policy of paying only 85% purchase price for claims under service policy isn't inherently deceptive/abusive

Shuman v. SquareTrade Inc., 2021 WL 5113176, No. 20-cv-02725-JCS (N.D. Cal. Nov. 3, 2021)

SquareTrade sells service contracts for the protection of consumer goods. Shuman alleged that it consistently fails to provide consumers with the full terms and conditions of the contract at the time of purchase and systematically pays reimbursement in an amount that is less than the purchase price of the covered item when claims are filed. After UCL claims were dismissed, Shuman sought to add new plaintiffs.

Standing to seek injunctive relief: new plaintiff Gonzales alleged that he “felt misled and is not currently inclined to purchase additional SquareTrade protection plans, but he continues to purchase consumer products that could be covered by a SquareTrade protection plan, and would purchase additional SquareTrade protection plans in the future in the event that SquareTrade’s reimbursement practices were to be reformed to eliminate the unlawful practices discussed in this complaint.” This was sufficient to establish standing to seek injunctive relief.

However, he still didn’t allege a violation under either the “unfair” or the “fraudulent” prongs of the UCL or that he lacked an adequate remedy at law.

Unfairness is analyzed two different ways: “First, the ‘tethering test’ requires ‘that the public policy which is a predicate to a consumer unfair competition action under the “unfair” prong of the UCL must be tethered to specific constitutional, statutory, or regulatory provisions.’ ” “Second, the ‘balancing test’ asks whether the alleged business practice ‘is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers and requires the court to weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.’ ”

Plaintiffs alleged that the harm arising from SquareTrade’s conduct is the systematic underpayment of customer claims by 14.2%. That is, SquareTrade’s 2018 “Fast Cash” program began systematically reimbursing consumers only approximately 85% of the covered product’s purchase price, “regardless of the actual value of the product, when it was purchased, or its cost of replacement.” Plaintiffs argued that SquareTrade’s allegedly secret policy of underpaying its customers violated the principles undergirding both the Consumers Legal Remedies Act, and the Song-Beverly Consumer Warranty Act.

But those arguments were premised on the assumption that Gonzales was entitled to receive the purchase price of the covered item when he filed a claim, but they didn’t allege any facts showing that this was ever promised to him or that he was entitled to recover the full purchase price on any other ground. “Without any such allegations, the ‘harm’ Plaintiffs cite (underpayment of claims by 14.2%) is not a cognizable harm; nor do any of the consumer protection laws Plaintiffs cite embody a policy that a product protection policy must cover the full purchase price of a product.” Likewise, the allegations didn’t state a claim under the UCL’s fraudulent prong. Gonzales’s allegations as to what was promised to him with respect to replacement cost were “so minimal that they do not give rise to a plausible inference that a reasonable consumer would have been misled.”

In addition, Gonzales didn’t lack an adequate remedy at law because the restitution he sought was the same as the damages he sought on his breach of contract claim, namely, reimbursement for the difference between the purchase price and the amount that was actually paid on the claim. “This is not an election of remedies issue. The question is not whether or when Plaintiffs are required to choose between two available inconsistent remedies, it is whether equitable remedies are available to Plaintiffs at all.”

The unjust enrichment claim also failed for similar reasons. NY GBL claims by new plaintiff Abbott also failed. Abbott alleged that she was misled because she saw references to “protection” on a brochure that she didn’t read and a sales clerk used the word “warranty” in describing the plan. She was then “surprised and displeased” when SquareTrade paid only 85.8% of the purchase price of her covered products when she filed claims for coverage. But “a party does not violate General Business Law § 349 by simply publishing truthful information and allowing consumers to make their own assumptions about the nature of the information.” However, the original plaintiff’s unjust enrichment claim proceeded.