"In Loss for Big Tobacco, Calif. Supreme Court Loosens Standing to Sue Under Proposition 64"

In an article in this morning's Recorder, Mike McKee writes: "Big Tobacco and other major businesses took a hit Monday when the California Supreme Court ruled that class actions over alleged fraud can go forward, even if it's impossible to tell whether every plaintiff was harmed by deceptive ads."

And the Daily Journal reports on the "Big Win for Plaintiff's Bar in Class Action Case" (subscription).  Laura Ernde writes:

Consumer class-action lawsuits are alive and well in California after a 4-3 decision Monday from the state Supreme Court that limited the reach of a 2005 voter initiative targeting frivolous lawsuits.

The ruling was a big win for plaintiff's attorneys, who feared the court would make it nearly impossible for them to use the state's unfair competition law to hold businesses responsible for false advertising claims.

The Los Angeles Times reports today that "Calif. top court revives class action against tobacco industry" (with comments from both Will Stern and Sharon Arkin, who are frequent co-speakers on UCL panels).  A short AP article appeared yesterday afternoon on the websites of the San Francisco Chroncile and the Sacramento Bee, and Bloomberg News ran a story. 

In the blogosphere, Cal Biz Lit has two posts on the opinion, and the Consumer Law & Policy Blog has a short report.

Comments

[Andrew Sussman]

No doubt this decision favored the plaintiffs' bar in California. But a second reading suggests that Tobacco II won't help UCL class action plaintiffs much in federal courts.

As Justice Baxter noted in dissent,the majority reached its result by disregarding FRCP 23's "commonality" and "typicality" requirements for class certification -- and it is very, very difficult to imagine how either can be met without some showing at the class certification hearing that the accused advertisements were a cause of the decisions by the proposed class members to purchase the advertised goods -- as the representative must show to establish standing.

Since in federal court class certification is a matter of procedure, not substantive law, no federal court sitting in diversity should be bound by Tobacco II's ruling in this regard. It remains to be seen whether the majority or dissenting opinions prove more persuasive there.

[Mark from LA]

I'm not sure I agree with Mr. Sussman's post. The federal courts are bound by the California Supreme Court's substantive conclusion that the focus under the UCL is the defendant's conduct, and the goal is preventing/stopping conduct that violates the UCL. According to the California Supreme Court, whether conduct violates the UCL (because, for example, it's shown to be "fraudulent" or unlawful) does not depend on whether whether absent class members have already been "harmed" by or relied upon it. The Court concluded that, as a matter of substantive UCL law, a putative class member need not demonstrate actual reliance/causation. That substantive interpretation of CA law cannot be altered under the guise of analyzing typicality and commonality. I can't fathom why class treatment would be improper because the class representative needs to prove MORE for his own claim than needs to be proven for the class members.

I do believe, however, that it's possible that the REMEDY awarded by state and federal trial courts, as part of their equitable discretion, may not automatically be full restitution in cases where judges believe that awarding such restitution might be inequitable or unconstitutionally harsh (assuming the due process analysis applies to equitable restitutionary relief in addition to punitive damages), etc.

Clearly, however, the decision kills the defense argument that INJUNCTIVE relief can't or shouldn't be pursued or awarded in a class action because some absent class members may not be able to demonstrate they were harmed by the UCL violation. Corporations may want to start considering whether they want to continue spending hundreds of millions of dollars for questionably truthful advertising. The pay-off for such advertising may no longer be worth the price.

[Mark from LA]

One more thing, as most of us know - typicality and commonality are pretty loose standards under Rule 23.

[Chris from L.A.]

I agree with Andrew Sussman that there is a serious issue whether this decision will be followed by federal courts, given that it seems to make some radical changes to standard class action law.

There is also a question in mind as to whether this decision will be followed by the California Supreme Court itself. This was a 4-3 decision with one of the 4 being a non-regular member of the Court, Judge Moore sitting in for Chief Justice George, who presumably recused himself.

If C.J. George agrees with the majority, then the decision will be followed. If, however, he agrees with the dissent, then this decision may have a short life, depending upon how committed the dissenters and George are to stare decisis.

[The Complex Litigator]

Mr. Sussman's comments may have some pragmatic accuracy, in that the federal district courts in California have been trending towards a more restrictive application of California law, but the view is not supported by existing authority. A significant number of federal decisions address imputation of classwide reliance so long as materiality is established. In those decisions, the class representative has to satisfy actual standing requirements that are merely presumed for the balance of the class.

[Darrin Lincoln]

As I read the opinion, the Court has substantively held that a judge has the power to craft a UCL remedy class-wide, once the representative establishes his or her own standing, without proof that each unnamed class member relied upon the alleged false advertising or otherwise lost money or property because of the false advertising. In other words, the Court returned the substantive elements of a UCL claim, in terms of absent class members, to how it was before Prop 64. Am I missing something? If this is the holding, then that's a finding of substantive, not procedural law, and federal courts sitting in diversity are bound by it.

Therefore, when a federal court applies the Rule 23 test for certification, it cannot now find class certification is inappropriate based upon individiualized issues of absent class member reliance/causation/injury, since substantively such evidence is no longer required for their UCL claims or for the trial court to fashion a class-wide remedy.

As Kimberly notes, the class representative must still prove, under Prop 64, that he or she has UCL standing (lost money or property as the result of the UCL misconduct, etc.), is an adequate and typical representative, and numerosity exists. But traditional commonality and superiority arguments that individualized questions of class member reliance/causation/injury exist making class treatment inappropriate should no longer block certification of UCL cases.

[Mark from LA]

Chris, setting aside stare decisis (which is hard to do), Chief Justice George is a big advocate for access to the courts. The dissenters aren't.

[Andrew Sussman]

If as Mr. Lincoln states (and I agree) that "typicality" remains a matter of threshold proof to establish a class in federal court, then the issue I posited above remains. In FRCP 23 jurisprudence, "typicality" requires that the class members would have had causes of action against the defendant if they, individually, were suing. That is based on Article III's standing requirement (which does not apply in state courts). Numerous federal cases to this effect are cited in Justice Baxter's Tobacco II dissent.

Tobacco II expressly does not require "typicality" of the class representative's and the class member's claims -- at least as far as "partial reliance on the accused advertisement" goes -- for a valid UCL class to be certified under Code Civ. Proc. Sec. 382, which lacks an express "typicality" requirement. In deciding certification state courts look to FRCP 23 for guidance, not as binding law.

But FRCP is binding in federal court and "typicality" remains a necessary element of proof for federal class certification. A class plaintiff representative is unlikely to prove "typicality" without evidence that the class members, like the representative, relied at least in part on the ads.

Tobacco II clarified what must be pled to state a valid UCL false advertising claim. That is a matter of substantive law. But class certification remains a procedural issue. When in federal court Tobacco II's procedural implications collide with Article III and its jurisprudence, Tobacco II probably won't prevail.

UCL class action defendants now have even more reason than before to seek removal, and plaintiffs now have even more reason to oppose it.

[Kimberly A. Kralowec]

Typicality does not require that the claims be identical. Now, the class representative has to prove more (not less) than the members of the class in order to establish his or her case. The evidence needed to prove the class claims is a subset of what the representative must prove to establish his or her own claims. This does not destroy typicality under either state or federal law, nor did the Tobacco opinion hold that typicality need not be established under section 382. If the class representatives had to prove less than the class members, there might be a typicality problem, but not here.

[Andrew Sussman]

True, federal court "typicality" doesn't require that the representative and class members' claims be identical. But it does require that if the lawsuit were not a class action, the members would have had individual Article III "injury in fact" standing to sue for themselves on the claim. This standard is unlikely to be met just by arguing the causation inferences that Tobacco II now allows for class members, but not for class representatives.

Any class plaintiff arguing for federal class certification without pleading and threshold proof of these things does so at her own peril -- regardless of the more lenient class pleading and certification requirements in state court.

[Chris from L.A.]

To The Complex Litigator: Your claim that classwide reliance is imputed so long as materiality is established may be true under federal law, because federal law accepts the "fraud on the market" theory. But the California Supreme Court has rejected fraud on the market. There is no presumption of reliance under California law.

[Chris from L.A.]

Kimberly: I don't agree with your argument that there is no typicality problem if the class representative has to prove more than other class members. Suppose the class representative has to prove an extra element (X) that the other class members do not have to prove. If there is a good defense showing that the class representative cannot prove X, then that will mean that the class representative cannot recover, and non-recovery by the class representative will presumably be imputed to the other class members (because that's how class actions are supposed to work.) But if the hypothesis is that the other class members should be able to recover without proving X, why should the class representative's failure to prove X drag them down? Bottom line: if the class representative has to prove more than the other class members, there is a potential typicality problem. Further bottom line: as the dissenters said, you mess up class action law if apply different substantive elements of the claim to the class representative vs. other class members.

[Kimberly A. Kralowec]

In response to Andrew: Tobacco itself cited significant federal authorities (not state ones) holding that standing need not be separately established for every class member. E.g., Slip op. at 20-21 (citing federal cases).

In response to Chris: "Moreover, a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material." Tobacco, slip op. at 31 (quoting Engalla v. permanente Medical Group, 15 Cal.4th 951 (1997)). The Supreme Court in Vasquez applied this principle to classwide proof in a fraud case.

In further response to Chris: The requirement that the class representative establish actual reliance in a UCL "fraudulent" prong case is not an "element" of the claim. It's necessary to prove standing only. To clarify my earlier comment, the need for the class representative to prove an additional fact(standing) above and beyond the actual elements of the claim (which are identical for the class representative and the class members) does not destroy typicality. If the class representative cannot prove standing, then you never get to the point of class certification.