A divided California Supreme Court has issued its highly anticipated decision in In re Tobacco II Litigation (No. S147345) (“In Re Tobacco II ”), a case construing the limitations that Proposition 64 (“Prop 64”) imposed on a plaintiff’s ability to bring, and ultimately have certified, a false advertising class action under California’s Unfair Competition Law (Cal. Bus. & Prof. Code Section 17200 et seq. (“UCL”)). The court’s 4-3 opinion circumscribed Prop 64’s effect more narrowly than expected. The decision has significant potential implications for defending class UCL claims going forward.
The underlying case was a purported false advertising class action. Plaintiffs claimed that certain tobacco companies had violated the UCL by allegedly engaging in long-standing advertising campaigns that misrepresented the dangers of tobacco products and cigarette smoking.
The court’s decision addressed two main issues. The first was whether Prop 64’s new standing requirements had incorporated a causation requirement into the UCL, so that plaintiffs bringing claims for false advertising and other alleged deceptive practices must establish actual reliance in order to have standing to bring a claim. The court concluded that it did.
The key language, new from Prop 64, was the requirement that a plaintiff have “suffered injury in fact and  lost money or property as a result of” the deceptive practice before the person could bring a claim. Bus. & Prof. Code §17204. The court agreed with defendants that the “phrase ‘as a result of’ introduced a tort causation element into UCL actions,” and that, in the context of alleged deceptive practices, this meant “actual reliance.” The sufficiency of that reliance, from a causation perspective, would be judged against the same “substantial factor” test used in other tort contexts. At least in connection with “long-term” advertising campaigns, however, the plaintiff would not need to allege reliance on a particular advertisement or statement with “an unrealistic degree of specificity.”
The second issue was whether Prop 64’s new standing requirements were limited to the named plaintiff(s) in a purported class action, or whether every purported class member must demonstrate standing as well. In false advertising cases, for example, this could mean the difference between having to certify a traditional fraud claim, where individualized reliance is required for each class member, or potentially having to certify a more traditional (at least pre-Prop 64) “representative UCL claim. For these latter claims, assuming the lead plaintiff has standing, the showing for class purposes may turn more on whether each class member has been exposed to advertising that is “likely to deceive,” rather than whether they were actually deceived by the advertising or not.
The court concluded that the standing requirement was limited to the lead plaintiff only. The court, over a vigorous dissent, reasoned that this interpretation was more consistent with the plain language of the initiative, the ballot materials from Prop 64 and the historically broad purposes of the UCL.
Given the divided court, and the fact that the swing vote was from an appellate court justice sitting by designation (the chief justice had recused himself from the case), In re Tobacco II may not be the Supreme Court’s last word on the issue. That being said, however, the decision raises immediate implications for defending UCL class actions going forward, particularly in the false advertising arena.
At minimum, strategies focused on challenging the lead plaintiff—case management orders focusing on the individual claims first, summary judgment on the lead plaintiff’s claims, challenges to the lead plaintiff’s representativeness and adequacy as a class representative—take on heightened importance, given the court’s clear holding that a showing of actual reliance is, indeed, required.
Of similar heightened importance are strategies for defeating class certification that—without diminishing the many other arguments and tools available—highlight the lack of uniform exposure to the alleged false or misleading advertising, rather than the individualized inquiries associated with proving reliance. In any case, the impact of the court’s decision on future class action litigation under the UCL, certainly as a matter of strategy, if not substance, will likely be significant.