Prop. 64 Applies to Pending Cases
In a decision intended to curb abuses of California’s consumer protection laws and the first judicial test of Proposition 64 standards for consumer class actions, California’s Supreme Court handed down a long-awaited ruling holding that voter-approved changes to the state’s unfair competition
law apply to all cases, not just those that were recently filed. (Californians for Disability Rightsv.Mervyn’s, LLC, 39 Cal. 4th 223 (2006), rehearing denied (Aug. 30, 2006).)
In recent years, California businesses have been besieged by lawsuits filed under the state’s unfair competition law, Cal. Bus. & Prof. Code § 17200, et seq. The UCL, which prohibits "unlawful, fraudulent, and unfair" business practices, allows uninjured parties to sue "on behalf
of the general public" and seek attorneys’ fees under a private attorney general theory. Many lawyers abused these provisions
to extract attorneys’ fees from businesses across the state. The statute was also frequently invoked even where there was
no evidence of injury or harm to consumers.
In November 2004, California voters overwhelmingly passed (59% to 41%) Proposition 64, which added the requirements that plaintiffs
must have suffered "injury in fact," and have lost money or property "as a result of" the wrongs of which they complain.
Proposition 64 also eliminated the "non-class" class aspects of the UCL.
The California Supreme Court held on July 24 that the voter-approved changes to the UCL should be applied to all cases pending
before the courts: "to deny full effect to an initiative measure in which the voters have chosen their own legal representatives
for cases brought ostensibly on their behalf cannot be defended as a plausible interpretation of the measure."
The Mervyn’s appeal was successfully argued by David McDowell, who can be reached at dmcdowell@mofo.com for more information.
The Writ Hits the Fan
Excuse us for cutting into nap time, but in July a California court of appeal in Los Angeles entered one of the most sweeping
pro-defense rulings issued under California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 ("UCL"). Pfizer, Inc.v.Super. Ct., 141 Cal. App. 4th 290 (2006), holds that the new standing rules imposed by Proposition 64 require "actual reliance" and,
furthermore, when a UCL case is brought on behalf of a class, the plaintiff must demonstrate that each absent class member actually relied.
Pfizer manufactures Listerine® mouthwash. Its marketing campaign touted the product as being "as effective as floss" in reducing
plaque and gingivitis, a claim that appeared on bottle labels and television advertising. Plaintiff claimed this falsely implied
that Listerine® could be used in lieu of floss. Presumably believing he could stop flossing and gargle instead, he sued on
behalf of a class of persons who bought Listerine® in California. The trial court certified the class. The appellate court
reversed.
Proposition 64, discussed in the prior article (see "Prop. 64 Applies to Pending Cases"), left several questions unanswered. Pfizer answers the important ones.
First, Pfizer holds that each absent class member must meet the new standing requirements of Proposition 64: "it is a basic principle that
‘[e]ach class member must have standing to bring the suit in his own right.’" (141 Cal. App. 4th at 302 (citation omitted).)
Second, Pfizer holds that "inherent" in the "as a result of" language of Proposition 64 is a reliance requirement: "Accordingly, the requirement a plaintiff suffered ‘injury in fact . . . as a result the fraudulent business practice or false advertising (§§ 17204, 17535, italics added) means that Galfano or others must have
purchased the Listerine in relianceon the allegedly false or misleading representations or advertisements and as a result
suffered injury." (Id. at 307.)
Third, Pfizer holds that the test of "fraudulent" business practices and false advertising—whether the public is "likely to be misled"—is
overruled: "[T]he mere likelihood of harm to members of the public is no longer sufficient for standing to sue. Persons who
have not suffered any injury in fact and who have not lost money or property as a result of an alleged fraudulent business
practice cannot state a cause of action merely based on the ‘likelihood’ that members of the public will be deceived." (Id. at 304.) This is a significant change. It means that cases like Chernv.Bank of America, 15 Cal. 3d 866 (1976), are overruled.
The lesson? Remember to floss.
The Firm co-authored an amicus brief on behalf of the California Chamber of Commerce, California Manufacturers and Technology Association, Civil Justice Association of California, and California Bankers Association. For more information, contact Will Stern at wstern@mofo.com.
Up in Smoke
On September 5, another California court of appeal in San Diego agreed with Pfizer and affirmed a trial court’s decision to decertify a California class in light of Proposition 64. (In re Tobacco II Cases, No. D046435 (Sept. 5, 2006).) In that case, the trial court certified a class of smokers who were exposed to defendants’
California advertisements from 1993 to 2001 denying or disputing the health hazards and addictiveness of cigarette smoking
and the targeting of minors. After the passage of Proposition 64, however, the defendant tobacco companies filed a motion
to decertify the class, which the trial court granted. On appeal, the ruling was affirmed. "[T]he named plaintiff as well
as class members must have suffered an injury in fact or lost money or property."
In this case, defendants’ marketing campaign consisted of myriad representations occurring over decades. As the court observed,
"[i]ndividual determinations would have to be made as to when the class members began smoking, what representations they were
exposed to, what other information they were exposed to, and whether their decision to smoke was a result of defendants’ misrepresentations
(and thus they suffered an injury due to defendants’ conduct) or was for other reasons. The numerous individual determinations
render this case unsuitable for a class action."
For more information, contact Will Stern at wstern@mofo.com.
