This morning, the Supreme Court preserved UCL class actions through its opinion In re Tobacco II Cases, ___ Cal.4th ___ (May 18, 2009). Here are some highlights from the majority opinion:
- The fraudulent business practice prong of the UCL has been understood to be distinct from common law fraud. “A [common law] fraudulent deception must be actually false, known to be false by the perpetrator and reasonably relied upon by a victim who incurs damages. None of these elements are required to state a claim for injunctive relief” under the UCL. (Day v. AT&T Corp. (1998) 63 Cal.App.4th 325, 332; see State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1105.) This distinction reflects the UCL’s focus on the defendant’s conduct, rather than the plaintiff’s damages, in service of the statute’s larger purpose of protecting the general public against unscrupulous business practices. (Fletcher v. Security Pacific National Bank (1979) 23 Cal.3d 442, 453.) [Slip op. at 11 (bold added).]
- [I]n granting defendants’ motion for decertification, the trial court concluded that “the simple language of Prop[osition] 64” required each class member to show injury in fact and causation. Thus, the trial court construed the text of Proposition 64 as requiring absent members to affirmatively demonstrate that they met Proposition 64’s standing requirements — injury in fact and the loss of money or property as a result of the unfair practice. We conclude that the trial court’s construction of Proposition 64 was erroneous. [Slip op. at 14 (bold added).]
- Notably, the references in section 17203 to one who wishes to pursue UCL claims on behalf of others are in the singular; that is, the “person” and the “claimant” who pursues such claims must meet the standing requirements of section 17204 and comply with Code of Civil Procedure section 382. The conclusion that must be drawn from these words is that only this individual — the representative plaintiff — is required to meet the standing requirements. [Slip op. at 15 (bold added).]
- Notably absent from the ballot materials is any indication that the purpose of the initiative was to alter the way in which class actions operate in the context of the UCL. Indeed, other than the requirement that the representative plaintiff comply with Code of Civil Procedure section 382, the ballot materials contain no reference whatsoever to class actions nor is there any indication that Proposition 64 was intended in any way to alter the rules surrounding class action certification. Those rules do not require that unnamed class members establish standing but, insofar as standing is concerned, focus on the class representative. [Slip op. at 18-19 (bold added).]
- Moreover, Proposition 64 left intact provisions of the UCL that support the conclusion that the initiative was not intended to have any effect on absent class members. Specifically, Proposition 64 did not amend the remedies provision of section 17203. This is significant because under section 17203, the primary form of relief available under the UCL to protect consumers from unfair business practices is an injunction, along with ancillary relief in the form of such restitution “as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.” (§ 17203.) [Slip op. at 21 (bold added).]
- Neither form of relief requires that the absent class members, on whose behalf such relief is sought, meet the same standing requirements as are imposed upon the class representative. Injunctive relief operates “ ‘ “in futuro.” ’ ” (Koebke v. Bernardo Heights Country Club (2005) 36 Cal.4th 824, 837.) The purpose of such relief, in the context of a UCL action, is to protect California’s consumers against unfair business practices by stopping such practices in their tracks. An injunction would not serve the purpose of prevention of future harm if only those who had already been injured by the practice were entitled to that relief. Indeed, “[a]n injunction should not be granted as punishment for past acts where it is unlikely that they will recur.” (Choice-in-Education League v. Los Angeles Unified School Dist. (1993) 17 Cal.App.4th 415, 422.) [Slip op. at 21-22 (footnote omitted).] [Slip op. at 21-22 (footnote omitted) (bold added).]
- It is conceivable that a named class representative who met the standing requirements under Proposition 64 could pursue a broad-based UCL class action in which only injunctive relief was sought on behalf of a class that was likely to, but had not yet, suffered injury arising from the unfair business practice. We need not decide here whether such an action would be proper. [Slip op. at 22 n.13.]
- Similarly, the language of section 17203 with respect to those entitled to restitution — “to restore to any person in interest any money or property, real or personal, which may have been acquired” (italics added) by means of the unfair practice — is patently less stringent than the standing requirement for the class representative — “any person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” (§ 17204, italics added.) This language, construed in light of the “concern that wrongdoers not retain the benefits of their misconduct” (Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d 442, 452) has led courts repeatedly and consistently to hold that relief under the UCL is available without individualized proof of deception, reliance and injury. (E.g., Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267; Committee on Children’s Television, Inc. v. General Foods Corp., supra, 35 Cal.3d at p. 211.) Accordingly, to hold that the absent class members on whose behalf a private UCL action is prosecuted must show on an individualized basis that they have “lost money or property as a result of the unfair competition” (§ 17204) would conflict with the language in section 17203 authorizing broader relief — the “may have been acquired” language — and implicitly overrule a fundamental holding in our previous decisions, including Fletcher, Bank of the West and Committee on Children’s Television. Had this been the intention of the drafters of Proposition 64 — to limit the availability of class actions under the UCL only to those absent class members who met Proposition 64’s standing requirements — presumably they would have amended section 17203 to reflect this intention. Plainly, they did not. [Slip op. at 22-23 (footnote omitted) (bold added).]
- Our conclusion with respect to the remedies set forth in section 17203 has nothing to do with the nonrestitutionary disgorgement disallowed in Kraus v. Trinity Management Services, Inc., supra, 23 Cal.4th 116. In Kraus, we concluded that section 17203 does not allow a court to order disgorgement into a fluid recovery fund, e.g., to “compel a defendant to surrender all money obtained through an unfair practice even though not all is to be restored to the persons from whom it was obtained or those claiming under those persons.” (Id. at p. 127.) This prohibition against nonrestitutionary disgorgement did not overrule any part of Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d 442, under which restitution may be ordered “without individualized proof of deception, reliance, and injury if necessary to prevent the use or employment of an unfair practice.” (Bank of the West, supra, 2 Cal.4th at p. 1267.) [Slip op. at 23 n.14 (bold added).]
- The substantive right extended to the public by the UCL is the “ ‘ “right to protection from fraud, deceit and unlawful conduct” ’ ” (Prata v. Superior Court (2001) 91 Cal.App.4th 1128, 1137), and the focus of the statute is on the defendant’s conduct. As we have already observed, the proponents of Proposition 64 told the electorate that the initiative would not alter the statute’s fundamental purpose of protecting consumers from unfair businesses practices. Rather, the purpose of the initiative was to address a specific abuse of the UCL’s generous standing provision by eliminating that provision in favor of a more stringent standing requirement. That change, as we observed in Mervyn’s, did not change the substantive law. (Mervyn’s, supra, 39 Cal.4th at p. 232.) [Slip op. at 27-28 (bold added).]
- We emphasize that our discussion of causation in this case is limited to such cases where, as here, a UCL action is based on a fraud theory involving false advertising and misrepresentations to consumers. The UCL defines “unfair competition” as “includ[ing] any unlawful, unfair or fraudulent business act or practice . . . .” (§ 17200.) There are doubtless many types of unfair business practices in which the concept of reliance, as discussed here, has no application. [Slip op. at 30 n.17 (emphasis added).]
- Moreover, as noted, before Proposition 64, “California courts have repeatedly held that relief under the UCL is available without individualized proof of deception, reliance and injury.” (Massachusetts Mutual Life Ins. Co. v. Superior Court (2002) 97 Cal.App.4th 1282, 1288.) [¶] On the other hand, there is no doubt that reliance is the causal mechanism of fraud. (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1108.) Additionally, because it is clear that the overriding purpose of Proposition 64 was to impose limits on private enforcement actions under the UCL, we must construe the phrase “as a result of” in light of this intention to limit such actions. (People v. Cooper (2002) 27 Cal.4th 38, 45 [“To determine the meaning of a statute, we seek to discern the sense of its language, in full context, in light of its purpose”].) Therefore, we conclude that this language imposes an actual reliance requirement on plaintiffs prosecuting a private enforcement action under the UCL’s fraud prong. [Slip op. at 30-31 (bold added).]
- This conclusion, however, is the beginning, not the end, of the analysis of what a plaintiff must plead and prove under the fraud prong of the UCL. Reliance is “an essential element of . . . fraud . . . . [¶] [R]eliance is proved by showing that the defendant’s misrepresentation or nondisclosure was ‘an immediate cause’ of the plaintiff’s injury-producing conduct. [Citation.] A plaintiff may establish that the defendant’s misrepresentation is an ‘immediate cause’ of the plaintiff’s conduct by showing that in its absence the plaintiff ‘in all reasonable probability’ would not have engaged in the injury-producing conduct.” (Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 1110-1111 (conc. & dis. opn. of Kennard, J.).) [Slip op. at 31 (bold added).]
- While a plaintiff must show that the misrepresentation was an immediate cause of the injury-producing conduct, the plaintiff need not demonstrate it was the only cause. “ ‘It is not . . . necessary that [the plaintiff’s] reliance upon the truth of the fraudulent misrepresentation be the sole or even the predominant or decisive factor influencing his conduct. . . . It is enough that the representation has played a substantial part, and so had been a substantial factor, in influencing his decision.’ [Citation.] [¶] Moreover, a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material. [Citations.] A misrepresentation is judged to be ‘material’ if ‘a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question’ [citations], and as such materiality is generally a question of fact unless the ‘fact misrepresented is so obviously unimportant that the jury could not reasonably find that a reasonable man would have been influenced by it.’ [Citation.]” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 976-977.) Nor does a plaintiff need to demonstrate individualized reliance on specific misrepresentations to satisfy the reliance requirement. .... [Slip op. at 31-32 (bold added).]
- These decisions provide a framework for what plaintiffs must plead and prove in UCL fraud actions in terms of reliance. These cases teach that, while a plaintiff must allege that the defendant’s misrepresentations were an immediate cause of the injury-causing conduct, the plaintiff is not required to allege that those misrepresentations were the sole or even the decisive cause of the injury-producing conduct. Furthermore, where, as here, a plaintiff alleges exposure to a long-term advertising campaign, the plaintiff is not required to plead with an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements. Finally, an allegation of reliance is not defeated merely because there was alternative information available to the consumer-plaintiff, even regarding an issue as prominent as whether cigarette smoking causes cancer. [Citation.] Accordingly, we conclude that a plaintiff must plead and prove actual reliance to satisfy the standing requirement of section 17204 but, consistent with the principles set forth above, is not required to necessarily plead and prove individualized reliance on specific misrepresentations or false statements where, as here, those misrepresentations and false statements were part of an extensive and long-term advertising campaign. [Slip op. at 33-34.]
- Moreover, even assuming that, in light of Proposition 64, the named representatives are no longer adequate representatives of the class because they lack standing, the proper procedure would not be to decertify the class but grant leave to amend to redefine the class or add a new class representative. “This rule is usually applied in situations where the class representative originally had standing, but has since lost it by intervening law or facts.” (First American Title Ins. Co. v. Superior Court (2007) 146 Cal.App.4th 1564, 1574.) We ourselves sanctioned this procedure in a post-Proposition 64 case. (Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 243 [“courts have permitted plaintiffs who have been determined to lack standing, or who have lost standing after the complaint was filed, to substitute as plaintiffs the true parties in interest”].) Accordingly, we reverse the order granting the decertification motion and remand the case for further proceedings to determine whether these plaintiffs can establish standing as we have now defined it and, if not, whether amendment should be permitted. [Slip op. at 34 (bold added).]
So, what does it all mean? It means that, although the named class representatives must meet the standing requirements (which, in UCL "fraudulent" prong cases, includes a showing of "reliance"), for the unnamed class members, the showing required now is exactly the same as what it was pre-Prop. 64. That, after all, is what the Supreme Court held in Mervyn’s. Individualized proof of deception, reliance and injury are not required. After Tobacco, class certification of a UCL claim now should be as easy (or difficult, as the case may be) as it was before Prop. 64.
Kimberly, awesome analysis in such a short time. I read the opinion, and then came here for your take on it and your dissection of the detail. I was not disappointed. Thanks for the hard work.
Posted by: Scott McMillan | Monday, May 18, 2009 at 01:26 PM
Thanks, Scott!
Posted by: Kimberly A. Kralowec | Wednesday, May 20, 2009 at 08:25 PM