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Business Law

California UCC Sales and Leases

As of September 15, 2018, 89 states have adopted the United Nations Convention on Contracts for the International Sale of Goods (CISG). See §1.18.

In James v Global Tel*Link Corp. (3d Cir 2017) 852 F3d 262, 267, users of a telephone service for prison inmates could sign up either online or over the telephone. Those signing up over the telephone were told that the terms of use for the service were available on the company’s website. However, they were not required to visit the website or demonstrate acceptance of the terms of use through any affirmative act. Nor were they told that their use of the phone service would itself constitute assent to the terms of use, which included an agreement to arbitrate disputes and a class-action waiver. The court held that such users “had neither the knowledge nor intent necessary to provide ‘unqualified acceptance,'” and were therefore not bound by the terms of use. See §2.50H.

In Patricia A. Murray Dental Corp. v Dentsply Int’l, Inc. (2018) 19 CA5th 258, plaintiffs were a class of dentists who had purchased a device called the Cavitron ultrasonic scaler, for use during oral surgical procedures. Plaintiffs sued the device’s manufacturer, Dentsply International, Inc., for breach of express warranty under Com C §2313(1)(a) and (b), alleging that the directions for use of the device falsely indicated that it could be used in “periodontal debridement for all types of periodontal diseases,” which by implication included oral surgery, when in fact the device could not be used for oral surgery because it accumulated biofilm in its waterlines and thus was incapable of delivering sterile water during surgical procedures. After trial, the court found in favor of Dentsply on all claims, noting that the plaintiffs, as licensed California dentists, were well aware that biofilm forms in all dental waterlines and that the Cavitron thus could not produce sterile water. Plaintiffs thus already knew the facts that they claimed ought to have been disclosed in the product’s directions. The evidence accordingly failed to establish that they were likely to be misled. The court of appeal affirmed. Notably, the targeted consumers for this product were not members of the general public, but licensed dental professionals. As such, they could be expected to be familiar with the issue of biofilm formation and thus not be misled by the product directions, even if those directions were not a model of clarity. See §§3.10, 18.75.

In R.W.L. Enters. v Oldcastle, Inc. (2017) 17 CA5th 1019, the court of appeal held that it was error for the trial court to award attorney fees to the defendant based on two unrelated agreements. The parties entered into a dealer agreement in 2001, and then in 2010, the plaintiff dealer filled out a credit application with the defendant-manufacturer. The dealer agreement did not have an attorney fees provision, but the credit application did. The lawsuit was based on the alleged breach of the dealer agreement. The court of appeal found that the 2001 and 2010 instruments did not show a “clear and unequivocal” intention to incorporate each other, so an award of attorney fees was improper. See §4.94.

A written agreement obtained or executed through mistake, fraud, duress, or undue influence is not protected by the parol evidence rule. See IIG Wireless, Inc. v Yi (2018) 22 CA5th 630, in which the court of appeal held that evidence of what the defendant, a founding shareholder of a cell phone business, told the other founding shareholders about the treasury shares at issue was admissible to prove fraud, because it showed the other shareholders had entirely different understandings about the meaning of certain shareholder agreements based on those allegedly fraudulent misrepresentations. See §7.37.

The Airline Deregulation Act of 1978 (49 USC §41713) does not preempt a passenger’s breach of contract claim based on the airline’s failure to timely deliver luggage as promised. Hickcox-Huffman v US Airways, Inc.(9th Cir 2017) 855 F3d 1057. See §9.6.

In S & H Packing & Sales Co. v Tanimura Distrib., Inc. (9th Cir 2018) 883 F3d 797, 808, the Ninth Circuit adopted a threshold “true sale” test to determine whether assets transferred in transactions that are labeled “sales” remain assets of a PACA trust. The en banc panel held that a court must conduct a two-step inquiry when determining whether the questioned transaction is a sale or creates a security interest (i.e., a loan). First, a court must apply a threshold “true sale” test, of which the transfer of risk is a key, but not the sole, factor. If a court concludes that there was a true sale, it must then determine if the transaction was commercially reasonable. See §12.26A.

In PGA W. Residential Ass’n, Inc. v Hulven Int’l, Inc. (2017) 14 CA5th 156, the court held that the 7-year limitations period for actions under the predecessor statute to the Uniform Voidable Transactions Act is not simply a procedural statute of limitations that bars a remedy and is forfeited if not properly raised by a defendant; rather, it is a substantive statute of repose that completely extinguishes a right or obligation and is not subject to forfeiture. See §12.46A.

An evaluation of unconscionability is highly dependent on context. Farrar v Direct Commerce, Inc. (2017) 9 CA5th 1257, 1270. See §18.70.

In Saheli v White Mem. Med. Ctr. (2018) 21 CA5th 308, the court held that the Bane Act’s and Ralph Act’s special requirements for arbitration agreements were preempted by the Federal Arbitration Act (FAA) (9 USC §§1–16). Both Acts depart from the preexisting doctrine of unconscionability, and treat arbitration agreements differently from other types of contracts; such discriminatory treatment is not permitted under the FAA. See §18.71A.

In Gutierrez v Carmax Auto Superstores Cal. (2018) 19 CA5th 1234, the court held that a car buyer’s allegations adequately stated a claim for deceptive practices under the Consumers Legal Remedies Act (CLRA) (CC §§17501784). The allegations included: (1) the seller represented that the vehicle had passed a 125-point quality inspection, but failed to disclose the recall of a critical safety-related component; (2) the buyer would not have purchased the vehicle if she had known its true condition, including the recall history; and (3) there was a duty to disclose in that the seller had actual knowledge of the recall before the sale, but had made misleading partial representations that excluded the existence of the recall, a material fact. See §18.72.

In Rubenstein v The Gap, Inc. (2017) 14 CA5th 870, 878, the court held that the allegation that a retailer sold lesser-quality clothing items at its factory stores that were never sold at its traditional stores did not state a claim under the False Advertising Law because, as a matter of law, a retailer’s use of its own brand name labels on clothing that it manufactures and sells at its stores is not deceptive, regardless of the quality. Further, there was no claim under the Unfair Competition Law (UCL) (Bus & P C §§1720017210), because the retailer’s use of its own brand names on factory store clothing labels was not likely to deceive a reasonable consumer; a purchaser was still getting that retailer’s item. Finally, there was no claim under the CLRA, because the consumer alleged no advertising or representation of any kind that the retailer made about the characteristics or quality of its factory store merchandise. See §18.75.

In People v Overstock.com, Inc. (2017) 12 CA5th 1064, the court of appeal upheld the trial court’s imposition of civil penalties of $6,828,000 for defendant’s willful, numerous, and persistent violations of the UCL and False Advertising Law. See §18.76.

In Quanta Computer Inc. v Japan Communications Inc. (2018) 21 CA5th 438, 446, the court of appeal held that the trial court could decline to exercise jurisdiction, and did not abuse its discretion in dismissing a case without prejudice, when the forum selection clause in the parties’ contract was the only link to California. California had no public interest in providing a forum for the resolution of a dispute between a Taiwanese and Japanese company with no connections to the state, involving a contract formed and executed in their respective countries, when there were suitable alternatives. See §19.24.

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