BILL ANALYSIS �
AB 1108
Page 1
Date of Hearing: April 5, 2011
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1108 (Nielsen) - As Amended: March 25, 2011
SUBJECT : CONSUMER REMEDIES: ATTORNEY'S FEES: PREVAILING PARTY
KEY ISSUE : SHOULD THE LOSING PARTY BE REQUIRED TO PAY THE
ATTORNEY'S FEES OF THE PREVAILING PARTY IN AN ACTION BROUGHT BY
A CONSUMER TO ENFORCE HIS OR HER RIGHTS UNDER THE CONSUMER LEGAL
REMEDIES ACT, A LAW WHOSE PURPOSE IS TO PROTECT CONSUMERS
AGAINST UNFAIR AND DECEPTIVE BUSINESS PRACTICES?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill is one of many that the Committee has seen over the
years seeking to establish a "loser pays" rule for attorney's
fees in various areas of California law, an approach generally
long disfavored by the Committee in the past. This bill does
appear to be the first, however, that would establish a "loser
pays" rule within the Consumer Legal Remedies Act, a forty-year
old law whose stated purpose is "to protect consumers against
unfair and deceptive business practices and to provide efficient
and economical procedures to secure such protection." Under the
Act, the court must award court costs and attorney's fees to the
prevailing plaintiff in an action filed pursuant to the Act, and
may award reasonable attorney's fees to a prevailing defendant
upon a finding by the court that the plaintiff's prosecution of
the action was not in good faith. This bill instead would
require the court in such an action to award court costs and
reasonable attorney's fees to the prevailing party, whether the
plaintiff or defendant, and deletes the provision of the Act
that permits reasonable attorney's fees to be awarded to a
prevailing defendant only upon a finding by the court that the
plaintiff's prosecution of the action was not in good faith.
The legislative history of the current prevailing plaintiff
attorney's fee rule indicates that the rule has been felt on a
bipartisan basis to further the purpose of the Act to provide an
inducement for consumers to enforce their rights. The bill is
supported by the Civil Justice Association of California, who
contend it would promote fairness to give defendants the same
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right the plaintiff has to attorney's fees and cost awards. The
bill is opposed by the Consumer Attorneys and several consumer
advocate organizations who assert that it would result in far
fewer consumers willing or able to enforce the important
consumer protections provided by the Act.
SUMMARY : Creates a "loser pays" rule for attorney's fees in the
Consumer Legal Remedies Act ("the Act"). Specifically, this
bill :
1)Requires the court to award court costs and attorney's fees to
a prevailing party, whether the plaintiff or the defendant, in
litigation filed pursuant to the Act.
2)Deletes a provision authorizing the award of reasonable
attorney's fees to a prevailing defendant upon a finding by
the court that the plaintiff's prosecution of the action was
not in good faith.
EXISTING LAW, the Consumer Legal Remedies Act,
1)Provides that unfair methods of competition and unfair or
deceptive acts or practices undertaken by any person in a
transaction intended to result or which results in the sale or
lease of goods or services to any consumer, as specified, are
unlawful. The prohibited acts specified include, but are not
limited to are:
a) Passing off goods or services as those of another.
b) Misrepresenting the source, sponsorship, approval, or
certification of goods or services.
c) Misrepresenting the affiliation, connection, or
association with, or certification by, another.
d) Using deceptive representations or designations of
geographic origin in connection with goods or services.
e) Representing that goods are original or new if they have
deteriorated unreasonably or are altered, reconditioned,
reclaimed, used, or secondhand.
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(Civil Code Section 1770(a). All further references are to
this Code unless otherwise noted.)
2)Permits any consumer who suffers any damage as a result of the
use or employment by any person of a method, act, or practice
declared to be unlawful by Section 1770 to bring an action
against that person to recover actual damages, injunctive
relief, restitution of property, punitive damages, or any
other relief that the court deems proper. (Section 1780(a).)
3)Requires the court to award court costs and attorney's fees to
a prevailing plaintiff in litigation filed pursuant to this
section. Further provides that reasonable attorney's fees may
be awarded to a prevailing defendant upon a finding by the
court that the plaintiff's prosecution of the action was not
in good faith. (Section 1780(e).)
4)Permits any consumer entitled to bring an action, if the
unlawful method, act, or practice has caused damage to other
consumers similarly situated, to do so on behalf of himself
and such other consumers to recover damages or obtain other
relief, as provided. (Section 1781.)
5)States that the Act shall be liberally construed and applied
to promote its underlying purposes, which are to protect
consumers against unfair and deceptive business practices and
to provide efficient and economical procedures to secure such
protection. (Section 1760.)
COMMENTS : This bill is one of many that the Committee has seen
over the years seeking to establish a "loser pays" rule for
attorney's fees in various areas of California law, an approach
generally long disfavored by the Committee in the past. This
bill does appear to be the first, however, that would establish
a "loser pays" rule within the Consumer Legal Remedies Act, a
1970 law whose stated purpose is "to protect consumers against
unfair and deceptive business practices and to provide efficient
and economical procedures to secure such protection." Under the
Act, the court must award court costs and attorney's fees to the
prevailing plaintiff in an action filed pursuant to the Act, and
AB 1108
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may award reasonable attorney's fees to a prevailing defendant
upon a finding by the court that the plaintiff's prosecution of
the action was not in good faith. This bill instead would
require the court in such an action to award court costs and
reasonable attorney's fees to the prevailing party, whether the
plaintiff or defendant, and deletes the provision of the Act
that permits reasonable attorney's fees to be awarded to a
prevailing defendant only upon a finding by the court that the
plaintiff's prosecution of the action was not in good faith.
According to the author, "currently there is an inequity in how
penalties are distributed in civil tort cases" and to address
this, the bill would "create an even playing field in awarding
judgments in certain civil cases." The author further contends
that a policy allowing prevailing litigants in consumer civil
actions to claim legal expenses "would foster a more efficient
administration of the courts while allowing truly injured
parties to claim legal remedy." The Civil Justice Association
of California, in support of the bill, echoes the idea of an
even playing field, stating that this bill "promotes fairness by
providing both sides in CLRA cases the same right to attorney's
fees and court costs."
Unfortunately, the author's office has not provided evidence
that would allow the Committee to evaluate its contentions that
this bill "would foster a more efficient administration of the
courts while allowing truly injured parties to claim legal
remedy," nor that the existing attorney's fees rule under the
CLRA has subjected defendants to great unfairness. �The only
supporting material thus far received by the Committee is a
table, excerpted from a 2010 report by the Pacific Research
Institute, that lists various research studies on tort reform by
author and year. For each study listed, there is a
corresponding column stating a "Benefit of Lawsuit Reform" which
for example reads "Greater innovation in 13 manufacturing
industries if product-liability burdens cut. $367 billion per
year in sales of new products."]
The Act is intended to protect consumers and provide an
incentive for them to sue to enforce the Act, not ensure the
same right to attorney's fees. Existing law generally provides
that litigants shall pay their own attorneys' fees, a rule
sometimes referred to as the "American Rule" because it is
observed in every state except Alaska (though not, as the author
correctly points out, in many European nations.) However, the
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California Legislature over the years has enacted many specific
statutes which allow or require the recovery of attorneys' fees
either to encourage persons to pursue litigation which advances
a specific public policy, or to enhance the ability of aggrieved
parties to enforce their rights when the legal costs may
otherwise be prohibitive. This is particularly true when the
public policy advanced is to protect consumers, as evidenced by
long-standing statutes such as the Credit Discrimination Act,
the Consumer Warranty Act, and the law at issue here, the
Consumer Legal Remedies Act.
Support for the Consumer Legal Remedies Act has long been
bipartisan. Indeed the Act was signed into law in 1970 by then
Governor Ronald Reagan. The Act was enacted in an attempt to
alleviate social and economic problems stemming from deceptive
business practices, which were identified in the 1969 Report of
the National Advisory Commission on Civil Disorders. (Broughton
v. Cigna Healthplans of California (1999) 21 Cal.4th 1066, 1077.
See, also, Reed, Legislating For The Consumer: An Insider's
Analysis Of The Consumer Legal Remedies Act (1971), 2 Pacific
Law Journal 1, 5-7.) Unlike many statutes, the Act even
contains an express statement of legislative intent: "This title
shall be liberally construed and applied to promote its
underlying purposes, which are to protect consumers against
unfair and deceptive business practices and to provide efficient
and economical procedures to secure such protection." (Section
1760.)
The current attorney's fee provision that requires the court to
award court costs and attorney's fees to a prevailing plaintiff
was added by AB 3756 (Stirling), Ch. 343 of Stat. 1988, and
signed into law by then Governor George Deukmejian. The Senate
Judiciary Committee analysis of the bill states that "the
purpose of this measure is to provide a person who suffers
damages as the result of an unlawful and deceptive act with an
inducement to file a suit for recovery of those damages." This
Committee's analysis of the bill at the time noted the Attorney
General's position in support that the bill providing for
prevailing plaintiff only attorney's fees would "contribute to
the vindication of consumer rights by encouraging the filing of
meritorious actions which otherwise could not be brought because
the average consumer would be unable to pay for legal fees." In
short, the legislative history of this provision indicates that
the current prevailing plaintiff attorney's fee rule has been
felt on a bipartisan basis to further the purpose of the Act to
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provide an inducement for consumers to enforce their rights.
This Committee Has Historically Declined to Pass Similar Prior
Measures. There have been many other proposals to create "loser
pays" rules for attorney's fees that have died or failed to pass
in this Committee over the past 15 years. By contrast, the
Committee has on several occasions approved legislation in
addition to the CLRA which establish a similar rule awarding
attorney's fees to the prevailing plaintiff, or that prohibits
"loser pays" rules for attorney's fees in different contexts.
For example, AB 758 (Thomson) provided that prevailing
plaintiffs, rather than all prevailing parties, are entitled to
recover court costs and reasonable attorney's fees in civil
actions involving violations of the Consumer Credit Reporting
Agencies Act (CCRA). That bill, like the CLRA, allows
attorney's fees to be awarded to the prevailing defendant if a
judge determines that the plaintiff's case was filed in bad
faith. In addition, AB 2915 (Wayne) prohibited "loser-pays"
policies under which consumers in mandatory consumer arbitration
are required to pay the fees and costs of opposing businesses
when they do not prevail.
ARGUMENTS IN SUPPORT : In support of the bill, the Civil Justice
Association of California writes:
Under the CLRA, a court is required to award court
costs and attorney's fees to a prevailing plaintiff.
Even nominal claims or portions of a claim can result
in plaintiffs receiving these awards. (Graciano v.
Robinson Ford Sales, Inc. (2006) 144 Cal.App.4th 140).
However, a prevailing defendant can only receive an
award of attorney's fees if the court finds that the
case was brought in bad faith. This requires the
defendant to prove the plaintiff's subjective intent.
Even a frivolous or meritless claim will not be
sufficient to earn a prevailing defendant their
atttorney's fees. (Corbett v. Hayward Dodge, Inc.
(2004) 119 Cal.App.4th 915, Kleffman v. Vonage Holdings
Corp. (2010) 387 Fed. Appx. 696).
Many of these actions are class action claims, where
there are already lopsided mechanisms encouraging
lawsuits that benefit plaintiff's attorneys but provide
little benefit to the consumer. An example is the
Netflix case which resulted in subscribers getting one
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extra movie for one month or one free month of service
while the attorneys got $2.5 million dollars.
California's litigation environment continues to be
ranked as one of the worst, according to the 2010
Institute for Legal Reform and Harris Poll. This bill
would be a small step forward toward improving our
litigation environment by providing balance.
ARGUMENTS IN OPPOSITION : This bill is opposed by consumer
advocate groups, who contend that it will severely compromise
enforceability of important legal consumer protections. For
example, Consumer Watchdog states:
The CLRA is meant to provide consumers a legal tool to
recover damages and stop companies' harmful or improper
practices. It is, however, unlikely, that consumers,
and especially low-income consumers, would be willing
to bring even the strongest CLRA claim if they faced
the threat of exorbitant legal fees just because a
particular judge or jury might ultimately deny their
claim. Most consumers would likely conclude that the
unlimited financial resources and legions of defense
attorneys a corporate defendant would bring to bear to
fight off the little guy make the risk of possibly
losing simply insurmountable. In other words, �this
bill] would gut the consumer protections and corporate
accountability that flow from California's Consumer
Legal Remedies Act.
The Consumer Attorneys of California argue that public policy
considerations require the asymmetrical nature of the current
attorney's fees rule. They state:
Proponents of AB 1108 once again use the argument that
symmetry between plaintiffs and defendants is required
in legal procedures. Unfortunately, that axiom as
applied to fee statutes results in the absolute
opposite impact and will have a chilling effect on the
average citizen's ability to redress wrongs. In the
classic claim pursued under the �Act], an individual
with limited resources is challenging the deceptive and
illegal conduct of a defendant. When a court awards
attorney fees to a prevailing plaintiff, it is awarding
them against a violator of state law. The same policy
consideration cannot be said to apply to a prevailing
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defendant. And once again, what is pitched as a simple
procedural change would have a devastating impact on
important policy protections for all Californians.
REGISTERED SUPPORT / OPPOSITION :
Support
Civil Justice Association of California
Opposition
Consumer Attorneys of California
Consumer Watchdog
CALPIRG
Consumer Federation of California
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334