Marketing for “Phased Out” Cell Phone Could Violate California Unfair Competition Law

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

Wireless telephone subscribers stated California Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA) claims against AT&T, based on the company’s marketing and sale of a premium cell phone that it was allegedly in the process of phasing out, according to a California appellate court.

The subscribers purchased premium cell phones, which AT&T marketed as technologically advanced and capable of working around the world. However, the subscribers alleged that AT&T had no intention to continue to support and service the cell phones and was making changes to its wireless system that would substantially degrade service to subscribers using the phones.

To phase out the cell phones, AT&T sent the subscribers replacement phones that did not work around the world and cost significantly less than the original phone.

Misleading Representations

The subscribers stated a UCL cause of action against AT&T, according to the court. The UCL claim was based on the fraud prong of the UCL, and focused on AT&T’s representations that, although true, were likely to mislead the public. A business practice is deemed deceptive in violation of the UCL if a reasonable consumer was likely to be deceived. In light of the conduct alleged, the court could not conclude as a matter of law that reasonable consumers would not have been deceived.

Although AT&T argued that the subscribers had to plead the specific advertisements or representations they relied upon in making their purchasing decisions, the court found that a determination could not be made as a matter of law that the claim was not viable.

The subscribers alleged that, prior to their purchase of the cell phones, they conducted research and encountered advertisements and press releases explaining the advanced features of phone and improvements being made to the network the phone utilized. The subscribers did not need to present the specific advertisements to the court in order to have standing to bring the claims.

False Advertising Claim

Because they failed to show an injury in fact, the subscribers did not have standing to bring a California False Advertising Law (FAL) claim against AT&T, according to the court.

The subscribers alleged that AT&T violated the FAL by offering a free upgrade phone to owners of the phone at issue, but the phone offered did not have the same capabilities as the original phone.

In order to have standing, the subscribers needed to establish an injury in fact and loss of money or property as a result of a violation of the FAL. Even if it could be said that the return of an allegedly useless phone constituted an injury in fact, the subscribers did not suffer an injury because they declined to return their phones.

The decision is Morgan v. AT&T Wireless Services, Inc., CCH State Unfair Trade Practices Law ¶31,919.

Consumer Class Actions Against Apple Dismissed

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

Two class actions—claiming that Apple violated California Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA) by manufacturing defective computers—were dismissed by the federal district court in San Jose.

One class action focused on a defect affecting the Apple PowerBook G4, while the other focused on a defect in the Apple iMac.

PowerBook G4 Claim

Apple designed, manufactured, and sold personal computers, including the PowerBook G4. After buying the PowerBook G4, a number of purchasers discovered that a memory slot was defective, affecting the computer’s performance. One purported class member alleged that Apple had deleted consumer complaints about the memory slots from its website and had refused to repair the defective slot for free.

The consumers brought a UCL action, based on both an alleged breach of implied warranty and a generalized claim of consumer harm, but failed to state a cognizable injury, according to the court.

A standalone claim under the unfair prong of the UCL required the consumers to allege a substantial consumer injury that could not have been avoided. The failure to disclose a defect that might shorten the effective life span of a product that functions precisely as warranted throughout the term of its express warranty cannot be the subject of a UCL claim. Because the defect in this case did not manifest itself until after the expiration of the express warranty, the UCL claim was dismissed.

The CLRA claim—based on Apple’s alleged affirmative misrepresentations—was also dismissed for failure to state a claim. The complaint charged that Apple had a duty to disclose a known defect and that failure resulted in an injury to customers. However, Apple was under only a duty to disclose a known defect if there was a safety concern associated with the defect, the court held. Accordingly, the CLRA claim was dismissed with leave to amend.

The decision is Berenblat v. Apple, Inc., CCH State Unfair Trade Practices Law ¶31,885.

iMac Claim

In the second action, two consumers who purchased the Apple iMac personal computer in 2006 alleged that Apple knowingly or recklessly ignored a defect that affected the display screen, in violation of the UCL and CLRA.

According to the court, the purchaser failed to state a CLRA class action claim against Apple. The CLRA required the purchaser to show that Apple was required to make the disclosure or that Apple gave the public misleading information. Because the purchaser did not sufficiently plead when and where the manufacturer made an affirmative representation that contradicted its alleged omission, the CLRA claim was dismissed.

The court noted that the alleged defect manifested itself more than a year after the expiration of the express warranty, casting doubt on the viability of the CLRA claim in general.

The purchasers did not state a UCL claim against Apple because the allegations did not meet the heightened pleading standard of Federal Rule of Civil Procedure 9(b), according to the court. The purchaser’s claim was overly generalized. A generalized allegation with respect to consumer expectations was not sufficient to maintain a UCL claim based on the unfairness prong.

The decision is Hovsepian v. Apple, Inc., CCH State Unfair Trade Practices Law ¶31,893.

Senior Citizens Entitled to Triple Restitution for Breach of California Unfair Competition Law

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

A class of senior citizens could receive triple restitution under the California Civil Code for violations of the California Unfair Competition Law (UCL) by a life insurance company that allegedly engaged in deceptive business practices to induce the purchase of high-commission annuity contracts with large surrender penalties, according to a California appellate court.

The senior citizens alleged that they were duped into buying high-commission annuity contracts with large surrender penalties from the National Western Life Insurance Company in violation of the UCL. The class sought restitution of the allegedly improper surrender penalties and enhanced remedies for each cause of action under California Civil Code Sec. 3345.

Enhanced Remedies for Senior Citizens

Section 3345 authorizes trebling either the amount authorized under a statute or the amount the trier of fact imposed in its discretion. It requires that the action (1) be brought by or on behalf of senior citizens or disabled persons seeking redress for unfair methods of competition and (2) be one in which the trier of fact is authorized by a statute to impose a penalty the purpose or effect of which is to punish or deter.

National Western was granted judgment on the pleadings without leave to amend because the trial court found that that the only available remedy under the UCL did not have the purpose or effect of punishment or deterrence as required by Section 3345. Therefore, Section 3345 was not applicable to the UCL action and the case was dismissed, the trial court held.

According to the appellate court, the language of Section 3345 did encompass actions under the UCL brought by or on behalf of senior citizens. Contrary to the trial court’s ruling, UCL restitution awards have a deterrent purpose and effect.

Damages v. Restitution

It was well established that private plaintiffs could not receive damages—much less treble damages—under the UCL.In this case, however, the senior citizens did not seek to justify monetary relief other than restitution under the UCL. Therefore, the court found that Section 3345 applied to unfair competition actions involving a fine, civil penalty, or any other deterrence remedy.

Section 3345 was enacted as a specific remedy in actions concerning deceptive business practices aimed at senior citizens. It was consistent with the goal of the legislature to construe Section 3345 to apply to UCL actions. Therefore, the trial court’s order was vacated and a new order was entered denying National Western’s motion for judgment on the pleadings.

The May 21 decision—Clark v. The Superior Court of Los Angeles (National Western Life Insurance Co.)—will be reported in CCH State Unfair Trade Practices Law.