BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 122|
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UNFINISHED BUSINESS
Bill No: SB 122
Author: Escutia (D)
Amended: 9/5/03
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-2, 5/13/03
AYES: Escutia, Cedillo, Ducheny, Kuehl, Sher
NOES: Morrow, Ackerman
SENATE FLOOR : 22-15, 6/4/03
AYES: Alarcon, Alpert, Burton, Cedillo, Chesbro, Ducheny,
Dunn, Escutia, Figueroa, Florez, Karnette, Kuehl, Murray,
Ortiz, Perata, Romero, Sher, Soto, Speier, Torlakson,
Vasconcellos, Vincent
NOES: Aanestad, Ackerman, Ashburn, Battin, Brulte, Denham,
Hollingsworth, Johnson, Knight, Margett, McClintock,
McPherson, Morrow, Oller, Poochigian
NO VOTE RECORDED: Bowen, Machado, Morrow, Scott
SUBJECT : Unfair competition: private enforcement
actions
SOURCE : Author
DIGEST : This bill authorizes, subject to specified
exceptions, a party to request court review and approval of
a settlement or compromise of an unfair competition action
brought or proposed to be brought by a private party on
behalf of the general public. This bill requires that the
plaintiff in those actions serve a specified notice on each
defendant in the action and submit a copy of the complaint
CONTINUED
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to the State Bar of California. This bill specifies set
off requirements applicable to unfair competition actions.
This bill makes its provisions contingent upon AB 95
(Corbett) being enacted and becoming effective on or before
1/1/04 and repeals specified provisions of that bill.
Assembly Amendments (1) expand the court review provision
from review of attorney fee awards to review of entire
settlements by a court. This was in response to concerns
that reviewing only an attorney fee award would not give a
court enough context to determine if an award of attorney's
fees was appropriate, (2) delete the disgorgement provision
in its entirety, (3) provide that, in order to prevent
double recovery against a defendant, a court could allow a
party to present evidence of a prior claim against that
defendant and allow it to be set off against later claims
based on the same facts, (4) require court review of
settlements when requested by any party to the action,
instead of mandating court review in all cases. This
relieves both parties and the courts of settlement review
when no one felt they needed it, but requires court review
when any party wants it, and makes unenforceable any
settlement in which a party sought but did not receive
court review, (5) transfer the "notice of defendant's
rights" provision from AB 95 to SB 122, with amendments to
(a) conform it to the changes in the court review of
settlements provision, and to (b) inform defendants to seek
further information about Unfair Competition Law (UCL)
suits from their local bar association instead of their
local district attorney or the State Attorney General, (6)
delete the joinder reform provision from SB 122. The
identical provision exists in AB 95, so the provision
remains in the double-jointed bill package [it seemed less
confusing to have each bill carry separate provisions
instead of some identical ones], (7) amend the "double
recovery" provision to make clear that the civil penalties
sought in UCL actions by public prosecutors are not set off
against recoveries of restitution in private UCL actions,
and (8) repeal the "non-severability" provision in AB 95.
This provision had been included in AB 95 on the theory
that disgorgement and court review should work together,
accordingly, when disgorgement was deleted, there no longer
was any need for the non-severability provision.
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ANALYSIS :
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.
2. Provides that actions for relief may be brought by the
State 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.
3. Provides that civil penalties for unfair competition
violations are not available to private plaintiffs.
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.
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 )
6. Provides that a court may order restitution for
violations of Section 17500 of the Business and
Professions Code 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. )
This bill amends California's UCL to provide for important
targeted consumer protections as well as other consumer
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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 of California (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.
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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 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.
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
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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 becomes operative only if AB 95
is enacted.
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 bill, 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
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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. This 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
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.
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.
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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,
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
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will inflict considerable harm before disciplinary measures
can be enforced. This bill proposes to reform the UCL by
narrowly targeting specific abuses.
Related Legislation
SB 889 (Johnson) prohibits private UCL suits against
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)
Attorney General
California Labor Federation, AFL-CIO
California League for Environmental Enforcement Now
California Nurses Association
California Rural Legal Assistance Foundation
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
Consumers for Auto Reliability and Safety
Consumers Union
Sierra Club California
OPPOSITION : (Verified 5/15/03)
Allstate Insurance Company
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American Electronics Association
American Insurance Association
American International Group
Association of California Insurance Companies
Automotive Aftermarket Services, Inc.
Automotive Repair Coalition
Automotive Trade Organizations of California
Bay Area Bioscience Center
California Association of Health Facilities
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
Carlsbad Chamber of Commerce
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
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
Option One Mortgage Corporation
Orange County Business Council
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
1 individual
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ARGUMENTS IN SUPPORT : 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." 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 bill. 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
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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
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 Association of California Insurance Companies writes
that, "'Reform' ordinarily means 'to improve by removing
defects or abuses.' Under the guise of 'reform,' SB 122
would amend the Business and Professions Code by adding
some perfunctory procedural provisions and a single,
devastating substantive provision allowing plaintiffs to
seek disgorgement relief in addition to restitution. The
bill would exacerbate an already critical situation for
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businesses in California. Disgorgement is not reform.
It's revenge.
"If SB 122 were to become law, the State of California may
as well erect signs on its borders notifying businesses to
enter at their own risk. The
reverse side of the signs [a way to economize in difficult
budget times] could also be addressed to businesses by
indicating that 'You Are Now Leaving California!"
RJG:mel 9/12/03 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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