False advertising and the privatized state

Hansen v. Scram of California, Inc., No. 17-cv-01474, 2017 WL 1628401 (C.D. Cal. Apr. 28, 2017)

When the carceral state becomes a business, can it commit business torts?  Plaintiffs sued Scram and Alcohol Monitoring Systems (AMS) for the usual statutory California claims and fraud, arguing that they misrepresented the capabilities of the transdermal alcohol monitoring devices that AMS manufactures and Scram distributes.  The devices, worn on an ankle, were designed to detect and record any instances when a wearer consumes alcohol by detecting alcohol vapors caused by ingested alcohol diffusing through the skin. Plaintiffs alleged that the devices were inherently susceptible to detecting false-positive alcohol readings as a result of “environmental alcohol,” including vapors from cologne, aftershave, hand sanitizer, household cleaners, and gasoline.  Defendants allegedly did not inform buyers of the risk and affirmatively misrepresented it.

Defendants’ business model relies on court mandated rehabilitation programs, as a condition of probation or bond, and other criminal justice system functions.  People enter into private contracts with defendants and pay monthly fees. Users sync the device daily with a monitoring station; if the device concludes that any alcohol vapor readings were caused by an “alcohol consumption event,” defendants inform the relevant law enforcement agency or court exercising jurisdiction over the wearer that the individual consumed alcohol, but they don’t alert the wearer, nor does the device alert in real time. Thus, users can’t get time-sensitive evidence—an immediate blood or breath alcohol test—to challenge any resulting revocation of their bond or probation.

Defendants allegedly advertised their device as “a cost-effective and accurate alternative for law enforcement agencies and courts to track the alcohol usage of at-risk individuals,” and told the public and the governmental agencies with which they seek to work that the device could tell the difference between alcohol vapors from ingested alcohol and alcohol vapors from enviromnental alcohol because the rate of alcohol dissipation purportedly differs.  Plaintiffs alleged two instances involving third parties in which courts rejected the device’s results as “biologically impossible and scientifically unreliable.” Plaintiffs also cited a study that concluded that the “methodology used by AMS cannot separate ethanol [drinking alcohol] from other contaminating alcohols and therefore is not a reliable method.”

Plaintiffs alleged that they experienced false positives.  For example, plaintiff Hansen wore the device while living in a residential alcohol treatment center; the day after she tested negative on a breathalyzer at the center, AMS sent a report indicating that she’d consumed alcohol for a day-long period.  When Hansen received the report, she again tested negative for alcohol and a follow-up blood test reported the same. As a result of the report, she was subject to an additional year of alcohol monitoring; she paid $6,400 to Scram, $300.00 for a urine test from a certified laboratory, and $2,000 in attorneys’ fees to defend against the alleged alcohol consumption.  (It seems like a dangerous business model to profit from false positives when the person who is ordered to pay faces jail if she says no.)  Hansen alleged that, had she known about the false positives and the lack of timely notification to users, she wouldn’t have agreed to buy the alcohol monitoring service as a condition of her bond.

Similarly, plaintiff Oh paid Scram $225 per week for its monitoring services and a $325 enrollment fee. A Scram employee allegedly denied Oh’s request for a fee reduction and warned that if Oh did not pay, Scram would report to the trial court that Oh had violated her “Scram conditions.” Scram reported that Oh was in violation of her monitoring conditions for consuming alcohol from June 5 to June 7, 2015; the resulting report “indicated that Oh’s transdermal alcohol concentration stayed constant for two days, which plaintiffs assert is a biological impossibility.” When she became aware of the report, Oh allegedly had her urine tested for alcohol at a state certified laboratory and that test was negative. Oh challenged defendants’ report in court and the “trial Court was unable to come to a resolution[.]”  Oh also alleged that she lost money in reliance on the false representations/omissions.

Defendants argued that they were entitled to quasi-judicial immunity and the litigation privilege, because this wasn’t really a false advertising case but a case about monitoring alcohol consumption and reporting the resulting information to a court. Quasi-judicial immunity is “extended in appropriate circumstances to non jurists who perform functions closely associated with the judicial process.” “However, it is only when the judgment of an official other than a judge involves the exercise of discretionary judgment that judicial immunity may be extended to that nonjudicial officer.” Defendants didn’t claim to exercise any discretion when they offer their services on behalf of courts. Plus, plaintiffs alleged misconduct beyond defendants’ work on behalf of courts, extending to misrepresentations about their device to individual customers, law enforcement agencies, courts, and the general public.

Similarly, defendants argued that they were protected by California’s litigation privilege because plaintiffs’ essential claim was that defendants communicated information about plaintiffs’ consumption of alcohol to courts in connection with ongoing criminal matters. The California litigation privilege “applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.” Again, the court disagreed: plaintiffs’ claims relied on defendants’ alleged misrepresentations made to people in plaintiffs’ position.

However, plaintiffs failed to allege their common law fraud claim with sufficient particularity, which also doomed the statutory claims because each claim relied on defendants’ allegedly fraudulent misrepresentations. Plaintiffs needed to allege who made the representations, when the misrepresentations were made, and how they were communicated. They didn’t describe the content of defendants’ ads or when plaintiffs viewed them. Also, plaintiffs failed to provide defendants of thirty days’ notice of the alleged CLRA violations, as required for damages under the CLRA.  Plaintiffs were allowed leave to amend.