Unfair Competition Claims 2005: The Impact of Proposition 64 May 10, 2005 Practising Law Institute

1. Unfair Competition Claims 2005: The Impact of Proposition 64May 10, 2005 Practising Law Institute Emily Maxwell Kimberly Kralowec DLA Piper Rudnick Gray Cary US LLP The Furth Firm LLP Presented by

2. Prop 64’s Impact on Consumer Protection Statutes • On November 2 - California voters adopt Proposition 64 • Major reforms to the UCL and FAA intended to eliminate so-called “shakedown” suits: • Plaintiff must have Article III standing • Plaintiff must have suffered “loss of money or property” • Most representative claims must meet CCP Section 382 class action requirements

3. Prop 64 “Injury in Fact” Requirement • No more “private attorney general” claims • Proper UCL and FAA plaintiff is:“any person who has suffered injury in fact and has lost money or property as a result of such unfair competition.”Bus. & Prof Code §§ 17204, 17536

4. “Injury in Fact” Requirement(cont.) • Loss of “money or property” and “injury in fact” required • Requirement applies to individual and representative suits • Limits claims based on non-economic injury • Technical violations of law or regulation with no resulting harm will not support UCL or FAA claims • The “injury in fact” requirement might impose reliance and causation elements that were previously not required under the UCL and FAA • Does “injury in fact” require something more than traditional Article III standing?

5. “Injury in Fact” Requirement(cont.) • Important caveat: Prop 64 does not require that defendant received money or property lost by plaintiff • Appears to allow claims alleging plaintiff lost money or property to a third party due to acts of the defendant • Relief would likely be limited to injunction because such allegations might not support restitution in some cases • Defendants can be liable under an aider and abettor theory

6. Prop 64 and Representative Actions • Representative UCL and FAA actions: • Plaintiff with Article III standing • Must meet traditional class action requirements • Res judicata — notice and opt-out procedures will create binding settlements and judgments • Reduce amount of UCL and FAA litigation • No quick and private settlements • Can you presume reliance in false advertising claims?

7. Representative Actions(cont.) • Possible exception for injunction-only actions: • Class action requirement only applicable to plaintiffs seeking to “pursuerepresentative claims for relief on behalf of others.” • Individual plaintiff could seek broad injunctive relief - stop publishing ad; stop policy of not paying overtime to category of employees • Could try to recover fees under CCP § 1021.5 • But, individual plaintiffs might still need to establish a threat of personal future injury to obtain an injunction

8. Prop 64 – Does It Apply To Pending Cases? Trial courts badly split on the issue: • Judges of the same court came to differing conclusions • Orange County: • Americare v. Medical Capital Corp., Orange Cty. Super Ct. – Prop. 64 does not apply to pending claims • California Alliance v. Ensign Group, Orange Cty. Super Ct. – Prop. 64 does apply to pending claims • Los Angeles County: • Teachers for Truth in Advertising v. Spirit Sciences USA, Inc., Los Angeles Cty. Super. Ct. – Prop. 64 does not apply to pending claims • Dohrmann v. Tosco Refinery Co., Los Angeles County Super. Ct. – Prop. 64 does apply to pending claims

9. Prop 64 and Pending Cases – Appellate Courts Appellate courts weigh in: • 1st District – NO: Californians for Disability Rights v. Mervyn’s LLC, 126 Cal.App.4th 386 (2005) • 2nd District – YES: Branick v. Downey Sav. & Loan Assn., 126 Cal.App.4th 828 (2005) • 4th District – YES: • Benson v. Kwikset Corp., 126 Cal.App.4th 887 (2005) • Bivens v. Corel Corp., 126 Cal.App.4th 887 (2005) • Lytwyn v. Fry’s Electronics, 126 Cal.App.4th 1455 (2005) • Frey v. TransUnion, 127 Cal.App.4th 986 (2005) • Thornton v. Career Training Center, 128 Cal.App.4th 116 (2005)

10. Prop 64 and Pending Cases(cont.) • Californians for Disability Rights: • After trial completed with verdict for defendant • Court concluded that Evangelatos applied and that voter intent was the determinative factor • “Statutory repeal” rule did not trump voter intent • Substantive, vested rights were impacted • Branick et al. – found Evangelatos inapposite because repealed statute codified common law. • UCL is not codification of common law • Did not reach procedural/substantive question • Applies prior to final judgment because no vested rights

11. Prop. 64 and Pending Cases – The Supreme Court Acts April 27, 2005: Supreme Court grants review in five cases Review granted outright: • Californians for Disability Rights v. Mervyn’s LLC, 126 Cal.App.4th 386 (2005) Review granted on limited issue of whether amendment to substitute an injured party as plaintiff is permissible: • Branick v. Downey Sav. & Loan Assn., 126 Cal.App.4th 828 (2005) “Grant and hold”: • Benson v. Kwikset Corp., 126 Cal.App.4th 887 (2005) • Bivens v. Corel Corp., 126 Cal.App.4th 887 (2005) • Lytwyn v. Fry’s Electronics, 126 Cal.App.4th 1455 (2005)

12. The Stare Decisis Question As of this writing, two cases remain citable as precedent on the retroactivity question: • Frey v. TransUnion, 127 Cal.App.4th 986 (2005) • Thornton v. Career Training Center, 128 Cal.App.4th 116 (2005) Depublication requests have been filed in both cases

13. So What Do You Do With Pending UCL Claims? • Private Attorney General Claims • Settle before need for court approval of class settlement • Stipulate/Move to amend complaint • Move to dismiss if case in trial court – demurrer, JOP, SJ, New Trial • File additional briefing if case on appeal • Decline to respond to discovery in mixed case

14. What Do You Do With Pending UCL Claims?(cont.) • Class action claims • Stipulate/Move to add injury in fact allegations • Move to dismiss for lack of same • Raise on appeal • Direct discovery to issue

15. Roundtable • What will the Supreme Court do, and when? • Does the “injury in fact” language change the “fraudulent” prong, which required only that the defendant’s conduct was “likely to deceive”? • Must plaintiff plead and prove reliance or causation? • Is the “loss of money or property” element different from traditional restitution? • Can an individual plaintiff obtain broad injunctive relief without formal class certification? • Can individual actions for injunctive relief provide a basis for fees under CCP section 1021.5?