BILL ANALYSIS
SB 122
Page 1
SENATE THIRD READING
SB 122 (Escutia)
As Amended August 28, 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 any settlement or
compromise, including any agreement to pay 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 settlement moneys in those cases is void
and unenforceable. Provides that any attorney who enters into
a settlement or who receives attorney's fees in such an action
without submitting the proposed settlement, including fees,
for the required review and approval by the court is subject
to disciplinary action by the State Bar, including potential
disbarment.
2)Provides that a court shall approve the settlement unless,
based on the evidence, briefing and information submitted, it
determines that the disposition of the action is unfair or
fails to reasonably protect the interests of the general
public under UCL and specifies that any attorney's fees or
costs awarded by the court shall be consistent with applicable
law.
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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 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 this bill's requirements concerning court review
and approval do not apply if the action is brought or proposed
to be brought by labor organizations or employment or civil
rights organizations, as specified.
5)Requires a private plaintiff, at the time of filing a private
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 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 ill gotten gains from that act or practice, the court
may order any appropriate equitable relief to remedy the act
or practice. This provision overturns Kraus v. Trinity
Management Services, Inc. (2000) 23 Cal. 4th 116 in which the
court held that the Legislature had not yet expressly
authorized a court to order disgorgement into a fluid recovery
fund in a UCL action that is brought by a private party on
behalf of absent persons and that is not certified as a class
action. The bill also requires the court to assure that any
monetary relief in excess of amounts paid by a defendant to
the plaintiffs or affected members of the general public shall
be distributed as a cy pres award or fluid recovery to provide
substantial benefit to Californians.
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. Requires the
court to set a date when the parties must report to the court
the total amount actually paid to those members of the public
identified and located as being affected by the act or
practice and, after the report is received, the court must
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amend the judgment to direct the defendant to pay the
remaining balance of the unpaid ill gotten gains to a
nonprofit organization or foundation to support projects
consistent with the objectives and purposes of the underlying
action or to promote justice for all or to a court-approved
fund appropriate to the circumstances of the action or, if
neither of these options is available, to the State of
California.
8)Provides that, in private UCL actions brought on behalf of the
general public, a court may not order any monetary relief in
excess of monetary restitution against a small business,
defined as a business that has fewer than 10 employees or
independent contractors and average annual gross receipts of
less than $500,000, except as specified.
9)Requires a private plaintiff seeking cy pres or fluid recovery
under the bill to, at least 30 days before the date of the
final report and judgment by the court, submit to the Attorney
General (AG) a copy of the proposed terms of the judgment and
notice of the time and place set for hearing on the entry of
the judgment and requires the AG to make the proposed terms of
the judgment publicly available on the Internet for a period
not to exceed 45 days from the date of its receipt. This bill
specifically provides that the receipt of the information does
not constitute notice affecting the right of the AG to take
any other action within its authority at any time.
10)Clarifies that the UCL's four-year statute of limitations
period applies to this bill's provision regarding ill gotten
gains and provides that, in order to prevent double recovery,
a court may, in the exercise of its equitable powers, allow
any party to present information about a prior action against
the same defendant, and allow a set off against claims in a
later action against that defendant, if the later action is
based on the same facts, occurring at the same time, and
raises the same issues as the prior action.
11)Provides for tightened joinder provisions in these actions
and clarifies that the fact that individual defendants who are
not associates or affiliates of each other 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,
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order consolidation or coordination of UCL actions.
12)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.
13)Provides that this bill will become operative only if AB 95
is enacted.
FISCAL EFFECT : Unknown
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 responds to reform suggestions made in the joint
Senate and Assembly Judiciary Committee hearing on this
issue.
Summary of most recent amendments: On August 28, 2003, this
bill was amended to address concerns raised. The amendments
expanded the attorney fee review provision to require mandatory
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court review of the entire UCL settlement. The amendments also
provide that a court shall approve the settlement unless, based
on the evidence, briefing and information submitted, it
determines that the disposition of the action is unfair or fails
to reasonably protect the interests of the general public under
the UCL. Of course, the court also retains its inherent
authority to order a party to provide additional briefing or
otherwise supplement the record if the court determines that the
information submitted is insufficient to make the required
finding.
The amendments also make revisions to this bill's language
providing that this bill's requirements concerning court review
and approval do not apply if the action is brought or proposed
to be brought by labor organizations or employment or civil
rights organizations, as specified. This exemption is also
intended to include actions where an individual employee or
member of the general public is represented by one of the
enumerated organizations, and is not a party to the lawsuit.
The amendments also exempt small businesses from this bill's
provision allowing disgorgement of ill gotten gains in private
UCL actions and specify that ill gotten gains may be directed to
the General Fund if there is no appropriate non-profit or other
court-approved fund to receive payment.
The amendments require a private plaintiff seeking disgorgement
to provide notice to the Attorney General (AG) of the proposed
settlement terms and specify that the receipt of the information
does not constitute notice affecting the right of the Attorney
General to take any other action within its authority at any
time. This section imposes a purely ministerial function on the
AG to post on the Internet the terms of a proposed judgment,
including all stipulations and agreements between the parties,
and notice of the date of the court hearing on the judgment.
The provision would not require the AG to take any action, such
as undertaking any analysis or evaluation of the judgment;
investigating any aspect of the case, the settlement, or the
judgment; commenting on the judgment; or appearing at the
hearing. The AG's inaction would not constitute a waiver,
estoppel, bar, or have any other effect precluding the AG from
taking any action at any time, including action against the
defendant to obtain the full range of equitable relief and civil
penalties provided under the chapter as if the private
settlement had not occurred.
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Finally, the amendments prevent double recovery by allowing
courts to accept information from parties to a UCL action about
prior actions against the same defendant and permit a set-off
against claims in a later action against that same defendant.
This provision is not intended to apply to reduce the payment of
a civil penalty assessed in an action filed by a public
prosecutor by the amount of any payment of restitution, cy pres
award, or fluid recovery.
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. 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. 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 and many of them also
claimed that they were pressured to agree to quick out-of-court
settlements, which many paid either because they felt they could
not afford to mount a defense, or because the plaintiff's
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
investigated the Trevor attorneys for alleged attorney
misconduct, and, on July 10, 2003, the Trevor attorneys resigned
from the State Bar of California. In addition to the Bar's
prosecutions, Attorney General Bill Lockyer filed suit under 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. A Los Angeles judge dismissed Trevor's
nine UCL cases filed against approximately 2,000 automotive
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repair shops and 30,000 potential "Doe" defendants. Finally,
press reports have indicated that a federal grand jury is
investigating Trevor, raising the possibility of criminal
action.
Supporters argue that this bill is a measured approach to
curbing abuses of UCL and believe that mandatory court review
and approval of settlements and attorney's fees in these actions
will rein in unscrupulous attorneys who try to intimidate small
business owners by threatening escalating attorney's fees. They
state, "SB 122 provides California courts with the important
equitable tools needed to keep corporate criminals and polluters
from wrongfully profiting from unfair practices." Proponents
also assert that this bill will address misuse of 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. Opponents, on the other hand, assert
that this bill does not sufficiently address the flaws in UCL
and contend that UCL is flawed, arguing that it permits lawsuits
against businesses for minor violations, despite the fact that
these violations may already have been addressed and resolved.
They state, " 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."
Analysis Prepared by : Saskia Kim / JUD. / (916) 319-2334
FN: 0003300