Less than two years ago, the courts of the Golden State were truly rich for trial lawyers who wanted to profit from baseless claims.  Back then, anyone could file a lawsuit under the state's unfair competition law -- known as 17200 for its section in the state Business and Professions Code -- against a business to "protect" consumers from any "unlawful, unfair or fraudulent business act or practice" and any "unfair, deceptive, untrue or misleading advertising." Killing Frivolous Lawsuits Not Once, But Twice ... And Counting

Like so many supernatural monsters from bad horror flicks, trial lawyers -- and the frivolous lawsuits they file -- never say die.  They just keep coming back.

California provides the latest example of this phenomenon where, this week, the state Supreme Court started to finish the job of legal reform begun by the voters.

Less than two years ago, the courts of the Golden State were truly rich for trial lawyers who wanted to profit from baseless claims.  Back then, anyone could file a lawsuit under the state's unfair competition law -- known as 17200 for its section in the state Business and Professions Code -- against a business to "protect" consumers from any "unlawful, unfair or fraudulent business act or practice" and any "unfair, deceptive, untrue or misleading advertising."  Indeed, a plaintiff could file a 17200 lawsuit without even having to allege or prove that he had actually suffered any injury at all.

Not surprisingly, the trial lawyers used this powerful provision to engage in legalized extortion to pick the deep pockets of California businesses.  Without needing a client who had been actually injured, the trial lawyers would simply find the most trivial of technical regulatory violations and then either threaten suit or actually sue on behalf of all the public.  Of course, this ability also provided the trial lawyers with the necessary leverage to demand exorbitant settlements from the businesses -- many of which decided to make the payoff rather than be forced to spend more money in legal fee to defend themselves in court.

But these shakedowns made news, especially when more than a few small businesses and their mom-and-pop owners found themselves faced with financial ruin despite never wronging anyone.  As a result, California's voters overwhelmingly passed Proposition 64 in November 2004 with the intent, according to the initiative, of "prohibit[ing] private attorneys from filing lawsuits for unfair competition where they have no client who has been injured in fact."  Indeed, the preamble to Proposition 64 noted that the 17200 law had been "misused by some private attorneys" to "[f]ile frivolous lawsuits as a means of generating attorneys fees" and settlements "where no client has been injured in fact."

Proposition 64 changed the rules of the game.  The initiative amended who would be allowed to bring those lawsuits -- namely, only those "who ha[d] suffered injury in fact and ha[d] lost money or property as a result of unfair competition."  In other words, Proposition 64 tried to kill off all those baseless claims brought by trial lawyers by closing the courthouse doors to complaints where no one had been damaged.

However, the trial lawyers wouldn't say die so easily.  In the aftermath of Proposition 64, the trial lawyers decided that the initiative didn't apply to the lawsuits they had already filed.  Thus, according to the trial lawyers, there were still hundreds of lawsuits they could continue to pursue.

So the question decided by the California Supreme Court this week was whether Proposition 64 had really dealt the death blow to these frivolous lawsuits.  And, the answer was both yes and no.

The California Supreme Court ruled that Proposition 64 did "apply to pending cases," meaning that the injury requirement applies even to cases filed before the voters passed the initiative.  In other words, the trial lawyers cannot continue to prosecute 17200 cases they filed pre-Proposition 64 if those cases do not have a plaintiff who was actually injured.  At the same time, however, the justices explained that Proposition 64 would not prevent the trial lawyers from amending their earlier complaints with newly found injured plaintiffs.

The long and short of it is this.  First, the voters killed off the baseless 17200 lawsuits brought by plaintiffs who were not injured by passing Proposition 64.  Second, the California Supreme Court killed off these lawsuits again by ruling that Proposition 64 really did mean what it said.  The trial lawyers can still bring these lawsuits back to life by finding someone who was actually injured back then and wants to sue right now -- something the trial lawyers should have done before they ran to court in the first place.

July 28, 2006
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