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July 2012

Court Affirms Dismissal Of UCL and CLRA Claims Where Plaintiffs Fail to Allege "Actual Reliance"

In Sateriale v. R.J. Reynolds Tobacco Company,1 a putative class action, the Ninth Circuit affirmed in part, and reversed in part, a California federal district court’s dismissal of a complaint arising from a cigarette manufacturer’s “Camel Cash” reward program. 

From 1991 to 2007, R.J. Reynolds Tobacco Company (“Reynolds”) distributed “C-Notes” to customers who purchased Camel cigarettes as part of its Camel Cash reward program.  Reynolds invited customers to register for the Camel Cash reward program, collect C-Notes when they purchased cigarettes, and exchange the C-Notes for merchandise.  Reynolds periodically published catalogs that displayed the available merchandise.  Some of the merchandise catalogs, but not all, stated that Reynolds reserved the right to terminate the Camel Cash program at any time and without notice. 

In October of 2006, Reynolds notified customers who had registered for the Camel Cash reward program, including all ten plaintiffs, that it would terminate the program in six months.  The announcement invited plaintiffs to redeem their C-Notes within the six month period before the program ended.  Plaintiffs allege that when they attempted to redeem their C-Notes within the six month period, no merchandise was available for exchange from Reynolds.

Plaintiffs sued Reynolds alleging violations of California’s Unfair Competition Law (“UCL”) and Consumer Legal Remedies Act (“CLRA”), in addition to claims for breach of contract and promissory estoppel.  The district court granted Reynolds’s motion to dismiss the entire action on the ground that plaintiffs’ complaint failed to state viable claims under Federal Rule of Civil Procedure 12(b)(6).

On appeal, the Ninth Circuit affirmed the district court’s dismissal of the UCL and CLRA claims.  The UCL prohibits “any unlawful, unfair, or fraudulent business” practice; the CLRA prohibits “unfair methods of competition and unfair or deceptive acts” in connection with a consumer transaction.  The Ninth Circuit held that both statutes require a plaintiff to plead “actual reliance” when a violation is based on a false or fraudulent statement. 

Although plaintiffs’ UCL and CLRA claims were based on Reynolds’s alleged misrepresentation in October of 2006 that the company would exchange merchandise for consumers’ C-Notes for six more months, the Ninth Circuit held that the plaintiffs had failed to allege actual reliance on Reynolds’s alleged misstatement.  The plaintiffs had not claimed to have purchased additional Camel cigarettes in reliance on Reynolds’s misstatement in October of 2006 setting forth the six month redemption window.  Nor did plaintiffs claim that they delayed redeeming their C-Notes because of any misstatement.  The Ninth Circuit further noted that even if plaintiffs had alleged that they delayed redeeming their C-Notes, their complaint asserted that Reynolds stopped exchanging C-Notes simultaneously with its representation that plaintiffs had six more months to redeem them.  In affirming the district court’s dismissal of plaintiffs’ UCL and CLRA claims, the Ninth Circuit held that plaintiffs could not have relied in any way on Reynolds’s alleged misstatement.

The Ninth Circuit did, however, reverse the district court’s dismissal of plaintiffs’ contract and promissory estoppel claims.  As to the breach of contract claim, the appellate court rejected Reynolds’s argument that plaintiffs’ cause of action was barred under the common law rule that advertisements are “not ordinarily intended as offers.”  Relying on an exception to the common law rule, which exempts “offers of a reward, including offers of a reward for the redemption of coupons,” the Ninth Circuit determined that plaintiffs alleged a viable breach of contract claim.   Similarly, the Ninth Circuit held that Reynolds’s termination announcement in October of 2006 was a sufficiently clear and unambiguous promise that customers could redeem their C-Notes for merchandise for six months to support the plaintiffs’ promissory estoppel claim.

Notwithstanding the Ninth Circuit’s rulings on the contract claims, Sateriale should be helpful in the defense of class actions because it further defines the contours of actual reliance for consumer protection claims post-Tobacco II.  In particular, a plaintiff’s UCL and CLRA claims cannot survive dismissal based on a summary declaration of actual reliance.



1  Sateriale v. R.J. Reynolds Tobacco Company, ___ F.3d ____ (9th Cir. 2012)

 

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