A far-reaching ruling is expected in a case that could apply limits in 2004’s Proposition 64 to ads for cigarettes.
San Francisco, CA —
Consumer class-action lawsuits in California, which have encountered
mounting skepticism from courts, face a major test in a tobacco case to
be decided Monday by the state Supreme Court.
The
court will determine whether smokers who say they purchased cigarettes
in response to deceptive ads can collectively sue the industry for the
money they spent to smoke.
The court has grappled with the case
for more than two years, trying to determine the reach of Proposition
64, a 2004 initiative intended to stop bogus lawsuits aimed at
extorting money from small business. During the last several years,
lower courts have tossed out many consumer class actions and
scrutinized settlements more closely.
"Judges have started…
wondering why there was a million dollars in attorneys fees and
virtually nothing for the people who were supposedly defrauded," said
Trent Norris, a San Francisco lawyer who defends corporations.
"California is part of a national trend."
Nowhere was this
skepticism more evident than in an order earlier this year by Los
Angeles County Superior Court Judge Brett Klein.
Klein, asked to
approve a class-action settlement, ordered the attorney who filed the
suit to be paid the same way as consumers in the class, with $10 gift
cards — 12,500 of them — to stores that sell prom dresses and other
ware for teenage girls.
Klein’s order came in a lawsuit charging
that Windsor Fashion Store illegally required credit card users to
provide their telephone numbers or e-mail or home addresses. Another
judge overturned the order in February and awarded Yorba Linda lawyer
Neil B. Fineman $125,000 in fees instead of gift cards.
Some advocates say beneficial consumer litigation is getting tossed along with the frivolous.
"The
big picture is a broad assault on consumer protection laws by the
defendants’ lobby, with the growing support of the judicial branch,"
lamented Harvey Rosenfield, attorney for Consumer Watchdog, a nonprofit
consumer advocacy group.
Proposition 64 amended the state’s Unfair Competition Law to limit suits to people who have lost money or property.
Last
month, an Alameda County judge, citing the measure’s requirements,
tossed out a class-action suit accusing Applebee’s restaurants of
misrepresenting the fat and nutrient content of lower-calorie meals.
The judge said the consumers would have to show they had lost money —
a high bar given that the diet meals cost no more than the others.
Before
Proposition 64, consumer, environmental and anti-poverty groups could
sue over illegal practices even when no one lost money.
"We are
looking at the death of… an enormously powerful consumer statute,"
said Sharon J. Arkin, a Los Angeles appellate lawyer for plaintiffs who
bring the suits.
The tobacco case will determine whether class
actions can be filed under the Unfair Competition Law. At issue is
whether all members of the class must prove that the advertisements
prompted them to buy cigarettes, a requirement that some attorneys said
would doom the case.
The suit was brought on behalf of every
Californian who was exposed to tobacco ads and bought cigarettes from
1998 to 2007. A similar suit in Michigan obtained a $10-billion jury
award, Arkin said.
Lawyers for the smokers allege the tobacco
industry misled people by suggesting that "light" or "low-tar"
cigarettes were safer than other cigarettes. The suit also charges that
the industry targeted minors.
Industry lawyers counter that
the smokers were exposed to different ads and decided to smoke for
different reasons, making a class action inappropriate. During oral
argument, the state high court did not reveal how it was leaning.
The
decision in the tobacco case may determine the outcome of several other
pending cases. Most of the adverse rulings in consumer cases have come
from a handful of state Courts of Appeal, primarily in San Diego and
Orange counties, said class-action lawyer Timothy G. Blood of San Diego.
He
cited a suit against Farmers Insurance Co. that said Farmers charged
customers more money for paying monthly than for paying annually.
Although
an appeals court found the practice violated the state insurance code
and constituted a misdemeanor, it ruled that the people who sued had to
show they would not have bought the policy if they had understood the
different assessment, a requirement that some lawyers called an
impossible legal challenge.
Another class action charged that
Kwikset, a lock maker, violated the law by falsely claiming its
products were made in the United States. A trial judge determined that
the locks were substantially made outside the country, and the Federal
Trade Commission made a similar finding and fined the company.
But
the 4th District Court of Appeal, which has been a graveyard for
similar suits, decided that the plaintiffs did not meet Proposition
64’s requirements. No one claimed the locks didn’t work.
Justice
David G. Sills, presiding judge in the 4th District, called the Kwikset
case "precisely the sort of abuse that Proposition 64 was crafted to
halt… lawsuits against businesses where lawyers make big bucks,
and clients nothing, for finding some tiny, arguable technicality."
Consumer
advocates counter that the suits are based on laws. "When people
criticize these suits, they are really criticizing the law," Rosenfield
said.
Class actions by nature usually yield more money to
attorneys than to individuals in the class, Rosenfield said, noting
that the system is designed for people whose losses are too small to
make individual lawsuits worth bringing.
"We have hundreds of
thousands of lawyers in California who, because they can make money on
these cases, will bring them," said Arkin, past president of the
Consumer Attorneys of California.
The climate for consumer class
actions darkened as a result of scandals earlier in the decade when
lawyers sued small businesses, such as auto shops and beauty shops, for
minor code violations.
The lawyers pocketed the money the businesses paid to make the suits go away. Some later lost their law licenses.
"That burned through the legal community in a huge way, and people don’t do that stuff anymore," Arkin said.
The
imprisonment a year ago of William Lerach also drew wide attention to
class-action abuses. The San Diego attorney paid people to be
plaintiffs.
Other developments cited by lawyers were passage of
a federal class-action law in 2005 and new state and federal guidelines
that laid out ground rules for judges in such cases.
A state
study of class actions from 2000 to 2006 showed that consumer suits
have declined by 31% since 2002. Judges also threw out a higher portion
of consumer class actions — more than 24% — than any other type.
The
demise of what he calls frivolous suits has thrilled John H. Sullivan,
president of the business-supported Civil Justice Assn. of California.
He pointed to a "fun" ruling from the 4th District in a 2005 case
against Starbucks.
The suit on behalf of 135,000 job applicants
contended that the chain’s job applications failed to clearly state
that Californians were not required to report marijuana convictions
more than two years old. Starbucks said the suit could cost it more
than $27 million.
The three-judge panel scolded Starbucks and
agreed that some Californians might have mistakenly believed they had
to report pot convictions. But the panel tossed the suit on the grounds
that none of the named plaintiffs had marijuana convictions.
"The
civil justice system is not well served by turning Starbucks into a
Daddy Warbucks," Justice Raymond J. Ikola wrote for the three-judge
panel.
Class actions dumped by courts deserved it, said San Francisco corporate lawyer William Stern.
He
cited a "ridiculous" lawsuit against the makers of Listerine for
falsely advertising the mouthwash was as effective as flossing. In
rejecting the suit, a Los Angeles-based appeals court said that
Proposition 64 had "dramatically" restricted consumer protection
measures and that the Listerine case illustrated "the shortcomings of
the initiative measure."
The case is pending before the California Supreme Court, where Stern hopes it meets its demise.
"Society shouldn’t redistribute income to gullible people," he said.
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Contact the author at: [email protected]
Times researcher Scott Wilson contributed to this report.
