BILL ANALYSIS
AB 102
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Date of Hearing: May 8, 2003
ASSEMBLY COMMITTEE ON JUDICIARY
Ellen M. Corbett, Chair
AB 102 (Pacheco) - As Amended: May 1, 2003
SUBJECT : UNFAIR COMPETITION
KEY ISSUE : SHOULD THE UNFAIR COMPETITION LAW BE AMENDED TO
SUBSTANTIALLY LIMIT THE CIRCUMSTANCES WHEN A CONSUMER MAY ACT ON
BEHALF OF THE GENERAL PUBLIC?
SUMMARY : Imposes additional limitations on consumers bringing
an action under California's Unfair Competition Law (UCL)
including, among other things, that a plaintiff have suffered
distinct and palpable injury, and have served a notice of intent
to sue on the defendant 90 days prior to bringing the action,
and precludes any action by a plaintiff if a public prosecutor
or another consumer has brought an action against the same
defendant. Specifically, this bill :
1)Designates a UCL action brought by a private person acting for
the interests of the general public as a "representative cause
of action."
2)Requires that a private plaintiff: (1) have suffered distinct
and palpable injury as a result of the acts or practices
prohibited by Section 17200; (2) be an adequate representative
of the interests of the general public; (3) have retained an
attorney who will adequately represent the interests of the
general public; and (4) have claims typical of the claims of
the general public.
3)Requires the private plaintiff to service a notice of intent
to sue on the defendant 90 days before the private action is
commenced.
4)Provides that a private plaintiff may not bring an action if
the Attorney General, any district attorney, any city
attorney, or any county counsel has brought an action against
the same defendant alleging substantially similar facts and
theories of liability or if any other private plaintiff has
brought a representative civil action against the same
defendant alleging substantially similar facts and theories of
liability.
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5)Requires a court to issue an order determining that a private
action may be maintained as soon as is practicable after the
commencement of the action.
6)Provides for specified rules governing discovery in private
representative actions alleging a violation of Section 17200,
including, among others, that the plaintiff's attorney present
to the court a declaration certifying that to the best of the
attorney's knowledge, information, and belief, formed after an
inquiry reasonable under the circumstances, that the discovery
requested is, among other things, not being presented for any
improper purpose, such as to discover information to be used
in another lawsuit, to harass, or to cause unnecessary delay
or needless increase in the cost of litigation.
7)Provides that in a private UCL action, the court may consider
mitigating actions taken by the defendant before the end of
the 90-day period described above in subdivision (2) that
correct the alleged acts of unfair competition. The bill
provides that the mitigating actions the court may consider
include a certified letter provided to the plaintiff by the
defendant documenting, under penalty of perjury, that the act
has been corrected.
EXISTING LAW :
1)Defines "unfair competition" as any unlawful, unfair or
fraudulent business act or practice, as any unfair, deceptive,
untrue or misleading advertising, and as any act prohibited by
the false advertising statutes. (Business and Professions
Code section 17200. All further statutory references are to
this code unless otherwise noted.)
2)Provides that actions for relief may be brought by the
Attorney General (AG), or any district attorney or, under
specified circumstances, a city attorney or city prosecutor
and by any person acting for his or her own interest or the
interests of the general public. (Sections 17204 and 17535.)
3)Provides that civil penalties for unfair competition
violations are not available to consumers. (Sections 17206
and 17536.)
4)Provides that, in such an action, the court may make any
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orders or judgments as may be necessary to prevent the use or
employment by any entity of any practice which constitutes
unfair competition or which violates the false advertising
laws, including issuing an injunction or appointing a
receiver. Existing law also provides that the court may order
restitution of any money or property which may have been
acquired by means of the unfair competition or false
advertising. (Sections 17203 and 17535.)
5)Provides that a consumer bringing an unfair competition action
on behalf of the public or of persons similarly situated is
not required to meet the requirements applicable to class
action lawsuits. ( Stop Youth Addiction v. Lucky Stores
(1998) 17 Cal. 4th 553.)
6)Provides that a court may order restitution for violations of
Section 17500 without individualized proof of deception,
reliance, and injury if it "determines that such a remedy is
necessary to prevent the use or employment of the unfair
practice ?" ( Committee on Children's TV, Inc. v. General
Foods Corp. (1983) 35 Cal. 3d 197 (citations omitted).)
7)Held the Legislature has not yet expressly authorized a court
to order disgorgement into a fluid recovery fund in a UCL
action that is brought by a private party on behalf of absent
persons and that is not certified as a class action. ( Kraus
v. Trinity Management Services, Inc. (2000) 23 Cal. 4th 116.)
In reviewing the Kraus case, the California Supreme Court
recently held in Korea Supply Co. v. Lockheed Martin Corp.
(2003) 29 Cal. 4th 1134, that disgorgement of profits is not
an authorized remedy in an individual action under the UCL
where the profits are "neither money taken from a plaintiff
nor funds in which the plaintiff has an ownership interest."
FISCAL EFFECT : The bill as currently in print is keyed fiscal.
COMMENTS : This bill seeks to amend California's Unfair
Competition Law by imposing additional limitations on consumers
bringing an action under the UCL including, among other things,
that a plaintiff has suffered distinct and palpable injury, and
have served a notice of intent to sue on the defendant 90 days
prior to bringing the action, and precludes any action by a
plaintiff if a public prosecutor or another consumer has brought
an action against the same defendant.
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The State's Preeminent Consumer Protection Statute.
California's landmark Unfair Competition Law has been a vital
tool used over the years to protect consumers, children, the
elderly, minorities and many others. This crucial consumer
protection statute has been employed by public interest
organizations, legal services offices, public prosecutors and
consumers as a critical tool to protect the public from
unlawful, unfair and fraudulent business practices. For
example, in Consumers Union v. Alta-Dena Certified Dairy (1992)
4 Cal. App. 4th 963, Consumers Union brought a UCL action
against a dairy for its misleading advertising regarding the
health benefits of raw milk. Despite the claims of the dairy in
its advertising campaign, the evidence at trial overwhelmingly
established that raw certified milk can contain particularly
dangerous organisms and, as a result of Consumer Union's suit,
the court required the defendant to disclose on its containers
the potential danger to consumers.
In another example of how this law protects consumers, in Warren
v. Safeway Stores (Alameda County Superior Court No. 663420-3,
filed 1990) a plaintiff sued the defendant under the UCL to stop
the supermarket's practice of altering the package date on
expired unsold meat and selling it as "fresh" meat. The
settlement agreement resulted in the cessation of the practice
and in an agreement by the defendant to distribute food to the
homeless in the San Francisco Bay area. Finally, in Ramos v.
Martinez (Los Angeles Superior Court No. BC158060, filed Sept.
27, 1996), a plaintiff used the UCL to stop a non-lawyer
immigration consultant who falsely represented to consumers that
she worked for the INS and could obtain residency status for
them through immigration programs for which they did not
qualify.
Historical Backdrop. California law has contained a statute
prohibiting "unfair" practices in competition since the first
Civil Code was enacted in 1872. Since 1933, the UCL has
authorized any private entity acting for the interests of
itself, its members, or the general public, to bring a civil
action seeking an injunction against acts of unfair competition
or false advertising. In 1963, the statute was expanded to
protect consumers from fraud and unfair business dealings by
prohibiting "unlawful" practices in addition to unfair
practices. California courts have interpreted this amendment to
mean that plaintiffs may "borrow ... violations of other laws
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and treat [them] ... as unlawful practices independently
actionable" under the UCL. ( Farmers Insurance Exchange v.
Superior Court (1992) 2 Cal. 4th 377, 383.) Thus, a statute
which declares a certain type of practice unlawful, but does not
expressly provide for an action by a consumer to enforce its
provisions, can be enforced by a consumer under the UCL.
In 1977, California's preeminent consumer protection statute was
revised to permit courts to order restitutionary remedies
requiring "disgorgement of money or property obtained by means
of such [unfair or unlawful] practices." ( State Farm Fire &
Casualty Co. v. Superior Court (1996) 45 Cal. App. 4th 1093,
1110.) For example, if a court finds that a business has been
unlawfully over-charging customers for a good or service, the
court may order the business to pay the difference between the
actual price it received and the price which it could have
lawfully charged.
Potential Remedies Available. Unlike public prosecutors, who
may seek civil penalties for UCL violations, the remedies
available to consumers are much more limited under the UCL; they
cannot seek penalties or damages to compensate for injuries
caused by the violation. Significantly, neither public
prosecutors nor consumers may seek punitive damages under the
UCL, even for the most egregious practices.
Instead, consumers may seek an injunction to halt the unfair,
unlawful or fraudulent practice, and restitution of any
ill-gotten gains obtained as a result of the violation. As
injunctions and restitution are equitable remedies that do not
require submission to a jury, there is no right to a jury trial,
and so private UCL actions are instead tried before a judge who
has sole discretion to determine if the alleged wrongful act is
an unfair, fraudulent, or unlawful business practice, and to
determine the appropriate equitable remedy. A court may order
restitution in a UCL action without individualized proof of
injury if it determines that such a remedy is necessary to
prevent the unfair practice.
Background on Recent Controversy Regarding Abuse of the Unfair
Competition Act. As reported in press accounts and further
illuminated at this Committee's joint hearing with the Senate
Judiciary Committee on January 14, 2003, a Beverly Hills law
firm called the Trevor Law Group ("Trevor") filed lawsuits under
the UCL naming approximately 2,207 automobile repair shops for
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violations ranging from not having valid business licenses to
failing to give customers proper paperwork. During the joint
hearing, Trevor attorneys acknowledged that many of the charges
against the defendants merely stemmed from complaints made to
the state Bureau of Automotive Repair (BAR) and listed on the
BAR's Web site. Similar suits by Trevor, plus others by the
Long Beach law firm of Brar & Gamulin, have been filed against
hundreds of other small, mostly immigrant-owned businesses,
including nail salons (for allegedly simply using the same
bottle of nail polish for more than one customer), restaurants
(for alleged health code violations), and grocery stores (for
allegedly selling pirated videotapes).
According to the AG's complaint against Trevor, described in
more detail below, Trevor filed 22 lawsuits in which they named
2,207 auto repair shops, more than 1,000 restaurants and
markets, and 210,000 "Does," or unnamed defendants. The suits
understandably provoked confusion, fear, and anger among the
business owners sued, who claimed the UCL violations alleged
against them were frivolous and unfounded. Further, the
defendants also claimed they were pressured to agree to quick
out-of-court settlements of $1,000 or more apiece, which many
paid either because they felt they could not afford to mount a
defense, or because the plaintiffs' attorneys allegedly
threatened sharp escalation of their demands if the cases were
not settled immediately.
Unprecedented Investigation and Intervention by the State Bar.
In response to these reports, the State Bar of California stated
that it initiated its largest-ever investigation of alleged
attorney misconduct, involving 40 staff who devoted over 8,000
hours to the investigation. After the completion of the
investigation, Bar officials announced in March that they would
ask a court to bar Trevor's attorneys from practicing law until
a full disciplinary hearing was held. The Bar's petition was
based on the concern that the attorneys' conduct posed a
substantial threat of harm to the public. During a two-day
hearing on the Bar's petition to move the three Trevor attorneys
to "inactive status" held on April 17 and 18, 2003, State Bar
counsel argued that Trevor had filed hundreds of lawsuits under
the UCL not on behalf of the public interest, but out of greed.
The Bar's charges against the attorneys include malicious
prosecution, conspiracy to defraud, abuse of process, and moral
turpitude. At the hearing, the State Bar Court judge asked for
additional briefing on several legal issues, and a decision is
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expected from the judge on the Bar's petition to suspend the
attorneys' practice by May 21, 2003.
Forceful Response by the Attorney General. In addition to the
Bar's prosecutions, in February, Attorney General Bill Lockyer
filed suit under the UCL against Trevor, alleging that it had
violated the very statute under which it had brought its own
suits. The AG's suit, which asks for $1 million in civil fines,
alleges that the firm operated a "shakedown" scheme, filing UCL
actions solely to obtain nuisance settlements and attorneys'
fees. The AG's complaint also alleges that there is no
connection among the businesses nor is there a relationship
between the businesses and their alleged misconduct. The suit
also asks that UCL suits brought by Trevor be dismissed and
requests a permanent restraining order to enjoin the firm from
filing new 17200 actions. Press reports also indicate the AG is
continuing to investigate four other law firms and their
associated consumer groups on whose behalf the firms have filed
UCL suits.
Action by the Courts and Other Prosecutors. On March 28, 2003,
Los Angeles Superior Court Judge West dismissed Trevor's nine
UCL cases filed in Los Angeles County against approximately
2,000 automotive repair shops and 30,000 potential "Doe"
defendants. The court also awarded sanctions to the defendants
in the cases. In addition, a San Francisco judge recently
stayed Trevor's UCL lawsuits against about 100 car dealers
pending the outcome of the actions taken against the firm by the
State Bar and Attorney General. After the dismissal of the auto
repair cases in Los Angeles, Trevor voluntarily dismissed its
cases against more than 1,000 restaurant owners in Southern
California. Finally, recent press reports indicate that a
federal grand jury is investigating Trevor, raising the
possibility of criminal action against the attorneys. Press
reports quoted one of the attorneys, Shane Han, as saying that
there were "some indications" that the law firm is currently the
subject of a federal criminal investigation.
This Bill's Approach to Amending the UCL. As noted above, this
bill seeks to amend California's Unfair Competition Law by
imposing additional limitations on consumers bringing an action
under the UCL including, among other things, that a plaintiff
has suffered distinct and palpable injury, and has served a
notice of intent to sue on the defendant 90 days prior to
bringing the action, and precludes any action by a plaintiff if
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a public prosecutor or another consumer has brought an action
against the same defendant. In support of this measure, the
author states:
[The] UCL was intended to stop unfair competition that
caused injury or harm to consumers of goods and services.
While we all agree that the law is important and
necessary, recent amendments to the code and court
interpretations have created a situation where an
individual need not demonstrate harm. Current law also
allows for the repetitive filings of actions regardless
of whether a settlement has been offered in previous
litigation.
A few examples of the flagrant abuse of the UCL law are:
A toy maker was sued because advertisements saying a
child's oven would produce snacks in under 10 minutes did
not allow for the time to mix the snack powder and
pre-heat the oven. Automotive dealers were sued because
the font size was too big or small in their newspaper
vehicle advertisements. Typewriter manufacturers were
sued in a private UCL action claiming they exaggerated
some of their models' spell check capabilities. Recently,
nail salon owners have been sued because they use the
same bottle of nail polish on more than one customer.
AB 102 attempts to modestly reform UCL by requiring a
person who files a complaint to have actually suffered
harm as a result of the unfair business act. The measure
prevents repetitive actions against the same defendant
involving an identical claim. AB 102 also limits the
scope of discovery to matters relevant to the unlawful or
unfair act specified in the complaint. This provision
ensures that an attorney will not use discovery
procedures as a fishing expedition to file subsequent
claims. Lastly, the measure provides businesses with an
opportunity to correct the act or practice and have those
mitigating actions considered by the judge when
determining the civil remedy to impose.
ARGUMENTS IN SUPPORT: Many letters were received in support of
this measure. Reflective of the arguments in support of the
bill is the letter from the National Federation of Independent
Business which states in part:
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The costs of litigation, even in the case of clearly
fraudulent charges, pose a significant burden to small
business owners. Small businesses can ill afford to take
the time off for one lawsuit, much less more than one
based on the same action. Currently, a small business
owner who resolves one lawsuit may find the attention
created by that case draws more complaints against them
for the same act. When the act is minor, unintentional,
and not resulting in any physical harm, there is little
reason, other than personal financial gain, to bring a
redundant lawsuit.
What do we gain from redundant litigation? Nothing! The
costs of such litigation only serve to drive up the price
of goods in this state. Small businesses suffer when
other businesses violate California's laws and
regulations so there is no desire to protect bad actors,
only a desire to prevent predatory litigation practices
by some unscrupulous attorneys.
Similarly, Citizens Against Lawsuit Abuse argues that "AB 102
will help to prevent the legalized extortion of thousands of
California small business owners by mandating that plaintiffs
prove evidence of harm. In doing so, the bill helps eliminate
the financial incentive for unscrupulous attorneys to abuse the
legal system. As a result, more companies will stay in
California and so will our jobs."
ARGUMENTS IN OPPOSITION : Many letters were received in
opposition to this measure. Reflective of the arguments in
opposition to the bill is the letter from Consumers Union which
states in part:
The bill is an overbroad response to a problem. A small
number of lawyers are abusing California's key consumer
protection statute, Business & Protections statute 17200,
for personal gain. Any legislative response to this
problem must restrict the practices of these individual
attorneys without interfering with the important features
of California's unfair competition law which make it the
bedrock of California consumer protection. ? AB 102 would
undermine key features of that law the make it a valuable
consumer protection statute.
Our key concerns are the "palpable injury" requirement,
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the 90-day notice of an intent to sue, and the
requirement that special consideration be given to
activity to correct a past violation of law. The
"injury" requirement would undermine preventative uses of
the statute and would prevent nonprofit organizations
from using the statute to protect the public.
California's broad standing under our Unfair Competition
Law has allowed Consumers Union and other nonprofits to
bring suit not only to remedy, but also to prevent harm
to the public. These cases also illustrate the harm that
could be done by AB 102's 90-day intent to sue
requirement. A 90-day intent to sue notice would have
permitted Alta Dena Certified Dairy an additional 90 days
of claiming that its unpasteurized milk products were
safe and pure. A 90-day waiting period would have given
the HMO marketers challenged in Ivy v. Belshe another 3
months to sign consumers up for unsuitable HMO plans.
Finally, we oppose giving special consideration to
post-litigation corrective steps because this puts
businesses that have broken the law or deceived consumers
in a position nearly as good as businesses that did not
break the law or deceive consumers.
The California Labor Federation states that it opposes AB 102
for the following specific reasons:
First, the bill would place difficult burdens on the
plaintiff, some similar to class action requirements,
which are contrary to the purpose of the statute. Since
plaintiffs can only obtain equitable relief, class action
and similar onerous requirements are not appropriate and
destroy the integrity of the statute. Second, the bill
would create an unprecedented 90 days pre-filing notice
of an intent to sue the defendant. We do not believe
that there is adequate justification for a 90-day
pre-filing notice, which is rarely used in legal cases.
Moreover, defendants may use this 90-day period to
destroy or hide the evidence of their unlawful conduct.
Third, the bill would prohibit a person from bringing an
action if the Attorney General or others has already
commenced an action. This makes no sense because often
the AG and the individual plaintiff will be seeking
different recovery. To preclude one, based upon the
action of another, only hurts consumer and workers that
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B&P 17200 is designed to protect. Fourth, the bill would
prohibit an action where another private plaintiff has
commenced an action against' the same defendant alleging
substantially similar facts and theories of liability.
The court already has the authority to consolidate
actions and therefore this provision is unnecessary.
Fifth, the bill would require the court to determine
whether the action may be maintained. This is a very
ambiguous statement. Lastly, the bill would impose
onerous discovery limitations. These limitations are
unnecessary and would impose major hurdles to discover
relevant information.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of California Insurance Companies
California Chamber of Commerce
County of Los Angeles Board of Supervisors
Los Angeles Area Chamber of Commerce
California Coalition of Travel Organizations
California Dental Association
California Retailers Association
Citizens Against Lawsuit Abuse - Central Cal., Los Angeles, N.
Cal., Orange County, San Diego and Silicon Valley chapters
Civil Justice Association of California (if amended)
National Federation of Independent Business
Santa Fe Springs Chamber of Commerce
Opposition
California Labor Federation
California Rural Legal Assistance Foundation
Consumer Attorneys of California
Consumer Federation of California
Consumers Union
Gray Panthers California
San Francisco, City and County
Sierra Club California
Analysis Prepared by : Saskia Kim / JUD. / (916) 319-2334
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