Recent federal Prop. 64 order: Anunziato v. eMachines, Inc.

Thanks to the readers who alerted me to an important federal order interpreting Prop. 64, Anunziato v. eMachines, Inc., 2005 U.S. Dist. LEXIS 28213 (Nov. 10, 2005). (It might actually be Annunziato v. eMachines, Inc., since the name is spelled one way in the caption but differently in the body.) In this order, Judge James V. Selna of the Central District of California "decline[d] to read a reliance requirement into the 'as a result of' language in either Section 17200 or Section 17500." Slip op. at 8. The Court noted that the plain language of Prop. 64 makes no mention of "reliance," then considered a variety of hypothetical fact patterns and the potential impact of imposing a "reliance" requirement. Id. at 2-8, passim. In "numerous situations ... the addition of a reliance requirement would foreclose the opportunity of many consumers to sue under the UCL and the FAL." Id. at 5. The Court concluded:

The goal of consumer protection is not advanced by eliminating large segments of the public from coverage under the UCL or the FAL where they suffer actual harm merely because they were inattentive or for one reason or another lacked the language skills to appreciate the particular unfair or false representation in issue. A construction of these statutes that reduced them to common law fraud would not only be redundant, but would eviscerate any purpose that the UCL and the FAL have independent of common law fraud. .... The Court finds that the remedial purposes of Proposition 64 are fully met without imposing requirements which go beyond actual injury.

Id. at 6-7.

Comments

[John Hurley]

This is an interesting decision. And I think it ultimately ends up in the wrong place. One of the “Findings and Declarations of Purpose” of Proposition 64 was that plaintiffs should at least have Article III standing, and there are a number of federal cases in Claifornia holding that a plaintiff who was not personally misled lacks standing to assert fraud-based claims. For example, Mortera v. North America Mortg. Co., 172 F.Supp.2d 1240, 1243 (N.D. Cal. 2001).

I think the right result lies in a middle ground that a lot of courts are missing, and that parties (on both sides) are not arguing because it doesn't necessarily serve their clients. That is, the "as a result of" language in Section 17204 may have added an "actual" reliance element, but unlike common-law fraud, may not include a "reasonable" reliance element.

Also, at least in the case when an individual is seeking relief on his/her own behalf, the caselaw applying a reasonable-person standard to alleged fraudulent business practices may not apply. Those cases were decied in the context of general-public claims. A person who individually demonstrates actual reliance, even if that reliance was not necessarily reasonbable, would appear to meet all the requirements to assert a claim for "fraudulent" business practices under the amended statute.