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California Reinstates Tobacco Fraud Class Action

Interprets state proposition in favor of consumers

By Jon Hood
ConsumerAffairs.com

May 19, 2009

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The California Supreme Court reinstated a class action lawsuit against tobacco manufacturers on Monday, giving consumers the go-ahead to sue for fraudulent advertising they allege hid the harmful effects of tobacco use.

The ruling brings back to life a class action suit against eight tobacco manufacturers, which claims that the companies engaged in a "decades-long campaign of deceptive advertising and misleading statements" about the effects of tobacco use. Among the defendants are industry giants Philip Morris and R.J. Reynolds.

The 12-year-old suit was originally thrown out by the California Court of Appeals, which ruled that Proposition 64 prevented the suit from proceeding.

Prop 64, passed by California residents in 2004, amended the Unfair Competition Law by providing that only those who personally suffered financial loss could sue for for fraud or unfair business practices.

The voter-passed law is a coup for big business, as it specifically requires that everyone who takes part in a class action suit alleging fraud show personal damage or monetary loss. As we have seen before, perhaps the biggest death knell to class actions is a finding that there are individual issues of damage or causation, and that the plaintiffs will have to bring their suits separately. Such a ruling effectively means there will be no suits at all, since individual actions are almost never worth the time and expense they generate.

The Court of Appeals interpreted Prop 64 to require all potential class members — including those not named in the suit — to show that they had lost money as a result of the advertising. The Supreme Court disagreed, ruling that the law only required such a showing for named plaintiffs.

Justice Carlos Moreno, writing for the majority, said that the law was only intended to stop "shakedown" lawsuits against businesses, and was passed in response to the practice of small business paying lawyers off to make threatened suits go away. Moreno said that the Court of Appeals' view "would effectively eliminate the class action lawsuit as a vehicle for vindication of (consumer) rights." Moreno also pointed out that Prop 64's sponsors explicitly provided in ballot arguments that they did not intend to weaken consumer protection laws.

From a practical standpoint, to require all potential class members to show personal loss would be impossible, and would effectively end fraud-based class actions in California. Indeed, the suit at issue potentially involves millions of consumers affected by the alleged fraud.

The case has been remanded to the Court of Appeals for further proceedings. The suit was filed in 1997 by lead plaintiff Willard Brown. The class was granted by a San Diego County Superior Court judge in 2001, who subsequently decertified the class after Prop 64's passage. The decertification was affirmed by the Court of Appeals in 2006.

In addition to the count under Prop 64, the suit alleges a violation of California's false advertising law. The action seeks an injunction and damages.

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