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John F. Grannis: High court thwarts tort reform

It’s The Law

Posted: August 13, 2009 9:32 p.m.
Updated: August 14, 2009 4:55 a.m.
"The first thing we do, let's kill all the lawyers."
- Dick Butcher, King Henry VI, Part II, Act 4, Scene 2

Shakespeare's Dick Butcher was a rebel thug who saw lawyers as protectors, not enemies, of Lady Justice. For him the killing of lawyers was a means to corrupt ends, not a means to end corruption.

Until 2004, a major source of disgust with lawyers was nuisance litigation under California's Unfair Competition Laws.

For many years these laws permitted individuals to sue businesses without any showing of an actual injury. They also permitted individuals to file "private attorney general" lawsuits by claiming to represent an entire class of unnamed consumers.

The abuse of these statutes by a few unscrupulous lawyers forced California businesses to spend millions of dollars in the defense and settlement of frivolous UCL lawsuits.

Worse, these costs added to the prices of goods and services paid by the very consumers whom the UCL statutes were supposed to protect.

This problem was thought to have been corrected when California voters passed Proposition 64, in November 2004.

Proposition 64 made important changes to the state's UCL laws, including its requirement that private UCL plaintiffs must show that they suffered an actual injury due to the defendant's conduct.

As a result, one might think, only business practices that cause actual injury to a consumer, or to a class of consumers, may be the subject of a private UCL lawsuit.

One might think that, but one would be wrong. Enter the California Supreme Court, stage left, with its recent In re Tobacco II Cases decision.

Faced with a class action lawsuit against several tobacco companies for allegedly deceptive cigarette advertising, in which it could not be shown that all class members had been injured by - or even had seen - the advertising in question, our Supreme Court issued a 4-3 decision that may significantly weaken the intended reforms of Proposition 64.

First, the Supreme Court held that the requirement of actual injury is only a procedural device, rather than a substantive legal requirement for filing a UCL lawsuit.

Consequently, the Court ruled, only the class representative must meet this requirement in UCL class action lawsuits. The other members of the class need not ever show any actual injury to remain as class members.

Second, the Court ruled that all class members may obtain restitution, measured as a share of the money or property the defendants "may have acquired" by their allegedly deceptive advertising.

In other words, the class members may recover money even if there is no evidence that they suffered any actual damages due to the allegedly deceptive advertising.

Third, the court ruled that the class members need not prove that they actually saw and relied on the defendants' allegedly deceptive advertising.

Their "actual reliance" may be inferred, the court ruled, from evidence that "a reasonable man would be influenced by (the defendants' alleged misrepresentation)."

The long-term effect of this decision remains to be seen. However, the Supreme Court appears to have re-opened the door to abuses that Proposition 64 was designed to curb.

Instead of limiting UCL lawsuits to legitimate claims involving actual injuries and damages, it now seems permissible, once more, to file nuisance UCL class action lawsuits involving speculative, and perhaps even nonexistent, injuries and damages.

This, in turn, seems likely to increase the litigation burden on companies struggling to do business, and create jobs, in California's already difficult economic environment.

It is hard to imagine that this is what the voters intended when they approved Proposition 64.

John F. Grannis is a partner with Poole & Shaffery, LLP, a full service business, corporate and employment law firm. He can be reached at (661) 290-2991. His column represents his own views and not necessarily those of The Signal. "It's The Law" appears Fridays and rotates between members of the Santa Clarita Valley Bar Association. Nothing contained herein shall be or is intended to be construed as providing legal advice.


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