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State's high court to untangle voter-modified Unfair Competition Law

Nearly a year after voters passed Proposition 64, the intent of the new legislation remains a contentious subject and the focus of a legal showdown.

The bill, passed last November, amended California's Unfair Competition Law (UCL) and False Advertising Law, adding a "standing" provision to both statutes.

A plaintiff now must be directly affected by the alleged misconduct in order to have a case. Previously, a litigant didn't have to prove a loss or injury resulting from the action.

What isn't clear is whether the new legislation applies to cases that were filed before the vote and are still pending.

The dispute has reached the California Supreme Court, which is expected to begin hearing arguments later this year.

"The appellate decisions that hold Prop 64 to be applicable to cases pending before November 2004 are better reasoned decisions then those holding the opposite," said Los Angeles defense attorney Michael Mallow of Kirkpatrick & Lockhart Nicholson Graham. "They follow the case law and statutory law more appropriately than those that go in the opposite direction."

Mallow recently won a pair of cases in which Proposition 64 was retroactively applied. Both cases are on appeal and hinge on the outcome of the Supreme Court ruling.

Critics contend there's no language in materials promoting the ballot measure or the bill itself indicating that Proposition 64 regulations were to be applied to pending cases.

"The general rule is new legislation applies prospectively only unless there is a clear indication (otherwise)," said Kimberly Kralowec of San Francisco's Furth Firm.

"The ballot materials, the summary of the amendment itself, the ballot arguments ... there's nothing in there that anyone wanted it to apply to previous cases."

Kralowec, who represents plaintiffs in class-action lawsuits, has a blog devoted to the ongoing debate. She argues the bill contains "prospective-type language" and has been touted as a way to stop attorneys from filing future cases.

Pamela Parker, an attorney for the San Diego office of class-action giant Lerach Coughlin Stoia Geller Rudman & Robbins LLP, agrees.

"It all comes down to voter intent and there's no evidence whatsoever that the voters intended to terminate existing UCL litigation," she said. "The focus was frivolous lawsuits, which constitutes a regrettable but small portion of UCL litigation. They thought they were doing something to help curtail that in the future."

The lack of any definitive language regarding either retroactive or prospective intent is the root of the confusion. In the absence of a clear directive, neither side can agree what assumption can be drawn as to the law's intent.

"It speaks more to the messiness of creating law through voter initiative," said San Diego's Nancy Stagg, a principal with Fish & Richardson PC. "Had this been a legislative action, there would have been a little more debate and discussion (among lawmakers). The issue might have been resolved."

A UCL claim can take anywhere from a year to 18 months for its initial hearing and then an additional year or more of appeals. The result is a heavy backlog of cases filed before last November that are still pending.

"We'll see a lot of work undone if the state Supreme Court upholds Prop 64 retroactively," said Kralowec.

Some cases are significant.

Lerach's Parker helped litigate a trial case against credit card giants MasterCard and Visa that resulted in a hefty award for the plaintiffs. The defendants could end up paying as much as $800 million in restitution if every cardholder affected seeks a refund.

The case, already in court for several years, is on appeal.

"The findings of the trial court concluded that the defendants had intentionally concealed the 1 percent embedded fee on foreign transactions," Parker said. "So you have a finding of a wrongful business practice, substantial restitution judgment and substantial injunctive relief going forward, and then Prop 64 comes on the scene.

"Our case exemplifies how retroactive application can actually be contrary to the voters' intent. They didn't intent to end (a case uncovering) wrongful business practices."

Attorneys for the defense argue that California's statutory repeal doctrine grants lawmakers -- and voters -- the power to withdraw any rights granted under statute.

"They talk about fairness and legislative intent and whether the UCL can be withdrawn without legislative intent," Kirkpatrick's Mallow said. "The legislative intent is already there. It's built into the government code that says we created a statutory right and we can take it away."

Mallow further dismissed the fairness argument, saying the parties who stand to lose under Proposition 64 aren't affected by the conduct anyway.

"We're not talking about someone who was hurt or injured and is being deprived of a right," he said. "They're what I call the disinterested interloper. Someone who has nothing to do with the case ... who steps in and flexes their muscles."

The state's highest court ultimately will decide what the intent was and how Proposition 64 should be applied.

"I think the weight of the decisions coming out of the court of appeals have rejected that (prospective only) argument," said Stagg, who successfully defended a client from a recent UCL claim.

Regardless of how the California Supreme Court rules, plaintiffs are asserting that UCL claims may still get their day in court. Some lower courts already have allowed a new plaintiff -- one directly affected by the action -- to be substituted in.

"I think to a great extent the impact has already been felt and adjustments have already been made by those pursing unfair competition claims," Mallow said.

"Other fights are coming down the pike," Parker promised.

Issues such as do all UCL claims have to be filed as class actions and does everyone in a UCL claim have to prove causation are yet to be decided.

Send your comments, thoughts or suggestions to douglas.sherwin@sddt.com

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