Archives for January 14, 2010

In a pair of cases, the California Supreme Court restricted the use of California Business & Professions Code Section 17200 et seq.   One case affirmed what many expected, that Proposition 64, a 2004 voter initiative, requires plaintiffs to follow strict class-action procedures when seeking to recover under California’s unfair competition law (Bus. & Prof. Code § 17200 et seq.) which prohibits “any unlawful, unfair or fraudulent business act or practice . . . .”

Before 2004, any person could assert representative claims under the unfair competition law to obtain restitution or injunctive relief against unfair or unlawful business practices. Such claims were not required to be brought as a class action, and a plaintiff had standing to sue even without having personally suffered an injury. (See Former §§ 17203, 17204; Stop Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal. 4th 553, 561 (1998)).

In 2004, however, the California electorate passed Proposition 64, amending the unfair competition law to provide that a private plaintiff may bring a representative action under this law only if the plaintiff has “suffered injury in fact and has lost money or property as a result of such unfair competition” and “complies with Section 382 of the Code of Civil Procedure . . . .” This statute provides that “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.” The Court has previously interpreted Code of Civil Procedure section 382 as authorizing class actions. See Richmond v. Dart Industries, Inc., 29 Cal. 3d 462, 470 (1981).

In Arias v. Superior Court of San Joaquin (Angelo Dairy), 46 Cal. 4th 969 (2009), the Court held that employees can pursue penalties for wage-and-hour violations under the Private Attorneys General Act, or (“PAGA”), without having to qualify their lawsuit as a class action.

Justice Joyce L. Kennard, writing for the majority, also analyzed the effect of Proposition 64. Plaintiff contended that because Proposition 64’s amendment of the unfair competition law required compliance only with “[s]ection 382 of the Code of Civil Procedure” and because that statute makes no mention of the words “class action,” his representative lawsuit brought under the unfair competition law need not comply with the requirements governing a class action. The Court rejected this assertion, explaining:

In light of this strong evidence of voter intent, we construe the statement in section 17203, as amended by Proposition 64, that a private party may pursue a representative action under the unfair competition law only if the party “complies with Section 382 of the Code of Civil Procedure” to mean that such an action must meet the requirements for a class action. (See Fireside Bank v. Superior Court, supra, 40 Cal.4th at p. 1092, fn. 9.)

In a concurring opinion by Justice Werdegar, she disagreed with the majority’s “nonliteral interpretation of Proposition 64 (Gen. Elec. (Nov. 2, 2004)), which forecloses a variety of representative actions the measure clearly permits. Unlike the majority, I do not believe we would frustrate the voters’ intent by enforcing the measure according to its plain language.”

Similarly, in Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (First Transit, Inc.), 46 Cal. 4th 993 (2009), the Court ruled that the requirement that a plaintiff be one “who has suffered injury in fact,” combined with the PAGA requirement that a labor action be initiated by an “aggrieved employee,” prevents a union from bringing a UCL action based on associational standing.

Following the passage of Proposition 64 on November 2, 2004, in order to bring a representative claim under the unfair competition law (“UCL”), a plaintiff must meet the following standing requirements: (1) establish that he or she “has suffered injury in fact and has lost money or property as a result of such unfair competition” and (2) comply with the class action requirements as set forth in California Code of Civil Procedure Section 382. Bus. & Prof. Code §§ 17203, 17204 and 17535. After the passage of Prop 64, litigants continued to debate whether only the named plaintiff or all class members had to meet the more stringent standing requirements of injury in fact and loss of money or property as a result of the alleged conduct.

In In Re Tobacco II Cases, 46 Cal. 4th 298 (2009), the California Supreme Court resolved that debate. Specifically, the Court addressed two questions: “First, who in a UCL class action must comply with Proposition 64’s standing requirements, the class representative or all unnamed class members, in order for the class action to proceed?” and “Second, what is the causation requirement for purposes of establishing standing under the UCL and in particular what is the meaning of the phrase ‘as a result of’ in section 17204?” In response to the first question, the Court concluded that the new standing requirements of Prop 64 applied only to the named plaintiff/class representative and not to absent class members. In reaching this conclusion, the Court reasoned that “the references in section 17203 to one who wishes to pursue UCL claims on behalf of others are in the singular; that is, the ‘person’ and the ‘claimant’ who pursues such claims must meet the standing requirements of section 17204 and comply with Code of Civil Procedure section 382.” The Court concluded that these singular references must be interpreted to relate only to the individual representative plaintiff.  The Court further reasoned that there was nothing in Prop 64 that indicated it was to have any affect on absent class members and the way in which class actions operate in the context of the UCL, or on the remedies available under the UCL, which did not always require actual injury to absent class members.

In response to the second question, the Court concluded that the named plaintiff/class representative must demonstrate actual reliance on the alleged deceptive or misleading representations, consistent with the element of reliance required in common law fraud actions. The Court, however, indicated that while the representative plaintiff must show that the alleged misrepresentation was “an immediate cause of the injury-producing conduct, the plaintiff need not demonstrate it was the only cause.” In other words, it is enough that the plaintiff’s reliance “played a substantial part” and was “a substantial factor, in influencing his decision.”

Finally, while the Court made clear that the new standing requirements of Prop 64 applied only to the named plaintiff/representative, the Court also noted that Prop 64 “explicitly mandates that a representative UCL action comply with Code of Civil Procedure section 382,” which requires that class representative’s claims be typical of the unnamed class members and that common questions of law and fact predominate. See Basurco v. 21^st Century Ins. Co., 108 Cal. App. 4th 110, 117 (2003).

Justice Moreno authored the opinion for a divided Court, and Justice Baxter wrote a concurring and dissenting opinion.