Business and consumer groups clash over Prop. 64

By Diane Curtis

Car dealers use “A.P.R” instead of “Annual Percentage Rate” in their ads. Small, ethnic restaurants don’t fully insulate their water pipes. Travel agents omit their business license numbers from their Web sites. They get sued — or threatened with the prospect of a suit. Rather than spend time and money in a courtroom, they settle, even though they may never have received so much as a complaint from a customer about the practice.

“For too many years, businesses in California have been victims of shakedown lawsuits of a kind permitted in no other state in the country,” said John Sullivan, president of the pro-business lobbying group, Civil Justice Association of California. Along with the California Chamber of Commerce and state auto dealers, Sullivan is a prime sponsor of a Nov. 2 ballot proposition that he says will help put an end to frivolous lawsuits that hurt companies and entrench the Golden State’s reputation as anti-business.

Proposition 64 would amend (opponents say “gut”) provisions of the 70-year-old Unfair Business Competition Law, commonly known as 17200. It would prevent individuals and consumer groups from suing companies for unfair and deceptive business practices unless they were personally injured or suffered financial losses; allow only the attorney general’s office or local district attorneys to sue on behalf of the general public to enforce unfair business competition laws, and require 17200 claims to comply with more complicated and tougher class action procedures.

If passed, said long-time consumer activist Jamie Court, president of the Foundation for Taxpayer and Consumer Rights, one of the most effective pro-consumer legal tools would be lost. “This is the most dangerous threat to the public health that’s been on the ballot in modern history,” said Court. “It affects whether you’re cheated at a car dealership, whether polluters can get away with polluting and whether health care providers have to be honest . . . It would tilt the balance towards big business and make it virtually impossible for California communities to enforce air and water safeguards.”

“Big business has used some of the (frivolous lawsuit) abuses as a pretext to try to fulfill a longstanding agenda of curbing private enforcement (of environmental and consumer protections),” said Bill McGavern, a Sierra Club lobbyist. “It’s because the polluters and ripoff artists don’t want to be held accountable.”

What business is really aiming at, according to opponents like ElectionWatchdog.org, which represents public interest groups, is to prevent suits like those that have charged British Petroleum with contaminating groundwater with MTBE, Ameriquest and Wells Fargo with using “bait and switch” tactics, Microsoft for knowingly selling software with security flaws, State Farm with reducing earthquake coverage without adequate notice and General Motors and others with colluding to prevent Canadian car dealers from selling to U.S. buyers. Many of those corporations have contributed to the more than $8 million raised to support Proposition 64.

Environmentalists and consumer activists also cite a host of successful cases they say could not have been filed if Proposition 64 had been in effect: removing toxins from bottled water; eliminating Joe Camel cigarette advertisements targeted at children; ending marketing of sugar-filled cereals as healthful; preventing cell phone companies from limiting use to a single service carrier; removing harmful raw milk from store shelves; ending the prescription of drugs for uses not approved by the FDA; preventing car dealers from charging minorities exorbitant interest rates; curtailing illegal clear-cutting and cleaning up toxic leaks from underground oil pipes.

Sullivan argued that environmentalists would still have legal recourse through Proposition 65, which requires public health warnings for toxic chemicals, as well as other environmental laws. He also said some of the cases cited by the public interest groups involved people who had suffered because of a bad business practice, and they still would be covered. In addition, he said, local district attorneys and the state attorney general still could bring suits that did not involve personal injury or loss or, even better, he said, they could negotiate to get the errant behavior eliminated without filing a suit.

The attorney general’s office, which has not yet taken a position on Proposition 64, employs 1,100 attorneys, about 100 of whom are in the antitrust and consumer law section, and layoffs have been mentioned as a real possibility because of budget cutbacks. “We can’t keep up with the volume of consumer complaints that we receive now,” said Nathan Barankin, spokesman for the attorney general. “By giving the status of private attorney general to people, literally thousands of watchdogs can be created, as opposed to relying on the attorney general or 50 district attorney offices.”

Under the current §17200, no damages can be collected. Instead, relief comes in the form of stopping unfair practices and, in some cases, providing restitution to an injured party. Judges, not juries, decide unfair business practices suits. Jon Sheldon, author and staff attorney for the National Consumer Law Center in Boston, said most states have an Unfair Deceptive Acts and Practices law that allows for private remedies. Some states allow damages even when there has been no injury, as well as trial by jury.

Admission that a problem did exist began two years ago when the attorney general and the State Bar went after the Trevor Group in Beverly Hills, which used 17200 to seek settlements from thousands of restaurants, auto repair shops and nail salons — many owned by especially vulnerable immigrants — based on technical, or even nonexistent, infractions. The three lawyers gave up their law licenses before they could be disbarred. However, efforts to get even one of 14 reform bills out of committee in the California legislature have failed over the past two years.

Consumer activists like Court who are sympathetic to victims of frivolous lawsuits but opposed to Proposition 64 say the solution lies in targeting “bad lawyers,” not “good law.” But some business leaders say the biggest issue is the right of a private individual to sue a business when there is no evidence of harm or injury.

Robert Fellmeth, Price Professor of Public Interest Law at the University of San Diego Law School, has been working for almost 10 years to fix 17200, which, he says, “can be very much abused by attorneys.” However, he said, Proposition 64 is not the answer and would have “wiped out” all the positive consumer and environmental judgments achieved through the business and professions code.

His remedy is fairly simple, he says, and hinges on the idea of taking away the monetary incentive for unscrupulous lawyers. He helped write a bill by Santa Ana Democratic Assemblyman Lou Correa that would have required plaintiffs to notify regulatory and law enforcement officials when filing a suit and make public on an internet site the details of the suit, disqualify attorneys with clear conflicts of interest, make the suits final so defendants could not be sued multiple times for the same allegation, apply sanctions against attorneys who filed frivolous claims and require a court to review and approve settlements.

Like the rest of the 17200 reform legislation, it never got out of committee. “I’m mad at both sides,” Fellmeth said.