From the San Franciso Daily Journal, September 16, 1999.

Complaining More Efficiently

The State's 'Unfair Competition' Statute Is Topping Class Actions as a Way for Plaintiffs to Redress Consumer Grievances

by Craig Anderson, Daily Journal Staff Writer

Plaintiffs' lawyers who claim their clients have been done wrong by a manufacturer or retailer have a new favorite number:  17200.  That's California Business and Professions Code section 17200, the "unfair competition" law, which is getting increasing use by everyone from county prosecutors to disgruntled individuals who sue companies on behalf of the public for misleading customers or failing to live up to their promises.

As yet there are no statistics to prove that the claim has become more popular, but Bay Area attorneys who represent plaintiffs and defendants say they have been seeing -- and filing -- them more often.

"In California, there has been a resurgence," said William Audet, a partner at the Alexander Law Firm in San Jose who represents plaintiffs.

Defense attorneys agree, and many are not happy about it.  "It is now definitely the flavor of choice," said David C. Phillips, a partner at Phillips & Erlewine in San Francisco who represents a number of corporate clients.

The reason, attorneys say, is that unfair business practice claims offer many plaintiffs a quicker and more effective way to pursue their grievances.

Unfair competition plaintiffs do not have the hurdles that class-action plaintiffs face in getting themselves certified as having standing to pursue the claim -- a battle Audet likens to a "holy war" that takes months to fight and costs a lot of money.

"If someone is doing something wrong and you want them to change it, (the unfair competition claim) can be more efficient" than a class action, said Eric Somers, a partner at the Lexington Law Group in San Francisco, which has filed at least 50 such claims in the past three years.

In pursuing a complaint under state law, plaintiffs' lawyers have successfully fought attempts to transfer the lawsuits to federal court -- traditionally a friendlier venue for defendants.

The pleading standards are more lenient for unfair competition claims, making it easier for them to survive a defendant's demurrer.  "You don't have to show an injury, just a likelihood of deception," said Timothy Crudo, an attorney at Latham & Watkins in San Francisco who represents corporate clients.

If they survive a demurrer, plaintiffs are able to quickly start the discovery process, which places an expensive burden on defendants, who must decide whether to fight -- and pay the price for doings so -- or negotiate a settlement, corporate defense attorneys say.

"They can stir up all manner of expense," Phillips said.  "The cost of responding to all these interrogatories is staggering."

But the law has its limitations.  Plaintiffs are not allowed to seek damages beyond restitution, making it less lucrative for attorneys and their clients.  Reed Kathrein, a San Francisco-based attorney at Milberg Weiss Bershad Hynes & Lerach, said he avoids filing too many unfair competition claims because the cost of pursuing the litigation is too high for the possible reward.

"You want to go with more profitable cases," he said.

The statute has been used this year to pursue a claim against national retailers for allegedly misleading consumers by failing to disclose potential Y2K problems in the computer products they sell.

Seven companies were targeted with the Contra Costa Superior Court lawsuit, Johnson v. Circuit City, 99-3573, and two of them -- Office Depot and Fry's Electronics -- have agreed in recent months to settlements requiring them to post notices warning customers of possible glitches and include disclosures warning customers to check with manufacturers to make sure software products are Y2K-compliant.  The agreements also included payment of an undisclosed sum.

The remaining companies have refused to settle and are attempting to get the case transferred to federal court.

The state law also has been cited in a host of other complaints by private citizens against technology firms, tobacco companies and billboard operators accused of posting cigarette advertising too close to schools.

Unfair competition claims are difficult to quell, attorneys say.  Judges have thrown out claims in class actions complaints against software manufacturers Intuit and Symantec for selling products that are not Y2K-compliant, arguing that no consumer has been damaged yet, but they have kept alive the 17200 claims that the companies misled the public about the issue.  That lawsuit is pending.

"The statute does recognize that there is harm," said Kathrein, who is representing plaintiffs in the Intuit and Symantec cases.  "It often is the only remedy to take care of a situation."

Prosecutors use the statute, too.  For example, the Santa Clara County district attorney's office filed a civil complaint earlier this year accusing online retailer Onsale Inc. of deceiving customers by pocketing extra money for shipping and handling fees while claiming otherwise.  The case is pending.

Barbara Wheeler, a lobbyist for the Civil Justice Association of California, a tort-reform group, bemoans the increase in unfair competition claims.  She said the statute's language prohibiting "unfair" business conduct is so broadly worded that it invites mischief by plaintiffs' attorneys out to make a quick buck.

"We believe there's an abuse of the statute by entrepreneurial trial lawyers," Wheeler said.  "It's just a tool to get an early settlement."

For years, Wheeler's organization and state business groups have pushed unsuccessfully for legislation to make it more difficult for plaintiffs to pursue unfair business practice claims.  State Sen. Bill Morrow, R-Oceanside, has sponsored a bill that would have required class certification of plaintiffs in such lawsuits and would have tightened the language to force "unfair competition" claims to entail unlawful or misleading conduct, Wheeler said.

The bill, SB593, died in the Senate Judiciary Committee earlier this year.  Another Morrow on the issue met the same fate during the 1998 legislative session, and future efforts to drastically change the law are considered unlikely as long as Democrats are in firm control of state government.

Kathrein, who testified against SB593 before the Judiciary Committee, said corporate lobbyists are trying to prevent consumers from going to court to force businesses to live up to their promises.

"They managed to wipe out just about every remedy there is for consumers," Kathrein said.  "They would like to wipe out this one, too."

The California Supreme Court upheld the ability of private individuals to bring lawsuits on behalf of the public in a February 1998 decision, Stop Youth Addiction v. Lucky Stores Inc.,17 Cal.4th 553.

In that case, the high court ruled that attorney Donald P. Driscoll could pursue a 1994 lawsuit claiming Lucky and 431 small grocery stores and convenience markets engaged in unfair competition by selling the cigarettes to minors in violation of state law.

Several appellate court decisions also have upheld the broad interpretation of an individual's right to sue under the statute, Audet said.

Plaintiffs' attorneys do not have to choose between filing a class action complaint and an unfair competition claim.  Often, as in the Intuit and Symantec cases, they pursue both actions.

"From a strategic standpoint, it's useful to make 17200 claims in addition to class claims," Somers said.

Phillips complains that his corporate clients often must cope with plaintiffs counsel who file lawsuits against multiple defendants.  They can make a nice profit by collecting small amounts from all of them, he said, and some companies agree to a deal because it's cheaper than fighting.

But Kathrein said the unfair competition cases are really quite simple:  "Does this practice exist?  Is it unfair?  It's one of the more efficient statutes for consumers to get a remedy."