MEALEY’S
™
LITIGATION REPORT
The Scope Of Class Restitution In TheWake Of In Re Tobacco II Cases
by Matt C. BaileyKhorrami Pollard & Abir LLPLos Angeles, California
A commentary articlereprinted from theSeptember 17, 2009 issue ofMealey’s Litigation Report:Class Actions
Class Actions
MEALEY’S LITIGATION REPORT: Class Actions
Vol. 9, #14 September 17, 2009
1
Commentary
[Editor’s Note: Matt C. Bailey is a senior associate withLos Angeles-based Khorrami Pollard & Abir LLP and serves as co-chair o the frm’s Class Action Practice Group. He may be reached at MBailey@kpalawyers.com. Copyright 2009 by Matt Bailey.]
Are class members who are potentially uninjuredentitled to restitution under the UCL in light o theCaliornia Supreme Court’s decision in
In re TobaccoII Case
s, 46 Cal. 4th 298 (2009)? In its decision, theCaliornia Supreme Court reused to extend Proposi-tion 64 standing and causation requirements to puta-tive class members, reasoning that doing so wouldrustrate Business & Proessions Code Section 17203’sentitlement to restitution — an entitlement that is“patently less stringent” than the standing requirementor the class representative codied under Section17204.
See
In re Tobacco II Cases
, 46 Cal. 4th at 320.In practical terms, only the named class representativein a UCL action is required to establish that he or sheactually suered “injury in act and has lost money orproperty as a result o the unair competition”, whereasputative class members would be entitled to restitutiono money or property “which
may
have been acquired’[] by means o the unair practice.”
See id
. (italics inoriginal). Tis distinction has been the subject o sig-nicant debate, leading some to claim that the Court’sanalysis would improperly permit a certied UCLrestitution class to include putative class members whomay not have actually been injured. As an initial point, the core premise o this criticismignores
Tobacco II’s
reairmation o undamentalUCL tenants that eectively return the gravamen o a UCL claim to the
status quo
, pre-Proposition 64.Historically, whether class members were actually damaged has played absolutely no part in the UCLcalculus. Rather, “the UCL’s ocus [is] on
the deen-dant’s conduct, rather than the plainti’s damages, inservice o the statute’s larger purpose o protecting thegeneral public against unscrupulous business practic-es.”
Id.
, at 312. In urtherance o this policy, relie isavailable “without individualized proo o deception,reliance and injury” [
id.
at 320], upon the minimalshowing that “‘members o the public are likely to bedeceived….’”
See
Id.
, at 312. Tese standards denea completely dierent remedial paradigm that is moreexpansive than traditional tort law causes o action.Tis eature o the UCL was underscored by the
To-bacco II
Court, who reasoned that “to hold that theabsent class members on whose behal a private UCLaction is prosecuted must show …that they have ‘lostmoney or property as a result o the unair competi-tion’ (§ 17204) would confict with the language insection 17203 authorizing broader relie.’”
See id.
,at 320.However, the act that the UCL’s more expansive reme-dial paradigm may include class members who did notact in reliance on the challenged practice does not meanthat the class includes members who were not injured.Such a conclusion disregards the act that the globalimpact o a deceptive business practice, rom the de-endant’s perspective, will always be distributed in someorm to the entire consumer base. For example, even when only a handul o consumers purchase a productbased on a deceptive advertising campaign, the cost o the deceptive advertising campaign itsel is passed on
The Scope Of Class Restitution In The Wake OfIn Re Tobacco II Cases
ByMatt C. Bailey
Vol. 9, #14 September 17, 2009
MEALEY’S LITIGATION REPORT: Class Actions
2
to all purchasers as a component o the purchase priceo that product. Similarly, where a business promotesa deceptive eature o a product to justiy a purchaseprice that is above the price o the competing brand, allpurchasers are damaged by having to pay the enhancedprice whether they relied on the deceptive representa-tion or not. In both example cases, crating a restitutionormula to return such unds to the entire class o pur-chasers seeks to urther the UCL’s objective that “wrong-doers not retain the benets o their misconduct….”
See In re Tobacco II Cases
, 46 Cal. 4th at 320. Yet, i a UCL class can include persons who did notact in reliance on the challenged practice, what, i any, boundaries are there on the limits o class-widerestitution? Under applicable law, there are only three limitations on the trial court’s discretion:
(1)
the restitution must constitute “money or property … which may have been acquired by means o … unaircompetition” (Cal. Bus & Pro Code § 17203),
(2)
the money or property returned must be money orproperty which the class member has an ownershipinterest, and
(3)
the money or property returnedmust be limited to that necessary to restore the
status quo
.
See Colgan v. Leatherman Tool Group, Inc.
, 135Cal. App. 4th 663, 698 (2006) (citing
Korea Sup- ply Co. v. Lockheed Martin Corp.
, 29 Cal. 4th 1134,1148 (2003);
State o Caliornia v. Altus Finance
,36 Cal. 4th 1284, 1304-05 (2005);
Kraus v. Trinity Management Services, Inc.
, 23 Cal. 4th 116, 126-27(2000)). All three limitations seek to ensure that any restitutionary relie awarded by the court is tailored tothe challenged practice. Tus, while the scope o po-tential restitutionary relie to class members is broad,it is not limitless.In short, criticism that
Tobacco II
improperly permitsrestitution to uninjured class members confates theclear distinction drawn by the
Tobacco II
Court be-tween standing requirements imposed on the namedplainti versus the broad relie aorded to consumersunder the UCL. In many cases, complete realizationo the UCL’s remedial paradigm will require certica-tion o a broad restitutionary class that includes bothpersons who did, and did not act in reliance on thechallenged practice.
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