Client Alert

Prop 64 Test Case Decided in California Supreme Court

7/24/2006
Morrison & Foerster represented retailer Mervyn’s in decision holding Prop 64 amendments to California’s Unfair Competition Law (Section 17200) apply to all cases, not just those recently filed.

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 has 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. 

The decision in Californians for Disability Rights v. Mervyn’s was successfully argued by Morrison & Foerster on behalf of San Francisco-based retailer Mervyn’s LLC.

In recent years, California businesses had been besieged by lawsuits filed under the state’s Unfair Competition Law, Cal. Bus. & Prof. Code §17200, et seq.  The 17200 statute, 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 have abused these provisions to extract attorneys’ fees from businesses across the state.   The statute was also frequently invoked  by parties targeting retailers in class action cases, even where there was no evidence of injury or harm to consumers – in many cases, it was impossible even to see any inconvenience to consumers.

In November 2004, California voters overwhelmingly passed (59% to 41%) Proposition 64, which raised the bar in 17200 cases by adding requirements that plaintiffs must have suffered "injury in fact," as well as 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.  First, the amendments eliminated the ability of individual plaintiffs to pursue relief on behalf of the general public.  Second, the amendments require, as a prerequisite to seeking relief for others, that plaintiffs meet the heightened standing requirements and comply with the class action standards. 

Since its passage, more than a dozen appellate court decisions have addressed whether Proposition 64’s reforms apply to cases that were pending on the date it became law.  Plaintiffs argued that despite the overwhelming preference expressed by voters, actions filed before the passage of the Proposition 64 should be exempt from its terms.  Defendants said that elimination of the most abused provisions of the UCL should apply to all actions.  The appellate courts came to different conclusions on this issue. 

The California Supreme Court has resolved this debate, holding that under well established principles of California law, the voter-approved changes to the UCL should be applied to all cases pending before the courts.  The Court stated:  "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." 

In a companion case, Branick v. Downey Savings & Loan Assn., ___ Cal.4th ___ (July 24, 2006), the Court also holds that a trial court has discretion to grant leave to amend to add an affected plaintiff.

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