California Court Holds that Putative Class Action Alleging Violations of State’s Unfair Competition Law, False Advertising Law and Consumers Legal Remedies Act Fails for Lack of Actual Reliance and Lack of Standing Where Plaintiff Purchased Products for the Purpose of Filing Class Action
In a case with broad implications to class action lawsuits, plaintiffs filed an individual lawsuit in California state court against Threshold Enterprises and more than 30 other defendants alleging violations of the state’s unfair competition law (UCL), false advertising law (FAL) and Consumers Legal Remedies Act (CLRA) because its skin cream was a “misbranded or mislabeled drug.” Buckland v. Threshold Enterprises, Ltd., ___ Cal.App.4th ___, 2007 WL 2773497 (Cal.App. September 25, 2007) [Slip Opn., at 2]. Defense attorneys demurred to the complaint on the grounds that plaintiffs lacked standing to assert the various UCL, FAL and CLRA claims, id. at 3. The trial court sustained the defense demurrer to the complaint but granted plaintiffs leave to amend; plaintiffs refused to amend the complaint so the court entered judgments of dismissal and plaintiffs appealed. Id., at 2. The Court of Appeal affirmed, holding that .
Plaintiffs California Women’s Law Center and its executive director, Katherine Buckland, “seek to advance the civil rights of women and girls” and allege that the some skin creams and lotions sold by defendants contain progesterone or other chemicals regulated by the FDA but that defendants failed to provide adequate warnings in violation of FDA regulations. Buckland, at 2-3. Plaintiffs sought a preliminary injunction to enjoin Threshold from selling skin cream, id. at 3. Buckland admitted, however, that she did not suffer any personal injury but rather purchased the items for the express purpose of determining whether lawsuits could be filed based on the chemicals contained in them. Id. Threshold opposed the injunction on the grounds that plaintiff would not likely prevail on the merits and that the “balance of hardships” weighed against such relief. Id., at 3-4.
With respect to the fraud claims, the trial court held that the defense was entitled to dismissal because plaintiff “[did] not even make a gesture toward pleading justifiable reliance.” Buckland, at 7. The appellate court agreed. Plaintiff admitted that she “suspected” the packaging “contained false and misleading advertising” and “relied on this suspicion” to purchase the products. Id. The Court of Appeal explained at page 7, “The crux of her argument is that the requisite ‘actual reliance’ is established when a plaintiff (1) knows the defendant may have made false or materially incomplete representations about its product, and (2) buys the product expecting to claim the purchase costs as damages if the representations are, in fact, false or incomplete.” The appellate court flatly rejected this theory, holding that “actual reliance occurs only when the plaintiff reposes confidence in the truth of the relevant representation, and acts upon this confidence.” Id. In this case, the court explained at page 8, “we conclude that actual reliance for the purpose of fraud by omission occurs only when the plaintiff reposes confidence in the material completeness of the defendant’s representations, and acts upon this confidence.” The Court of Appeal held at page 9 that because plaintiff “concedes she suspected respondents’ packaging and marketing was false or misleading, and she bought respondents’ products solely to pursue litigation upon the vindication of her suspicions” (italics added), she “lacked the requisite confidence in the truth and material completeness of their representations, and cannot establish actual reliance for the purpose of her fraud claim.”
For similar reasons, the trial court rejected the CLRA claim, holding that plaintiff failed to establish that defendants’ conduct “caused her alleged damages.” Buckland, at 9. The appellate court agreed, explaining that the “CLRA claim sounds in fraud” and so “the key issue is whether her lack of actual reliance for the purpose of fraud also defeats her CLRA claim,” id. The Court of Appeal concluded that it did, see id., at 9-13.
Next, the trial court held that plaintiff lacked standing to pursue the UCL claims. The appellate court explained that “standing goes to the existence of a cause of action” and thus “lack of standing may be raised by demurrer or at any time in the proceeding, including at trial or in an appeal.” Buckland, at 15. In this case, the only “loss of money or property” suffered by plaintiff was “her expenditure of funds to buy respondents’ allegedly defective products” – which the appellate court agreed were not “the requisite injury in fact and loss.” Id., at 16. This conclusion also supported the appellate court’s conclusion that the trial court properly dismissed the false advertising claim. See id., at 24-25. Accordingly, the Court of Appeal affirmed the dismissal of the class action complaint, id., at 25.