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.