Another California Court Declines to Require Privity for Breach of Warranty Claims

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A recent post noted that several recent decisions have undermined the privity requirement that has been applied to breach of implied warranty claims under the U.C.C. in California.  A recent Central District of California opinion continues that trend.

In Michael v. Honest Co., No. 15-cv-07059 (C.D. Cal. Dec. 6, 2016), Judge John A. Kronstadt declined to dismiss both express and implied warranty claims under California law.  Plaintiffs brought their implied warranty claims under California’s U.C.C. provision, rather than under the Song Beverly Consumer Warranty Act (which does not have a privity requirement).

The court held first that “Plaintiffs’ express warranty claim is sufficiently alleged because vertical privity is not required for such claims.”  The court then recognized that while privity is required under the California U.C.C. provision for implied warranty claims, there is a recognized exception for when the plaintiff is a third-party beneficiary of the contract between the manufacturer and retailer.  Because plaintiffs had bought a consumer product (sunscreen), the court had no trouble holding plaintiffs were third-party beneficiaries and that the privity requirement did not apply.… Read more

Second Circuit Interprets Spokeo

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As district courts continue to grapple with Spokeo on a daily basis, the Second Circuit has finally weighed in on how to understand the Supreme Court’s ruling. The decision comes in the context of claims brought under the Truth In Lending Act (TILA).

In Strubel v. Comenity Bank, — F.3d —-, 2016 WL 6892197 (2d Cir. Nov. 23, 2016), the Second Circuit analyzed consumer claims that a bank failed to provide four types of disclosures purportedly required by TILA.  The court held that two of the alleged non-disclosures gave rise to concrete injuries under TILA, and two did not.

Perhaps of greatest interest, the court affirmed that under Spokeo, “violations of statutorily mandated procedures” can qualify “as concrete injuries supporting standing.”  To determine whether violation of a statutory procedure gives rise to standing, the Second Circuit instructed courts to consider “whether Congress conferred the procedural right in order to protect an individual’s concrete interests.” If so, the procedural violation will suffice to give rise to standing as long as “the procedural violation presents a ‘risk of real harm’ to that concrete interest.”

The Second Circuit recognized that a core objective of TILA is to protect consumers’ concrete interest in avoiding the uninformed use of credit.  … Read more

SD FL Spokeo Decision

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Courts around the country continue to grapple with the Supreme Court’s Spokeo decision – particularly as nearly every Rule 12(b)(6) motion filed these days raises Article III standing as a basis for dismissal.

U.S. District Court Judge Cecilia M. Altonaga recently analyzed Spokeo in Flaum v. Doctor’s Associates, Inc., 2016 WL 7015823 (S.D. Fla. Aug. 29, 2016).  Plaintiff brought suit alleging a single claim under the Fair and Accurate Credit Transactions Act (“FACTA”).

Undertaking a close look at the statute and its legislative history, Judge Altonaga concluded that Congress created a “substantive right” under FACTA for consumers to have their personal credit card information truncated on printed receipts:

Courts have … considered a FACTA violation to be concrete as soon as a company prints the offending receipt, as opposed to requiring a plaintiff actually suffer identity theft.

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The FACTA’s legislative history supports the Court’s finding Congress desired to create a substantive legal right for consumers to utilize in protecting against identity theft. In particular, the “FACTA arose from a desire to prevent identity theft that can occur when card holders’ private financial information, such as a card holder’s complete credit card number, is exposed on electronically printed payment card receipts.” Creative Hosp.

… Read more

Cal. U.C.C. Implied Warranty Claim: Privity Not a Barrier?

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California allows for two different types of implied warranty claims.  The first arises under the Uniform Commercial Code, and the second arises under the Song Beverly Consumer Warranty Act.  Claims under the two statutes differ in a few ways, but perhaps most notably is the privity requirement that exists for the U.C.C. claim, but not for the Song Beverly Claim.  Several recent opinions have undermined the U.C.C.’s privity requirement in the context of automotive defect class actions.

In Bryde v. General Motors, the plaintiffs alleged they bought vehicles with defective airbag systems.  2016 WL 6804584, at *15 (N.D. Cal. Nov. 17, 2016).  Plaintiffs brought several claims, including a California U.C.C. implied warranty claim.  GM sought to dismiss the U.C.C. claim on the grounds that a claim under California Commercial Code section 2314 requires vertical privity.  See Sec. 2314 (“a plaintiff asserting breach of warranty claims must stand in vertical contractual privity with the defendant”).  Rather than contesting the privity requirement, plaintiffs argued that an exception applies where plaintiff is a third-party beneficiary to a contract that gives rise to the implied warranty.

Judge William H. Orrick agreed.  He noted first that “in a previous decision, I declined to recognize the third-party beneficiary exception under California law,” interpreting prior cases as foreclosing the exception.  … Read more

Class Representatives Do Not Need to Be Eligible for Each Type of Damages

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In the post-Comcast climate, plaintiffs in consumer class actions often seek to prove damages classwide through damages models.  But what happens when the model would provide damages for many class members, but not for a class representative? Is that a bar to class certification?

Judge David O. Carter, of the Central District of California, has held that class representatives do not need to be eligible to recover all forms of economic damages sought on behalf of the class.  In Petersen v. Costco Wholesale Co., 2016 WL 6768911 (C.D. Cal. Nov. 15, 2016), defendants argued that none of the class representatives could establish all of the economic damages that the class is seeking as a whole—making them atypical class members. Judge Carter agreed with defendants’ premise: no class representative experienced all three injuries, and six of them experienced none of the identified harms.

Nevertheless, Judge Carter held that “the named Plaintiffs need not raise identical claims to all the possible claims in the class.” Judge Carter reasoned, “[t]he tests of typicality does not require identity of claims, and the named Plaintiffs claims need be only reasonably co-extensive with those of absent class members.”  He continued: “The same showing of liability that will entitle the named Plaintiffs to recover will also entitle absent class members to any economic damages they incurred.… Read more

Spokeo: State Legislatures Can Also Elevate A Harm for Article III Standing Purposes

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Last month, we wrote about a decision in the Eastern District of California, where the court held that a violation of a procedural right granted by a state statute could constitute a concrete harm under Spokeo.  Several new decisions agree.

Most recently, in Bellino v. JPMorgan Chase, Judge Nelson Roman of the Southern District of New York reached the same conclusion in the context of claims that JPMorgan systematically fails to timely present mortgage satisfaction notices for recording.  2016 WL 5173392 (S.D.N.Y. Sept. 20, 2016).

Presented with an Article III standing challenge, Judge Roman held that violations of state statutes like the New York Real Property Law and the New York Real Property Actions and Proceedings Law give rise to concrete harm under Spokeo.  As a starting point, Judge Roman agreed with an earlier decision

that “a state statute, like a federal statute, may create a legal right, the invasion of which may constitute a concrete injury for Article III purposes.” Jaffe, 2016 WL 3944753, at *4. As noted by Judge Briccetti, though the Second Circuit has yet to address the issue, other circuits have determined that state statutes may define an injury for Article III standing purposes. Id. at *3 (citing FMC Corp.

… Read more

California Consumer Protection Laws May Impose A Duty to Disclose Even Absent Safety Issue

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In re Lenovo Adware Litigation is multi-district litigation concerning Lenovo laptops which (Plaintiffs allege) were pre-installed with malicious software. A federal district court in California recently denied a motion to dismiss in part and granted class certification of California claims. 2016 WL 6277245 (N.D. Cal. Oct. 27, 2016).

We’ll refrain from commenting on the Court’s orders due to our role as class counsel, but we wanted to summarize the Court’s ruling declining to dismiss UCL and CLRA claims which were based on the alleged failure to disclose material information that was exclusively known by the defendant.

In an nutshell, the court held that, under California law, a duty to disclose may arise where the defendant has exclusive knowledge of material information, even absent any affirmative misrepresentation or safety defect. The court based its understanding of California on a recent California Court of Appeal decision in Rutledge v. Hewlett-Packard Co., 238 Cal. App. 4th 1164, 1174 (2015), as modified on denial of reh’g (Aug. 21, 2015). According to the Lenovo court, Rutledge cast new light on this question and it is controlling because there is no clear and convincing evidence suggesting the California Supreme Court would decide Rutledge differently.

 … Read more

ND Cal. Declines to Enforce Arbitration Clause

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Say you sign up for a department store credit card, and that credit agreement has an arbitration clause.  Then you buy merchandise at the store, using the credit card, and later want to sue because you believe the merchandise was marketed in a fraudulent manner.  Does the arbitration clause bar your suit?  According to one court at least, the answer is no.

Judge Thelton E. Henderson of the Northern District of California recently declined to enforce an arbitration clause within a Banana Republic Visa card agreement. The plaintiff had purchased merchandise at a Banana Republic affiliate (a Gap store) and alleged that the Gap had marketed the merchandise unlawfully.  The Gap moved to dismiss based on the arbitration clause.

Plaintiff argued that The Gap was not privy to the arbitration agreement and so could not enforce it.  Defendant responded that it was a third party beneficiary of the agreement, giving it the right to enforce it.

Judge Henderson sided with the plaintiff:

Here, while the parties’ agreement could be read to make Defendants third-party beneficiaries, the agreement itself is ambiguous. … Further, it is unclear to the Court how Plaintiff’s claims are “related to” her credit card agreement when Plaintiff’s claims are unrelated to her method of payment; in other words, her claims against Defendants would not be affected had Plaintiff made the purchase with a different credit card or payment method.

… Read more

Recent Standing Decision in Data Breach Context (SD Cal.)

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Another federal court has weighed in on Article III standing in a data breach class action. In Dugas v. Starwood Hotels, plaintiff alleges that criminal hackers inflicted a series of attacks on the United States hospitality industry.  2016 WL 6523428 (S.D. Cal. Nov. 3, 2016).  Plaintiff claims the data breach affected hundreds of thousands of customers of the Starwood Hotel system.

When defendants moved to dismiss, the court focused on plaintiff’s alleged injury-in-fact for under Article III.  The court categorized the claimed injuries within four categories:

These claimed injuries can be summarized as (1) past financial costs associated with detecting and preventing identity theft or unauthorized use of credit cards; (2) future costs in terms of time, effort and money to prevent or repair identity theft or future unauthorized use of credit cards; (3) theft of personal identifying information and; (4) past loss of productivity from efforts to mitigate consequences of data theft.

The court then concluded that plaintiff lacked standing for the first three types of injuries.

First, the court held “Plaintiff merely alleges that he was ‘exposed’ to economic losses. Such indirect allegations do not demonstrate injury in fact.”

Second, the court emphasized that the theft of personal information had been relatively limited–it did not involve social security information or usernames, passwords, or emails, but rather names, addresses, billing information, and credit card numbers.  … Read more

Violations of California’s Invasion of Privacy Act Satisfy Spokeo

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Judge Jeffrey T. Miller of the Southern DIstrict of California became the latest to hold that violations of CIPA give rise to concrete harms under the SCOTUS’s Spokeo decision.  The case is Romero v. Securus Techs., Inc., No. 16-cv-1283, 2016 WL 6157953, at *4 (S.D. Cal. Oct. 24, 2016).

CIPA prohibits unauthorized interceptions of communications in order to protect the right of privacy.  Plaintiffs in Romero allege that when they were inmates in California correctional facilities they used the defendant’s telephone system, and that the defendant recorded a number of calls between plaintiffs and their attorneys.

Defendants sought dismissal under Spokeo, arguing plaintiffs had only alleged procedural violations of CIPA, not enough to constitute concrete harm.  Judge Miller disagreed, relying heavily on a recent decision from Judge Koh in California’s Northern District:

A violation of CIPA involves much greater concrete and particularized harm than a technical violation of the Fair Credit Reporting Act (“FRCA”), the statute at issue in Spokeo. While “[a] violation of one of the FCRA’s procedural requirements may result in no harm,” such as reporting of “an incorrect zip code,” Spokeo, 136 S. Ct. at 1549, a violation of CIPA is a violation of privacy rights.

… Read more