Antitrust and Unfair Competition Law Section
News from the Section
2015 Golden State Institute and Antitrust Lawyer of the Year Award Dinner
The Golden State Antitrust Institute, the West Coast's premier antitrust and unfair competition gathering is set for October 29, 2015 at the Julia Morgan Ballroom in downtown San Francisco.
At the luncheon there will be a Q&A with California Supreme Court Chief Justice Tani Cantil-Sakauye. At the awards dinner, we will honor as our Antitrust Lawyer of the Year Craig C. Corbitt, who has been centrally involved in dozens of the most significant civil antitrust cases in the United States during his 35 year career.
A distinguished group of federal judges will also discuss trial proceedings in antitrust and complex commercial litigation. The focus will be their "real world" experiences and practice pointers.
Hon. William Orrick III
United States District Court Judge for the Northern District of California – San Francisco, CA
Hon. Christina Snyder
United States District Judge for the Central District of California – Los Angeles, CA
Hon. Jon S. Tigar
United States District Judge for the Northern District of California – San Francisco, CA
Ninth Circuit Affirms Grant of Summary Judgement in Defendants' Favor on Antitrust Injury-In-Fact
On February 27, 2015, the U.S. Court of Appeals for the Ninth Circuit issued an opinion in In re Online DVD-Rental Antitrust Litigation, Nos. 12-15705, 12-15957, 12-15996, 12-16010, 12-16036, 2015 WL 845842, ___ F.3d ___ (9th Cir. Feb. 27, 2015), affirming the district court's grant of summary judgment against class plaintiffs who failed to demonstrate a triable issue of fact on their antitrust standing. The plaintiffs, individuals who represented a certified class of Netflix subscribers, alleged that Netflix and Walmart had illegally allocated and monopolized the online DVD-rental market in violation of Sections 1 and 2 of the Sherman Act. They claimed that they paid supracompetitive prices for one of Netflix's subscription plans as a result of the defendants' anticompetitive conduct. The district court rejected that contention, concluding that the plaintiffs failed to raise a triable issue as to whether they suffered antitrust injury-in-fact. On appeal, the Ninth Circuit affirmed the decision of the district court. The Ninth Circuit issued its formal mandate on March 23, 2015.
Netflix, the largest player in the market for online DVD rentals, offered subscription plans that allowed customers to rent a certain number of DVDs at a time. Under Netflix's "3U" plan in 2003, customers could rent three DVDs for $19.95 per month. Netflix increased that price to $21.99 per month in June 2004. In 2003, Walmart began to offer its own 3U plan for $19.95 per month. Blockbuster did the same in August 2004, offering a 3U plan plus two free coupons per month for in-store rentals for $19.99. Despite offering similar plans at comparable or less expensive pricing, Walmart and Blockbuster never had the market share of Netflix. In mid-2004, Netflix had over 2 million subscribers, 5 times more than Blockbuster and 33 times more than Walmart's 60,000 subscribers. Between June 2003 and March 2005, Walmart gained an average of 5,000 subscribers each quarter, while Netflix increased its customer base by 250,000 subscribers per quarter. Netflix never reduced its 3U price in response to these competitors. However, in apparent response to rumors in October 2004 that Amazon intended to enter the market, Netflix reduced its price to $17.99 per month. Blockbuster followed suit, dropping its price to $17.49 and later to $14.99, while Walmart cut its price to $17.49. Netflix did not reduce its price again until August 2007, when it lowered its 3U price to $16.99 per month.
The rumors of Amazon's plan to enter the online DVD-rental market prompted Netflix's CEO Reed Hastings to meet with Walmart's CEO John Fleming. Hastings testified that he hoped to form a partnership between the two companies that would strengthen Netflix's position before Amazon entered the market. The two CEOs met on October 27, 2004 but did not reach an agreement. Around the same time, Walmart was examining other strategic options, but concluded that none would be profitable. Faced with rising loses and declining revenue, in early January 2005 Walmart made the decision to exit the online DVD rental market. Unaware of that decision, however, Hastings continued to pursue a strategic relationship with Walmart.
The two CEOs reached a verbal agreement on March 17, 2005, which included several key terms. First, Walmart would transfer its rental subscribers to Netflix, where they would retain their rental queues and be offered the same subscription price for one year. Second, Walmart would promote Netflix's business on its website. Third, Netflix would pay $36 for each new subscriber from Walmart's referrals, as well as a 10% revenue share for each Walmart subscriber who transferred to Netflix. Finally, Netflix would promote Walmart's DVD sales business. These terms were later incorporated in a "Promotion Agreement" that was publicly announced on May 19, 2005. Notably, the Promotion Agreement continued to permit Walmart to offer an online DVD-rental service, did not preclude Netflix from selling DVDs, and did not contain a covenant not to compete. Although Walmart exited the online DVD-rental market, Amazon did not enter it. When Blockbuster filed for bankruptcy in September 2010, Netflix became the sole dominant competitor with more than 90% of the market.
The plaintiffs alleged that the Promotion Agreement reflected an illegal allocation of the online DVD-rental market. They brought claims for unlawful market allocation under Section 1 of the Sherman Act and monopolization, attempted monopolization, and conspiracy to monopolize under Section 2 of the Sherman Act. The district court certified a litigation class including any "person or entity in the United States that paid a subscription fee to Netflix" between May 19, 2005 and December 23, 2010. It then granted Netflix's motions for summary judgment on all claims, concluding that there was no per se antitrust violation and that the plaintiffs lacked standing because they had not raised a triable issue on antitrust injury-in-fact.
The Ninth Circuit did not reach the merits of the antitrust claims, but affirmed the district court's grant of summary judgment on the standing question. The plaintiffs' theory of antitrust injury-in-fact was that they paid supracompetitive prices for their Netflix subscriptions after Walmart exited the market, because Netflix would have reduced its price to $15.99 absent the Promotion Agreement. The Ninth Circuit rejected that argument, concluding that the plaintiffs had not adduced evidence to raise a triable issue of fact that Netflix would have reduced its prices. According to the Ninth Circuit, "[t]he undisputed record belies this assertion," because Netflix had never lowered its 3U subscription price in response to Walmart or Blockbuster (which had objectively posed a greater competitive threat), and in fact Netflix had raised its price to $21.99 in June 2004 despite competition from those two companies.
The court found that the plaintiffs' evidence did not support their theory of injury. Walmart's online DVD-rental business was lagging, and Netflix, Blockbuster, and Amazon did not view Walmart as a competitive threat. While the plaintiffs had proffered internal Netflix documents and published news articles to suggest that Netflix and others viewed Walmart as a true competitor, those documents were written before Walmart actually entered into the market and failed to perform. The plaintiffs submitted internal Walmart documents touting its own success, but the court found that these documents were promotional and motivational pieces, containing "language best described as puffery," and were not based on hard market data. Thus the Ninth Circuit concluded that, "much of the Subscribers' documentary evidence actually supports Netflix's position and convincingly reveals that Walmart did not view itself and was not viewed by others as a competitive threat in late 20004 and early 2005."
Finally, the Ninth Circuit concluded that the plaintiffs' unsupported expert testimony was "contrary to the undisputed market facts." The expert opinions speculated that Walmart had the potential to remain in the online DVD-rental market as a result of its general retail strength, but they were not tethered to Walmart's actual performance in that market. In addition, the court explained that the expert testimony failed to address the fact that the Promotion Agreement did not preclude Walmart from renting DVDs. In sum, the Ninth Circuit affirmed the grant of summary judgment, upholding the district court's determination that no reasonable juror could conclude that Netflix would have lowered its price for a 3U monthly subscription to $15.99 in response to Walmart, but for the Promotion Agreement.
Aaron M. Sheanin
Pearson, Simon & Warshaw, LLP
U.S. District Court for the Eastern District of New York Rules American Express Violated Anti-Trust Laws
In United States of America v. American Express Company, E.D.N.Y. case no. 10-cv-4496 (E.D.N.Y. Feb. 19, 2015), the United States District Court for the Eastern District of New York ruled that American Express's "anti-steering" rules preventing merchants from influencing their customers' payment choices violated Section 1 of the Sherman Antitrust Act. In the 150-page opinion, Judge Nicholas G. Garaufis held that American Express' policies aimed at keeping customers from using other forms of payment "suppress[d] its network competitors' incentive to offer lower prices at the approximately 3.4 million merchants where American Express is currently accepted, vitiating an important source of downward pressure on [American Express's] merchant pricing, and resulting in higher profit-maximizing prices across the network services market." Attorney General Eric Holder praised the decision as "a triumph for fair competition and for American consumers… [b]y recognizing that American Express's rules harm competition, the court vindicate[d] the promise of robust marketplaces that is enshrined in our antitrust laws."
The contractual restraints at issue in the litigation were American Express' Non-Discrimination Provisions ("NDPs"). In practice, the NDPs operate to block AmEx-accepting merchants from encouraging their customers to use any credit or charge card other than an American Express card, even where that card is less expensive for the merchant to accept. As a result of this absence of steering, each of the credit card networks is essentially insulated from the downward pricing pressure normally present in a competitive market. If steering were permitted, merchants could influence their customers' choice of card use by offering discounts or other monetary incentives to customers who pay with a particular type of card, providing non-monetary benefits for using a lower-cost card, or displaying the logo of one brand more prominently than others. Under American Express's standard NDPs, however, a merchant is barred from doing any of these things.
These merchant restraints sever the essential link between the price and sales of network services by denying merchants the opportunity to sway their customers' payment decisions and thereby shift spending to less expensive cards. Indeed, the Court explained, "by disrupting the price-setting mechanism ordinarily present in competitive markets, the NDPs reduce American Express's incentive – as well as those of Visa, MasterCard, and Discover – to offer merchants lower discount rates and, as a result, they impede a significant avenue of horizontal interbrand competition in the network services market." Consequently, low-price business models are untenable, innovation is stifled, and merchants and consumers suffer from higher prices.
The decision will have several positive implications for merchants and consumers, including making it easier for smaller or newer rivals to compete with American Express, Visa, or MasterCard. Merchants will benefit by being able to offer discounts to shoppers using cards other than American Express and to post signs that specify which card they would prefer shoppers to use. Card networks will be incentivized to offer merchants lower rates in the hope of capturing additional share. Customers will benefit, in the short term, by taking advantage of the incentives offered by merchants in order to influence their card choice. In the long term, customers will benefit from lower retail prices, which the Court expects will result from merchants passing along some amount of the savings associated with declining swipe fees.
American Express released a statement expressing its "disappointment" in the ruling and announcing that it would appeal. American Express claims the decision would actually harm competition by further entrenching the two dominant payment networks, Visa and MasterCard.
Cotchett, Pitre & McCarthy, LLP
Northern District of California Rejects Motion to Dismiss Challenge to Alleged Nationwide Class under California Law
In Fenerjian v. Nong Shim Company, N. D. Cal. case no. 13-cv-04115 (N.D. Cal. March 30, 2015) ECF no. 164, the Hon. William H. Orrick denied a motion to dismiss an alleged nationwide class under California law. Defendant Samyang Foods Company Ltd. ("Samyang") argued that the proposed nationwide class was unconstitutional because (1) the Cartwright Act conflicts with other states' law and (2) because the plaintiffs had not alleged sufficient contacts between California and the claims of non-California plaintiffs. Judge Orrick rejected these arguments as inappropriate for a motion to dismiss, and better addressed at class certification.
Samyang is a Korean noodle manufacturer. In 2012, the Korean Fair Trade Commission ("KFTC") issued an order finding that Samyang and other Korean noodle manufacturers to increase the price of Korean noodles in Korea. Plaintiffs, indirect purchasers of Korean noodles asserting claims under the Cartwright Act and other state laws, alleged that Samyang and co-conspirators conspired to raise the price of Korean noodles in the United States.
While it is sometimes appropriate to determine at the pleadings stage whether a plaintiff can maintain a nationwide class under California law, Judge Orrick cited to Mazza v. Am. Honda Motor Co., 666 F.3d 581, 589-594 (9th Cir. 2012) in holding that "this question is more appropriately addressed here in connection with the class certification process." The Court held that Samyang's motion was procedurally improper because Samyang did not dispute that the indirect purchaser plaintiffs could assert a claim under the Cartwright Act on behalf of California residents. The question of whether the indirect purchaser plaintiffs' Cartwright Act claims could extend to out-of-state residents was more appropriate for resolution "at class certification when the parties know (i) which other states are at issue, (ii) what the laws of those states are, and (iii) what the contacts between the claims of plaintiffs from those states and California are." If the indirect purchaser plaintiffs meet their burden of showing sufficient contacts, the burden will then shift to Samyang to show that California's government interest test directs that foreign law, rather than California law, should apply to the claims. Finally, Judge Orrick noted that because of the indirect purchasers had asserted a nationwide claim under the Sherman Act, deferring the resolution of the scope of the Cartwright Act claims until class certification would have no effect on discovery or the cost of the litigation.
Cotchett, Pitre & McCarthy, LLP
California Antitrust and Unfair Competition Law, Revised Edition
Cheryl Lee Johnson, Editor-in-Chief
Gain authoritative understanding of California antitrust and unfair competition statutes, policies and issues with one-volume convenience. This treatise brings you up to speed on everything from horizontal combinations and vertical restraints to public enforcement of California antitrust laws and trial considerations.
You get full coverage of The Cartwright Act along with related California consumer and unfair competition laws, and how they apply to the health industry, regulated industries, the labor market, electronic media, the internet and other fields. Additionally, there are chapters covering damages, defenses to liability including exemptions and immunities, injunctive relief, class actions, attorney’s fees and costs, insurance issues, and much more. This publication includes contributions from over 120 highly experienced antitrust practitioners in both the private and government sectors, as well as the executive members of the Antitrust and Unfair Competition Law Section of the California State Bar.
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Summary of Recent Antitrust and Unfair Competition Law Developments
The summary below was prepared by Paul Riehle of Sedgwick LLP for the October 2012 issue of the Antitrust Section E-Brief.
United States Circuit Courts of Appeals
- Affirming dismissal of antitrust claims against foreign air carriers based on preemption by Federal Aviation Act: In re Air Cargo Shipping Services Antirust Litigation, __ F.3d __, 2012 WL 4820132 (9th Cir. October 11, 2012). Indirect purchasers of air freight shipping services brought action against foreign airlines alleging a conspiracy to fix prices in violation of state antitrust, consumer protection and unfair competition laws. The Second Circuit found that the Federal Aviation Act (“FAA”) was ambiguous as to whether foreign air carriers were “air carriers” under provision preempting state regulation of air carriers' prices. In some places, the FAA used the ordinary, everyday meaning of air carrier so to include both domestic and foreign air carriers. Elsewhere, the FAA used the statutory definition of “a citizen of the United States undertaking by any means, directly or indirectly, to provide air transportation.” In light of context and legislative history, the Court of Appeals held that the FAA's preemption of state regulation of prices of “air carriers” included both domestic and foreign air carriers.
- Affirming approval of cy pres settlement: Lane v. Facebook, __ F.3d __, 2012 WL 4125857 (9th Cir. September 20, 2012). Members of an online social network brought class action against network and operators of websites that had participated in network’s program which updated members’ personal profiles to reflect actions taken by members on participating operators’ website, alleging violations of various state and federal privacy statutes. A split Ninth Circuit rejected arguments that the district court abused its discretion in approving the parties’ $9.5 million settlement either because a Facebook employee sits on the organization distributing cy pres funds or because the settlement amount was too low. The Court of Appeals found permissible that the parties agreed to create a new grant-making entity rather than give the funds to an existing entity. The settlement agreement and the new entity spelled out how the funds would be used and provided the requisite nexus between the cy pres remedy and the interests furthered by plaintiffs’ lawsuit. The appellate court also found that the district court meaningfully accounted for the potential value of plaintiffs’ claims.
- Reversing approval of cy pres settlement: Dennis v. Kellogg Co., __ F.3d __, 2012 WL 3800230 (9th Cir. September 4, 2012). Consumers filed class action against breakfast cereal producer alleging that its marketing claims that Frosted Mini-Wheats improve children’s attentiveness by 20% constituted false advertising in violation of the UCL, CLRA and the consumer protection statutes of other states. The Ninth Circuit reversed approval of a nationwide settlement class. First, the settlement neither identified the ultimate recipients of the product and cash cy pres awards nor sets forth any limiting restriction on those recipients other than characterizing them as charities that feed the indigent. Second, feeding the indigent has nothing to do with the purposes of the lawsuit or the class of plaintiffs: the gravamen of the complaint was that defendant falsely advertised that its cereal improved attentiveness. “Thus, appropriate cy pres recipients are not charities that feed the needy, but organizations dedicated to protecting consumers from, or redressing injuries caused by, false advertising.” Third, the settlement was unacceptably vague in that it does not demonstrate how the $5.5 million in food will be valued (i.e., at cost, wholesale or retail) nor whether defendants can use the donation as a tax deduction or whether the donations will be in addition to or part of donations for which it was already obligated. The ambiguity in the value of the settlement, in turn, impacted an accurate measurement of attorneys’ fees in relation to the common fund created by the settlement.
- Affirming dismissal of UCL and FAL claims that defendants failed to adequately disclose credit card annual fee: Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152 (9th Cir. August 31, 2012). Plaintiff brought class action against retailer, bank and related entities claiming defendants defrauded consumers without adequately disclosing that cardholders would be subject to an annual fee. The Ninth Circuit began by clarifying that abuse of discretion is the standard of review of the district court’s decision of whether to incorporate by reference documents into the complaint. The court then held that opposing incorporation by reference because one did not review or have access to the proffered copies does not amount to a challenge to the documents’ authenticity. As to the retailer, the appellate court affirmed the district court’s ruling that no reasonable person could have been deceived by the advertisements into thinking that no annual fee would be imposed by the promise of reward certificates with the first purchase. The court rejected plaintiff’s fraudulent concealment claim because the existence of the annual fee was within plaintiff’s observation, as he conceded that he was able to discover the annual fee when he revisited the website and scrolled through the important terms and disclosure statement. The court found that disclosure statement complied with Regulation Z and therefore fell within a safe harbor as to UCL claim against both the bank and the retailer predicated on the disclosure statement. Defendant’s advertisements were not protected by the safe harbor, but nonetheless failed each UCL prong. No reasonable consumer would have been deceived by the advertisements into thinking that no annual fee would be charged: they contained a disclaimer that other terms and restrictions may apply, and alerted the reader to the disclosure statement. Moreover, the annual fee was completely refundable if the account was closed within 90 days without using the card, which meant that the alleged injuries were reasonably avoidable.
- Reversing grant of summary judgment as to manufacturer and seller defendant, affirming as to parent company: In re Publication Paper Antitrust Litigation, 690 F.3d 51 (2d Cir. August 6, 2012). After the DOJ’s investigation became public, private lawsuits were brought against manufacturers of publication paper. Defendant Stora Enso North America Corp. (“SENA”) ultimately was acquitted by a jury of criminal antitrust violations. The Second Circuit reversed summary judgment as to SENA based on private meetings and phone conversations between SENA’s president and the president of the amnesty applicant that undisputedly occurred soon before three price increase announcements. The Court of Appeals rejected the district court’s decision to treat the amnesty applicant’s president’s testimony in the criminal trial to be of limited value on the basis that English was not the native language of the two presidents. The appellate court also found that there was sufficient evidence from which a jury could conclude that the presidents’ agreement, if proven, was both a material and a “but for” cause of the price increases. The court affirmed summary judgment as to SENA’s parent, as there was no evidence that the parent had any direct involvement in decisions regarding the marketing, sale or pricing of publication paper in the United States.
- Affirming dismissal of UCL claims for failure to allege reliance on or injury from misleading announcement and dismissal of CLRA claims for failure to allege false or deceptive representations when made: Sateriale v. R.J. Reynolds Tobacco Co., 687 F.3d 1132 (9th Cir. July 13, 2012). After reversing dismissal as to unilateral contract and promissory estoppel claims, the Ninth Circuit affirmed the district court’s dismissal of UCL and CLRA claims. Plaintiff’s UCL claims and CLRA claims, in part, were predicated on the allegation that defendant announced it was terminating a coupon program in six months and represented that coupon holders could redeem the coupons for another six months. Plaintiffs’ UCL claims failed because they did not allege that they purchased additional products in reliance on the announcement or that they delayed in redeeming their coupons. Plaintiffs’ CLRA claims were also based on the allegation that defendant represented before the announcement that consumers could redeem the coupons for awards. That CLRA claim failed because plaintiffs did not assert that the representations were false or deceptive when made.
United States District Courts
- Granting motion for certification of nationwide UCL, FAL and CLRA class notwithstanding Mazza: In re Pom LLC Marketing and Sales Practices Litigation, 2012 WL 4490860 (C.D.Cal. September 28, 2012). Plaintiff alleged that pomegranate juice producer’s advertisements of health benefits are false and misleading. As defendant was located solely in California, developed its marketing strategies in California and produced its products in California, defendant did not challenge whether the application of California law to a nationwide class was constitutionally permissible. Rather, defendant relied on the Ninth Circuit’s 2012 decision in Mazza to argue that no nationwide class could be certified because of California’s governmental interest choice of law analysis. As to the first step in that analysis, the district court found that defendant failed to meet its burden of showing that foreign law, rather than California law, should apply. Defendant submitted a chart summarizing each state’s laws, but did not indicate which of those laws differ from California’s laws. As to the second and third steps, defendant did not apply the facts of the case to those laws or demonstrate, beyond citing to Mazza, that a true conflict exists. “Having failed to identify any true conflict, Pom necessarily fails to carry its burden to demonstrate that the interests of any foreign jurisdiction outweigh California’s interest in applying its own consumer protection laws to the facts of this case.” The court rejected the argument that the reliance inquiry necessarily presents predominately individualized issues on the basis that “an inference of reliance arises as to the entire class where, as here, material misrepresentations have been made to the entire class.”
- Approving settlement with three publishing companies that requires them to terminate their contracts with digital content distributor regarding alleged conspiracy to set prices for digital versions of their books: United States v. Apple, Inc., __ F.Supp.2d __, 2012 WL 3865135 (S.D.N.Y. Sept. 5, 2012). The district court gave final approval to a settlement that requires termination of three publishers’ agency agreements with Apple (and any similar agreements with other retailers) and prevents them from agreeing to new contracts that either restrict a retailer’s ability to set eBook prices (for two years) or include a “most-favored nation” clause (for five years). More than 90 percent of the 868 public comments received about the settlement were negative. The court rejected concerns that third party stakeholders, such as brick and mortar bookstores, would be harmed by the settlement, concluding that the harm was not the type that the Sherman Act was designed to prevent. It dismissed concerns that the settlement goes too far by allowing practices held to be legal on the basis that legal means were used in furtherance of a horizontal price fixing conspiracy. The court found ample foundation that the government had established a sufficient factual basis for its conclusions regarding the competitive impact of the decree. The court overruled objections that the challenged agreements had substantial pro-competitive effects by limiting the negative impact of Amazon’s monopoly on the grounds that the DOJ had not found pervasive evidence of predatory pricing by Amazon, that the true cause of the decline in Amazon’s market share was not the introduction of the agency model but investments by technology giants in the e-books and e-reader markets, and that even if Amazon was engaged in parallel pricing, that is no excuse for price fixing. The court rejected Apple’s objection that the settlement’s requirement that the publishers terminate their agency agreements with Apple punished Apple without trial on the basis that the decree imposes obligations on the settling defendants, rather than Apple, and that the agency agreements allowed for termination by the settling defendants on 30 days notice.
- Granting class certification of price fixing claims: In re Blood Reagents Antitrust Litigation, __ F.R.D.__, 2012 WL 3590269 (E.D.Pa. August 22, 2012). Defendants did not dispute the Rule 23(a) and Rule 23(b)(3) requirements. The court rejected defendant’ predominance challenge as to antitrust impact and amount of damage based on plaintiffs’ economic expert’s market structure analysis and damages models. It also repudiated defendants’ argument that individual issues regarding fraudulent concealment predominate, holding that it is the concealment that is the polestar in the fraudulent concealment analysis.
- Dismissing price fixing claims based on Twombly: In re National Association of Music Merchants, Musical Instruments and Equipment Antitrust Litigation, 2012 WL 3637291 (S.D.Cal. August 20, 2012). Plaintiffs alleged that defendants engaged in a conspiracy to stabilize or increase prices by requiring that dealers adhere to policies setting minimum advertised prices. The court found that an agreement had not been adequately alleged. Plaintiffs claimed that defendants’ representatives attended trade show and other meetings where minimum advertised prices were advocated as being good for the industry. “But unilateral advocacy, particularly in an open and public forum, is not itself an agreement or conspiracy. And independent responses to public advocacy without an agreement, even if consciously parallel to other entities’ activity, would simply be permissible parallel conduct.” After already having been granted discovery on the issue of an agreement without proof of any private meetings or communications, the complaint was dismissed with prejudice.
- Denying motion to dismiss Lanham Act claims against trade association member companies regarding high fructose corn syrup advertising campaign: Western Sugar Cooperative v. Archer-Daniels-Midland Co., 2012 WL 3101659 (C.D. Cal. July 31, 2012). Plaintiffs alleged that defendant trade association ran a campaign falsely advertising that high fructose corn syrup is natural and should be referred to as corn sugar. After noting that no Ninth Circuit case has addressed the issue, the court applied Rule 9(b) to plaintiffs’ Lanham Act claims. As to all but one of the trade association member companies, the court found that the allegations that their spokespersons were used to disseminate the advertising was sufficient to inform them of their alleged fraudulent conduct. The court further found that plaintiffs adequately alleged both a principal-agent relationship and a theory of joint tortfeasor liability.
California Courts of Appeal
- Affirming order compelling arbitration following grant of motion for reconsideration based on change in the law: Phillips v. Sprint PCS, __ Cal.App.4th __, 2012 WL 4378199 (Cal.App. 1 Dist. September 26, 2012). The trial court in 2006 denied defendants’ motion to compel arbitration, in 2008 certified a UCL class and in 2011 granted defendants’ motion for reconsideration based on change in the law as result of the Supreme Court’s opinion in Concepcion. After ruling that the order compelling arbitration was not appealable, the appellate court treated the appeal as a petition for a writ of mandate. The Court of Appeal rejected plaintiff’s claims of unconscionability as challenging not the unconscionability of the arbitration provision, an issue for the trial court, but as claiming that the contract as a whole was unconscionable, an issue for the arbitrator.
- Reversing dismissal of UCL and CLRA claims, ruling that no private right of action exists for skilled nursing facility’s alleged violation of nursing hours per patient per day (“NHPPD”) requirement and invocation of economic abstention doctrine: Shuts v. Covenant Holdco LLC, 208 Cal.App.4th 609 (August 15, 2012). The Court of Appeal held that the private right of action under Health & Safety Code § 1430(b) (allowing a skilled nursing resident to sue for violation of the Patients’ Bill of Rights and any other law or regulation) could be predicated on a violation of § 1276.5, which does not provide for a private right of action. The appellate court distinguished the 2007 decision in Alvarado, relied on by the trial court in ruling that adjudicating the decision would require the court to assume general regulatory powers over the health care industry, on the grounds that, since Alvarado, the California Department of Public Health has provided significant guidance on the NHHPPD standard and plaintiffs in Shuts are seeking damages in addition to equitable relief. In the unpublished portion of the opinion, the appellate court reversed dismissal of the UCL and CLRA claims for the reasons stated regarding the section 1430(b) cause of action.
- Affirming dismissal of UCL and CLRA class allegations, except claims for injunctive relief, based on lack of commonality: Tucker v. Pacific Bell Mobile Services, 208 Cal.App.4th 201 (August 7, 2012). Plaintiffs challenged defendants’ disclosures of the practice of billing for airtime in full minute increments with partial minutes of use rounded up. In Knapp in 2011, class certification was denied on essentially the same claim. The Court of Appeal in Tucker took judicial notice of many of the papers and appellate opinions in Knapp and another related case. Based on the allegations of the complaint, its exhibits and the judicially noticed facts, the court affirmed dismissal at the pleading stage based on lack of commonality as to causation regarding the CLRA and common law fraud claims, as well as reliance regarding the UCL fraudulent prong claim, and inability to establish a measurable amount of restitution on a class wide basis. The appellate court reversed as to the UCL claims for injunctive relief, finding that the adequacy of defendants’ disclosures and whether at least some members of the public are likely to be deceived are not issues that can be resolved as a matter of law on demurrer even with the matters judicially noticed.
- Reversing denial of petitions to compel arbitration of CLRA claim and remanding to consider unconscionability challenge: Caron v. Mercedes-Benz Financial Services USA LLC, 208 Cal.App.4th 7 (July 30, 2012). The Court of Appeal held that the FAA preempted applying the CLRA’s anti-waiver provision to class action waivers in arbitration agreements. The appellate court expressly rejected the 2010 decision in Fisher, also from the Fourth District, on the grounds that it was decided pre-Concepcion. Since the trial court reached its decision based on Fischer, it did not decide the issue of whether the arbitration clause was unconscionable. The Court of Appeal did not decide the unconscionability issue in the first instance because some of plaintiff’s arguments required factual findings and the record before it was incomplete.
- Affirming dismissal of UCL claim where alleged wrongdoing contradicted by the terms of the deed of trust: Wilson v. Hynek, 207 Cal.App.4th 999 (June 20, 2012). Borrowers brought UCL claims following initiation of foreclosure proceedings on several properties. On appeal, plaintiffs only asserted that defendants’ actions violated the unfair prong. Applying the Cel-Tech test for unfairness, the Court of Appeal affirmed dismissal on the grounds that plaintiffs’ claims were directly contradicted by the terms of the deeds of trust.
Antitrust & Unfair Competition Section
The State Bar of California
180 Howard Street
San Francisco, CA 94105-1639