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March 2010

Positive Developments in California Case Law on Class Certification after Tobacco II

Pfizer Inc. v. Superior Court of Los Angeles County (Galfano), California Court of Appeal for the Second Appellate District Case No. BC327114 (March 2, 2010)

There is some good news to report with respect to the developing case law in California on class certification following the California Supreme Court's Tobacco II decision.

Prior to the 2004 amendment of the UCL by Proposition 64, class actions could be initiated under that statute by any member of the general public – even someone not affected in any way by the allegedly improper practice. However, after Proposition 64 was passed, a person can bring a UCL class action only if he or she has standing to sue – i.e., "has suffered injury in fact and has lost money or property as a result of [such] unfair competition."

Questions subsequently arose as to whether Prop. 64's standing requirements apply to all class members, or just to the named class representative. This is a critical issue because it bears directly on the question of whether such cases should be certified as class actions.

In Tobacco II, the California Supreme Court held that only the named class representative need have standing; absent class members need not. Many in the defense bar are concerned that the Tobacco II decision makes it much easier for plaintiffs to certify consumer fraud class actions under the UCL, contrary to the spirit of Prop. 64. Standing often reduces to the question of reliance. If reliance must be proven for every class member (and not just the class representative), certification of such claims would rarely be appropriate. But, to the extent the Tobacco II decision can be interpreted as holding that the experiences of the individual class members, and the varying information available to them, are irrelevant to the class certification analysis, then it becomes much easier for plaintiffs to obtain certification of consumer fraud cases under the UCL.

In some respects the Tobacco II decision raised more questions than it answered, and while it will take time for these questions to be sorted out, the decision in Pfizer is a good start for the defense bar.

In Pfizer, the court held that the Tobacco II decision is largely limited to situations in which the misrepresentations take the form of "a massive, sustained, decades-long fraudulent advertising campaign," and explained that the decision "does not stand for the proposition that a consumer who was never exposed to an alleged false or misleading advertising or promotional campaign is entitled to restitution." The Pfizer court further held that class certification is not appropriate where, as in that case, the actual representations to class members varied and not all members of the putative class were exposed to the alleged misrepresentations. In other words, although a plaintiff moving for class certification need not show that all absent class members uniformly relied on the alleged misrepresentations, plaintiff must at least show that the same representations were in fact made uniformly to each class member. Absent that showing, class certification is improper – at least, according to the Pfizer court.

Unfortunately, other intermediate appellate courts have reached conclusions contrary to the holding in Pfizer. See e.g. Steroid Hormone Product Cases, Court of Appeal (Second Appellate District), Case No. B211968 (Jan. 21, 2010) (reversing order denying class certification on the grounds that once the named plaintiff shows he or she suffered injury in fact and lost money or property as a result, no further individualized proof of injury or causation is required to impose restitution liability against the defendant in favor of absent class members); McAdams v. Monier, Court of Appeal (Third Appellate District), Case No. C051841 (Feb 24, 2010) (reversing denial of class certification on grounds that relief under the UCL [including restitution] is available without individualized proof of deception, reliance and injury).

Until the Supreme Court provides further guidance in this area, the intermediate appellate courts will continue to struggle in interpreting and applying Tobacco II, making it even more difficult than usual for defendants to predict the outcome of class certification motions.

We will update you further as the law continues to develop on this most interesting and important issue.

Commercial Litigation

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Unfair Competition