California Proposition 64, Unfair Business Competition Lawsuits (2004)
Proposition 64 was designed to limit California's Unfair Competition Law by curtailing lawsuits known as "shakedown" lawsuits. It did this by limiting private lawsuits against a company only to those where an individual is actually injured by and suffers a financial loss due to an unfair, unlawful, or fraudulent business practice. Otherwise, only public prosecutors may file lawsuits charging unfair business practices.
Proponents argued that the measure would limit frivolous lawsuits against companies that result mainly in a windfall for lawyers rather than consumers and that businesses ultimately must pass along their costs in the form of higher prices to consumers. Opponents charged that the proposition was heavily funded by businesses who wanted to weaken consumer rights by limiting Californians' ability to enforce environmental, public health, and consumer protection laws such as California Proposition 65 (1986).
Campaign donors to Proposition 64 outspent opponents by about 8-1.
Kwikset, a manufacturer of locks, sold locks in California that bore the label "Made in the U.S.A.." These locks contained foreign-made parts although the final assembly was done in the United States.
Three plaintiffs sued the company, alleging false advertising. These plaintiffs did not allege that they had personally suffered any injury or lost money as a result of having purchased their Kwikset locks. Because they had suffered no injury, Kwikset's attorneys argued that the case should be dismissed as a case that is not allowed under Proposition 64.
However, in January 2011, the California Supreme Court ruled that the case can go forward. The court held that Proposition 64 only applies to defendants who have had no actual business dealings with the company that are suing. Since the three unhappy Kwikset customers had purchased a Kwikset lock, according to the court, they do have the right under Proposition 64 to sue.
Kimberly Stone, president of the Civil Justice Association of California, predicted that the high court's January 2011 ruling will lead to more such lawsuits. She said, "In an era when our courts are already overcrowded and facing severe budget cuts, it’s no time to open the floodgates of litigation in cases where no damage resulted."
In Re Tobacco II Cases
Proposition 64 became a factor in the pre-existing lawsuits when its provisions were said to prevent certain litigants from joining the suit on behalf of those said to be harmed by tobacco products in an actionable way.
Prior to passage of Proposition 64, a California trial court had certified In re Tobacco II Cases as a class action suit. The class was defined as “All people who at the time they were residents of California, smoked in California one or more cigarettes between June 10, 1993 to April 23, 2001, and who were exposed to Defendants’ marketing and advertising activities in California.”
After Proposition 64 was approved, the defendants in the suit asked the court to decertify the class on the grounds that each class member was now required to show an injury in fact, consisting of lost money or property, as a result of the alleged unfair competition. The California Court of Appeal upheld the trial court's de-certification action.
On May 19, 2009, the California Supreme Court ruled that Proposition 64 cannot be used as the basis of a claim to de-certify the class in the Tobacco II Cases because "standing requirements are applicable only to the class representatives, and not all absent class members."
Text of measure
The ballot title was:
The question on the ballot was:
- "Should individual or class action "unfair business" lawsuits be allowed only if actual loss suffered? Only government officials may enforce these laws on public's behalf."
- Limits individual's right to sue by allowing private enforcement of unfair business competition laws only if that individual was actually injured by, and suffered financial/property loss because of, an unfair business practice.
- Requires private representative claims to comply with procedural requirements applicable to class action lawsuits.
- Authorizes only the California Attorney General or local government prosecutors to sue on behalf of general public to enforce unfair business competition laws.
- Limits use of monetary penalties recovered by Attorney General or local government prosecutors to enforcement of consumer protection laws.
- See also: Fiscal impact statement
The California Legislative Analyst's Office provided an estimate of net state and local government fiscal impact for Proposition 64. That estimate was:
- Unknown state costs or savings depending on whether the measure significantly increases or decreases court workload related to unfair competition lawsuits and the extent to which funds diverted by this measure are replaced.
- Unknown potential costs to local governments depending on the extent to which funds diverted by this measure are replaced.
Campaign spending over Proposition 64 was lopsided. The "Yes on 64" side spent $20.5 million, while the "No on 64" side spent $3.2 million.
Some of the larger donors to the "Yes on 64" campaign were:
- California Motorcar Dealer's Association: $5.2 million
- Alliance of Automobile Manufacturers: $1.5 million
- Greater Los Angeles New Car Dealers Association: $500,000
- U.S. Chamber of Commerce: $495,000
Hewlett-Packard and Microsoft also gave money to the "Yes on 64" campaign.
Donors to the "No on 64" campaign nearly all came from the sector identified by Follow The Money as lawyers and lobbyists. They included:
- Consumer Attorneys of California: $763,700
- James Sturdevant: $265,000
- Official Voter Information Guide with text of Proposition 64
- November 2004 election results from the California Secretary of State
- LAO analysis of Proposition 64
- Guide to Proposition 64 from the California Voter Foundation
- Analysis of Proposition 64 from the Institute of Governmental Studies
- PDF of the mailed November 2, 2004 voter guide for Propositions 59, 60, 60A, 61-64, 66-72
- Wall Street Journal, "Calif. High Court to Corporate America: “Labels Matter," January 28, 2011
- Los Angeles Times, "Court rules that consumers can sue manufacturers over misleading claims," January 28, 2011
- Text of Kwikset Corp. v. Benson, et. al.
- San Francisco Chronicle, "Consumers win with court's Proposition 64 decision," June 1, 2009
- California Supreme Court, "In re Tobacco II Cases"
- Campaign contributions to Proposition 64
- Donors to "Yes on 64"
- Donors to "No on 64"