BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 122|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 445-6614 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: SB 122
Author: Escutia (D)
Amended: 5/15/03
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-2, 5/13/03
AYES: Escutia, Cedillo, Ducheny, Kuehl, Sher
NOES: Morrow, Ackerman
SUBJECT : Unfair competition: private enforcement
actions
SOURCE : Author
DIGEST : This bill provides that, in any private action
brought in the public interest to enforce the Unfair
Competition Law (UCL), a court shall review the attorney's
fees to be paid in a settlement or other pre-trial
disposition of the action. Also, provides that
disgorgement is an available remedy in private UCL actions,
and that any disgorgement in excess of restitution shall be
distributed in a manner to further the purposes of the
action or to promote justice for all Californians.
Finally, this bill clarifies that defendants cannot be
joined in a UCL action just because they are engaged in the
same or similar businesses and are alleged to have violated
the same or similar laws.
ANALYSIS :
Existing law :
CONTINUED
SB 122
Page
2
1. The Unfair Competition Law (UCL), prohibits any person
from engaging in "unfair competition," which is defined
as "any unlawful, unfair, or fraudulent business act or
practice and unfair, deceptive, untrue or misleading
advertising."
2. Provides that the UCL may be enforced by the State
Attorney General (AG), district attorneys, and other
public prosecutors, who may seek injunctive relief,
restitution, and civil penalties from violators.
3. Further provides that the UCL also may be enforced by
"any person acting for the interests of itself, its
members, or the general public," and that private
plaintiffs acting in the public interest may seek
injunctive relief and restitution, but may not seek
damages or civil penalties.
4. Provides that a court may award attorney's fees to a
successful party against one or more opposing parties in
any action that has resulted in the enforcement of an
important right affecting the public interest, if
specified qualifications are met.
This bill :
1. Provides that in a private action for relief brought on
behalf of the general public, a court must review
attorney's fees in any proposed settlement, compromise,
dismissal, or disposition on the merits brought pursuant
to this chapter, and shall approve the fees for payment
if they are consistent with applicable law.
2. Further provides that any attorney who fails to submit
the attorney's fees for review and approval by the court
is subject to disciplinary action by the State Bar of
California (State Bar).
3. Exempts from this provision lawsuits brought by labor
organizations or their representatives, joint
labor-management committees, or employment or civil
rights organizations in existence for at least five
years that have as one of their purposes the vindication
SB 122
Page
3
of labor, civil, constitutional or human rights.
Existing law :
1. Provides that a court in a UCL action may impose
equitable remedies "as may be necessary to restore to
any person in interest any money or property ... which
may have been acquired by means of such unfair
competition."
2. Further provides that disgorgement of illegally obtained
assets is an equitable remedy available in class
actions, but not in UCL actions brought in the public
interest. [Kraus v. Trinity Management Services, Inc.]
This bill :
1. Provides that disgorgement relief is an available remedy
under Section 17203 of the Business and Professions
Code.
2. Further provides that a court shall assure that any
disgorgement in excess of restitution shall be
distributed as a fluid recovery or cy pres award, to the
extent possible, in a manner designed either to further
the purposes of the underlying causes of action or to
promote justice for all Californians.
Existing law provides that a plaintiff may join multiple
defendants in a single action if the plaintiff asserts any
right to joint and several relief against them, or alleges
that the defendants participated in the same transaction or
series of events giving rise to the complaint
This bill :
1. Sets forth the provisions of Section 379 of the Code of
Civil Procedure in their entirety in a specific joinder
provision within the UCL.
2. Adds to those provisions the following additional
provision: The fact that individual defendants who are
not associates or affiliates of each other are engaged
in the same or similar businesses and are alleged to
SB 122
Page
4
have violated the same or similar laws or regulations
shall not, in itself, constitute a basis for joinder
under this chapter.
3. Further provides that this additional provision is
declaratory of existing law.
4. Double-joints to AB 95 (Corbett), and takes effect only
if AB 95 is enacted and takes effect by 1/1/04.
Pending Double-Jointed Legislation
AB 95 (Corbett) requires private UCL plaintiffs to give
defendants specified notice of their rights, and clarifies
that joinder rules do not permit mass-defendant actions
based solely on similar violations alleged against similar
businesses. (Currently on Assembly Third Reading.)
Background
This bill is one of four bills introduced that responds to
a recent rash of UCL lawsuits brought by a few law firms
against thousands of small businesses (auto repair shops,
restaurants, and nail salons) in Southern California.
These lawsuits typically have consisted of boilerplate
complaints filed against hundreds of defendants at a time,
based solely on public notices of minor or technical
violations already addressed by the responsible regulatory
agencies. The lawsuits usually have been followed by
immediate demands for financial settlements for nuisance
value from the defendants, many of whom are recent
immigrants unfamiliar with the American legal system and
particularly vulnerable to such pressures, or who simply
cannot afford the time or expense of litigating on the
merits. This bill is the only bill of the four that was
introduced to pass out of the Senate Judiciary Committee.
On January 14, the Senate and Assembly Judiciary Committees
held a joint legislative hearing on these allegedly abusive
UCL suits. Witnesses included the AG and other public
prosecutors who bring civil enforcement actions under the
UCL, a representative of the State Bar, which had begun an
investigation of the law firms bringing the suits, lawyers
from the Trevor Law Group, one of those law firms,
SB 122
Page
5
defendants' representatives, consumer groups, tort reform
advocates, and experts on the UCL.
The purpose of the hearing was to determine whether the UCL
was being abused by the mass-defendant suits, and if so,
whether existing judicial authority and State Bar sanctions
were adequate to deal with the problem, or whether the UCL
itself required amendment. Although most witnesses, except
the Trevor Group lawyers, agreed that abuses were evident,
there was strong disagreement between those who favor the
consumer gains achieved by legitimate UCL actions, and
therefore oppose any significant amendments to the law, and
those who object to the breadth of the UCL, and seek
amendments limiting its scope.
Since the hearing, the State Bar has instituted
disciplinary proceedings against the Trevor Group lawyers,
and the AG with acknowledged irony has filed a UCL action
against them alleging unfair business practices. The State
Bar and the AG continue to investigate other law firms
alleged to be engaging in similar practices.
In addition, a Los Angeles judge has dismissed the Trevor
Group's UCL cases against thousands of auto shop
defendants, and judges hearing similar actions by Trevor
and other firms are considering similar dismissals.
Perhaps in anticipation of further losses, the Trevor Group
has dismissed its own action against all of the restaurant
defendants, and another firm has dismissed at least one of
its three actions against hundreds of nail salon
defendants.
Although the Trevor Group's alleged abuses of the UCL have
been actively addressed by existing disciplinary and
judicial processes, concerns remain that the UCL remains
uniquely subject to abuse by private plaintiffs, and that
unless reforms are instituted, future abuses will occur and
will inflict considerable harm before disciplinary measures
can be enforced. This bill proposes to reform the UCL by
narrowly targeting specific abuses.
Related Pending Legislation
SB 889 (Johnson) prohibits private UCL suits against
SB 122
Page
6
businesses with fewer than 50 employees. (Failed passage
5/13/03 in the Senate Judiciary Committee.)
SB 890 (Johnson) requires 85 percent of any judgment in a
private UCL action to be deposited in the State Restitution
Fund. (Failed passage 5/13/03 in the Senate Judiciary
Committee.)
SB 912 (Ackerman) prohibits private UCL actions brought in
the public interest if a regulatory agency already has
identified the violation, or if it is the subject of a
civil, criminal, or administrative proceeding. (Failed
passage 5/13/03 in the Senate Judiciary Committee.)
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 5/15/03)
California Labor Federation
California Rural Legal Assistance Foundation
Congress of California Seniors
Consumer Attorneys of California
Congress of California Seniors
Consumers for Auto Reliability and Safety
Consumers Union
Sierra Club California
OPPOSITION : (Verified 5/15/03)
Automotive Repair Coalition
California Chamber of Commerce
California Dental Association
California Motor Car Dealers Association
California Service Station and Automotive Repair
Association
Civil Justice Association of California
National Federation of Independent Businesses
ARGUMENTS IN SUPPORT : Consumers Union, the nonprofit
publisher of Consumer Reports , observes that the current
abuses of the UCL have been aimed at eliciting monetary
gains for a small group of lawyers and their for-profit
clients, not at stopping unfair practices for the benefit
SB 122
Page
7
of consumers. Consumers Union supports this bill as
striking an appropriate balance between targeting abusive
practices and protecting the UCL from burdensome
restrictions that places it out of reach of legitimate
plaintiffs.
Other consumer groups also support this bill, noting that
its disgorgement provision would ensure that any ill-gotten
gains recovered from a defendant must be devoted to the
public benefit instead of being funneled to for-profit
entities formed by attorneys (like the for-profit plaintiff
that fronted the Trevor Group cases and received a portion
of recoveries for its own private enrichment). The Sierra
Club notes that fluid recovery of disgorged profits "would
prohibit unethical firms from ignoring the policy basis for
the award or settlement, and would help assure that the
public interest, not the lawyer's interest, is served."
Consumer Attorneys of California also supports this bill,
noting that court review of attorney's fees and
clarification of joinder are welcome procedural reforms
that should deter Trevor-type abuses without unduly
burdening an important consumer protection law.
ARGUMENTS IN OPPOSITION : The Automotive Repair Coalition
and the California Service Station and Automotive Repair
Association oppose this bill, asserting that the addition
of disgorgement as an available remedy increases the
economic threat plaintiffs' attorneys can hold over
defendants, and that this bill's proposed court review of
attorney's fees in settlements is insufficient to offset
this increased threat.
The Civil Justice Association of California and the
California Motor Car Dealers Association also oppose this
bill, asserting that its court review provision is
inadequate and that allowing disgorgement as a remedy will
only increase frivolous UCL actions instead of discouraging
them.
The California Dental Association (CDA) argues that this
"bill purports to curb abuses of California's Unfair
Competition Law ("UCL"-Business & Professions Code 17200
et seq.) by requiring court review of attorneys' fees in
SB 122
Page
8
any proposed settlement, compromise, dismissal, or disposal
of a suit by a private party "on behalf of the general
public." It also adds disgorgement to these private
actions as a remedy.
"Neither of these requirements provide any relief to us and
other organizations like ours that must endure the time and
expense of litigation simply because someone out there
disagrees with our public statement son public issues.
CDA, the American Dental Association and a host of other
defendants, named and unnamed, have been sued in class
actions under the UCL's provisions. See, e.g., Tibau,
Blake et al. V. ADA, CDA, and Does 1 THROUGH 2000,
inclusive, S.F. Sup. Ct. Case No. 322110 (June 12, 2001).
For information on the California firm prosecuting this
case and others around the country, in consultation with
Washington, D.C. counsel, please go to the following
address on the World Wide Web:
http://www.khorrami.com/Amalgam%20Web/Amalgam/Amalgam.htm
"We believe the information found on these pages speaks
both for itself and volumes about how current law is
exploited in the name of "consumer protection." Suffice it
to say that all national and international health
organizations agree that there is no credible scientific
evidence that any of the materials used in dental amalgam
pose any significant health risk to dental patients.
(Incidentally, the lawsuits against the ADA and state
associations in Georgia, Maryland, New York, and Texas,
grounding similar charges in traditional theories of tort
liability, have all been dismissed.) We encourage you to
read a copy of the Tibau complaint, especially recitations
26 through 32 at pages 6 and 7, and draw your own
conclusions as to whether any law that sustains complaints
like this is truly balanced.
"CDA believes that truly meaningful UCL reform must include
the following statutory changes:
Require the person bringing the action to have suffered
harm or have relied on a representation of the defendant;
SB 122
Page
9
Bar an action when there is no evidence of present harm
and the defendant has terminated the activity;
Limit abusive discovery requests that amount to little
more than "fishing expedition;" and
Provide a mechanism so that no UCL claim is added to
another lawsuit for tactical advantage.
"The CDA does not oppose a law that provides broad
protections for consumers and competitors from unfair
business practices. None of our proposed reforms would
inhibit the ability of the Attorney General or any district
attorney to protect the public from such practices.
"Nor is the CDA opposed to continuing to permit private
enforcement of the Unfair Competition Law. We are fully
prepared to respond to the allegations against us and are
confident we will prevail. It is simply a shame that the
California litigation bar is set so low as to require the
unnecessary dedication of resources to the effort."
RJG:mel 5/14/03 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****