Significant new Prop. 64 decision: Pfizer, Inc. v. Superior Court

Yesterday, in Pfizer, Inc. v. Superior Court, ___ Cal.App.4th ___ (Jul. 11, 2006), the Court of Appeal (Second Appellate District, Division Three) addressed a trio of significant and unresolved questions about how the UCL works in the post-Prop. 64 world. The court decided all three questions in the defendant's favor:

(1) In a UCL class action, all class members, not just the representative plaintiff, must have suffered "injury in fact." "We conclude that in order to meet the ‘community of interest’ requirement of Code of Civil Procedure section 382, which requires, inter alia, the class representative to have claims typical of the class, it is insufficient if the class representative alone suffered injury in fact and lost money or property as a result of the unfair competition or false advertising. The class members being represented by the named plaintiff likewise must have suffered injury in fact and lost money or property as a result of such violation." (Slip op. at 5 (emphasis added).) The court rejected the argument that the amendment's plain language—"Actions ... under this section may be prosecuted ... by any person who has suffered injury in fact and has lost money or property as a result of a violation of this chapter"—meant that only the representative plaintiff had to prove "injury in fact." (Slip op. at 13-14.)

(2) The "likely to deceive" standard, which governed UCL "fraudulent" prong cases before Prop. 64, has been abolished. "[T]he mere likelihood of harm to members of the public is no longer sufficient for standing to sue. Persons who have not suffered any injury in fact and who have not lost money or property as a result of an alleged fraudulent business practice cannot state a cause of action merely based on the 'likelihood' that members of the public will be deceived." (Slip op at 5 (emphasis added).) The Court declined to follow any of the post-Prop. 64 decisions that applied the "likely to deceive" formulation (see this post for a list of those decisions). (Slip op. at 15-17.)

(3) Prop. 64 imports a reliance element into the UCL. "[I]nherent in Proposition 64’s requirement that a plaintiff suffered ‘injury in fact ... as a result of’ the fraudulent business practice or false advertising (§§ 17204, 17535, italics added) is that a plaintiff actually relied on the false or misleading misrepresentation or advertisement in entering into the transaction in issue." (Slip op. at 5 (emphasis in original).) The court expressly declined to follow Anunziato v. eMachines, Inc., 402 F.Supp.2d 1133 (C.D. Cal. 2005), and held instead that "the district court's decision in Laster v. T-Mobile USA, Inc. (S.D. Cal. 2005) 407 F.Supp.2d 1181, sets forth the correct interpretation." (Slip op. at 18.) (See these posts for further discussion of Anunziato and Laster.)

The Court concluded by saying:

We recognize this initiative measure, which was promoted as adding a standing requirement to the UCL and FAL, has had the effect of dramatically restricting these consumer protection measures. .... However, this court must take the statutory language as it finds it. Given the new restrictions on private enforcement under the UCL and the FAL, enforcement of these statutes in legitimate cases is increasingly the responsibility of a vigilant state Attorney General and/or local public prosecutors.

(Slip op. at 20.)

If the Pfizer holdings stand up, the effect of Prop. 64 will indeed be quite different from what the electorate was told. The silver lining for plaintiffs is that such amendments cannot possibly be construed as merely "procedural." According to Pfizer, Prop. 64 altered the "fraudulent" prong's "likely to deceive" standard and "added a reliance element to the UCL." (Slip op. at 16-17 (emphasis added).) Those changes are substantive. They cannot be applied to cases filed before the amendments' effective date absent a very clear statement of retroactive intent, which Proposition 64 does not contain.

On the other hand, if the Supreme Court holds that Prop. 64's amendments do apply to previously-filed actions, that would impliedly overrule Pfizer (unless the holding is based exclusively on the so-called "statutory repeal rule," which I consider unlikely for reasons explained here). This whole thing is becoming a Gordian knot.

Comments

[John Hurley]

If the Supreme Court holds that Prop. 64 applies to cases pending at the time of passage, how would this implicitly overrule Pfizer?

[Kimberly]

Unless the decision is based on mechanical application of the so-called "statutory repeal rule," the only way the Supreme Court could hold that the amendments apply to pending cases is by concluding either that (a) the amendments are merely procedural or (b) the voters intended retroactive application. Prop. 64 has no express retroactivity language, or any other unambiguous indicia of retroactive intent. Therefore, if the Supreme Court holds that the amendments apply to pending cases, its reasoning will have to be that the amendments are not substantive, but merely procedural. Pfizer cannot be reconciled with such a holding.

[John Hurley]

Thanks. I see what you are saying now.

One thing to note is that the reliance element described in the Pfizer case is only an actual reliance requirement, not a reasonable reliance requirement. Since the "likely to decieve" standard is out the window, it seems that the "reasonable person" touchstone is also gone.

Unlike common-law fraud, so long as a plaintiff actually relied on a false statement, it seems that a case could be stated even if that reliance was unreasonable. The individual showing required for reliance might cause problems in certifying class actions, but the law could still be very plaintiff-friendly in the case of an individual plaintiff suing for fraudulent business practices.

[Kimberly]

Interesting thought. So the remaining differences between the UCL's "fraudulent" prong according to Pfizer and common-law fraud are (1) the reliance can be unreasonable, so long as it is actual; (2) the strict liability element remains unchanged (in other words, intent to defraud need not be proven); and (3) monetary relief remains limited to "restitution." Any others?

[John Hurley]

I think that's right.

But to refine my previous thought a little bit, I suspect that at some point reasonableness of reliance may get inserted back into the equation.

Reading Pfizer and the new "as a result of" causation element in the UCL, there is no language requiring that a plaintiff's reliance be reasonable. So reasonableness of reliance does not appear to be an element that a plaintiff would have to plead and prove.

But since (following Cortez) equities can be considered by the courts in deciding whether or not to impose UCL remedies, defendants could try to show that a plaintiff's reliance was unreasonable. It wouldn't necessarily defeat a finding of liability, but it might be considered in a balancing of equities on the availability of remedies.

Unreasonable conduct by the plaintiff could effectively become an affirmative defense, even if reasonable reliance is not an element of a prima facia case of fraudulent business practices.