United States: California Court Severely Limits Some Consumer Class Actions

For years, Business & Professions Code sections 17200 et seq., known as the Unfair Competition Law ("UCL"), and 17500 et seq., known as the False Advertising Law ("FAL") were the darlings of the plaintiffs' bar because they allowed certain relief against businesses based solely on a showing that a particular business practice was "likely" to deceive consumers. No proof of actual deception, causation or injury was required. Moreover, any person, whether or not a victim of the challenged conduct, had "standing" to bring an action seeking relief on behalf of the "general public" and could do so without the certification of a class action and without even meeting the requirements normally required for the maintenance of a class action.

In response to various abuses, California voters passed Proposition 64 in November of 2004. By that ballot initiative, the statutes, insofar as they apply to private individuals, but not to the attorney general or other law enforcement officials, were amended to limit standing to "any person who has suffered injury in fact and has lost money or property as a result of" a statutory violation. Bus. & Prof. Code sections 17204, 17535.

Proposition 64 also required representative actions to comply with the requirements of the class action statute: "Any person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of [the respective statute] and complies with Section 382 of the Code of Civil Procedure [the class action statute]...." Bus. & Prof. Code sections 17203, 17535.

Commentators have speculated whether the statutory language limiting standing to persons "who have suffered injury in fact" and lost money or property "as a result of" the violation would be read so as to require proof of actual "reliance" and resulting "causation" as has traditionally been required in common law fraud actions.

Not only would such a requirement be a dramatic departure from pre-Proposition 64 case law; it would make class action prosecution of most consumer claims under the statutes difficult, if not impossible. That is because the requirement that each class member prove that he or she relied upon the offending practice or statement, and then acted upon it to his or her detriment, would mean as a practical matter that the individualized proof issues in the lawsuit would overwhelm the common issues, making class certification inappropriate under Code of Civil Procedure section 382.

In Pfizer, Inc. v. Superior Court (filed July 11, 2006), the Second District Court of Appeal granted a peremptory writ and ordered decertification of a consumer class action brought under the UCL and FAL based on this very reasoning. The court held that the standing requirements of Proposition 64 apply not only to the named class representative seeking to bring the class action, but to every member of the proposed class itself.

Thus, a plaintiff who himself or herself meets the "actual injury" requirement cannot represent a class of others who were merely "likely" to be deceived. The court noted that a class representative's claims must be "typical" of those of other class members. It then reasoned that if only the class representative suffered actual injury, then by definition the class representative's claims would be atypical of the claims of other proposed class members who were merely likely to be deceived.

Although the Pfizer court said its ruling was "without prejudice to [plaintiff] bringing a new motion for class certification" consistent with the principles of the ruling, the opening left by the court may be more theoretical than real. By holding that the "likely to deceive" standard no longer applies in UCL and FAL actions, the court has eliminated the primary distinction between proving a UCL or FAL violation and proving a common law fraud claim. Common law fraud claims are often unsuitable for class treatment because proving reliance and causation as to each class member means that numerous individualized proof proceedings will be required. Thus while the language of Proposition 64 contemplates that a representative UCL or FAL claim may be appropriate if the class action requirements of Code of Civil Procedure 382 are met, the Pfizer court's ruling, if followed by other courts of appeal or ultimately by the Supreme Court, means that those requirements may seldom, if ever, be met.

Companies sued in UCL and FAL class actions now have an appellate decision they can rely upon in seeking early dismissal of those claims, whether by demurrer or by opposition to a class certification motion

Brandon Wisoff is a partner with Farella Braun + Martel in San Francisco, California. He has a broad-based commercial trial practice both in state and federal courts.  Mr. Wisoff has extensive experience representing both plaintiffs and defendants in complex class action, securities, commodities, antitrust, financial institution and unfair business practices litigation. 

Farella Braun + Martel was founded in 1962 and maintains offices in San Francisco and St. Helena, California. The firm represents clients throughout the United States and abroad in sophisticated business transactions and high-stakes commercial, civil and criminal litigation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.