The California Court of Appeal recently confirmed, in case there was any doubt, that plaintiffs must allege (and ultimately prove) actual reliance to adequately state a fraudulent prong Unfair Competition Law claim (Cal. Bus. & Prof. Code 17200). In Goonewardene v. ADP, LLC, the plaintiff brought a variety of claims related to her alleged wrongful termination, both against her former employer, and the employer’s payroll services provider. The Court of Appeal determined, among other things, that plaintiff lacked standing to bring the fraudulent prong UCL claim against the payroll services provider.

The Goonewardene court examined two potential bases for plaintiff’s UCL claim. First it considered plaintiff’s allegation that the payroll services provider had made a number of false or misleading advertisements related to its provision of services, including its payroll records maintenance. The court determined plaintiff lacked standing to bring this claim. As the court recognized, the UCL limits standing to any “person who has suffered injury in fact and has lost money or property as a result thereof.” To meet this standing requirement, a plaintiff must allege facts showing he or she suffered an economic injury caused by the alleged violation. In the context of a fraudulent, rather than unfair or unlawful, prong UCL claim, a pleading of actual reliance is required. That means the plaintiff must have “suffered economic injury as a result of his or her reliance on the truth and accuracy of the defendant’s alleged representations.”

Plaintiff failed to allege such reliance. Although the complaint identified defendant’s allegedly false or misleading advertising, plaintiff did not allege she actually saw it. The complaint contained no allegations she was exposed to the allegedly misleading statements or that they affected her conduct.

Goonewardene rejected plaintiff’s argument that the phrase “as a result of” requires a showing of either reliance on or causal connection to the alleged misrepresentation. Plaintiff’s argument depended on an appellate court construction of the phrase permitting both. Although this construction was examined by the California Supreme Court’s in Kwikset Corp. v. Superior Court, the Kwikset court concluded only actual reliance satisfies the UCL’s standing requirement. As the court explained, the “causal mechanism of fraud” is reliance, and thus a plaintiff proceeding on an alleged misrepresentation as the basis of a UCL action must allege actual reliance on the misrepresentation. A UCL plaintiff must allege he or she was motivated to act or refrain from action based on the truth or falsity of the alleged statement, not merely on the fact it was made. The Goonewardene court reiterated, as the California Supreme Court has concluded, a simple allegation of causation does not result in UCL standing.

To the extent plaintiff’s fraudulent prong UCL claim was based on alleged misrepresentations in plaintiff’s earning statements, the court observed there was no allegation the payroll services provider received a benefit from plaintiff’s unpaid wages. Therefore, there was no basis for restitutionary recovery against the defendant and the UCL claim was dismissed.