The Ucl-now a Money Back Guarantee?

• Publication year: 2016
• Author: By Michele Floyd

THE UCL-NOW A MONEY BACK GUARANTEE?

By Michele Floyd¹

I. INTRODUCTION

The Ninth Circuit issued its opinion in Pulaski & Middleman, LLC v. Google, Inc.² on September 21, 2015. After adopting an expansive definition ofrestitution under the California Unfair Competition Law ("UCL"), Pulaski reversed the district court's denial of certification on the ground that calculating restitution under the UCL posed no individualized questions. Underlying its reversal of the district court's decision were three findings: (1) California law creates a "conclusive presumption" that a consumer is entitled to restitution once liability is established under the UCL thus making individualized proof of entitlement to restitution unnecessary; (2) the value received post-purchase is irrelevant to a restitution calculation because the proper measure is the diference between the amount the class member paid and the amount the class member would have paid had he or she known the truth; and, in any event, (3) individualized damage calculations cannot defeat certiication in the Ninth Circuit, even after Comcast Corp. v. Behrend.³

One week later, the California Court of Appeal affirmed the final judgment in In re Tobacco Cases II⁴ and affirmed the trial court's refusal to award any restitution under the UCL. There, the court conirmed that UCL restitution must account for post-purchase value received, applying the definition formulated in In re Vioxx Class Cases.⁵ Tobacco II further entrenched the developing weight of authority holding that a full refund is not available under the UCL except in the rare circumstance where the product at issue has no intrinsic value.

Pulaski is inconsistent with Tobacco II in at least two respects. First, as Tobacco II illustrates, California law does not create a conclusive presumption that a restitution award is proper once liability is established. Second, the Pulaski court applied the incorrect deinition of restitution under the UCL—a definition that allowed it to sidestep Comcast. While it is true that there is no California Supreme Court authority conclusively deining restitution for purposes of the UCL, Pulaski is a clear departure from the body of law developed by the Courts of Appeal. Pulaski is also inconsistent with Comcast. Its bright-line refusal to consider the impact of damage calculations on the Rule 23(b) analysis flies in the face of Comcast's now clear holding that plaintifs must come forward at the certiication stage with a damages methodology capable of class-wide application.

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This article will analyze the Pulaski opinion in light of existing California law defining restitution for purposes of the UCL and then look at the viability of the Ninth Circuit's ultimate conclusion in light of Comcast. We begin with a brief discussion of Pulaski, Tobacco II and Vioxx. We then turn to an examination of the evolution of the definition of UCL restitution. Then we will analyze the Pulaski holding in light of Comcast, reaching the conclusion that it was only the incorrect definition of restitution that allowed the Court to sidestep Comcast.

II. SUMMARY OF PULASKI: UCL RESTITUTION CAN'T DEFEAT PREDOMINANCE

Pulaski involved a challenge to Google's AdWords click advertising program. Specifically, plaintiffs, who were advertising agencies and businesses, alleged that Google uniformly failed to disclose in its AdWords documentation that it would place ads on low quality web pages such as parked domains (an undeveloped page consisting of nothing but links to ads) and error pages (reached when a user mistypes a domain or URL). At certification, plaintiffs proposed three alternative methods for calculating the amount of restitution owed to class members: (1) using Google's "Smart Pricing" algorithm, which would approximate the difference between what plaintiffs actually paid and what they would have paid had Google disclosed the ad placement; (2) a "Content Pricing" approach, which plaintiffs described as factoring in the lower bidding that would have occurred had advertisers been allowed to bid separately for parked domain and error page placement; and (3) a full refund.⁶ The District Court, relying on the definition of restitution set forth in Vioxx, denied certification on the ground that determining not only who was entitled to restitution but in what amount, were necessarily individualized, and complicated, inquiries; the Court would essentially have to assess the intrinsic value of the advertising received, which would vary among class members.⁷ Accordingly, the need to make individualized calculations defeated predominance under Rule 23.

The Ninth Circuit reversed, finding that the restitution calculations were irrelevant to the Rule 23 analysis. The Court's conclusion was premised on its findings that: (1) California has created a "conclusive presumption" of entitlement to restitution once liability under the UCL is established; and (2) liability under the UCL does not require individualized proof of deception, reliance or injury.⁸ Therefore, the Court concluded, the amount of restitution is determined at the time of purchase and the proper measure is the difference between what the class members paid and what they would have paid absent the misrepresentation or omission.

Having adopted an expansive definition of restitution, the Court turned to predominance under Rule 23(b)(3), making it clear that Comcast did not change Ninth Circuit law holding that varying amounts of damage cannot defeat predominance.⁹ It then expanded that familiar, and somewhat innocuous, proposition, however, to damage calculations, holding that the need to individually calculate the amount of each class member's damage award can never defeat predominance. In the case before it, however, the statement was of little influence because pursuant to the Court's view of UCL restitution, individual calculations were unnecessary anyway. The Court formulated a measure of restitution that focused only on the point of purchase—the difference between the price paid and the price the plaintiff would have paid had she known the truth about the alleged misrepresented or omitted information. Under the Court's deinition, then, post-purchase value, while undoubtedly individualized, was irrelevant to the calculation.¹⁰ Taken to its logical extension, the Court's deinition of restitution would allow a full refund if the consumer would not have purchased the product at all.

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Ultimately, however, the Court did not endorse a full refund. Rather, it found that using the Smart Pricing algorithm would result in a nonspeculative approximation of the proper amount of restitution.¹¹ The algorithm essentially used a ratio from Google's data that adjusted the ad price for web page quality. Thus, it was both targeted to remedying the alleged harm (because it measured what the advertiser should have paid at the onset rather than accounting for what occurred post-purchase) and did not turn on individual circumstances.¹² Because damage calculations posed no impediment to certification, the Court reversed the District Court.

III. Summary of Tobacco II: Restitution is Individualized

The recent Tobacco II opinion was the result of an appeal after inal judgment. The facts of Tobacco II are familiar: plaintiffs claimed that defendants falsely advertised Marlboro Lights as being less harmful than other "full-flavored" cigarettes. The trial court found that defendant's advertising was likely to mislead the general public but denied plaintiffs' request for restitution on the ground that plaintiffs' evidence of the difference between the price they paid for the cigarettes and the value they actually received was "incompetent and inadmissible."¹³

Plaintiffs made two contentions on appeal. First, they argued that the Vioxx measure of restitution (the difference between the amount paid and the actual value received) was not the only measure permitted under California law.¹⁴ Second, they argued that California law did not require them to show any loss attributable to the false advertising because the court had the authority to order a full refund under the UCL exclusively for the purpose of deterrence.¹⁵

The Court of Appeal rejected both arguments and conirmed that Vioxx accurately represents California law. The Court further made it clear that under Vioxx, a full refund would be appropriate under the UCL only when the product in question has no intrinsic value. In so holding (and rejecting plaintiffs' arguments), the Court made three notable observations. First, it noted that Sections 17203 (remedies) and 17204 (standing) have distinct requirements.¹⁶ The Court discussed Kwikset Corp. v. Super. Ct.,¹⁷ noting that it established the standard only for standing, a standard that was inapplicable to calculating restitution once liability was established. Second, the Court noted that there is no "entitlement" to restitution under section 17203.¹⁸ Rather, injunctive relief is the primary remedy under the UCL and restitution is only ancillary.¹⁹ Last, while section 17203 may be broad enough to allow recovery without proof of individual injury under certain circumstances, it is not so broad as to allow an actual monetary award with no evidence of the actual value of the product. On this last point, the Court confirmed that courts have no statutory authority to award restitution under the UCL as a deterrent.²⁰ Accordingly, a restitution award must account for the value each class member actually received in order to avoid a windfall. In short, restitution is an individualized calculation that cannot be avoided by awarding a full refund unless the product at issue has no intrinsic value.

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Ultimately, the Court rejected plaintiffs' proposed methodology for calculating restitution. The Court also found plaintiffs' evidence to be inconsistent with a restitution award, specifically:

• Testimony from plaintiffs indicating that Marlboro Lights provided a reasonable value for...