Corporations Attempt to Gut the Nation's Toughest Consumer Protection Law: California's Unfair Business Practices Act

February 18, 2004

In 2003, Nike Inc. failed (Kasky v. Nike) to convince the California Supreme Court that California's Unfair Business Practices Act infringed upon First Amendment "rights" claimed by the company. Now Nike has joined with many more corporate interests in attempting to weaken the law, using its financial power to run a 2004 ballot initiative. Nike's $50,000 investment actually is a small part of the package. Auto dealers have kicked in $4.6 million and dozens of other corporations have joined the effort, including major utilities, insurance companies, banks and software manufacturers.

The corporations have hired lawyers and signature gatherers and launched a website (www.stopshakedownlawsuits.com) to place on the November 2004 ballot an initiative they package as "protecting small businesses from frivolous lawsuits." The website says "Thousands of small businesses -- nail salons, auto repair shops, restaurants, and many others -- have been hit by frivolous lawsuits filed by personal injury lawyers using a loophole."

To be sure, there have been abuses of the law which need to be curtailed (see this article), but this initiative seems to bypass common-sense reform in favor of stripping away significant protections for California residents.

The ballot initiative itself (pdf) does a good job of presenting the opposing arguments, which focus on frivolous lawsuits costing the public money and clogging the judicial system.

The proposed initiative would change the laws under California Business and Professions Code 17200 so that only government entities and those already harmed by a company can sue a corporation for practices illegal under the Unfair Competition Law. Currently, individuals, public interest organizations and others may sue. It would almost certainly eliminate lawsuits that are filed to prevent an injury or harm from happening and would stop almost every public interest or environmentally-based lawsuit. Paralelling Wal-Mart's failed initiative in Inglewood, CA, the initiative would subsequently remove the entire issue from democratic control, prohibiting the legislature from further amending the law once changed.

Many of the corporate funders of the initiative have been held accountable for unfair business practices or currently are litigating cases brought under the law. See the full listing of funders here.

A reasonable solution to abuses under existing law would be to deter suits found to be frivolous with penalties. Eviscerating a law that has played a crucial role in protecting citizens from toxic drinking water, unsafe meat, fraudulent advertising, and other harms will create more damage than it relieves.

Update: The sponsors appear to have submitted enough signatures to qualify the initiative for the 2004 ballot. Governor Schwarzenegger has yet to take a position on the initiative. During his campaign, he reasoned that labor unions are "special interests," and refused any campaign contributions from them, but accepted more than $750,000 from car dealerships.

Related features:

Cornell Study Debunks "Lawsuit Explosion" Myth

Lawsuit Reform Effort Overreaches

This July 6 cover story in the LA Times provides a good overview of the dispute.

Why do we allow corporations to engage in ballot initiatives?