In re Tobacco II: The Future of Full Refunds under the UCL

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In re Tobacco Cases II is a recent California Court of Appeal decision with dire consequences for consumer class actions that seek refunds under the UCL, if it is not overturned. No. D065165 (4th Dist. Div. 1 Sept. 28, 2015) (slip op. available here). The case is based on Phillip Morris’s allegedly misleading advertising of Marlboro Light cigarettes. In its decision, the appellate court effectively repudiated a plaintiff’s entitlement to a full refund for claims alleged under the California Unfair Competition Law (“UCL”), Business & Professions Code section 17200, simply because “it appears inherently implausible to show a class of smokers received no value from a particular type of cigarette.” Slip op. at 30. After extensive litigation and appeals dating back to the original filing of the complaint in 1997, the San Diego County Superior Court held a bench trial in 2013. Though the trial court found that Philip Morris’ advertising of the light cigarettes was deceptive within the meaning of the UCL, it also denied the plaintiffs’ prayer for restitution due to the lack of “competent evidence of any loss attributable to the deceptive advertising” and denied injunctive relief based on mootness. Slip op. at 7, 9. Ultimately, the trial court held that the proper theory of restitution under the UCL is “the difference between the price paid and the value actually received” and that a full refund will not be available where the plaintiffs obtained any value apart from the unlawful conduct. Id. at 7. The plaintiffs appealed this decision.

Citing In re Vioxx Class of Cases, 180 Cal. App. 4th 116, 131 (2009), the Court of Appeal concluded that “[t]he difference between what the plaintiff paid and the value of what plaintiff received is a proper measure of restitution. In order to recover under this measure, there must be evidence of the actual value what the plaintiff received.” Slip op. at 13 (emphasis added). The court also cited several federal cases holding that a full refund is completely unavailable under the UCL if the product has conferred at least some value to consumers, notwithstanding the allegedly deceptive advertising. Id. at 20. Although the court did not completely foreclose a situation where a full refund might be available in a UCL case, it opined that such a case would only be in the extremely rare instance where a plaintiff can prove that he received no value from the at-issue product, such as, for example, a case where consumers sought a full refund for a dietary supplement on the grounds that it falsely advertised aphrodisiac qualities and had no value separate from that claim. Id. at 19-20 (citing Ortega v. Natural Balance, Inc., 300 F.R.D. (C.D. Cal. 2014). However, the panel was quick to add that even in that rare type of case, the Vioxx measure of restitution would still apply since “the price paid minus the value actually received [i.e. zero] equals the price paid.” Id.

Plaintiffs in future consumer cases may be able to limit In re Tobacco Cases II based on the fact that the plaintiffs in that case failed to provide any competent evidence of loss attributable to the deceptive advertising. Plaintiffs with more compelling evidence should fare better. The trial court had rejected the plaintiffs’ “conjoint survey” which asked survey participants to choose between hypothetical cigarette products based on certain factors, including health risks, because “[t]he survey did not measure the difference between the price paid . . . and the actual value received, but rather measured ‘benefit of the bargain’ damages not available in a UCL action.” Slip op. at 8. Further, counsel for the plaintiffs appeared to concede in his closing statement at trial that the proper measure of restitution, in fact, was the difference between the price paid and the actual value received, i.e. the Vioxx measure of restitution. The appellate court further rejected the plaintiffs’ alternate theory that a defendant could be required under the UCL to make a full refund solely for the purpose of deterrence, regardless of whether the plaintiffs received value from the product apart from the deceptive advertising, concluding that restitution under the UCL cannot be awarded exclusively for the purpose of deterrence. Id. at 18-29.

A few days prior to the In re Tobacco Cases II decision, a Ninth Circuit case, Pulaski & Middleman, LLC, et al. v. Google, Inc., was decided and provides some hope to the plaintiffs’ bar. However, Pulaski will need to be reconciled with In re Tobacco Cases II. No. 12-16752 (9th Cir. Sept. 21, 2015) (slip op. available here). In Pulaski, the court held that disagreement over how to calculate restitution will not defeat class certification under Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). However, the court also suggested that a full recovery theory could be an appropriate method for calculating restitution. The Pulaski court also stated that a restitution calculation under the UCL “need not account for benefits received after purchase because the focus is on the value of the service at the time of purchase[,]” but rather, “ the focus is on the difference between what was paid and what a reasonable consumer would have paid at the time of purchase without the fraudulent or omitted information.” Slip op. at 19-20. It then concluded, restitution under the UCL measures “what the [plaintiff] would have paid at the outset, rather than accounting for what occurred after the purchase.” Id. at 20.

If the ruling in In re Tobacco Cases II stands, plaintiffs in a UCL action could win the battle—i.e., their case could be certified, but lose the war—i.e., no damages award.

Authored By:
Jordan Lurie, Of Counsel