Certification of Unfair Competition and False Advertising Claims

In re Tobacco II Cases (2009) 46 Cal.4th 298, is the watershed case for application of Proposition 64 to putative class actions under the unfair competition law and false advertising law. Tobacco II held that only named plaintiffs, not class members, must prove actual loss of money or property from allegedly unlawful or deceptive practices. The defense bar and business interests justifiably worried about the impact of the decision, as Tobacco II arguably paved the way to certify many more claims than in prior years and as envisioned by Prop. 64. 

Despite these worries, however, Tobacco II may not have the profound effect on certification as was feared. Although lower courts have applied Tobacco II inconsistently, some trends are discernible. While cases often differ greatly on their facts, the decisions leave some consistent clues about factors on which class certification can turn.

For example, class certification is less likely to be granted with any disparity in the class members' exposure to the relevant alleged unlawful statement or advertisement. Cohen v. DirecTV Inc. (2009) 178 Cal.App.4th 966, decided shortly after Tobacco II, highlights this point. The Court of Appeal in Cohen affirmed denial of class certification for a putative class of buyers purchasing DirecTV's high-definition television service after an allegedly false advertisement of the resolution. Cohen broadly distinguished Tobacco II, confining the decision primarily to standing. Cohen reaffirmed accepted principles that misrepresentation claims were a poor fit for class treatment based on the commonality requirement, stating that "the issue of 'standing' simply is not the same thing as the issue of 'commonality,'" as the latter is "a matter addressed to the practicalities and utilities of litigating a class action." Cohen ruled the class could not uniformly prove whether members had seen advertisements regarding resolution or uniformly understood them as important. Absent such proof, commonality was lacking because many class members could not have purchased based on allegedly false advertising.

Later decisions concur that inconsistent exposure to false statements or advertisements generally precludes certification. In Pfizer v. Superior Court (2010) 182 Cal.App.4th 622, the Court of Appeal reversed a decision granting certification of a class purportedly misled by advertising of Listerine mouthwash stating that it could replace dental floss in promoting healthy teeth. In Pfizer, not every bottle sold contained the purportedly misleading label. While the claim was made in four television commercials, the court reasoned that not every buyer saw them, with many purchasing due to "brand loyalty." Pfizer described Tobacco II as involving a "massive, sustained, decades-long fraudulent advertising campaign" designed to promote tobacco addiction.

In Sevidal v. Target Corp. (2010) 189 Cal.App.4th 905, the Court of Appeal affirmed the trial court's denial of class certification, holding that claims based on an allegedly false statement on a Web site purchasing screen that certain clothes were domestically produced were not amenable to class treatment. Like Cohen and Pfizer, the proof was not common when the statement was not made to most buyers. Each buyer did not see the same allegedly false statement when reviewing the information on Target's Web site.

Thus, the first important question is whether the representation forming the basis of the claim was consistently and demonstrably made to every class member. The greater the potential differences in exposure among class members, the less likely a class will be certified. Class proponents must define the class narrowly to avoid differing proof of exposure; opponents must highlight actual or potential variances in the fact or manner of exposure. Class discovery may be required to pin this down.

Courts also distinguish between affirmative misstatements and omissions. In Steroid Hormone Product Cases (2010) 181 Cal.App.4th 145, the Court of Appeal affirmed an order certifying a class of buyers purchasing supplements unknowingly containing an illegal steroid. The Court in Steroid Cases greatly downplayed the reliance and causation requirement in omission cases. It distinguished Cohen because the defendants "unlawfully" failed to disclose an illegal substance in the product for sale, which "presents no issue of reliance," a material difference from a false advertising claim.

A similar distinction precluded certification in Campion v. Old Republic Home Protection Co. (Jan. 6, 2011) 2011 U.S. Dist LEXIS 1181, where the plaintiffs alleged the defendant sold home warranty policies based on false statements that they would cover failing appliances. Campion followed Cohen's distinction of Tobacco II, holding that extrapolation of Tobacco II to allow certification in cases lacking requisite commonality "overstates" Tobacco II's holding. Campion also noted a material difference between affirmative statements and omissions, as the former presented more issues regarding the exposure of class members to the relevant statements. Campion distinguished Keilholtz v. Lennox (N.D. Cal. 2010) 268 F.R.D. 330, in which plaintiffs alleged a failure to disclose that fireplaces would reach unsafe temperatures. While Keilholtz involved a "uniform material omission," Campion and Cohen involved "fraud in the inducement."

Cases such as Steroid Cases and Campion provide direction for argument, as cases involving affirmative statements are less likely to be certified than those involving omissions. Practitioners should highlight the portions of the case that might fit either category where appropriate.

One area still unsettled is the significance of variances in the ultimate effect of allegedly false statements or unlawful conduct on the recipient - traditional "reliance" analysis for common law claims. The unfair-competition and false advertising laws focus on defendants' conduct, but some courts after Prop. 64 and Tobacco II still consider the "materiality" of the action and its inducing effect; low "materiality" can defeat commonality necessary for certification.

In Webb v. Carter's Inc. (Feb. 23, 2011) 2011 U.S. Dist. LEXIS 12597, the plaintiffs contended that the defendant failed to disclose that its tagless labels on clothes could cause infants to develop rashes. The court denied certification because some class members did not purchase the items themselves and others suffered no damage because most children were unaffected. Even for the few with standing, the court
ruled that certification would be improper because the effect of a disclosure would not be uniform. The defendant demonstrated that many buyers did not research disclosures or possible effects of the label ink before purchasing, and that disclosures made in stores or on clothes, even if given, would not be widely read.

A similar point is developed in In re Vioxx Class Cases (2010) 180 Cal.App.4th 116, in which the plaintiffs alleged a failure to disclose that Vioxx was no more effective, and more dangerous, than less expensive alternatives. The Court of Appeal affirmed denial of certification because the effect of Vioxx and the requested disclosure would not be uniform; any decision to prescribe Vioxx over alternatives
was a patient-specific inquiry. The Court also noted that even after Vioxx was pulled from the market, most patients did not switch to the plaintiffs' suggested alternatives. Thus, the "materiality" or effect of the alleged non-disclosure could not be determined commonly.

Other cases do not raise similar hurdles to certification. Steroid Cases held the presence of an illegal substance would be relevant to every consumer that purchased supplements. In Chavez v. Blue Sky Natural Beverage Co. (N.D. Cal 2010) 268 F.R.D. 365, the court certified a class of purchasers of soda allegedly misrepresented as being manufactured in Santa Fe from natural products. Relying on Tobacco II and
Steroid Cases, the court held individualized proof of reliance on labeling was unnecessary. In Bomersheim v. Los Angeles Gay and Lesbian Center (2010) 184 Cal.App.4th 1471, the court certified a class allegedly treated for syphilis improperly at the defendant's center. The defendant issued media and letters urging patients treated at the center to be retreated. Although defendants contended that not all class members were retreated due to mistreatment, the Court held the initial failure was material to all.

There is no way to predict how courts will analyze disparate effects or causation when evaluating certification of an unfair-competition or false advertising claim, but credible evidence of differing reactions and reliance by class members appears to assist in defeating certification. In Vioxx and Webb, the class opponent provided significant evidence to disprove common reliance.

The courts' treatment of class certification after Tobacco II remains uneven. However, discerning and exploiting identifiable trends may be the key to these closely contested and critical motions.