Class action against Cingular "rebates" proceeds

Faigman v. AT&T Mobility LLC, 2007 WL 2088561 (N.D. Cal.) (Patel, J.)

Cingular may be gone, but the lawsuits live on. Plaintiffs filed a putative class action challenging Cingular (now AT&T) advertising under California’s CLRA, false advertising law, and unfair competition law. They claim they bought mobile phones and service contracts from Cingular as a result of a misleading rebate program. Cingular used to use rebate checks, but in 2005 switched to Visa Rewards Cards, which are similar to debit cards. According to plaintiffs, Cingular advertised the rewards cards as “rebates,” but they don’t directly reduce the price of the phone, and they’re less valuable than cash or checks because of restrictions on their use. The key restrictions: the cards must be activated; they aren’t accepted everywhere; they can incur service charges; they expire; they aren’t redeemable for cash; they don’t earn interest; they aren’t divisible or transferrable; they collect private information; and they’re issued in maximum $50 increments, which make them awkward to use, especially since they can’t be used in transactions that exceed the card balance.

Plaintiffs alleged that they bought three phones and signed two-year service contracts, relying on in-store ads stating “buy one, get one free” after rebate and “free” after rebate. They alleged surprise and disappointment when the reward cards arrived instead of checks, difficulties in activating the cards, and rejection when they attempted to use a card at a Chevron station.

On pleading, defendants argued that Rule 9(b)’s heightened pleading requirement applied. Fraud wasn’t a necessary element of any of plaintiffs’ state claims, but Rule 9(b) might nonetheless apply where plaintiffs chose to allege fraudulent conduct. The court earlier held, ruling on the original complaint, that each cause of action rests on an allegation of fraudulent conduct, and the amended complaint is the same in that respect. Thus, each claim is subject to heightened pleading requirements, except that Judge Patel had earlier held that CRLA claims aren’t strictly subject to Rule 9(b); instead, plaintiffs are required to provide “some specificity,” which the court described as an intermediate standard.

The court found that plaintiffs had met their burden by identifying specific language claimed to be misleading. The court found that “a reasonable consumer, upon seeing an advertisement that promises a ‘rebate’ of a certain amount, would generally understand that advertisement to mean that the amount will be returned to the consumer in cash, check or its equivalent.” Other forms of tender could satisfy consumer expectations, but the more restrictions they have, the less likely they are to do so. The restrictions alleged in the complaint – two pages’ worth -- might be enough to make “rebate” and “‘free’ with rebate” misleading. If, as alleged, the cards were materially different from checks, the advertising would be misleading. (Cingular did itself no favors by claiming that its ads, which often showed a phone’s price as the remainder after subtracting savings from a “mail-in rebate card,” used “mail-in rebate card” to refer to the reward card mailed by Cingular to the consumer. As the court concluded, this argument is meritless.)

Plaintiffs satisfied their burden by describing the ads they saw at the Cingular store and attaching additional representative sample ads containing similar language to the complaint; representative sample ads satisfy Rule 9(b) and of necessity also satisfy the intermediate CLRA standard. Defendants argued that the samples are different from the ads plaintiffs actually saw, and thus lack sufficient particularity. The court rejected this argument because the complaint alleges that the relevant language appeared uniformly in Cingular’s ads. Also, Cingular changed its ads after plaintiffs filed suit, and requiring them to attach a copy of the actual in-store promotional material they saw in 2005 would be “unduly difficult” without discovery.

Defendants also challenged causation under the CLRA, arguing that plaintiffs failed to plead injury “as a result of” Cingular’s misrepresentations – they needed to allege both causation and actual reliance. The court found that causation was a necessary element, but not actual reliance – causation can be shown by demonstrating that a misrepresentation was a “substantial factor” influencing a consumer’s decision. It need not be the sole or predominant factor. Plaintiffs sufficiently alleged the requisite causation. The court reserved judgment on whether the UCL or FAL require actual reliance, because the California Supreme Court is presently considering that issue.