Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Nondisclosures about car rental charges could form basis of unfair or fraudulent claims, not unlawful claims, (Jul 8, 2013)

By John W. Arden, J.D., LL.M.

A car rental company’s failure to disclose that some of its insurance waivers might be duplicative of coverage provided by customers’ private insurers or credit card companies could constitute a violation of the unfair and fraudulent prongs of the California Unfair Competition Law, but not a violation of the unlawful prong of the statute, the federal district court in San Francisco has ruled (McKinnon v. Dollar Thrifty Automotive Group, Inc., July 3, 2013, Conti, S.). Thus, class claims charging unfair or fraudulent acts survived the company’s motion to dismiss, while class claims charging unlawful acts were dismissed.

Sandra McKinnon and Kristen Tool brought a putative class action against Dollar Thrifty Automotive Group and its subsidiaries Dollar Rent A Car, Inc. and DTG Operations, Inc., alleging that the defendants committed unfair acts, fraud, and unlawful acts under the California Unfair Competition Law (UCL), the California Consumers Legal Remedies Act (CLRA), and the Oklahoma Consumer Protection Act. The defendant companies moved to dismiss the California claims brought by McKinnon, who picked up her rental car in Oklahoma. Defendants argued that California’s presumption against extraterritorial application of its laws precluded the claims brought by McKinnon.

Extraterritorial application. California law presumes that the legislature did not intend a statute to be operative outside of the state, unless such intention is clearly expressed or reasonably inferred from the language of the law, its purpose, or its history. With regard to the UCL and CLRA, non-California residents’ claims are not supported where none of the alleged misconduct or injuries occurred in California. In this instance, McKinnon was a California resident who claimed that defendants’ fraudulent statements were given during the reservation process in California and that harm occurred by paying fraudulent charges from a California bank account. Thus, the claims were not barred for being extraterritorial.

Unlawful prong. Plaintiffs plead a UCL violation under the “unlawfulness” prong by alleging that defendants’ business practices violated the following predicate laws: (1) the California car rental statute, (2) the California False Advertising Law, and (3) the California statute governing unconscionable contract provisions.

The conclusory assertions that the defendants violated the statute governing unconscionable contracts were insufficient to support claims under the UCL, according to the court.

Likewise, the claims that the companies’ initial misrepresentations and omissions in their online advertising violated the California False Advertising Law were impermissibly conclusory. “It is unclear what Plaintiffs think constitutes false or misleading advertising in this case, and the Court is not inclined to guess.”

While plaintiffs allege that the defendants violated three subsections of the California car rental statute, they failed to plead that the defendants violated the provision requiring rental companies to make oral disclosures of possible duplication of waiver coverage at the time of rental. Moreover, none of the facts that would be relevant to this provision occurred in California. McKinnon rented her car and received the rental contract in Oklahoma, and nothing in this statutory provision purported to cover online reservations, even if made from California.

Since the plaintiffs failed to state a claim for their predicate violations of the law, they failed to state a claim under the unlawful prong of the UCL, the court held.

Unfair and fraudulent prongs. Nevertheless, the plaintiffs pled valid claims for violations of the UCL’s unfairness and fraudulent prongs. The court first held that the UCL applied even though the allegedly fraudulent transaction occurred in Oklahoma. Courts have drawn a territorial line between actionable and non-actionable conduct under the UCL based on the plaintiff’s citizenship and the actionable conduct’s connection to California. The plaintiffs suggested that McKinnon was harmed by reserving a car in California, being promised a certain price, and then being defrauded by a widespread scheme that the defendants have engineered to produce exactly the outcome she suffered.

The court found that the defendants’ conduct within California, as pled, plausibly suggested that the UCL should apply to McKinnon. Defendants’ conduct in California did not amount to only the provision of a price quote and the completion of an automated reservation process. Based on the reasonably specific pleadings, defendants had a national scheme involving the provision of low reservation rates and the tricking of customers to pay more when they come to pick up their cars.

The presumption against extraterritoriality did not apply to limit plaintiffs’ action in this case, since the defendants’ alleged conduct was more than mere endemic dishonesty but was actionable under the UCL as an unfair and fraudulent business practice. Thus, the motion to dismiss was denied regarding these claims.

Consumers Legal Remedies Act. Since the claims brought under the Consumers Legal Remedies Act were virtually identical to the UCL pleadings, the CLRA claims survived for the same reasons as the UCL claims.

Breach of contract, implied covenant. Plaintiffs’ claims of breach of contract and breach of the implied covenant of good faith and fair dealing also survived the motion to dismiss.

The case is No. 12-4457 SC.

Attorneys: Alan M. Mansfield (Whatley Kallas LLC) for Sandra McKinnon. Peter S. Hecker (Sheppard Mullin Richter & Hampton LLP) for Dollar Thrifty Automotive Group, Inc.

Companies: Dollar Thrifty Automotive Group, Inc.; Dollar Rent A Car, Inc.; DTG Operations, Inc.

Cases: StateUnfairTradePractices CaliforniaNews