The California Supreme Court finally decided whether Proposition 64 ("Prop. 64") applies to actions pending at the time it was passed in November, 2004. Prop. 64 limited private actions under the Unfair Competition Law ("UCL"), Bus. & Prof. Code § 17200, et seq. to those who have "suffered injury in fact and lost money or property as a result of" unfair competition or false advertising. Since the plaintiffs in many UCL actions pending at the time of its passage did not meet this requirement, this raised the issue of whether Prop. 64 applies to such pending actions. The California lower courts had split on the issue, although a majority had concluded that Prop. 64 did apply to pending actions.

In California for Disability Rights v. Mervyn’s LLC, Case No. S131798 (July 24, 2006), the California Supreme Court held that Prop. 64 did apply to pending actions. The Court, however, rejected defendant’s argument that the language of Prop. 64 itself compelled this result. It held that Prop. 64 did not impose new or different liabilities based on past conduct, but only prevented uninjured persons from suing for restitution on behalf of others. Thus, Prop. 64 was a change in the standing rules only which, under its prior precedents, should apply to pending cases. In a companion decision, the Court also held that plaintiffs in such pending actions may be permitted to amend their Complaints to substitute a competent Prop. 64 plaintiff who had suffered injury. Branick v. Downey Sav. & Loan, Case No. S132433 (July 24, 2006).  Branick further holds, however, that the decision to permit such amendment rests with the trial court in its discretion and the new plaintiff is not permitted to "state facts which give rise to a wholly distinct and different legal obligation against the defendant."

In another significant development, a California Court of Appeal held that the injury in fact requirement also applies to purported class members and that plaintiffs bringing false advertising claims under the UCL must show they actually relied on the false or misleading representation in entering into the transaction at issue. Pfizer, Inc. v. Superior Court, Case No. B188106, Second Appellate District (July 11, 2006). These issues arose in the context of a class action filed after the passage of Prop. 64 on behalf of consumers alleging misrepresentations in the advertising and sale of Listerine mouthwash. Prior to Prop. 64, plaintiffs did not need to show reliance in such cases but only a likelihood that members of the public would be deceived. Although Prop. 64 clearly requires the plaintiff in a representative action to show injury-in-fact, two open issues were whether the injury requirement also applied to class members and whether the injury requirement meant that reliance would now be required in false advertising cases. This Court of Appeal answered both questions affirmatively.

The Court of Appeal reasoned that since post Prop. 64 representative actions must meet class action requirements, and one of those is that plaintiff must have claims "typical" of the class, the class members must also have suffered injury in fact. The Court of Appeal further held that the "likely to deceive" standard could not be reconciled with Prop. 64’s new standing and causation requirements. Focusing on the Prop. 64 language that plaintiffs must show injury in fact … as a result of the fraudulent practice, the Court of Appeal held that such plaintiffs "or others" must show they purchased Listerine in reliance on the false advertising and as a result suffered injury. The Court of Appeal thus held the trial court must vacate its order granting class certification and enter a new order denying the motion.

The overall impact of Pfizer is to make it virtually impossible for a court to certify class actions for false advertising or other fraudulent conduct under Section 17200 et seq. California class action law, like federal law, requires that common questions of fact and law predominate over individual questions and that plaintiff’s claim be typical of the class members before a class can be certified. Given the need of each class member to show individual injury and reliance, the predominance and typicality requirements are unlikely to be satisfied in such class actions.

Authored by:
Carlton A. Varner