Round Two for 17200 Reform
By CHRIS CZIBORR
Assemblyman Lou Correa and other moderate Democrats are taking another stab at reforming the state’s infamous Business and Professions Code 17200.
But this time around they could have a big ally: Gov. Arnold Schwarzenegger.
Correa, who represents Santa Ana and Anaheim, is backing Assembly Bill 2369, which aims to reform the 17200 code.
Schwarzenegger has thrown his weight behind a legislative fix in hopes of heading off another costly ballot battle in November.
About a month ago, Correa said he and fellow members of the Moderate Democratic Caucus had a dinner meeting with Schwarzenegger, wife Maria Shriver and members of the governor’s staff to discuss 17200 and other issues such as workers’ compensation.
“He was very interested and really seemed to focus on 17200,” Correa said. “17200 is an ongoing discussion we’re having with the governor and his staff.”
But voters still could face dueling 17200 initiatives on the Nov-ember ballot if legislators aren’t able to come up with a bill the governor will sign.
Business groups already are collecting signatures for their own 17200 initiatives. Then there’s the California Privacy Protection Act, a measure that could make it easier to sue under 17200.
All the while the clock is ticking: The California Privacy Protection Act has reached the state attorney general’s office, while backers of the other 17200 initiative say they’ll submit signatures in mid-April if a legislative fix isn’t worked out by then.
The 17200 code is designed to protect consumers from unfair competition by businesses. The law allows any lawyer to act as an attorney general and sue a company on behalf of the public.
In the past few years, the code has spawned scores of costly lawsuits or threats of litigation aimed mostly at auto dealers and repair shops and other small businesses.
Correa, who’s running for county supervisor, last year tried to pass 17200 reform, to no avail. Fellow state Democrats,backed by trial lawyers,killed his attempts to reform the code.
Other state Democrats tried to pass their own 17200 legislation, which actually would’ve made it easier to sue under the code. But that legislation didn’t make it either, to the relief of 17200 opponents.
Requiring a Victim
Correa has been working on 17200 reform with the Center for Public Interest Law in San Diego and representatives from businesses sued by Beverly Hills-based Trevor Law Group LLP, one of the most prolific 17200 litigators.
Reforms in Correa’s new bill would alter the code to prevent multiple lawsuits based on a single alleged infraction. They also would make it tougher to get settlements unless a consumer actually was harmed. Many 17200 lawsuits are filed on behalf of dubious consumer groups or other plaintiffs.
Correa’s bill also would authorize judges to sanction attorneys for filing frivolous actions.
While the threat of 17200 lawsuits remains, litigation under the code has tapered off.
“I haven’t seen egregious 17200 suits over the past couple of months,” said Ed Sybesma, an attorney with Costa Mesa-based Rutan & Tucker LLP’s 17200 practice. “Activity tapered off last year.”
The reason for the slowdown: moves by the attorney general and state bar.
Attorney General Bill Lockyer last year sued Trevor Law, using the 17200 code. And the state bar association launched a probe that resulted in a temporary suspension of the firm’s three partners.
“According to the state bar, the partners all resigned from the practice under threat of disbarment, which stopped disbarment proceedings,” Sybesma said. “They’re gone from the scene, as far as I know.”
That’s not enough for those who have been sued under 17200.
In recent months, the Civil Justice Association of California and the Playa del Rey-based California Motor Car Dealers Association have put forth an initiative for the November ballot addressing 17200. It would, among other things, require attorneys who sue to prove that there is an actual plaintiff who was harmed.
Large auto dealers, health maintenance organizations and mortgage companies are among the backers of the initiative. The Sacramento-based California Chamber of Commerce also supports it.
Supporters are hedging their bets that the Legislature will come up with what they consider meaningful reform.
“We certainly expect legislation to get introduced soon, but we’ve been working on this initiative with the assumption the Legislature will do no better this year than it has the past several years solving the problem,” said John Sullivan, president of the Civil Justice Association. “But the odds are against it. Personal injury lawyers control the judiciary committees in both the Assembly and Senate.”
Sullivan said he has been in contact with Schwarzenegger’s legislative staff and policy advisers on tort reform, including 17200.
“The governor’s California Recovery Team has listed 17200 reform as one of their goals,” he said.
Ballot Box Fatigue
But after a big effort to get voters to back initiatives for $15 billion in bonds and a balanced budget on this week’s ballot, Schwarzenegger may want to see if legislators can fix 17200 first.
On the other side of the issue is the California Privacy Protection Act.
A group that includes the Consumer Federation of California, the California Public Interest Research Group and Oakland attorney James Wheaton backs the privacy act.
While the measure largely deals with privacy issues, it would make it easier to sue under 17200 by making the code more vague.
Code 17200 currently describes unfair competition as “any unlawful, unfair or fraudulent business act or practice.” The initiative would insert the phrase “but is not limited to” before that description.
And the privacy act includes a biggie for trial lawyers. The act would restore disgorgement,a way of recovering money when all of a defendants’ victims can’t be found,in 17200 lawsuits. The use of disgorgement was curtailed by state Supreme Court decisions.
The two 17200 initiatives take aim at each other: Only one can become law, according to wording in both measures.
Richard Holober, executive director of the Consumer Federation of California, said his initiative would make it easier to sue companies who violate consumer privacy.
“We’ve been working on financial privacy for some time, and we wanted to establish a standard that requires companies to ask consumers to give them permission to share info, that would be an advance over both federal and state law,” Holober said.
Members of the Consumer Attorneys of California are mulling whether to back the initiative.
“We’re reviewing it and talking to proponents,we’ve already had several meetings with them,” spokeswoman Shelly Sullivan said. “We’re opposed to the Civil Justice Association initiative because it completely guts the 17200 statute.”
Tackling Prop. 65
Meanwhile, Assemblyman John Campbell (R-Irvine),one of the more vocal opponents of 17200,said he is supporting the Civil Justice Association initiative. He said he also is pushing indirect 17200 reform in the legislature in the form of Assembly Bill 2379.
“I’ve introduced a bill that deals with 17200 under Proposition 65,” Campbell said. “Specifically we want to ensure that companies can’t be sued multiple times for the same issue without proof that anyone was actually harmed.”
Proposition 65, California’s 1986 environmental law, has become a popular weapon of choice for law firms looking to go after businesses. Law firms throughout the state have been using 17200 to go after businesses they claim are failing to meeting the requirements of Proposition 65, also known as the Safe Drinking Water and Toxic Enforcement Act.
