Yesterday's appellate oral arguments on Prop. 64
As many of you know, yesterday the Court of Appeal, Fourth Appellate District, Division Three, heard oral arguments in two appeals in which the Court, sua sponte, requested supplemental briefing on the Prop. 64 retroactivity issue. Reader Thomas R. Freeman of Bird Marella in Century City attended the hearing, and sent me the following very interesting and well-written summary:

The Court of Appeal, 4th App. Dist., Div. 3 (Justices Rylaarsdam, Bedsworth & Moore), heard oral argument this afternoon in Jones v. Citibank and Wilens v. JP Morgan, which were consolidated for argument and will likely be consolidated on the merits when the opinion is issued. In both cases, plaintiffs/respondents were represented by Jeffrey Wilens, and defendants/appellants were represented by Julia Strickland.

These appeals raised an interesting question of law, separate and apart from the Prop 64 issue. Not having read the briefs, my best guess is that the question is whether California Courts may properly decline to enforce foreign law that results in a waiver of a California-residing plaintiff's right to bring a class action lawsuit when the foreign state's substantive law otherwise applies under California's choice-of-law rules. Does California's fundamental policy against such waivers justify a refusal to enforce the foreign law. If so, does enforcement of this fundamental state policy violate the Supremacy Clause of the US Constitution if applied in a case subject to the Federal Arbitration Act?

On the way to this dance before the appellate court, however, California voters passed Prop 64. The appellate court ordered the parties to file letter briefs addressing whether Prop 64 applies to this case, which was pending on appeal at the time it passed.

Before describing the Prop 64 argument, it is important to note the foolishness of trying to read too much into the questions and comments of the justices. Towards the end of oral argument, Justice Rylaarsdam stated that "we have not yet decided what to do with Prop 64." That caveat should dissuade any reasonable person from attempting to read too much into the questions and comments of the justices at today's hearing. But sadly dear reader, I am not a reasonable person, as evident from the fact that I drove from LA to Santa Ana in the middle of a work day for no reason other than to test my skills as a legal soothsayer. So here goes.

Justice Moore led off the Prop 64 discussion by asking defense counsel the following question: "What if we rule in your favor on Prop 64? Should it go back to the trial court to allow your opponent to amend and correct the deficiency?" Ms. Strickland argued that there was no need to send the case back to the trial court for that purpose because plaintiffs failed to allege facts sufficient to establish injury in fact under Prop 64. In responding, defense counsel acknowledged that one of the plaintiffs was a cardholder, but that alone would not justify an inference that the bank policy under attack caused that person to lose money or property. Justice Moore asked whether the appellate court should make the determination that the plaintiff cannot possibly amend the complaint to allege facts sufficient to establish an injury in fact; she asked whether the appellate court could properly make such a determination, suggesting (but not stating) that this issue is properly decided by the trial court after plaintiff has attempted to allege facts supporting an injury in fact.

Justice Rylaarsdam followed up to defense counsel's response by stating: "But this was plead before Prop 64. So shouldn't they have an opportunity to re-plead?" While Ms. Strickland did not concede the point, she indicated that the issue was not as important to her as whether Prop 64 applied to the case, which is the key Prop 64 issue.

When Prop 64 was raised with plaintiffs' counsel, Mr. Wilens, he argued that the plaintiffs have already alleged facts sufficient to support "injury in fact" under Prop 64. He then argued that, although Prop 64 does not terminate his clients' claims, it nevertheless should not be applied to pending cases as a matter of fundamental fairness. He argued that a voter-passed initiative should be construed strictly according to its language and where, as here, that language and the voter pamphlet materials say not a word about the statute's application to pending cases, then the initiative should not be applied to pending cases.

Justice Rylaarsdam responded that the UCL is a statutory remedy and Prop 64 simply takes away a statutory remedy. He then asked Mr. Wilens whether he would agree that it is well established black letter law that if a statutory remedy exists and is repealed then the remedy cannot be applied in pending cases. Rylaarsdam continued by asking Wilens to put aside Prop 64 and 17200 for the moment and consider only this one simple proposition: The repeal of a statutory remedy applies to cases pending at the time of repeal.

Wilens agreed with that general proposition, but stated that the proposition has no application to Prop 64 because prop 64 eliminates a "cause of action" not a remedy. Prop 64 takes away a "cause of action" because this plaintiff cannot sue upon its passage. Justice Rylaarsdam's questions, however, suggested that he believes that Prop 64 simply limits the remedy, without taking away the "cause of action."

That is, Prop 64 does not eliminate the cause of action based on unfair, unlawful or deceptive business acts or practices, it just limits the "remedy" by allowing only the Attorney General and individuals suffering injury in fact to bring such a claim. He said "we are not talking about [taking a cause of action away from] a plaintiff who is injured."

At that point, Justice Bedsworth asked Mr. Wilens whether his position was that his client has lost a "cause of action" not just a remedy? Wilens responded that this was his position, and he stated that a plaintiff, acting as a "pure" Private Attorney General (which he also said that his clients were not, since they have suffered injury) has lost the right to bring a "cause of action."

At that point, Justice Rylaarsdam stated that "we have not yet decided what to do with Prop 64." He also said that, whatever the ruling in this case, the losing party will likely file a petition for review, either on the Prop 64 issue or the waiver issue, which is presently before the state supreme court. So, he said, no matter what, this case will not be "over" for a while. But he also noted that the court would not defer its decision until the waiver issue is resolved by the supreme court, as defense counsel requested.

Time to read the tea leaves. Justice Rylaarsdam's questions and comments suggest that he believes that Prop 64 is properly applied to pending cases. First, he seems to accept to defense-side argument that a statutory remedy created by the legislature terminates upon repeal, absent a savings clause. This principle, if applied, would require application of Prop 64 to pending cases. But his comments went further by suggesting a distinction between the repeal of a "remedy" and a "cause of action." The repealer rule argued by defendants throughout the state does not seem to hinge on this remedy/cause of action distinction. But I believe Justice Rylaarsdam's point is that the claimed unfairness of applying Prop 64 to pending cases is not significant because Prop 64 does not terminate the right to bring a UCL claim by anyone who actually suffers an injury. It simply limits the "private attorney general" mechanism for enforcement of the law, which is perhaps akin to a merely procedural change, as opposed to a substantive law change. Courts will apply procedural changes retroactively. But whatever the significance of the distinction between remedy and cause of action, it seems that Justice Rylaarsdam believes that Prop 64 applies to pending cases.

Justice Bedsworth did not say enough on this issue to draw any conclusions. As for Justice Moore, she seemed very focused on an issue that arises only if Prop 64 is deemed to apply to pending cases: Whether plaintiffs should have an opportunity to amend their complaints to allege facts sufficient to establish injury in fact. I think she is staking out a position that is important only because the Division is about to hold that Prop 64 applies to pending cases. That opinion may well come through a different case, presumably the [Consumer Advocates v.] Daimler-Chrysler case, which shares only one common member with this panel. But I cannot believe that this issue has not been the subject of analysis and discussion by the entire Division, and I doubt very much that there will be a split within the Division.

Many thanks to Tom for providing such a great report. Another oral argument is scheduled for today in the same District and Division, but before a slightly different panel: Justices Rylaarsdam, Bedsworth, and Fybel.
- posted by Kim Kralowec @ 9:07 AM