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Veera v. Banana Republic, LLC: How the California Court of Appeals Has Reduced Proposition 64 (2004) to 40% Off its Intended Value

Posted in California Courts, Corporate Litigation, Professional Liability, Uncategorized

california-160550_960_720California’s Unfair Competition Law

The Legislature enacted California’s Unfair Competition Law (the “UCL”) to deter unfair business practices and protect consumers from exploitations in the marketplace. Allen v. Hyland’s Inc. (C.D. Cal. 2014) 300 F.R.D. 643, 667. Under the UCL “unfair competition” means “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act.” Bus. & Prof. Code, §§ 17200; 17500. The Legislature initially imposed no standing requirements for private litigants to bring suit and, “[a]s a result, a private individual or entity with no relationship to the alleged wrongful practice could use the statute to force a business to repay substantial sums arguably acquired through a UCL violation.” In re Tobacco II Cases (2009) 46 Cal.4th 298, 329 (dissenting opinion).

In November 2004, California voters passed Proposition 64, a ballot proposition designed to prevent “shakedown suits” brought under the UCL. In re Tobacco II Cases, 46 Cal.4th at 316. Lawmakers aimed Proposition 64 at “unscrupulous lawyers” who exploited the UCL’s generous standing requirement to extort money from small businesses by bringing frivolous lawsuits. Id.[1]  

Proposition 64 required that for private litigants to bring an action under the UCL the litigant must suffer an actual economic injury as a result of the unfair business practice at issue. Bus. & Prof. Code, § 17204. Critically, under Proposition 64, local public prosecutors can still bring UCL lawsuits without meeting the more stringent standing requirements applicable to private litigants. Bus. & Prof. Code, § 17204. Thus, while Proposition 64 limited private litigants’ standing to sue under the UCL, government prosecutors’ standing was in no way affected by this law. Californians For Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 232.

The Aftermath of Proposition 64

Ever since the Legislature amended the UCL pursuant to Proposition 64, California courts have been faced with the issue of interpreting the “as a result of” language under the UCL. The California Supreme Court has opined the “as a result of” language requires that a putative plaintiff actually relies on the conduct at issue in order to have standing to sue under the UCL. In re Tobacco II Cases (2009) 46 Cal.4th 298, 326. The actual reliance need not be the only cause of the plaintiff’s harm; so long as the reliance is a substantial factor in actually influencing the plaintiff’s decision, standing will lie. Id., at 326-27.

In 2016 the Court of Appeal for the Second District recognized that the “as a result of” language required “reliance on a statement for its truth and accuracy.” Goonewardene v. ADP, LLC (2016) 5 Cal.App.5th 154, 185 (citing Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 327).

Veera v. Banana Republic, LLC

The California Supreme Court will have another opportunity to further define “as a result of” under the UCL in a case which appellant Banana Republic recently filed for review. In Veera v. Banana Republic, LLC the plaintiffs alleged that they were “lured” into a Banana Republic store by a 40% off sign only to be told at the register that some of the items they chose to purchase were not subject to the sale and were full priced. (2016) 6 Cal.App.5th 907, 910. According to the plaintiffs, they ultimately purchased some of the items at full price, despite the fact that they were informed that the clothing they chose was not subject to the sale, because they felt “embarrassed” because lines were forming behind them. Id.

Based on the foregoing, the plaintiffs brought claims pursuant to the UCL.[2] Banana Republic moved for summary judgment arguing that the plaintiffs did not have standing to sue because they did not suffer from a legally cognizable injury under the UCL as amended under Proposition 64, which the trial court granted. Veera, 6 Cal.App.5th at 911-12. In reversing the trial court’s order of summary judgment in a 2:1 decision, the Court of Appeals found a triable issue of material fact as to whether the plaintiffs actually relied on the 40% off sign to make their purchase. Id., at 919. The Court reasoned that plaintiffs’ reliance on the advertising “informed their decision to buy, which culminated in the embarrassment and frustration they felt when, as items were being rung up, they learned the discount did not apply,” thus concluding that the alleged misleading advertising was a substantial factor in causing their ultimate decision to buy. Id., at 920.

The dissenting justice, the Honorable Patricia A. Bigelow, honed in on the fact that the plaintiffs learned of the full price prior to buying the items, and that accordingly, the plaintiffs themselves were ultimately responsible for their “induced” purchases: “The only legally cognizable economic injury the plaintiffs in this case allege they suffered was the money they spent on full-priced clothes. Whether or not the store window signs were ambiguous or misleading, it is undisputed that before the plaintiffs incurred any economic injury, they learned the clothes they had selected were not 40 percent off. They then changed their purchase decisions, choosing to buy only some of the items they had selected, fully aware they were not discounted.” Veera, 6 Cal.App.5th at 924 (emphasis added). Ultimately, the dissenting justice reasoned that where a putative plaintiff “knows the true facts before consummating the transaction that causes the injury” this is, in effect, a superseding cause to any economic harm experienced by the plaintiff. Id., at 926 (emphasis added).

The Court of Appeals Diminished the Standing Requirement of the UCL

Given the purpose of Proposition 64, it seems the Court of Appeal’s interpretation and application of the UCL in Veera is a departure from the voter-chosen amendment and the Supreme Court’s interpretations of that amendment. Although protecting California’s citizens from unfair competition is a noble and necessary mission, “protecting” consumers from an action which they ultimately enter into with their eyes wide open is not consistent with the spirit of the UCL. Plaintiffs themselves broke the causal chain when they, with the knowledge that the price of the clothing was not discounted 40%, chose to proceed with the purchase anyway. Thus, the 40% off advertisement was no factor, let alone a substantial factor, in the plaintiffs’ ultimate purchasing decision.

Such a ruling, which allows plaintiffs to bring suit, despite the fact that the purchaser knew the items were full priced prior to making the purchase (i.e., prior to incurring any actual damages), is not what the Legislature, nor the voters, intended. Ultimately the Court of Appeals’ interpretation of the UCL renders Proposition 64 at 60% of its intended strength, that is, 40% off its voted-for value.

We expect this case will be subject to further scrutiny by the California Supreme Court.  Hopefully, it will hear this case and, consistent with the state of the law, affirm the trial court’s ruling which granted Banana Republic’s motion for summary judgment.

[1] See also http://blogs.wsj.com/law/2011/01/28/calif-high-court-to-corporate-america-labels-matter/?mg=id-wsj; http://vigarchive.sos.ca.gov/2004/general/propositions/prop64-title.htm

[2] Plaintiffs also brought causes of action under the False Advertising Law (Bus. & Prof. Code, § 17500 et seq.) and the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.).