California's Fourth Appellate District Holds That Named Plaintiffs In Putative Class Actions Alleging Misrepresentation And Deception Under The UCL'S "Unlawful" Prong Must Plead Actual Reliance

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On April 19, 2010, California?s Fourth Appellate District decided two companion cases – Durell v. Sharp Healthcare, --- Cal.Rptr.3d ----, 2010 WL 1529322, Cal.App. 4 Dist., April 19, 2010 (NO. D054261) and Hale v. Sharp Healthcare, --- Cal.Rptr.3d ----, 2010 WL 1529329, Cal.App. 4 Dist., April 19, 2010 (NO. D054637) – that mark a potentially significant development in pleading standards under California's Unfair Competition Law, California Business & Professions Code sections 17200, et seq. (“UCL”). Broadly speaking, both Durell and Hale stand for the proposition that named class plaintiffs alleging a UCL violation under the “unlawful” prong of the statute must now also plead “actual reliance” when the conduct challenged involves “misrepresentation and deception.” Stated another way, plaintiffs alleging unlawful conduct stemming from misrepresentation and deception under the UCL now must actually have relied on the defendant's alleged misrepresentation; proximate cause or a mere “factual nexus” is insufficient. Both decisions extend the reasoning of the California Supreme Court's recent decision in In re Tobacco II Cases (2009) 46 Cal.4th 298 (Tobacco II), which addressed the requirements for pleading standing under the UCL's “fraud” prong, to UCL class actions brought under the “unlawful” prong, at least where the conduct challenged involves misrepresentation and deception.

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