California Supreme Court Issues Significant Ruling on UCL Standing
By Nancy Berner and Kent Sprinkle
On May 18, 2009, the California Supreme Court issued a significant interpretation of Proposition 64, the 2004 initiative that limited class action claims brought pursuant to the Unfair Competition Law (the “UCL,” i.e., Business and Professions Code § 17200, et seq.). Employers likely recall that Prop. 64 required UCL class action plaintiffs to suffer an actual injury to have the standing necessary to maintain a claim, rather than simply seeking recovery on behalf of the general public. The Tobacco plaintiffs provide an instructive example: the original class included not only smokers, but Californians who had been exposed to tobacco ads. To some extent, the California Supreme Court’s decision arguably turns back the clock -- at least in consumer class action suits under the UCL -- by loosening the standing requirement of Prop. 64.
In the 4-3 decision of In Re: Tobacco II Cases, the Supreme Court overturned the trial and appellate courts, both of which permitted the defendant tobacco companies to decertify a class initially certified prior to passage of Prop. 64. The trial court originally granted certification to a class brought “on behalf of the General Public of the State of California.” Following the 2004 passage of Prop. 64, defendants moved successfully for decertification, arguing that the standing requirement of the “new” UCL, as amended by Prop 64, applied to every class member. In other words, in order to certify the putative UCL claims, each member of the class had to demonstrate injury in fact and a loss of money or property as a result of the alleged unfair practices.
The California Supreme Court disagreed, and held (among other things) that “the standing requirements are applicable only to the class representatives, and not all absent class members.” Referencing both the plain language of the statute and the ballot materials describing the Proposition, the Court concluded “that the initiative was not intended to have any effect on absent class members.” It is notable, however, that the opinion was far from unanimous at 4-3, with the dissenting opinion, authored by Justice Baxter, joined by Justices Chin and Corrigan, expressly disagreeing with the majority's conclusions about Prop 64. The dissent reasoned that: "[e]ven if the majority’s holding has some sympathetic appeal on the particular facts alleged here, the rule the majority announces will apply equally to less egregious cases, where it invites the very kinds of mischief Proposition 64 was intended to curtail. Accordingly, I cannot join the majority’s erroneous determination, which turns class action law upside down and contravenes the initiative measure’s plain intent." In addition, the Chief Justice did not participate, having recused himself from the matter. In his place and voting with the majority was Justice Moore, Associate Justice, Court of Appeal, Fourth Appellate District, Division 3, assigned by the Acting Chief Justice.
While obviously clearing the way for pursuit of consumer class action cases under the UCL, the impact on California employers is less dire. Specifically, Tobacco held that each class member need not demonstrate a reliance on misleading ads. However, putative employee class actions rarely invoke the UCL’s prohibition of fraudulent practices and/or false advertising in seeking class certification of employment-related claims. Instead, employee's putative class complaints often simply append a UCL claim to the more common allegations of Labor Code violations in an effort to extend the statutory recovery period. Nonetheless, given the popularity of including a UCL claim in civil complaints of all varieties, employers must keep a wary eye on this breed of putative class actions.