Proposition 64’s easy passing was a big win for businesses at the ballot box after they were stifled for years in the state Legislature.
Moreover, the result,along with the demise of the employer-sponsored healthcare law,could mark a turning point in California’s business climate under Gov. Arnold Schwarzenegger, who threw his support behind Proposition 64 earlier this year.
Proposition 64, which passed with a 59% majority, reforms section 17200 of California’s Business and Professions Code.
17200 has drawn intense criticism from businesses in the past few years as law firms, such as now-defunct Beverly Hills-based Trevor Law Group LLP, used the code to send thousands of letters to companies threatening lawsuits.
Letters demanded payment to avoid the suits, which would’ve proven costly to fight. Many companies paid money, even though most infractions cited under the code were considered frivolous.
“I think it’s about time people realized the devastation those kinds of lawsuits can cause,” said Kevin Hurley, who owns Mission Viejo Transmission, which was the target of several letters warning of a pending lawsuit. “It was great that Trevor Law got disbarred, they had to be put down. But it couldn’t end there. It had to end with the passage of this proposition.”
A big beef with businesses: 17200 didn’t require a plaintiff to be harmed before a suit is filed.
Proposition 64 changes that.
The measure, which now is in effect, requires nearly all plaintiffs to prove they’ve been harmed personally. The law does allow a public official, such as an attorney general or a district attorney, to sue a company without having a plaintiff show harm. Proposition 64 also eliminates lawsuits filed on the basis of preventing injuries before they happen and requires certified class-action status before suits can go ahead.
Efforts to reform 17200 in the state Legislature failed several times in the past few years. Termed-out Assemblyman Lou Correa, D-Santa Ana, led one effort to craft a compromise bill, but it was criticized by business interests as not going far enough and eventually was killed in the Legislature. (Correa won a seat on Orange County’s Board of Supervisors last week.)
A separate effort to reform 17200 between auto dealers and trial lawyers died early, while a bid this summer by Schwarzenegger to spur the Legislature to change the law also failed.
“The governor’s perspective on this issue has been consistent throughout his gubernatorial campaign as well as his tenure for governor,” said Marty Wilson, executive director of the governor’s “California Recovery Team” and partner with Sacramento-based Wilson Miller Communications.
Proposition 64 proponents said it was clear after years of wrangling over 17200 reform that a ballot initiative was the only possible path to reform.
Opponents of Proposition 64 included the Consumer Attorneys of California and the Sierra Club of California. Environmental groups, with support from state Attorney General Bill Lockyer, said the proposition would make it difficult to sue businesses who damage the environment, since it would be difficult to find plaintiffs who suffered actual harm.
Environmental groups could have other avenues to protect the environment, said Michael Shaw, Sacramento-based assistant director for the California chapter of the National Federation of Independent Business.
“There are laws at both the state and federal levels that allow private action for environmental and consumer groups,” Shaw said.
Bill Magavern, a senior legislative representative with the Sierra Club of California, said his group doesn’t plan to contest the result. He said Proposition 64 opponents were outgunned from the start.
“The ‘yes’ side was outspending us 10-to-1,” he said. “Right now we’re concerned about the lack of clarity in the wording on when you need class-action certification.”
Legal challenges to 17200 reform could result from the proposition’s wording, said Ed Sybesma, a lawyer with Costa Mesa-based Rutan & Tucker LLP’s 17200 practice.
“There’s no doubt there will be some disputes,” Sybesma said. “First there could be challenges over whether the reforms have a retroactive effect on cases already filed. And there may be arguments over the extent to which class certification is required.”
Sybesma said environmental groups still can use the Safe Drinking Water and Toxic Enforcement Act of 1986 to go after polluters.
“I think environmentalists overestimated the impact Proposition 64 will have on them, since they still can use (the Safe Drinking Water act), which doesn’t require a harmed plaintiff and allows private action,” he said. “(The Safe Drinking Water act) involves a higher legal standard than 17200, which allowed suits against businesses that violated any kind of law anytime and anywhere.”
