This morning, March 3, 2009, the California Supreme Court heard argument in In re Tobacco II Cases, a case that will shape how parties litigate California Unfair Competition Law (“UCL”) claims. At issue is 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 is garnering considerable attention.

Question 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 is 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.

Report From This Morning’s Argument

At the argument, Daniel Collins represented Phillip Morris, and Mark Robinson represented the plaintiffs. Justice Moore, of the 4th Appellate District, replaced Justice George who recused himself. Justice Kennard presided as Chief Justice.

Mr. Robinson focused his argument on the Mervyn’s decision1, where the Court held that Proposition 64 did not change the substantive requirements of a UCL cause of action. According to Mr. Robinson, if the tobacco companies’ theory were correct, the UCL would be reduced to “nothing more than a fraud cause of action that does not allow damages.” Justices Baxter and Chin responded with a series of questions focusing the lack of symmetry that would result if absent class members could use the UCL to bring claim they would not have had standing to maintain individually. Mr. Robinson countered that the UCL “has always been broad” and has never included a reliance requirement. Justice Werdegar offered the insightful query, “As a practical matter, what did Proposition 64 change?” Plaintiff’s counsel responded that it changed standing requirements. When pressed, however, he had no answer for how the statute’s new reference to California Code of Civil Procedure Section 382’s class action requirements changed the UCL.

Mr. Collins ably fielded a number of questions including: from where in the statute he derives his conclusion that all class members must show injury in fact (Justice Kennard); whether a request for injunctive relief as opposed to restitution affected standing (Justice Moore), and whether the term “claimant” refers only to a representative class member (Justice Chin). The theme of Mr. Collins’ responses was that a class member cannot use the class action mechanism to recover under a claim that he or she could not have brought individually. Therefore, Section 17204’s new language mandating compliance with C.C.P. § 382 could only be read to require that all class members must have suffered injury in fact as a result of the allegedly deceptive conduct. This message appeared to resonate with Justice Baxter, who aptly summarized Mr. Collins’ position.

In the end, the Court will balance Mr. Robinson’s argument that Proposition 64 did not change the substance of the UCL against the truism that allowing absent class members to recover for claims they could not have maintained individually would render the UCL’s new reference to C.C.P. 382 a nullity. Regardless of the outcome, as both parties acknowledged, this decision will have a dramatic impact on California class action litigation.

The California Channel, a public affairs cable network, broadcast live coverage of oral argument on many cable stations. It also carried a live streaming Webcast at www.calchannel.com.

We will post the decision as soon as it is released, which should be within the next 90 days.

Additional Materials

The Supreme Court’s website allows users to obtain additional information and sign-up for e-mail notices about this case.

The lower Court’s ruling is available at courtinfo.ca.gov.