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AT&T Class Action Defense Cases–Morgan v. AT&T: California Appellate Court Reinstates Class Action Against AT&T Holding Class Action Complaint Sufficiently Alleged UCL, CLRA and Fraud To Survive Demurrer

Class Action Complaint Alleging AT&T Violated State Consumer Protection Laws Concerning Advertising of Premium Cell Phone Properly Dismissed as to False Advertising and Declaratory Relief Claims but UCL, CLRA and Fraud Claims Improperly Dismissed California Appellate Court Holds

Plaintiffs filed a putative class action against AT&T Wireless alleging violations of various state consumer protection laws; specifically, the class action complaint was “based upon AT&T‟s marketing and sale of premium cell phones that operated on a wireless network that AT&T allegedly modified in a manner that rendered those premium cell phones essentially useless.” Morgan v. AT&T Wireless Services, Inc., 177 Cal.App.4th 1235 (Cal.App. 2009) [Slip Opn., at 1-2]. According to the allegations underlying the class action, AT&T sold the Sony Ericsson T68i as a premium cell phone that “could make and receive calls around the world and had other advanced technologies”; at the time, however, AT&T knew that “it had no intention to continue to support and service the T68i” and modified its wireless system so as to render the phone “worthless.” Id., at 3. AT&T also allegedly sought to “surreptitiously ‘phase out’ these worthless premium phones without paying any compensation to the purchasers, or providing them with a new phone of equal capabilities and compatible with the changes made to their system,” id. The original class action complaint was 13 pages long and alleged violations of California’s Unfair Competition Law (UCL), False Advertising Law, Consumers Legal Remedies Act (CLRA), fraud and declaratory relief; the third amended class action complaint contained the same claims for relief but had “morphed” into a 47-page long pleading “after the trial court sustained AT&T‟s successive demurrers on the ground that the complaint lacked the requisite specificity.” Id., at 2. The trial court again sustained AT&T’s demurrer to the class action complaint because “plaintiffs’ theory of recovery [was] obscured by extraneous allegations in the third amended complaint” and because “plaintiffs still failed to identify with particularity any actionable misrepresentations made by AT&T.” Id. The Court of Appeals affirmed in part and reversed in part, sending the class action back for further proceedings.

We do not here summarize the allegations in each variation of the class action complaint. See Morgan, at 3-13. Nor do we summarize the theories underlying the class action’s claims for relief. See id., at 13-17. In ruling on AT&T’s demurrer, the trial court observed that the class action complaint “included so much extraneous matter that it was difficult to determine what plaintiffs’ theory was, and which allegations supported that theory.” Id., at 18. The trial court concluded, “In sum, no CLRA damages claim is stated because no CLRA notice was given. Plaintiffs‟ argument that pre-suit notice provided to [AT&T] as required by the CLRA may be provided 2 years into the case, with the filing of an amended complaint, is rejected. No fraud claim is stated because plaintiffs do not allege what specific misrepresentation was made to them that they relied on and were injured by. At most, a UCL or FAL claim might be found amongst the foliage, but plaintiffs have not identified where.” Id., at 19. Because plaintiffs had “failed to identify with particularity any actionable misrepresentation by AT&T” after four attempts to do so, and because plaintiffs had not identified how the class action complaint may be amended to rectify this deficiency, the trial court sustained the demurrer without leave to amend. Id.

We summarize the appellate court opinion only briefly. With respect to the class action’s false advertising claim, the appellate court affirmed the trial court order because plaintiffs lacked standing to bring the action: plaintiffs’ theory was that AT&T’s advertisement of an “upgrade” to the T68i was false or misleading, but neither of them took advantage of the “upgrade” offer and therefore they suffered no loss as a result of the offer. Morgan, at 28-29. The Court of Appeal also affirmed the trial court order dismissing the class action’s declaratory relief claim, because plaintiffs had abandoned the claim by failing to brief it on appeal, id., at 34. With respect to the class action’s UCL claim, however, the appellate court reversed. The Court noted that the trial court did not address the merits of AT&T’s challenges to the UCL claim, finding instead that “the claim was not identifiable in light of all the extraneous allegations.” Id., at 21. The appellate court concluded, “While those extraneous allegations certainly make it significantly more difficult to identify the basis for plaintiffs’ UCL claim, we hold there are sufficient facts alleged to show both a violation of the UCL and that plaintiffs have standing to bring their UCL claim.” Id. (The Court’s entire analysis may be found at pages 20 to 28.)

The Court of Appeal also reversed with respect to the class action’s CLRA claim, which the trial court dismissed for failing to give the statutorily required notice prior to filing suit. See Morgan, at 9. The appellate court held that the statute does not require that the notice be given prior to commencement of the lawsuit because they did not seek damages under the CLRA in the original or first amended complaints; accordingly, the notice requirement did not apply. Id., at 30-31. The Court also held that the statute permits a consumer to “amend a complaint for injunctive relief to add a request for damages under the CLRA,” and that all that is required is that the amendment be done “30 days or more after filing of the original complaint and compliance with the notice requirement.” Id., at 31. The Court concluded at page 32, “Because plaintiffs in this case alleged that they sent the required notice to AT&T more than 30 days before they filed the third amended complaint and that AT&T failed to correct the alleged wrongs, the trial court erred by sustaining the demurrer for failure to comply the CLRA notice requirements.” Finally, the Court of Appeal reversed the trial court’s dismissal of the class action’s fraud claim, which the trial court held had not been pleaded with the requisite specificity. Id., at 32. The appellate court concluded that “in the circumstances of this case, plaintiffs have alleged their fraud claim with sufficient specificity.” Id. Accordingly, the Court sent the class action back to the trial court for further proceedings. Id., at 34.

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