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Only Class Representatives, Not Class Members, Must Have Standing to Sue under California UCL

  • June 18, 2009

In a case with employment class action litigation implications, the California Supreme Court has ruled that the standing requirements for fraudulent business practices class action claims under the California Unfair Competition Law apply only to the representative plaintiffs, not to all class members.  In re Tobacco II Cases, No. S147345 (Cal. May 18, 2009). 

To establish standing, a class representative must demonstrate actual reliance on the statements alleged to be fraudulent; however, the named plaintiff need not plead or prove with “an unrealistic degree of specificity” that he relied on particular statements in a case involving fraudulent advertising.  In so ruling, the Supreme Court limited the effect of Proposition 64, passed by California voters in 2004.  Proposition 64 amended the UCL to permit class actions only where the claimant had in fact suffered an injury and had lost money or property.  Before this amendment, class action claims under the UCL could be brought by “any person” acting for the interests of the “general public.” 

The complaint in this case alleged that the tobacco industry defendants violated the UCL by conducting a decades-long campaign of deceptive advertising and misleading statements about the addictive nature of nicotine and the relationship between tobacco use and disease.  Before the passage of Proposition 64, the trial court had certified the case as a class action.  After Proposition 64 was approved, the trial court granted the defendants’ motion to decertify the class, finding that each class member now was required to show an injury as a result of the alleged unfair competition.  The Court of Appeal affirmed, and the plaintiffs appealed.

The Supreme Court rejected the trial court’s analysis. It found the statute’s plain language did not impose a standing requirement on all class members.  The UCL provides, “any person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of Section 17204 and complies with Section 382 of the Code of Civil Procedure.”  The Court determined that the references to the “person” and the “claimant” referred only to the representative plaintiff.  Thus, the Court concluded only the representative plaintiff must meet the standing requirements.

The Court then found that the legislative history “buttressed” its interpretation of the UCL.  The purpose of Proposition 64 was to limit frivolous lawsuits filed as a means to generate attorney’s fees where no client has been injured in fact and without creating a corresponding public benefit.  The Court noted nothing in Proposition 64 indicated that it meant to alter the way in which class actions operate.  The Court stated, “Those rules do not require that unnamed class members establish standing but, insofar as standing is concerned, focus on the class representative.”

The Court then addressed the requirements for standing in a UCL class action alleging fraudulent business practices.  It found that, although the plaintiff must allege that the defendant’s misrepresentations were an immediate cause of the injury-causing conduct, the plaintiff need not allege that those misrepresentations were the sole cause of the injury.  The Court further noted that, in cases involving a long-term advertising campaign, the plaintiff need not plead with an “unrealistic degree of specificity” that he relied on particular statements.  Last, the Court held that reliance is not defeated merely because there was alternative information available to the plaintiff.

Three Justices dissented.  They found the majority’s decision “turns class action law upside down and contravenes the initiative measure’s plain intent.”  In the dissent’s view, the majority’s interpretation would permit named plaintiffs to pursue claims on behalf of members of the public who have suffered no actual loss.  They argued that the majority’s holding would encourage “the very sort of abusive shakedown suits that Proposition 64 was designed to curb.”

This decision effectively abrogates the limitations imposed by Proposition 64.  Employers can expect significant new class action litigation because the Supreme Court’s decision allows plaintiffs’ attorneys to seek out an “injured” plaintiff to prosecute a class action on behalf of a class of uninjured parties.  Plaintiffs’ attorneys now may have more leverage to seek settlements because of the potential large class size, regardless of the merits of the underlying claims. 

Mia Farber, a Partner in the Firm’s Los Angeles office, noted, “The California Supreme Court has breathed new life into a variety of types of class actions, including employment and unfair business practice cases.  As the dissent noted, class action litigation can now be pursued on behalf of those individuals who did not suffer any actual harm or injury.  This decision undermines the intent and purpose of Proposition 64, which the California voters adopted in 2004 to curtail this sort of litigation.”

We will continue to monitor developments in this area.  If you have questions regarding this decision or class action litigation in California, please feel free to contact a Jackson Lewis attorney.

©2009 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

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