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Legislative Update March 2005

By Amy Doherty - Fisher & Phillips LLP

Appeal Courts Disagree on Retroactivity of Proposition 64

The plaintiff bar scored a surprising victory on February 1, 2005 when the First District Court of Appeal ruled that Proposition 64 -- the November ballot initiative that restricts the state's private attorney general act -- is not retroactive, meaning it does not apply to lawsuits filed before November 3, 2004.

The case, Californians for Disability Rights v. Mervyn's, LLC, involved a complaint under the state's unfair competition law, Business & Professions Code §17200, that said aisles in Mervyn's department stores are too narrow for disabled shoppers. Californians for Disability Rights ("CDR") is a nonprofit corporation organized to protect the interests of persons with disabilities. The lawsuit pleaded a single cause of action seeking injunctive relief against the alleged unlawful business practices by Mervyn's.

The case proceeded to a bench trial in August 2003. The court denied relief to CDR and entered judgment in favor of Mervyn's. CDR appealed. While the case was pending on appeal, the voters of California amended the statute under which the case had been prosecuted. Proposition 64 limits private enforcement of unfair business competition laws by providing that a private person may not bring a lawsuit unless he or she has suffered injury and lost money or property as a result of the challenged business practices, and meets the requirements for a class representative in a class action. Thereafter, Mervyn's moved to dismiss the appeal upon the claim that Proposition 64's change in standing requirements applies to pending actions, and compels the dismissal of CDR's appeal.

The court's opinion came after a series of conflicting trial court rulings, most in favor of retroactivity. The First District was plain in its ruling holding that Proposition 64's amendments do not apply to cases pending before November 3 because Proposition 64 contains no statutory language expressing an intent that it applies retroactively; and absent such intent, the presumption against retroactivity governs.

Proposition 64's author disagreed with the decision stating that while the initiative is silent on its application to pending cases, they certainly felt when they drafted it that it would be held applicable. Further, many legal analysts believe that the Mervyn's court got it wrong by failing to apply a longstanding line of cases and the bright-line distinction between statutory amendments that alter common law rights versus statutory amendments that repeal statutory rights.

Only eight days later, the Second District Court of Appeal disagreed when it ruled that Proposition 64 is retroactive and applies to pending cases. In Branick v. Downey Savings and Loan, the issue concerned recording fees charged by a savings and loan. Plaintiffs did not allege that they personally engaged in any real estate financing transaction with Downey, nor that they personally suffered any injury as a result of Downey's alleged unfair competition. Instead, they alleged that they brought their claims as a representative action on behalf of the general public. Holding Proposition 64 retroactive, the Plaintiffs could not continue with their case since they suffered no injury.

The next day, the Fourth District Court of Appeal also ruled that Proposition 64 is retroactive and applies to all pending cases filed under Business & professions Code §17200. In Benson v. Kwikset, plaintiff lawyers convinced a trial court that a lock maker illegally labeled products "Made in the USA" when certain components actually had been manufactured abroad.

After a December 2001 trial, the Superior Court found defendants had marketed products in packaging that contained misleading country of origin labels. The trial court entered a judgment for plaintiff enjoining defendants' use of inaccurate labels, and also ordering them to allow retailers and distributors to return mislabeled products for either a refund or replacement. Subsequently, the court entered an order awarding plaintiff costs, plus his attorney fees but denied plaintiff's request to include in the fee award certain other litigation expenses that could not be recovered as costs. Both parties filed appeals.

During this time, Proposition 64 passed. Defendants then filed a motion seeking to vacate the trial court's judgment and dismissing the action on the ground Proposition 64 eliminated the statutory authority for plaintiff to maintain this action. The Fourth District concluded the amendments implemented by Proposition 64 applied to this action and ordered the judgment and post-judgment order vacated. The opinion took direct aim at the anti-retroactivity ruling by the First District stating that it was "unpersuasive."

Plaintiff lawyers disagree with these latest rulings, but conflicting appellate decisions were expected. Essentially, we are guaranteed that the Supreme Court will have to decide which interpretation will carry the day.

Fisher & Phillips LLP is a national law firm representing employers exclusively in labor and employment matters. Amy Doherty works in the San Diego office of Fisher & Phillips LLP and can be reached at (858) 597-9600.

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