On May 18, 2009, the California Supreme Court clarified and liberalized the standards to apply where a plaintiff seeks to bring representative claims under the state’s Unfair Competition Law, CAL. BUS. & PROF. CODE, § 17200, et seq. (“UCL”). In Re Tobacco II Cases, S147345 (Cal. May 18, 2009). Plaintiffs alleged the tobacco industry defendants violated the UCL by conducting a decades-long campaign of deceptive advertising about the addictive nature of nicotine and the relationship between tobacco use and disease. Before California voters passed Proposition 64, the trial court had certified the case as a class action. After Proposition 64, the trial court decertified the class on the ground that each class member was now required to show that he or she actually purchased cigarettes as a result of the alleged deceptive advertising, which could not be proven on a class-wide basis. The California Court of Appeals affirmed this order, and an appeal to the California Supreme Court followed.

Summary of the May 18, 2009 Holding

In a 4-3 ruling, the California Supreme Court reversed the decertification order, finding that the trial court had erred in disbanding the 2001 class brought against nine tobacco companies. Although the Court agreed that private class action plaintiffs must prove injury-in-fact to bring claims under the UCL, it held this requirement applied only to the named class representative, not absent class members. The Court also clarified the causation requirement for purposes of establishing a private plaintiff's ability to sue on behalf of others under the UCL. Specifically, it found that such plaintiff alleging a misrepresentation as the basis of his or her UCL action must demonstrate that he or she actually relied on the allegedly deceptive statements, but did not need not plead or prove such reliance with “an unrealistic degree of specificity.” Slip op. at 2.

The Court then remanded the case to the trial court to evaluate whether the named plaintiff could satisfy this standard. The Court also said that if the plaintiff were not able to meet this standard, the trial court should not decertify the case, but allow plaintiff's counsel to redefine the class or find another class plaintiff. Id. at 34.

No Standing Required of Absent Class Members

The first question addressed by the Court was, “who in a UCL class action must comply with Proposition 64’s standing requirements, the class representatives or all unnamed class members, in order for the class action to proceed?” Id. at 2. Section 17204 of the UCL, as amended by Proposition 64, provides that actions for relief shall be prosecuted exclusively by certain designated government representatives or “by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” Section 17203 – the provision authorizing representative actions – further provides that “[a]ny 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 concluded that only the representative plaintiff is required to meet these requirements. In reaching this conclusion, it first observed that the references in Section 17203 to one who wishes to pursue UCL claims on behalf of others are in the singular. Id. at 15. According to the Court, “the plain language of the statute [lent] no support to the trial court’s conclusion that all unnamed class members in a UCL class action must demonstrate section 17204 standing.” Id. at 15-16. The Court also held that nothing in Proposition 64’s language, or in the ballot materials, supported the trial court’s conclusion that every class member must establish standing. Id. at 161. While Proposition 64 was intended to curb the abuse of the UCL by unscrupulous lawyers who exploited the former generous standing requirement to file “shakedown suits,” it was not intended to curb the broad remedial purpose of the UCL or the use of class actions to effect that purpose. Id. at 17.

The Court also pointed out that Proposition 64 did not amend the remedies provision of Section 17203. This was significant to the Court because under Section 17203, the primary form of relief is an injunction against the alleged unfair competition and restitution necessary to restore whatever may have been acquired as a result of the alleged unfair competition. Neither form of relief, said the Court, required absent class members to have actually relied on the alleged deception because injunctive relief operates prospectively. Id. at 21. The Court reasoned that injunctions would not prevent future harm if only those who had already been injured could obtain relief. Id. at 21-22.

For these and other reasons, the Court concluded “Proposition 64 was not intended to, and does not, impose section 17204’s standing requirements on absent class members in a UCL class action where class requirements have otherwise been found to exist.” Id. at 28.

The “Injury-in-fact” Standard for Named Plaintiffs in UCL Representative Actions

The second question the Court answered was the meaning of the phrase “as a result of” in Section 17204’s requirement that a private enforcement action under the UCL can only be brought by “a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” Defendants argued the phrase required a showing that the plaintiff actually relied on the alleged deceptive advertising. Id. at 29. Plaintiffs argued the phrase only required a showing that plaintiff was one of the people from whom defendant obtained money while engaging in the alleged unfair practice. Id.

Answering this question, the Court noted that the phrase was not defined by the statute, and the ballot materials also did not shed light on the voters' intent. Id. at 29. The Court further stated that California courts had “repeatedly held that relief under the UCL [was] available without individualized proof of deception, reliance and injury.” Id. at 30 (quoting Massachusetts Mutual Life Ins. Co. v. Superior Court, 97 Cal. App. 4th 1282, 1288 (2007)).

On the other hand, the Court said, there was “no doubt that reliance is the causal mechanism of fraud.” Id. at 30. Further, as the “overriding purpose” of Proposition 64 was to impose limits on private enforcement actions, the Court said it would construe the provision in light of that intention. Id. at 30-31. Consequently, the Court concluded, the “as a result of” language imposed an “actual reliance requirement on plaintiffs prosecuting a private enforcement action under the UCL’s fraud prong.” Id. at 31.

Going on, however, the Court stated its conclusion was “the beginning, not the end, of the analysis of what a plaintiff must plead and prove under the fraud prong of the UCL.” Id. Relying on two prior tobacco case decisions, the Court stated a plaintiff did not need to demonstrate individualized reliance on specific misrepresentations to satisfy the reliance requirement. Id. at 32, citing Boeken v. Philip Morris, Inc., 127 Cal. App. 4th 1640 (2005); Whiteley v. Philip Morris, Inc., 117 Cal. App. 4th 635 (2004). In both cases, plaintiffs testified that their decision to begin smoking was influenced and reinforced by cigarette advertising, though neither could point to any specific advertisement. According to the Court, Boeken and Whiteley taught that while a plaintiff must allege the defendant’s misrepresentations were an immediate cause of the injury-causing conduct, the plaintiff is not required to allege the misrepresentations were the sole or even the decisive cause. Slip op. at 33. Further, where a plaintiff alleges exposure to a long-term advertising campaign, the plaintiff is not required to plead with an "unrealistic degree of specificity" that the plaintiff relied on particular advertisements. Id. at 33. In addition, “an allegation of reliance is not defeated merely because there was alternative information available to the plaintiff.” Id.

Based on the above, the Court reversed the order decertifying the class and remanded the case for further proceedings to determine whether plaintiffs could establish standing and, if not, whether amendment should be permitted to redefine the class or add a new class representative. Id. at 34.

Potential Implications

Tobacco II does preserve the intent behind Proposition 64 to prevent the filing of spurious lawsuits by plaintiffs without standing, acting as private attorneys general under the UCL. The requirement that the named plaintiffs have standing will serve as a gate-keeper function to protect against some of these abuses, as will the causation standard articulated by the California Supreme Court.

That said, it is disappointing that the majority also concluded that unnamed class members in private UCL class actions need not meet the injury-in-fact and causation requirements of Proposition 64. As the dissent points out, though the majority holding may have "sympathetic appeal" in that case, it will apply equally to less "egregious cases" and may well "invite[] the very kinds of mischief Proposition 64 was intended to curtail." Dissent op. at 3. Plaintiffs' counsel may seize on the ruling to bring private UCL class actions in frivolous cases. It remains to be seen whether the other class action requirements – including the requirement to identify an "ascertainable class" – will provide a sufficient check on the abuses Proposition 64 was intended to curb.