BILL ANALYSIS Ó
AB 2827
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Date of Hearing: April 26, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
AB 2827
(Levine) - As Amended March 18, 2016
SUBJECT: ADVERTISING: MADE IN THE U.S.A. LABEL: VIOLATIONS:
CURE
KEY ISSUES:
1)Should BUsinesses that label their products with "made in the
u.s.a," "made in america," or "made in california" be given 33
days to cure "de Minimus" violations of the state law that
governs use of those labels?
2)SHOULD THE LEGISLATURE PROVIDE A RIGHT TO CURE "DE MINIMUS"
VIOLATIONS of the labeling law even though there is no
definition of the term "De Minimus," no mechanism for deciding
when violations have been "Cured," no details about how
labeling VIOLATIONs WOULD BE addressed for products THAT ARE
in commerce or the supply chain at the TIME WHEN the 33-day
period BEGINS, AND NO evidence that THE PROVISION WOULD SAVE
judicial resources?
3)SHOULD THE LEGISLATURE UNDERMINE A LESS THAN ONE-YEAR-OLD
CONSUMER PROTECTION LAW ON A STATEWIDE BASIS IN REACTION TO
REPORTS THAT ONE ATTORNEY MAY HAVE FILED HUNDREDS OF CIVIL
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CLAIMS WHEN OTHER LEGAL TOOLS ARE AVAILABLE TO END LITIGATION
AND STOP VEXATIOUS LITIGIANTS AND UNETHICAL ATTORNEYS FROM
FILING FRIVOLOUS LAWSUITS?
SYNOPSIS
California's "Made in U.S.A." law, revised just last year in
order to be more flexible, not only protects consumers against
false or misleading advertising, but also protects domestic
businesses and the market value of the "Made in America" label
by ensuring that companies cannot gain a competitive advantage
through false or misleading advertising. Until January 1, 2016,
California was the only state in the nation that required
product manufacturers to source 100 percent of their products
domestically before using the "Made in USA" or "Made in America"
label. This requirement applied to all components and
subcomponents. Thus, the entire supply chain was required to be
located within the United States. California departed from this
historic and unique labeling requirement when it enacted Senate
Bill 633 ((Hill), Chapter 238, Statutes of 2015) which relaxed
the standards for use of the labels. SB 633 allows a
manufacturer to use the Made in the U.S.A. label if 95 percent
of its product is domestically-produced, or 90 percent if the
remaining content could not be made or obtained within the
United States.
The author claims that at least one attorney has been busy in
the five months since SB 633 was enacted, stating that within
days of SB 633 taking effect, "hundreds" of demand letters were
sent out. The letters demand that the companies do the
following: (1) cease and desist sales; (2) initiate a corrective
action advertising campaign; and (3) pull all products off the
shelves and refund purchases. The author further states that
complying with these egregious demands would put the companies
out of business. Further, although the letter invites companies
to "enter into discussions to resolve the demands," the author
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asserts that many companies view this as a shakedown. This bill
provides that notwithstanding any other law, a person or
business may cure an alleged "de minumus" violation of the "Made
in U.S.A." or "Made in California" statutes in existing law
within 33 days of receiving written notice of the alleged
violation.
The analysis points out a number of philosophical and practical
problems with the bill. First, there is no indication in the
legislative history of SB 633 that the Legislature intended to
make the labeling provisions irrelevant or unenforceable,
despite the greater flexibility offered under the new
legislation. Second, the problem appears to be extremely small
in terms of numbers, involving possibly just one attorney. If
even one thousand complaints (far more than the number estimated
by the author) regarding labeling violations had been filed in
the past year, those complaints would represent approximately
one eighth of one percent (.12%) of the total number of lawsuits
filed in the state. Third, there are many other more
appropriate remedies to deal with vexatious litigants and
unethical attorneys. A litigant (including an attorney) can be
declared "vexatious" and required to overcome pre-filing hurdles
before being allowed to file future lawsuits (such tactics have
been implemented specifically to stop litigation of frivolous
"Made in U.S.A." or "Made in California" claims); attorneys who
are deceptive, dishonest, or otherwise unethical are subject to
discipline (including dis-barrment in extreme cases) by the
State Bar; and once a case is before a court, there are myriad
opportunities for the matter to be dismissed, on either a
procedural or substantive basis. Fourth, the bill fails to
define a crucial term, "de minimis," making it impossible to
determine what type of violation would trigger the 33-day right
to cure a violation. Fifth, there are a number of practical
questions about implementation, including the following: How
would a business "cure" a labeling violation when there is no
violation? Who decides that the violation has been cured? How,
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when, and by whom is that determination made? If the parties
end up in court, how does this proposal save judicial resources?
Would this bill, in fact, make litigation more expensive
because there would be a new issue at trial about whether the
defendant had been given an opportunity to cure, and whether the
defendant had, in the 33-day period, cured all violations of the
law? How would the "cure" be implemented on products that are
already in the supply chain or in commerce?
This bill is distinguishable from the limited number of prior
laws where the Legislature has offered some ability to reduce
damages by taking corrective action. It is also distinguishable
from prior legislature measures that have evened out the
bargaining power between parties by favoring the "little guy."
Because of these distinctions and concerns, the Committee may
wish to consider whether it is appropriate to weaken a consumer
protection law that applies to the entire state, amended just
one year ago, when the problem identified by the author seems to
involve a very small number of attorneys who could be subject to
either court order or State Bar discipline for repeatedly filing
frivolous lawsuits and there are many mechanisms to dismiss
meritless claims. This bill is supported by a number of
business groups, including the California Chamber of Commerce,
and is opposed by consumer groups, labor unions, animal welfare
organizations, and the Consumer Attorneys of California.
SUMMARY: Prohibits a civil action against a person or business
that is alleged to have violated the provisions of the "Made in
U.S.A." or "Made in California" statutes unless written notice
of the alleged violations is provided and the person or business
has not cured the alleged violation within 33 days of receiving
the notice. Specifically, this bill:
1)Provides that notwithstanding any other law, a person or
business may cure an alleged "de minumus" violation of the
"Made in U.S.A." or "Made in California" statutes in existing
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law within 33 days of receiving written notice of the alleged
violation.
2)Provides that the action taken to cure the violation may
include, but is not limited to, the prospective discontinued
use of the words "Made in U.S.A.," "Made in California," or
similar words and phrases on any merchandise, article, unit,
or part thereof.
3)Provides that notwithstanding any law, no civil action may be
commenced unless the person or business is provided written
notice of the alleged violation and the person or business has
not cured the violation within 33 days of receiving the
notice.
EXISTING LAW: Existing State Law:
1)Protects consumers and competitors against unlawful, unfair or
fraudulent business acts or practices and unfair, deceptive,
untrue, or misleading advertising. (Business & Professions
Code (BPC) Section 17200 et seq.)
2)Makes it unlawful for any person, firm, corporation or
association, or any employee thereof, to make or disseminate
before the public in this state, in any newspaper or other
publication or in any other manner or means whatever, any
statement concerning personal property which is untrue or
misleading, and which is known, or which by the exercise of
reasonable care should be known, to be untrue or misleading.
(BPC Section 17500 et seq.)
3)Makes it unlawful for any person, firm, corporation or
association to sell or offer for sale in this state any
merchandise on which merchandise or on its container there
appears the words "Made in U.S.A.," "Made in America,"
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"U.S.A.," or similar words when the merchandise or any
article, unit, or part thereof, has been entirely or
substantially made, manufactured, or produced outside of the
United States. (BPC Section 17533.7.)
4)Provides that merchandise made, manufactured, or produced in
the United States that has one or more articles, units, or
parts from outside of the United States may be labeled "Made
in U.S.A.," "Made in America," "U.S.A.," or similar words if
all of the articles, units, or parts of the merchandise
obtained from outside the United States constitute not more
than five percent of the final wholesale value of the
manufactured product. (BPC Section 17533.7 (b).)
5)Provides that merchandise made, manufactured, or produced in
the United States that has one or more articles, units, or
parts from outside of the United States may be labeled "Made
in U.S.A.," "Made in America," "U.S.A.," or similar words if
both of the following apply:
a) The manufacturer of the merchandise shows that it can
neither produce the article, unit, or part within the
United States nor obtain the article, unit, or part of the
merchandise from a domestic source; and
b) All of the articles, units, or parts of the merchandise
obtained from outside the United States constitute not more
than 10 percent of the final wholesale value of the
manufactured product. (BPC Section17533.7 (c)(1)(A)(B).)
1)Provides that California's domestic origin labeling law shall
not apply to merchandise sold for resale to consumers outside
of the State of California. (BPC Section 17533.7 (d).)
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2)States that merchandise sold or offered for sale outside of
the State of California shall not be deemed mislabeled if the
label conforms to the law of the forum state or country within
which they are sold or offered for sale. (BPC Section 17533.7
(e).)
3)Prohibits, under the Consumer Legal Remedies Act (CLRA), any
unfair methods of competition, acts or practices by any person
which either results in or is intended to result in the sale
or lease of goods or services to any consumer. (Civil Code
Section 1770.)
4)Makes it unlawful to represent that a product is made in
California, by using a specified "Made in California" label,
unless the product complies with the requirements of the Made
in California Program established by the Governor's Office of
Business and Economic Development and registers for the
program and states that the purpose of the "Made in
California" Program is to encourage consumer product awareness
and foster purchases of high-quality products made in this
state. (Government Code Section 12098.10.)
5)Authorizes the Governor's Office of Business and Economic
Development to issue and make effective marketing agreements,
including, but not limited to, issuance of a "Made in
California" label that California companies can voluntarily
participate via funding or in-kind contributions into the Made
in California Program. (Government Code Section 12098.10
(d).)
6)Ensures that the finished product is substantially made within
California and that the product can lawfully use a "Made in
U.S.A." label and not violate Section 17533.7 of the Business
and Professions Code. (Government Code Section 12098.10
(b)(1)(A)(B).)
7)Defines "substantially made" as completing an act that adds at
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least 51% of a final product's wholesale value by manufacture,
assembly, fabrication, or production to create a final,
recognizable product; and specifies that the definition does
not include the act of packaging a product. (Government Code
Section 12098.10 (b)(2).)
Existing Federal Law:
1)Authorizes the Federal Trade Commission to regulate country of
origin claims pursuant to authority granted to it under the
Federal Trade Commission Act, which prohibits "unfair or
deceptive acts or practices." (15 U.S.C. Sec. 45.)
2)Requires that a "Made in U.S.A." label be consistent with
orders and decisions of the Federal Trade Commission. (15
U.S.C. Sec. 45 (a).)
3)Provides that a product may be labeled as "Made in U.S.A." if
the product is all or virtually all made in the United States,
however a product using such a label may contain-in a
negligible amount-components made outside of the United
States. (Federal Trade Commission, Enforcement Policy
Statement on U.S. Origin Claims, 62 Fed. Reg. 63756, 63765
(Dec. 2, 1997).)
FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
COMMENTS: The Legislature has long considered consumer
protection to be a matter of high public importance. State law
is replete with statutes aimed at protecting California
consumers from unfair, dishonest, or harmful market practices.
The Consumer Legal Remedies Act (Civ. Code Sec. 1750 et seq.),
for example, was enacted "to protect the statute's beneficiaries
from deceptive and unfair business practices," and to provide
aggrieved consumers with "strong remedial provisions for
violations of the statute." (Am. Online, Inc. v. Superior Court
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(2001) 90 Cal.App.4th 1, 11.) Similarly, California's Unfair
Practices Act (BPC Section 17000 et seq.) has protected
California consumers from "unlawful, unfair or fraudulent
business act[s] or practice[s]" for over 70 years. (BPC Section
17200.)
Until January 1, 2016, California was the only state in the
nation that required product manufacturers to source 100 percent
of their products domestically before using the "Made in USA" or
"Made in America" label. This requirement applied to all
components and subcomponents. Thus, the entire supply chain was
required to be located within the United States. California
departed from this historic and unique labeling requirement when
it enacted Senate Bill 633 ((Hill), Chapter 238, Statutes of
2015) which relaxed the standards for use of the labels. SB 633
allows a manufacturer to use the Made in the U.S.A. label if 95
percent of its product is domestically-produced, or 90 percent
if the remaining content could not be made or obtained within
the United States.
Despite the relaxed labeling standards, consumer protection
regarding country of origin labeling is a matter of important
public policy. California consumers who care about truthful
labels suffer an economic loss when they purchase a product they
would not otherwise have purchased, had not the label accurately
stated the product's origins. Further, California's "Made in
U.S.A." law protects domestic businesses and the market value of
the "Made in America" label by ensuring that companies cannot
gain a competitive advantage through false or misleading
advertising.
The value of a "Made in America" label in the manufacturing
sector is substantial. Studies show that Americans will pay a
premium to purchase products exclusively manufactured in the
United States and that consumers rely on the "Made in USA" or
"Made in America" label to guide their purchases. Manufacturers
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seem to understand the value of these labels to consumers, as
demonstrated by the fact that California's largest corporation,
Apple Inc., recently shifted production of its Mac Pro personal
computer line to the United States as part of a "$100 million
'made in the USA' push." (Burrows, Apple Kicks Off "Made in
USA" Push with Mac Pro (Dec. 18, 2013) The San Francisco
Chronicle
(as of January 4, 2014).)
Announcing the company's shift to domestic production, Chief
Executive Officer Tim Cook said "[w]e don't want to just
assemble the Mac Pro here, we want to make the whole thing here.
This is a big deal." (Ibid.) Apple's decision reflects the
market reality that products advertised or labeled as "Made in
U.S.A." have a decisive marketplace advantage over their foreign
counterparts. Indeed, an April 2013 Gallup poll found that 45
percent of Americans surveyed had made a recent special effort
to buy products that were made in the U.S.A., and that 64
percent of those surveyed would pay more to buy an American-made
product than a similar product made in another country. (Jones,
Patriotism, Jobs Primary Motivations for 'Buying American' (Apr.
30, 2013) Gallup Economy <
http://www.gallup.com/poll/162110/patriotismjobs-primary-motivati
ons-buying-american.aspx> (as of January 5, 2014).)
Author's Stated Need for the Bill. The author claims that at
least one attorney has been busy in the five months since SB 633
was enacted, stating that within days of SB 633 taking effect,
"hundreds" of demand letters were sent out. The letters demand
that the companies do the following: (1) cease and desist sales;
(2) initiate a corrective action advertising campaign; and (3)
pull all products off the shelves and refund purchases. The
author further states that complying with these egregious
demands would put the companies out of business. Further,
although the letter invites companies to "enter into discussions
to resolve the demands," the author asserts that many companies
view this as a shakedown.
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Further, the author has given the Committee an example of a
lotion manufacturer in his district whose principle market is
overseas that was sued because its label complied with foreign
labeling rules, but not California's "Made in the U.S.A." laws.
The author of this bill also states that SB 633 was not intended
to require companies to pull all their products off the shelves.
Rather, the intent of SB 633 was to "help promote manufacturing
in California, to encourage the establishment of small
businesses, and to help create jobs in the state and to make the
"Made in U.S.A." or "Made in California" labeling standard
consistent with the "all or virtually all" standards used by all
49 other states and the federal government."
SB 633's Goal to Provide Flexibility to Manufacturers of
Products That are Virtually, but not Completely, 100% Made in
California or the United States. It is curious that the author
draws a connection between SB 633 and increased litigation when
logic would dictate that the relaxed labeling standards in SB
633 would decrease, rather than increase, litigation. The
author of SB 633 pointed out, in the background materials about
that bill (according to the Assembly Privacy and Consumer
Protection Committee analysis of SB 633), in the earlier,
preceding opinion from the California Court of Appeal (Fourth
District) in Benson v. Kwikset from June 2007, which upheld the
trial court's narrow reading of the Made in the U.S.A. statute,
the majority raised the possibility of a legislative solution:
We also share our dissenting colleague's angst about both
the effect of this law, particularly in an age of global
trade, and the potential for abuse that may arise under the
unfair competition law. If we had the power to do so, we
would rewrite the statute to address those concerns. But
our Supreme Court has cautioned 'the judicial role in a
democratic society is fundamentally to interpret laws, not
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to write them. The latter power belongs primarily to the
people and the political branches of government. [Citation]
It cannot be too often repeated that due respect for the
political branches of our government requires us to
interpret the laws in accordance with the expressed
intention of the Legislature. This court has no power to
rewrite the statute so as to make it conform to a presumed
intention which is not expressed.
There is no indication in the legislative history of SB 633,
however, that the Legislature intended to make the labeling
provisions irrelevant or unenforceable, despite the greater
flexibility offered under the new legislation.
Scope of the Reported Problem Appears to be Limited in Terms of
the Numbers of Civil Claims and the Attorneys Responsible for
Filing Them. According to the author, "[s]everal legal actions
have recently been taken against businesses accused of
misleading their customers by declaring that their products were
Made in California or Made in America." The plaintiffs' lawyer,
according to the author, has sent letters to the businesses,
demanding various remedies, including but not limited to the
recall of all products for all product lines from the shelves of
retail outlet, and has stated that "hundreds" of these letters
were sent.
To put the figure of "hundreds" of lawsuits in perspective, a
total of 800,091 lawsuits were filed in the state in 2013,
according to the Judicial Council of California. Meanwhile,
California has approximately 3.3 million small businesses.
These figures mean that a miniscule portion of less than one
percent of small businesses (and a far smaller percentage of all
businesses) have been sued for "Made in U.S.A." or "Made in
California" labeling violations. If even one thousand
complaints (far more than the number estimated by the author)
regarding labeling violations had been filed in one year, those
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complaints would represent approximately one eighth of one
percent (.12%) of the total number of lawsuits filed in the
state.
Other Remedies Available to Deal with Vexatious Litigants and
Unethical Attorneys. The law is replete with options for courts
and parties to deal with vexatious litigants and unethical
attorneys:
"Vexatious" litigants. A "vexatious litigant" is a person who
repeatedly litigates unmeritorious claims, files unmeritorious
motions, pleadings, or other papers, conducts unnecessary
discovery, or engages in other tactics that are frivolous or
solely intended to cause unnecessary delay. (See CCP Section
391 (b).) Once a person is found by a court to be a vexatious
litigant, the person is subject to many barriers to bringing and
pursuing new claims. The rationale is that because of the
person's history of bringing unmeritorious claims, he or she is
presumed to not have valid claims in the future and should
therefore have to overcome procedural hurdles before using court
resources. For example, a defendant sued by a vexatious
litigant may ask that the court order the plaintiff to furnish
security or seek an order dismissing the litigation when there
is evidence to show that the plaintiff is a vexatious litigant
and that there is not a reasonable probability that he or she
will prevail in the litigation against the moving defendant.
(CCP Section 391.1.) The court may also, on its own motion or
the motion of any party, enter a "prefiling order" which
prohibits a vexatious litigant from filing any new litigation in
the courts of this state without first obtaining leave of the
presiding justice or presiding judge of the court where the
litigation is proposed to be filed. (CCP Section 391.7(a).)
The Judicial Council is required to maintain a record of
vexatious litigants subject to those prefiling orders and shall
annually disseminate a list of those persons to the clerks of
the courts of this state. (CCP Section 391.7(f).)
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In fact, such tactics have been implemented specifically to stop
litigation of frivolous "Made in U.S.A." or "Made in California"
claims. A disbarred lawyer who has made it his mission to
promote American-manufactured products is facing opposition that
would block him from filing lawsuits in California. According
to the National Law Journal, Joel Joseph, chairman of the Made
in the USA Foundation in Los Angeles (who was disbarred in 2011
in Maryland) has continued to file suits as a pro se (on behalf
of himself) plaintiff against companies like Costco Wholesale
Corp., Trader Joe's Co. and CVS Pharmacy Inc. over the labeling
of ground meat and generic pharmaceuticals. The cases were filed
in California, where Joseph used a private attorney general
action under the state's consumer laws to assert the products
were mislabeled in violation of the Tariff Act or other federal
laws.
( http://www.nationallawjournal.com/id=1202750158962/Dogged-Made-i
n-USA-Advocate-is-Vexatious-CVS-Argues#ixzz46P6JaEcG .) After
CVS Pharmacy, Inc. filed a motion to declare Mr. Joseph a
"vexatious litigant," based upon 10 matters in the past seven
years that Mr. Joseph lost, plus "repeated frivolous,
misleading, and dilatory tactics" in other cases, the court
granted the motion and placed Mr. Joseph on the vexatious
litigant list. ( http://www.courts.ca.gov/documents/vexlit.pdf .)
Although vexatious litigants are generally not attorneys, an
attorney can be found to be a vexatious litigant when he or she
uses a client as a "strawman" plaintiff" while pursuing
"obsessive, meritless litigation" that demonstrates "a pattern
of using the judicial system as a weapon in an unrelenting quest
to get advantages that he does not deserve, imposing onerous
litigation costs on his opponents that he does not incur himself
because he is a lawyer." (In re Kinney (2011) 201 Cal. App. 4th
951, 959.) In Kinney, the court found that the attorney, who
repeatedly sued his neighbors over property disputes was someone
"for whom litigation has become a game" that he was no longer
allowed to play. (Ibid.) Attorneys who file repeated,
unmeritorious claims (on behalf of themselves or "straw
clients") for violations of the Made in the U.S.A. labeling law
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"as a weapon," like Kinney, to extract settlements and impose
onerous litigation costs on their opponents, could likewise be
declared to be vexatious litigants.
Attorneys who are deceptive, dishonest, or otherwise unethical.
The California Rules of Professional Conduct apply to attorneys
and provide that attorneys are officers of the court and have an
ethical obligation to advise the court of legal authority that
is directly contrary to a claim being pressed. (Batt v. City
and County of San Francisco (2007) 155 Cal.App.4th 65, 82, fn.
9, 65 Cal.Rptr.3d 716.) Rule 5-200 of the Rules of Professional
Conduct addresses the issue and provides that, "[i]n presenting
a matter to a tribunal, a member: (A) Shall employ ... such
means only as are consistent with truth; [and] (B) Shall not
seek to mislead the judge ... by an artifice or false statement
of fact or law[.]" (See also Southern Pacific Transp. v. P.U.C.
of State of Cal. (9th Cir.1983) 716 F.2d 1285, 1291 [failure to
cite opposing authority is a "dereliction of duty to the
court"].) An attorney is "bound by ethical considerations not
to pursue unmeritorious or frivolous matters on behalf of a
prospective client [citation omitted].) (In re Kinney, supra,
201 Cal. App. 4th at p. 959.) "In representing a client, a
lawyer shall not use means that have no substantial purpose
other than to embarrass, delay, or burden a third person, or use
methods of obtaining evidence that violate the legal rights of
such a person." (Model Rules of Professional Conduct, Rule 4.4.)
Attorneys who violate these rules are subject to discipline
(including dis-barrment in extreme cases) by the State Bar. In
2014, the Bar opened approximately 4,000 attorney discipline
cases and closed 5,000 cases (including approximately 1,000
opened prior to 2014).
Abundant Opportunities to Dismiss Meritless Claims Before and
During Trial. Once a case is before a court, there are myriad
opportunities for the matter to be dismissed, on either a
procedural or substantive basis. For example, a defendant is
entitled to summary judgment in his or her favor if "all the
papers submitted show that there is no triable issue as to any
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material fact" alleged by the plaintiff. (CCP Section 437c
(c).) A motion for summary judgment may be made any time after
60 days have elapsed since the general appearance in the action
(CCP Section 437c (a)) or any time after the answer is filed
upon giving five days' notice (CCP Section 1170.7).
Furthermore, it has long been recognized in this State that a
court has inherent power, upon a sufficient factual showing, to
dismiss an action "shown to be sham, fictitious or without merit
in order to prevent abuse of the judicial process." (Muller v.
Tanner (1969) 2 Cal.App.3d 438, 443, 82 Cal.Rptr. 734, quoting
from Lincoln v. Didak (1958) 162 Cal.App.2d 625, 629-630, 328
P.2d 498.)
This bill Fails to Define a Crucial Term, De Minimis, Making it
Impossible to Determine What Type of Violation Would Trigger the
33-day Right to Cure. According to Merriam Webster, "de minimis
means lacking significance or importance: so minor as to merit
disregard. http://www.merriam-webster.com/dictionary/de%20minimis .) But
what does it mean in relation to "Made in U.S.A." or "Made in
California" labeling requirements? It is impossible to say with
certainty because the term is undefined in the bill. It would
seem that the Legislature has already weighed in on what is a
"de minimis" variation from products that are made completely
and almost completely in the U.S.A. when it relaxed the
manufacturing standards from 100% to 95 (or 90)% in last year's
SB 633. There is no indication in that legislation that the
Legislature intended to provide additional leeway to businesses
by allowing them to use a label when the percentage of domestic
components is lower than those levels.
What does this term mean to the author? It is difficult to say.
Despite repeated inquiries from the Committee, the author's
office has not provided a definition for the term "de minimis."
However, in response to inquiries from the Committee about some
of the practical issues raised by the bill (discussed in detail
below), the author provided the following information about when
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a business would be able to exercise its right to cure, shedding
some light on the author's intent. It appears that the author
would allow the business to make any changes to the product or
the packaging that it deemed necessary. "Remember, the bill
only applies to de minimus violations. Curing a violation could
be achieved in a number of ways depending on the cases. Change
the labels, change the ingredients, etc., depending on the
circumstances of the case."
Questions about the Practical Effect of the bill: What the Right
to Cure Means and Whether it Would Save Judicial Resources. In
terms of implementation, there are a number of practical
concerns and questions with this bill:
1)How would a business "cure" a labeling violation when there is
no violation? According to the author, the companies that
have been sued "believe that they are already in full
compliance with the law and that the demand letters are a form
of a 'shake down'. They believe that going to court to fight
it would cost them more than paying a settlement." In fact,
it appears that the businesses have a very strong argument
that they are in compliance with existing law. For example,
according to the author, a manufacturer of lotion was sued for
using a label that is required for export of the product
overseas. BPC Section 17533.7 (e) specifies that "For
purposes of this section, merchandise sold or offered for sale
outside of California shall not be deemed mislabeled if the
label conforms to the law of the forum state or country within
which they are sold or offered for sale," which seems to give
the manufacturer a complete defense to the claim. Assuming
that is the case, the defendant would certainly prevail at
trial (or in a summary judgment motion). How would AB 2827
help such a defendant, if it were to become law? The
manufacturer would have no violation to "cure" because the
manufacturer would already be in compliance with the law.
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2)Who decides that the violation has been cured? By agreement
of the parties? What if the plaintiff disagrees that the
violation has been cured? Who has the burden of proving that
the violation has been cured, or not? How, when, and by whom
is that determination made? According to the author, "As with
any potential litigation like this, the parties would decide
whether there is compliance. If they cannot agree, they could
pursue an action in court." But why would a plaintiff who had
gone to the trouble to file a meritless lawsuit agree, without
going to court and without a financial settlement, that the
violation had been cured? And if the parties end up in court,
how does this proposal save judicial resources? Would this
bill, in fact, make litigation more expensive because there
would be a new issue at trial about whether the defendant had
been given an opportunity to cure, and whether the defendant
had, in the 33-day period, cured all violations of the law?
3)How would the "cure" be implemented on products that are
already in the supply chain or in commerce? If a manufacturer
is sued, would the manufacturer issue a recall to all products
that have been sent to distributers and retailers? If so,
would the manufacturer be liable to distributors and retailers
for the cost of removing products from shelves and returning
them, and for the lost sales of products that cannot be sold?
If a retailer is sued, who would be responsible for relabeling
the product - the retailer, the distributor, or the
manufacturer? And who would pay those costs? And is it even
legal for a retailer or distributor to repackage or re-label a
product when packaging or labels could be protected by
trademark?
Other "Right to Cure" Laws. The author and supporters argue
this bill is similar to other right-to-cure laws and thus
justify providing new opportunities for the right-to-cure in
other violations of the law. However, each cited law can be
distinguished:
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Civil Code Section 51.6 gives businesses a very limited
opportunity to cure non-compliance with the requirement that
they post a list of prices on the premises of their businesses.
The business does not have an opportunity to cure the
underlying discrimination claim (charging different prices
based upon gender), however, and is liable for minimum
statutory damages of $4,000 per violation pursuant to Civil
Code §§ 51.6 (d), 52 (a).
The "cure" (posting one sign) is much easier to comply
with and verify than relabeling products that may or may
not already be in the supply chain.
It is also easy to verify whether or not a business has
"cured" the violation. Either the sign is posted on the
premises, or it's not. If the business fails to comply
with the requirement to post their price list within 30
days of receiving a written notice to do so, the business
is liable for a civil penalty of $1,000.
Labor Code Section 2699 et seq. require an aggrieved worker to
give notice to the Labor and Workforce Development Agency and
the employer of the specific provisions of the Labor Code
alleged to have been violated, including the facts and theories
to support the alleged violation, and give the labor
commissioner the opportunity to take action against the employer
prior to filing an individual civil action against the employer
for such violations.
These provisions are distinguishable from this bill
because violations of the Labor Code, unlike the Civil
Code, are subject to enforcement by a statewide regulator
with broad powers of inspection, citation, and discipline:
the Commissioner of the Labor and Workforce Development
Agency.
Violations of "Made in the U.S.A." or "Made in
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California," on the other hand, are not enforced by a state
or federal agency.
Because there is no public entity regulator to inspect,
cite, or discipline businesses who violate these laws, the
only way to enforce the law is through the courts.
Civil Code Section 55.56 allows for reduced damages for
construction-related accessibility standards when a small
business has been previously inspected by certified
accessibility specialist) is distinguishable from AB 2827.
It does not relieve the defendant from liability. If a
defendant resolves a construction related disability access
violation their damages are merely reduced from $4,000 to
$1,000.
Although their damages are reduced, defendants are still
held liable for the underlying violations.
Civil Code Section 1782 requires a thirty day notification by a
consumer who suffers any damage as a result of the use or
employment by any person of a method, act, or practice declared
to be unlawful before commencing an action for damages is
distinguishable from AB 2827.
A consumer can still file an action for injunctive
relief without having to wait the 30 days.
After waiting the 30 days, the consumer can amend the
complaint to include a request for damages.
On the other hand, this Committee (and the Legislature) has
approved bills in the past that give a party the "right to cure"
some contract violations when the party in breach of the
contract is at a disadvantage in terms of bargaining power, such
as franchisees and farm equipment dealers. In those cases, the
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Legislature decided that it needs to put its hand on the scale
to even out the balance of power between the parties because it
would be unfair to strictly enforce the contract. The following
bills show how the Legislature is willing to provide a "Right to
Cure" in such cases:
AB 525 (Atkins and Holden, Chap. 776, Stats. of 2015) gives
franchisees a 60-day opportunity to cure a breach of their
franchise agreement. Supporters reported that franchisees are
often given as little as five days to cure noncompliance-an
unreasonable amount of time depending on the nature of the cure
needed-and therefore providing 60 days to cure is a reasonable
solution common to many other commercial transactions.
AB 585 (Negrete McLeod, Chap. 712, Stats. of 2005) provides that
in the case of a termination of a farm equipment dealership
agreement with a farm equipment supplier based upon the dealer's
consistent failure to meet and maintain the supplier's
reasonable performance objectives, the supplier must give at
least two years notice and the dealer would have that two-year
period to attempt to cure.
This bill, on the other hand, does not provide any such similar
help to "the little guy." Its provisions do not focus on small
businesses that are sued for these violations. Instead, it
provides the right to cure to all businesses that are sued,
regardless of their size and financial resources.
Because of all of the concerns described above, the Committee
may wish to consider whether it is appropriate to weaken a
consumer protection law that applies to the entire state,
amended just one year ago, when the problem identified by the
author seems to involve a very small number of attorneys who
could be subject to either court order or State Bar discipline
for repeatedly filing frivolous lawsuits and there are many
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mechanisms to dismiss meritless claims.
ARGUMENTS IN SUPPORT: In support of the bill, the California
Small Business Association, states that:
Small businesses respect the law and will continue to do
so. They have not intentally (sic) broken them but often
the interpretation is at odds as well as information on new
regulations not communicated to the small business owners.
However, many of our small businesses have been subject to
threats of frivolous lawsuits and shakedowns. This "right
to cure" is a giant step forward.
In support of the bill, the California Manufacturers &
Technology Association, states that:
Right-to-cure provisions represent a real, necessary
protection from predatory lawsuits that ultimately cost
California manufacturers to fight, win or lose.
The California Chamber of Commerce, states that:
AB 2827 is a job creator as it will provide businesses with
a limited time period in which to resolve alleged labeling
violations regarding product "Made in the USA" or "Made in
California" without facing devastating litigation.
Consistent with other areas of the law, AB 2827 seeks to
limit litigation for alleged de minimums violations
regarding representation of where the product was made.
The Consumer Legal Remedies Act (CLRA) allows consumers to
pursue costly litigation against businesses for over 20
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different "unfair methods of competition," including
deceptive representations as to the geographical source of
the good. This financial threat of litigation has created
an opportunity for attorneys to leverage businesses into
quick monetary settlements for alleged misrepresentations
on labels of goods that represent "Made in USA" or Made in
California" or even a specific location in California.
While certainly there are egregious examples of where a
company has misrepresented the geographical source of a
good, there are numerous examples of where all, or the
majority of all ingredients, components or parts of the
product are sourced in the geographical location identified
and yet the threat of litigation is still leveraged against
these businesses.
In support of the bill, the Civil Justice Association of
California, states that:
The right to cure concept is already found in a number of
California statutes, including the Consumer Legal Remedies
Act (see Civil Code § 1782), Private Attorneys General Act
(PAGA) (see Labor Code § 26993(c)(2)), and Civil Code
sections dealing with construction-related accessibility
complaints (see Civil Code § 55.56.)
AB 2827 is necessary because California companies have
recently received demand letters alleging violations of the
California Government Code § 12098.10 and Business and
Professions Code § 17533. These letters include demands
that many companies would find impossible to meet without
going bankrupt: the examples we have seen called for ending
the sale of all disputed products, full recalls, refunds,
and advertising campaigns to inform consumers of the "true
nature" of disputed products. Companies must choose
between meeting these unreasonable demands, settling out of
court and providing the plaintiff attorneys with a
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financial windfall, or engaging in costly litigation to
defend their labels. AB 2827 is a practical way to protect
California manufacturers and businesses from abusive
litigation by allowing a company to cure an alleged
violation by including (but not limited to) changing the
label going forward.
By allowing a prospective label change and time to cure
prior to commencement of a civil action, this bill provides
a means to act on genuine concern about the accuracy of
information provided to consumers via origin labeling. At
the same time the bill removes the incentive for abusive
lawsuits intended to enrich litigators rather than protect
consumers.
ARGUMENTS IN OPPOSITION: The Animal Legal Defense Fund writes
the following in opposition to this bill:
Giving businesses the right to "cure" errors on labels
would not only undermine consumer confidence that their
choices matter, it might also endanger the health of pets
in California, the more immediate threat to which I refer
above. You are likely aware that many pets died in 2007
after consuming adulterated products containing ingredients
imported from China. Many concerned pet owners and
guardians determined afterward to purchase only those
products labeled Made in the USA, which they believe to be
safer. While existing law enacted through S.B. 633 does
permit a producer to use the Made in the USA label even for
products in which 10% of the ingredients derive from
foreign sources, the threat to animals arising from that
policy choice is considerably less severe than the threat
to animals that A.B. 2827 might create-namely, that
dishonest producers, armed with a free pass, will peddle
their products as American-made even while they might be
substantially derived from foreign sources. Indeed, several
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lawsuits are currently working their way through federal
courts in California against major pet food retailers
alleged to have resorted to deceptive marketing. A.B. 2827
might enable these defendants to walk away, leaving the
injuries of the California consumer-plaintiffs unredressed.
In opposition of the bill, the California Teamsters Public
Affairs Council states that:
This bill is premature given that California just enacted
laws dealing with these two labeling statutes and requiring
a new procedure to enforce them is not necessary. Further,
the "right to cure" violations expressed in the bill is
completely ambiguous. There is no definition of how a
company would "cure" what is in essence fraud on the
consumer.
In opposition of the bill, the Consumer Attorneys of California
(CAOC) states:
This bill sets a bad precedent in the important area of
consumer tort law and the Consumers Legal Remedies Act.
The legislature passes laws with the intention that the
laws be followed and enforced. We must have faith in the
civil jury system to determine merit. CAOC opposes notice
and opportunity to cure provisions on principle because
other businesses (e.g. employers who violate prevailing
wage laws) do not receive this special treatment to cure a
violation of the law.
In opposition of the bill, the Consumer Federation of California
(CFC) states:
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On January 1, 2016, Senate Bill 633 (Hill) became law. SB
633 lowered the standard to allow a product containing as
much as 10% imported content to be lawfully offered for
sale in California bearing a "Made in USA" or "Made in
America" label. We believe the legislature should grant
this brand new law a reasonable time period to operate
before further weakening an important truth in advertising.
This bill would create a perverse incentive for certain
business to take advantage of a blanket immunity from
enforcement of a consumer protection law.
SIMILAR PRIOR LEGISLATION: AB 2624 (Medina, 2014) would have
made it unlawful to sell any product that contains the words
"Made in North America," "North American Made," or similar words
on the product or its container unless all or virtually all of
the product was made in the United States, Canada, or Mexico.
This bill would have also added misrepresenting a product as
made in North America to the list of unfair methods of
competition and unfair or deceptive acts or practices actionable
under the Consumers Legal Remedies Act. This bill died on the
Senate Inactive File.
SB 661 (Hill, 2014) would have provided that merchandise made,
manufactured, or produced in the United States that has an
article, unit, or part from outside of the United States may be
labeled and sold in California as "Made in U.S.A." or "Made in
America" if the following requirements are met: (1) the
manufacturer of the merchandise certifies that it can neither
produce the article, unit, or part within the United States nor
obtain the article, unit, or part of the merchandise from a
domestic source; (2) the manufacturer's determination that the
article, unit, or part cannot be produced or obtained within the
United States from a domestic source is not based on the cost of
the article, unit, or part; and (3) the article, unit, or part
of the merchandise obtained from outside the United States
constitutes only a negligible part of the final manufactured
product. This bill failed passage out of the Senate Judiciary
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Committee on a 2-5 vote.
AB 890 (Jones, 2013) would have provided that a product sold in
California could carry the label "Made in U.S.A." if it was
substantially made, manufactured, or produced in the United
States as measured by the following criteria: at least 90
percent of the components, parts, articles, or units of the
merchandise were manufactured in the United States; United
States manufacturing costs constitute at least 90 percent of the
total manufacturing costs for the merchandise; and the
merchandise was last substantially transformed or assembled in
the United States. This bill failed passage out of the Senate
Judiciary Committee on a 2-5 vote.
AB 858 (Jones, 2012) was substantially similar to SB 663 (Hill,
2015). This bill failed passage out of the Senate Judiciary
Committee on a 2-3 vote.
ABX6 8 (Beall, 2010) identical to AB 858, this bill was
introduced in the Sixth Extraordinary Session but was never
referred to a policy committee.
SB 1004 (Holmdahl, Ch. 676, Stats. 1961) codified California's
"Made in the U.S.A." law, making it unlawful for any person,
firm, corporation, or association to sell or offer for sale any
merchandise that advertises itself as being made or manufactured
in the United States when any article, unit, or part of the
merchandise has been entirely or substantially made,
manufactured, or produced outside of the United States.
REGISTERED SUPPORT / OPPOSITION:
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Support
California Chamber of Commerce
California Manufacturers & Technology Association
California Retailers Association
California Small Business Association
Civil Justice Associations of California
Opposition
Animal Legal Defense Fund
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Teamsters Public Affairs Council
Consumer Attorneys of California
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Consumer Federation of California
Engineers & Scientists of California, Local 20, IFPTE Local 20,
AFL-CIO
Professional & Technical Engineers, IFPTE Local 20, AFL-CIO
UNITE-HERE, AFL-CIO
Utilities Workers Union of America, Local 132, AFL-CIO
Analysis Prepared by:Alison Merrilees / Amanda Hall / JUD. /
(916) 319-2334