FEATURED ARTICLE: A Trend Emerges: The Weight of Authority Applies Unfair Competition Limitations to Pending Actions

A Trend Emerges:  The Weight of Authority Applies Unfair Competition Limitations to Pending Actions

By Peter B. Maretz and Shirley A. Gauvin

Of the pro-business victories claimed in last November's election, the passage of Proposition 64 was certainly the most prominent, bringing about important limitations to California's Unfair Competition Law, Business & Professions Code section 17200, et seq. ("UCL"). 

In enacting Proposition 64, California voters found that the unfair competition laws were being "misused," and acted to limit private enforcement actions under the UCL. Proposition 64 retained public prosecutors' authority to bring UCL actions but struck the provision in section 17204 authorizing initiation of a complaint by "any person acting for the interests of itself, its members, or the general public," and substituted a provision for enforcement by "any person who has suffered injury in fact and has lost money or property as a result of such unfair competition." Similarly, Proposition 64 amended section 17203, concerning UCL injunctive relief, to provide that a private person "may pursue representative claims for relief on behalf of others only if the claimant meets the standing requirements of Section 17204 [i.e., actual injury] and complies with Section 382 of the Code of Civil Procedure" governing class actions.

Although these limitations are significant, Proposition 64 is by no means a deathblow to the almighty 17200 claim.  In some respects, the impact of Proposition 64 was felt immediately.  The general election was on November 2, 2004, and under the California Constitution, the amendment went into effect the following day. (Cal. Const., art. II, § 10, subd. (a).)  The question emerging on November 3, however, was whether the amendment should be applied retroactively to pending claims?  With no apparent guidance in the actual language of the amendment, plaintiffs argued Proposition 64 could not be applied retroactively because the language of the statute did not provide for retroactive application.  Moreover, their argument continued, legislation that curtails a substantive right cannot be applied retroactively.  Defendants, on the other hand, argued that Proposition 64 did not impact a substantive right, but merely eliminated a right that was purely a creature of statute.  Consequently, courts should apply the law that exists at the time of consideration, whether in trial or on appeal, so long as a final judgment has not been entered. 

The first appellate court to publicly weigh in on the issue was the First District Court of Appeal in San Francisco in Center for Disability Rights  v. Mervyn's, LLC (Feb. 1, 2005) 2005 DJDAR 1347 ("CDR").  In CDR, a nonprofit corporation organized to protect the interests of persons with disabilities sued the retailer under the UCL alleging Mervyn's failed to provide adequate space between its retail displays.  Mervyn's prevailed at trial and the case was on appeal when Proposition 64 was passed.  Mervyn's moved to dismiss the appeal arguing the amendment applied to pending matters and plaintiff CDR, therefore, no longer had standing insofar as it had not suffered injury.  The Court of Appeal disagreed and, relying on the California Supreme Court decision in Evangelatos v. Superior Court (1988) 44 Cal.3d 1188, found that "the absence of any express provision directing retroactive application strongly supports prospective operation of the measure."

Case closed?  Not quite. 

On February 9, 2005, a little more than a week after CDR was decided, the Second District Court of Appeal in Los Angeles decided Branick v. Downey Savings & Loan Association (February 9, 2005) 2005 DJDAR 1665, finding that Proposition 64 did apply to pending actions.  In Branick, plaintiffs alleged Downey Savings & Loan Association violated the UCL based upon its treatment of various fees in connection with real estate financing.  Plaintiffs sued on behalf of the general public, but did not allege that they personally engaged in any real estate financing transactions with Downey or that they suffered any injury as a result of Downey's conduct.  Downey prevailed on a motion for judgment on the pleadings and plaintiffs appealed.  The appeal had been briefed, but not yet argued, as of November 3, 2004, the effective date of the UCL amendments.

In considering the application of the Proposition 64 amendments to the UCL, the Branick court first recognized the settled presumption that statutory enactments do not operate retroactively unless the legislative intent is clearly to the contrary.  However, the Branick Court acknowledged and distinguished Evangelatos, holding that by virtue of Government Code section 9606, the presumption against retroactive application does not apply when the "enactment repeals a statute that provides a purely statutory cause of action.  In that instance, the enactment takes immediate effect in all pending cases--including cases in which a judgment has been entered but the matter is pending on appeal--unless the enactment contains a saving clause."  Branick, supra, citing Governing Board v. Mann (1977) 18 Cal.3d 819, 829.  Relying upon the Supreme Court's decision in Callet v. Alioto (1930) 210 Cal. 65, the court in Branick held: "a cause of action or remedy dependent on a statute falls with a repeal of the statute, even after the action thereon is pending, in the absence of a saving clause in the repealing statute. . . . The justification for this rule is that all statutory remedies are pursued with full realization that the legislature may abolish the right to recover at any time."  Branick further distinguished Evangelatos insofar as that case addressed joint and several liability, a right that is not purely statutory, but derived from the common law.

On February 10, 2005, one day after Branick was decided, the Fourth District Court of Appeal decided Benson v. Kwikset (February 10, 2005) 2005 DJDAR 1726, concluding that the UCL amendments should be applied retroactively.  In Benson, plaintiff sued the lockset manufacturer under the UCL on behalf of himself and the general public, alleging Kwikset improperly labeled its products as “Made in U.S.A.”  The trial court found against Kwikset and Kwikset appealed.  While the appeal was pending, Proposition 64 was passed and Kwikset moved to vacate the judgment on the basis that plaintiff lacked standing under the UCL as amended by Proposition 64.  The Court granted the motion relying, as Branick did, on the Statutory Right Repeal Doctrine:  "Although the courts normally construe statutes to operate prospectively, the courts correlatively hold under the common law that when a pending action rests solely on a statutory basis, and when no rights have vested under the statute, 'a repeal of such a statute without a saving clause will terminate all pending actions based thereon.' [Citation.]"  (Governing Board v. Mann (1977) 18 Cal.3d 819, 829, quoting Southern Service Co., Ltd. v. Los Angeles (1940) 15 Cal.2d 1, 11-12.)  "'The justification for this rule is that all statutory remedies are pursued with full realization that the legislature may abolish the right to recover at any time.' [Citation.]"  (Governing Board v. Mann, supra, 18 Cal.3d at 829; see also Gov. Code,
§9606 ["Persons acting under any statute act in contemplation of (the Legislature's) power of repeal"].)”

The Fourth District addressed the issue again on February 18, 2005 in Bivens v. Corel Corp. (February 18, 2005) 2005 DJDAR 2014, holding again that the amendments to the UCL brought about by Proposition 64 applied to pending cases.  In Bivens, a consumer sued the software manufacturer on behalf of the general public for imposing undisclosed conditions to a rebate offer.  Corel prevailed on a motion for summary judgment and Bivens’ appeal was pending when Proposition 64 passed.  Justice Aaron concluded that rights and remedies under the UCL are strictly statutory.  As such, these rights and remedies do not vest until the entry of final judgment, and can and will be extinguished with repeal of the statute.  Because Bivens suffered no injury, he no longer had standing to maintain the action. 

Justice Aaron addressed the issue yet again four days later in Lytwyn v. Fry’s Electronics Inc. (February 22, 2005) 2005 DJDAR 2087, and predictably, followed the same line, applying Proposition 64 retroactively to dismiss plaintiff’s pending UCL claims.

Although the weight of authority appears to heavily favor the retroactive application of the UCL amendments, three of the five decisions are from one district, and two of those three were written by the same Justice.  However, given conflicting published decisions from different districts (and more almost certain to follow in the very near future), the issue is ripe for consideration by the California Supreme Court.  While there are number of different approaches to adopt, the Supreme Court will likely grant review in one or two lead cases, and grant review and hold on the others pending a decision in the lead case(s).  Expect a decision from the Supreme Court in the next six months to a year.  The line of cases supporting retroactive application of the UCL amendments is strong, and the criticism by Branick, Benson, Bivens and Lytwyn of CDR is persuasive.  We cautiously anticipate that the Supreme Court will hold that the amendments to the UCL arising from Proposition 64 are to be applied to all pending matters.

Peter B. Maretz and Shirley A. Gauvin are shareholders of Shea Stokes & Carter ALC. Mr. Maretz co-chairs that firm's Labor and Employment Practice Group and Ms. Gauvin heads the firm’s Appellate Practice Group.