California Class Issues

Summary

Following the trial of a tobacco false advertising case dating back to 1997, a California court found that, although the defendant misrepresented to consumers the health benefits of its Marlboro Lights cigarettes, the Plaintiffs were entitled to no relief as they failed to prove entitlement to any of the limited remedies available under California’s Unfair Competition Law.

The court in Brown v. The American Tobacco Co., Inc., et al., Case No. 711400 (San Diego Superior Court Sept. 24, 2013) emphasized and underscored that restitution under California  law does not allow plaintiffs to recover “benefit of the bargain damages.”  Brown, at 11.  Instead, restitution reimburses consumers only for the difference between the value paid and the actual value of the product received.  Id.  Plaintiffs failed to show their entitlement to restitution under California law because, among other reasons, their proffered evidence improperly focused on consumers’ perceived value of the misrepresented health attributes without considering the actual market value of the entire product absent the misrepresented attribute, i.e., the product plaintiffs received.   Id.

The court held that the evidence showed the price paid for Marlboro Lights cigarettes was not in excess of the actual market value of the product plaintiffs received (without any health benefit).  Id. at 16-17.  Thus, the restitution value was zero.  Id. at 17.  The court emphasized that:  (1) consumer purchases of Marlboro Lights did not substantially change relative to Marlboro Reds despite significant corrective actions taken by the defendant to communicate to consumers that Marlboro Lights offered no health benefits compared to Marlboro Reds; and (2) Marlboro Lights and Marlboro Reds sold for the same price during the time period of the defendant’s corrective actions.  Id. at 16-17. 

The court also found that plaintiffs were not entitled to injunctive relief.  Id. at 18-21.  Specfically, the court held that: (1) plaintiffs presented no specific evidence concerning injunctive relief; (2) it is unlikely that the misrepresentations will recur due to defendant’s marketing changes, a federal statute, and an injunction in a different case; (3) injunctive relief would be redundant because information plaintiffs desire to provide consumers has already been disseminated; (4) tobacco advertising and packaging is preempted; and (5) plaintiffs waived injunctive relief in the Master Settlement Agreement reached with numerous state attorneys general.  Id

Significance

The Brown decision illustrates and reinforces the structure of California’s UCL.  While the UCL broadly proscribes a wide swath of conduct, the remedies available are limited.  The decision also serves as a reminder to businesses that defense of UCL actions should focus on both liability and the plaintiffs’ entitlement to available remedies, or the lack thereof.

Even assuming a product’s attributes have been misrepresented to consumers, to obtain monetary relief in the form of restitution plaintiffs must still show that they paid more than the actual market value of the product they received without the misrepresented attribute.  As shown in Brown, this will undoubtedly be difficult if not impossible for plaintiffs where the defendant can show that:  (1) the challenged product sells for the same price as other products without the misrepresented attribute; and (2) consumers did not alter their behavior following any change in advertising as to the allegedly misrepresented attribute.

Businesses should also consider the applicable law governing a particular case.  State consumer protection laws and the law of restitution often vary state to state.  The court in fact noted that plaintiffs’ expert improperly relied on the same form of analysis in a case governed by Missouri law where, the court stated, unlike California, “benefit of the bargain” damages applied.  Id. at 11. 

“Shakedown Suits”

Although California’s passage of Proposition 64 made it more difficult for the plaintiffs’ bar to bring “shakedown suits” against the business community, we are witnessing a flood of false advertising class actions brought (or, more often, threatened) against consumer product manufacturers and retailers, who typically have no arbitration rights.  While some lawsuits are immediately filed, many plaintiffs’ firms serve demand letters under the California Consumers Legal Remedies Act (“CLRA”) threatening class actions that, historically, have been difficult to resolve expeditiously given their fact-intensive nature.  Facing the cost of defending such claims, many companies accept pre-filing offers to settle on an individual basis for purely economic reasons.  On September 25, 2013, however, the California Court of Appeal threw a lifeline to companies that refuse to pay such protection money.

The Court’s Opinion

In Simpson v. Kroger Corp., No. B242405, 2013 Cal. App. LEXIS 769, the complaint alleged that a “spreadable butter” product, which consists of butter mixed with canola or olive oil, was mislabeled and falsely marketed as “butter.”  On behalf of a putative class, the plaintiff alleged purported claims for unfair competition in violation of California Business and Professions Code Section 17200, false advertising in violation of California Business and Professions Code Section 17500, and violation of the CLRA.  After reviewing the packaging, which listed the product’s ingredients and otherwise disclosed what the product was, the trial court sustained a demurrer without leave to amend, finding that a reasonable consumer was not likely to be deceived.  Citing Day v. AT&T Corp., 63 Cal. App. 4th 325, 333, 74 Cal. Rptr. 2d 55 (1998), the Court of Appeal affirmed, confirming that courts “may be able to say as matter of law that contrary to the complaint’s allegations, members of the public were not likely to be deceived or misled . . . by packaging material.”

Implications

Although Simpson certainly does not guarantee the dismissal of every false advertising claim, it provides a potential early exit strategy at the pleading stage where it is clear from the factual circumstances that no reasonable consumer could have been misled.  It also reiterates the importance for companies to consider class action risk with respect to all decisions related to product labeling and advertising.

It is often assumed that the statutory penalty in civil actions under California’s Invasion of Privacy Act, Penal Code section 630 et seq. (“CIPA” or “Act”), is $5,000 for each instance of misconduct that violates the Act.  (Some California courts have indeed indicated as much, though in dicta and without analysis.)  Adopting such a view, class action plaintiffs usually contend that CIPA violations should be punished at a rate of $5,000 per violation per class member, which could expose class action defendants to monstrous and potentially annihilating penalties.  But, this view is not supported by the plain text or legislative history of the Act.

The Text Of Civil Code Section 637.2

Nowhere in Penal Code section 637.2, the provision of CIPA allowing civil actions, does it say that statutory penalties are $5,000 per violation.  Rather, the text of the section convincingly suggests, if not conclusively requires, that statutory penalties be capped at $5,000 per lawsuit.  The text indicates that a plaintiff is only entitled to recover more if she suffered actual damages and those damages exceed $5,000 either alone or under the portion of 637.2 allowing treble damages.

Section 637.2 states in full:

“(a) Any person who has been injured by a violation of this chapter may bring an action against the person who committed the violation for the greater of the following amounts:  (1) Five thousand dollars ($5,000).  (2) Three times the amount of actual damages, if any, sustained by the plaintiff.

(b) Any person may, in accordance with Chapter 3 (commencing with Section 525) of Title 7 of Part 2 of the Code of Civil Procedure, bring an action to enjoin and restrain any violation of this chapter, and may in the same action seek damages as provided by subdivision (a).

(c) It is not a necessary prerequisite to an action pursuant to this section that the plaintiff has suffered, or be threatened with, actual damages.”

Whether section 637.2 imposes penalties per violation or per action has not been litigated often, although defendants have advanced the argument that the penalty should be per action.  Defendants have noted, for example, that section 637.2’s reference to $5,000 modifies the term “action” not “violation.”  Defendants have also argued that the California Legislature has drafted dozens of penalty provisions whereby the penalty is explicitly written to be per violation, but that Penal Code section 637.2 simply does not include such terminology.

The Legislative History Of Civil Code Section 637.2

That statutory civil penalties under CIPA are capped at $5,000 per action is the most direct construction of the language of section 637.2 and thus the one that should be favored.  See, e.g., California Fed. Savings & Loan Assn. v. City of Los Angeles, 11 Cal.4th 342, 349 (1995).  Such a statutory interpretation also happens to be supported by the Act’s legislative history.

At the outset, nothing in the legislative history appears to support an intent that penalties would be on a per violation basis.  Rather, the phrasing found in the pieces of the history, like the language of the statute, shows the intent to award the statutory penalty on a per action basis.  See, e.g., Digest of Assembly Bill 860, by Assembly Speaker Jesse M. Unruh (May 2, 1967), p. 6 (“In that action he could recover a minimum of $3,000 or an amount equal to three times the actual damage he suffered by the invasion of his privacy”); Assembly Committee on Criminal Procedure, Judiciary Com., Assem. Bill No. 860 (April 25, 1967), p. 5 (section 637.2 “provides for a civil action by any person injured by a violation of this chapter for $3,000 or treble damages, whichever is greater”).

The Legislature intended the real deterrent to be the threat of triple damages; the penalty was merely a floor that only actual damages, trebled or otherwise, could exceed.  See, e.g., Digest of Assembly Bill 860, by Assembly Speaker Jesse M. Unruh (as amended June 5, 1967), p. 6 (“The availability of a civil action for the recovery of triple damages should prove to be an effective deterrent in cases where wire­tapping or eavesdropping is connected with industrial espionage.  In such cases the possible economic rewards might be so great that they would outweigh the threat of criminal penalties.  But a large civil damage award, such as could be obtained in a triple damage suit, might in fact discourage the activity”).

It was further contemplated that repeat violations would be civilly remedied by means of injunctive relief, not though accruing penalties.  Id. (“In the same suit, or in a separate action, he could also seek to enjoin the continuation of the eavesdropping”).  This is significant in that the Legislature was obviously aware of and acknowledged the possibility of multiple violations by a defendant, but did not enact language stating that the penalty is to be awarded for each violation.

An interpretation that the penalty is only authorized once per action is all the more reasonable when one considers that the original $3,000 penalty in 1967, when the statue was enacted, would be worth approximately $20,000 in today’s dollars.  By the time section 637.2 was enacted, the Legislature had already passed several statutes where it overtly stated penalties were on a per violation or offense basis.  See, e.g., Civ. Code § 52; Bus. & Prof. Code § 556; Bus. & Prof. Code § 17536.  It even enacted statutes in 1967 that had language imposing penalties on a per violation basis, including penalties of as little as $100.  See, e.g. Food & Agric. Code § 10786; Civ. Code § 1716; Health & Safety Code § 18700.  With this backdrop, it is implausible that the Legislature intended to impose in section 637.2 the equivalent of $20,000 in penalties for each offense without following its contemporaneous and prior draftsmanship and explicitly stating the penalty would be on a per violation basis.

Class Defendants Should Consider Arguing That Statutory Penalties Are Capped At $5,000 Per Action

Class action defendants have strong arguments against a construction of section 637.2 that imposes the $5,000 penalty on a per violation bases.  One obstacle is those cases that have made statements in dicta that the penalty is per violation.  But, it does not appear the courts considered or were presented with the legislative history, nor did the decisions articulate the reasoning for their statements or engage in any meaningful analysis of the language of section 637.2.  Thus, their dicta should not be binding.  See, e.g., People v. Superior Court, 1 Cal. 4th 56, 66 (1991) (“we must view with caution seemingly categorical directives not essential to earlier decisions and be guided by this dictum only to the extent it remains analytically persuasive”); Kasky v. Nike, Inc., 27 Cal. 4th 939 (“disapprov[ing] as ill-considered dicta” certain statements the Supreme Court had made in a prior decision); People v. Evans, 44 Cal. 4th 590, 599 (2008) (noting with respect to a statement in a prior Supreme Court opinion that “an appellate decision is not authority for everything said in the court’s opinion but only for the points actually involved and actually decided”) (citation omitted); Appel v. Superior Court of Los Angeles County, 214 Cal. App. 4th 329, 340 (2013) (“general observations unnecessary to the decision [] are dicta, with no force as precedent” and that such statements even lack persuasive authority where they were not made in a process that “demonstrates a thorough analysis of the issue”).

A good-faith argument, therefore, can still likely be advanced that section 637.2 does not authorize a penalty per violation but rather only allows a penalty of $5,000 per lawsuit, or up to three times actual damages.  Class action defendants sued under CIPA should consider raising the argument if for no other reason than to preserve the issue for appellate review.

The Ninth Circuit recently held that a declaration from the defendant’s comptroller stating that the defendant’s sales of the challenged product during the class period exceeded $5 million was sufficient to satisfy the amount-in-controversy requirement of the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2) (“CAFA”).   Watkins v. Vital Pharmaceuticals, Inc., No. 13-55755 (9th Cir. July 2, 2013).  The Ninth Circuit reversed the federal trial court’s remand of the action to state court and directed the federal court to exercise jurisdiction over the case.  The decision adds clarity to what evidence may be adduced to establish federal court jurisdiction under CAFA and provides guidance to businesses seeking to remove state court putative class actions to federal court.

Background

Plaintiff Gabe Watkins (“Plaintiff”) filed a putative class action against Vital Pharmaceuticals, Inc. (“Vital”) in California state court alleging that Vital distributed ZERO IMPACT protein bars that were erroneously marketed and labeled as having little to no impact on blood sugar.  Plaintiff asserted California state law claims and alleged a nationwide class of consumers.

Vital removed the action to federal court under CAFA.  CAFA provides an alternative basis for federal court subject matter jurisdiction, but requires, among other things, that the combined claims of all class members exceed $5 million exclusive of interest and costs.  At issue on appeal, was whether the amount-in-controversy requirement was met.

Vital submitted two declarations in support of its assertion that more than $5 million was in controversy.  First, Vital submitted a declaration from its counsel.  Defense counsel’s declaration pointed out Plaintiff’s own allegations in his Complaint regarding the amount in controversy.  Specifically, Plaintiff alleged that “the aggregate damages sustained by the Class are likely in the millions of dollars.”  The declaration also referred to the fact that Plaintiff sought, in addition to damages, restitution, disgorgement of profits, and attorneys’ fees based on sales to thousands of consumers nationwide.  Second, Vital submitted a declaration from its comptroller.  In that declaration, the defendant’s comptroller stated that Vital’s nationwide sales of its ZERO IMPACT bars during the four-year class period exceeded $5 million.

Despite Vital’s showing, the district court remanded the case to state court.  The district court held that Vital did not meet its burden of proving CAFA’s amount in controversy requirement.  The district court found defense counsel’s declaration vague and conclusory and downplayed the sales data as mere averments without mentioning the comptroller’s declaration.

On appeal, the Ninth Circuit agreed with Vital that the undisputed declaration from its comptroller was sufficient to establish that CAFA’s $5 million amount in controversy requirement was met.

Implications

The Vital Pharmaceuticals decision provides guidance to businesses seeking removal of putative class actions from state to federal court under CAFA and to lower courts considering remand of removed cases.  It is unclear, however, whether federal district courts in the Ninth Circuit would reach the same result under different facts and with a more aggressive plaintiff’s attorney.  For example, the Ninth Circuit specifically noted that: (1) the comptroller’s declaration went uncontroverted by Plaintiff; and (2) Plaintiff filed a document stating that he took no position on Vital’s appeal and that he declined to file a brief.  That said, Plaintiff’s counsel here may have recognized and been swayed by the difficulty in challenging the sales data proffered by Vital Pharmaceuticals.

On July 15, 2013, Judge David O. Carter of the U.S. District Court for the Central District of California entered an opinion in Craftwood II, Inc. v. Tomy International, Inc., No. SA CV 12-1710 (C.D. Cal.), denying defendant’s motion for summary judgment and rejecting defendant’s argument that its offer of judgment mooted plaintiff’s claims.

The Court acknowledged a circuit split regarding the issue, but ruled that the Ninth Circuit’s decision in Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011), governed the effect of defendant’s offer of judgment and refused to apply the Supreme Court’s recent decision in Genesis Healthcare Corp. v. Symczyk, 133 S.Ct. 1523 (2013).

As we noted in previous posts (read more here), courts’ continued reluctance to find claims “moot” demonstrates that, notwithstanding Genesis, a Circuit split over the impact of offers of judgment in the class context remains intact, and the future viability of this common defense tactic for eliminating low-value class claims remains uncertain.

Factual Background

Plaintiff Craftwood brought a putative class action contending that Tomy International (“Tomy”) violated the Telephone Consumer Protection Act (“TCPA”) when it sent unsolicited “junk” fax advertisements to Plaintiff and others.  Plaintiff sought statutory damages of $500 per violation, treble damages, and injunctive relief against future violations.  Id. at 2.

On August 28, 2012, Tomy sent Plaintiff a settlement proposal wherein it offered $1,500 for each fax advertisement that Tomy sent to Plaintiff in violation of the TCPA, agreed to pay costs and prejudgment interest, and agreed to accept entry of an injunction prohibiting it from sending unsolicited faxes in violation of the TCPA.  Id. at 2-3.

Thereafter, Tomy filed a motion for summary judgment arguing that the Court lacked subject matter jurisdiction and, therefore, should dismiss the case as moot.  Id. at 3.

The Court’s Opinion

Relying on the Seventh Circuit opinion in Damasco v. Clearwire, 662 F.3d 891 (7th Cir. 2011), Tomy argued that its offer mooted Plaintiff’s claims because Tomy offered to provide all of the individual relief to which Plaintiff could be entitled.  Id. at 4.

The Court acknowledged that, under Seventh Circuit law, a plaintiff may not avoid mootness where he does not move for class certification prior to the expiration of his personal stake in the case.  Id.  The Court noted, however, that four circuits disagree with the Seventh Circuit’s approach, including the Ninth Circuit.  Id. at 5.

In Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011), the Ninth Circuit held that a rejected offer of judgment for the full amount of a putative class representative’s individual claim does not moot a class action where it precedes the filing of a motion for class certification.  Id. at 5.  The Court noted that such a holding “furthers the unique purposes and context of [Rule 23], where class claims often are so small in terms of damages that no plaintiff can afford to maintain a lawsuit on her own.”  Id. at 5-6.

The Court rejected Tomy’s argument that the Supreme Court’s recent decision in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), overrules or severely undermines the Ninth Circuit’s decision in Pitts.  Id. at 6.  It reasoned that a ruling in the context of a collective action “does not directly apply to a class action” and, in Genesis, the Supreme Court merely assumed without explaining how an unaccepted offer of judgment could moot an individual claim.  Id. at 6-7.

Relying on Justice Kagan’s dissent in Genesis, the Court held that the “better view” is that, as long as parties have a concrete interest, however small, in the outcome of the litigation, the case is not moot.  Id.  Here, Plaintiff did not receive an offer of relief for its class claims, and it only received an offer of relief for the not-yet-determined number of faxes that actually violated the TCPA.  Id. at 7.

Implications

The Court acknowledged, and its opinion demonstrates, that the Circuit split over the effect of unaccepted offers of judgment remains intact.  As Craftwood demonstrates, notwithstanding Genesis, courts at least in the Ninth Circuit will continue to find that offers of judgment do not moot plaintiffs’ class claims, even if plaintiffs fail to move for class certification while the offers remain pending.  In the class action arena, where defendants have few devices for quickly eliminating costly claims, their ability to rely upon offers of judgment remains uncertain and likely will continue to remain uncertain until the Supreme Court resolves the issue.

Adding to the growing list of Defendants forced into large settlements under the Telephone Consumer Protection Act (“TCPA”), the Northern District of California approved a $6 million common fund class settlement, inclusive of a 25%, or $1.5 million, attorneys’ fees allocation.

Factual Background

On May 27, 2011, two individuals filed a class action lawsuit against Google and its then-recently acquired subsidiary, Slide,  alleging that the companies violated the TCPA by sending text messages to cell phone’s without the consumer’s consent.    Google and Slide had just released a “group texting” tool, called “Disco,” that allows an individual to send text message to a large group of people using one cell phone number provided by Disco.  According to the complaint, the program allowed messages to be sent through the program without consent, and would only prevent messages once a person affirmatively opted out.  The problems compounded, according to the complaint, when one unwilling recipient continued to receive hundreds of text messages from other confused recipients, wondering who was sending the text, and why.

Throughout the litigation, Google attempted several defenses. For example, in early 2012, it argued that the TCPA statute violated the First Amendment, as the text messages sent from friend to friend were protected speech.  The judge, Hon. Yvonne Gonzalez Rogers, rejected the argument, holding that the message constituted unprotected commercial speech.  Following, Google filed a petition with the FCC, seeking a declaratory ruling that the TCPA did not apply to group texting.  With the petition pending, the Court agreed to stay discovery, during which the parties engaged in settlement negotiations, ultimately reaching settlement in October 2012.

The Settlement

On June 26, 2013, the Court entered a final approval of the settlement.  The parties agreed to a $6 million common fund, benefiting a settlement class of:

All persons who received the Disco Mobile App Text or other text message sent by or through the Disco Messaging Service
informing such Persons about Disco Messaging Service. [omitting exclusions]

The Court further determined the common fund of $6 million to be fair, allowing for a “full” recovery, as, although the messages were sent to 185,688 unique telephone numbers, only a small portion of the Settlement Class was expected to file claims.  On this basis, the Court also approved a $1.5 million attorneys’ fees award, noting that 25% of the common fund is the benchmark in the Ninth Circuit.  In conducting its analysis of the factors governing approval, however, the Court did reduce the claimed lodestar hours, noting “numerous inefficiencies” and “excessive billing for unnecessary work.”

Conclusion

Facing a $500 per violation statutory risk, Defendants frequently find themselves forced into a settlement posture under the TCPA.  As noted above, it is extremely important for companies to explore all possible statutory defenses (such as consent and/or permission) early in litigation.  Furthermore, given the volume of decision across the country, several creative tactics can be employed to either reduce, or avoid, liability under this statute.  This settlement, however, serves as a reminder that the TCPA remains a very real, and very troublesome, statute.  It is critical to understand the nuances of the statute before initiating any marketing campaigns.  In a twist on the old Ben Franklin adage, an ounce of prevention will save you many pounds to cure.

 

 

On June 26, 2013, in Brown v. DirecTV, LLC, et al., Case No. 2:12-cv-08382, Judge Gee, sitting in the Central District of California, granted DirecTV’s motion to compel arbitration, rejecting two efforts by the Plaintiff to keep the matter in federal court: (1) that TCPA claims did not “arise under or relate to” the agreement or service provided; and (2) an exception clause should be read to preclude claims under both the Communications Act of 1934 and a separate portion identified in that section, 47 U.S.C.  605.

Factual Background

Plaintiff ordered his DirecTV satellite service online, requiring him to review and accept the terms and conditions of service.  Id. at * 2.  One of the terms of the contract contained an arbitration provision stating that “You and DIRECTV agree that any dispute arising under or relating to your agreement or service with DIRECTV, which cannot be resolved informally, will be resolved through binding arbitration as fully set forth in the DIRECTV Customer Agreement (a copy is sent with your first bill but may also be viewed at DIRECTV.com).  Arbitration means you waive your right to a jury trial.”    Id. at * 3.  He also signed a form during installation related to the DIRECTV Equipment Lease containing a similar arbitration provision. Id. at *4.  Finally, the Customer Agreement also contained a clause that excluded certain statutory claims, stating: “Notwithstanding the foregoing… any dispute involving a violation of the Communications Act of 1934, 47 U.S.C. 605, the Digital Millennium Copyright Act, 17 U.S.C. 1201, the Electronic Communications Privacy Act, 18 U.S.C. 2510-2521 or any other statement or law governing theft of service, may be decided only a court of competent jurisdiction.”  Id. at * 5.  After failing to make payments on the contract, DirecTV, through a third party, began making collection calls to Brown.  In turn, Brown brought suit under the Telephone Consumer Protection Act (“TCPA”) and the California UCL.

The Court’s Decision

In addition to other typical arguments raised related to arbitration clauses (lack of knowledge, unconscionability), Brown also argued that the TCPA claims should not be covered because they do not arise under or relate to the Agreement or services and/or the matter was excepted, as the clause should be read to exclude claims under both the Communications Act of 1934 and 47 U.S.C. 605.  In rejecting the first argument, the court noted that under Ninth Circuit law, a court should interpret “arising under” narrowly, while interpreting “relating to” more broadly.  The court held that the “relating to” language was narrowly tailored, and further observed that the contract specifically contemplated collection calls as part of the contract.  Id. at * 9-11.  In rejecting the second argument, the court opined that taking Plaintiff’s interpretation would render the exceptions “nonsensical,” as it would read as a highly broad exclusion, followed by an extremely narrow exclusion contained within the previously broad exclusion.  Id. at *11.

Implications

As the law continues to evolve related to arbitration clauses in consumer contracts, companies should take time to review the language of their agreements in light of decisions such as Brown.  Specifically, they should review whether their consumer contracts contain appropriate limiting language  and whether any exclusions noted could be read broadly enough, in a sensible way, to exclude TCPA claims.

In one of the many food labeling cases flooding the dockets of California federal courts, U.S. District Court Judge Edward J. Davila denied certification of two proposed classes of consumers that included potential class members who had purchased products other than the ones purchased by the named plaintiff.  See Major v. Ocean Spray Cranberries, Inc., No. 5:12-cv-3067 (June 10, 2013).  Judge Davila held that the proposed classes were overbroad and that class definition was inappropriate for certification due to lack of typicality under Rule 23 of the Federal Rules of Civil Procedure. 

Plaintiffs challenging food and beverage labels have been aggressively asserting claims and alleging putative classes that include products the plaintiffs have not purchased.  In response, food and beverage manufacturers have challenged at the pleadings stage plaintiffs’ standing to assert claims on behalf of putative class members for products the named plaintiff had not purchased.  These challenges have been met with mixed results. 

This decision is significant in that it severely restricted the scope of potential classes to include only those products purchased by the named plaintiff or plaintiffs.  The decision, however, is not binding on other federal trial courts and the law in this area remains unsettled.          

Factual Background

Plaintiff Noelle Major claimed to have purchased five Ocean Spray products:  (1) Blueberry Juice Cocktail; (2) 100% Juice Cranberry & Pomegranate; (3) Diet Sparkling Pomegranate Blueberry; (4) Light Cranberry; and (5) Ruby Cherry.  Plaintiff alleged that these and other Ocean Spray products contained packaging and labeling that were unlawful, false or misleading.  Specifically, Plaintiff claimed that Ocean Spray made improper:  “no sugar  added” claims; no artificial colors, flavors, or preservatives claims; “healthy” claims; and antioxidant claims.

Plaintiff asserted claims typical of claims made in food labeling lawsuits in California:  (1) violation of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq.; (2) violation of the California False Advertising Law (“FAL”), Cal. Bus. & Prof. Code § 17500 et. seq.; (3) violation of the California Consumers Legal Remedies Act (“CLRA”), Cal. Civ. Code § 1750 et seq.; (4) restitution based on unjust enrichment or quasi-contract; (5) breach of warranty in violation of the California Song-Beverly Act, Cal. Civ. Code § 1790 et seq.; and (6) breach of warranty in violation of the Magnuson-Moss Act, 15 U.S.C. § 2301. 

The Court considered two different proposed classes – the class alleged in Plaintiff’s pleading and the class Plaintiff sought to be certified.  In Plaintiff’s pleading, she alleged a class of persons based on the purported misrepresentations.  For example, Plaintiff alleged a class that included all persons who purchased products during the class period that were represented to contain no artificial colors, flavors, or preservatives but which contained artificial flavors, colors, or preservatives.  Plaintiff, however, then sought certification of a class of persons who purchased products from four juice product lines from which Plaintiff purchased products not just the particular flavors within the product lines that were purchased by Plaintiff.  Thus, the class Plaintiff sought to certify included many different flavors of products than the ones purchased by Plaintiff. 

The Court held that both classes failed due to lack of typicality.  The principle reason cited for that finding was that both proposed classes included products not purchased by Plaintiff.  The Court stated:  “In the context of cases involving several products at issue…district courts have held that the typicality requirement has not been met where the ‘named plaintiff … purchased a different product than that purchased by unnamed plaintiffs.”  Accordingly, “[t]he primary reason behind the Court’s determination that the typicality requirement has not been met is that Plaintiff’s proposed classes are so broad and indefinite that they encompass products that she herself did not purchase.”  The Court noted that Plaintiff purchased just five products. 

The Court noted that Plaintiff failed to link any of the unpurchased flavors to any alleged misbranding issue in the case.  Plaintiff also apparently failed to show that the labels and nutrition claims on different flavors were not unique to differently-flavored products.  As an example, the Court noted that Plaintiff’s claim as to blueberry-flavored sparkling juice was specific to blueberry-related representations.  As a result, it was unclear how those representations could be linked to differently-flavored sparkling juice.   

Implications

While the Ocean Spray decision represents a favorable outcome for the food and beverage industry, businesses should operate with caution as these areas of law are constantly evolving and it is unclear the extent to which other trial and appellate courts will reach the same result.  It is important for food and beverage manufacturers, distributers and retailers to keep abreast of the steadily evolving law in these areas.   

 

California Penal Code section 632.7 imposes criminal liability and, pursuant to Penal Code section 637.2, civil liability upon persons who intercept or receive a communication involving a cellular or cordless telephone and record the communication without consent.  The section and its sister provision, Penal Code section 632, are popular among class action plaintiffs in California as a means to challenge the business practice of recording customer service calls.   

The appeal of section 632.7 to plaintiffs is that it may not require the subject communication be confidential, unlike section 632. The question is raised, though, if section 632.7 even applies to the parties to a cellular or cordless telephone call.  Subsection (a) of the provision states, in part:

Every person who, without the consent of all parties to a communication, intercepts or receives and intentionally records, or assists in the interception or reception and intentional recordation of, a communication transmitted between two cellular radio telephones, a cellular radio telephone and a landline telephone, two cordless telephones, a cordless telephone and a landline telephone, or a cordless telephone and a cellular radio telephone, shall be punished by a fine [] or by imprisonment in a county jail [].

The provision can plausibly be read to mean that only third parties who intercept or receive a call involving others are subject to the law and that the law does not apply to the parties to the call. 

Unfortunately for defendants, the courts that have addressed the issue have ruled section 632.7 does apply to the call’s participants.  See, e.gSimpson v. Vantage Hospitality Group, Inc., No. 12-cv-04814-YGR, 2012 WL 6025772, at *5-6 (N.D. Cal. Dec. 04, 2012); Simpson v. Best Western Intern., Inc., No. 3:12–cv–04672–JCS, 2012 WL 5499928, at *6-9 (N.D. Cal. Nov. 13, 2012); Brown v. Defender Sec. Co., No. CV 12-7319-CAS PJWX, 2012 WL 5308964, at *4-5 (C.D. Cal. Oct. 22, 2012).  The courts found that the term “receives” in the section shows the provision’s applicability to call participants under the reasoning that during a call the participants “receive” communications from each other.  See, e.g., Best Western, 2012 WL 5499928 at *7-9 (so holding, though recognizing the plausibility that “receives” refers third parties who inadvertently receive communications by happenstance).

But, the federal district court decisions are not binding, and no published California appellate decision has held that section 632.7 applies to the parties to the communication.  Thus, it is still an arguable question in California whether the section applies to the communication’s participants.  The legislative history of the provision suggests it does not.

The Legislative History of Penal Code Section 632.7

The primary concern of the provision’s sponsors was the threat posed to the privacy of communications that travelled over the “airwaves” when either a cellular or cordless telephone was used.  The fear being that technological advances allowed such communications to be intercepted by third parties.  The sponsors felt that innocent interception or reception of a communication travelling over the air should not be punished, but that intentionally recording an intercepted or received call improperly intruded on privacy.  It was believed that Penal Code sections 632.5 and 632.6, which respectively prohibit maliciously eavesdropping on telephone communications over cellular and cordless telephones, did not address calls intercepted without malice but which were recorded. 

The intent of section 632.7 was thus to punish third parties who receive or intercept a call between other parties and record the call.  The author of the law, in explaining its purpose, wrote that there is a lower expectation of privacy for cellular and cordless communications travelling over the air, but that “this does not mean that persons who use cellular or cordless telephones may reasonably anticipate that their conversations will be both intercepted and recorded.”  Author Lloyd G. Connelly’s Statement of Intent, Assem. Bill No. 2465 (1992), p. 1.  (Emphasis original.)  He further explained:

While there may be utility in retaining relatively unimpeded access to the public ‘air waves,’ there is no value in permitting private telephone conversations that employ the ‘air waves’ to be indiscriminately record[ed].  AB 2465 strikes the appropriate balance.  The innocent, merely curious, or non-malicious interception of cellular or cordless telephone conversation will remain legal.  However, it will be illegal to record the same conversationsId.  (Emphasis added.)

That the section is intended to punish only the conduct of strangers to the call is further supported by then Sacramento County District Attorney Steven White who proposed to Connelly legislation in this area.  White advocated that the new statute was needed to “criminalize the recording of an intercepted cordless or cellular phone call.”  Letter to Assembly members Phil Isenberg and Lloyd Connelly (Nov. 5, 1991), p. 2.  He was motivated by a publicized incident in which a third party intercepted and recorded a conversation between two businessmen discussing a deal involving a third businessman. Id

Other contemporaneous pieces of the legislative history further suggest the provision was meant to apply only to calls that were both eavesdropped upon and recorded.  The Department of Finance summarized the bill as creating a new crime for the “willful interception and recording of virtually all types of transmitted communications between cellular telephones, cordless telephones, cellular and cordless telephones, cellular and landline telephones, and cordless and landline telephones.”  Dept. of Finance, Analysis of Assem. Bill No. 2465 (June 1, 1992), p. 1. (Emphasis added.)   The Senate Judiciary Committee in explaining the legal landscape at the time wrote “there is currently no statute prohibiting a person from intercepting and intentionally recording a communication transmitted via cellular or cordless telephones.”  Sen. Judiciary Com., Analysis of Assem. Bill No. 2465 (1991–1992 Reg. Sess.), p. 2. (Emphasis added.)  Assemblyman Connelly’s press release announcing the introduction of the legislation characterized it as “legislation to outlaw the intentional eavesdropping and recording of cellular and cordless telephone conversations.”  Author Lloyd G. Connelly’s Press Release (February 4, 1992), p. 1. (Emphasis added.)  But see Flanagan v. Flanagan, 27 Cal.4th 766, 771 n. 2 (2002) (stating in dictum and without analysis of the legislative history or otherwise that section 632.7 “prohibits intentionally intercepting or recording communications involving cellular telephones and cordless telephones”).   

Absent from the legislative history is an intent to regulate the conduct of the parties to the communication.  Indeed, the Legislature does not appear to have even considered the circumstance where a party to a communication records the communication.  Rather, the overwhelming focus of the legislative history is on third parties who intentionally or by accident receive a call between two other parties. 

Based on the Legislative History, Penal Code Section 632.7 Should Not Apply to the Parties to a Communication

In light of the legislative history, the term “receives” in section 632.7 is best read as not encompassing an intended recipient of a communication (i.e., a party to the call), but rather as referring to third parties who incidentally receive telecommunication signals, such as through the use of scanning equipment or other technology.  If the term “receives” were meant to include anyone who hears a communication including the participants to the call, then the term “intercepts” in the section becomes unnecessary.  One who “intercepts” a communication necessarily “receives” it as well.  A stronger interpretation that reconciles the legislative history with the terms of the provision and avoids superfluity is one that recognizes the term “intercepts” to be a signal of the law’s intent to regulate third party eavesdroppers.  Under this view, the language of the section comprises a cogent whole where “intercepts” refers to intentional eavesdroppers and “receives” refers to accidental eavesdroppers.    

Finally, the inclusion of facsimile transmissions among the communications subject to the law (Penal Code § 632.7(c)(3)), would be odd if the law is intended to apply to the parties to a communication.  A facsimile transmission necessarily results in a recording of the communication.  Under an interpretation where the section applies to the parties to the communication, any fax would subject the recipient, if not both the recipient and the sender, to liability.  This unreasonable result dissipates, however, if the law is understood as penalizing only those who intercept a communication between others.

Ultimately, though some case law may be to the contrary, the legislative history of section 632.7 provides a good faith basis to argue that the section does not apply to the parties to the telephonic communication.  Of course, businesses are best served by not getting entangled in the statute in the first place.  The author would be happy to discuss steps businesses can take to try to avoid suit under sections 632.7 or 632 offline.

According to a documentary filmmaker, the answer to that question is a resounding “Yes.”  Last week, Good Morning to You Productions Corp. (“GMTY”), a New York based film company, filed a class action lawsuit seeking to remove any purported copyright protection for the song “Happy Birthday to You,” as well as recovering all allegedly improper licensing fees collected by the Defendant, Warner Music Group.

Factual Background

We have all sung it and had it sung to us.  Warner Music, however, has apparently been collecting royalties on every commercial use of the song, to the tune of approximately $2 million dollars a year, according to the complaint. Happy Birthday to You, claims GMTY, originates from a song first published by Patty and Mildred Hill in 1893, titled Good Morning to All. Subsequent to that, a set of “Happy Birthday to You” lyrics was published in 1924, with an accompanying piano arrangement in 1935. It was the words plus arrangement for which Warner Music successfully obtained copyright protection. Under federal law, therefore, Warner retains the copyright until 2030, or 95 years after the arrangement was published. The complaint provides great detail on the litigation surrounding the ownership of Happy Birthday to You, but states that no court has determined the actual ownership rights of the song.

GMTY, therefore, claims that “More than 120 years after the melody to which the simple lyrics of Happy Birthday to You is set were first published, defendant Warner/Chappell boldly, but wrongfully, insists that it owns the copyright to Happy Birthday to You, and with that copyright the exclusive right to authorize the song’s reproduction, distribution, and public performances pursuant to federal law.” The complaint goes on to state that GMTY has proof that the song was in circulation in 1901, and that an Indiana school filed for copyright protection in 1912. Thus, goes the complaint, “Defendant Warner/Chappell either has silenced those wishing to record or perform Happy Birthday to You or has extracted millions of dollars in licensing fees from those unwilling or unable to challenge its ownership claims.”

Implications

Copyright challenges to older copyrights have been en vogue in recent years, including challenges to the ownership rights of both Zorro and Sherlock Holmes. If the Plaintiff here is successful in accomplishing its goals of either putting the song into the public domain or retrieving licensing fees collected by Warner Music, this case may serve as a catalyst for more litigation challenging copyright status through Rule 23.  Notably, this case also seeks to utilize California Unfair Competition Law, Cal Bus & Prof Code Sec. 17200, as Warner Music is a California-based entity.