BILL ANALYSIS
SB 122
Page 1
Date of Hearing: September 8, 2003
ASSEMBLY COMMITTEE ON JUDICIARY
Ellen M. Corbett, Chair
SB 122 (Escutia) - As Amended: September 5, 2003
SENATE VOTE : 22-15
SUBJECT : UNFAIR COMPETITION
KEY ISSUE : SHOULD THE UNFAIR COMPETITION LAW (UCL) BE AMENDED
TO PROVIDE TARGETED NEW CONSUMER PROTECTIONS CONTAINED IN A
TWO-BILL DUAL HOUSE PACKAGE WHICH INCLUDES COURT REVIEW AND
APPROVAL OF SETTLEMENT AGREEMENTS AND ATTORNEY'S FEES IN PRIVATE
UCL CASES, NEW CONSUMER NOTICE PROVISIONS AND STRICT RULES
AGAINST MISJOINDER OF DEFENDANTS?
SYNOPSIS
This bill, part of a two-bill Democratic package which consists
of this bill and AB 95 (Corbett), amends the UCL to provide for
important targeted consumer protections including a requirement
that, if any party in a private UCL action brought on behalf of
the general public requests, a court must review and approve a
settlement agreement, including any proposed attorney's fees,
except as specified. The most recent amendments delete the
bill's provision concerning "disgorgement" and related
provisions, and an earlier "non-severability" requirement
contained in AB 95.
Under the bill, when a party has opted for court review of a
settlement, an agreement to pay any attorney's fees in these
cases is void and unenforceable if it is not approved by the
court. The bill also provides that any attorney who receives
attorney's fees in a private UCL action brought on behalf of the
general public without submitting the proposed attorney's fees
for review and approval by the court when a party has requested
court review, is subject to disciplinary action by the State
Bar. The bill establishes specified rules with respect to UCL
actions proposed to be brought on behalf of the general public
and requires a private plaintiff, upon filing a UCL action on
behalf of the general public, to notify and submit a copy of the
complaint to the State Bar.
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The bill also requires 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 which notes critical
consumer protection rights available to all defendants sued
under the UCL, including the right to request court review and
approval of a settlement or compromise (including attorney's
fees), 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. The bill also 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. Finally,
the package provides, under AB 95 (Corbett) to which this bill
is joined, 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.
Supporters argue that this bill is a measured approach to
curbing abuses of the UCL and believe that 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.
Supporters write that, together, the two bills will improve the
fairness of the law and its application, and address legitimate
concerns about attorneys who misused the statute primarily or
solely for their personal gain, rather than for the public
benefit. Opponents, on the other hand, assert that this bill
does not go far enough and argue that the 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 write that 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 have had any personal
involvement with the product or service.
SUMMARY : Amends California's Unfair Competition Law (UCL) to
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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 if any party to the action requests court review and
approval. The bill also provides a special process to be
followed when a complaint has not yet been filed.
2)Provides that, when a party has opted for court review of a
settlement or compromise, an agreement to pay any settlement
moneys in those cases is void and unenforceable if not
approved by the court. This bill also 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 when a party has requested court
review of a settlement or compromise is subject to
disciplinary action by the State Bar, including potential
disbarment.
3)Provides that, when the court reviews a settlement or
compromise, it shall approve the settlement or compromise
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 and specifies that any attorney's
fees or costs awarded by the court shall be consistent with
applicable law.
4)Provides that the bill's provisions 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.
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
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subject to disciplinary action by the State Bar.
6)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.
7)Provides that a judgment in a private action brought on behalf
of the general public does not affect a judgment in an action
brought by a public prosecutor, except that to the extent both
judgments order payment to members of the public to redress
the same violations of law based on the same facts, occurring
at the same time. Under those circumstances, payments
actually made to members of the public under one judgment may
be offset against payments owed under the other judgment in
order to prevent double recovery.
8)Requires 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, including the right to ask for
court review and approval of a settlement or compromise
(including attorney's fees), 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.
9)Provides, under AB 95 to which this bill is joined, 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.
10)Provides that a court may, in the interests of justice, order
consolidation or coordination of UCL actions.
11)Repeals the "non-severability" clause in AB 95.
12)Provides that this bill will become operative only if AB 95
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is enacted.
EXISTING LAW :
1)Defines "unfair competition" as any unlawful, unfair or
fraudulent business act or practice, as any unfair, deceptive,
untrue or misleading advertising, and as any act prohibited by
the false advertising statutes. (Business and Professions
Code section 17200. All further statutory references are to
this code.)
2)Provides that actions for relief may be brought by the
Attorney General (AG), or any district attorney or, under
specified circumstances, a city attorney or city prosecutor
and by any person acting for his or her own interest or the
interests of the general public. (Sections 17204 and 17535.)
3)Provides that civil penalties for unfair competition
violations are not available to private plaintiffs. (Sections
17206 and 17536.)
4)Provides that, in such an action, the court may make any
orders or judgments as may be necessary to prevent the use or
employment by any entity of any practice which constitutes
unfair competition or which violates the false advertising
laws, including issuing an injunction or appointing a
receiver. Existing law also provides that the court may order
restitution of any money or property which may have been
acquired by means of the unfair competition or false
advertising. (Sections 17203 and 17535.)
5)Provides that a consumer bringing an unfair competition action
on behalf of the public or of persons similarly situated is
not required to meet the requirements applicable to class
action lawsuits. ( Stop Youth Addiction v. Lucky Stores
(1998) 17 Cal. 4th 553.)
6)Provides that a court may order restitution for violations of
Section 17500 without individualized proof of deception,
reliance, and injury if it "determines that such a remedy is
necessary to prevent the use or employment of the unfair
practice ?" ( Committee on Children's TV, Inc. v. General
Foods Corp. (1983) 35 Cal. 3d 197 (citations omitted).)
FISCAL EFFECT : The bill as currently in print is keyed
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non-fiscal.
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 brought 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.
Brief Summary of September 5, 2003 Narrowing Amendments.
Previously, this bill had provided that if the court finds that
a defendant has engaged in an unlawful, unfair, or fraudulent
business act or practice in violation of the UCL 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. The bill also required 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. The most recent
amendments deleted these provisions in their entirety and other
related provisions from the bill.
The most recent amendments also provide that any party to a
private UCL action brought on behalf of the general public may
request that a court review and approve a settlement or
compromise, including any attorney's fees agreement. This
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provision provides parties who may not be able to afford
representation and are potentially unsure of their rights with
the ability to turn to a court for review and approval. The
amendments also add the consumer notice provided for in AB 95 in
order to make a correction requested by the California District
Attorney's Association and delete the "non-severability" clause
contained in its companion measure, AB 95.
Description of August 28, 2003 Amendments. On August 28, 2003,
this bill was amended to expand the attorney fee review
provision to provide for court review of the entire UCL
settlement. This language was included in an attempt to respond
to concerns that review of attorney's fees agreements alone was
not sufficient. The amendments also provide that, in reviewing
a settlement, a court must 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.
Background: The State's Preeminent Consumer Protection Statute.
California's landmark Unfair Competition Law has been a vital
tool used over the years to protect consumers, children, the
elderly, minorities and many others. This crucial consumer
protection 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 Consumers Union v. Alta-Dena Certified Dairy (1992)
4 Cal. App. 4th 963, Consumers Union brought a UCL action
against a dairy for its misleading advertising regarding the
health benefits of raw milk. Despite the claims of the dairy in
its advertising campaign, the evidence at trial overwhelmingly
established that raw certified milk can contain particularly
dangerous organisms and, as a result of Consumer Union's suit,
the court required the defendant to disclose on its containers
the potential danger to consumers.
In another example of how this law protects consumers, in Warren
v. Safeway Stores (Alameda County Superior Court No. 663420-3,
filed 1990) a plaintiff sued the defendant under the UCL to stop
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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. Finally, in Ramos v.
Martinez (Los Angeles Superior Court No. BC158060, filed Sept.
27, 1996), a plaintiff used the UCL to stop a non-lawyer
immigration consultant who falsely represented to consumers that
she worked for the INS and could obtain residency status for
them through immigration programs for which they did not
qualify.
Historical Backdrop. California law has contained a statute
prohibiting "unfair" practices in competition since the first
Civil Code was enacted in 1872. Since 1933, the UCL has
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. In 1963, the statute was expanded to
protect consumers from fraud and unfair business dealings by
prohibiting "unlawful" practices in addition to unfair
practices. California courts have interpreted this amendment to
mean that plaintiffs may "borrow ... violations of other laws
and treat [them] ... as unlawful practices independently
actionable" under the UCL. ( Farmers Insurance Exchange v.
Superior Court (1992) 2 Cal. 4th 377, 383.) Thus, a statute
which declares a certain type of practice unlawful, but does not
expressly provide for an action by a consumer to enforce its
provisions, can be enforced by a consumer under the UCL.
Potential Remedies Available. 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. Significantly, neither public
prosecutors nor consumers may seek punitive damages under the
UCL, even for the most egregious practices.
Instead, consumers may seek an injunction to halt the unfair,
unlawful or fraudulent practice, and restitution. As
injunctions and restitution are equitable remedies that do not
require submission to a jury, there is no right to a jury trial,
and so private UCL actions are instead tried before a judge who
has sole discretion to determine if the alleged wrongful act is
an unfair, fraudulent, or unlawful business practice, and to
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determine the appropriate equitable remedy. A court may order
restitution in a UCL action without individualized proof of
injury if it determines that such a remedy is necessary to
prevent the unfair practice.
Background on Recent Controversy Regarding Abuse of the Unfair
Competition Act. 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, surrendering their licenses to practice law
in California. In addition to the Bar's prosecutions, 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. A Los Angeles judge dismissed Trevor's nine UCL cases
filed against approximately 2,000 automotive 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.
ARGUMENTS IN SUPPORT : Many letters were received in support of
this measure. Reflective of the arguments in support of the
bill is the letter from the Consumer Attorneys of California
which states in part:
SB 122 (Escutia) and AB 95 (Corbett) will provide
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meaningful relief to consumers subjected to practices
and acts which violate the UCL statute. The bills are
in direct response to a few law firms that misused the
UCL to extort small businesses to turn over money in
settlement, without any oversight to ensure public
benefit. ? Section 17204.6 will allow any party or
potential party to request court review in a UCL
action. Using the Trevor example, a small business or
similar defendant hit by a suspect suit can avoid being
extorted of settlement monies because he or she can
simply request that the court review the proposed
settlement. The court can not approve the settlement
if it finds the disposition is unfair or fails to
reasonably protect the interests of the general public.
?
Much of the discussion regarding the UCL has centered
on the need for an appropriate state agency to receive
copies of complaints in private UCL suits. The State
Bar, by receiving copies of all complaints, has the
jurisdictional ability to monitor and discipline any
abuse practices. ? We have heard complaints that, in
the Trevor cases, coordination was an appropriate
judicial response, and in fact, most of the cases were
consolidated. However, by adding this section to the
Business and Professions Code, the court is
specifically authorized to make such coordination and
consolidation orders. ? Section 17204.9 specifically
allows the court to allow parties to present
information about prior actions against the same
defendant and allow a set off against claims in a later
action against the same defendant. Frankly, there has
been no credible evidence of the "subsequent lawsuits",
but we believe this provision would stop that practice,
should it ever occur.
The California Labor Federation, AFL-CIO writes in support that
the two bills "make significant, targeted changes to B&P 17200,
yet achieve the goals we all share: stopping UCL abuse while
ensuring adequate remedies for those who are victims of unfair,
illegal or fraudulent business practices. ? We also believe that
this legislative reform package, in conjunction with the other
actions taken by the State Bar and other entities, will crack
down on the bad actors who have taken advantage of a good law. "
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In another letter, Consumers for Auto Reliability and Safety
(CARS) writes that SB 122, along with AB 95, represents "a
measured approach to curbing abuses of California's Unfair
Competition Law." CARS further writes:
SB 122 and AB 95 will address misuse of the statute
involving filing a single case against multiple
defendants simply because they are all in the same line
of business. They would also specifically authorize
courts to consolidate cases or coordinate actions. The
bills will also require prominent, conspicuous notice
to defendants or potential defendants explaining their
rights and obligations in plain and easy language, to
assist them in avoiding being threatened by unethical
lawyers. We believe that these provisions will improve
the fairness of the law and its application, and
address legitimate concerns about attorneys who misused
the statute primarily or solely for their personal
gain, rather than for the public benefit.
ARGUMENTS IN OPPOSITION : Many letters were received in
opposition to this measure. Reflective of the arguments in
opposition to the bill is the letter from the Civil Justice
Association of California which states in part:
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 its
any private attorney to become a quasi-prosecutor,
selecting deep pocket perm 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." ?
The so-called "double recovery prevention" provision
doesn't prevent double recovery or stop repetitive
lawsuits for the same act. There remains considerable
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due process concerns due to the infinite jeopardy
allowed under the Unfair Competition Law. A defendant
will keep getting sued for the same alleged unfair
conduct, will keep having to defend itself, and will
keep having to settle "legalized extortion" claims. If
and only if a case actually goes to trial (an extremely
rare occurrence) and only at the end of the trial when
the total is being added up might it matter in some
sense that the company has been sued before. Whether
any set off is allowed is entirely within the judge's
discretion, so there is no guarantee a defendant will
even get the offset benefit. True res judicata or
finality is a protection that cuts off all duplicate
litigation at a very early stage before defense costs
pile up. The way this is phrased is so narrow that it
almost guarantees a defendant will pay more than once.
The plaintiffs' lawyers watered down the court review
of attorney's fees in the prior version by omitting all
reference to CCP 1021.5 standards. The language now
requires a court to approve the fees unless a very high
subjective test determines it is unfair. Without any
standards to determine fairness, virtually all
attorney's fees would have to be approved.
The Automotive Repair Coalition and the California Restaurant
Association also oppose the measure, writing "Measured by the
impact SB 122 would have had on the Trevor Law Group cases and
the nail salons cases in 2002, SB 122 is not only a failure but
places additional incentives and weapons in the hands of Trevor
and others to attack all businesses including small and
micro-businesses as recognized by the State of California. ? SB
122 (Escutia) (1) Does NOT stop a small business from being sued
repeatedly under 17200 for the same claim; (2) Does NOT provide
public notice of 17200 actions like those initiated by Trevor;
and (3) Does NOT provide substantive standards for judicial
review of settlements to ensure anything more than a "rubber
stamp" of plaintiffs' settlement papers and attorneys fees."
Ed Sybesma, designated lead liaison counsel in the Trevor Law
Group auto repair shop cases before Judge West, writes:
The second provision which could have been of
significant assistance in the Trevor Law Group cases if
it had been law, and if it had included adequate notice
provisions, is a requirement of judicial review of
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settlements before the plaintiff can take settlement
monies. Unfortunately, however, the judicial review
provisions of this bill do not contain meaningful
provisions for notice to the public, and it is not even
clear from the language of this bill whether the
plaintiff would be required to give notice of the
hearing on approval of a settlement with one defendant
to the remaining defendants in the same action.
Trevor Law Group's operations included concerted
efforts to conceal its actions with individual
defendants from all of the other defendants. Public
notice was what was needed to stem the early successes
of the Trevor Law Group. ? The judicial review
provision of SB 122 is far too weak to have had any
significant impact in the Trevor Law Group cases. It
was only because of widespread public awareness of the
Trevor cases that they were finally halted, a year
after they began doing their harm. Only by providing
the opportunity for public dissemination of information
about cases of that nature is there a realistic
possibility of impacting inappropriate cases at an
early stage.
REGISTERED SUPPORT / OPPOSITION :
Support
Attorney General
California Labor Federation, AFL-CIO
California League for Environmental Enforcement Now (CLEEN)
California Nurses Association
California Rural Legal Assistance Foundation (CRLA)
California State Association of Electrical Workers and Western
States Sheet Metal Workers
California State Pipe Trades Council
City and County of San Francisco
Congress of California Seniors
Consumer Attorneys of California (CAOC)
Consumers for Auto Reliability and Safety (CARS)
Consumers Union
Sierra Club California
One individual
Opposition
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American Electronics Association
American Insurance Association
American International Group
Automotive Aftermarket Services, Inc.
Automotive Repair Coalition (ARC)
Automotive Trade Organizations of California
Bay Area Bioscience Center
California Association of Health Facilities (CAHF)
California Association of REALTORS
California Automotive Wholesalers' Association
California Chamber of Commerce
California Dental Association
California Healthcare Institute
California Independent Grocers and Convenience Stores
California Manufacturers & Technology Association
California Motor Car Dealers Association
California Service Station and Automotive Repair Association
Citizens Against Lawsuit Abuse - Central California
Citizens Against Lawsuit Abuse - Los Angeles
Citizens Against Lawsuit Abuse - Northern California
Citizens Against Lawsuit Abuse - Orange County
Citizens Against Lawsuit Abuse - San Diego County
Citizens Against Lawsuit Abuse - Silicon Valley
Civil Justice Association of California (CJAC)
Clorox Company
Enterprise Rent-A-Car of Sacramento
Geico Direct
Los Angeles Area Chamber of Commerce
Motion Picture Association of America
National Federation of Independent Business (NFIB)
Option One Mortgage Corporation
Personal Insurance Federation of California
Pleasanton Chamber of Commerce
Redondo Beach Chamber of Commerce and Visitors Bureau
SBC California
SeaStack Enterprises, LLC
Silicon Valley Manufacturing Group
TechNet
Wine Institute
One individual
Analysis Prepared by : Saskia Kim / JUD. / (916) 319-2334