In re Tobacco II Cases, ___ Cal.4th ___ (May 18, 2009)

In a 4-3 decision, the California Supreme Court today reversed a lower court ruling in a false advertising class action pending for more than a decade against the tobacco companies that would have severely restricted consumers’ ability to bring lawsuits under the state’s Unfair Competition Law (UCL) to stop businesses unlawful, unfair and fraudulent practices.

Prop. 64 changed the requirements for the person who brings a UCL action on behalf of others to require that the person was actually injured and lost money and property as a result of the business’s unlawful conduct.  The lower court held, as the tobacco companies argued, that these “standing” requirements apply to all unnamed members of the class.  The California Supreme Court rejected that argument and held that Proposition 64’s standing requirements only apply to the person bringing the class action, and not the unnamed class members.

The Court summarized its holding as follows:

To conclude: (1) there is nothing in the express language of Proposition 64 that purports to alter accepted principles of class action procedure that treat the issue of standing as referring only to the class representative and not the absent class members; (2) nor is there any indication in the ballot pamphlet materials that would have alerted the voters that such alteration in class action procedure was an intended result of passage of the initiative; (3) imposing such a novel requirement is not necessary to remedy the specific abuse of the UCL at which Proposition 64 was directed; (4) but, on the other hand, imposing this unprecedented requirement would undermine the guarantee made by Proposition 64’s proponents that the initiative would not undermine the efficacy of the UCL as a means of protecting consumer rights, because requiring all unnamed members of a class action to individually establish standing would effectively eliminate the class action lawsuit as a vehicle for the vindication of such rights; and (5) the remedies provision of UCL, left unchanged by Proposition 64, offers additional support for the conclusion that the initiative was not intended to have any effect at all on unnamed members of UCL class actions.  (Slip Opinion, pp. 23-24.)

Consumer Watchdog (formerly The Foundation for Taxpayer and Consumer Rights (FTCR)) submitted a “friend of the court” brief siding with plaintiffs in the case to argue that Proposition 64’s standing requirements only apply to the person bringing the suit.  In reaching its conclusion, the Court relied partly on the Prop. 64 ballot materials, which FTCR had submitted to the Court: “We grant the request for judicial notice by amicus curiae the Foundation for Taxpayer and Consumer Rights to judicially notice the text of Proposition 64, the ballot pamphlet argument for and against the proposition, and the analysis of the initiative by the Legislative Analyst.”  (Slip. Opn., p. 18, fn. 10.)

In another part of the opinion, the Court ruled that to bring a claim under the fraud prong of the UCL or under the False Advertising Law (FAL), a representative plaintiff must show that he or she actually relied on the misrepresentation in making his or her decision, meaning that: “the representation has played a substantial part, and so had been a substantial factor, in influencing his decision.” (Slip. Opn., p. 31.)  This does not, however, require that the person “allege that th[e] misrepresentations were the sole or even the decisive cause of the injury-producing conduct.”  (Slip. Opn., p. 33.)

The Court further explained that

…where, as here, 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 or statements. Finally, an allegation of reliance is not defeated merely because there was alternative information available to the consumer-plaintiff, even regarding an issue as prominent as whether cigarette smoking causes cancer.  (Slip Opn., p. 33.)

The Court was clear in limiting its holding to the named class representative and not the unnamed class members.  For other members of the class, the same standards as existed prior to Prop. 64 apply:

Similarly, 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.) This language, construed in light of the “concern that wrongdoers not retain the benefits of their misconduct” (Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d 442, 452) has led courts repeatedly and consistently to hold that relief under the UCL is available without individualized proof of deception, reliance and injury. (E.g., Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267; Committee on Children’s Television, Inc. v. General Foods Corp., supra, 35 Cal.3d at p. 211.) Accordingly, to hold that the absent class members on whose behalf a private UCL action is prosecuted must show on an individualized basis that they have “lost money or property as a result of the unfair competition” (§ 17204) would conflict with the language in section 17203 authorizing broader relief — the “may have been acquired” language — and implicitly overrule a fundamental holding in our previous decisions, including Fletcher, Bank of the West and Committee on Children’s Television. Had this been the intention of the drafters of Proposition 64 — to limit the availability of class actions under the UCL only to those absent class members who met Proposition 64’s standing requirements — presumably they would have amended section 17203 to reflect this intention. Plainly, they did not.  (Slip Opn., pp. 22-23, footnotes omitted.)

In its 1992 decision in Bank of the West, the California Supreme Court stated the standard for the fraud prong and false advertising law as follows:

In drafting the act, the Legislature deliberately traded the attributes of tort law for speed and administrative simplicity. As a result, to state a claim under the act one need not plead and prove the elements of a tort. Instead, one need only show that “members of the public are likely to be deceived.” (Chern v. Bank of America, supra, 15 Cal.3d at p. 876; see also Committee on Children’s Television, Inc. v. General Foods Corp., supra, 35 Cal.3d at p. 211.)

(Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267.)

In today’s ruling, the Court quoted this standard from its 2002 decision in Kasky v. Nike:

“[T]o state a claim under either the UCL or the false advertising law, based on false advertising or promotional practices, ‘it is necessary only to show that “members of the public are likely to be deceived.’ ” ’ ” (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 951.)  (Slip Opn., p. 10.)

Thus, the Court’s ruling today imposes a reliance requirement on the named class representatives (but not unnamed members of the class) that did not exist prior to Proposition 64.  The Court did not give much explanation of why this requirement should be imposed on named class plaintiffs.  Indeed, the Court recognized that the phrase [“as a result of”] is not defined by other provisions of the statute” and that

the ballot materials do[] not shed any light on whether it was the intent of the electorate in enacting Proposition 64 to impose actual reliance where a UCL claim is based on fraud.17Causation merits only a passing mention in the Attorney General’s summary. The summary describes the purpose of the initiative as limiting the right of an individual to sue by allowing private enforcement of the UCL only by a person who “was actually injured by, and suffered financial/property loss because of, an unfair business practice.” (Voter Information Guide, Gen. Elec. (Nov. 2004) official title and summary, p. 38, italics added.) In describing the changes to the UCL that would result from the initiative, the analysis by the Legislative Analyst does not refer to causation at all: “This measure prohibits any person, other than the Attorney General and local public prosecutors, from bringing a lawsuit for unfair competition unless the person has suffered injury and lost money or property.” (Voter Information Guide, Gen. Elec. (Nov. 2004), analysis of Legislative Analyst, p. 38.)

Moreover, as noted, before Proposition 64, “California courts have repeatedly held that relief under the UCL is available without individualized proof of deception, reliance and injury.” (Massachusetts Mutual Life Ins. Co. v. Superior Court (2002) 97 Cal.App.4th 1282, 1288.)  (Slip Opn., pp. 29-30.)

Even though it could not find any support in the language of the statute, the ballot materials, or prior case law, the Court in today’s ruling nevertheless summarily concluded that “because it is clear that the overriding purpose of Proposition 64 was to impose limits on private enforcement actions under the UCL, we must construe the phrase ‘as a result of’ in light of this intention to limit such actions. … Therefore, we conclude that this language imposes an actual reliance requirement on plaintiffs prosecuting a private enforcement action under the UCL’s fraud prong.”  (Slip Opn., pp. 30-31, emphasis added.)

Consumer Watchdog had argued in its brief to the Court that the same “likely to deceive” standard for UCL fraud and false advertising claims, as set forth in Bank of the West and other pre-Proposition 64 California Supreme Court cases, should continue to apply to the named representative plaintiffs in addition to unnamed class members.