Be
careful what you wish for
You stop
by your favorite nail salon to learn that its prices have doubled because the
nail salon was sued for using the same bottle of polish on more than one
customer. Now you have to buy a fresh bottle of polish every time you have your
nails done. Choose a different color for your toes and you have to pay again.
If you find this ridiculous, you are not alone. In fact, 59 percent of voters
in 2004 reacted by enacting Proposition 64 to reduce the drain caused by
frivolous lawsuits.
The law
is an organic thing. It evolves. Californians often express their frustration
with the slow pace of change by enacting ballot initiatives. Initiatives can
cause this gradual evolution to lurch, sometimes in directions no one
anticipates. Most initiatives trigger a cascade of lawsuits where litigants get
bogged down in fighting over the meaning of the new law before they can get to
resolution of their dispute.
Just such
a fight is now before the California Supreme Court. Proposition 64’s changes to
the Unfair Competition Law have been reverberating ever since 2004. Now, nearly
four years later, the state Supreme Court is poised to address the last open
issue: what must be shown to plead fraud under the Unfair Competition Law.
To
understand how we got here, we have to go back — back to before Arnold
Schwarzenegger was elected, before Governor Davis was recalled, before the war
in Iraq started, to 2002.
In 2002,
the Trevor Law Group sued auto repair facilities and an attorney named Harpreet
Brar sued nail salons under Business & Professions Code section 17200,
which is the statute that details the Unfair Competition Law. These lawyers
claimed to represent consumer watchdog groups concerned with protecting the
general public. The costs of defending these lawsuits exceeded the amounts at
stake and the plaintiffs leveraged this fact to systematically “settle” for a
few thousand dollars with one defendant at a time. Multiply a few thousand
dollars, times 300 defendants, times multiple lawsuits, and soon you are
talking real money.
All this
was possible because Section 17200 used streamlined procedures. For example,
all a person claiming fraud had to show was that the misleading statement made
by a business was likely to deceive.
Small
businesses were in an uproar over the Trevor Law Group and Mr. Brar’s suits.
Then Assemblyman Lou Correa held standing room only public hearings in Southern
California. He then returned to Sacramento to draft a reform bill that could
not get out of committee. The public was not amused. Having just tossed
Governor Davis out on his ear, the public approved Proposition 64 by a healthy
margin.
Proposition
64 requires a person suing to have personally suffered some harm. To represent
the general public, a plaintiff must comply with class action rules. Now the
California Supreme Court is considering three cases that deal with what a
plaintiff must show to prosecute a fraud claim in light of Proposition 64.
These cases range from disputes about misleading advertising by tobacco
companies, to warranties on roofing tiles, to promises that using Listerine
mouthwash is as effective as flossing. The in re Tobacco II Cases, McAdams v.
Monier, and Pfizer v. Superior Court (Galfano) cases illustrate how broad
Section 17200 is.
Does a
plaintiff, in order to claim unfair competition because of a fraud, have to
show he heard the misleading statement, relied on it in acting, and because of
his actions in relying on it, he was harmed? For plaintiffs acting on behalf of
the general public, the Supreme Court is also considering if the requirement of
actual injury means that each member of the class has to show individual
reliance on the misleading statement.
“Big
deal!” you might think. It is a big deal. Class actions are far more
complicated and expensive to prosecute than simple unfair competition cases.
And, for a fraud claim, it is probably impossible to sue as a class because if
each member of the class has to show individual reliance, a court is unlikely
to allow the lawsuit to be prosecuted as a class action.
But why
should you care that the streamlined “non-class class” procedures of Section
17200 have changed? You should care because a brake on unscrupulous business
tactics is gone. People wronged in small ways will have a much harder time
getting relief. It just does not make sense to start up expensive litigation
when your damages are the cost of an extra bottle of nail polish.
So while
the frivolous lawsuit days may be behind us, the “fix” of this problem now
means that you cannot easily get your money back if you bought a silk purse
only to discover it was a sow’s ear, or if you sat down for your manicure only
to learn just before the polish was applied that the polish is not included.
Californians will have to wait to see how the Supreme Court rules. At this
point it looks likely that streamlined unfair competition claims are no more in
California.
Oh, and
as for your manicure, using one bottle of polish on more than one person was
not and still is not illegal. You may find small comfort in knowing that and in
knowing that neither Mr. Brar nor any of the principals of the Trevor Law Group
is allowed to practice law any longer.
Rosslyn
(Beth) Hummer is an attorney at the firm of Rutter Hobbs & Davidoff.