Watershed Unfair Competition Decision

July 12, 2006: Yesterday, the California Court of Appeal may have forever changed the world of state unfair competition and class action law. (Pfizer v. Superior Court, Case No. B188106, slip opinion available at: http://www.courtinfo.ca.gov/opinions/documents/B188106.PDF

Pfizer it could well the biggest breakthrough for defendants in the long, tortured history of California's Business & Professions Code section 17200. The decision applies Proposition 64, the 2003 measure designed to reform some of the major abuses of 17200 suits, reinstating such long-absent requirements as: plaintiffs must have standing to sue, suffer actual harm, and have relied on the allegedly wrongful business practice.

1. The class members must have suffered injury in fact and actually lost money or property as a result of such violation. It is not enough that the class representative or named plaintiff satisfy this requirement.

2. The mere likelihood of harm to members of the public is no longer sufficient for standing to sue. Those who have suffered no injury in fact and who have not lost money or property from the business practice cannot state a cause of action based on the “likelihood” that members of the public will be deceived.

3. A plaintiff must have actually relied on the false or misleading misrepresentation or advertisement in entering into the transaction in issue.

A round of applause here to John Sullivan of the Civil Justice Association of California, and his dedicated staff, without whom there would be no Proposition 64.

UPDATE: the plaintiffs filed a petition for review in the California Supreme Court on Aug. 11, 2006. The court has 60 days from date of filing to decide whether to grant review.

Insured May Assign Right To "Brandt" Attorney Fees

In a unanimous opinion, the California Supreme Court held last week that when an insured assigns a claim for bad faith against the insurer, and the assignee brings a tort action against the insurer that includes a claim for wrongfully withheld policy benefits, the assignee may recover Brandt fees. (Essex Ins. Co. v. Five Star, S131992 - slip opinion available at http://www.courtinfo.ca.gov/cgi-bin/opinions/.cgi/)

Over 20 years ago, the high court gave the insured the right to attorney fees attributable to the insured's attempt to recover policy benefits tortiously withheld by the carrier. (Brandt v. Superior Court (1985) 37 Cal.3d 813.) It reasoned that when an insurer has deprived the insured of policy benefits in bad faith, attorney fees the insured reasonably and necessarily incurs to obtain those policy benefits constitute an economic loss proximately caused by the insurer’s tort, and thus those attorney fees (now commonly referred to as Brandt fees) are recoverable as tort damages.

The court reasoned that disallowing recovery of Brandt fees incurred by assignees would also tend to discourage assignment of bad faith claims against insurance companies, contrary to the public policy favoring transferability of causes of action.