BILL ANALYSIS
SB 122
Page 1
SENATE THIRD READING
SB 122 (Escutia)
As Amended September 5, 2003
Majority vote
SENATE VOTE :22-15
JUDICIARY 9-5
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|Ayes:|Corbett, Hancock, | | |
| |Jackson, Laird, Lieber, | | |
| |Longville, Montanez, | | |
| |Steinberg, Levine | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Harman, Bates, Dutra, | | |
| |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 a settlement or
compromise, including an 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 a party to the action requests court review and
approval of its proposed settlement or attorney's fees. 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.
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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 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
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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 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 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
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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 a 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 language is
intended to permit a party to a private UCL action with the
ability to request that a court review and approve that particular
party's proposed settlement agreement, including any agreement to
pay attorney's fees.
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.
Background: The state's preeminent consumer protection statute:
California's UCL 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
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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.
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 bill. Reflective of the arguments in support of this bill is
the letter from the Consumer Attorneys of California, which states
in part:
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SB 122 (Escutia) and AB 95 (Corbett) will provide
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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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, plaintiff's 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
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
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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."
Analysis Prepared by : Saskia Kim / JUD. / (916) 319-2334
FN: 0003891