In re Tobacco II Cases

• Decision Date: 18 May 2009
• Docket Number: No. S147345.,S147345.
• Citation: 93 Cal.Rptr.3d 559,207 P.3d 20
• Court: California Supreme Court
• Parties: In re TOBACCO II CASES.

207 P.3d 20

93 Cal.Rptr.3d 559

In re TOBACCO II CASES.

No. S147345.

Supreme Court of California.

May 18, 2009.

Dougherty & Hildre, Donald F. Hildre, William O. Dougherty, Frederick M. Dudek, Thomas D. Haklar, San Diego; Robinson, Calcagnie & Robinson, Mark P. Robinson, Sharon J. Arkin and Karen Karavatos, Newport Beach, for Plaintiffs and Appellants.

Harvey Rosenfield, Pamela M. Pressley, Santa Monica, Todd M. Foreman; Gianelli & Morris, Timothy J. Morris and Jully C. Pae, Los Angeles, for The Foundation for Taxpayer and Consumer Rights as Amicus Curiae on behalf of Defendants and Appellants.

Law Offices of Mark Peacock and Mark J. Peacock, Newport Beach, for Consumer Attorneys of California as Amicus Curiae on behalf of Defendants and Appellants.

Mark Savage, San Francisco, for Consumers Union of United States, Inc., as Amicus Curiae on behalf of Defendants and Appellants.

Jackson, DeMarco Tidus & Peckenpaugh, Irvine, William M. Hensley and Robert J. Stein III for Curtis Schlessinger, Peter LoRe and California Law Institute as Amici Curiae on behalf of Defendants and Appellants.

Fazio Micheletti, Jeffrey L. Fazio and Dina E. Micheletti, San Ramon, for Public Citizen, Inc., and The Center for Auto Safety as Amici Curiae on behalf of Defendants and Appellants.

Levy, Ram & Olson, Arthur D. Levy, San Francisco; The Sturdevant Law Firm, James C. Sturdevant and Monique Olivier, San Francisco, for The National Consumer Law Center and National Association of Consumer Advocates as Amici Curiae on behalf of Defendants and Appellants.

Munger, Tolles & Olson, Gregory P. Stone, Daniel P. Collins, Fred A. Rowley, Jr., Los Angeles, Steven B. Weisburd, Austin, TX, Joseph S. Klapach, Daniel B. Levin; Seltzer Caplan McMahon Vitek, Gerald L. McMahon and Daniel E. Eaton, San Diego, for Defendant and Respondent Philip Morris USA Inc.

Dechert, H. Joseph Escher III, San Francisco; Wright & L'Estrange, San Diego, Robert C. Wright; Jones Day and William T. Plesec, Cleveland, OH, for Defendants and Respondents R.J. Reynold Tobacco Company and Brown & Williamson Holdings, Inc., formerly known as Brown & Williamson Tobacco Corporation.

Loeb & Loeb and Sharon S. Mequet, Los Angeles, for Defendant and Respondent The Council for Tobacco Research-U.S.A., Inc.

DLA Piper Rudnick Gray Cary US, DLA Piper US, William S. Boggs and Brian A. Foster, San Diego, for Defendant and Respondent Lorillard Tobacco Company.

Reed Smith and Mary C. Oppedahl for Defendant and Respondent The Tobacco Institute.

Lendrum Law Firm and Jeffrey P. Lendrum, La Jolla, for Defendants and Respondents Liggett Group Inc., and Liggett & Myers, Inc.

Deborah J. La Fetra, Orlando, FL, for Pacific Legal Foundation as Amicus Curiae on behalf of Defendants and Respondents.

Fred J. Hiestand, Sacramento; Morrison & Foerster and William L. Stern, San Francisco, for The Civil Justice Association of California, California Chamber of Commerce, California Manufacturers and Technology Association and California Bankers Association as Amici Curiae on behalf of Defendants and Respondents.

Shook, Hardy & Bacon and Kevin Underhill, San Franciso, for Product Liability Advisory Council, Inc., as Amicus Curiae on behalf of Defendants and Respondents.

Kaye Scholer and Jeffrey S. Gordon, Los Angeles, for Pfizer Inc., as Amicus Curiae on behalf of Defendants and Respondents.

Gibson, Dunn & Crutcher, G. Charles Nierlich, Rebecca Justice Lazarus, Gail E. Lees and Christopher Chorba, Los Angeles, for Farmers Insurance Exchange and Granite State Insurance Company as Amici Curiae on behalf of Defendants and Respondents.

Horvtiz & Levy, Lisa Perrochet and John A. Taylor, Jr., Encino, for Verisign, Inc., and AT & T Mobility LLC as Amici Curiae on behalf of Defendants and Respondents.

MORENO, J.

Prior to the 2004 amendment of the unfair competition law (UCL) (Bus. & Prof.Code, § 17200 et seq.), by Proposition 64, "[a]ctions for relief [under the UCL could be] prosecuted . . . by the Attorney General or any district attorney or by any county counsel . . . [or] by a city prosecutor . . . [or] by a city attorney . . . or upon the complaint of any board, officer, person, corporation or association or by any person acting for the interests of itself, its members or the general public." (Bus. & Prof.Code, former § 17204, as amended by Stats.1993, ch. 926, § 2, p. 5198; see also Californians for Disability Rights v. Mervyn's, LLC (2006) 39 Cal.4th 223, 227, 46 Cal.Rptr.3d 57, 138 P.3d 207 (Mervyn's).)¹ Post Proposition 64, the section provides, "[a]ny person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of Section 17204 and complies with section 382 of the Code of Civil Procedure" (§ 17203, as amended by Prop. 64, § 2), that is, a "person who has suffered injury in fact and has lost money or property as a result of [such] unfair competition." (§ 17204, as amended by Prop. 64, § 3.)

The complaint before us alleges that the tobacco industry defendants violated the UCL by conducting a decades-long campaign of deceptive advertising and misleading statements about the addictive nature of nicotine and the relationship between tobacco use and disease. Prior to passage of Proposition 64, the trial court had certified the case as a class action. The class was defined as "All people who at the time they were residents of California, smoked in California one or more cigarettes between June 10, 1993 to April 23, 2001, and who were exposed to Defendants' marketing and advertising activities in California." After Proposition 64 was approved, the trial court granted defendants' motion to decertify the class on the grounds that each class member was now required to show an injury in fact, consisting of lost money or property, as a result of the alleged unfair competition. The Court of Appeal affirmed.

On review, we address two questions: First, who in a UCL class action must comply with Proposition 64's standing requirements, the class representatives or all unnamed class members, in order for the class action to proceed? We conclude that standing requirements are applicable only to the class representatives, and not all absent class members. Second, what is the causation requirement for purposes of establishing standing under the UCL, and in particular what is the meaning of the phrase "as a result of" in section 17204? We conclude that a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions. Those same principles, however, do not require the class representative to plead or prove an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements when the unfair practice is a fraudulent advertising campaign. Accordingly, we reverse the order of decertification to the extent it was based upon the conclusion that all class members were required to demonstrate Proposition 64 standing, and remand for further proceedings regarding whether the class representatives in this case have, or can demonstrate, standing.

I. STATEMENT OF THE CASE

A. Introduction

The original complaint in this action was filed on June 10, 1997, and was thereafter amended numerous times, ultimately resulting in the current, ninth amended complaint. The UCL cause of action was added in the sixth amended complaint. Class certification of the UCL cause of action was granted in connection with the seventh amended complaint. The relevant allegations of the seventh and the ninth amended complaints are substantially the same. Therefore, we examine the seventh amended complaint as background for our discussion of the class certification issues.

B. The Seventh Amended Complaint

The seventh amended complaint was filed in January 2001. In it, plaintiff Willard Brown, acting "individually, on behalf of the General Public of the State of California, as well as on Behalf of All Others Similarly Situated," sued the American Tobacco Company, Philip Morris USA Inc., R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, British American Tobacco Co., Ltd., Liggett & Myers, Inc., Hill and Knowlton, Inc., the Council for Tobacco Research-U.S.A., Inc., the Tobacco Institute, Inc., United States Tobacco Company, and Lorillard Tobacco Company, alleging causes of action for unfair competition under the UCL; false and misleading advertisement under the false advertising law (§ 17500 et seq.); violation of the Consumers Legal Remedies Act (Civ.Code, § 1750 et seq.) (CLRA); breach of express warranty; fraud and intentional misrepresentation; breach of undertaking of special duty; negligence; and breach of implied warranty of merchantability.

The prefatory allegations stated: "Through a fraudulent course of conduct that has spanned decades, Defendants have manufactured, promoted, distributed or sold tobacco products to Plaintiff and thousands of California citizens and residents, knowing, but denying and concealing that Defendants' tobacco products contain a highly addictive drug known as nicotine. Unbeknownst to the public, Defendants have intentionally controlled and manipulated the amount and bio-availability of nicotine in their tobacco products to create and sustain addiction to their products."²

Class action allegations were stated with respect to the causes of action under the UCL, false advertising law and CLRA, pursuant to Code of Civil Procedure section 382. The complaint alleged that the predominance of common questions supported class action certification. "These common legal and factual questions arise from two central issues, which do not vary among Class Members: (1) Defendants' common course of conduct in manufacturing, promoting, distributing and selling cigarettes; and (2) the...