Litigation
Jul. 19, 2002
Businesses Can Use Many Different Tools to Fight Lawsuits by Consumers
Focus Column - By David R. Sugden - Hundreds of businesses in California are defending lawsuits that they did not (and could not) have anticipated defending. The lawsuit seems to come out of nowhere: The defendant has not met, seen or heard of the plaintiff. These enigmatic plaintiffs bring lawsuits in the name of the public interest or on behalf of consumers.
By David R. Sugden
Hundreds of businesses in California are defending lawsuits that they did not (and could not) have anticipated defending. The lawsuit seems to come out of nowhere: The defendant has not met, seen or heard of the plaintiff. These enigmatic plaintiffs bring lawsuits in the name of the public interest or on behalf of consumers.
The complaint alleges that the defending has violated one of California's standing-friendly statutes. For example, hundreds of businesses have been sued for violating Proposition 65. See Health & Safety Code Section 25249.5 et seq.
Proposition 65, formally known as the Safe Drinking Water and Toxic Enforcement Act of 1986, requires any company with 10 or more employees to provide a "clear and reasonable" warning before knowingly and intentionally exposing anyone to a "listed" chemical. See Section 25249.6. In its current form, Proposition 65 has more than 800 "listed" chemicals. See 22 C.C.R. Section 1200(b) (2002).
As enacted, Proposition 65 allows anybody to sue violators on "behalf of the people of California." Section 25249.7(d). As a result, these consumer-protecting plaintiffs are filing lawsuits alleging that the named defendant has failed to comply with the statute.
Another popular avenue for these plaintiffs is Business and Professions Code Section 17200. Like Proposition 65, Section 17200 allows anyone to bring a lawsuit: The plaintiff need not be personally aggrieved by the defendant. See Section 17204. The statute was enacted to level the playing field and allow consumers to redress certain unlawful business practices. The result, however, has been an explosion of litigation. See Denise Levin, "Lifting the Smoke Screen: Lawyer's Practice Has Adversaries Seeing Green," L.A. Daily Journal (April 2001).
Not only can anyone bring a Section 17200 action, the statute is extremely broad. Specifically, Section 17203 simply prohibits any "unfair competition." Section 17200 defines "unfair competition" as "any unlawful, unfair or fraudulent business act or practice."
In other words, "an action based on section 17200 to redress unlawful business practices 'borrows' violations of other laws and treats them as unlawful practices independently actionable under section 17200"; this allows the court to prohibit behavior that, although not unlawful, is simply deemed unfair. See Farmers Ins. Exchange v. Superior Court, 2 Cal.4th 377 (1992); see also Saunders v. Superior Court, 27 Cal.App.4th 832 (1994).
Although Proposition 65 and Section 17200 leave businesses vulnerable to attack, there are a series of tools and strategies available to combat these lawsuits. Businesses facing these lawsuits, and the practitioner defending them, must be aware of and utilize the following weapons to ensure a favorable determination of the action.
• Power in numbers. A business defending this type of lawsuit must realize that it is not alone. While the complaint appears unique to the named defendant, more often than not, the defendant is in the same predicament as several dozen other businesses that also are being sued by this consumer-protecting plaintiff.
Defendants should take advantage of the legal and factual similarities with other businesses and collectively find a practitioner who can represent all of their interests. An informal network of defendants can share the litigation costs. By sharing the financial burden, defendants can launch an aggressive, yet economically efficient, attack on the plaintiff.
• Be aggressive and fight back. Often, Proposition 65 and Section 17200 cases are filed and served by the dozen. With so many lawsuits filed and served, the research to find a formidable defendant may have been perfunctory.
Therefore, once served with the complaint, the defendant should exercise the right to engage in discovery right away. Defending practitioners should demand that the plaintiff justify its lawsuit through discovery immediately. Written interrogatories and document demands may reveal that there was little research done before bringing the lawsuit. Scheduling the deposition of the plaintiff's "person most knowledgeable" (often the attorney who filed the complaint) right away is another effective tool to lock in the plaintiff's knowledge of the facts.
Defending practitioners also must identify themselves promptly to the plaintiff. Once the plaintiff knows that the defendants are represented by counsel, the plaintiff can no longer contact the defendants. See California Rule of Court 2-100(A) (2002). While in most cases, this is a mere formality, it is a good way in these cases to prevent the plaintiff from doing post-lawsuit discovery.
Especially in Section 17200 cases, the defendant will find itself obligated to answer written discovery shortly after receiving the complaint. The defending practitioner must make sure to protect its client from burdensome, embarrassing and oppressive discovery requests.
For example, defendants accused of unfair gender discrimination may be asked to give the name of every man and woman who has been a customer at the defending business for the last four years. Axiomatically, this is a burdensome task in and of itself; in addition, the information sought may violate protected privacy interests. See Davies v. Superior Court, 36 Cal.3d 291 (1984).
Of course, the defendants are obligated to obey the Discovery Act; however, defendants are not obligated to do the plaintiff's homework. The representing practitioner should aggressively protect third-party privacy interests and demand that the plaintiff restrict its discovery to directly relevant information. See Harris v. Superior Court, 3 Cal.App.4th 661 (1992) ("When the right to discovery conflicts with a privileged right, the court is required to carefully balance the right of privacy with the need for discovery. ... The proponent of discovery of constitutionally protected material has the burden of making a threshold showing that the evidence sought is 'directly relevant' to the claim or defense"); see also Binder v. Superior Court, 196 Cal.App.3d 893 (1987) ("When compelled disclosure intrudes on constitutionally protected areas, it cannot be justified solely on the ground that it may lead to relevant information").
These consumer groups are not representing any class members, so the names of the ostensible victims of unfair competition are irrelevant. While the number of defendants may be relevant, the plaintiff may not obligate the defendants to provide the name of every patron or customer that has used the business within the statutory period.
Redacting protected information is an appropriate method to reconcile obeying of the Discovery Act and protecting sensitive information. See Davies v. Superior Court, 36 Cal.3d 291 (1984).
• Move to dismiss. While the typical demurrer assumes the truth of the facts pleaded, the court will take into consideration contradictory admissions in discovery. See Bockrath v. Aldrich Chem. Co., 21 Cal.4th 71 (1999). Assuming that the defendant aggressively sought written discovery and deposed the plaintiff before the responsive pleading was due, the defendant has every right to use the plaintiff's answers and admissions to bolster its demurrer.
Using the plaintiff's discovery admissions can be useful for several purposes. Most obvious, the admissions may contradict the facts alleged in the complaint. Also, using some of the plaintiff's more subtle admissions can be a useful way of introducing the case to the judge.
For example, a deposition can reveal that the plaintiff has filed hundreds of identical lawsuits against similar defendants and that the plaintiff has no relation with the defendant. The plaintiff also may admit that it contacted or researched the defendant for the sole purpose of ascertaining whether the defendant was a suitable business to sue. While none of these issues may be dispositive to the merits of the case, they are an effective way to show the court some of the interesting nuances of the case.
• Move for summary judgment. In the event that the court allows the plaintiff to amend the complaint, the defendant should keep the plaintiff accountable and demur to successive complaints until the plaintiff has filed a competent pleading.
Once the court rules that the plaintiff has a competent complaint on file, the defendant now has the luxury of having its discovery complete. With its discovery virtually concluded, the defendant can rely on the plaintiff's admissions and concessions and move for summary judgment.
• Try the case. If the judge determines that triable issues of fact remain, the defendant can rely on the plaintiff's early admissions and concessions to limit the plaintiff's ability to bolster its presentation at trial. In addition, with so many lawsuits pending, these types of plaintiffs are not looking to take cases to trial, and settlement negotiations will weigh heavily in favor of the prepared defendant.
The defendant must send a message to these plaintiffs that it fully intends to aggressively fight the lawsuit. Employing these tools and tactics is an effective way for the defending practitioner to mount the best defense on behalf of the client.
David R. Sugden is an attorney with the Newport Beach firm of Call & Jensen. He specializes in business litigation with an emphasis in defending consumer-protection claims brought on the public's behalf and as class actions.
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