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Ruling Threatens Consumer Lawsuits

A state Supreme Court decision could void many cases filed before Proposition 64's passage.

July 25, 2006|Martin Zimmerman | Times Staff Writer

Dozens of consumer lawsuits could be jeopardized by a state Supreme Court ruling Monday that a 2004 ballot proposition limiting suits against businesses applies to cases filed before the law was passed.

Although the decision was seen as a victory for business, the justices, ruling in another case, left the door open for suits to be revived if they could be brought into line with the changes mandated by Proposition 64, the ballot measure that amended California's Unfair Competition Law.

The Unfair Competition Law has been used as a vehicle to file a wide variety of lawsuits against businesses, including suits alleging environmental destruction, fraudulent cellphone billing and nondisclosure of credit card fees.

Under Proposition 64, Californians filing unfair-competition suits have to prove that they had personally been harmed by the behavior in question. Previously, persons could file the suits even if they weren't directly harmed -- or even a customer of the business being sued. Groups backing the ballot measure said it was needed to stop unscrupulous attorneys from filing so-called shakedown lawsuits.

The justices, ruling in a case filed against the Mervyn's department store chain by an advocacy group for the disabled, said the ballot measure applied to cases that had been filed before the November 2004 election but were still making their way through the court system.

"We're very happy about the decision," said John Sullivan, president of the Civil Justice Assn. of California, which sponsored Proposition 64. "This was all about lawyers trying to get one last bite of attorney's fees."

At the same time, in a case involving Downey Savings & Loan, the justices ruled that pending unfair-competition suits invalidated by Proposition 64 could be amended and refiled if a "real" plaintiff could be found to bring the complaint and a trial court agreed to the move. Both rulings were unanimous.

Consumer advocates argued that post-election efforts to apply the law retroactively amounted to a bait-and-switch tactic designed to sink a pack of troublesome lawsuits.

Monday's ruling in the Mervyn's case is "a blow to every one of those cases now pending," said Carmen Balber, consumer advocate with the Foundation for Taxpayer and Consumer Rights. "They now have an extra hurdle to overcome to move forward."

Statistics were unavailable on how many unfair-competition lawsuits are pending. Balber said there were "well over a hundred."

Among those is a case against Visa International Inc. and MasterCard International Inc. A man who didn't own a credit card from either company alleged the card issuers weren't properly disclosing foreign currency conversion fees. A judge ordered the companies to issue refunds, which some attorneys have estimated could reach $800 million. The ruling was later reversed by an appeals court, and that decision has been appealed.

"Some of these cases will simply go away because the plaintiffs know the kind of claim they're making won't fit under the new rules," said Lisa Jean Perrochet, an Encino attorney who follows unfair-competition cases. "Other plaintiffs will be able to go out and find some injured people and file another suit."

It remains to be seen how difficult that will be. Balber's group already has found a plaintiff for its ongoing suit against Nextel Communications Inc. -- now Sprint Nextel Corp. -- over alleged deceptive billing practices.

And James Sturdevant, the San Francisco lawyer who represented Californians for Disability Rights against Mervyn's, said he intended to find a plaintiff to revive his suit, which had been decided in the retailer's favor and was on appeal.

But Los Angeles attorney David McDowell, who represented Mervyn's, said "there will be cases where people will be hard-pressed to find a plaintiff who has suffered actual injury."

He said retailers in particular could benefit because they are often targets of unfair-competition suits based on what he called regulatory violations, such as failing to post notices of recycling center locations.

The justices did appear to stand squarely behind the tenets of the Unfair Competition Law, noting that "the measure left entirely unchanged the substantive rules governing business and competitive conduct."

Kimberly Kralowec, a San Francisco attorney who handles unfair-competition cases and maintains the blog www.uclpractitioner.com, said she was "relieved that the broad liability rules seem to be preserved. The real difference is who can bring the suit."

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