In its original version, California’s Unfair Competition Law gave any individual the right to sue on behalf of the general public over any business practice deemed to be "unlawful, unfair or fraudulent" even if the individual had never been injured by the practice. This delegation of the government’s enforcement authority to private individuals was unique to California, and predictably led to “shakedown” lawsuits filed by plaintiffs’ lawyers.
Proposition 64 – the voter initiative passed by the California electorate in 2004 – was supposed to change all that. It amended the standing provision of the UCL to require UCL plaintiffs to have suffered an injury in fact and a loss of money or property as a precondition to bringing a UCL claim. This was intended to eliminate the “private attorney general” lawsuits that had bedeviled many companies doing business in California.
On May 18, in In re Tobacco II Cases, the California Supreme Court decided that Prop 64 didn’t really change much. In a 4-3 decision written by Justice Carlos Moreno, the Court ruled that in a UCL class action, only the named plaintiff must comply with Prop 64’s standing requirement. As Justice Marvin Baxter wrote in dissent, this creates a type of lawsuit that may be unique to California: the “no-injury class action,” in which an individual can be a member of a class in a UCL action even if he or she couldn’t bring a UCL claim in his or her own right. As Justice Baxter noted, this “turns class action law upside down and contravenes the initiative measure’s plain intent.”
The Court did not stop there. It not only stated that absent class members need not satisfy the injury requirement in order to be part of a UCL action, but also suggested that they could be entitled to restitution (the only form of monetary relief allowable under the UCL) “without individualized proof of deception, reliance and injury if necessary to prevent the use or employment of an unfair practice.” This is inconsistent with a wealth of recent California appellate law, including several Supreme Court decisions – for example, Korea Supply Co v. Lockheed Martin Corp., 29 Cal. 4th 1134 (2003) – but it raises the specter of plaintiffs’ lawyers seeking money on behalf of people who have suffered no injury.
The Court did not stop there either. It went on to hold that in lawsuits under the “fraudulent” prong of the UCL, the Prop 64 requirement that a UCL plaintiff have suffered “injury in fact and…lost money or property as a result of” the claimed violation does not require the plaintiff to prove that he or she actually relied on any specific misrepresentation. This will undoubtedly lead the plaintiffs’ bar to argue that not only do class members not need to satisfy Prop 64, but the named plaintiff (who does at least need to satisfy Prop 64) can do so without ever having seen or heard the misrepresentation in issue.
The Court’s decision leaves much to be sorted out by the lower courts. And defense lawyers still retain plenty of arrows in their quivers for defeating UCL claims. But make no mistake – May 18, 2009 was not a good day for California businesses.
