California's UCL potentially available against junk fees

Sepanossian v. National Ready Mix Co., --- Cal.Rptr.3d ----, 2023 WL 7590798, No. B319260 (Ct. App. Nov. 15, 2023)

Sepanossian, who operates a construction business, filed a class action against Ready Mix, which sells mixed concrete to small businesses for construction projects, alleging Ready Mix charged its customers an “energy” fee and an “environmental” fee “wholly untethered to any actual cost for ‘energy’ or ‘environmental’ issues” that Ready Mix instead “recognize[s] as profit.” The complaint alleged causes of action for UCL fraudulent and unfair business practices; breach of contract; and “unjust enrichment.” The court of appeals reversed a dismissal of the UCL claims, but affirmed on unjust enrichment.  

Customers pay Ready Mix a “set rate” for its concrete products. Sepanossian alleged that Ready Mix adds an “energy” fee and an “environmental” fee separate from the set rate to every sale, about $30 each. These fees are uniform and do not correlate to or fluctuate in any way with any actual energy or environmental costs incurred by Ready Mix or the size of the order, but instead allegedly are recognized by Ready Mix as profit. The energy and environmental fee amounts were separately itemized on invoices and disclosed to customers, but without further explanation or information. “The gravamen of Sepanossian’s complaint is not that class members did not know the amount of these charges, but rather that the terms environmental fee and energy fee were misleading.”

Sepanossian alleged, “Plaintiff and class members would not have entered into contracts with Ready Mix and would not have paid the fees at issue had they known the truth about the ‘energy’ and ‘environmental’ fees and had not been subject to Ready Mix’s misrepresentations and omissions.”

The trial court dismissed the complaint on the basic theory that plaintiffs didn’t suffer any harm because the amount was disclosed to them and Ready Mix didn’t make any claims about how it was going to use the fees. I think that undersells the harms of junk fees—they come late in the transaction, they hamper comparison shopping, and by seeming “regulatory” they prevent any attempts at negotiation, which for a business customer might be a real thing.

The court found that plaintiffs stated a claim both for “fraudulent” and “unfair” practices under the UCL.  At the pleading stage, it was plausible that the fees misled consumers into thinking they had some nexus to energy or environmental costs. “A perfectly true statement couched in such a manner that it is likely to mislead or deceive the consumer, such as by failure to disclose other relevant information, is actionable,” and “a reasonable consumer would likely be surprised to learn that a charge expressly identified as an ‘energy’ or ‘environmental’ fee, added on top of the set rate for a concrete purchase, had no actual relationship of any kind to Ready Mix’s energy or environmental costs and was pure profit.” Indeed, “[r]easonable consumers are entitled to infer that the descriptive name attached to a particular fee they are being charged has some connection to the fee unless otherwise indicated.”

Unfairness: Similarly, it sufficed to allege that (1) such fees are automatically added to every concrete purchase, thus causing substantial injury to customers; (2) the fees provide no countervailing benefit to customers; and (3) the fees were mandatory and unavoidable, thus there was no way for customers to reasonably avoid the injury because if they wanted to purchase concrete from Ready Mix, they had to pay the fees. It wasn’t enough that consumers could avoid the fee by declining to transact with Ready Mix.

However, because there was an express contract between the parties covering the fees, and the contract was not procured by fraud or otherwise unenforceable or ineffective, Sepanossian could not assert a claim for restitution based on unjust enrichment.