Cal. statutory false advertising isn’t fraud and individual reliance isn’t necessary

Peviani v. Arbors at California Oaks Property Owner, LLC, 2021
WL 1264423, E073950, — Cal.Rptr.3d —- (Ct. App. 2021)

Plaintiffs sought to represent a putative class, bringing
claims against a landlord for (1) false advertising; (2) breach of the implied
warranty of habitability; (3) nuisance; (4) breach of the implied covenant of
good faith and fair dealing; (5) bad faith retention of security deposits; and
(6) unfair competition. The court of appeals held that the trial court erred by
denying certification.

Plaintiffs alleged, inter alia, that defendants’ ads falsely
depicted renovated interiors, “quality plush carpeting,” “sparkling swimming
pools,” heated spas, cabanas and lounges, a tennis/basketball court, a fitness
center, a rock climbing wall, a community game room, a Wi-Fi café, barbeque
grills, a picnic area, a dog park, a playground, a garden, a carwash area, central
heating and air conditioning, assigned covered parking, a 48-hour maintenance
commitment, granite countertops, hardwood floors, full size washers and dryers
in the apartments, controlled access to the property, and a smoke-free
property.

However, the apartments were not newly renovated and
carpeting was not plush. For example, one set of renters “had mushrooms growing
out of their carpet.” Plaintiffs alleged “the fitness equipment was dirty and
broken; the swimming pools were dirty and diseased; the hot tubs were green
with algae; the assigned parking rules were not enforced; the 48-hour
maintenance promise was not kept; there was violence, crime, and drug use in
the area of the barbecues, playground, and dog park; the property was not
smoke-free; and the water connection in the carwash area was non-functioning.”

Defendants argued that common questions didn’t predominate
for false advertising. “For example, Peviani claimed her apartment had rust
stains on the countertop, Judy claimed there was a mushroom growing out of her
carpet, Lubbock asserted his toilet was broken, and Caicedo-Valdez claimed
there was a stain on the bathroom vanity.” The trial court reasoned that
putative class members learned of the property in different ways: “some read
defendants’ website, some toured the property, some read a brochure, and some
drove by the property.” It reasoned: “One class member’s a claim [sic] might be
based upon an oral representation while another’s might be based upon something
stated in a brochure. And the representations could be about different
amenities or services.” There were too many alleged misrepresentations—each one
would have to be assessed for factuality, materiality, and reasonable reliance.

The court of appeals reversed. Statutory false advertising
is not common law fraud. It does not require literal falsity, knowing falsity, reasonable
reliance, or even damages (since restitution and injunctive relief are the only
available remedies). The standard is objective: that “members of the public are
likely to be deceived.” Likewise, materiality is assessed objectively: if a reasonable
person would attach importance to the falsity or omission. The trial court
conflated false advertising with fraud; there was no need for individualized
reliance inquiries, and the trial court failed to discuss the reasonable person
standard, which is relevant to deception and materiality.

This error also infected the habitability/nuisance claims,
which were based on the common areas (allegedly full of dog feces, trash, and
pests) and could thus be assessed as a common question. Because the unfair
competition claims didn’t get separate analysis, the court of appeals also sent
those back.

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