Wage Law

In a close 4-3 vote, the Supreme Court has rendered its decision in the landmark case In re Tobacco II Cases (2009) __ Cal.App.4th __, and it's a huge victory for class action plaintiffs in California. Because the opinion has such broad implications for future unfair competition claims, it is of interest to wage and hour lawyers, even though the case has nothing to do with wages or employment disputes. 

Prior to the 2004 amendment of the unfair competition law by Proposition 64, “[a]ctions for relief [under the UCL could be] prosecuted ... by the Attorney General or any district attorney or by any county counsel ... [or] by a city prosecutor ... [or] by a city attorney ... or upon the complaint of any board, officer, person, corporation or association or by any person acting for the interests of itself, its members or the general public.”  Former Business & Professions Code § 17204; see also Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 227. After Proposition 64, the section provides

“[a]ny person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of Section 17204 and complies with section 382 of the Code of Civil Procedure”

In other words, the plaintiff must be a “person who has suffered injury in fact and has lost money or property as a result of [such] unfair competition.” Business & Professions Code § 17204, as amended by Prop. 64, § 3.

The plaintiffs in In re Tobacco Cases II alleged that the tobacco industry defendants 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.  Prior to passage of Proposition 64, the trial court had certified the case as a class action.  The class was defined as “All people who at the time they were residents of California, smoked in California one or more cigarettes between June 10, 1993 to April 23, 2001, and who were exposed to Defendants’ marketing and advertising activities in California.”  After Proposition 64 was approved, the trial court granted defendants’ motion to decertify the class on the grounds that each class member was now required to show an injury in fact, consisting of lost money or property, as a result of the alleged unfair competition.  The Court of Appeal affirmed.

On review, the Supreme Court addressed two questions: 

1. Who in a UCL class action must comply with Proposition 64’s standing requirements, the class representatives or all unnamed class members, in order for the class action to proceed? 

We conclude that standing requirements are applicable only to the class representatives, and not all absent class members. 

2. 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.  Accordingly, we reverse the order of decertification to the extent it was based upon the conclusion that all class members were required to demonstrate Proposition 64 standing, and remand for further proceedings regarding whether the class representatives in this case have, or can demonstrate, standing. 

This doesn't entirely save the case for the plaintiffs just yet, but their prospects, as a class, seem good. In granting the motion to decertify the class, and in concluding that the entire class was required to demonstrate standing, the trial court’s order also stated, “Further, it appears from the record that not even Plaintiffs’ named representatives satisfy Prop[osition] 64’s standing requirement.”  The trial court did not elaborate on the basis for its conclusion, so the appellate courts cannot ascertain whether or not the named plaintiffs are adequate post-Proposition 64 class representatives. However, assuming that they 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.

Taking all this in, one must conclude that the case is now likely to proceed as a class action with new or additional plaintiffs who can meet the new standing requirements. You can download the full text of the opinion here in PDF or Word format. For more detailed analysis, we recommend visiting the UCL Practitioner blog, where yesterday's post on the opinion is sure to be followed up with more links and analysis in the days to come.

People who read this blog often ask "where do you find the time?" The answer, sometimes, is "we can't." But now that we've taken our leave of absence, bookended by the argument and opinion in the Tobacco II Cases, we are working on catching up with all the really important wage and hour cases and developments that we've been tracking since March. There's been a lot to talk about, and we'll have it here soon.