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Inability to Allege Economic Injury Dooms Class Action

8 Jul, 2014 By: John Waller, Jeffrey Richter


In another blow to plaintiffs seeking to escape the impact of Proposition 64 and its requirement that persons alleging violations of California’s Unfair Competition Law (Bus. & Prof. Code 17200 et seq.) must establish that they have suffered injury in fact and lost money or property as a result of the alleged unfair competition in order to have standing to pursue such claims, a Court of Appeal in recently affirmed the dismissal of a putative class action of individuals who alleged that they had been injured by a grocery chain’s unauthorized sharing of their personal information acquired through the grocer’s customer reward program.

The plaintiff alleged that he and the other members of the putative class were injured when Ralph’s Grocery, without its customers’ authorization and without any disclosure to them, shared their personal information, including information regarding their individual purchases at Ralph’s, with its parent company, Kroger, another entity partially owned by Kroger (dunnhumby USA Inc.), and a third-party that processes information for Ralph’s relating to its customer reward program (Metasource LLC). The plaintiffs alleged that such conduct violated California’s Supermarket Club Card Disclosure Act of 1999 (Civ. Code 1749.60 et seq.) and, therefore, constituted a violation of California’s Unfair Competition Law.

California’s Club Card Act prohibits the selling or sharing of a customer’s personal identification information and marketing information, such as their individual spending history and habits, without their consent. The Club Card Act itself contains no enforcement or penalty provision. Instead, violations of the Club Card Act are expressly categorized as violations of California’s Unfair Competition Law.

Although the plaintiffs argued that it is unnecessary to plead and prove that they sustained economic damages when the basis for the alleged violation of California’s Unfair Competition Law is a violation of California’s Club Card Act, the Court of Appeal rejected that argument, finding no basis to treat violations of the Club Card Act differently than any other violations of the Unfair Competition Law.

The plaintiffs also argued that they, in fact, sustained economic damage because they would not have purchased products from Ralph’s if they had known that it was sharing their personal information. The Court of Appeal rejected that argument because the plaintiffs did not pay any money to become a member of Ralph’s reward program and there was no allegation that the plaintiffs did not get the products they intended to purchase when they did purchase products from Ralph’s.

The Court of Appeal held that there is simply no nexus between Ralph’s alleged unfair business practice of sharing with other entities the plaintiffs’ personal information and other product purchase data obtained through the customer reward program and the money the plaintiffs paid to purchase the products they chose to purchase from Ralph’s.

The plaintiffs further argued that their circumstances were comparable to the circumstances of the plaintiffs in Kwikset Corp. v. Superior Court, wherein the court found the plaintiffs had standing to pursue their Unfair Competition Law claims because they intended to purchase products made in the U.S.A., did not get what was represented to them and what they paid for, and that they therefore sustained economic injury as a result of the unfair business practice alleged in that case. However, in this case, the Court of Appeal rejected that argument because the plaintiffs did not and could not allege that any product that they purchased was not as it was represented.

Jeffrey Richter and John Waller are attorneys at Blank Rome LLP. They can be reached at (424) 239-3400 or via E-mail at jrichter@blankrome.com and jwaller@blankrome.com.
 


About the Author: John Waller


About the Author: Jeffrey Richter


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