Federal court interprets new limits on Cal. false advertising law

Anunziato v. eMachines, Inc., --- F.Supp.2d ----, 2005 WL 3263892 (C.D. Cal.), is a putative class action alleging that certain eMachines laptops are defective and thus overheat. Along with warranty claims, plaintiff asserts California law false advertising claims. The case offered the district court an opportunity to interpret the newly enacted limit on standing under California’s Unfair Competition Law and False Advertising Law, and it ruled that, although plaintiffs must now suffer harm to have standing, they need not show reliance on the allegedly false statements.

California’s UCL/FAL was amended in one of California’s many voter propositions to address the problem of lawyers filing lawsuits on behalf of people who hadn’t suffered any real harm in order to collect a large fee. The new statutory language allows only claims brought "by any person who has suffered an injury in fact and has lost money or property as a result of such unfair competition." The court found that, though the “as a result of” language in the Consumer Legal Remedies Act has been held to impose a reliance requirement, the UCL/FAL offer public-oriented remedies (such as injunctive relief) rather than actual or punitive damages as the CLRA allows, and thus the amendment should not be interpreted to add a reliance requirement. Reliance and causation are imporant when the plaintiff seeks money damages, but not so important when the plaintiff is enforcing the public interest in truth and fairness in other ways. The court also found significant the fact that the language of the amending proposition made no mention of a reliance requirement, only a harm requirement. (The court’s other distinction, that the CLRA has a list of banned practices while the UCL/FAL are broad bans on unfair, untrue or misleading claims, seems to me one without a difference.)

Moreover, a reliance requirement would limit plaintiffs too much, since the court could see many ways in which consumer deceptions could be harmful without traditional reliance. For example: “One common form of UCL or FAL claim is a ‘short weight’ or ‘short count’ claim. For example, a box of cookies may indicate that it weighs sixteen ounces and contains twenty-four cookies, but actually be short. Even in this day of increased consumer awareness, not every consumer reads every label. If actual reliance were required, a consumer who did not read the label and rely on the count and weight representations would be barred from proceeding under the UCL or the FAL because he or she could not claim reliance on the representation in making his or her purchase. Yet the consumer would be harmed as a result of the falsity of the representation.” Worse, many Californians are functionally illiterate or not literate in English; a reliance requirement might leave them without redress. “The goal of consumer protection is not advanced by eliminating large segments of the public from coverage under the UCL or the FAL where they suffer actual harm merely because they were inattentive or for one reason or another lacked the language skills to appreciate the particular unfair or false representation in issue.”

My comment: it seems that most of what the court fears could be solved with a sufficiently broad understanding of reliance – that is, “I don’t think about this claim that the box has 24 cookies specifically, but I assume that it’s honest; I rely generally on packages having the amounts stated.” I’m reminded of the dispute in the Kraft v. FTC case over whether the difference between the calcium in five ounces of milk and the calcium in cheese slices made with five ounces of milk would be material to consumers. If you cut the cheese finely enough, the difference isn’t material, but consumers don’t often make their decisions in such delicate increments. Also, I would think that injunctive relief would cover everybody, literate or not, so even under the defendant’s interpretation of the law, once a literate/reliant class plaintiff had been found, she could represent the rest.

As for the actual false advertising claims based on the language of the laptops' user manual and a press release, the court found that most were puffery: the words "quality," "reliability," "latest technology," and "performance" were non-actionable because no reasonable consumer would rely on them. (Side note: isn't it odd to reject a reliance requirement and then go straight to puffery analysis, which is all about reliance or the inadvisability thereof?) Representations that the laptops passed "most stringent quality control tests" and were made with "brand-name components" were capable of falsification and thus could be actionable. Query whether claims made in the user manual count as advertising at all -- even without a reliance requirement, information available only postpurchase might not be actionable, as at least one Lanham Act case has held.