Consumer protection and pleading with particularity

Bacon v. American International Group, 2006 WL 305970 (N.D.Cal.)

What are the pleading requirements for consumer protection claims under California state law? As this case shows, fraud-based allegations must be pled with particularity, but not all consumer protection claims are fraud-based.

Plaintiff, a 91-year-old under a conservatorship, brought a purported class action on behalf of all people 65 and older who purchased a deferred annuity from or marketed by the defendants and who have suffered or could suffer a penalty/surrender charge, including those incurred because of death, for accessing their money before its maturity date. Allegedly, sales agents purporting to offer free financial advice exploited plaintiff’s trust and manipulated her into buying deferred annuities that, though profitable for the defendants, are obviously unsuitable for seniors because they tie up money for many years, often beyond the seniors’ life expectancy, and because they may have little return. Defendants’ deceptive and obfuscatory sales tactics allegedly drive sales of deferred annuities to seniors.

Defendants argued that plaintiff hadn’t pled her fraud allegations with particularity; the court agreed, and dismissed the fraud claim with leave to amend. Defendants argued that her other claims, including consumer protection claims, should likewise be dismissed. Along with fraudulent conduct, however, plaintiff also alleged conduct that was unlawful and unfair, including negligently misleading statements. Thus, some of her causes of action survived, but, to the extent the plaintiff sought to rely on averments of fraudulent conduct, she had to plead them with particularity. (Courts have divided on what to do in the Lanham Act context; if some of the plaintiff’s allegations involve fraud but others don’t, some courts allow the entire claim to proceed without satisfying Rule 9’s heightened pleading requirements, which seems sensible since the plaintiff doesn’t need to prove fraud to win.)

Plaintiff’s Consumer Legal Remedies Act claim was dismissed because the CLRA covers only sales or leases of “goods or services,” and annuities are neither goods nor services but some tertium quid.