International Law

California Unfair Competition Class Standing Hurdle Removed in Tobacco Ad Case

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In a class action, the standing requirements of the California Unfair Competition Law (UCL) apply only to class representatives, not to class members, the California Supreme Court has ruled. The court reversed an order decertifying a class of California smokers on the theory that all class members were required to demonstrate standing.

The smokers alleged that tobacco companies violated the UCL by conducting a decades-long campaign of deceptive advertising and misleading statements about the addictive nature of nicotine and the relationship between tobacco use and disease.

The court further held that a class representative is not required to plead or prove with ?an unrealistic degree of specificity? reliance on particular advertisements or statements when the unfair practice is a fraudulent advertising campaign.

California Proposition 64

California Proposition 64 mandated that a class representative in a UCL action comply with the civil procedural requirements applicable to California class actions. After Prop 64, a UCL class action is a procedural device that enforces substantive law by aggregating many individual claims into a single claim of a representative plaintiff.

These procedural modifications to the UCL, however, left entirely unchanged the substantive rules governing business and competitive conduct. Nothing a business might lawfully do before Proposition 64 is unlawful now, and nothing earlier forbidden is now permitted, the court explained.

Standing

Proposition 64 did not alter accepted principles of class action procedure that treat the issue of standing as referring only to the class representative and not the absent class members, the court found. Imposing an unprecedented standing requirement on unnamed class members would undermine the guarantee made by Proposition 64?s proponents that the initiative would not undermine the efficacy of the UCL as a means of protecting consumer rights.

Requiring all unnamed members of a class action to individually establish standing would effectively eliminate the class action lawsuit as a vehicle for the vindication of such rights. The UCL remedies provision, left unchanged by Proposition 64, offered additional support for the conclusion that the initiative was not intended to have any effect at all on unnamed members of UCL class actions, the court noted.

Causation of Injury?Reliance

Proposition 64 provided that a private suit under the UCL can be brought only by ?a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.? While it was clear that the phrase indicated there must be some connection between the injury and the defendant?s conduct, the parties disagreed about the type of causation the plaintiff must demonstrate.

There is no doubt that reliance is the causal mechanism of fraud, the court said. However, a plaintiff need not demonstrate individualized reliance on specific misrepresentations to satisfy the reliance requirement.

When, as in this case, 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, according to the court. 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, the court added.

The class decertification order was reversed and the case was remanded for further proceedings to determine whether the class representatives could establish standing and, if not, whether leave to amend should be granted to add a new class representative.

The May 18 decision in Tobacco II Cases will be reported in CCH Advertising Law Guide and CCH State Unfair Trade Practices Law.

Full post as published by Trade Regulation Talk on June 04, 2009 (boomark / email).