On November 2, 2004, California voters approved Proposition 64 which significantly limits lawsuits brought under California’s Business and Professions Code § 17200, known as the Unfair Competition Law (the “UCL”) and for false advertising under Business and Professions Code § 17500 (“False Advertising Law”).

Under California’s Constitution, Proposition 64 became effective on November 3, 2004. Since that time, there has been a substantial amount of litigation to determine whether or not the limits imposed by Proposition 64 apply to pending cases or whether those limits apply only to lawsuits filed after the election. So far, most trial courts have found that Proposition 64 applies to pending cases, though a minority of courts have found that it does not. The California Supreme Court has yet to rule on this issue.

This article will discuss (1) the limits imposed by Proposition 64, (2) the current debate over whether Proposition 64 applies to pending cases, and (3) the status of existing challenges in the appellate courts.

What Does Proposition 64 Do?

Prior to Proposition 64, any private person could file a lawsuit alleging unlawful, unfair or fraudulent business practices or false or misleading advertising under the UCL. Under California’s UCL and the False Advertising Law, lawsuits could be filed by “any board, officer, person, corporation or association or by any person acting for the interests of itself, its members or the general public.”

Under these statutory schemes, some private plaintiffs were allowed to seek injunctive and monetary relief on behalf of the “general public” without satisfying class action requirements and without having suffered any injury as a result of the challenged conduct. These plaintiffs were allowed to sue to obtain relief on behalf of others even if they never dealt with the defendant. These plaintiffs were not Good Samaritans. Rather, they were motivated by the possibility of recovering substantial attorney’s fees under California’s “private attorney general” statute (CCP Section 1021.5).

Furthermore, some plaintiffs were allowed to allege false advertising even if no consumer was deceived and even if they never relied upon the challenged advertising to buy any products. Some lawsuits were brought over mere typographical errors that did not cause any consumer harm. In these cases, the plaintiffs argued they only had to show that the advertising was “likely to deceive” the public.

All of this changed with Proposition 64. Proposition 64 provides that only those who have suffered “injury in fact” and lost “money or property” as a result of the challenged conduct will be allowed to sue. Plaintiffs attorneys will not be allowed to sue in the name of friends, secretaries and spouses or others who suffered no injury and did not deal with the defendant.

Further, the requirement of showing “injury in fact” and loss of “money or property” will limit questionable false advertising claims brought by private parties. After Proposition 64, private plaintiffs will have to show more than that the challenged advertising was “likely to deceive.” Private plaintiffs now will have to show that they suffered “injury in fact” and “lost money or property” as a result of the false advertising.

Proposition 64 also clearly eliminates representative actions on behalf of the “general public.” Under Proposition 64, the plaintiffs will need to satisfy existing class action requirements in order to obtain any relief on behalf of any other person.

Proposition 64 does not affect lawsuits brought by public prosecutors such as the California Attorney General or District Attorneys. In fact, Proposition 64 could enhance the ability of public prosecutors to bring actions for unfair competition and false advertising because it provides that all civil penalties collected by public prosecutors can only be used to enforce consumer protection laws.

The Current Debate

Proposition 64 was passed to end the prosecution of lawsuits under the UCL and False Advertising Law on behalf of the “general public” and without any showing of injury or lost money or property. Defense lawyers immediately recognized that the rationale and wording of Proposition 64 applied to pending cases as well as future lawsuits. After all, why would the voters have chosen to end lawsuits characterized as frivolous by Proposition 64, but allow pending cases to continue unabated?

The first challenges to pending lawsuits were asserted the day after the election and the approval of Proposition 64. Defense lawyers argued that, because Proposition 64 repealed a statute, that statutory repeal applied to pending cases. Defense lawyers also argued that Proposition 64 should apply retroactively because it made a “procedural change” to existing law. Either argument would apply Proposition 64 to pending cases and would require dismissal of all cases that did not meet the new standing requirements.

The statutory repeal argument is well-settled in California. Although statutes normally operate prospectively, “when a pending action rests solely on a statutory basis, and when no rights have vested under the statute, ‘a repeal of such a statute without a saving clause will terminate all pending actions based thereon.'” (Governing Bd. v. Mann (1977) 18 Cal.3d 819, 829. Where a statutory claim or remedy is withdrawn by an “amendment or repeal” that contains no saving clause, “the new statutory scheme” is properly “applied to pending actions without triggering retrospectivity concerns.” (Brenton v. Metabolife Int’l, Inc. (2004) 116 Cal.App.4th 679, citation omitted; accord, Physicians Com. for Responsible Medicine v. Tyson Foods, Inc. (2004) 119 Cal.App.4th 120, 125 [“repeal” of statutory remedy or claim “presents entirely distinct issues from that of the prospective or retroactive application of a statute”]; Younger v. Superior Court (1978) 21 Cal.3d 102, 109-110 [the repeal of a purely statutory claim or remedy must be applied to all pending cases, unless the repealing or amending statute contains a “saving clause”.) Proposition 64 did not have a savings clause.

Defendants also argued that, even if the Statutory Repeal arguments did not prevail, Proposition 64 should be applied to pending cases under the retroactivity analysis. Where application of a new provision is “procedural in nature,” the “rule [that] a statute should be construed as not operating retroactively absent a clear legislative direction does not apply.” (Kuykendall v. State Bd. of Equalization (1994) 22 Cal.App.4th 1194, 1211 fn. 20.)

The plaintiffs have tried to frame the issue as whether Proposition 64 should be retroactive. According to the plaintiffs, the ordinary rule is that statutory amendments are not retroactive and are presumed to operate prospectively unless there is an express declaration of retroactivity or a clear indication of that retroactivity was intended. The plaintiffs rely principally on Tapia v. Superior Court (1991) 53 Cal.3d 282, 287 and Evangelatos v. Superior Court (1988) 44 Cal.3d 1188.

In addition to dealing with whether Proposition 64 applies to pending cases, the trial courts and the courts of appeal have grappled with whether to allow plaintiff’s attorneys leave to amend to add an injured plaintiff or to add class allegations. In most cases, leave to amend should be denied because adding a new plaintiff would be like starting a case over again from the most part. In most cases, there would be more prejudice to keeping the existing case open, and there should be no prejudice to filing a new case. Nevertheless, it is likely that whether leave to amend is appropriate will depend on the facts and circumstances of each case.

The Current Status

Several trial courts have ruled on whether Proposition 64 applies to pending cases. At least 13 cases have determined that Proposition 64 applies to pending cases. These decisions were rendered by Superior Courts in Los Angeles, San Francisco, San Mateo, San Bernardino, San Diego, and Orange Counties. Only 6 trial courts are known to have ruled that Proposition 64 does not apply to pending cases. The rulings refusing to apply Proposition 64 to pending cases were issued by Superior Courts in Sacramento, Stanislaus, San Bernardino, San Francisco and Orange Counties. A sampling of the reasoning of a few of these cases follows:

In the Bloussant Cases (San Bernardino Case No. JCCP No. 4336), the trial court applied Proposition 64’s new standing requirements to a pending case and granted the defendant’s motion for judgment on the pleadings. The court based its ruling on the Statutory Repeal argument discussed above and found no reason to discuss retroactivity or legislative intent.

By contrast, in California Law Institute v. Visa USA, Inc., (San Francisco Case No. CGC-03-421180), the trial court denied the defendant’s motion for judgment on the pleadings. The court reasoned that “a new ballot proposition is presumed to operate prospectively unless there is either an express declaration of retroactivity or a clear indication that the electorate intended otherwise.” The court relied heavily on a quote from Brenton and Tapia which stated that it is “the effect of the law, not its form or label, that is important for the purposes of this analysis.” After acknowledging that that Proposition 64’s standing limits may be procedural and that the Mann case supported the defendant’s position, the trial court nevertheless ruled that Proposition 64 would not be applied because doing so would have the “effect” of dismissing the action. The court found nothing in the language of the initiative to support retroactive application.

In Spielholz v. Los Angeles Cellular Telephone Co. (Los Angeles Case No. BC186787), Judge McCoy granted the defendant’s motion for judgment on the pleadings and ruled that Proposition 64 applies to pending cases. The court based its ruling on the Statutory Repeal line of cases represented by Younger and Mann.

As can be seen, the California Courts of Appeal and Supreme Court likely will have to resolve this issue. There are at least two cases pending in the Supreme Court which may address whether Proposition 64 applies to pending cases. In one of those cases, review was granted and briefing was submitted on the Proposition 64 issue. The petition for review is pending in the other case.

There are at least 9 cases pending in the Courts of Appeal which have received briefing on the Proposition 64 issue. Eight of those cases are pending in the Fourth Appellate District. One other case is pending in the Third Appellate District. At least two of the cases pending in the Fourth Appellate District have been briefed, argued and submitted and are awaiting a ruling. Two cases in the Courts of Appeal, one in the Second District and the other in the Fourth District, have expressly refused to rule on whether Proposition 64 applies to pending cases even though those issues were fully briefed.

The first appellate decisions have come down and, like the trial courts, are split on whether Proposition 64 should apply to pending cases. In Californians for Disability Rights v. Mervyn’s LLC, Case No. A106199 (February 1, 2005), the First Appellate District held that Proposition 64 did not apply to pending cases. The Mervyn’s case involved a plaintiff that would have lacked standing under Proposition 64. The Court held that a statute is presumed to operate prospectively absent a clear indication by the voters to the contrary. Relying principally on Tapia and Evangelatos, the Court held that there was no indication that Proposition 64 was intended to be retroactive. The Court did not fully discuss the statutory repeal argument except to note that the statutory repeal doctrine conflicted with its analysis. The result in Mervyn’s may be explained by the procedural posture of that case on appeal. In Mervyn’s, the plaintiff obtained a judgment in its favor after a trial prior to the effective date of Proposition 64. The Mervyn’s court seemed to place significance on this fact, believing that applying Proposition 64 to that case would be a retroactive application of the law. The Court ignored that in both Younger and Mann, the Supreme Court had no difficulty applying the Statutory Repeal doctrine in the same procedural posture.

On February 9, 2005, the Second Appellate District answered Mervyn’s in Branick v. Downey Savings & Loan Association, Case No. B172981 (February 9, 2005). The Second Appellate District applied the Statutory Repeal doctrine to hold that Proposition 64 does apply to pending cases. The Court relied on Brenton and Mann and also cited Government Code § 9606 which states that “[p]ersons acting under any statute act in contemplation of [the] power of repeal.” The Court noted that it disagreed with the reasoning in Mervyn’s. The procedural posture in Branick also may have helped the outcome. In Branick, the trial court entered judgment in favor of defendants based on a motion for judgment on the pleadings.

In Benson v. Kwikset (Case No. G030056) (February 10, 2005), the Fourth Appellate District, like the Second Appellate District, held that Proposition 64 applies to pending cases. Like Branick, the Benson case relied on Younger and Mann for its holding. The significance of the Benson decision is that, like Mervyn’s, it involved an appeal from a trial court’s judgment in favor of the plaintiff. Unlike Mervyn’s, the Fourth Appellate District did not let the procedural posture affect the outcome. The Court reversed the trial court’s judgment even though it had previously upheld it on appeal in 2004. The Benson case properly notes that the Mervyn’s decision misunderstood and failed to properly apply the Statutory Repeal Doctrine.

Like the trial courts, the Courts of Appeal have issued conflicting rulings on whether Proposition 64 applies to pending cases. The Supreme Court will need to resolve the conflict presented by Mervyn’s, Branick and Benson.

Authored by:
James M. Burgess


Robert S. Beall, II