• A Divided California Supreme Court Largely Nullifies Consumer Law Reforms Previously Understood To Have Been Enacted By the Voters under Proposition 64
  • June 23, 2009 | Authors: Lisa Perrochet; John A. Taylor; Bradley S. Pauley
  • Law Firm: Horvitz & Levy LLP - Encino Office
  • In 2004, California voters passed Proposition 64 to eliminate the anomalous provision that previously gave "any person" the right to act as a public prosecutor in bringing consumer claims on behalf of the state's citizens under the Unfair Competition Law (UCL). Proposition 64 brought UCL cases in line with generally applicable standing requirements by providing that only a person who has suffered injury in fact, and lost money or property as a result of an unfair business practice, has standing to sue under the UCL.

    In an opinion issued on May 18, 2009, however, four members of the California Supreme Court construed Proposition 64 to mean that consumers who could not themselves establish standing to bring an action in their own name under the new rule could nonetheless be included in a class of plaintiffs represented by a single named individual who can establish standing. In holding that Proposition 64's "standing requirements are applicable only to the class representatives, and not all absent class members," the court effectively read into Proposition 64 an implicit intent to carve out UCL claims from the rule that class actions are procedural devices for case management, and are not intended to alter the substantive rights that the parties would have if the same claims were pursued individually.

    The court further indicated that, because the new standing requirements do not impose any impediment to unnamed class members' right to recovery, those members may obtain a monetary award for restitution measured by what they "may have" lost by means of the defendant's unfair business practice, even if there is no evidence of an injury actually caused by the claimed acts of unfair competition.

    Finally, the court held that, in an action based on allegedly deceptive business practices, the named plaintiff (either in an individual action or as the named representative in a class action) must nominally show actual reliance on the claimed deception, but such reliance by the individual may be inferred from evidence that the defendant's misrepresentation would have been "material" to a reasonable person, in the abstract. The court did not explain how this approach can be squared with the court's earlier flat rejection of such a "fraud on the market" theory of liability; it will be interesting to see how lower courts interpret this part of the court's opinion in future cases.

    The three dissenting justices disagreed with the majority's approach, noting that the counterintuitive effect of the reasoning as applied in the case before it is that "so long as the named plaintiffs actually relied on the [tobacco company defendant's] allegedly deceptive advertising claims when buying and smoking cigarettes, they may seek injunctive and restitutionary relief on behalf of all California smokers who simply saw or heard such ads during the period at issue, regardless of whether false claims contained in those ads had anything to do with any class member's decision to buy and smoke cigarettes."