Professional Liability

Ramsey v. Georgia Southern University Advanced Development Center, et al., No. 305, 2017, C.A. No. N14C-01-287 ASB (Del. June 27, 2018).

 

On June 27, 2018, the Supreme Court of the State of Delaware issued a fifty-seven-page opinion in the above-mentioned case, creating new precedent for Delaware employer liability in secondary or “take-home” asbestos cases. Below is a summary of both the relevant factual and procedural background, as well as Chief Justice Strine’s opinion.

 

The plaintiff’s spouse, Robert Ramsey, worked for Haveg Industries, Inc. at its industrial plant for twenty-four years. From 1967 to 1979, Mr. Ramsey regularly handled asbestos-containing products manufactured by Georgia Southern University Advanced Development Center and Hollingsworth and Vose Company as part of his job as a maintenance worker at Haveg. Throughout this period his wife, Plaintiff, Dorothy Ramsey, washed Mr. Ramsey’s asbestos-covered clothing. Mrs. Ramsey eventually developed lung cancer, from which she subsequently died in 2015. Her estate sued the manufacturers of the asbestos products, alleging that the cancer was caused by Mrs. Ramsey’s exposure to her husband’s asbestos-riddled clothing. In granting the appellee manufacturers’ motions for summary judgment and dismissing the claims, the Delaware Superior Court relied primarily on two previous Delaware Supreme Court cases, Riedel v. ICI Americas Inc., 968 A.2d 17 (Del. 2009), and Price v. E.I. DuPont de Nemours & Co., 26 A.3d 162 (Del. 2011), in which the Delaware Supreme Court held that an employer owed no duty to non-employees, including their spouses, for failure to adequately warn of the dangers of handling clothing exposed to asbestos, minus a special relationship between the employer and the non-employee, because the failure to warn was nonfeasance rather than misfeasance. Mrs. Ramsey appealed, arguing that in distinguishing an employer from a manufacturer: 1) a manufacturer of asbestos products creates the danger of asbestos-related harm and therefore commits misfeasance by failing to warn foreseeable victims; and 2) to the extent the holdings in Riedel and Price would block recovery on take-home claims against manufacturers, those holdings should be overruled. The appellant defendants argued that Riedel and Price controlled, and prevented Mrs. Ramsey from recovering from manufacturers because they are even further removed from an employer’s spouse than the employer itself. Additionally, they argued that allowing such claims would impose upon manufacturers an essentially limitless duty to warn that would be both impractical and unfair.

 

The Supreme Court acknowledged the compelling arguments on each side, but ultimately agreed with Mrs. Ramsey. First, the Court held that manufacturers owe a duty to warn to reasonably foreseeable users of their products, stating that “[b]ecause the risk of harm from take-home asbestos exposure when laundering asbestos-covered clothing is reasonably foreseeable, a plaintiff in Mrs. Ramsey’s position has a viable claim against a manufacturer . . . . Ramsey. at p. 44 of 57. However, the Court limited this duty by stating that the “sophisticated purchaser” defense would cut off a manufacturer’s liability to ultimate end users once the manufacturer has warned the employer of the risk of harm, stating that such an approach would establish “a fair and efficient accountability system . . . by limiting the duty of asbestos product manufacturers and employers in take-home asbestos exposure cases to providing fair warning about the dangers of laundering to those with whom they have the most proximate relationship. Manufacturers may discharge their duty by warning employers, and employers may discharge their duty by warning employees.” Ramsey, p. 39 of 57.

 

The Court did not end its analysis there, however, recognizing that, without “further alteration to [Delaware’s] jurisprudence, manufacturers would face liability in circumstances when employers would not.” Id. at p. 50 of 57. Thus, the Court overruled, to the extent necessary, its holdings in Riedel and Price, finding that employers commit misfeasance, rather than nonfeasance, when exposing their employees to dangerous asbestos products. The Court differentiated between the classic case of nonfeasance – a passerby failing to save a person from harm not of the passerby’s making – from employers who have created the risk of harm to both the employee and the launderer of the employee’s clothes by putting them in contact with asbestos. In such a case, the Court stated that “[o]nce an employer has engaged in misfeasance, recognized principles of tort law impose upon it a duty to ‘act reasonably, as a reasonably prudent man (or entity) would,’ which ‘encompasses protecting against reasonably foreseeable events.’”  Id. at p. 55 of 57 (citation omitted).  In other words, the Court held that a household member who claims exposure to asbestos through laundering the clothing of an employee, may sue the household member’s employer for a failure to warn, though recovery may be denied if the employer can demonstrate that it took steps to warn the employee, protect the employee and address potential harms associated with asbestos exposure.

 

While the Court clarified that “plaintiffs in cases like this will be of the most foreseeable kind: those who for many years laundered the dirty clothes of the employee with whom they shared a household,” it also acknowledged Defendants’ concern that “claims from plaintiffs with more momentary exposure to and tenuous relationship to an exposed employee [may be] filed in the future.” Id. at p. 56 of 57. The Supreme Court’s holding in Ramsey, although attempting to limit the scope of its impact, has likely opened the door to a new array of take-home asbestos claims against manufacturers and employers, which were previously unavailable under Delaware law. However, it is important to note that this holding will not affect asbestos claims filed in Delaware where the alleged asbestos exposure took place outside of the state and Delaware substantive law does not apply.

 

If you have questions regarding the Delaware Supreme Court’s opinion in Ramsey or litigation in general, we invite you to contact The MG+M Law Firm’s Wilmington, Delaware office.

Overview

On March 30, 2018, Judge Rya Zobel of the United States District Court (District of Massachusetts) issued a memorandum of decision on two Defendants’ (NSTAR Electric, formerly Boston Edison, and General Electric) Motions for Summary Judgment in an asbestos personal injury and wrongful death matter, June Stearns and Clifford Stearns as Co-Executors of the Estate of Wayne Oliver v. Metropolitan Life Insurance Co., et al., that addresses multiple issues, including statute of repose, strict liability and liability of a premises owner.

Background

Plaintiff’s decedent, Wayne Oliver, worked on the construction of two power plants, Pilgrim Nuclear Power Station (Massachusetts) and Calvert Cliffs Nuclear Power Plant (Maryland), between 1971 and 1978 and his estate alleges that Mr. Oliver was exposed to asbestos-containing products present at those sites. Defendant NSTAR Electric (formerly Boston Edison)(“Boston Edison”) owned the Pilgrim premises.  Defendant General Electric (“GE”) allegedly designed, manufactured, and sold generators used at Pilgrim and at Calvert Cliffs.  Oliver worked as a pipe inspector for Bechtel, the architect-engineer on projects at both Pilgrim and Calvert Cliffs.

 

As the owner of Pilgrim, Boston Edison conducted safety audits while the construction proceeded, but primary responsibility for the site construction rested with GE and Bechtel: GE for the steam supply system, nuclear fuel system, and the generators themselves; and Bechtel for everything else. In that capacity, Bechtel hired and supervised all subcontractors on the project, including an insulation installer, New England Insulation (“NEI”). Although NEI reported to Bechtel, it installed the asbestos-containing insulation around the generators pursuant to directions from both Bechtel and GE, and pursuant to GE’s specifications that specifically required asbestos-containing insulation.  The Court also recognized that at both Pilgrim and at Calvert Cliffs, GE had rejected suggestions or proposals for an asbestos-free insulation alternative.

 

Oliver allegedly sustained exposure to asbestos at both sites while inspecting pipe near dusty thermal insulation as other subcontractors installed it around the generators. He was subsequently diagnosed with mesothelioma in 2015 and died in 2016.  In denying summary judgment to GE and granting summary judgment to Boston Edison, the Court found that:  (1) while the construction work performed by GE met the definition of an improvement to real property for purposes of the statute of repose, public policy considerations necessitated an exception to the application of the statute in cases involving alleged asbestos-related disease; (2) the installation of asbestos insulation was not an abnormally dangerous activity; (3) Boston Edison did not exercise sufficient control over the work at issue to be held negligent; and (4) a premises owner, such as Boston Edison, has no duty to warn where the subcontractor has knowledge of the hazard which is equal to or greater than that of the premises owner.

 

Application of Statute of Repose

GE argued protection from Plaintiffs’ claims under Massachusetts’s six-year statute of repose, which bars claims concerning “improvements to real property.” Under Massachusetts law, this involves a “permanent addition” versus “ordinary repair.” Whether this statute applied to asbestos claims against manufacturers posed an issue of first impression for the Court. GE argued that its generators were permanent improvements to the plant. Plaintiff disagreed, and further argued that public policy prevented the application of the statute to asbestos claims given their long latency.

 

Ultimately, the Court agreed with GE that the generators were permanent improvements, but found that public policy cut against the application of the statute of repose to GE’s benefit. Though the public policy behind statutes of repose is based on the policy judgment that a potential defendant should have no reasonable expectation of responsibility for injuries that occur after the passage of a number of years, the Court held that such a policy rationale does not apply to asbestos cases because: (1) the potential dangers associated with asbestos exposure were well known by 1971; and (2) the typical latency period from asbestos exposure to disease is much longer than the six-year window for filing personal injury claims under the statute of repose.  Accordingly, the Court found that an asbestos defendant should not have a reasonable expectation that an injury, if one should occur, would likely manifest itself within the six year statute of repose.

 

The Court further relied on what it called a “somewhat relaxed” burden of proof in asbestos cases, thereby minimizing the argument that evidence relied upon by the parties would become stale over the passage of time, another policy reason behind the application of statutes of repose. The Court also noted that GE’s responsibility was not typical of a manufacturer that releases its products to an end user without much retained control. In this case, GE directed the material selection and at least some of the work allegedly giving rise to the exposure.  In addition, GE continued to exercise some level of control for an extended period of time through on-site maintenance and inspections following completion of the project. On these grounds, the Court refused to bar Plaintiffs’ claims against GE on statute of repose grounds.

 

Although the decision purports to rely on a case-by-case factual approach to the application of the statute of repose, as evidenced by the Court’s statement that “although designers, engineers, and contractors like GE appear facially covered by the statute of repose, their protection is ultimately determined by reference to underlying acts.” the Court implicitly states that the statute of repose can never properly apply to asbestos claims, because such application would bestow upon asbestos defendants “absolute immunity” due to the typical latency period for asbestos-related diseases.

 

Strict Liability of Premises Owner

Plaintiff argued for the imposition of strict liability on Boston Edison based on the premise that the act of insulating equipment with asbestos-containing insulation amounted to an abnormally dangerous activity. Massachusetts imposes a balancing test on the application of strict liability in which the court evaluates: (a) whether an activity risks harm; (b) the magnitude of the harm; (c) whether the risk can be mitigated with reasonable care; (d) whether the activity is a common one; (e) whether the activity is appropriate where it is taking place; and (f) the activity’s value to the community. Here, the Court disagreed with Plaintiff’s argument and found that, despite the risk of significant harm posed by asbestos-containing insulation, the fact that asbestos insulation was commonly used during the time frame at issue, and the possibility of taking reasonable precautions to mitigate that harm weighed against the imposition of strict liability. Accordingly, the Court granted summary judgment in favor of Boston Edison on Plaintiffs’ strict liability claim. This decision suggests that, going forward, the Court will not be receptive to the blanket categorization that asbestos products are abnormally dangerous.

 

Negligence of Premises Owner

In addition, Plaintiffs argued that, to the extent Plaintiff’s employer, Bechtel, was negligent by exposing him to asbestos, Boston Edison bears vicarious responsibility. In Massachusetts, an employer of an independent contractor on their premises is not liable for harm caused by that independent contractor’s negligence, unless the employer retains control over performance of the work. Plaintiffs argued that Boston Edison’s authority to monitor the construction, coupled with the ability to shut down the project, rose to a sufficient level of control. The Court disagreed, and considered the right of inspection and the right to impose work stoppage insufficient levels of control to justify imposition of vicarious liability, and granted summary judgment. This decision supports the arguments of premises owners charged with responsibility for their independent contractors, and reaffirms the importance of clearly delineated responsibilities.

 

Plaintiffs further argue that, as premises owner, Boston Edison negligently failed to give Oliver’s employer a warning regarding the dangers of on-premises asbestos. Massachusetts landowners owe a duty of reasonable care to employees of independent contractors. However, courts distinguish pre-existing hazards with those created by the work the independent contractor undertakes to perform. With the latter, the independent contractor stands on equal footing with regard to the risk. The Court considered the insulation a case of the latter—where Boston Edison’s knowledge of the risks of asbestos was no greater than Bechtel’s, Boston Edison had no duty to warn, and therefore no liability, and granted summary judgment. This decision cuts against plaintiffs’ attempts to make premises owners the effective “insurers” for on-premises work, the nature of which subcontractors may be more or equally aware.

Asbestos(Cropped)Travelers Casualty and Surety Company (“Travelers”) dodged a bullet when a $36 million judgment entered against it was unanimously overturned by a recent Third Circuit ruling in General Refractories Co. v. First State Ins. Co., 2017 WL 1416364 (3d. Circ. 2017). Significantly, the Third Circuit held that Travelers had no obligation to indemnify its policyholder, General Refractories Company (“GRC”), for any losses associated with underlying asbestos-related lawsuits based on a policy exclusion for losses “arising out of asbestos.” The crux of the Court’s decision is hinged on the interpretation of the language that shaped the asbestos exclusion in Travelers’ insurance policy, which provided:

“It is agreed that this policy does not apply to EXCESS NET LOSS arising out of asbestos, including but not limited to bodily injury arising out of asbestosis or related diseases or to property damage.”

By way of background, GRC was a manufacturer and supplier of refractory products, some of which contained asbestos. The historical use of asbestos in some of GRC’s products resulted in over 30,000 lawsuits alleging injuries from exposure to asbestos starting in the late 1970s. While GRC’s primary liability insurers handled these claims, it also obtained excess insurance policies for additional coverage from a number of insurers, including Travelers. GRC began tendering the claims to its excess insurers in 2002, after its liabilities had far exceeded the limits of its primary insurance coverage, and the primary insurers could no longer defend and indemnify the company for these claims. All of GRC’s excess insurers, including Travelers, denied coverage based on their policies’ asbestos exclusions. As such, GRC initiated a lawsuit in the Eastern District of Pennsylvania, Gen. Refractories Co. v. First State Ins. Co., 234 F.R.D. 99, 100 (E.D. Pa. 2005), seeking to recover its losses from the underlying asbestos matters against its excess insurers, alleging that the asbestos exclusion did not preclude it from recovering under the policies. Through the course of the litigation, all of the excess insurers, with the exception of Travelers, resolved with GRC.

The District Court endeavored to interpret Travelers’ asbestos exclusion with a one-day bench trial, and considered argument and evidence from both parties. GRC held strong with its narrow interpretation of the asbestos exclusion, arguing that it only applied to raw mineral asbestos, not asbestos-containing products. In support of its position, GRC presented evidence of: (1) comparable insurance policies that clearly stated asbestos-containing products were excluded; (2) comparable insurance policies with definitions of “asbestos” that failed to include asbestos-containing products; (3) Travelers’ consecutive policies containing less ambiguous language; (4) the definition of asbestos-related claims from outside sources; and (5) expert testimony distinguishing between asbestos and asbestos-containing products. Travelers’ interpretation, however, was much broader, asserting that all asbestos-related claims were precluded under the asbestos exclusion.

The District Court agreed with GRC’s narrow interpretation of the word “asbestos” — concluding that it should be interpreted to mean raw mineral asbestos only. The Court explained that its interpretation was supported by GRC’s evidence of industry custom at the time, and that Travelers failed to show otherwise. Consequently, it considered the asbestos exclusion to be riddled with a latent ambiguity and deemed it “ambiguous” and “unenforceable.” Accordingly, a judgment was entered against Travelers for $36,273,705.00 to indemnify GRC for its losses in the underlying asbestos lawsuits.

On appeal, the Third Circuit unanimously reversed the District Court, when it held that Travelers’ asbestos exclusion was “unambiguous” and “enforceable” as a matter of law. To reach this monumental decision, the Court interpreted the language in the asbestos exclusion, and determined that any debate over the meaning of the word “asbestos” was completely nullified by the preceding phrase “arising out of” in the exclusion. In fact, U.S. Circuit Judge Thomas I. Vanaskie, in writing for the panel, notably stated “[t]he phrase ‘arising out of,’ when used in a Pennsylvania insurance exclusion, unambiguously requires ‘but for’ causation.” (emphasis added). And, then explained that “[b]ecause the losses relating to the underlying asbestos suits would not have occurred but for asbestos, raw or within finished products, [the Court] reverse[s] the judgment of the district court.” Simply put, the phrase “arising out of” in effect broadens the asbestos exclusion to include any injuries caused by asbestos and asbestos-containing products.

Lastly, even if GRC’s narrow interpretation was correct, the Court states that its decision would not be any different. Rather, the Court purposefully points out that GRC’s claims would still be excluded, because it could not overlook the blatant fact that the fiber released from asbestos-containing products is the same as that from raw mineral asbestos, and that the plaintiffs in the underlying asbestos lawsuits were exposed to GRC’s asbestos-containing products.

Ultimately, there is no question that this broad interpretation will have far-reaching effects on other similarly situated manufacturers and/or suppliers of asbestos-containing products, like GRC. The Court even acknowledged the widespread implications of it decision, which U.S. Circuit Judge Thomas I. Vanaskie predicted to have “immediate” significance “to the parties at hand and those insurers and insureds” with policies like Travelers. In fact, he even went so far as to call the Court’s decision “PRECEDENTIAL”- leaving asbestos defendants, particularly manufacturers and suppliers of asbestos-containing products, in a vulnerable situation.

 

blood-pressure-1573037_1920On March 3, 2017, after less than four hours of deliberations, a Massachusetts federal jury found that Fresenius Medical Care was not liable for the 2012 death of one of their patients. The verdict drew to a close a four-week long bellwether trial, the second for plaintiffs who opted out of a $250 million settlement offered by Fresenius relating to dialysis products, NaturaLyte and GranuFlo.

The matter arose out of the death of fifty-seven year old North Carolina man, Carley Dial. The decedent’s wife and representative of the estate, Florella Dial, alleged that Mr. Dial suffered from cardiac arrest as a result of the misuse of NaturaLyte, a dialysis product manufactured and sold by Fresenius. Lead trial counsel, Robert Carey of Hagens Berman Sobol Shapiro, argued in his closing that Fresenius did not adequately warn about their products, nor did they have an understanding of their products to ensure they were safe.

Over the course of the fourteen day trial, several Fresenius staff members, from Mr. Dial’s treating nurse at the Pembroke, North Carolina clinic, to the current Chief Medical Officer of Fresenius, headquartered in Waltham, Massachusetts, testified before the jury to evidence the methods that were used to educate, train, and instruct dialysis clinics on their product, NaturaLyte. Plaintiff challenged this testimony by offering Mr. Dial’s treating physician assistant and staff member of Carolina Kidney Care, and PowerPoint presentations created by Fresenius in her attempt to evidence the alleged confusion regarding NaturaLyte.

Plaintiff expert, Dr. G.M. Samaras, a professional engineer and an expert in the field of industry accepted standards and risk management, testified that Fresenius was aware that the information and training they provided regarding NaturaLyte was confusing. Plaintiff also offered nephrologist, Dr. Borkan, who opined that Mr. Dial died from cardiac arrest as a result of metabolic alkalosis, caused by the mismanagement and overuse of NaturaLyte in Mr. Dial’s dialysis treatment. Ultimately, the jury disagreed and found that the use of NaturaLyte in Mr. Dial’s dialysis treatment was not the proximate cause of Mr. Dial’s death.

During his closing, lead trial counsel for Fresenius, James Bennett of Dowd Bennett LLP, argued that Mr. Dial did not die from cardiac arrest, but suffered a heart attack at home, hours after the conclusion of his dialysis treatment. He referred to Mr. Dial’s medical history which evidenced heart blockages and an undetected prior heart attack. Attorney Bennett argued that Mr. Dial’s blockages had been developing for several decades and Mr. Dial did nothing to correct them. Attorney Bennett highlighted that NaturaLyte has been on the market for more than three decades, contains the same amount of acid concentrates as competitors, and more than 305 million gallons of NaturaLyte were sold between 2000 and 2012.

Dr. William Buchanan, Mr. Dial’s treating nephrologist responsible for prescribing NaturaLyte, testified that he received appropriate training by Fresenius regarding the use of their products and that he had a clear understanding of the acid/base balance and conversions of NaturaLyte. Dr. Buchanan believed he provided individualized care for Mr. Dial based on guidelines set by the clinic’s standard order. As Mr. Dial’s treating physician, Dr. Buchanan was responsible for signing the death certificate. Upon Dr. Buchanan’s review of the ambulance notes indicating Mr. Dial suddenly collapsed and Mr. Dial’s previous diagnosis of coronary artery disease, he concluded that the patient had a major heart attack. No autopsy of Mr. Dial was requested or performed.

Defense expert and cardiologist, Dr. Peter McCullough, reviewed Mr. Dial’s medical records before the jury for over two hours. He agreed with Dr. Buchanan and opined that based on the decedent’s history of untreated heart blockages and comorbidities, Mr. Dial suffered from a heart attack unrelated to his dialysis treatment. During closing arguments, Attorney Bennett argued that Dr. McCullough was the only cardiologist to review Mr. Dial’s medical records and was 100% correct in his testimony. Indeed, the jury concluded, to a fair preponderance of the evidence, that the use of NaturaLyte was not the proximate cause of Mr. Dial’s death.

This is the second defense verdict for Fresenius. In December of 2015, a separate bellwether trial also resulted in a defense verdict before Judge Kirpalani in Massachusetts state court. Although another defense verdict is good news for Fresenius, thousands of other claims remain. Judge Woodlock expressed his intention to schedule the next Fresenius bellwether trial soon.

 

california-160550_960_720California’s Unfair Competition Law

The Legislature enacted California’s Unfair Competition Law (the “UCL”) to deter unfair business practices and protect consumers from exploitations in the marketplace. Allen v. Hyland’s Inc. (C.D. Cal. 2014) 300 F.R.D. 643, 667. Under the UCL “unfair competition” means “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act.” Bus. & Prof. Code, §§ 17200; 17500. The Legislature initially imposed no standing requirements for private litigants to bring suit and, “[a]s a result, a private individual or entity with no relationship to the alleged wrongful practice could use the statute to force a business to repay substantial sums arguably acquired through a UCL violation.” In re Tobacco II Cases (2009) 46 Cal.4th 298, 329 (dissenting opinion).

In November 2004, California voters passed Proposition 64, a ballot proposition designed to prevent “shakedown suits” brought under the UCL. In re Tobacco II Cases, 46 Cal.4th at 316. Lawmakers aimed Proposition 64 at “unscrupulous lawyers” who exploited the UCL’s generous standing requirement to extort money from small businesses by bringing frivolous lawsuits. Id.[1]  

Proposition 64 required that for private litigants to bring an action under the UCL the litigant must suffer an actual economic injury as a result of the unfair business practice at issue. Bus. & Prof. Code, § 17204. Critically, under Proposition 64, local public prosecutors can still bring UCL lawsuits without meeting the more stringent standing requirements applicable to private litigants. Bus. & Prof. Code, § 17204. Thus, while Proposition 64 limited private litigants’ standing to sue under the UCL, government prosecutors’ standing was in no way affected by this law. Californians For Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 232.

The Aftermath of Proposition 64

Ever since the Legislature amended the UCL pursuant to Proposition 64, California courts have been faced with the issue of interpreting the “as a result of” language under the UCL. The California Supreme Court has opined the “as a result of” language requires that a putative plaintiff actually relies on the conduct at issue in order to have standing to sue under the UCL. In re Tobacco II Cases (2009) 46 Cal.4th 298, 326. The actual reliance need not be the only cause of the plaintiff’s harm; so long as the reliance is a substantial factor in actually influencing the plaintiff’s decision, standing will lie. Id., at 326-27.

In 2016 the Court of Appeal for the Second District recognized that the “as a result of” language required “reliance on a statement for its truth and accuracy.” Goonewardene v. ADP, LLC (2016) 5 Cal.App.5th 154, 185 (citing Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 327).

Veera v. Banana Republic, LLC

The California Supreme Court will have another opportunity to further define “as a result of” under the UCL in a case which appellant Banana Republic recently filed for review. In Veera v. Banana Republic, LLC the plaintiffs alleged that they were “lured” into a Banana Republic store by a 40% off sign only to be told at the register that some of the items they chose to purchase were not subject to the sale and were full priced. (2016) 6 Cal.App.5th 907, 910. According to the plaintiffs, they ultimately purchased some of the items at full price, despite the fact that they were informed that the clothing they chose was not subject to the sale, because they felt “embarrassed” because lines were forming behind them. Id.

Based on the foregoing, the plaintiffs brought claims pursuant to the UCL.[2] Banana Republic moved for summary judgment arguing that the plaintiffs did not have standing to sue because they did not suffer from a legally cognizable injury under the UCL as amended under Proposition 64, which the trial court granted. Veera, 6 Cal.App.5th at 911-12. In reversing the trial court’s order of summary judgment in a 2:1 decision, the Court of Appeals found a triable issue of material fact as to whether the plaintiffs actually relied on the 40% off sign to make their purchase. Id., at 919. The Court reasoned that plaintiffs’ reliance on the advertising “informed their decision to buy, which culminated in the embarrassment and frustration they felt when, as items were being rung up, they learned the discount did not apply,” thus concluding that the alleged misleading advertising was a substantial factor in causing their ultimate decision to buy. Id., at 920.

The dissenting justice, the Honorable Patricia A. Bigelow, honed in on the fact that the plaintiffs learned of the full price prior to buying the items, and that accordingly, the plaintiffs themselves were ultimately responsible for their “induced” purchases: “The only legally cognizable economic injury the plaintiffs in this case allege they suffered was the money they spent on full-priced clothes. Whether or not the store window signs were ambiguous or misleading, it is undisputed that before the plaintiffs incurred any economic injury, they learned the clothes they had selected were not 40 percent off. They then changed their purchase decisions, choosing to buy only some of the items they had selected, fully aware they were not discounted.” Veera, 6 Cal.App.5th at 924 (emphasis added). Ultimately, the dissenting justice reasoned that where a putative plaintiff “knows the true facts before consummating the transaction that causes the injury” this is, in effect, a superseding cause to any economic harm experienced by the plaintiff. Id., at 926 (emphasis added).

The Court of Appeals Diminished the Standing Requirement of the UCL

Given the purpose of Proposition 64, it seems the Court of Appeal’s interpretation and application of the UCL in Veera is a departure from the voter-chosen amendment and the Supreme Court’s interpretations of that amendment. Although protecting California’s citizens from unfair competition is a noble and necessary mission, “protecting” consumers from an action which they ultimately enter into with their eyes wide open is not consistent with the spirit of the UCL. Plaintiffs themselves broke the causal chain when they, with the knowledge that the price of the clothing was not discounted 40%, chose to proceed with the purchase anyway. Thus, the 40% off advertisement was no factor, let alone a substantial factor, in the plaintiffs’ ultimate purchasing decision.

Such a ruling, which allows plaintiffs to bring suit, despite the fact that the purchaser knew the items were full priced prior to making the purchase (i.e., prior to incurring any actual damages), is not what the Legislature, nor the voters, intended. Ultimately the Court of Appeals’ interpretation of the UCL renders Proposition 64 at 60% of its intended strength, that is, 40% off its voted-for value.

We expect this case will be subject to further scrutiny by the California Supreme Court.  Hopefully, it will hear this case and, consistent with the state of the law, affirm the trial court’s ruling which granted Banana Republic’s motion for summary judgment.

[1] See also http://blogs.wsj.com/law/2011/01/28/calif-high-court-to-corporate-america-labels-matter/?mg=id-wsj; http://vigarchive.sos.ca.gov/2004/general/propositions/prop64-title.htm

[2] Plaintiffs also brought causes of action under the False Advertising Law (Bus. & Prof. Code, § 17500 et seq.) and the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.).