Passage of
Proposition 64 Restricts
Unfair Competition Claims against Businesses
On
Election Day, voters overwhelmingly passed Proposition 64, which amends
certain provisions of California's
Unfair Competition Law. The passage was widely regarded as a victory for California
employers.
Unfair Business Practice Claims Hit Employers Hard
For
many years, plaintiff's lawyers have used California's unfair competition laws to
bring lawsuits, including class action suits, to challenge perceived unfair
business practices. The vague law defines "unfair competition"
broadly to include almost any "unfair" business practice. The
vague definition is unchanged by Proposition 64.
The
primary problem with the law prior to passage of Proposition 64 was that
individuals could sue without showing that they in fact suffered any harm
as a result of the alleged unfair business practice. Basically, anyone
could sue whether they had any connection at all with the "unfair
competition." An attorney could bring suit without even actually
having a client who had been harmed. In other words, traditional standing
requirements did not apply under this law.
Moreover,
the suit could be brought on behalf of the "general public"
without meeting class-action certification requirements.
Loophole Exploited
As
a result of the loopholes in the law, some plaintiffs' lawyers exploited it
as a means to leverage settlements against businesses - - demanding fees
with no real client or proof of harm. Form letters were often sent out
claiming a potential violation of the law and demanding settlement. Many
small business owners felt pressured to pay the settlement amount rather
than take on a more expensive legal battle.
The
supporters of Proposition 64 reported several examples of such frivolous
lawsuits on their website www.yesprop64.org. For instance, homebuilders
were sued by attorneys for using "APR" instead of "Annual
Percentage Rate" in their new homes advertisements. The lawsuit stated
that plaintiff Margaret Bergman is a "citizen of the State of
California" bringing the action "on behalf of the general
public," but provided no information on how or whether she or any
other person was deceived by or suffered a loss due to the abbreviation. (Margaret
Bergman v. Optima Financial... Hallmark Communities, Inc., Barratt Homes.)
In another case, a travel agent was shocked when he received a lawsuit
demanding $10,000 as an incentive award to a law firm for pointing out to
him that he forgot to include his California Seller of Travel code on his
website. In this suit, the same fee-seeking law firm also victimized nearly
two hundred other travel agents.
In
another case, plaintiffs' attorneys twice sued a pizzeria owner for minor
health code violations that the Los Angeles County Department of Health
Services had already cited and corrected. The violations were so slight
that the restaurant still received the highest health rating.
Two Major Revisions
Proposition
64 makes two major revisions to the law. First, it prohibits private
citizens from bringing a claim for unfair competition unless they have
suffered injury through loss of money or property. Second, it requires any
private person who files suit on behalf of a group to satisfy traditional
class certification requirements (including a community of interest, common
questions of law and fact which predominate amongst the class,
and the ability to represent the interests of the class).
Proposition
64 goes into effect immediately. Already there is debate over whether the
proposition applies retroactively to pending lawsuits. The intent of Proposition
64 is unclear on this issue. When a statutory change does not affect
substantive rights but instead affects only legal procedures and remedies,
it usually applies to pending actions. Plaintiffs' lawyers will argue that
the new standing requirement will alter substantive rights, while business
groups will argue it merely affects procedural issues. This issue will need
to be decided by the courts and will take some time.
In
the interim, the passage of Proposition 64 is clearly a victory for California's
businesses, putting pressure on plaintiff's attorneys to stop abusive
litigation and find a plaintiff with an actual injury.
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