Proposition 64 Does Not Prevent Amendment of Complaint in Pending Actions To Comply With Standing Requirements

In Branick v. Downey Savings & Loan Assn. (2006) 34 C.4th 235, 46 C.R.3d 66, 96 P.3d 141, plaintiffs sued defendant savings and loan association for violation of the unfair competition and false advertising laws (see 13 Summary 10th, Equity, §105 et seq.), alleging that defendant had misrepresented and overcharged customers for fees charged by governmental entities to record various official documents used in real estate transactions. Defendant moved for judgment on the pleadings on the ground that federal law preempted plaintiffs' claims. The superior court granted the motion, and plaintiffs appealed. While the appeal was pending, Proposition 64 amended B. & P.C. 17204, thus destroying plaintiffs’ standing to sue (see Californians for Disability Rights v. Mervyn’s (2006) 39 C.4th 223, 46 C.R.3d 57, 138 P.3d 207). The Court of Appeal reversed on the preemption issue, and, with respect to the standing issue, remanded the matter to the trial court to determine whether, if there should be a request to amend the complaint, the circumstances warranted granting leave to amend. Held, judgment of the Court of Appeal affirmed.

(a) The parties were directed to brief and argue the following issue: If the standing limitations of Proposition 64 apply to actions that were pending on the date that the proposition took effect, may a plaintiff amend the complaint to substitute in or add a party who satisfies the standing requirements of B. & P.C. 17204, as amended by the Proposition, and does the amended complaint relate back to the date of the initial complaint for statute of limitations purposes? (39 C.4th 240.) “We hold as follows: Proposition 64 does not affect the ordinary rules governing the amendment of complaints and their relation back. We thus reject defendant's contention that courts may never permit a plaintiff to amend a complaint to satisfy Proposition 64's standing requirements. Whether plaintiffs <if>in this</if> case may amend, however, cannot be determined at this stage of the proceedings because plaintiffs have not yet filed a motion for leave to amend, identified any person who might be named as a plaintiff, or described the claims such a person might assert.” (39 C.4th 239.)

(b) In passing Proposition 64, the voters intended to prevent private attorneys from filing (1) frivolous lawsuits as a means of generating attorneys' fees without creating a corresponding public benefit; (2) lawsuits where no client has been injured in fact; (3) lawsuits for clients who have had no dealings with the defendant; and (4) lawsuits on behalf of the general public without accountability to the public or court supervision. Defendant contended that plaintiffs' counsel should not benefit from their impermissible actions by substituting new plaintiffs and having the new allegations relate back to the filing of the initial complaint. The argument is not convincing. The policy objectives underlying Proposition 64 are fully achieved by applying the measure to pending cases. An additional rule barring amendments made in order to comply with Proposition 64 does not permit uninjured private persons to file actions under the unfair competition law. Also, barring an unfair competition action by a substituted plaintiff who complies with standing requirements serves none of the aforementioned objectives. Finally, the substitution of plaintiffs with standing under the Proposition cannot be described as permitting plaintiffs' attorneys to benefit from “impermissible” actions, because filing suit on behalf of an uninjured client before Proposition 64 was not impermissible. (39 C.4th 241.)

(c) Just because Proposition 64 does not preclude all complying pleading amendments does not mean that an amendment will be allowed in this case, because, under C.C.P. 473, leave to amend is entrusted to the superior court (see 5 Cal. Proc. (4th), Pleading, §1113), and that court has not yet had the opportunity to address this issue. (39 C.4th 242.) However, without rendering an improper advisory opinion, the following categorical remarks may be made at the appellate level: (1) Contrary to defendant’s contention, California courts have permitted plaintiffs who have been determined to lack standing, or who have lost standing after the complaint was filed, to substitute as plaintiffs the true real parties in interest (see, e.g., Klopstock v. Superior Court (1941) 17 C.2d 13, 108 P.2d 906, 5 Cal. Proc. (4th), Pleading, §1155). (39 C.4th 243.) (2) The “relation back” doctrine requires that the amended complaint must rest on the same general set of facts, involve the same injury, and refer to the same instrumentality as the original complaint. Accordingly, defendant argued that leave to amend must be denied, because persons with standing under Proposition 64 would necessarily seek to enforce a different legal obligation than would the current, uninjured plaintiffs. However, this is the type of question that belongs in the first instance to the superior court. (3) As support for the proposition that plaintiffs who never had standing may not substitute plaintiffs with standing, defendant relied on a federal case. However, that case is not in point, because plaintiffs here did have standing to sue at the time they filed their original complaint. In any event, as has already been explained California's courts have not followed this rule. (39 C.4th 244.)

Witkin References

On Unfair Competition Law generally, see 13 Summary (10th), Equity, §105 et seq.

On amendments to pleadings generally, see 5 Cal. Proc. (4th), Pleading, §1113 et seq.

On “relation back” doctrine, see 5 Cal. Proc. (4th), Pleading, §1120

On substitution of parties, see 5 Cal. Proc. (4th), Pleading, §1155