Thursday, May 31, 2007

Concrete allegations: Inference of reliance allows class certification

McAdams v. Monier, Inc., --- Cal.Rptr.3d ----, 2007 WL 1545072 (Cal.App. 3 Dist.)

The trial court refused to certify a proposed Consumers Legal Remedies Act (CLRA) and Unfair Competition Law (UCL) class action, based on the defendant’s alleged failure to disclose “that the color composition of its roof tiles would erode away, leaving bare concrete, well before the end of the tiles’ represented 50-year life.” The court of appeals reversed, following case law that a CLRA class can use an inference of common reliance, rather than showing actual reliance for each plaintiff, when the claim is that failure to disclose a fact constituted a material misrepresentation. This allows the class to meet the CLRA requirement that a consumer must have suffered damage as the result of the challenged unlawful act or practice. The court reached the same result for the UCL’s new requirement of injury in fact.

The trial court concluded that common issues didn’t predominate, because class members received different representations depending on whether they bought from Monier, from an independent distributor, from a home builder, or from a prior homeowner. Thus individual questions, particularly of liability and reliance, predominated. The court of appeals identified the omission above as the single, specific, alleged material misrepresentation. As to liability and reliance, the court looked to older cases holding that a class could establish causation by showing that the misrepresentation at issue was material to anyone interested in the product and that the class members acted in ways consistent with reliance. Plaintiff had evidence that Monier knew but failed to disclose that its tiles would erode to bare concrete well before their advertised 50-year-lifespan ended, and that this would be material to any reasonable tile buyer, and thus satisfied this standard.

As for damages, each class member must at some point show eligibility for recovery, but the claims all stem from the same source. So, even though each member will eventually have to show that she received a representation and suffered damage, those showings don’t make each case factually unique, and class certification shouldn’t have been denied.

The court reasoned that the same rationale applied to the UCL class. Both the CLRA and the UCL are “consumer protection statutes with traditionally less rigorous proof burdens than common law fraud.” Since Proposition 64 was enacted, their reliance language is similar – “damage” for the CLRA and “injury in fact”/“as a result of” for the UCL. CLRA and UCL claims are often found together, and a CLRA violation can be the “unlawful” or “fraudulent” conduct that supports a UCL claim. Finally, the court pointed out that, if reliance and causation can be inferred in a CLRA action, which allows for damages, it should be sufficient in a UCL class action, which is essentially limited to injunctive and restitutionary remedies.

Comment: the difference in treatment of affirmatively misleading statements and misleading omissions makes sense, if only because there are often lots of material omissions in any given ad. Price, for example, is always material, and yet often omitted, but that in itself is not misleading because we all know that products have prices. So we need some standard to identify when an omission crosses the line. An omission’s relationship to things actually said in the ad is a sensible measure of whether it should have been disclosed. And once we’ve determined that the omission is material and makes the affirmative representations misleading, it can be reasonable to infer both the advertiser’s intent to distort the truth and the consumer’s reliance – at least if the omission relates to the core of the ad.

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