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May 2009

California Supreme Court Issues Important Ruling Giving New Life to "Consumer Protection" Class Actions


By Mark V. Berry

The California Supreme Court has weighed in on a closely watched dispute involving "consumer protection" class actions that has been simmering since California voters passed Proposition 64 in November 2004. The ruling handed down today gives new life to class actions based on alleged misrepresentations even after Proposition 64. That Proposition amended California's Unfair Competition Law (UCL) to require that a plaintiff must show he or she "has suffered injury in fact and has lost money or property as a result of . . . unfair competition." The UCL is a "consumer protection" statute that broadly proscribes "any unlawful, unfair or fraudulent business act or practice." Proposition 64 was enacted to curtail the abusive use of the UCL in situations where in fact no one had been injured (including so-called "no injury" class actions).

Almost immediately after the passage of Proposition 64, California courts began grappling with the issue of whether every member of a consumer class action must have suffered "injury in fact" and whether in class actions involving alleged misrepresentation of a product, must every member of the class have actually relied on the manufacturer's representations. The implications, as to the future of consumer protection class actions under the UCL, of imposing these two requirements on all class members are enormous. Individualized determinations of reliance and causation probably make such class actions non-certifiable per se. California has been a popular jurisdiction for single state consumer class actions since the Class Action Fairness Act constrained multi-state class actions in state courts.

Following Proposition 64, some California courts of appeal have required proof of reliance and causation on the part of every class member, whereas another court of appeal had suggested that an inference of common reliance might be applied in cases involving a single material misrepresentation. The Supreme Court granted hearings on these key cases in order to resolve these two important issues in conjunction with class actions brought by consumers against Tobacco companies alleging decades long advertising campaigns misleading consumers about the dangers of smoking. (In re Tobacco II cases, S147345)

Today the California Supreme Court finally spoke on the interplay of Proposition 64 and class actions. By a bare majority, the Supreme Court (4-3) reversed the court of appeals ruling decertifying the class action, and remanded for further proceedings. The Court ruled that only the plaintiff class representative must meet the requirements imposed by Proposition 64, and that a lesser burden was appropriate as to proof of reliance and causation in misrepresentation cases. The Court summed up its ruling as follows:

"We conclude that standing requirements are applicable only to the class representatives, and not all absent class members. Second, what is the causation requirement for purposes of establishing standing under the UCL, and in particular what is the meaning of the phrase "as a result of" in section 17204? We conclude that a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions. Those same principles, however, do not require the class representative to plead or prove an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements when the unfair practice is a fraudulent advertising campaign."

A strongly worded dissent argues that "the majority's holding encourages the very sort of abusive shakedown suits that Proposition 64 was designed to curb" and "turns class action law upside down and contravenes the initiative measure's plain intent."

In light of this ruling by the California Supreme Court, we probably can expect to see a significant increase in class action activity in the California courts.