Antitrust Law Daily Wrap Up, ADVERTISING—CalCtApp: Class Certification Denied in California False Advertising, Unfair Trade Practices Suit Against Pest Control Company, (Feb 4, 2013)

By Tobias J. Gillett, J.D., LLM.

A former client of a pest control company could not proceed with class claims that the company’s treatment practices and representations regarding its termite control services violated California’s Unfair Competition Law (UCL), Consumers Legal Remedies Act (CLRA), and False Advertising Law (FAL) because common questions of law or fact would not predominate over individual questions, the California Court of Appeal in San Francisco has ruled in upholding the trial court’s decision to deny a motion for class certification (Schuman v. Clark Pest Control of Stockton, Inc., January 31, 2013, Bruiniers, T.).

The pest control company, Clark Pest Control of Stockton, Inc., provided a Term-Alert termite control service that consisted of an inspection, an initial treatment, periodic monitoring, and follow-up treatment. After the initial treatment, Clark would install monitoring stations on a client’s property, which a Clark technician would inspect every three months. If a terminate infestation was found, Clark would treat it at no additional cost.

John Schuman was a Clark client who purchased the Term-Alert service. Schuman filed a class action complaint against Clark, asserting that Clark had falsely advertised the Term-Alert service as intercepting and destroying or diverting termites when no scientific evidence supported that claim, and that Clark had used its pest control product in a manner not described on the product’s label in violation of California law.

The trial court determined that Schuman’s class of nearly 33,000 Term-Alert customers satisfied the requirements of ascertainability, numerosity, and impracticability, that his counsel was well qualified to represent the class, and that his claims would be typical of his class. However, it concluded that he had not shown that common questions of law or fact would predominate, and hence denied his motion for class certification.

The court of appeals affirmed this decision. The court viewed Schuman’s complaint as presenting two distinct sets of class claims: “(1) that Clark misrepresented in its advertising that the Term-Alert service would prevent termites; and (2) that Clark provided a service which was illegal and not reasonably effective at preventing termites.”

The court explained that the UCL prohibits “unlawful, unfair, or fraudulent” acts or practices, thus creating three separate prongs. The court determined that Schuman’s claims implicated the “fraudulent” and “unlawful” prongs.

Fraudulent Prong. The court of appeals concluded that the trial court had not erred in ruling that common issues did not predominate over individual issues with respect to the “fraudulent” prong. The court initially noted that “a violation of the UCL’s fraud prong is also a violation of the FAL,” and hence analyzed those causes of action together. The trial court had determined that, although Clark had provided its sales inspectors with certain marketing materials, their sales presentations varied according to the customer’s needs and property conditions. Therefore, the trial court had concluded that Clark’s customers had not been exposed to a uniform advertising campaign regarding the Term-Alert service.

On appeal, Schuman challenged the trial court’s determination that the campaign was not uniform, pointing to statements from Clark’s counsel and employees that Clark had intended to market its service as helping to prevent termite infestation, and that its inspectors had primarily used certain marketing materials.

The court of appeals concluded that, even if Schuman had pointed to evidence that could support a finding that Clark had made uniform representations, he had failed to demonstrate that substantial evidence did not support the trial court’s conclusion. Despite the centrally designed policies, practices, and training materials, Clark’s branch managers and sales inspectors had broad discretion to employ none, some, or all of the marketing materials. The inspectors varied with regard to the presentations they made, and described the Term-Alert service in difference ways, including with respect to its ability to prevent termites. Therefore, substantial evidence supported the trial court’s finding that Clark’s advertising was not uniform.

Furthermore, the court observed that a class cannot be certified on the basis of a showing “that a defendant engaged in conduct which may have misled only some of the class.” As the court explained, “a class may not be certified under the UCL when a variety of different statements were made and some of the class members were not exposed to any misrepresentation at all.” Since Schuman’s proposed class included “individuals who did not recall seeing any marketing material at all,” the trial court did not err in holding that “common issues would not predominate with respect to Schuman’s UCL fraudulent business practice, FAL, and CLRA claims.”

Finally, the presence of standard written Term-Alert contracts did not alter the court’s conclusion. Not all contracts received by members of the proposed class contained precisely the same language, but even to the extent they did, the contracts were not provided “in a vacuum.” The sales inspectors discussed the Term-Alert service with the Term-Alert customers, and may have provided disclaimers that Schuman contended they should have provided.

Unlawful Prong. Schuman had also contended that Clark had failed to satisfy a substantiation requirement under California’s pest control regulations in selling its Term-Alert service, and had therefore subjected itself to liability under the unlawful prong of the UCL. The trial court had concluded that Schuman’s argument consisted of two parts: first, “that the chemicals used by Clark in the Term-Alert service do not work or were not approved by the regulatory agencies for the uses to which Clark put them,” and second, that Clark applied spot treatment at customers’ homes rather than full barrier treatment. Although the first would be “subject to common proof,” the second would require proof of the particular treatment applied at each individual property, since the inspectors “retain[ed] discretion to determine what treatment is necessary.”

The court of appeals agreed with the trial court. Schuman’s theory of liability depended on Clark’s service consisting only of the installation of interceptor stations and spot treatment of termiticide, and the expert testimony he submitted also relied on this assumption. However, the court concluded that the trial court did not err in disregarding the expert testimony or in denying class certification, “because substantial evidence support[ed] the trial court’s finding that the Term-Alert service is not, in fact, a one-size-fits-all service, comprised uniformly of only spot treatment plus installation of monitors.” Instead, Clark’s practices varied depending on the inspector involved, the time of the service, the property conditions, and other factors requiring determination of the specific treatment applied at each individual property.

Moreover, Schuman sought restitution and damages for every member of the class, not merely systemic injunctive or declaratory relief. Nor did the trial court err in looking to the merits of Schuman’s claim in determining whether common issues would predominate on a motion for class certification. Therefore, the court affirmed the trial court’s order denying class certification.

The case is No. A131973.

Attorneys: Arthur William Lazear (Hoffman & Lazear) for John Schuman. Allison Cherry Lafferty (Kroloff, Belcher, Smart, Perry & Christopherson) for Clark Pest Control of Stockton Inc.

Companies: Clark Pest Control of Stockton, Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews