Dear California Supreme Court: Did Prop 64 Impose A Reliance Requirement?

by Brian Wolfman

Public Citizen and the Center for Auto Safety, with the able representation of California consumer lawyer Jeff Fazio, filed an amicus request for review in the California Supreme Court today in a case concerning the scope of California’s consumer protection laws.

As many of you are aware, in 2004, California voters approved (by roughly a 60-40 margin) Proposition 64, which amended California’s Unfair Competition Law and a related provision regarding unfair advertising (collectively referred to here as the “UCL”).  Prior to Prop 64, the UCL, as conceived by the California Legislature and construed by the California courts, had been regarded as one of the nation’s most plaintiff-favorable, consumer-friendly consumer protection statutes.  Prop 64 does a number of things generally aimed at making it more difficult for individual plaintiffs to enforce the UCL’s substantive provisions.

Prop 64’s most important provision, and the one addressed here, puts an end to individual "private attorney general" actions under the UCL – cases in which an individual sues as a representative of the public allegedly harmed by unfair or deceptive acts and practices.  In such a representative action, the individual plaintiff acts as if she were a public official, such as the state Attorney General.  Under this private attorney general model, the individual plaintiff need not prove that she suffered injury.  And such a representative action is not a class action.  Members of the public are not formal parties to the action, and the court can adjudicate the legality of the defendant’s conduct without making class-action-type findings (such as numerosity and commonality).

Prop 64 changed all that.  Under Prop 64, an individual suing to enforce the UCL must have “suffered injury in fact and ha[ve] lost money or property as a result of . . .  unfair competition.”  Moreover, the plaintiff may only represent others if the traditional class action requirements have been met.  Prop 64 does not change the rules regarding public enforcement.  The Attorney General and various other public officials may continue to bring representative UCL actions, just as they could prior to Prop 64.

These procedural changes regarding standing to sue under the UCL have had, and will continue to have, a large impact on private enforcement of the UCL, the ramifications of which will depend in large part on whether public officials step up their enforcement.  If any reader has empirical or anecdotal information in that regard, I urge them to share it.

Meanwhile, defendants have begun to argue that Prop 64 also wrought substantive changes to the UCL.  Specifically, they argue that because Prop 64 requires the plaintiff to have suffered injury “as a result of” a UCL violation, the plaintiff must also prove reliance.  So, for instance, it would not be enough that the plaintiff “lost money” because the seller had charged the plaintiff $20 when its advertisements said the product cost $10; the plaintiff would have to show that she had relied on the advertisements in purchasing the product.  This notion, I believe, runs headlong into a basic premise of modern state consumer protection laws, and the Federal Trade Commission Act on which they are loosely based: that such laws were needed to overcome the onerous requirements of common-law fraud, particularly the need to show reliance.

Nevertheless, one California Court of Appeal has accepted this argument.  See Pfizer, Inc. v. Superior Court, 141 Cal. Rptr. 3d 840 (Cal. App. 2 Dist. 2006); see also In re Tobacco II, __ Cal. Rptr. 3d ___, 2006 WL 2535256 (Cal. App. 4 Dist. Sept. 5, 2006).  As indicated at the top of this post, Public Citizen Litigation Group and the Center for Auto Safety have asked the California Supreme Court to review this decision.  That request for review is linked at the top of this post.

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Under this private attorney general model, the individual plaintiff need not prove that she suffered injury.

[Mark Schuldenfrei]

Not being an attorney, I still wanted to answer your request for anecdotal information - in case it might be relevant. I've linked to a transcript of the hearing I refer to, above, and again here: http://home.jtan.com/~cellio/bod/transcript-5-5

The case was:
N0. 739306 heard in Superior Court of California, Monica Cellio et al v The Society For Creative Anachronism, Inc., et al.

The SCA Inc is a silly little non-profit which was founded to support medieval and early renaissance re-enactment. I've enjoyed the hobby it supports for years. It is a 501(c)3 and a California non-profit, and has been in existence for over 35 years.

It's by-laws include a specific requirement that members (not statutory members, but donors that it calls members) may inspect the books of account.

In 1994, the SCA announced some radical changes and restructuring that were required based upon newly discovered fiscal liabilities. The quarter before that it had reported that finances were fine and normal.

A number of us objected, and tried to see the fiscal books of account. And were refused. We eventually filed for a writ of mandamus (which was granted) to see the books. Our costs and fees were awarded to us based upon the Public Attorney General statutes.

(In my opinion, I think the internal changes and refusals were because the books were an uninterpretable mess.)

The corporation instituted many fiscal changes in response to that suit, and on the whole made the organization a bit more transparent and responsive. And certainly, more responsible.

If I can answer any questions, please feel free to ask.