LOEFFLER v. TARGET CORPORATIONAppellants’ Supplemental BriefCal.January 13, 2014 ’ SUPREME COURT COPY PUBLIC JUSTICE RECEIVED JAN 13 2014 CLERK SUPREME COURT January 13, 2014 SUPREME COURT Hon. Tani Cantil-Sakauye, ChiefJustice FILED Associate Justices Supreme Court of the State of California JAN 13 2014 350 McAllister Street San Francisco, CA 94102-4797 Frank A. McGuire Clerk Re: Loeffler, et al. v. Target Corporation Deputy Supreme Court No. $173972 Dear Chief Justice Cantil-Sakauye and Associate Justices: Pursuant to the Court’s order of December 16, 2013, Plaintiffs-Appellants respectfully submit this letter brief to address the Court’s questions about causes of action under the UCL (see Bus. & Prof. Code, § 17200 et seq.) and CLRA (see Civ. Code, § 1750 et seq.) based on an allegation that a retailer misrepresented that it was imposing a legitimate tax reimbursement charge. 1. A cause of action may be brought under the UCL and CLRA based on an allegation that a retailer imposed a tax reimbursement charge when in fact the sale was tax-exempt. A. This allegation establishes a cause of action under the UCL’s “fraudulent” prong as well as several of the CLRA’s proscribed “misrepresentation” practices. A retailer that imposes a sales tax reimbursement charge makes tworepresentations: (1) that the sale is subject to sales tax (i.e., the retailer is egally authorized to charge that amountfor tax reimbursementbecauseit is /egally required to pay that amountto the Board); and (2) that the retailer wil] pay that amount to the Board. If the sale is not taxable, then the first representation is false, and a National Headquarters : * 1825 K Street NW,Suite 200consumer who pays the reimbursement charge has a causeof action for fraud Washington, DC 20006 under the UCL and misrepresentation under the CLRA. First, by imposing a phy 202-797-8600 * ° ys . . . - » aD tax reimbursement chargeandlisting it as “tax” on a salesreceipt, a retailer ax: 202-232-7203 makes an affirmative representation thatis likely to lead a reasonable West Coast Office : : : ar 555 12th Street, Suite 1230 consumerto believe that the sale is taxable under law. A business practice is Oakland, CA 94607 “fraudulent” under the UCL if “members of the public are likely to be ph; 510-622-8150 deceived.” Daugherty v. Am. Honda Motor Co., Inc. (2006) 144 fax: 510-622-8155 www.publicjustice.net Chief Justice Cantil-Sakauye Associate Justices January 13, 2014 Cal.App.4th 824, 838, 51 Cal.Rptr.3d 118; see also McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1471, 49 Cal.Rptr.3d 227 (UCL fraud cause of action “may be based on representations to the public which are untrue”or statements that “may be accurate on somelevel, but will nonetheless tend to mislead or deceive[,| . . . the consumer, such as byfailure to disclose other relevant information”). CLRA misrepresentation claims are governed by the same “reasonable consumer”test. See Jn re Sony PS3 “Other OS” Litig. (9th Cir. Jan. 6, 2014), No. 11-18066, 2014 WL 31217at * 2. For example, the retailer is “[r]epresenting” that the transaction “confers or involves” the retailer’s “right[]” to charge tax reimbursement (and “obligation[]” to pay sales tax) on a particular good whenthereis in fact no such rightor obligation. See Cal. Civ. Code § 1770(a)(14). Thus, the first element of a UCL fraud or CLRA misrepresentation cause of actionis satisfied. Second, a consumer whopaysthe charge based on the representation that the sale wastaxable hassuffered injury, satisfying the second element of a UCL and CLRA claim. See Kwikset Corp. v. Super. Ct. (2011) 51 Cal.4th 310, 327, 120 Cal.Rptr.3d 741, 755 (for fraud cause of action under the UCL,plaintiff “need only allege economic injury arising from [defendant’s] misrepresentations”); Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 641, 88 Cal.Rptr.3d 859 (“Any consumer who suffers any damageas a result of the use... by any person of a. . practice declared to be unlawful by Section 1770 maybring an action’ under the CLRA.”) (quoting Civ. Code § 1780(a)). If the retailer not only imposes a tax reimbursement charge on a tax-exemptsale but also fails to remit the amount to the Board (the scenario in the Court’s first question), then that conductis likewise fraudulent. However, as explained in Point II below,it is not necessary to allege that the retailer failed to remit the moneyto the Board in order to state a cause of action under the UCL and CLRA.' B. This allegation establishes a cause of action under the UCL’s “unlawful” prong and the CLRA’s “unconscionable contract term” provision. Separate from any alleged misrepresentation, if the Legislature has decreed that sales of a particular item are exempt from tax, then a retailer’s imposition of a tax reimbursement charge onthesale ofthat item violates the Tax Code and its accompanying regulations.’ ' While notat issue here, there are other ways in which a valid UCL or CLRA cause of action could arise from retailer’s imposition of tax reimbursement charges. For example, even ifa sale is taxable and the retailer does remit, a consumer could claim fraud and misrepresentation if the retailer advertised that consumers would not be chargedfor “tax” and then charged them anyway. See Herr Amicus Brief 2-3. * See Appellants’ Response to Target’s Amici 23-27 (discussing the specific tax exemption and regulationsat issue in this case); id. at 26-27 (explaining that imposing tax Chief Justice Cantil-Sakauye Associate Justices January 13, 2014 It also violates Code Civ. P. § 1656.1(b), which conditions a retailer’s authority to seek reimbursement on the assumption thatthe sale is actually “subject to sales tax.” The unlawful prong of the UCL “borrows”these violations and “treats them as unlawful practices that the unfair competition law makes independently actionable.” Aryeh v. Canon Bus. Solutions, Inc. (2013) 55 Cal.4th 1185, 1196, 292 P.3d 871, 878 (quotations omitted). Ifa practice is “unlawful” under the UCL,it likely violates section (a)(14) of the CLRA as well. See Nelson v. Pearson Ford Co. (2010) 186 Cal.App.4th 983, 1023, 112 Cal.Rptr.3d 607. Likewise, if conduct is unlawful under the CLRA’sproscribed practices, that violation can also serve as the predicate for UCL unlawfulness claim. See Hale v. Sharp Healthcare (2010) 183 Cal.App.4th 1373, 1383, 108 Cal.Rptr.3d 669. Additionally, section (a)(19) of the CLRA is violated. Under Code Civ. P.§ 1656.1, the agreementof sale betweena retailer and customer—normally the receipt—is acontract. By adding a false tax reimbursement chargeto a sale that is tax-exempt, a retailer is effectively “inserting an unconscionable provision”into a contract, whichis proscribed by Cal. Civ. Code § 1770(a)(19). In sum,a cause of action may be brought under the UCL’s unlawful prong and the CLRA basedonthe allegation thata retailer imposed a tax reimbursement charge on a tax-exemptsale. II. It is not necessary to allege that the retailer failed to remit to the Board the moneyit acquires by imposing false sales tax reimbursement charges in order to state a cause of action under the UCL and CLRA. While the Court’s questions focus onthe allegation that a retailer failed to remit the moneyto the Board, that allegation is not necessary for a valid cause of action under the consumerprotection statutes. Furthermore, the mere fact that a retailer remits the money to the Board does not show that the charges were unintentionalorthat the retailer received no benefit by imposing them. A. Neither profit nor intentional conduct on the part of the defendantis required for a cause of action under the UCL or CLRA.Itis black-letter law that a plaintiffneed notallege that the defendant reapeda profit to state a valid cause of action under the UCL. As this Court has madeclear, “the economic injury that an unfair business practice occasions may often involve a loss bythe plaintiff without any correspondinggain by the defendant.” Kwikset, 51 Cal.4th at 336. Even eligibility for restitution—which is somewhat more onerous than standing—requires only that “money or property have beenlost by a plaintiff, on the one hand, andthat it have been acquired reimbursement charges on exemptsales underminesthe legislative purpose of the exemptions, whichis to providerelief to consumers—notretailers). Chief Justice Cantil-Sakauye Associate Justices January 13, 2014 by a defendant, on the other,” but not that the defendant retain the moneyit acquired. Id. (quoting Bus. & Prof. Code § 17203) (emphasis added). Like the UCL,liability under the CLRA simply requires that the plaintiff suffered somesort of injury as a result of the defendant’s actions—notthat the defendant profited. See Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 640, 88 Cal.Rptr.3d 859 (CLRA’s standing requirementthat consumerhave suffered “any damage”resulting from deceptive practices is satisfied even by allegation of transaction costs or opportunity costs to the consumer). Indeed, in most cases, a consumer would have no way of knowing at the outset of a case whattheretailer did with the moneyit acquired by imposingsales tax reimbursement charges and would be unable to allege a failure to remit in the initial complaint. This is true here as well. Norneeda plaintiff allege that the defendant’s conduct wasintentional. “The UCL imposesstrict liability when property or monetary losses are occasioned by conductthat constitutes an unfair business practice.” Cortez v. Purolator Air Filtration Prods. Co. (2000) 23 Cal.4th 163, 181, 96 Cal.Rptr.2d 518). Likewise, unless a specific proscribed practice under the CLRA expressly requiresintent, it is not required. Compare Civ. Code §§ 1770(a)(2), (a)(3), (a)(14), and (a)(19) (no mention ofintent) with, e.g., id. § (a)(9) (“[a]dvertising goodsor services with intent notto sell them as advertised”). B. A retailer could profit from intentionally disregarding tax exemptions in order to save on overheadcosts: While no discovery has taken place in this case, Target’s briefing before this Court sheds light on its reasons for its conduct. Target has not denied that it imposes tax reimbursement charges on tax-exemptsales. Instead,it maintains that it simply charges its customers for everything that might be taxable whenit believes doing so will benefit it financially. According to Target, it is “forced” to ignore the tax exemptions enacted by the Legislature in order to saveitself the “overhead” costs of complying with the tax laws. See Target’s Answer to Amicus Briefs 7-9 (complaining that the tax regulations are too complicated for it to follow and explaining that the “attendant expense” of compliance would be “obvious”); id. at 8 (arguing thatretailers are not “obligated to claim” tax exemptions when doing so would mean the retailer must incur the “cost” of “keeping . . . records”); Target’s Opening Brief 27 n. 21 (arguingthat there is no cause of action for an “unfair” practice under the UCL because the only “unfairness”is in the “incomprehensible morass of the [Tax] Code,” which “force retailers” to charge tax reimbursement on everything without regard to exemptions); id. at 29 n. 22 (“Target charges sales tax on hot coffee to go because everything Targetsells is presumptively taxable and the regulations on this specific item are far from a model of clarity.”); see also Appellants’ Answer to Target’s Amici 45-47 (responding to arguments that requiring retailers to comply with the law will harm consumersby drivingprices up). Chief Justice Cantil-Sakauye Associate Justices January 13, 2014 Ofcourse,the practical effect of Target’s decision to disregard tax exemptionsis to shift the financial burdenofits legal noncomplianceto its customers. Jd. at 5.° In addition to the incentive of saving on overheadcosts,a retailer can reduceits own tax burden by charging sales tax reimbursement on as manysales as possible. See Appellants’ Reply Brief 25 n.7. In sum, it would be a mistake to conclude that a retailer’s act of charging for tax reimbursement was unintentional, or that it did not benefit, based solely on evidence (not present here) that the retailer remitted the moneyit took from customers to the Board. C. A retailer cannot transform an unlawful tax reimbursement charge into a lawful one by remitting the amountto the Board. Regardlessofa retailer’s reasons for imposing false charges,it stands to reason that where the Legislature has deemed certain items to be free from sales tax, a retailer cannot transform a tax-exempt sale into a taxable one—or changean unlawful chargeinto a legitimate tax reimbursement charge—simply by turningoverits ill-gotten gains to the Board. As the FormerState Legislators explain in their Amicus Brief(at 5-6): That [a] defendant may not retain for itself the wrongly charged ‘sales tax reimbursement,’ does not shield it from liability to its customers for having acted illegally in making them pay the ‘reimbursement’ in advance for an imaginary tax, one that is not owed. Whether the retailer . . . keep[s] these reimbursement charges foritself or turns them over to the state and merely reaps the more modest savings of not having to .. . account for ‘exempt’ from ‘non-exempt items,’ is beside the point... . The touchstone for redress under the[] consumerprotection lawsis ‘injury’ to the consumer, not benefit or profit to the business engaged in the unlawful conduct. See also Attorney General Amicus Brief 20 n.8. Of course, if Target has paid the unlawfully obtained funds to the Board, then it can seek a refund of any tax overpayment by filing a refund claim with the Board. Appellants’ Opening Brief 9; Reply 19-20. But the question of whether Target kept the money it acquired from customers or passed it on to the Board is not relevant to whether Target is liable to Plaintiffs under the UCL or CLRA. Finally, regardless of the specific allegations in this case, it must be remembered that the Court of Appeal’s decision is so sweeping that it immunizesretailers for violating > Notwithstanding Target’s attempt to mislead the Court about the supposed complexity of the tax regulations by quoting nearly two pagesofirrelevant regulatory text, the regulation that is relevant in this case is crystal clear. See Appellants’ Reply Brief 27-28. Chief Justice Cantil-Sakauye Associate Justices January 13, 2014 consumerprotection lawsas long as they claim that the allegedly wrongful charge was for tax reimbursement—regardless ofhow muchthe retailer charges and regardless of whatit does with the moneyit acquires. III. While Plaintiffs’ second amended complaint (SAC) doesnotallege that Target failed to remit the amounts it acquired to the Board, it is not necessary to amend to addthis allegation because the SAC currently states causes of action under both the UCL and CLRA. Plaintiffs’ SAC does notallege that Target failed to remit to the Board the money it acquired by imposing fake sales tax reimbursement charges. Because the complaint was dismissed on the groundsat issue in this appeal before any discovery was conducted, Plaintiffs do not have a sufficient factual basis for such an allegation. More importantly, as explained above,it is not necessary to allege that Target failed to remit the amounts to the Boardin orderto state a valid cause ofaction under the UCL and CLRA.* The SACalleges that Target “falsely . . . represented to . . . the public that it had the legal right to charge [sales tax reimbursement],” andthat Plaintiffs suffered monetary loss as a result. AA088. Based onthis allegation, the SAC states a cause of action for unlawful, fraudulent, and unfair business practices under the UCL.’ AA090. This allegation also supports Plaintiffs’ causes of action under the CLRA,Civ. Code. §§ 1770(a)(2), (a)(3), (a)(14), & (a)(19). AA091-92. Plaintiffs have stated valid causes of action under the UCL and CLRA based on their allegation that Target imposed false tax reimbursement charges and representedthat sales were taxable when they were not. There is no factual record on any otherissue. * The SAC doesstate that, “[iJn the event Defendantretained these moniesit unjustly enricheditself at the expense of Plaintiffs, other Class members and the general public. . ..” AA090 at J 25. The SACalso “seek(s] restitution of any monies wrongfully acquired or retained by any of the Defendants and disgorgementoftheir ill-gotten gains obtained by meansoftheir unfair practices.” AA091 at ¥ 27. But Plaintiffs have never premised their claims against Target on an assumption that Target kept the money. > As the Court recently observed,“[t]he standard for determining what business acts or practices are ‘unfair’ in consumer actions under the UCLis currently unsettled.” Yanting Zhang v. Super. Ct. (2013) 57 Cal. 4th 364, 380, 159 Cal.Rptr.3d 672 (listing several alternativetests). In light of this observation and the concernsarticulated in Plaintiffs’ Responseto Target’s Amicus Briefs (at 38-39), Plaintiffs respectfully suggest that this appeal would be an inappropriate vehicle for determining the proper standard since the record is far from developedin this regard. Chief Justice Cantil-Sakauye Associate Justices January 13, 2014 Therefore, if the Court resolves the issue in this appeal by holding that Target is not immunefrom liability under the State Constitution and the Tax Code, it should remand with instructions to permit the case to proceed on the merits. If discovery reveals that Target did indeed fail to remit to the Board the amounts it took from consumers, and this fact would support additional causes ofaction, Plaintiffs will request leave to amend the complaint at that time. Sincerely, Leslie A’ ey Staff Attorney Public Justice Counsel for Plaintiffs/Appellants CERTIFICATE OF COMPLIANCE Counsel of Record hereby certifies that pursuant to Rule 8.204(c)(1) or 8.360(b)(1) of the California Rules of Court, the enclosed brief of Plaintiffs/Appellants is produced using 13-point Roman type including footnotes and contains approximately 2,788 words, whichis less than the total words permitted by the rules of court. Counsel relies on the word count of the computer program usedto preparethis brief. Dated: January 13, 2014 LAS C By Leslie A. Bail Counsel for Plaintiffs/Appellants PROOF OF SERVICE I, Kathleen Morris, declare as follows: I am employedin the County of Alameda,State of California. I am over the age of eighteen andnota party to the within action. My business address is 555 12™ Street, Suite 1230, Oakland, California, 94607. On January 13, 2014, I served the foregoing SupplementalBrief on the interested parties in this action as follows: Miriam Vogel Morrison & Foerster, LLP 707 Wilshire Blvd., Suite 6000 Los Angeles, CA 90017-3543 Attorneysfor: Target Corporation, Defendant and Respondent David Frank McDowell Morrison & Foerster, LLP 707 Wilshire Blvd., Suite 6000 Los Angeles, CA 90017-3543 Attorneysfor: Target Corporation, Defendant and Respondent Phillip Jon Eskenazi Hunton and Williams LLP 550 W. HopeStreet, Suite 2000 Los Angeles, CA 90071 Albertson’s, Inc., Amicus curiae Barry Dion Keene Attorney at Law 1047 - 56th Street Sacramento, CA 95819 William T. Bagley, Amicus curiae Barry Dion Keene, Amicus curiae Samantha Perrette Goodman Morrison & Foerster, LLP 707 Wilshire Blvd., Suite 6000 Los Angeles, CA 90017-3543 Attorneysfor: Target Corporation, Defendant and Respondent Benjamin Israel Siminou Thorsnes Bartolotta McGuire LLP 2550 Fifth Avenue,1 1th Floor San Diego, CA 92103 Carmen Herr, Amicus curiae Heidi Spurgin, Amicus curiae Mark Hegarty, Amicus curiae Joseph Thompson, Amicuscuriae J. Bruce Henderson Attorney at Law 4294 Kendall Street San Diego, CA 92109 Association of Concerned Taxpayers, Amicus Curiae John Lee Waid California State Board of Equalization 450 N.Street, MIC 82 Sacramento, CA 95814 Board of Equalization, Amicus curiae Sharon J. Arkin The Arkin Law Firm 333 S. Grand Avenue, 25th Floor Los Angeles, CA 90012 ConsumerAttorneys of California, Amicuscuriae Richard Thomas Williams Holland and Knight LLP 633 W.Fifth Street, 21st Floor Los Angeles, CA 90013 CVS Caremark Corp, Amicus — curiae CVSPharmacy,Inc., Amicus curiae ThomasAlistair Segal Taras Peter Kihiczak The Kick Law Firm APC 201 Wilshire Boulevard, Suite 350 Santa Monica, CA 90401 Avi Feigenblatt, Amicus curiae Gregory Fisher, Amicus curiae Michael McClain, Amicus curiae Alexandra Robert Gordon Office of the Attorney General 455 Golden Gate Avenue,Suite 11000 San Francisco, CA 94102 Kamala Harris, Amicus curiae Albert Norman Shelden Office of the Attorney General 110 West "A" Street, Suite 1100 San Diego, CA 92101 Kamala Harris, Amicus curiae Pamela Pressley Foundation for Taxpayer and ConsumerRights 1750 Ocean Park Boulevard, Suite 200 Santa Monica, CA 90405 Consumer Watchdog, Amicuscuriae Consumeraffairs.com, Amicus curiae National Association of Consumer Advocates, Amicuscuriae Public Good, Amicus curiae Andrew EugeneParis Alston and Bird LLP 333 S. Hope Street, 16th Floor Los Angeles, CA 90071 DirecTV,Inc., Amicus Curiae Albert Douglas Mastroianni Mastoianni Law Firm 633 West Fifth Street, 28th Floor Los Angeles, CA 90013 Jason Frisch, Amicus curiae Joyce E. Hee Office of the Attorney General 1515 Clay Street, Suite 2000 P.O. Box 70550 Oakland, CA 94612 Kamala Harris, Amicus curiae Frederick W. Kosmo Theresa Osterman Stevenson Wilson Turner Kosmo LLP 550 West "C" Street, Suite 1050 San Diego, CA 92101 PETCO Animal Supplies Stores, Inc., Amicus curiae Judith Esther Posner Margaret Anne Grignon Reed Smith LLP Reed Smith LLP 355 S. Grand Avenue, Suite 2900 355 S. Grand Avenue, Suite 2900 Los Angeles, CA 90012 Los Angeles, CA 90071 Rite Aid Corp., Amicus curiae Walgreen Company, Amicuscuriae [X] BY MAIL: Byplacing a true copy thereof enclosed in a sealed envelope addressed as above, with postage thereon fully prepaid in the United States mail, at Oakland, California. 1 am readily familiar with the firm’s practice for collection and processing of correspondence for mailing. Underthat practice, it would be deposited with the US Postal Service on the same day with postage thereon fully prepaid at Oakland, California, in the ordinary course of business. I am aware that on motion ofthe party served, service is presumedinvalidifthe postal cancellation date or postage meter date is more than one dayafter the date of deposit for mailing contained in this affidavit. CCP § 1013a(3). I declare under penalty ofperjury under the laws of the State of California that the foregoing is true and correct. Executed on January 13, 2014, at Oakland, California. - Kathleen Morris