Under Proposition 64, Only Class Representative in UCL Action Must Comply With New Standing Requirement; When Unfair Practice Is Fraudulent Advertising Campaign, Class Representative Need Not Show Unrealistic Degree of Reliance on Particular Advertisements

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In re Tobacco II Cases (2009) 46 C.4th 298, 93 C.R.3d 559, 207 P.3d 20, involved a claim that tobacco industry defendants violated the Unfair Competition Law (UCL) by conducting a decades-long campaign intended to deceive and mislead the public about the addictive nature of nicotine and the relationship between tobacco use and disease. After the adoption of Proposition 64, which changed the standing requirements for actions brought under the UCL, the trial court decertified the class. The Court of Appeal affirmed. Held, reversed and remanded. The standing requirements of Proposition 64 only apply to class representatives, and not to all absent class members. Further, although the class representatives on a claim of misrepresentation must demonstrate actual reliance on the allegedly deceptive or misleading statements, they do not need to plead or prove to an unrealistic degree of specificity that they relied on particular advertisements or statements, where the unfair practice is a fraudulent advertising campaign.

(a) Statutory amendment. Prior to the adoption of Proposition 64 in 2004, any person acting for the general public could bring an action under the UCL for relief from unfair competition. Hence, standing did not depend on a showing of injury or damage. However, B. & P.C. 17204, as amended by Proposition 64, now requires that a person pursuing a representative claim on behalf of others under the UCL must have "suffered injury in fact" and have "lost money or property as a result of the unfair competition." This was simply a procedural modification to the UCL. As stated in Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 C.4th 223, 232, 46 C.R.3d 57, 138 P.3d 207, 13 Summary (10th), Equity, Supp., §124, Proposition 64 did not change the substantive rules governing business and competitive conduct. (46 C.4th 313, 314.)

(b) Statutory interpretation. In decertifying the class, the trial court concluded that the simple language of the proposition required each class member to show injury in fact and causation, without identifying the "simple language" to which it referred. (46 C.4th 315.) B. & P.C. 17204 provides for prosecution of an action under the UCL "by a person who has suffered injury in fact and has lost money as a result of the unfair competition." B. & P.C. 17203 provides that a "person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements" of B. & P.C. 17204 and complies with C.C.P. 382 (see 4 Cal. Procedure (5th), Pleading, §268). Use of the singular words "person" and "claimant" does not support the trial court’s conclusion. (46 C.4th 315, 316.) Further, the trial court’s construction is not necessary to address the specific abuse to which Proposition 64 was addressed, i.e., to "shakedown" lawsuits by unscrupulous lawyers that extort money from small businesses. (46 C.4th 316.) In fact, proponents of Proposition 64 proclaimed that the initiative would protect "your right to file a lawsuit if you’ve been damaged." It was never asserted that the purpose of the initiative was to alter the way in which class actions operate. Other than the requirement that the representative plaintiff comply with C.C.P. 382, "the ballot materials contain no reference whatsoever to class actions nor is there any indication that Proposition 64 was intended in any way to alter the rules surrounding class action certification." Those rules focus on the standing of the class representative. (46 C.4th 317, 318.)

(c) Federal Rules. The requirements of F.R. Civ. P., Rule 23 are analogous to the requirements for class certification under C.C.P. 382, and the federal rule gives guidance on questions regarding class action procedure. (46 C.4th 318.) Federal case law makes it "clear that the question of standing in class actions involves the standing of the class representative and not the class members." (46 C.4th 318.) In a class action "the trial court initially must address whether the named plaintiffs have standing . . . to assert their individual claims. If that initial test is met, the court must then scrutinize the putative class and its representatives to determine whether the relationship between them is such that under the requirements of Rule 23 the named plaintiffs may represent the class. The trial court generally need not address the final question of whether the class itself, after certification, has standing. If that court, guided by the nature and purpose of the substantive law on which the plaintiffs base their claims, properly applies Rule 23, then the certified class must necessarily have standing as an entity." (46 C.4th 319, quoting federal district court opinion.)

(d) No amendment of remedies provision. Proposition 64 did not amend the remedies provision of B. & P.C. 17203. An injunction is the primary form of relief available to protect consumers from unfair business practices under the UCL, along with ancillary relief in the form of restitution necessary to restore an interest in money or property which "may have been acquired" by unfair competition. Neither form of relief requires absent class members, on whose behalf that relief is sought, to meet the same standing requirements that are imposed on the class representative. The purpose of the authorized relief is to protect California consumers against unfair business practices by stopping the practices in their tracks. An injunction, which works in the future, would not serve the purpose of preventing future harm "if only those who had already been injured by the practice were entitled to that relief." (46 C.4th 320.) The language of B. & P.C. 17203 with respect to those entitled to restitution--to restore an interest in any money or property "which may have been acquired" by means of the unfair practice--"is patently less stringent than the standing requirement" of B. & P.C. 17204 for the class representative. Construed in light of the concern that "wrongdoers not retain the benefits of their misconduct," this language "has led courts repeatedly and consistently to hold that relief under the UCL is available without individualized proof of deception, reliance and injury." Thus, holding that absent class members on whose behalf a private UCL action is prosecuted must show on an individualized basis under B. & P.C. 17204 that they have "lost money or property as a result of unfair competition" would conflict with the language of B. & P.C. 17203 authorizing relief. (46 C.4th 320.)

(e) Requirements for establishing standing. As amended by Proposition 64, B. & P.C. 17204 requires that the class representative have suffered injury in fact and lost money or property "as a result of" the unfair competition. The phrase "as a result of" is not defined in the statute. The Voter Information Guide explained that the initiative limits the right of an individual to sue by allowing private enforcement of the UCL only by a person who was actually injured by and suffered financial or property loss because of an unfair business practice. (46 C.4th 325.) This language imposes an actual reliance requirement on plaintiffs prosecuting a UCL action based on fraud. (46 C.4th 326.) However, case law teaches that "while a plaintiff must allege that the defendant’s misrepresentations were an immediate cause of the injury-causing conduct, the plaintiff is not required to allege that those misrepresentations were the sole or even the decisive cause of the injury-producing conduct. Furthermore, where, as here, a plaintiff alleges exposure to a long-term advertising campaign, the plaintiff is not required to plead with an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements. Finally, an allegation of reliance is not defeated merely because there was alternative information available to the consumer-plaintiff, even regarding an issue as prominent as whether cigarette smoking causes cancer." (46 C.4th 328.)

Three justices filed an opinion concurring in the causation part of the opinion, but dissenting regarding the majority’s conclusion that unnamed class members in a private UCL class action need not meet the standing requirement of Proposition 64. (46 C.4th 329, 330.)

Witkin References

On class actions generally, see 4 Cal. Procedure (5th), Pleading, §267 et seq.

On proper consumer class actions, see 4 Cal. Procedure (5th), Pleading, §302 et seq.

On F.R. Civ. P., Rule 23, see 4 Cal. Procedure (5th), Pleading, §273 et seq.

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