Victory Goes to the Last Man Standing – California Court of Appeals Reaffirms That Plaintiffs in Unfair Competition Cases Lack Standing to Sue Unless They Suffer an Actual Injury Caused by the Defendants’ Conduct
by David P. Nemecek
California's unfair competition laws once allowed plaintiffs to sue for any business practice they deemed "unfair, unlawful or fraudulent," even though they had not been harmed by the allegedly unfair practice. The law also allowed plaintiffs to sue on behalf of the general public, enabling them to file massive claims on behalf of thousands or even millions of Californians even if those persons had not suffered any injury or damages as a result of the defendant's conduct. The law was abused so frequently that the Wall Street Journal dubbed California "the shakedown state."
All of that changed in 2004 when California's voters approved Proposition 64, which changed the requirements for a private person to have "standing" to bring a claim under California's unfair competition laws. A plaintiff must have standing to bring a lawsuit - if he lacks standing, the lawsuit must be dismissed. Proposition 64 provides that a private person has standing to bring a claim under the unfair competition laws only when he "has suffered injury in fact" and "has lost money or property as a result of such unfair competition." A recent case decided by the California Court of Appeals, Hall v. Time Inc., 07 C.D.O.S. 215 (January 7, 2008) examined the new standing requirements implemented by Proposition 64.
The plaintiff in Hall ordered a book from Time pursuant to a promotion in which Time offered a "no-obligation free trial period." The consumer had 21 days to return the book to Time with no obligation to buy it during the free trial period. The complaint alleged that after the consumer placed an order, Time would mail the book to the consumer with an invoice stating the amount due if the consumer decided to keep the book. Time would send a second invoice 21 days later which stated that the free trial period had expired. The complaint alleged that Time's invoices were deceiving because they did not inform the consumer that he had 21 days to return the book until after the free trial period expired.
The court first analyzed whether Hall sufficiently alleged that he suffered an "injury in fact." Hall's complaint alleged that he lost money as a result of Time's allegedly unfair business practice, but Hall failed to allege that he did not want the book he received, that the book was unsatisfactory, or that it was worth less than what he paid for it. Hall therefore could not establish that he suffered an injury in fact.
The court next analyzed whether Hall's complaint sufficiently alleged that he lost money or property "as a result of" Time's allegedly unfair business practice. The court held that Hall was required to plead that there was an actual causal connection between his loss and the unfair business practice, or that he actually relied on the alleged misrepresentation by Time. Hall alleged that Time's conduct caused its customers to believe that he was obligated to pay for the book immediately and did not have a free trial period. But Hall did not remit payment immediately after he received the invoice. Instead, he waited ten months to pay for the book, and he did not allege that Time's conduct caused him to keep a book he otherwise would have returned. Hall therefore failed to allege that Time's allegedly unfair business practice caused him to lose money or property.
The issue of whether a plaintiff alleging a violation of California's unfair competition laws must now show an actual causal connection between his losses and the unfair business practice at issue or actual reliance upon the allegedly fraudulent statements by the defendant under the unfair competition laws has been hotly contested since the enactment of Proposition 64. The California Supreme Court will decide these issues later this year. Stay tuned for future updates on this and other issues concerning California's unfair competition laws.
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