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Mervyn’s Class Action Defense Case-Californians for Disability Rights v. Mervyn’s: California Supreme Court Holds Proposition 64 Applies “Retroactively” To Section 17200 Unfair Competition Law (UCL) Claims

California Supreme Court’s Decision Adds “Standing” to Class Action Defense Arsenal Against UCL Claims Pending at Time of Proposition 64’s Passage

California’s Unfair Competition Law (UCL), California Bus. & Prof. Code, §§ 17200 et seq., was enacted “to protect consumers and competitors” alike from unfair competition in commercial markets for goods and services “by promoting fair competition,” Kasky v. Nike, 27 Cal.4th 939, 949 (Cal. 2002). While government entities may enforce the provisions of the UCL, California law also permits private parties to enforce its terms. Generally, however, the UCL was not intended to provide a means of redressing a personal injury; rather, California’s statutory scheme permits a party on behalf of the public (other consumers or competitors) to enjoin an unlawful or unfair business practice. These so-called “representative actions” are often filed as class actions. The California Supreme Court today resolved the issue of whether Proposition 64, approved in November 2004, applies to cases pending at the time of its passage. Californians for Disability Rights v. Mervyn’s, ___ Cal.4th ___ (Cal. July 24, 2006).

The scope of the UCL is extremely broad. It defines “unfair competition” to “include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.” The Supreme Court has referred to this as “sweeping language” and declared that it is intended to cover “‘anything that can properly be called a business practice and that at the same time is forbidden by law.'” Bank of the West v. Superior Court, 2 Cal.4th 1254, 1266 (Cal. 1992) (citation omitted). As the court explained, “[i]n essence, an action based on Business and Professions Code section 17200 to redress an unlawful business practice ‘borrows’ violations of other laws and treats these violations, when committed pursuant to business activity, as unlawful practices independently actionable under section 17200 et seq. and subject to the distinct remedies provided thereunder.” Farmers Ins. Exchange v. Superior Court, 2 Cal.4th 377, 383 (Cal. 1992) (citation omitted).

As originally enacted, the UCL authorized “any person acting for the interests of itself, its members or the general public” (former § 17204). The law did not require that the plaintiff suffer any injury or damage, or otherwise be “aggrieved” in order to have standing to sue. See AICCO, Inc. v. Insurance Co. of North America, 90 Cal.App.4th 579, 592 (Cal.App. 2001); Consumers Union of United States, Inc. v. Fisher Development, Inc., 208 Cal.App.3d 1433, 1439 (Cal.App. 1989). Not surprisingly, a cottage industry quickly arose consisting of “recidivist plaintiffs” who wandered from store to store looking for some excuse to file suit “on behalf of the public.” In 2004, California voters passed Proposition 64 to require, inter alia, plaintiffs under the UCL demonstrate standing to sue by showing that they have “suffered injury in fact [or] lost money or property as a result of unfair competition”: the question was whether this standing requirement applied retroactively to cases pending at the time of Proposition 64’s passage. Slip Opn., at 1-2. The Supreme Court concluded that it did. Id., at 8-11.

In essence, the Supreme Court held that the statutory changes brought about by Proposition 64 simply “apply” to pending cases – technically, it did not hold that the new standing requirements applied “retroactively.” Slip Opn., at 8. As the Court explained, Proposition 64 simply “withdraws the standing of persons who have not been harmed to represent those who have,” id., at 9. The Supreme Court continued:

But the section need not for that reason be described as operating retroactively. For a lawsuit properly to be allowed to continue, standing must exist at all time until judgment is entered and not just on the date the complaint was filed.

Thus, the significant changes to the standing requirements for UCL claims apply to pending cases not because the statutory changes are being given retroactive effect, but because the plaintiffs no longer have standing presently to continue to prosecute the matter.

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