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California Court Agrees With Defense: Holds Both Class Action Plaintiff And Class Members Must Have Suffered Injury In Fact, And Both Must Have Standing Which Requires Detrimental Reliance On Allegedly False Advertising, In Order To Warrant Certification

Pfizer v. Superior Court: Proposition 64 Requires Class Action Representatives and Class Members Satisfy Injury in Fact and District Court Exercise of Discretion to Select Class Action Attorneys Best Able to Represent Absent Class Members is Generally Not Subject to Appellate Review: Class Action Defense Issues

California’s Unfair Competition Law (UCL), Cal. Bus. & Prof. Code, §§ 17200 et seq., and false advertising statute, id., §§ 17500 et seq., were altered fundamentally by the passage of voter-initiate Proposition 64 in November 2004. In January 2005, a putative class action lawsuit was filed in California state court against Pfizer under California’s UCL and false advertising law (FAL) on the ground that it had “marketed Listerine in a misleading manner by indicating the use of Listerine can replace the use of dental floss in reducing plaque and gingivitis.” Pfizer, Inc. v. Superior Court, ___ Cal.App.4th ___ (Cal.App. July 11, 2006), Slip Opn., at 2. (Prior to Proposition 64, UCL claims were brought as “representative actions”; Proposition 64 amended the UCL and FAL so as to require plaintiffs in such actions to satisfy the requirements for class action lawsuits. See Bus. & Prof., Code, §§ 17203 [UCL], 17535 [FAL].) The trial court certified class action status, describing the class as “all persons who purchased Listerine, in California, from June 2004 through January 7, 2005.” Id. The defense filed a petition for writ of mandate, and the appellate court reversed.

In seeking class certification, plaintiff claimed inter alia that his claims were “typical” of the class; the defense disagreed. Pfizer argued that individual issues would predominate over common questions of fact (as detailed in the “Note” below). Slip Opn., at 7. Nonetheless, the trial court certified “a broad class, on an opt-opt basis,” though it noted that whether Proposition 64 amended the standing requirements for class members in UCL class actions is “an open issue.” Id., at 7-8. After carefully analyzing the issue, the California appellate court held that the standing requirements for UCL class actions had been amended by Proposition 64: “Proposition 64 now prohibits any person, other than the Attorney General or local public prosecutors from bringing a lawsuit under the UCL or the FAL unless the person has suffered injury and lost money or property as a result of such violations.” Slip Opn., at 11 (citation omitted).

The Court easily disposed of plaintiff’s argument that only he, as the class representative, needed to meet the new standing requirements established by Proposition 64, explaining at page 14:

It is a basic principle that “[e]ach class member must have standing to bring the suit in his own right.” . . . This is because a class action is “merely a procedural device for consolidating matters properly before the court.” . . . [¶] If [plaintiff] Galfano alone, but not class members, suffered injury in fact and lost money or property as a result of Pfizer’s alleged unfair competition or false advertising, then by definition his claim would not be typical of the class. Rather, Galfano’s claim would be demonstrably atypical. (Italics in original, citations omitted.)

The Court next addressed whether the pre-Proposition 64 test of the false advertising law – viz., whether members of the public were “likely to be deceived” – survived the initiative’s passage. Slip Opn., at 14-15. The Court concluded that it did not because the class members (and class representative) were required to show “injury in fact” – the mere “likelihood” of harm is no longer sufficient: “Persons who have not suffered any ‘injury in fact’ and who have not lost money or property as a result of an alleged fraudulent business practice or false advertising . . . cannot state a cause of action based merely on the ‘likelihood’ that members of the public will be deceived.” Id., at 15 (citations omitted).

Finally, the Court agreed with the defense that “Proposition 64 added a reliance element to the UCL and the FAL.” Slip Opn., at 17. This, too, arises from the “injury in fact” requirement: If a class member was not aware of the allegedly misleading statement, or saw it but did not rely upon it, then they would not have suffered an injury in fact. Id., at 17-18. In sum, it must be shown that the class member “actually relied on the misrepresentation and as a result, was injured thereby.” Id., at 17 (italics in original). The appellate court therefore ordered the trial court to vacate its order certifying the class action. Id., at 19-21.

NOTE: The appellate court listed the individual questions of fact as “whether each class member saw or read a label; if so, which of the labels was seen or read; whether the consumer was deceived or misled by, or relied on, the label; if so, whether that was part of the bargain and caused the consumer to buy Listerine; if so, whether the consumer suffered injury in fact and lost money or property as a result of the alleged deception or reliance; and if so, the amount of damages or restitution, given that prices vary and most consumers will not have records of the price(s) they paid.” Slip Opn., at 7.

Also, the appellate court noted that plaintiff was not precluded from seeking certification of a class action that met the requirements set forth in the opinion, id., at 19 n.9, though it is difficult to imagine how plaintiff could successfully do so.

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