The decision, pertaining to a case over whether Listerine misleadingly advertised that dental floss can reduce plaque and gingivitis, was handed down by a three-judge panel of the state's 2nd Appellate District and is likely to be appealed. But business and advertising groups across the country are hopeful it will rein in a spate of California class-action suits filed against marketers. Because of California's size and importance, the Listerine decision could have far-reaching effects.
"It's extremely big news and important for the marketing community," said Dan Jaffe, exec VP for the Association of National Advertisers. "California has had some of the loosest class-action rules in the country and has seen a whole range of cases brought against advertisers."
Consumers act as attorney general
California's unusual consumer-protection laws allow consumers to act as the state attorney general and file their own consumer-protection actions asserting that marketing is "false and deceptive," which they can take to court without having to prove the deception.
"It was incredibly dangerous," said John Kamp, executive director of the Coalition for Healthcare Communication, which participated in the friend-of-the-court brief. He said the law promotes "frivolous" suits in which the main aim is to get smaller companies to settle, but also affects bigger companies.
For example, a lawsuit filed in California against Nike -- in which a consumer charged Nike of misleading marketing in company press releases and letters to the editor -- went to the U.S. Supreme Court, which sent it back to lower courts. That suit was eventually settled.
As a result of the Nike case and others, business groups mounted a push to get the Proposition 64 referendum on the ballot, and in November 2004 it was approved by California voters. The measure required an "injury in fact" before consumers could step in as attorney general and also required proof of injury before a complaint could become a class-action suit. The appellate court's decision is one of the first rulings to dictate how that proposition applies.
Overturned previous ruling
The decision overturned a lower court's decision, which certified consumer Steve Galfano's complaint about Listerine's marketing as a class-action case. The appellate court ruled that while Mr. Galfano may have been hurt there wasn't proof to demonstrate that others lost money or property or bought products based on the ads.
"Unless an action is brought by the attorney general ... the mere likelihood of harm to members of the public is no longer sufficient for standing to sue," the court ruled. "Persons who have not suffered any injury and have not lost money or property as a result of an alleged fraudulent business practice cannot state a cause of action merely based on the 'likelihood' that members of the public will be deceived."
Attorneys for Mr. Galfano and California Attorney General Bill Lockyer did not return calls seeking comment.