them to the Shoppers’ obligations to arbitrate. Indeed, Iskanian and all of the other PAGA cases make this pretty clear.

Affirmed.

Rent-a-Cop

People ex rel City of San Diego v. Experian Data Corp., No. G060360 (D4d3 Apr. 26, 2022)

Some Plaintiff lawyers sued a credit rating agency and some related companies in federal court under the Fair Credit Reporting Act for selling the private data of 400,000 Californians to an outfit that turned out to be a front for a Vietnamese hacker. The case was dismissed on standing grounds. So the lawyers recruited the City Attorney of San Diego to bring a UCL litigation alleging basically the same facts. The City hired the Firms (three of them) under a 25% contingency fee deal. The terms of the retainer say that the City keeps ultimate control over the litigation, any settlement, etc. The Court goes out of its way to explain that the City Attorney took an active role in the litigation, e.g., it wrote key briefs and took depositions.

Upon learning of the contingency setup, Defendants moved to DQ the Firms, arguing that the contingency violated a prosecutor’s duty of neutrality. The trial court denied the motion and Defendants took a writ.

The Court of Appeal denies relief. The rules on contingencies and prosecutors are pretty settled. In a criminal case, they are per se barred. In a civil case, they are permitted, provided that (1) the case isn’t too criminal-ish so that the per se rule applies; (2) the actual government lawyers maintain full control over the litigation. 

On the first point, there are a pair of Supreme Court cases, twenty-five years apart, that explain the distinction. See County of Santa Clara v. Superior Court, 50 Cal.4th 35, 49 (2010); People ex rel. Clancy v. Superior Court, 39 Cal.3d 740 (1985). Clancy said a contingency was improper when the prosecution was a nuisance abatement action designed to shut down adult bookstores. Because the goal was to put people out of business, it was too much like a criminal action to permit a contingency. On the other hand, in Santa Clara, a nuisance case against the manufacturers of lead paint, the remedy was penalties and potential cleanup costs, but an injunction shutting down the businesses was not on the table. There, the Court found that, so long as the government lawyers maintained ultimate and operation control, a contingency is ok.

As the Court of Appeal sees it, this case is more like Santa Clara than Clancy. So a contingency fee is just fine.

The arrangement also doesn’t violate Business and Professions Code § 17206, which requires civil penalties to be used exclusively “for the enforcement of consumer protection laws.” As the Court sees it, paying lawyers a contingency fee to prosecute UCL civil penalty cases is for the enforcement of consumer protection laws.

Writ denied.

I don’t have any truck with the Court of Appeal’s legal analysis here. The case is more like Santa Clara. 

The issue I have, however, is that this kind of arrangement stinks of corruption. If the government lawyers are actually in control of the litigation, why are they giving a quarter of the recovery away to private lawyers? And why do they need three law firms?

My hunch here (and it is merely my surmise) is that there are a couple of things are going on at once: 

(1) Plaintiff lawyers are serving up prepackaged litigation to certain public prosecutoral agencies headed by elected officials—generally DAs and City Attorneys—holding it out as an easy buck. The agencies get most of the penalties. The plaintiff attorneys avoid the kind of standing rules that apply in regular civil litigation. (Aided by the Supreme Court’s 2020 decision in the Abbott Labs case, which says that any prosecutor who can enforce the UCL can sue and obtain penalties for violations statewide.) Plus they can obtain penalties that are only available in government-brought cases and take a contingency on them.

(2) The contingency fee avoids any out-of-pocket expenditure of public money, which gets around procurement rules that generally apply to government agencies. I would venture that there is zero chance that these legal arrangements are competitively bid.

(3) Some elected prosecutors’ campaign chests benefit from the benevolent largesse of said members the plaintiff bar. 

I don’t, as a matter of principle, take issue with the government occasionally hiring private lawyers to handle litigation. But there is a lot of money sloshing around in these private lawyer UCL penalty cases, and a lot of opportunity for graft. There’s certainly an appearance of it, at least. 

Plus, UCL civil penalty actions are rife with the potential for abuse. The penalty they afford is up to $2,500 per violation. But the courts steadfastly refuse to come to any fixed definition of what a “violation” is. It is ultimately in the eye of the trial judge. So plaintiffs have every reason to define violation broadly, such that they can claim that thousands or even hundreds of thousands of “violations” happen in any case. See this recent opinion for how it works.  

Even if the court doesn’t eventually buy it, being subject to a potential penalty in the billions of dollars that won’t get resolved until the court issues a post-trial statement of decision is a lot of pressure to bear. Delegating that kind of thing to contingency fee Plaintiff lawyers (even if the prosecutor needs to approve) is a lot of coercive power to put in the hands of a private actor with strong financial incentives. 

A legislative fix is needed. Don’t hold your breath.

Dismissed Jones Act Claim Is Still a SLAPP

Curtin Maritime Corp. v. Pacific Dredge & Construction, LLC, No. D078217 (D4d1 Mar. 22, 2022)

This is an anti-SLAPP appeal based on a theory that a competitor’s false certification to the Coast Guard to obtain a certification under the Jones Act* that its vessel was U.S. made violated the UCL. Defendant took an appeal after it lost the motion in the trial court. But the Plaintiff tried to dismiss the complaint while the appeal was pending, claiming the dismissal rendered the appeal moot. 

Not so. An appeal automatically stays trial court proceedings for any matter embraced or affected by the appeal. Code Civ. Proc. § 916. Since the validity of a complaint is embraced by an anti-SLAPP appeal, the automatic stay precluded the dismissal. And in any event, the appeal isn’t moot because a reversal will permit the defendant to claim fees on remand under § 425.16(c).

On the merits, on prong 1, the crux of Plaintiff’s claim entailed an allegation that Defendant submitted a false application for certification to the Coast Guard. That’s protected activity. On prong 2, the claim was preempted by the Jones Act, which the court finds gives the federal government the exclusive authority to determine what vessels satisfy the Jones Act.

Reversed.

*The Jones Act requires commercial vessels that sail in wholly domestic commerce—between two U.S. ports—to be manufactured domestically.

If a Consumer Never Sees an Ad, Can It Deceive Her?

Downey v. Public Storage, Inc., No. B291662 (D2d2 Feb. 6, 2020)

False advertising class action based on deceptive advertisements of a $1 first month promotional rate for storage spaces. There are apparently taxes, insurance, locks, and fees that arguably make that rate higher. Defendant has been advertising the deal, in a wide variety of media, for the last 37 years. The class is defined as everyone who paid the promotional rate. The issue is whether, in order to certify that class, the plaintiff needs to show that both the exposure of the class to the advertisements and the deceptiveness of the ads are subject to common proof. The trial court ruled they were and denied certification. Plaintiff took an appeal under the death knell doctrine. 

About a decade ago, the California Supreme Court held that a class action for violations of the UCL or FAL did not require individualized proof that members of the class relied on a false advertisement. In re Tobacco II Cases (2009) 46 Cal.4th 298. The logic is similar to the fraud on the market theory in a securities case. Because Proposition 64 requires a plaintiff to have lost money or property, a named plaintiff in a false advertising case must establish her own reliance and injury. But the reliance of the absent class members can be inferred if she can show: (1) the members of the class were exposed; (2) to an ad containing a misrepresentation; (3) that is material, and (4) they bought the product. Since since the UCL and FAL permit restitution of money that “may have been acquired” though false advertising, see Bus. & Prof. Code §§ 17203, 17535, that’s good enough to get relief for rest of the class.

The question then, is whether a plaintiff needs to show that elements (1) and (2) are nonetheless subject to common proof to merit certifying a class. Relying on a fair amount of prior precedent, the Court of Appeal here holds she does. It declines to read some stray language from Tobacco II so broadly as to permit absent class members to obtain restitution without some proof that they were actually exposed to false advertising. To do so would permit restitution of money that was “definitively not acquired” though a false ad. 

The evidence before the trial court showed that Defendant gave the promotional rate to customers who never asked for it. It was also possible for a consumer to pay the promotional rate without having seen any advertising. Because the class was defined as anyone who paid—as opposed to anyone who saw—that means the defined class contained individuals who were definitely not entitled to restitution. So substantial evidence thus supported the trial court’s conclusion that exposure wasn’t subject to uniform proof.

Similarly for deceptiveness, Plaintiff challenged 37 years’ worth of advertising, in multiple media, in different locations. Some of these ads contained disclaimers about the other fees and taxes. And on other occasions, a customer was nonetheless warned of the additional costs before the transaction was complete. Depending on the nature of the ad and the context, such disclosures could render some of the ads not deceptive. Given the great variety of advertising, there was substantial evidence in support of the trial court’s finding that deceptiveness also was not subject to common proof. 

Affirmed.

Does the UCL Bootstrap Torts?

Penuma Int’l, Inc. v. Cho, No. A151536 (D1d1 Jun. 24, 2016)

A dispute between an Employee and his former Employer. Employee, who had set up Employer’s email domain, failed to turn it over after he left for a competitor. Although a flurry of claims and cross-claims were alleged, the only one for which liability was found was trespass to chattels. Employer appealed, among other things, the dismissal of its claim under the Unfair Competition Law.

Employee denied employer some use over the domain, but not enough to constitute conversion. The Court holds that is not enough to bootstrap the tort into a claim for an “unlawful” violation under the UCL. The “unlawful” standard is often articulated to include practices made unlawful under “court-made law.” But in a sparse analysis, the Court of Appeal here finds that a “non-criminal tort,” without more, is insufficient as a “specific law” to serve as the basis of an unlawfulness claim.* And in any event, since the UCL didn’t afford any additional relief, it’s basically an academic point.

Affirmed.

*This is actually a tricky question, and the short-shrift analysis the Court gives it here is not ideal. The Court didn’t need to reach the issue since it didn’t afford any additional remedy. But since an alternative holding is not dicta in California, arguably, the decision here is precedential in a case where the UCL were to afford some basis additional relief. E.g., a civil enforcement case where a public prosecutor sought penalties grounded in “unlawful” violations grounded in tort. 

The State Has No Home Court

Gamestop v. Superior Court, No. E068701 (D4d2 Aug. 22, 2018)

The Riverside and Shasta County DAs sued a secondhand video game Store in Riverside Superior Court for violating the Unfair Competition Law. They claim that the Store’s conduct was “unlawful” under the UCL because the Store violated the Secondhand Dealers’ Law, which regulates pawn shops and other resellers of personal property to prevent them from being used to fence stolen goods. 

Store moved to change venue under Code of Civil Procedure § 394(a), which permits a foreign corporate defendant to transfer an action to a neutral county when sued by a city, county, or local agency. But according to the Court of Appeal, the problem with that argument is that the UCL permits a DA to bring a UCL action on behalf of “the People of the State of California.” Thus, even if the DA’s authority is limited to prosecuting UCL violations in his or her home county—a question that is currently pending before the California Supreme Court—the State of California is nonetheless the plaintiff, so § 394(a) doesn’t facially apply.

Writ denied.

UCL Penalties Case Goes to a Jury

Nationwide Biweekly Admin., Inc. v. Superior Court, No. A150264 (D1d1 Jun 12, 2018)

Before yesterday, had I been asked whether there’s a right to jury trial in an case brought by a public prosecutor seeking statutory penalties under the Unfair Competition Law, off of the top of my head, I would have guessed no. I vaguely recall having read some cases that say that. Plus the UCL is, so far as California state law goes, a beast of equity. That’s probably what the Court of Appeal first thought too, when it summarily denied a writ Defendant in this case took from the superior court’s striking their jury trail demand. But the Supreme Court granted review and transferred the case back to the Court of Appeal, ordering an assessment of the merits.

And when they got into the merit of it, it turns out everyone’s assumptions were wrong. In a solid, thoughtful analysis, the Court holds that an enforcement action for penalties under the UCL is more closely equivalent to an action at law in the common law of England in 1850 than something at equity. (That’s the test for when there’s a jury trial right under the state constitution.) The Court primarily relies on a U.S. Supreme Court case, Tull v. United States, 481 U.S. 412 (1987) and an older decision of the California Supreme Court, People v. One 1941 Chevrolet Coupe, 37 Cal.2d 283 (1951) to hold that the gist of an enforcement action seeking statutory penalties is to punish, which is a legal, not equitable, practice. The Court holds however, that the jury right applies only to liability. Much like a criminal sentence, a calculation of civil penalties is classically within the discretionary power of the court.

As I recollected, there are a handful of Court of Appeal cases that seemingly go the other way. But the Court plows through them, showing that: (1) they deny a right to jury trial under the Sixth Amendment (although a civil penalties case is punitive, it is not criminal); or (2) they contain cursory or no analysis, or blindly cite to the Sixth Amendment cases, to deny the right without doing any requisite Seventh Amendment (or in California, Article I, § 16) analysis that looks to remedies and equivalents at common law. Finding no other case that has actually done the work, the Court finds these cases unconvincing.

Tthe People also suggest that they could sever off the penalties issue and have their demand for injunctive relief tried first to the court. Because that would necessarily entail a liability ruling, doing so would effectively foreclose Defendant’s jury trial right on liability in any later trial on penalties. But the Court of Appeal rejects that argument. It is true that in California procedure (unlike federal procedure) a court can try a equitable cause of action first, with the court’s fact finding in that trial being preclusive on a later jury trial. Although there’s good authority to do that on a cause-of-action-by-cause-of-action basis, nothing supports to ability to so finely parse the legal and equitable remedies that flow from a single claim.

Writ granted.

It's Just Too Big a Mess

Kendall v. Scripps Health, No. D070390A (D4d1 Oct. 23, 2017)

A Patient got a $17,500 bill for services that the Hospital admitted would have been reimbursed at about $2k to Medicare or Medi-Cal. So he brought a class action to challenge the Hospital’s opaque billing practices. But the trial court denied class cert because common questions weren’t predominant and the class was not ascertainable. The Court of Appeal affirms on both grounds.

Borrrowed Exceptions to the Litigation Privilege

People v. Persolve, LLC, No. F064572 (D5 Aug. 15, 2013) 

When a claim alleging a violation of the unlawful prong of the Unfair Competition Law arises from conduct that would generally be privileged under the Civil Code § 47(b) litigation privilege, the privilege does not apply when a “borrowed” statute is specific and inconsistent its application.