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Zermeno v. Precis

December 23, 2009


APPEAL from a judgment of the Superior Court of Los Angeles County. Edward A. Ferns, Judge. Reversed and remanded. (Los Angeles County Super. Ct. No. BC300788).

The opinion of the court was delivered by: Rubin, Acting P. J.


Plaintiffs Manuela and Juan Zermeno appeal from the judgment entered for defendants in their unfair competition action after the trial court found that the pre-trial settlement of their damage claims meant they no longer had standing to sue under the new standing requirements of Proposition 64. We hold that the changed standing rule was not intended to apply to cases pending when it took effect where a plaintiff had suffered actual injury as required by the new law, but settled that portion of its action before Proposition 64 took effect.


Manuela and Juan Zermeno joined a healthcare discount program offered by Care Entrée in December 2001.*fn2 For a monthly fee of $54.95, deducted automatically from the Zermenos' bank account, Care Entrée offered access to groups of healthcare providers who would charge discount rates. When three dentists identified on Care Entrée's list of providers said they did not participate in the program and would not offer discounts, the Zermenos tried to cancel their membership in the program. Care Entrée did not terminate their membership for another year, however, and continued to withdraw the monthly fee from the Zermenos' account. When Care Entrée finally ended the Zermenos' contract, it refunded less than $200 of the $714.35 it had taken from them.

In August 2003, the Zermenos sued Care Entrée in the Los Angeles Superior Court, alleging that Care Entrée had violated the law governing discount buying services. (Civ. Code, § 1812.100 et seq.) They also alleged that Care Entrée's violation of that law amounted to unfair competition, in violation of Business and Professions Code section 17200. Care Entrée removed the action to federal court, where the Zermenos filed a first amended complaint that added a claim for violation of Health and Safety Code section 445, which bars the operation of for-profit healthcare referral services.*fn3 The unfair competition claim was amended to include a violation of that provision, along with the discount buying service claim.

On October 4, 2004, Care Entrée and the Zermenos reached a partial settlement. The parties stipulated to remand the action to state court solely to litigate the Zermenos' injunctive relief claims under Health and Safety Code section 445 and the unfair competition laws. Care Entrée would pay the Zermenos $25,000 as full compensation for damages of any kind, including their restitution claims for unfair competition and their damage claims under the discount buying service laws. The Zermenos also agreed to forego any unfair competition restitution claims on behalf of the general public. The settlement was subject to approval by the federal district court, and on October 7, 2004, that court approved the agreement and remanded the action to the Los Angeles Superior Court.

After remand, the state court denied the Zermenos' motion for summary adjudication of their Health and Safety Code section 445 claim because that statute allowed only the Attorney General to sue, and did not confer a private right of action.*fn4

On November 2, 2004, the voters approved Proposition 64, which amended the unfair competition law to state that a person has standing to sue for unfair competition only if he "has suffered injury in fact and has lost money or property as a result of [such] unfair competition." (See Bus. & Prof. Code, §§ 17203, 17204, as amended by Prop. 64, §§ 2, 3.) Before then, anyone acting for the general public had standing to sue for relief from unfair competition even if he had not suffered any injury. (Former Bus. & Prof. Code, §§ 17203, 17204; Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 561.)*fn5 The initiative's findings and declarations of purpose stated that it was designed in part to stop lawyers from filing unfair competition actions if they have "no client who has been injured in fact under the standing requirements of the United States Constitution." (See Historical and Statutory Notes, 4D West's Ann. Bus. & Prof. Code (2008 ed.) foll. § 17203, p. 409.) The new law took effect the day after its passage. In July 2006, our Supreme Court decided Californians for Disability Rights v. Mervyn's, LLC (2006) 39 Cal.4th 223 (Mervyn's), which held that Proposition 64's new standing requirement applied to all pending unfair competition actions, including those filed before the changed law took effect.

The Zermenos' case went to trial in June 2007 on the theory that they could seek to enjoin Care Entrée's alleged violation of Health and Safety Code section 445 under the unfair competition law. (See Stop Youth Addiction, Inc., v. Lucky Stores, Inc., supra, 17 Cal.4th at pp. 562-563 [plaintiffs can bring unfair competition action for violation of any statute, even if that statute does not confer a private right of action].) The trial court found that they lacked standing to pursue their unfair competition claim because, under Mervyn's, supra, 39 Cal.4th 223, the new standing requirements applied to their action, and because their 2004 settlement and release of all damage claims meant they no longer had any injury in fact.

The Zermenos contend the trial court erred when it ruled on their earlier summary adjudication motion that they lacked standing to sue under Health and Safety Code section 445, and when it found at trial that the settlement of their damage claims eliminated their standing to sue for unfair competition.*fn6


1.The New Standing Requirement Does Not Apply to This Unique Factual Situation

It is undisputed that up to the time of the settlement, the Zermenos had a claim for actual injury that would have conferred standing under Proposition 64. They contend those injuries continued to give them standing even after the settlement and the decision in Mervyn's. Care Entrée contends that Mervyn's "foreclosed" the standing issue against the Zermenos. We conclude that Proposition ...

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