Reliance Requirements in Consumer Fraud Actions: Courts Continue to Struggle to Strike the Proper Balance

accordingly, when asked to defend multi-state obstacles to calculating damages may not preclude class certification, the putative class must first after prop 64 amended the ucl, the defendants 26 fdcc quarterly/fall 2009 defendant and that a class cannot be so broad "as to include individuals who are without the original california ucl and a later ballot initiative that amended it, the majority and members to show actual reliance, "they would have amended section 17203 to reflect this intention"). 34 88 by purchasing artificially inflated stock.44 courts that allow a reliance presumption are more inclined to do so when the alleged as limited to the class representative. it held the standing requirements did not apply to all actions do not relieve a party of its burden of proving each element of its cause of action or the court explained that prop 64 was not intended plaintiffs did not have to show they relied on the misrepresentation or that it harmed them.2 while in re tobacco's holding is limited to the unique language of the amended califor- 90 injury in fact and lost money or property "as a result of " defendants' misrepresentations.15 secretary of state, state of california, official voter information guide 38 (2004), available at $4.99 per pound price. see varcallo, 752 a.2d at 815. dissent vividly capture the struggle that judges go through as they try to strike the proper cial disputes arising from the sale of corporate subsidiaries, action law will be disappointed. while most states' consumer fraud acts require reliance, alter the parties'burdens of proof, right to a jury trial, or the substantive prerequisites 25 18 liberty lending held that reliance could be presumed when the alleged to recovery under a given tort. procedural devices may "not be construed to enlarge federal cases holding typicality requires class members to have causes of action against the a local chain of family-owned supermarkets receives a large shipment of ground 50 compare liberty lending servs. v. can., 668 s.e.2d 3, 12 (ga. ct. app. 2008) (quoting klay v. voters passed proposition 64, which amended the state's ucl to require plaintiffs to prove see id. 43 54 even if reliance can be presumed, certification is unlikely to be appropriate where a prop 64 replaces section requirement only applied to class representatives for standing purposes. in other reliance plaintiffs' reliance on defendant's misrepresentations in consumer fraud class actions and ads had anything to do with any class member's decision to buy and smoke cigarettes," deciding whether to certify a class action."). the competing forces that judges must balance when deciding how strictly to follow reliance whose prices have been corrupted by defendant's fraud. the theory is that the plaintiffs all cause of action is not an absolute bar to class certification") with rollins, inc. v. butland, 951 so.2d 860, in re tobacco ii cases, 207 p.3d at 31 (discussing cal. bus. & prof. code � 17204 and cal. civ. that prop 64 was designed to eliminate.35 fdcc quarterly/fall 2009 are not uniform.41 age rates" in advertisements, to extort shakedown settlements from businesses unwilling involving alleged violations of consumer fraud and deceptive on differences in reliance requirements but failed to provide detailed analysis of each state's act and how first-generation americans � who faced crippling class action litigation costs over harm- id. see cal. bus. & prof. code �� 17200 et seq. (1977) (amended 2004); in re tobacco ii cases, 207 harmless violations of the ucl, such as using "a.p.r." instead of the term "annual percent- litigants quickly disputed the extent to which prop 64 reliance requirements in consumer fraud actions 6 law firm of goodell, devries, leech & dann, llp, and the rather, prop 64's narrow focus was and purchased the mistakenly mislabeled meat. regardless of whether these persons those that do not. part v concludes by stressing the need for practitioners to be sensitive to between the "method, act, or practice declared unlawful" and the consumer's "ascertainable loss"). have some element of the claim to act as a bulwark against a flood of fee-driven lawsuits, henry schein, inc. v. stromboe, 102 s.w.3d 675, 693 (tex. 2003) (quoting sw. refining co. requirement by the majority and dissent in in re tobacco ii cases. building on the court's for corporate wrongdoing or an avenue for predatory lawsuits. the court reached its conclusion by examining the california law authorizing class actions.18 a, may well succeed in this endeavor if the case proceeds in court. realizing this, little, if any, benefit to consumers or the public. businesses from liability for their harmful, fraudulent actions. under the amended ucl, fee- ing consumers from corporate fraud and abuses and protecting businesses from predatory force at that time, an individual could bring an action on behalf of the citizens of the entire 36 the majority also found prop 64's non-mandatory language created a relaxed standing through in re tobacco ii cases, the california supreme court recently tried to resolve to thank derek stikeleather for his assistance in the preparation of this article. 28 the voter information guide, designed to inform voters as to how the proposition would requirements. thus, practitioners need to be acutely aware of the competing pressures judges are under as in re tobacco ii cases, 207 p.3d at 32. presumption of reliance or on a case-by-case basis look to other policy considerations consumer fraud class action. thus, reliance jurisdictions tend to either allow a rebuttable requires a showing of injury as a result of or upon reliance of unfair competition, only ap- 45 class actions, the court concluded that prop 64 had no effect.28 fdcc quarterly/fall 2009 the dissent asserted need not. while the outcome in in re tobacco ii cases turned on the particular language of reliance on broadly disseminated misrepresentations "would result in the utter negation of 86 economic injury."57 id. at 37. id. which requires class representatives to have claims or defenses that are typical of the class.31 ii. prop 64 also requires any person pursuing representative claims to meet section 17204's 42 the ucl's remedies provision allows "any per- visited oct. 1, 2009). balance between consumer and business interests. the fundamental objectives of class-action procedure . . . ."52 initiative proposition 64 ("prop 64") to curb these ucl abuses.8 individual law suits, class actions and multi-district litigation is actually selling other quantities of ground sirloin, correctly labeled, at its regular v. id. make this showing. in its view, the contrary holding not only misinterprets the ucl, but in re tobacco ii cases, 207 p.3d at 42 (baxter, j., concurring & dissenting). all class members makes certification virtually impossible. but ignoring a statutory reliance cuit ordered decertification of a securities class action, where the lower court improperly changed the requirements for a ucl class action. will struggle to show that common issues predominate over individual ones. the plaintiffs fdcc quarterly/fall 2009 requirements in consumer fraud class actions. iii. see id. at 31-32 (citing cal. bus. & prof. code � 17203; cal. civ. proc. code � 382). this question.11 certify a consumer fraud class action. class action may weigh against certification of multi-state class actions. a proposed class id. public, sued numerous tobacco companies in 1997. he alleged that the tobacco companies have the burden to show by "extensive analysis" that variations in applicable state laws can the court reasoned its holding was consistent with prop 64's purpose because "[t]he reliance requirements in consumer fraud actions or diminish any substantive rights or obligations of any parties to any civil action."46 or unable to fund extensive litigation.6 27 class actions, practitioners must be cognizant of inter-jurisdictional differences in reliance 19 ment at a "reduced price" of $4.99 per pound. the company has not intentionally departments. ms. woolf regularly represents corporations in 49 91 the alleged misrepresentation, judges struggle to craft intellectually disciplined decisions that civil procedure code section 382.10 48 when resolving consumer fraud class actions, judges must balance the goals of protect- in consumer fraud actions: linda s. woolf is the managing partner at the baltimore beef and puts it out for sale. the stores' meat departments label and display the he buys a pound of the meat, so labeled, at the $4.99 price, and consumes it. a (quoting in re cadillac v8-6-4 class action, 461 a.2d 736, 745 (n.j. 1983)) ("[d]ifferent courts, even in reliance states, strictly requiring each class member i. therefore, according to the dissent, even where all class members must show see id. a. reliance jurisdictions an action on behalf of the general public where no client has been injured in fact.26 whenever courts focus on these points, plaintiffs' claims are in serious jeopardy. strict strip defendants of their due process rights: fdcc quarterly/fall 2009 84 who exploited the generous standing requirement of the ucl to file `shakedown' suits to lations regardless of whether the violation harmed that individual (or anyone else).1 id. civil procedure, the state's version of rule 23 of the federal rules,30 ucl id. id. tive advertising to seek "relief on behalf of all california smokers who simply saw or heard 4 under the majority's concept of no-injury class actions, the plaintiff, customer and would not knowingly do so. relying upon the incorrect "ground round" label, 8 courts continue to struggle plies to the class representative. it is not necessary for all class members have actually relied reliance requirements in consumer fraud actions reliance requirements uses the singular when stating that a "person" may bring a representative claim on behalf of 37 class action certification decisions round is $5.99 per pound, but the display labels offer the meat from this ship- a. the majority holds the reliance requirement applies only to class including d&o, banker and broker e&o policies. she is a 13 courts reason that requiring individual proof of fdcc. she has served on several of its ad hoc committees, including the associate retention id. standing to maintain the action on their own behalf."32 89 see, e.g., varcallo v. mass. mut. life ins. co., 752 a.2d 807, 814 (n.j. super. ct. app. div. 2000) the significance of the label, and are not influenced by it. nonetheless, they also the various consumers. because these misrepresentations were written, as opposed to oral, itself, its members or the general public," with new language limiting the ucl to suits by citing that class treatment under section 382 required a "well-defined community of interest," 56 buy substantial quantities of the mislabeled meat and happily consume it. customer a later discovers the labeling mistake. he obtains counsel and brings a new jersey, for example, does ing of injury that occurred as a result of unfair business practices, all class members must was eliminated, while "[t]he substantive right extended to the public by the ucl . . . [,] the right to protection from fraud, deceit and unlawful conduct" was protected.29 trial courts to dispatch with an examination of commonality when addressing a motion for class members of the class, just those representing the class.19 81 reliance requirements articulated in prop 64. the dissent, however, concurred with the major- affect the law, the court noted that prop 64's proponents argued that it would have no effect these areas. ms. woolf linda is a vice chair of the commercial litigation section of the such as the wave of litigation that california faced under the original ucl. oftentimes, id. the fact that the products contained the highly addictive drug nicotine. he moved for class 87 represented insurers in disputes under financial lines policies, id. at 32. meat as "ground round," the leanest grade. the stores' regular price for ground "shake-down" no-injury lawsuits, like those that drove california voters to pass prop 64, rights are protected and frivolous lawsuits stopped, on the ground that the ucl's enhanced compare � 382 with fed. r. civ. p. 23. the dissent argued that the majority's view would only encourage the frivolous lawsuits 17 those who could not bring a claim in their own name id. at 27 & n.3. 82 conclusion see, e.g., peil v. spiser, 806 f.2d 1154, 1160-61 (3d cir. 1986). 39 relied on the incorrect description when purchasing the mislabeled product, he prays trying claims together that lend themselves to collective treatment. it is not meant to therefore, the strict standing requirement, which customer a visits one of the stores, seeking to buy ground beef. concerned about unless other elements of the claim require individual proof. woolf was named as one of the top 25 women super lawyers in maryland. in 2007, she was valuable lessons on the tensions between strict and permissive application of reliance stan- on any misrepresentations to recover under the ucl.22 to radically change ucl class action requirements.24 reliance in private lawsuits, california's citizens remain protected and businesses remain 35 its point with a well-crafted hypothetical: misrepresentations are uniform. these courts feel that when the same misrepresentations fdcc quarterly/fall 2009 others if the "claimant" meets the standing requirements, the court construed the language ("we see no language in tobacco ii which suggests to us that the supreme court intended our state's id. at 45-46 (baxter, j., concurring & dissenting). for "often ridiculously minor violations of some regulation or law" and extracting quick in re tobacco ii cases, 207 p.3d at 29-31. ity that prop 64 requires a showing of actual reliance on any fraudulent misrepresentations. http://vote2004.sos.ca.gov/voterguide/english.pdf [hereinafter voter information guide] (last visited 11 iii then details the competing interpretations of the post-proposition 64 ucl's reliance with individual inquiries into reliance where plaintiffs have purchased stock in a market equitable principles purportedly drive the policy of allowing an element of a claim preclude class certification"). that they may consider more important. conversely, "no reliance" states risk encouraging state without showing actual injury.13 such references do not support the proposition that all class members must individu- affirmed.16 dards in consumer fraud class actions. nationwide, courts struggle with these tensions case newton v. merrill lynch, pierce, fenner & smith, inc., 259 f.3d 154, 189 (3d cir. 2001) ("while to show reliance before certifying a class virtually eliminates the chances of certifying a 17204's original provision allowing ucl suits by any person "acting for the interests of 20 practitioners outside of california looking for bright-line rules in consumer fraud class vigorous action against unfair business practices regardless of who brought the action.3 requirement may improperly alter a substantive burden of proof and can trigger waves of his fat intake, he does not intend to purchase any grade other than ground round california's ucl originally authorized any individual to sue a business for ucl vio- 138 p.3d 207, 210 (cal. 2006) (cited in in re tobacco ii cases, 207 p.3d at 31). of the class. rather, federal case law is clear that the question of standing in class because this typicality requirement mirrors federal rule 23(a)(3), the dissent cited various id. at 35-36. jurisdictions that do not require reliance as an element of a consumer fraud claim must see, e.g., celex group, inc. v. executive gallery, inc., 877 f. supp. 1114, 1127-28 (n.d. ill. 1995) the trial court certified the class before prop 64 passed. under the ucl standards in the california unfair competition law and proposition 64 5 24 id. at 42 (baxter, j., concurring & dissenting). seeking trial lawyers could no longer bring suit against small businesses where no plaintiff reliance is proper.53 she has been recognized in 2008-2009 by best lawyers in america for commercial litiga- actions involves the standing of the class representative and not the class members.33 55 supreme court crafted a new compromise in a recent 4-3 decision. relying upon language this article aims to highlight this struggle. part ii explains the reasons that california ment.40 the court held that class representatives must prove actual reliance, but absent class members nia ucl, the policy considerations raised by the california supreme court's debate provide proc. code � 382 (west 2006)). demonstrate economic loss on a common basis."). 83 id. with the requirement that plaintiff prove ascertainable loss."). they argued that each linda s. woolf acquired" by unfair business practices.21 the dissent predicted more destructive, parasitic litigation in california and illustrated 2 focusing on the statute's required compliance with section 382 of the california code of these plaintiff-friendly standards, however, produced a host of unintended conse- prepared by the author on behalf of the fdcc commercial litigation section. the author would like the executive board of the maryland association of defense counsel. in 2007-2009, ms. moved to decertify the class, arguing that under the new standing requirements, individual issues now predominated over those common to the entire class.14 52 that links the aggrieved plaintiffs to the alleged damages.55 settlements from businesses that could not afford the expenses of litigation.25 thus, the majority believed it reached the just result because it upheld prop 64's goal son in interest" to recover "any money or property, real or personal, which may have been also frustrates prop 64's stated purpose.34 honored with the leadership in law award and as one of the top 100 women in maryland. head of its commercial litigation and insurance coverage in re tobacco ii cases, 207 p.3d at 32. some states, like pre-prop 64 california, do not have actual reliance most courts that require a showing of reliance in the class action context stress that class see liberty lending servs., 668 s.e.2d at 12. 38 oppose certification where part of the proposed class has suffered no damages at all. id. at 36. 44 an individual "who has suffered injury in fact and has lost money or property as a result."9 that under prop 64, unnamed class members in a ucl class action also must meet the actual to be presumed instead of rigorously proven.50 while virtually all states have statutory consumer fraud laws, reliance requirements 15 certification."). iv. corporate wrongdoing would go unpunished without the presumption because "individual less statutory violations.7 to certify a class action. see, e.g., cohen v. directv, inc., 101 cal. rptr. 3d 37, 49 (ct. app. 2009) cases where plaintiffs allege "fraud on the market."43 see, e.g., amato v. gen. motors corp., 463 n.e.2d 625, 629 (ohio ct. app. 1982). that, although prop 64 required plaintiffs to show actual reliance on the misrepresentations, consumer fraud class action where plaintiff separated state consumer fraud acts into four groups based 33 presumed reliance because it was "clear that at least some of the plaintiffs have not suffered ucl action alleging false advertising that caused him actual injury or loss in the 32 85 the class action is a procedural device intended to advance judicial economy by committee. she is a member of the maryland chapter of the federal bar association board rebuttable presumption of reliance on misrepresentations at certification.48 reliance requirements in consumer fraud actions id. at 25. whether courts by allowing one plaintiff who relied upon decep- requirement for absent class members.20 reliance at the class certification stage, which defendants may be able to rebut to prevent humana, inc., 382 f.3d 1241, 1258 (3d cir. 2004)) ("the simple fact that reliance is an element in a requirements.42 7 see amato, 463 n.e.2d at 628. (applying illinois law); prishwalko v. bob thomas ford, inc., 636 a.2d 1383, 1388 (conn. app. ct. b. non-reliance jurisdictions practitioners in non-reliance jurisdictions should be able to effectively frivolous lawsuits would continue.36 to suffer injury "as a result of unfair competition." because california's class action statute specific to a ballot initiative that amended california's unfair competition law ("ucl"), 879 (fla. dist. ct. app. 2007) ("reliance is an element of the claims, and [florida case law] appl[ies] to the court could be assured that the same language was used in each contract.54 (n.j. 2007) ("our statute essentially replaces reliance, an element of proof traditional to any fraud claim, however, many do not care about the grade of ground beef they eat, do not realize misrepresented the product. however, in the exercise of due care, it should have only the class representatives had to make this showing to meet the standing requirements.17 lower the barrier to certification by using a rebuttable presumption of reliance, the california to strike the proper balance specific abuse of the uclat which prop 64 was directed was its use by unscrupulous lawyers "claimant" must meet the standing requirements of section 17204, which requires a plaintiff the majority dismissed this assertion, stating that in re tobacco ii cases, 207 p.3d at 35 (stating if prop 64's drafters intended to require all class 58 b. the dissent argues that all class members must show reliance trade practice statutes. she has handled numerous commer- 12 1994). standing requirements do not apply to the attorney general and other enumerated public by case. class action practitioners must be sensitive not only to the particular requirements on the ability to bring actions to enforce environmental and consumer protection laws.27 lyon v. caterpillar, inc., 194 f.r.d. 206, 218-221 (e.d. pa. 2000) (rejecting proposed 41-state most prominent is the idea that large-scale under prop 64 could still join an identical suit brought by someone else.37 rely on the market price as uncorrupted when purchasing the stock, and all suffer damage california's supreme court avoided this strict limitation by holding that the reliance 57 41 the rationale behind these permissive standards was that california would benefit from of the relevant states, but also to the competing forces pulling at a judge who is asked to further seeks to certify a class of all other customers who saw the incorrect labels id. at 44-45 (baxter, j., concurring & dissenting). shareholder claims, contract and business tort claims. she has officials.39 the company quickly settles. that cannot be what the voters intended when they amount of $4.99. he claims restitution to himself in that amount. in the suit, he for restitution, on their behalf, of all profits the stores received from such purchases. 46 ally show they have the same standing as the class representative in order to be part certification on two claims: (1) violation of california's ucl and (2) false advertising.12 treatment of such fraud claims.45 of governors, a past chair of the network of trial law firms, inc. and a past member of were given to all members of the class, then circumstantial evidence showing class-wide the majority construed prop 64 as limited to eliminating a lawyer's ability to bring 40 id. (citing clay v. am. tobacco co., 188 f.r.d. 483, 490 (s.d. ill. 1999)). standing requirements and comply with the class action requirements of the california the court would address differences among them). id. at 32. see, e.g., varcallo, 752 a.2d at 817 (holding consumer fraud plaintiff must show a causal nexus 51 the dissent attacked the supposed balance sought by the majority, whereby consumers' known the meat is ground sirloin, a wholesome but slightly fattier grade. the chain see latman v. costa cruise lines, n.v., 758 so.2d 699, 703 (fla. dist. ct. app. 2000). plaintiff willard brown, individually and on behalf of california's general are fair to both consumers and businesses. strict enforcement of reliance requirements for 31 had suffered injury in fact. under the court's interpretation, the main evil prop 64 targeted 92 9 motivated to deal honestly because the state's enforcement power has no reliance require- covering jurisdictions with substantively different standards of liability for consumer fraud frequent lecturer and has authored a number of articles in manufactured and distributed tobacco products while knowingly denying and concealing no-injury class actions that can devastate small and not-so-small businesses while yielding construction of these principles rarely results in certification of a consumer fraud class and analysis in in re tobacco, part iv highlights the differences between states that require stopping trial attorneys from suing small businesses after searching through public records apply this presumption can be dispositive of certification.49 id. at 33. in re tobacco ii cases extort money from small businesses."23 1 id. at 25-26. california general election, november 2, 2004, http://vote2004.sos.ca.gov/returns/prop/00.htm (last to show an "ascertainable loss" caused by the misrepresentation.56 see voter information guide, supra note 2, at 40. while courts construing reliance requirements in consumer protection acts sometimes this statute stated that for a "person" to pursue a representative claim on behalf of others, the significant number of class representatives have suffered no damages at all. the third cir- of preventing uninjured individuals from acting as class representatives without insulating class member now had to prove that with his or her cigarette purchase, he or she suffered id. at 34-35. substantial number of other customers also see the incorrect "ground round" labels. p.3d 20, 25 (cal. 2009). the thorny issue of reliance in consumer fraud when presented with substantially similar, if not identical, claims have reached divergent conclusions in 14 this theory allows courts to dispense 53 be accommodated through class treatment.58 22 actions [are] uneconomical to pursue."51 by fee-seeking attorneys and their uninjured clients.5 businesses of all sizes complained that the ucl incentivized frivolous lawsuits 29 not require reliance to recover on a consumer fraud claim, but does require class members see id. quences.4 justice baxter's dissent argued that the majority's opinion undercut prop 64. he argued they try to equitably resolve cases without creating a judgment or rule that provides shelter misrepresentations were written and contained within the contracts between liberty and californians grew particularly sympathetic to small businesses � often owned by 47 that they relied on the defendant's misrepresentation in consumer fraud class actions. part november 6, 2009). reliance requirements in consumer fraud actions such ads during the period at issue, regardless of whether false claims contained in those 30 litigation. when the relevant consumer protection law requires plaintiffs to show reliance on attorneys pounced upon technical and consumer fraud cases, the analysis grows much more complicated when plaintiffs seek class tion and in 2009 for "bet-the-company-litigation." and among the reliance states, many afford plaintiffs a presumption of while judicial application of these standards is relatively straightforward in individual v. bernal, 22 s.w.3d 425, 437 (tex. 2000)). int'l union of operating engineers local no. 68 welfare fund v. merck & co., 929 a.2d 1076, 1086 certification. a commonly recognized presumption of reliance occurs in securities fraud in november 2004, 59% of california voters passed the ballot representatives 10 introduction the supreme court of california reversed the lower courts. in a 4-3 decision, it held id. at 31. 3 in re tobacco ii cases, 207 p.3d at 34. additionally, because these ballot materials did not address how the measure would affect 21 the trial court granted defendants' motion to decertify, and the california court of appeal cal. bus. & prof. code � 17204 (west 2006); californians for disability rights v. mervyn's, llc, 16 � 17203; in re tobacco ii cases, 207 p.3d at 35 (emphasis in original). states, consumer fraud class actions remain viable because many judges allow a class-wide ironically, the inclusion of no reliance states in a purported multi-state consumer fraud jurisdictions that have no reliance requirement have some form of a causation requirement in contrast, the dissent reasoned that, because the post-prop 64 amendments require a show- adopted the substantial reforms set forth in proposition 64.38 some courts have developed various mechanisms to avoid strictly enforcing this requirement. 23 essentially challenges the viability of the class action mechanism for such claims.47 reliance requirements in consumer fraud actions the scope of the decision remains unclear, especially as it relates to the commonality requirement