Client Alert

California Report

9/12/2005

Prop 64

Think Proposition 64 hasn’t made a difference?  Tell that to the plaintiffs’ bar. Before Proposition 64, three leading Southern California plaintiff’s firms routinely pursued claims under California’s unfair competition law, Bus. & Prof. Code §17200 ("UCL"). Just days before the November election, they mass-filed eight hundred or more insurance bad faith suits arising from the San Diego wildfires of 2003 and included a UCL claim in each. Then came the election. A few weeks later, they amended and dropped the UCL claim in every one.

On November 2, 2004, this state’s electorate approved Proposition 64 by a whopping 59% to 41%. This newsletter’s editor was principal author of the measure. Proposition 64 eliminates two unique features of California’s UCL:  "Unaffected-plaintiff" standing and "private Attorney General" actions.

Until Proposition 64, California’s UCL contained the only exception to a rule that has been a foundation of Anglo-American jurisprudence for centuries:  Standing. Usually, only some¬one harmed may sue. But under the UCL, suits could be brought "by any person."   Perfect strangers could sue, and did. Some plaintiff’s lawyers formed for-profit corporations whose only purpose was to bring UCL actions and often had the words "Consumer" or "Justice" in their names, implying some kind of charitable mission.

Now, after Proposition 64, a plaintiff must have suffered "injury in fact" and have "lost money or property as a result of such unfair competition." 

Proposition 64 also eliminated the "representative" action, sometimes called the "private Attorney General" action or "nonclass class."  This licensed "any person" to sue in the name of others and enabled them to leverage non-party claims to induce higher settlements or threaten burdensome discovery. Yet, nothing required the peoples’ self-appointed champion to give any of the spoils back to the folks on whose behalf suit was brought. This spelled "serial litigation," because a defendant who settled or won a judgment could never bar absent claimants from suing again.

Proposition 64 eliminates that. Now, if relief is sought on behalf of others, the claimant must plead, prove, and get a court to certify a real class action.

Is Proposition 64 applicable to cases pending at the time of the election?   Probably. The trial and the appellate courts are split, but most have said yes. A final answer will have to await resolution by the California Supreme Court, which granted review in a case this Firm is handling, Californians for Disability Rightsv.Mervyn’s, No. S131798. A decision is expected next year.

Proposition 64 worked other "quiet" changes that may be less apparent but are no less dramatic. After Proposition 64, a plaintiff must show causation, materiality, proximate cause, and/or reliance. Also, the test under the "fraudulent" prong ("likely to mislead") may have been eliminated. Finally, injunction actions under Section 17200 that are brought over injuries that are merely "threatened" may have gone by the wayside.

For more information on Prop 64, contact William Stern (wstern@mofo.com).

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