BILL ANALYSIS �
AB 1954
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Date of Hearing: May 8, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1954 (Nestande) - As Amended: April 19, 2012
As Proposed to be Amended
SUBJECT : Legal Advertising: Class Actions
KEY ISSUES :
1)Should a legal advertisement soliciting plaintiffs for a class
action be required to state that the plaintiff may be liable
for a prevailing defendant's attorney's fees, even though this
would only apply in a minority of cases?
2)Do existing rules of professional responsibility already
provide adequate protection and disclosure to solicited class
action plaintiffs?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill would require a legal advertisement soliciting
plaintiffs for a class action lawsuit to include a disclosure
stating that a plaintiff in a class action "may" be financially
liable for a prevailing defendant's attorney's fees. The author
contends that this bill, by disclosing potential liabilities,
will make advertisements more transparent and also reduce the
number of individuals who join class action lawsuits. Under
this bill an attorney who violated its provisions would be
subject to a $2000 fine, to be assessed by the California
Department of Consumer Affairs. Existing law prohibits making
certain claims in legal advertising (such as promising success)
and prohibits a legal advertisement from containing statements
that are false, misleading, or deceptive. Opponents contend
that the statement required by this bill would potentially be
false, or at least misleading and deceptive, given that that
statement will not apply in most class action cases. Moreover
opponents note that attorneys already have a professional duty
to inform a client about the consequences of representation, and
they claim that the apparent purpose of the bill is simply to
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deter persons from exercising their right to participate in a
class action lawsuit. As introduced this bill gave the State
Bar responsibility for assessing the $2000 fine; the author,
however, will amend the bill in this Committee to give that
responsibility to the California Department of Consumer Affairs.
SUMMARY : Requires an advertisement soliciting plaintiffs for a
class action to include a disclosure stating that the plaintiff
may be financially liable for a prevailing defendant's
attorney's fees. Specifically, this bill :
1)Requires an advertisement soliciting plaintiffs for a class
action, in addition to any other requirements imposed by law,
to include a disclosure stating that a plaintiff in a class
action may be financially liable for the attorney's fees of
the defendant where the defendant is the prevailing party.
2)Provides that a violation of this section shall constitute a
fine of $2000, to be assessed by the California Department of
Consumer Affairs.
EXISTING LAW :
1)Provides for the licensure and regulation of attorneys by the
State Bar of California, including regulation of legal
advertising. (Business & Professions Code Section 6157 et
seq.)
2)Prohibits a legal advertisement, as defined, from containing
any false, misleading, or deceptive statement, nor shall it
omit any fact if to do so would make a statement false,
misleading, or deceptive. (Business & Professions Code
Section 6157.1.)
3)Prohibits a legal advertisement from containing or referring
to any of the following:
a) Any guarantee or warranty regarding the outcome of a
legal matter as a result of representation.
b) Statements or symbols stating that the member featured
in the advertisement can generally obtain immediate cash or
quick settlements.
c) An impersonation of the name, voice, photograph, or
electronic image of any person, directly or implicitly
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purporting to be either a lawyer or the client of the
lawyer featured in the advertisement, or a dramatization of
events, unless disclosure of the impersonation or
dramatization is made in the advertisement.
d) A statement that the member offers representation on a
contingent basis unless the statement also advises whether
a client will be held responsible for any costs advanced by
the member when no recovery is obtained on behalf of the
client. If the client will not be held responsible for
those costs, no disclosure is required. (Business &
Professions Code Section 6157.2.)
4)Holds that a lawyer's fiduciary duty to a client embraces the
obligation to render a full and fair disclosure of all facts
which materially affect the client's rights and interests, and
that where there is a duty to disclose, the disclosure must be
full and complete, and any material concealment or
misrepresentation will amount to fraud. (Neel v. Magana,
Olney, Levy, Cathcart & Gelfand, 6 Cal. 3d 176, 188-189.)
5)Adopts the so-called "American Rule," under which each party
to a lawsuit must pay his or her own attorney's fees, except
as attorney's fees are specifically provided for by statute or
contract. (Code of Civil Procedure Section 1021; Musaelian v.
Adams (2009) 45 Cal. 4th 512.)
6)Provides that a prevailing party is entitled as a matter of
right to recover costs in any civil action or proceeding,
except as otherwise expressly provided by statute. (Code of
Civil Procedure Section 1032; see also Westamerica Bank v. MBG
Industries (2007) 158 Cal. App. 4th 109, holding that "costs"
awarded under Section 1032 do not attorney's fees.)
COMMENTS : Under existing law, the California State Bar licenses
and regulates the legal profession and, as part of that
responsibility, has established rules for legal advertisements
and has the power to discipline members who violate those rules.
Although advertising aimed at soliciting clients was once
looked down upon by the legal profession, and for a time was
more or less prohibited by rules of professional conduct, it has
been protected as commercial speech under the First Amendment at
least since Bates v. State Bar of Arizona (1977) 433 U.S. 350.
However, as with any commercial speech, states may regulate
legal advertisements so long as it serves a significant state
interest and the regulation is substantially related to that
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interest. Most of the existing state regulations on legal
advertising dictate what shall "not" be in a legal
advertisement: for example, a legal advertisement cannot promise
success or a quick cash settlement, or use impersonations that
purport to be the attorney or one of the attorney's clients. In
addition, existing law prohibits an advertisement from offering
representation on a contingent basis unless the advertisement
discloses whether the client will be responsible for any costs
advanced by the attorney if there is no recovery on the client's
behalf. More generally, state law provides that a legal
advertisement shall not contain statements that are false,
misleading, or deceptive, nor shall they omit critical
information that, in light of all of the circumstances, makes
the advertisement false, misleading, or deceptive.
This bill would add to the list of existing regulations a
requirement that any legal advertisement that solicits
plaintiffs to participate in a class action lawsuit must include
a disclosure stating that the plaintiff may be financially
liable for the attorney's fees of a prevailing defendant.
According to the author, the purpose of this bill is twofold:
(1) to provide transparency to prospective class action
plaintiffs; and (2) to reduce the number of persons who join
class action lawsuit only "to make additional money without a
strong reason to join." Although one might argue that receiving
money to redress a civil wrong is a "strong reason" to join a
class action lawsuit, the author believes that when "presented
with the possibility of paying attorney and other fees" the
potential plaintiff will know "that if they lose they could end
up with a bill to pay."
Given that existing law prohibits legal advertisements that are
false, misleading, or deceptive, one could reasonably entertain
the question of whether the requirement in this bill is itself
at odds with that general prohibition. Contrary to the claims
of the bill's opponents, the statement required by this bill
would not be "utterly false," even if most plaintiffs who
receive the solicitation would not be liable for a prevailing
defendant's attorney fees. The bill, after all, would only
require the advertisement to state that a plaintiff "may" be
liable for the prevailing defendant's attorney's fees. This is
technically a true statement: a plaintiff may be liable if the
cause of action is subject to a fee-shifting statute that allows
a prevailing party to recover, or, in rare cases, where a court
finds that the plaintiff's action was "frivolous, unreasonable,
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or without foundation" or was not brought in "good faith." (See
discussion and citations below.) However, while not "utterly
false," the statement required by this bill would nonetheless be
arguably misleading or deceptive given that, under California's
fee shifting statutes and judicial practice, it would be
relatively unusual for a plaintiff in a class action lawsuit to
be liable for a prevailing defendant's attorney's fees. The
immediately following section of this analysis considers the
likelihood that a plaintiff would be required to pay a
prevailing defendant's attorney's fees in order to better
evaluate whether the statement required by this bill would be
misleading or deceptive, even if not false. The section
thereafter considers whether, even if the statement is not
misleading, an advertising disclosure is necessary in light of a
lawyer's already existing duty to inform clients about the
consequences of the representation.
Liability for Costs and Attorney's Fees under the "American
Rule :" When it comes to recovering attorney's fees, California
law adopts the "American Rule" - as distinguished from the
"English Rule" - whereby the parties to a lawsuit are expected
to pay their own attorney's fees unless a different arrangement
is specifically provided for by statute or contract. (Civil
Code Section 1021.) As for court "costs" - not including
attorney's fees - California essentially adopts an inverse rule:
a prevailing party is entitled to recover costs as a matter of
right unless a statute expressly provides otherwise. (Code of
Civil Procedure Section 1032.) At the risk of stating the
obvious, the critical determinant - and one highly relevant to a
consideration of this bill - is whether and under what
circumstances a statute "provides otherwise." California
statutes that create a cause of action can also include a
"fee-shifting" provision, and they are usually one of two sorts:
bilateral fee-shifting statutes permit a "prevailing party" to
recover attorney's fees from the adverse party; unilateral or
"one-way" fee-shifting statutes permit only a "prevailing
plaintiff" to recover attorney's fees from the defendant. Other
statutes create a hybrid, permitting a prevailing plaintiff to
recover attorney's fees, but only allowing a prevailing
defendant to recover fees if the plaintiff's action is frivolous
or brought in bad faith.
When one examines fee-shifting provisions more closely - as well
as the kind actions that typically prompt class actions - it
appears that the situations under which a class action plaintiff
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would be liable for a defendant's attorney's fees would be
relatively few. As a matter of public policy, California most
favors class actions where the potential claimants are many but
where the claims of any individual claimant are "too small to
warrant individual litigation." (Sav-On v. Superior Court
(2004) 34 Cal 4th 319.) A prime example of this situation would
include actions by consumers against deceptive advertising or
unfair business practices. In California, the primary statute
authorizing actions against deceptive advertising is the
Consumers' Legal Remedies Act. (Civil Code Section 1750 et
seq.) That statute contains a provision that allows a
prevailing plaintiff to recover court costs and attorney's fee
as a matter of right. A prevailing defendant, on the other
hand, may only obtain attorney's fees if the court finds that
"the plaintiff's prosecution of the action was not in good
faith." (Civil Code Section 1780 (e).) Consumer actions may
also be brought under the Unfair Competition Law (Business &
Professions Code Section 17200 et seq.) But that statute
contains no fee shifting provision, thus a plaintiff could not
be liable for defendant's attorney's fees in an action brought
under that law.
Two other areas that often become the subject of class action
lawsuits include actions brought to enforce employee rights or
civil rights. Under both state and federal law, statutory
fee-shifting provisions are generally one-way provisions that
award attorney's fees only to the prevailing plaintiff. For
example, the penalty provisions of the federal Fair Labor
Standards Act (FLSA) expressly permit prevailing plaintiffs to
recovery attorney's fees from defendants, but not vice-versa.
(29 USC Section 216 (b).) The California Labor Code contains
similar one-way fee shifting provisions in favor of plaintiffs,
as does the Ralph Civil Rights Act. (See e.g. Labor Code
Sections 226, 1194, and 2699; and Civil Code Section 53.) In
addition, other statutes that are designed to protect certain
classes of people from practices that might harm an entire class
of individuals have one-way fee shifting provisions: for
example, California's elder abuse law only allows prevailing
plaintiffs to recover attorney's fees in actions alleging
financial abuse of an elder or dependent abuse. (Welfare &
Institutions Code Section 15675.5 (a).)
Thus many California statutes that could become the subject of a
class action lawsuit either do not have a fee-shifting provision
or, if they do, have a one-way provision in favor of the
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plaintiff. Even statutes with a two-way provision - or with no
provision at all - benefit the plaintiff if the action results
in "the enforcement of an important right affecting the public
interest." (Civil Code Section 1021.5.) Although this public
interest statute allows any "successful party" to obtain
attorney's fees, the "public interest" right is defined in such
a way that it would most often favor the prevailing plaintiff in
a class action suit: that is, it only applies where a
significant benefit "has been conferred on the general public or
a large class of persons" and "the necessity and financial
burden of private enforcement . . . is such as to make the award
appropriate." (Id. Emphasis added.) Except where the defendant
is a public entity, it seems clear that this provision would
most often work in favor the certified class of plaintiffs, who
by definition act on behalf of a larger class of persons
similarly situated and similarly harmed.
In sum, the statement required by this bill would not
technically be false - a plaintiff may be liable for a
defendant's attorney's fees in some cases, just as a plaintiff
may be run over by a bus on the way to the court house. But
even if not false, the statement would be misleading in many, if
not the overwhelming majority of class action lawsuits. The
"American Rule" starts with the presumption that each side pays
its own attorney's fees unless a statute provides otherwise, and
most statutes do not contain any fee-shifting provisions at all.
Arguably those statutes that are most likely to be invoked in a
class action suit - consumer, employee, civil rights, or public
interest actions - either have only a one-way fee shifting
statute that only allows a plaintiff to recover attorney's fees,
or have hybrid provisions that only allow a defendant to recover
if the plaintiff's action is found to be frivolous,
unreasonable, foundationless, or brought in bad faith. Thus
most plaintiffs receiving a solicitation would be led to believe
that they may be liable for attorney's fees, when in fact the
likelihood of this would be relatively rare.
Existing Professional Duties Appear to Already Require Such
Disclosures . To whatever limited extent a prospective plaintiff
may be liable for a defendant's attorney's fees, all lawyers
already have a professional and fiduciary duty to communicate to
their clients material facts about the representation, including
any adverse consequences of the litigation. The California
Supreme Court has held that a lawyer's fiduciary duty to a
client embraces the obligation to render a full and fair
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disclosure of all facts which materially affect the client's
rights and interests. (Neel v. Magana, Olney, Levy, Cathcart &
Gelfand 6 Cal. 3d 176, 188-189.) These common sense duties are
not only upheld in case law, they are deeply embedded in statute
and rules of professional conduct. (See e.g. Business &
Professions Code Section 6068, California Rules of Professional
Conduct 3-500, and the ABA Model Code Rule 1.4.) In short,
rather than provide a blanket disclosure to all prospective
plaintiffs regardless of their situation or the nature of the
cause of action, it would seem more sensible to follow the
existing practice of requiring attorneys to disclose to clients
information relevant to the particular case.
Proposed Author Amendment : The author wishes to amend the bill
so as to change responsibility for imposing the $2,000 fine from
the California State Bar, as provided in the bill in print, to
the California Department of Consumer Affairs. Thus the author
wishes to take the following as an author's amendment in this
Committee:
- On page 2 delete lines 8 through 12 and insert: (b) A
violation of this section shall constitute a fine of
two-thousand dollars ($2,000), to be assessed by the
California Department of Consumer Affairs.
ARGUMENTS IN SUPPORT : In a joint letter of support to the
Committee, the Civil Justice Association of California (CJAC),
the California Building Industry Association (CBIA), the
Personal Insurance Federation (PIF), and the California Chamber
of Commerce argue that AB 1954 is "a bill that would protect
consumers by providing greater transparency from attorneys to
generate class action lawsuits." They contend that the
disclosure required by this bill is consistent with an
attorney's fiduciary duties to his or her client, which includes
the "full and fair disclosure" of all facts that materially
affect the rights and interests of the client. (Citing Neel v.
Magana, Olney, Levy, Cathcart, & Gelfand (1971) 6 Cal 3d 176.)
Supporters also contend that disclosures are consistent with
existing California Rules of Professional Conduct and the
American Bar Associations Model Rules. Supporters note that
even though the existing law, as a general rule, makes each
party responsible for his or her attorney's fees, "over time
statutes have been enacted that specifically provide for fee
shifting where a prevailing plaintiff or defendant in a civil
action may be entitled to his/her attorney's fees." This bill
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will simply require an attorney soliciting clients for a class
action to inform the prospective plaintiff of this possibility,
the supporters argue, which in turn will "help individuals . . .
make an informed decision about the merits of participating in
such a lawsuit." In sum, supporters conclude, this bill
"increases transparency" and "more importantly, it would protect
consumers and cut down on the number of shakedown class actions
that only disclose promises of huge settlements without
�disclosing] the potential liability faced by the plaintiff."
ARGUMENTS IN OPPOSITION : The Consumer Attorneys of California
(CAOC) "strongly opposes" this measure because its mandatory
disclosure would be "false and misleading in the vast majority
of circumstances," noting that the number of fee-shifting
provisions that would require a class action plaintiff to pay a
defendant's attorney's fees "are quite rare." CAOC cites, for
example, the Consumer Legal Remedies Act, which only permits a
prevailing defendant to recover attorney's fees "if the
defendant can prove that the plaintiff acted with subjective bad
faith." (Citing Civil Code Section 1780 (e).) CAOC cites other
statutes, notably the Unfair Competition Law, which does not
provide for any fee-shifting at all, and the Cartwright
Anti-Trust Act, which only allows a prevailing plaintiff to
recover attorney's fees. CAOC concludes, therefore, that as
applied to most prospective plaintiffs, the disclosure required
by this bill would be "patently false." In the few cases in
which a class action plaintiff might be liable for a defendant's
attorney's fees, CAOC believes it would be better to address
this through the attorney's existing professional and ethical
obligation "to communicate candidly with clients about
representation." Finally, CAOC sees no reason why such a
warning should only be required in advertisements for class
action plaintiffs, given that fee shifting statutes are just as
likely to apply in other kinds of cases.
The Impact Fund, writing on behalf of a broad coalition of civil
liberties, consumer, and legal services groups, makes
substantially the same arguments as those presented by CAOC,
citing both statutory and case law in support of the proposition
that in most cases the disclosure required by this bill would be
"utterly false;" that existing professional duties already
require disclosure of the possible consequences of litigation;
and that the purpose of the bill does not appear to be about
providing transparency to potential plaintiffs so much as it is
about discouraging class action lawsuits. Additionally the
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Impact Fund notes that California public policy expressly favors
and encourages the use of the class action device. (Sav-On v.
Superior Court (2004) 34 Cal. 4th 319.)
REGISTERED SUPPORT / OPPOSITION :
Support
California Building Industry Association
California Chamber of Commerce
Civil Justice Association of California
Personal Insurance Federation
Opposition
ACLU of Northern California
ACLU of San Diego and Imperial Counties
ACLU of Southern California
Asian Law Caucus
Asian Pacific American Legal Center
California Rural Legal Assistance Foundation
Consumer Attorneys of California
Consumer Federation of California
Impact Fund
Legal Aid Association of California
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334