California Prop. 64 Reins In Victimless Unfair Competition Consumer Lawsuits

Originally published November 18, 2004

On November 2, 2004, Californians voted overwhelmingly in favor of curbing abuses related to the state's Unfair Competition Law (commonly referred to as the UCL or Section 17200). Proposition 64 adds standing requirements for private enforcement of consumer lawsuits, requiring the plaintiff to have suffered injury or lost property as a result of the challenged business practice. It also requires any plaintiff who purports to sue on behalf of others to follow California class action procedures, which require court approval of class representatives and settlements. These UCL amendments are likely to reduce the number of victimless, "shakedown" lawsuits associated with Section 17200 and solve the finality problem associated with settling representative Section 17200 suits.

This article summarizes the UCL, describes developments in 2002 and 2003 that culminated in the placement of Prop. 64 on the ballot, outlines the new provisions established by Prop. 64, and analyzes the applicability of Prop. 64 to currently pending cases.

Summary of the UCL

California's UCL can be traced back more than 125 years.1 Starting in 1972, decisional law in California expanded the reach of Section 17200 actions.2 In 1988, People v. Cappuccio, Inc.,3 established that a Section 17200 plaintiff did not personally have to be injured in order to bring a Section 17200 action. Ten years later, the California Supreme Court ruled that any "unlawful conduct," as that term is used in the statute, could give rise to a Section 17200 claim, even if the statute identifying the unlawful conduct did not itself provide for a private right of action.4 Between 1992 and 1996, California courts decided a series of cases that established that the "unfair" conduct proscribed by Section 17200 included conduct likely to deceive, even when no one was actually deceived by or relied upon the fraudulent practice or sustained any damage.5 In the meantime, the statute was amended in 1992 to cover practices that originated in foreign jurisdictions but had effects in California, provide for injunctive relief for ongoing conduct, and clarify what constitutes a separate violation for purposes of civil penalties.6

In 2000, the California Supreme Court placed some limits on 17200 actions when it ruled that remedies available to plaintiffs representing the general public were limited to restitution and did not include damages in the form of disgorgement of profits.7 Nevertheless, Section 17200 remained a favorite vehicle for consumer attorneys to challenge business practices, particularly where the attorney did not represent a person or entity that had actually been harmed by the challenged practice. This was largely because the UCL offered the following plaintifffriendly features:

Any plaintiff could sue on behalf of...