Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Cal. App.: Potential defendant in CLRA claim could not maintain declaratory action after receipt of statutory notice, (Oct 10, 2014)

By Edward L. Puzzo, J.D.

After receiving a statutory CLRA notice, a potential defendant in a CLRA damages action could not maintain a declaratory relief action to establish that there was no violation of the CLRA, the California Court of Appeal in Los Angeles has ruled (Lunada Biomedical v. Nunez, October 9, 2014, Mosk, R.).

Consumer Laura Nunez had purchased “Amberen,” a dietary supplement marketed by Lunada Biomedical as a “natural remedy for menopausal symptom relief.” She retained two law firms in anticipation of bringing an anticipated class action claim against Lunada under the California Consumer Legal Remedies Act (CLRA), alleging that its product claims for Amberen were false and misleading.

The CLRA provides various remedies against those who sell products to consumers after having made representations that their products had characteristics or benefits they did not have. The nonexclusive statutory remedies include actual damages, an ordering enjoining the acts, restitution, punitive damages, and attorneys fees. Under Civ. Code §1782, a prerequisite for bringing a claim for damages under the CLRA is a 30-day notice and demand.

Pursuant to §1782, Nunez’s attorney served Lunada with a notice and demand for Lunada to cease all false, misleading, and unsubstantiated advertising and labeling claims, and seeking a full refund to all purchasers of Amberen. Lunada’s counsel responded to the notice and demand with a denial of Nunez’s contentions, providing alleged scientific support for advertising claims for Amberen, and asking for a settlement offer. A month later, Nunez’s counsel provided Lunada’s counsel with a letter outlining settlement proposals, including modifications to Amberen’s advertising and labeling.

Within two weeks of Nunez’s settlement proposal, Lunada responded by filing a complaint seeking a declaratory judgment against Nunez and seeking a determination of the accuracy and legality of its advertising of Amberen. Nunez responded by filing an anti-SLAPP motion seeking to strike Lunada’s declaratory judgment complaint. Under California’s anti-SLAPP (Strategic Lawsuits Against Public Participation) statute, actions arising from constitutionally-protected rights of free speech or petitioning may be stricken unless the plaintiff has a probability of prevailing on the merits. The trial court granted Nunez’ motion to strike Lunada’s declaratory judgment complaint. Lunada appealed.

Arising from protected activity. Lunada contended that the trial court had erred in applying the anti-SLAPP statute to strike its declaratory judgment complaint, because its claim did not arise from the CLRA notice and correspondence, activity protected by the anti-SLAPP statute, but instead arose from the dispute over whether Lunada’s advertising violated the CLRA. The appellate court did not agree.

The court noted that Lunada’s declaratory judgment complaint referred extensively to the CLRA notice and correspondence. Correspondence made in anticipation of litigation, contemplated in good faith and under serious consideration, can be a petitioning activity protected by the anti-SLAPP statute, even if the litigated matter does not concern a matter of public interest, the court stated. The CLRA notice and correspondence not only preceded and triggered the declaratory relief action, the court continued, but they were also the basis of the cause of the action.

Probability of prevailing. Lunada also contended that, even if their declaratory judgment claim arose from conduct protected by the anti-SLAPP statute, it should still not be applied to strike its complaint because there was a probability of prevailing on its claim. The appellate court also disagreed with that argument.

There was conflicting case law in the state, the court conceded, that both supported and undermined the conclusion that a declaratory relief action may not be maintained by a potential defendant in a CLRA damages action to establish that there was no violation of the CLRA.

Similar to the plaintiff in Baxter Healthcare Corp. v. Denton, 120 Cal.App.4th 333 (2004), the court stated, Lunada was subject to a Hobson’s choice: absent the filing of a declaratory relief action, Lunada either had to revise its advertising despite believing that it was supported by scientific evidence, or wait to be sued by Nunez or other consumers. Unlike Baxter, however, there was a mandatory attorney fees provision in the CLRA.

Filarsky v. Superior Court, 28 Cal. 4th 419 (2002), the court continued, emphasized that circumventing a person’s mandatory right under a statute to recover attorney fees if he or she prevails in an action under that statutory scheme is an important consideration in determining if a declaratory relief action undermines the statue. Lunada’s declaratory relief action here would eliminate an important incentive afforded by the CLRA, mandatory attorneys fees, and would thwart the CLRA’s purpose, the court stated.

It would be inequitable for a consumer to be forced to defend a declaratory relief action, divorced of the incentives and rights under the CLRA, merely because the consumer sent a CLRA notice, and regardless of whether that consumer decided ultimately to file a lawsuit under the CLRA, the court stated. Indeed, the consumer may review responses to the CLRA notice and decide not to bring an action, stated the court. A preemptive request for a declaration of rights would compel the parties to litigate the matter. Thus, consumers would be deterred from making claims under the CLRA.

Under Filarsky, the court continued, the test was whether the declaratory relief action undermined the statute in question. Based on the above factors, the court concluded, it did, so as a matter of law, Lunada was precluded from filing a declaratory relief claim. Thus it could not demonstrate a probability of prevailing on that claim.

The case is Civil Action No. B243205 (consolidated with B246602).

Attorneys: James B. Hicks (The Hicks Law Group) for Lunada Biomedical. Gillian L. Wade (Milstein Adelman, LLP) for Laura Nunez.

Companies: Lunada Biomedical

Cases: Advertising StateUnfairTradePractices CaliforniaNews