BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
John L. Burton, Chairman
1997-98 Regular Session
SB 143 S
Senator Kopp B
As Amended April 2, 1997
Hearing Date: May 13, 1997 1
Business and Professions Code 4
DLM:lgh 3
SUBJECT
Private unfair business practices claims brought under
Business & Professions Code ?17200, on behalf of the general
public
DESCRIPTION
This bill would limit a private plaintiffs' ability to bring
suit on behalf of the public against unfair trade and
competition, by requiring that a plaintiff could not have a
conflict of interest with the general public, and that their
attorney must be able to adequately protect the public's
interests. Public prosecutors would have priority over private
claims in bringing enforcement actions on behalf of the public,
with the court able to stay private actions until the public
prosecution is completed. This bill would also demand closer
court scrutiny of all phases of litigation by providing that any
resolution of a private representative suit would have to be
certified by the court at a final hearing.
In addition, this bill would request the exchange of information
as follows: within 10 days of commencing an action, the
plaintiff would notify the Attorney General and District
Attorney of the filing of a representative suit; after being
served, the defendant would "promptly" notify the plaintiff and
court of any similar actions pending against them; finally, at
least 45 days before entry of judgment, the plaintiff would give
notice of the proposed terms of settlement to the Attorney
General, the District Attorney, other known parties with cases
against that defendant, and other persons as requested by the
court.
BACKGROUND
Existing law, Business & Professions Code ?17200, provides that
"any person" may bring suit under this Act. Public prosecutors,
private litigants who have been harmed by an unfair business
practice, and private litigants representing the interests of
the general public, all have standing to sue. Only public
prosecutors may recover civil penalties. The statutory remedies
for private actions brought on behalf of the public are
injunction and restitution. There are no attorneys' fees
provided in this section.
Examples of recent ?17200 litigation include computer monitors
which were advertised as having a larger screen size than the
actual screens measured, vocational technical schools which
failed to provide students with adequate training, and a bank's
practice of unilaterally imposing alternative dispute resolution
on its customers.
CHANGES TO EXISTING LAW
The provisions of this bill apply to representative actions,
defined as private unfair business practices claims brought on
behalf of the general public.
1. Existing law does not require a court determination that
the plaintiff has no conflicts of interest which reasonably
could compromise the good faith representation of the public,
in order to bring a claim on behalf of the general public.
This bill would require a court determination that the
plaintiff has no conflicts of interest which reasonably could
compromise the good faith representation of the public. This
bill would not change existing law to require the
representative plaintiff be personally harmed in order to
bring a claim.
2. Existing law does not require any notification, joinder, or
public input, in order to bring, try, or settle a case brought
on behalf of the public.
This bill would require plaintiffs to give the Attorney
General and District Attorney notice of the filing of a
representative cause of action. Interested parties would be
noticed, as well as the D.A. and A.G., of any proposed outcome
of a representative cause of action.
3. Existing law does not require the defendant to disclose
pending litigation based upon similar facts and/or legal
theories.
This bill would require the defendant to give notice to
plaintiffs and the court of any other pending action(s) based
upon substantially similar facts and/or theories of liability.
4. Existing law allows courts to consolidate cases upon motion
of either the court, the defendant or plaintiff, if there
exists the same rights to relief, arising from the same
transaction, or series of transactions, against the same
defendant. The court may also coordinate cases which share a
common question of fact or law. The court may stay the cases
for which coordination is sought until it determines whether
or not to coordinate the cases.
This bill would allow the court to consolidate, coordinate, or
stay, duplicative cases. If a public prosecutor has a claim
against the same defendant, based on substantially similar
facts and theories, the private suit may be stayed pending
completion of the prosecutor's action.
5. Existing law does not require a formal hearing or
certification of disposition in unfair business practices
suits.
This bill would require a hearing and court certification of
final disposition for suits brought by private plaintiffs on
behalf of the general public.
COMMENT
1. Stated purpose for bill
According to the California Law Revision Commission, this
section of consumer law is ripe for abuse due to its broad
standing requirements. The Commission believes that this
section is used by some attorneys for "fishing expeditions" in
discovery practice, and to pump up attorneys' fees billed.
The misuse of this section is largely unrecorded, the
Commission says, as most ?17200 cases are settled out of
court.
In addition, the inability of defendants to settle all
cases based upon the same conduct subjects defendants to
burdensome multiple suits. According to the Commission,
defendants cannot settle all claims on behalf of the general
public in a single action, because constitutional due process
requirements of adequate notice to all potential parties are
not part of the ?17200 scheme. Without adequate notice, there
can be no binding of parties to an outcome.
This bill addresses these concerns, the Commission asserts,
by requiring plaintiffs and their attorneys be adequate
representatives of the public's interests. This bill also
requires notice be given to the district attorney and attorney
general, as well as all parties expressing interest, at all
phases of the litigation. Finally, there will be close court
scrutiny of representative actions. These protections are
intended to allow parties more finality when they settle
cases, by providing a firm due process base for a courtos
declaring such settlements res judicata as against further
private suits on behalf of the public.
Similar legislation has been introduced on behalf of the
Governor by Senator Mountjoy, SB 1309. That bill would
provide a much more dramatic change in the Unfair Competition
Act (UCA) than proposed herein. In particular, it would
mandate class action standing for most private plaintiffs, and
would require court supervision and acquiescence of process
and outcome. In addition, SB 1309 would declare all certified
outcomes to be a ban on future claims based upon similar facts
and theories against the same defendant.
2. Opponents say there is no evidence that ?17200, et seq.,
has been widely abused
The Legal Services Section of the State Bar of California,
wrote the Commission regarding the proposed legislation and
offered, "(T)o the extent there are abuses in unfair
competition litigation, individual courts have the power to
address them. The proposed legislation will not put an end to
so called 'abuses' and will significantly hamper those who sue
under the unfair competition law for the public good."
Similar criticism is raised by Public Counsel, and Consumer
Attorneys of California (CAOC), who ask, "(W)hy are we
changing this law, where is the problem?" "The Commissions'
primary concern is for the 'potential' for abuse of lawsuits
under ?17200, and while that potential may have been realized
in a handful of cases in the twenty years that the statutory
scheme has been in existence, there is no demonstrated proof
of widespread problems. In our view the Commission's
recommendations will create substantial additional problems
and will do little to address the handful of reported
'abuses."
The Commission responds that a problem does exist. However,
the nature of the problem is one which masks the severity,
e.g., nuisance cases are brought and settled quietly, leaving
no judicial record to offer as evidence of the true numbers of
?17200 cases.
IS AN ADDITIONAL LEGISLATIVE RESPONSE NECESSARY WHEN THERE
ARE CURRENTLY REMEDIES AVAILABLE TO PUNISH VEXATIOUS LITIGANTS
AND THOSE WHO BRING FRIVOLOUS SUITS?
3. Other identified concerns with the bill
a) Problems with notice requirement
While the bill purports to mandate notice to interested
parties and those involved in similar ongoing litigation,
there is no sanction for failing to exchange the various
notices contained in the bill. Consumer Attorneys of
California believe that there should be some sanction for
failure to comply.
Also, the bill fails to include notice to those parties
affected who have yet to realize a claim, and/or file a
claim. Without adequate notice, it is doubtful the res
judicata protections this bill aspires to, will meet due
process standards. By way of comparison, notice to the
affected class is mandatory under federal and state class
action suit procedure. In that context, notice is a
considered such an important component that it is ordered
by the court immediately following determination of the
class.
b) Hearing provision
The concern here is that the protection afforded by
this new procedure is illusory, and in practice courts will
rubber-stamp any settlement presented, including collusive
settlements. With court calendars as crowded as they are,
it would be unlikely that a court would upset an
uncontested settlement. Further, it would be rare for a
court to undo a deal, based upon an eleventh hour concern
raised by an outside party.
A second area of concern is the limited application of
court oversight, restricted to representative suits. The
CAOC, and others, suggest it would be better to expand this
oversight to all cases brought under ?17200, pubic,
private, and representative.
IS IT ADVISABLE, GIVEN CROWDED COURT DOCKETS, TO REQUIRE A
COURT TO CONDUCT A HEARING TO CERTIFY FREELY NEGOTIATED
UNCONTESTED SETTLEMENTS?
c) Public prosecutors priority/stay provision
Three areas of concern are raised regarding this
provision. First, a fear exists that public prosecutors may
interlope into ongoing litigation, and reap the benefits of
a private plaintiffs' work product for themselves.
Secondly, if a stay were to be put in place on an ongoing
or pending, representative suit, the discovery--indeed all
evidence-- would grow stale, rendering the private action
pointless once the stay was lifted. Third, the Personal
Insurance Federation raises a concern that the limited stay
provision in the bill would cause confusion as to the
courtos ability to defer to a regulatory body, at least in
insurance cases.
In addition, courts have held that the remedies
available to public and private plaintiffs are distinct,
and therefore resolution of one type of claim does not
preclude commencement of the other.
IS IT ADVISABLE PUBLIC POLICY TO ALLOW THIS PROPOSED
STAY PROVISION, WHICH COULD RESULT IN THE MOOTING OF
PRIVATE CLAIMS, WHEN THE RIGHTS VINDICATED BY PUBLIC
OFFICIALS AND DAMAGES WHICH PUBLIC OFFICIALS MAY COLLECT
ARE DISTINCT AND DO NOT BAR PRIVATE CLAIMS AND REMEDIES
UNDER THE UCA?
d) Business community issues
Various representatives of California's business
community have written this Committee to express their
opinion that the bill does not go far enough in altering
?17200. For example, the Association for California Tort
Reform wishes the bill mandated res judicata. The Dial
Corporation wishes the bill required any plaintiff
bringing a representative suit to have suffered individual
harm. Finally, the Toy Manufacturers of America wish that
there were penalties for plaintiffs who file frivolous
unfair competition suits contained in the bill.
Support: California District Attorneys Association; Consumers
Union; California
Manufacturers Association.
Opposition: Consumer
Attorneys of California; California Retailers Association; State
Farm Insurance Co.; California Rural Legal Assistance
Foundation;
Personal Insurance Federation; Public Counsel; Association for
California Tort
Reform; The Dial Corporation; Toy Manufacturers of America;
Worksafe!
HISTORY
Source: California Law Revision Commission
Related Pending Legislation: SB 1309 (Mountjoy)
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