False advertising and the privatized state

Hansen v. Scram of California, Inc., No. 17-cv-01474, 2017
WL 1628401 (C.D. Cal. Apr. 28, 2017)
When the carceral state becomes a business, can it commit
business torts?  Plaintiffs sued Scram
and Alcohol Monitoring Systems (AMS) for the usual statutory California claims
and fraud, arguing that they misrepresented the capabilities of the transdermal
alcohol monitoring devices that AMS manufactures and Scram distributes.  The devices, worn on an ankle, were designed
to detect and record any instances when a wearer consumes alcohol by detecting
alcohol vapors caused by ingested alcohol diffusing through the skin.
Plaintiffs alleged that the devices were inherently susceptible to detecting false-positive
alcohol readings as a result of “environmental alcohol,” including vapors from
cologne, aftershave, hand sanitizer, household cleaners, and gasoline.  Defendants allegedly did not inform buyers of
the risk and affirmatively misrepresented it.
Defendants’ business model relies on court mandated
rehabilitation programs, as a condition of probation or bond, and other criminal
justice system functions.  People enter
into private contracts with defendants and pay monthly fees. Users sync the
device daily with a monitoring station; if the device concludes that any alcohol
vapor readings were caused by an “alcohol consumption event,” defendants inform
the relevant law enforcement agency or court exercising jurisdiction over the
wearer that the individual consumed alcohol, but they don’t alert the wearer,
nor does the device alert in real time. Thus, users can’t get time-sensitive
evidence—an immediate blood or breath alcohol test—to challenge any resulting
revocation of their bond or probation.
Defendants allegedly advertised their device as “a
cost-effective and accurate alternative for law enforcement agencies and courts
to track the alcohol usage of at-risk individuals,” and told the public and the
governmental agencies with which they seek to work that the device could tell
the difference between alcohol vapors from ingested alcohol and alcohol vapors from
enviromnental alcohol because the rate of alcohol dissipation purportedly
differs.  Plaintiffs alleged two
instances involving third parties in which courts rejected the device’s results
as “biologically impossible and scientifically unreliable.” Plaintiffs also
cited a study that concluded that the “methodology used by AMS cannot separate
ethanol [drinking alcohol] from other contaminating alcohols and therefore is
not a reliable method.”
Plaintiffs alleged that they experienced false
positives.  For example, plaintiff Hansen
wore the device while living in a residential alcohol treatment center; the day
after she tested negative on a breathalyzer at the center, AMS sent a report
indicating that she’d consumed alcohol for a day-long period.  When Hansen received the report, she again
tested negative for alcohol and a follow-up blood test reported the same. As a
result of the report, she was subject to an additional year of alcohol
monitoring; she paid $6,400 to Scram, $300.00 for a urine test from a certified
laboratory, and $2,000 in attorneys’ fees to defend against the alleged alcohol
consumption.  (It seems like a dangerous
business model to profit from false positives when the person who is ordered to
pay faces jail if she says no.)  Hansen
alleged that, had she known about the false positives and the lack of timely
notification to users, she wouldn’t have agreed to buy the alcohol monitoring
service as a condition of her bond.
Similarly, plaintiff Oh paid Scram $225 per week for its
monitoring services and a $325 enrollment fee. A Scram employee allegedly denied
Oh’s request for a fee reduction and warned that if Oh did not pay, Scram would
report to the trial court that Oh had violated her “Scram conditions.” Scram
reported that Oh was in violation of her monitoring conditions for consuming
alcohol from June 5 to June 7, 2015; the resulting report “indicated that Oh’s
transdermal alcohol concentration stayed constant for two days, which
plaintiffs assert is a biological impossibility.” When she became aware of the
report, Oh allegedly had her urine tested for alcohol at a state certified
laboratory and that test was negative. Oh challenged defendants’ report in
court and the “trial Court was unable to come to a resolution[.]”  Oh also alleged that she lost money in
reliance on the false representations/omissions.
Defendants argued that they were entitled to quasi-judicial
immunity and the litigation privilege, because this wasn’t really a false
advertising case but a case about monitoring alcohol consumption and reporting
the resulting information to a court. Quasi-judicial immunity is “extended in
appropriate circumstances to non jurists who perform functions closely
associated with the judicial process.” “However, it is only when the judgment
of an official other than a judge involves the exercise of discretionary
judgment that judicial immunity may be extended to that nonjudicial officer.” Defendants
didn’t claim to exercise any discretion when they offer their services on
behalf of courts. Plus, plaintiffs alleged misconduct beyond defendants’ work
on behalf of courts, extending to misrepresentations about their device to
individual customers, law enforcement agencies, courts, and the general public.
Similarly, defendants argued that they were protected by
California’s litigation privilege because plaintiffs’ essential claim was that
defendants communicated information about plaintiffs’ consumption of alcohol to
courts in connection with ongoing criminal matters. The California litigation
privilege “applies to any communication (1) made in judicial or quasi-judicial
proceedings; (2) by litigants or other participants authorized by law; (3) to
achieve the objects of the litigation; and (4) that have some connection or
logical relation to the action.” Again, the court disagreed: plaintiffs’ claims
relied on defendants’ alleged misrepresentations made to people in plaintiffs’

However, plaintiffs failed to allege their common law fraud
claim with sufficient particularity, which also doomed the statutory claims
because each claim relied on defendants’ allegedly fraudulent misrepresentations.
Plaintiffs needed to allege who made the representations, when the
misrepresentations were made, and how they were communicated. They didn’t
describe the content of defendants’ ads or when plaintiffs viewed them. Also,
plaintiffs failed to provide defendants of thirty days’ notice of the alleged
CLRA violations, as required for damages under the CLRA.  Plaintiffs were allowed leave to amend. 

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