The UCL Practitioner
Friday, November 05, 2004
Two new UCL decisions: Blanchard v. DIRECTV, Inc. and Krumme v. Mercury Ins. Co.
Last Friday, the Court of Appeal issued two new decisions involving UCL claims—possibly the last pre-Prop. 64 decisions we'll see. They illustrate the good and the bad of the former UCL.

In Blanchard v. DIRECTV, Inc., ___ Cal.App.4th ___ (Oct. 29, 2004), the Court of Appeal granted a defendant's SLAPP motion against several UCL plaintiffs who challenged the defendant's practice of "send[ing] demand letters to thousands of people who purchased certain devices that can pirate [the defendant's] television programming, requesting the recipients cease using the devices" or be sued. Slip op. at 2, 4. The Court determined that the suit was not brought in the "public interest" under Code of Civil Procedure section 425.17(b), despite plaintiffs' assertion that the defendant sent demand letters to everyone who had purchased a piracy device even though the devices have other, legal purposes. The Court explained:
Based on the allegations of the complaint, plaintiffs want to enjoin DIRECTV from sending this particular demand letter concerning this specific electronic device to users of this device. They are not seeking to assert some general right not to receive demand letters or notices. Nor do they seek a declaration about demand letters in general. Notwithstanding the number of the recipients of the letters rank in the thousands, there is no public interest principle being vindicated by this action. Regardless of the outcome of this lawsuit, properly worded demand letters will remain a standard practice designed to avoid the necessity of legal action. .... Therefore, if plaintiff's UCL claim were successful, it would establish no ringing declaration of the rights of all pirating-device purchasers, nor would it lead to a wholesale change in the practice of sending demand letters.
Slip op. at 9-10 (citations omitted). The Court went on:
No matter how they characterize their complaint, plaintiffs' stake is personal to them as recipients of this particular demand letter. They do not seek to protect the public's right to use these devices or to be free of demand letters. We are unconvinced by plaintiffs' portrayal of themselves as the public-interest David against the corporate Goliath. The complaint's prayer exposes this cause of action as motivated by personal gain. This lawsuit is not protected from the anti-SLAPP statute by section 425.17.
Slip op. at 11-12. Because the demand letters were protected by the litigation privilege (Civ. Code §47(b)), plaintiffs could not establish a reasonable probability of success on the merits of their claim, so the SLAPP motion was properly granted. Id. at 14-18. The Court of Appeal also affirmed the $97,222.10 attorneys' fees award against plaintiffs, and ruled that the defendant may recover fees on appeal as well. Id. at 19-20.

The other UCL case decided last Friday, Krumme v. Mercury Insurance Co., ___ Cal.App.4th ___ (Oct. 29, 2004), is quite different. In Krumme, the Court of Appeal held that the Legislature had not created a Cel-Tech "safe harbor" that would allow insurance companies to employ "broker-agents" who are not "appointed agents" within the meaning of the Insurance Code. Therefore, it affirmed the trial court's order permanently enjoining the practice. Evidently, using "broker-agents" results in higher costs to consumers. In so holding, the court made two interesting observations about the Cel-Tech "safe harbor." Slip op. at 16 n.5. First, it said that only statutes, rather than administrative regulations, can create a "safe harbor." Second, it said that the safe harbor must be explicit; "an implied safe harbor is contrary to the approach adopted by our Supreme Court" in Cel-Tech. Id. This is the first decision that I'm aware of in which either of those points was decided. The Court of Appeal also affirmed the attorney's fees award, including a 1.5 multiplier, because the plaintiff had "enforced an important right affecting the public interest" and "conferred a significant benefit upon ... a large class of persons." Id. at 25. The Insurance Commissioner supported the case as an amicus curiae. Id. at 11. Despite all that, it appears that this case could not have been brought after Proposition 64, since the plaintiff "never purchased a policy from [the defendant] and is therefore utterly disinterested in the controversy he began." Slip op. at 11.

UPDATE: Declarations and Exclusions has a really good discussion of the two types of insurance agents and why the Court of Appeal found "broker-agents" offensive.
Despite all that, it appears that this case could not have been brought after Proposition 64, since the plaintiff "never purchased a policy from [the defendant] and is therefore utterly disinterested in the controversy he began." Slip op. at 11.
It's truly sad that an assumption would be made that an "unaffected plaintiff" would have to be "utterly disinterested" in the controversy he began.
The Blanchard ruling was truly idiotic. If there is no public benefit from stopping the practice of sending 100,000 extortionate demand letters, then when would there ever ben public benefit from any UCL action. To see how inane was the court's analysis, just consider this. What if there was a single advertisement which was false and misleading and was seen by 5,000 persons, all of whom bought the worthless product? According to the court's reasoning, 425.17 would not apply if the defendant brought an anti-slapp motion because (after all) the plaintiff is not challenging "all advertising" but just a particular advertisement sent by a large number of persons.

Moreover, the Blanchard court failed to recognize the value of stopping the extortion campaign in deterring similar practices by other businesses (i.e., record industry, cable industry and other satellite companies, and now the motion picture industry is getting into the shakedown scheme).
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