This morning, May 18, 2009, the California Supreme Court issued its ruling in In re Tobacco II Cases, a case that will shape how parties litigate California Unfair Competition Law (“UCL”) claims. At issue was the viability of UCL actions that seek to certify a class despite the fact that not all putative plaintiffs suffered injury as a result of a defendant’s allegedly unfair practice. Since California’s infamous UCL (also known as Bus. & Prof. Code, § 17200 et seq.) is often used to add broad “consumer fraud” claims to product liability lawsuits against the life sciences industry (as well as many other industries), the outcome of In re Tobacco II garnered substantial attention.

Questions Presented

(1) In order to bring a class action under the UCL, as amended by Proposition 64, must every member of a proposed class action have suffered “injury in fact,” or is it sufficient that only the class representative comply with that requirement?

(2) In a class action based on a manufacturer’s alleged misrepresentation of a product, must every member of the class have actually relied on the manufacturer’s representations?

Background of the Case

The gravemen of the plaintiffs’ Complaint was that defendant tobacco manufacturers and researchers engaged in a decades-long conspiracy to conceal the health effects and addictiveness of cigarettes and, in so doing, made numerous false and misleading statements to consumers.

The Court of Appeal unanimously affirmed the trial Court’s holding that every class member must have suffered injury in order to maintain a class action under the UCL.

The California Supreme Court Ruling

The Court answered the above questions as follows:

(1) “[S]tanding requirements are applicable only to the class representatives, and not all absent class members.” In re Tobacco II Cases, slip Op. at p. 2 (Cal. May 18, 2009).

The Court also repeated the “likely to deceive” standard, and concluded “the language of section 17203 with respect to those entitled to restitution — to restore to any person in interest any money or property, real or personal, which may have been acquired” (italics added) by means of the unfair practice — is patently less stringent than the standing requirement for the class representative — “any person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” (§ 17204, italics added.) .

(2) “[A] class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions.” A class representative, however, need not plead or prove that they actually relied on a particular advertisement or statement when the unfair practice is a fraudulent advertising campaign. Id.

As to whether class representatives actually have standing, the court did conclude that Prop. 64 “imposes an actual reliance requirement on plaintiffs prosecuting a private enforcement action under the UCL’s fraud prong. This conclusion, however, is the beginning, not the end, of the analysis of what a plaintiff must plead and prove under the fraud prong of the UCL. . . .While a plaintiff must show that the misrepresentation was an immediate cause of the injury-producing conduct, the plaintiff need not demonstrate it was the only cause. ‘It is not . . . necessary that [the plaintiff’s] reliance upon the truth of the fraudulent misrepresentation be the sole or even the predominant or decisive factor influencing his conduct. . . . It is enough that the representation has played a substantial part, and so had been a substantial factor, in influencing his decision.’ [Citation.] [¶] Moreover, a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material. . . .Nor does a plaintiff need to demonstrate individualized reliance on specific misrepresentations to satisfy the reliance requirement.” Id. at p. 31.

Additional Materials

The opinion is available at the judicial branch website and copies are available at the Supreme Court Clerk’s Office.

For a summary of the oral argument in this matter, please see "California Supreme Court Hears Landmark Consumer Fraud Case".

The lower Court’s ruling is available here.