Be Careful What You Wish For 

Pending developments in the Unfair Competition Law.

You stop by your favorite nail salon to learn that its prices have doubled because the salon was sued for using the same bottle of polish on more than one customer. Now you have to buy a fresh bottle of polish every time you have your nails done. Choose a different color for your toes and you have to pay again. If you find this ridiculous, you are not alone. In fact, 59 percent of voters in 2004 reacted by enacting Proposition 64 to reduce the drain caused by frivolous lawsuits.

The law is an organic thing; it evolves. Californians often express their frustration with the slow pace of change by enacting ballot initiatives. Initiatives can cause this gradual evolution to lurch, sometimes in directions no one anticipates. Most initiatives trigger a cascade of lawsuits where litigants get bogged down in fighting over the meaning of the new law before they can get to the resolution of their dispute.

Just such a fight is now before the California Supreme Court. Proposition 64's changes to the Unfair Competition Law have been reverberating ever since 2004. Now, nearly four years later, the state Supreme Court is poised to address the last open issue: what must be shown to plead fraud under the Unfair Competition Law.

To understand how we got here, we have to go back — back to before Arnold Schwarzenegger was elected, before Governor Davis was recalled, before the war in Iraq started, to 2002. In 2002, the Trevor Law Group sued auto repair facilities and an attorney named Harpreet Brar sued nail salons under Business & Professions Code section 17200, which is the statute that details the Unfair Competition Law. These lawyers claimed to represent consumer watchdog groups concerned with protecting the general public. The costs of defending these lawsuits exceeded the amounts at stake and the plaintiffs leveraged this fact to systematically "settle" for a few thousand dollars with one defendant at a time. Multiply a few thousand dollars, times 300 defendants, times multiple lawsuits, and soon you are talking real money.

All this was possible because Section 17200 used streamlined procedures. For example, all a person claiming fraud had to show was that the misleading statement made by a business was likely to deceive.

Small businesses were in an uproar over the Trevor Law Group and Mr. Brar's suits. Then Assemblyman Lou Correa held standing-room-only public hearings in Southern California. He then returned to Sacramento to draft a reform bill that could not get out of committee. The public was not amused. Having just tossed Governor Davis out on his ear, the public approved Proposition 64 by a healthy margin.

Proposition 64 requires a person suing to have personally suffered some harm. To represent the general public, a plaintiff must comply with class action rules. Now the California Supreme Court is considering three cases that deal with what a plaintiff must show to prosecute a fraud claim in light of Proposition 64. These cases range from disputes about misleading advertising by tobacco companies, to warranties on roofing tiles, to promises that using Listerine mouthwash is as effective as flossing. The in re Tobacco II Cases, McAdams v. Monier, and Pfizer v. Superior Court (Galfano) cases illustrate how broad Section 17200 is.

Does a plaintiff, in order to claim unfair competition because of a fraud, have to show he heard the misleading statement, relied on it in acting, and, because of his actions in relying on it, was harmed? For plaintiffs acting on behalf of the general public, the Supreme Court is also considering if the requirement of actual injury means that each member of the class has to show individual reliance on the misleading statement.

"Big deal!" you might think. It is a big deal. Class actions are far more complicated and expensive to prosecute than simple unfair competition cases. And, for a fraud claim, it is probably impossible to sue as a class because if each member of the class has to show individual reliance, a court is unlikely to allow the lawsuit to be prosecuted as a class action.

But why should you care that the streamlined "non class class" procedures of Section 17200 have changed? You should care because a brake on unscrupulous business tactics is gone. People wronged in small ways will have a much harder time getting relief. It just does not make sense to start up expensive litigation when your damages are the cost of an extra bottle of nail polish.

So while the frivolous lawsuit days may be behind us, the "fix" of this problem now means that you cannot easily get your money back if you bought a silk purse only to discover it was a sow's ear, or if you sat down for your manicure only to learn just before the polish was applied that the polish is not included. Californians will have to wait to see how the Supreme Court rules. At this point it looks likely that streamlined unfair competition claims are no more in California.

Oh, and as for your manicure, using one bottle of polish on more than one person was and still is not illegal. You may find small comfort in knowing that and in knowing that neither Mr. Brar nor any of the principals of the Trevor Law Group is allowed to practice law any longer.

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