Standing Requirements In California UCL Cases Brought In Federal Court In The Wake Of Tobacco II And Kwikset

Much has been written about the California Supreme Court's developing jurisprudence regarding the standing requirements of California's Unfair Competition Law ("UCL") Cal. Bus. & Prof. Code § 17200, et seq. and California's False Advertising Law ("FAL") Cal. Bus. & Prof. Code § 17500, et seq., specifically in the wake of the Court's opinions in In re Tobacco II Cases, 46 Cal. 4th 298 (2009) and Kwikset Corp. v. Super. Ct. (Benson), 51 Cal. 4th 310 (2011). While these cases purport to settle, or at least further define, the UCL's standing requirement, the parallel body of law in federal cases continues to develop in response to these California opinions.

Following Tobacco II and Kwikset, many defendants argued that notwithstanding the California Supreme Court's decisions, Article III stood as independent grounds for dismissal in federal court; and, further, that each and every putative class member must have Article III standing to proceed. The Ninth Circuit has offered varying answers on these questions. For example, the Ninth Circuit appears to have taken a soft view of the Article III requirements in Degelmann v. Advanced Med. Optics Inc., 659 F.3d 835 (9th Cir. 2011) and Stearns v. Ticketmaster Corp., 655 F.3d 1013 (9th Cir. 2011). More recently, however, in Mazza v. American Honda Motor Company, No. 09-55376, 2012 U.S. App. LEXIS 626 (9th Cir. Jan. 12, 2012), the Ninth Circuit ordered a class de-certified based on a lack of uniform standing amongst the class. A review of these three recent opinions suggests that the state of the law of standing, as it relates to UCL claims brought in federal court, remains in flux.

The court in Degelmann explained that a plaintiff who could allege facts sufficient to meet the Kwikset standing has alleged sufficient injury in fact to satisfy Article III. Similarly, the court in Stearns adopted the Tobacco II standard in holding that only a named plaintiff needs to have standing in order to pursue a class action under the UCL. While Stearns and Degelmann may to some degree limit the standing arguments defendants previously brought as pleading challenges, Mazza may do the opposite, confirming that as a matter of law all class members in a proposed class must meet Article III standing requirements. It is, therefore, important to begin laying the groundwork early. In fact, in some cases it may be beneficial to continue to assert good faith standing arguments at the pleading stage in an effort to "educate" the court with respect to these issues, as they will likely be an issue throughout the duration of the case even if the pleading challenge is defeated. Indeed, at the certification stage, Article III standing can be raised again with respect to a Rule 23 analysis, most notably in conjunction with an analysis of whether common questions predominate under Rule 23(b)(3). Provided the defendant sufficiently establishes the lack of an injury-in-fact to confer standing to sue, the courts should be more likely to dispose of class allegations and/or claims at the certification stage. Significantly, the court in Mazza de-certified the class because it included putative members that had not been exposed to or had not relied upon the alleged false advertising. Mazza thus provides new hope to practitioners making an Article III challenge in the face of the decisions in Degelmann and Stearns.1

UCL Standing Requirements

On November 2, 2004, the California electorate passed Proposition 64 ("Prop. 64") which enacted certain changes to the standing requirements of the UCL.2 Prior to Prop. 64, any party could bring a representative action regardless of whether or not they had suffered an injury. The UCL, as amended by Prop. 64, now provides that a person has standing to bring a UCL claim only if that person "has suffered injury in fact and has lost money or property as a result of the unfair competition."3 Further, the UCL provides that "[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 . . . ."4

Following the passage of Prop. 64, the California courts have continued to develop the law of UCL standing. In 2009, the California Supreme Court's decision in Tobacco II resolved the issue of whether Section 17204's standing requirement applied to putative class members. The court found that it did not, noting that "Proposition 64 was not intended to, and does not, impose section 17204's standing requirements on absent class members in a UCL class action where class requirements have otherwise been found to exist."5 Thus, under Tobacco II, only the named...