Written by Attorneys Martin H. Karo and Mark H. Rosenberg

Note: This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

By a margin of 59% to 41%, California voters have approved Proposition 64, which imposes restrictions on the ability to bring an action under California’s unfair competition laws, Calif. Business & Prof. Code § 17200 et seq. (referred to collectively as “Section 17200”). In amending Section 17200 to provide that private parties may not file suit under the law absent allegations of injury, the referendum is likely to significantly curb a recent wave of lawsuits filed under the statute.

In its current form, “any person acting for the interests of itself, its members or the general public” is empowered to act as a “private attorney general” to pursue an action to enjoin an alleged unfair trade practice, regardless of whether the party has actually been injured by the practice. Absent the need to establish that the plaintiff (or any party) has sustained injury, Section 17200 has been utilized frequently in recent years by plaintiff’s attorneys to file individual lawsuits and class actions attacking a variety of purportedly unfair practices.

With the passage of the referendum, Section 17200 will now limit the right to sue to “any person who has suffered injury in fact and has lost money or property as a result of” the practice being challenged. Calif. Business & Prof. Code § 17535. The amended statute also stipulates that “[a]ny person may pursue representative claims on behalf of others only if the claimant meets the standing requirements” set forth above, in addition to satisfying the basic requirements for class certification under California law. Id. The amended statute does not restrict the right of the Attorney General or local prosecutors to bring a Section 17200 action, although such an action cannot be based upon the complaint of an individual who has not suffered injury as the result of an unfair trade practice. Calif. Business & Prof. Code § 17205.

It is clear that the passage of Proposition 64 will not preclude the plaintiff’s bar from continuing to file Section 17200 class actions. As in other states permitting private causes of action under state consumer protection statutes, plaintiff’s attorneys are likely to find numerous claimants willing to act as class representatives in such lawsuits. However, the incorporation of a standing requirement is likely to curb many of these lawsuits, particularly in cases where it is difficult or impossible to prove that the complained-of practice resulted in injury to the claimant. In this sense, the passage of Proposition 64 will significantly reduce the exposure of corporations doing business in California to frivolous litigation.