BILL ANALYSIS
SB 122
Page 1
SENATE THIRD READING
SB 122 (Escutia)
As Amended July 16, 2003
Majority vote
SENATE VOTE :22-15
JUDICIARY 9-4
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|Ayes:|Corbett, Hancock, | | |
| |Jackson, Laird, Lieber, | | |
| |Longville, Montanez, | | |
| |Steinberg, Levine | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Harman, Bates, Pacheco, | | |
| |Spitzer | | |
| | | | |
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SUMMARY : Amends California's Unfair Competition Law (UCL) to
provide for important targeted consumer protections as well as
other consumer protections contained in AB 95 (Corbett) pending in
the Senate. Specifically, this bill :
1)Requires a court to review and approve attorney's fees proposed
to be paid in connection with a private UCL action brought, or
proposed to be brought, on behalf of the general public and
provides that, if not approved by the court, an agreement to pay
any attorney's fees in those cases is void and unenforceable.
This bill also provides that an attorney who receives attorney's
fees in such an action without submitting the proposed fees for
the required review and approval by the court is subject to
disciplinary action by the State Bar, including potential
disbarment.
2)Gives guidance to a court with respect to the standard to be
applied to such review of proposed attorney's fees by providing
that a court shall approve an attorney's fee award for a
prevailing plaintiff if an award of attorney's fees is
authorized by a statute or if the award satisfies the
requirements of Code of Civil Procedure Section 1021.5.
3)Establishes other new consumer protections in these UCL actions
including a requirement that private plaintiffs will now need to
file and serve on all parties a complaint describing the cause
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of action proposed to be brought, and these plaintiffs will also
need to file a special motion for review and approval of the
proposed attorney's fees.
4)Provides that a court is not required to review and approve an
award of attorney's fees when the fees are agreed upon by the
parties as part of the compromise or settlement of a UCL action
or proposed action brought by labor organizations or employment
or civil rights organizations, as specified.
5)Requires a private plaintiff, at the time of filing a UCL action
on behalf of the general public, to notify and submit a copy of
the complaint to the State Bar of California. An attorney who
fails to comply with this requirement is subject to disciplinary
action by the State Bar.
6)Provides that in addition to the relief authorized under the
UCL, if the court finds that a defendant has engaged in an
unlawful, unfair, or fraudulent business act or practice in
violation of this chapter and that the defendant has derived
profits or ill gotten gains from that act or practice, the court
may order any appropriate equitable relief to remedy the act or
practice. Such relief might include injunctive relief,
restitution, disgorgement of profits, or other forms of relief
tailored to the specific violation which the court finds
appropriate under the specific circumstances of the case. This
bill also requires a court to assure that any monetary relief in
excess of the restitution paid by a defendant shall be
distributed as a fluid recovery or cy pres award.
7)Requires, in order to provide court oversight, that prior to the
entry of any judgment or order for relief pursuant to the bill,
a court must determine the total amount of monetary relief
payable as the result of the defendant's unlawful, unfair, or
fraudulent business act or practice. This bill also requires
the court to set a date when the parties must report to the
court the total amount actually paid in restitution to members
of the public and, after the report is received, the court must
amend the judgment to direct the defendant to pay the sum of the
unpaid residue to nonprofit organizations or foundations to
support projects consistent with the objectives and purposes of
the underlying action or to promote justice for all and requires
that the court ensure that this distribution provides
substantial benefit to consumers.
8)Provides for tightened joinder provisions in these actions and
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clarifies that the fact that individual defendants are engaged
in the same or similar types of businesses, and are alleged to
have violated the same or similar laws or regulations, is not,
in itself, a basis for joining them all into one suit. This
bill also provides that a court may, in the interests of
justice, order consolidation or coordination of UCL actions.
9)Requires, under AB 95 to which this bill is joined, any private
person bringing an action for relief on behalf of the general
public to serve on each defendant at the time of service of a
demand letter or a complaint a comprehensive new notice in
14-point boldface type which notes critical consumer protection
rights available to all defendants sued under the UCL and
provides that an attorney who does not send the notice as
required may be subject to disciplinary action by the State Bar
of California.
10)Provides that this bill will become operative only if AB 95 is
enacted.
FISCAL EFFECT : None
COMMENTS : This bill and AB 95 comprise a two-bill Democratic
package which seeks to provide for important targeted new
protections for consumers and small businesses who have been
subject to extortion-like lawsuits by a few errant lawyers who
have abused California's landmark consumer protection law. In
support of this measure, the author states:
SB 122 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 would respond to reform suggestions made in the
joint Senate and Assembly Judiciary Committee hearing on
this issue by providing that, in any private action
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brought in the public interest to enforce the UCL, a
court shall review and approve the attorney's fees to be
paid in a settlement or other pre-trial disposition of
the action.
California has had a statute prohibiting "unfair" practices in
competition since the first Civil Code was enacted in 1872. In
1933, the UCL 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. 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. Instead they may seek only injunctive relief
and restitution. Significantly, neither public prosecutors nor
consumers may seek punitive damages under the UCL, even for the
most egregious practices.
California's landmark UCL has been a vital tool used over the
years to protect consumers, children, the elderly, minorities and
many others. This crucial 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 1990 in Warren v. Safeway Stores 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.
As reported in press accounts and further illuminated at the
Assembly Judiciary 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 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. 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
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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.
In response to these reports, the State Bar of California stated
that it initiated its largest-ever investigation of alleged
attorney misconduct. After the completion of the investigation, a
State Bar Court judge granted the Bar's petition to suspend the
Trevor attorneys from practicing law and, in June, the Bar
officially filed disciplinary charges against the attorneys,
seeking their disbarment. On July 10, 2003, the Trevor attorneys,
Allan Hendrickson, Shane Han, and Damian Trevor, resigned from the
State Bar of California. In addition to the Bar's prosecutions,
in February, Attorney General Bill Lockyer filed suit under the
UCL against Trevor, and most recently against the law firm of Brar
and Gamulin, alleging that the firms operated a "shakedown"
scheme, filing UCL actions solely to obtain nuisance settlements
and attorneys' fees. Both actions seek $1 million in civil fines.
And, in March, a Los Angeles judge dismissed Trevor's nine UCL
cases filed 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 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. Finally, recent press
reports indicate that a federal grand jury is investigating
Trevor, raising the possibility of criminal action against the
attorneys.
Supporters argue that this bill is a measured approach to curbing
abuses of the UCL and believe that mandatory court review and
approval of attorney's fees in these actions will rein in
attorneys who try to intimidate small business owners by
threatening escalating attorneys fees. Proponents also assert
that this bill will address misuse of the UCL where private
plaintiffs, like the Trevor Law Group, file a single case against
multiple defendants simply because they are all in the same line
of business. They point out that "The [recent] changes to the fee
review section of SB 122 make it clear that any fees paid in
connection with a private action brought, or proposed to be
brought, are subject to this new requirement. Further, we have
worked with the Judicial Council to make sure that the statute
contains a specific process for such review. This section has
also been amended, per the request of the courts, to apply a
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standard, consistent with the applicable fee statutes, to give the
court guidance when it approves or disapproves fees in both the
pre and post complaint scenario. ? The 'disgorgement' section has
been rewritten to clarify the court is authorized, only after it
clearly finds the defendant has engaged in an unlawful, unfair or
fraudulent act AND that the defendant has derived profits or ill
gotten gains from the act, to order any equitable relief to remedy
that act. ? The [bill] also adds important protections for the
defendant which require the court to determine the total amount
payable and to receive an 'accounting' showing amounts paid in
restitution before he or she can order such equitable relief. ?
Last, the [bill] also clearly states that 'the court shall ensure
that this distribution provide substantial benefit to California
consumers.' This provision enables the court to have an active
role in the distribution process."
Opponents, on the other hand, assert that this bill does not
sufficiently address the flaws in the UCL and argue that the small
businesses affected in the Trevor situation will continue to face
a standard of infinite jeopardy wherein they may be financially
assailed repeatedly for the same technical violation. Opponents
further contend that the UCL is flawed because it permits lawsuits
against businesses for minor violations, despite the fact that
these violations may already have been addressed and resolved.
They state, "Private attorneys acting as 'representatives' can
under the UCL file what amounts to class action lawsuits without
court-supervised class certification safeguards, without any
showing that the attorney is a suitable representative of the
people allegedly represented (and without any notice to those
people that a suit is being brought), and without any protection
to defendants that once a case is concluded they won't be sued all
over again on the same issues! Current abuse of the UCL stems
primarily from its recently exploding use by plaintiffs attorneys
claiming to be acting on behalf of the general public or
representing individuals who have not been harmed or misled and
who may not even have had any personal involvement with the
product or service. The law permits any private attorney to
become a quasi-prosecutor, selecting deep pocket targets and
shallow pockets alike! In fact, plaintiffs lawyers hold seminars
on how to use the UCL to drive up settlement values and develop a
new practice. The law grants a private attorney the power to
decide almost carte blanche what is "unfair." This allows private
attorneys to use the UCL as a weapon in conjunction with other
causes of action, for example, demanding broad discovery of all
information relevant to 'unfairness.' None of these problems are
even marginally addressed by SB 122. They are only aggravated."
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Analysis Prepared by : Saskia Kim / JUD. / (916) 319-2334 FN:
0002424