California Court of Appeal Issues First Ever Decision on State's Automatic Renewal Law; Curbs Misuse of Statute

Wilson Sonsini Goodrich & Rosati

Wilson Sonsini Goodrich & Rosati

On September 11, 2020, the California Court of Appeals handed down a published decision in Mayron v. Google, one of the earliest cases brought under California's notorious Automatic Renewal Law (ARL), California Business and Professions Code Section 17600 et seq. The ARL imposes detailed disclosure requirements for any recurring delivery of goods or services in California. In particular, it requires a business to clearly and conspicuously disclose offer terms and cancellation policy in any automatic renewal offer. It also requires companies to obtain affirmative consent and to provide an "acknowledgment" with the offer terms and cancellation information. And Section 17603 of the ARL declares that where a business' disclosures fail to satisfy the ARL, barring proof of good faith, any goods the business sends to a subscriber are to be treated as an "unconditional gift."

The ARL has been wielded aggressively by plaintiffs' firms in countless lawsuits seizing on any shortcoming in disclosures and claiming it transforms all goods or services received by California subscribers into gifts. These cases demand full refunds on behalf of putative classes of California purchasers dating back years. Settlements of such cases have been substantial. For example, Apple, Inc. paid $16.5 million in 2018 to settle a class action alleging that it failed to disclose to California consumers that subscriptions would "continue until cancelled" and that cancellations would not result in refunds of prior charges.

Mayron, the first published California appellate decision on the ARL, should stem the litigation tide. In it, the Sixth District Court of Appeal affirmed dismissal of a putative class action complaint against Google that asserted claims under the ARL and California's Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200 et seq. Two aspects of the decision are particularly noteworthy.

First, the Court of Appeals affirmed that there is no private right of action under the ARL itself. Rather, the ARL can only be enforced using other, existing remedial laws, such as the UCL. That is significant because, following enactment of Proposition 64, the UCL has a stringent standing requirement, allowing claims only by those who have lost money or property as a result of some alleged wrongdoing.

Second, the Court conclusively rejected the theory that private plaintiffs can establish UCL standing simply by alleging that they were charged for subscriptions that were rendered "unconditional gifts" by operation of Section 17603. It found that "[t]he unconditional gift provision of the automatic renewal law creates a right to retain a product already received. That right is a consequence of violating the statute. But a consequence imposed on a defendant for violating a statute is not the same thing as a loss caused by the defendant's conduct." Instead, according to the Court, to pursue an ARL violation, a plaintiff needs to plead and prove some loss of money or property attributable the alleged ARL violation; that is, a plaintiff must show that but for some allegedly deficient disclosure, the plaintiff would not have purchased their subscription, or would have canceled it prior to paying for a renewal. In reaching this result, the Court expressly rejected a more lenient approach applied by a number of federal courts, including the Ninth Circuit, that minimized or ignored the causation required to establish UCL standing.

Mayron significantly raises the pleading bar for ARL plaintiffs. Some may surely continue to pursue claims where they have actually suffered harm caused by an ARL violation. But those unaffected by some minor quibble with disclosures, will no longer be able to sue to recover payments made for subscription goods or services that they purchased knowing they would be charged on a recurring basis. Further, class certification in ARL cases should become rare, because class-wide proof of reliance and appropriate restitution will be hard to come by.

Wilson Sonsini Goodrich & Rosati was counsel for Google LLC in both the trial and appellate courts. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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