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SACRAMENTO, Calif. -- California businesses fear a provision in state law makes it easier for plaintiffs lawyers to file lawsuits that resemble class actions but do not require that a class actually exists.
Under California's Unfair Competition Act, a part of the state's Business and Professional Code, anyone can file a lawsuit in the public's interest as a "private attorney general," charging unfair or fraudulent business practices. The person suing does not need to represent an actual plaintiff who has purchased a product or had any business dealings with the defendant, according to the Assn. for California Tort Reform and plaintiffs attorneys.
The California Chamber of Commerce fears a jump in employment-related cases, and Unfair Competition Act claims recently have been added to Year 2000 compliance lawsuits filed against software manufacturers. This is particularly a concern because the number of lawsuits is on the rise in California, several companies said.
"We think it is one of the key issues for the next five years," according to Fred Main, senior vp and general counsel for the California Chamber of Commerce in Sacramento.
Several California business leaders met in Sacramento last week to document what they say are the growing abuses of the act and to discuss how to reform the law, said Barbara M. Wheeler, legislative advocate for the ACTR.
Possible strategies include continuing to file amicus briefs in appellate cases and seeking legislative reform of the law.
The Unfair Competition Act is a good law in its intent to protect the public, Ms. Wheeler said. But she and other business representatives say its broad language makes it ripe for abuse.
"The courts have said in a couple of cases, 'We will determine what is inherently unfair,' " the Chamber's Mr. Main said. "It doesn't have to be the violation of a statute. Therefore, you can take your best shot at alleging anything is unfair, hoping that a reasonable person will judge it is not nice or fair."
He said he believes attorneys pursuing the cases are using the additional allegations to wrest settlements from defendants, rather than taking the cases to trial.
"The payout never occurs; you settle the case, and part of the settlement is attorneys fees," Mr. Main said.
Sixteen other states have roughly similar statutes. But in the other states, plaintiffs must suffer actual business or personal injury losses, and class actions are allowed only when traditional class-action certification procedures are met, according to the California Law Revision Commission.
While most of the other states' laws allow plaintiffs to collect punitive or treble damages, plaintiffs in California are limited to injunctive relief or restitution. But they can also collect attorneys fees, meaning that even settlements result in payment to attorneys.
Allegations of unfair business practices typically have been added in the past to lawsuits for things such as misleading advertising, and to first-party bad-faith suits, alleging workers compensation insurers were purposely overreserving to inflate policyholders' experience modifications. Such allegations were included in a landmark lawsuit in which a jury ordered State Compensation Insurance Fund to pay $20.3 million dollars to Joe Notrica Inc., and the judge prohibited the insurer from continuing certain reserving practices (BI, Sept. 4, 1995).
Now the allegations could pop up in employment-related litigation, Mr. Main said. In one Superior Court case, a plaintiff recently claimed state-mandated overtime pay was denied, giving that employer a cost advantage over competitors, he said. The lawsuit also was filed on behalf of all other similarly situated plaintiffs -- language typically contained in class-action suits.
It is the first employment-related case he has heard of with unfair competition allegations, Mr. Main said. If plaintiffs start using the law to add class-action-type language to employment litigation, that "could really explode the issue and make it very problematic for employers," he added.
Putting employers on the hook for an entire class and not just one employee, could force them to settle cases rather than fight the allegations and face the potential of increased awards.
One attorney defended the unfair business practices law.
Private attorneys general are necessary to stop fraudulent and unfair business practices, because the state's elected attorney generals are reluctant to act against companies providing campaign contributions, said Rick Simons, president of the Sacramento-based Consumer Attorneys of California.
He suggests the ACTR became concerned about lawyers filing cases without actual clients only when plaintiffs attorneys sued a tobacco manufacturer for marketing to children. It was difficult finding children to step forward as clients, and ACTR receives funding from the tobacco industry, Mr. Simons said.
Ms. Wheeler acknowledged that two ACTR members are tobacco companies, but their contributions have nothing to do with the tort reform coalition's efforts to amend the unfair business practices law, she said.
Furthermore, she said, ACTR has been aware of abuses of the statute since 1996, when plaintiffs sued an electronic manufacturer, alleging the company's computer screens were smaller than the company's marketing claims.
Commercial general liability policies with advertising injury provisions are likely to cover unfair competition claims, such as those for Year 2000 cases filed against software manufacturers, said Robert M. Horkovich, a partner at Anderson Kill Olick & Oshinksy P.C. in New York.
However, employment-related cases with unfair competition charges may not be covered by advertising injury provisions, because promotion or distribution of products would not necessarily be involved.
Symantec Corp. legal affairs director Joyce Cartun has seen an increase in lawsuits with unfair competition allegations, she said. She, too, thinks the law's language makes it problematic.
"One should have fair notice of what it is that one is accountable for," she said. "My observation has been that the unfair competition law is vague in that respect."
Symantec, the manufacturer of Norton Utilities software, is currently fending off an appellate court case in which the plaintiffs allege the company misled them by selling its software in too large a box, making it appear consumers were receiving more than was actually in the container.
The state's legislature amended the law two years ago so that it can no longer be applied to the packaging of software. It was originally designed to protect consumers from misleading oversized packaging of things such as breakfast cereal.
But now Symantec and other software vendors are seeing a spate of unfair competition complaints attached to Year 2000 lawsuits, Ms. Cartun said.