Courts will play role in effort to stem abuse of 17200 law.

THE passage of Proposition 64 earlier this month was supposed to put an end to one of the most unfair of settlement games--where a plaintiff's attorney can target a business whether there is a victim or not.

In these so-called 17200 lawsuits, defendants often decided that paying off a claim was the easiest way to make it go away, even if the claim was not legitimate.

But while Proposition 64 adjusted section 17200 of California's Business and Professions Code by requiring the suits to name a plaintiff who was truly damaged, plus requiring that the cases qualify as class action lawsuits, it's not clear how much change is in the offing.

"The law is fairly straightforward, (but) it will take a lot of litigation until there is any clarity in how it works," said attorney Robert Fischer of Fulbright & Jaworski, a Los Angeles law firm.

Plaintiffs' lawyers are looking for potential loopholes that will allow them to continue filing cases--especially those seeking injunctions barring certain practices rather than calling for monetary damages--without having to seek class action status. Other legal shortcuts around the statute are being studied.

"A lot of my cases involved 17200, but many do not," said consumer attorney Kim Kralowec of the San Francisco-based Furth Firm.

Legal uncertainty

Kralowec and others believe that the law was used properly, except by a handful of attorneys who abused it. But those abusive cases became notorious: small nail salons sued for using polish bottles on multiple customers, neighborhood restaurants with "A" ratings sued for minor violations of the health code, and travel agents sued for not including their license numbers on Web sites.

Under the old law, attorneys did not require the suits to name clients who suffered harm. They could act as "private attorneys general" seeking to redress alleged wrongful business practices on behalf of the public. That gave rise to legalized shakedowns that could net lawyers several thousand dollars per business from owners who simply wanted to make the suits go away.

These types of cases, which resulted in the members of one Beverly Hills law firm being disbarred, were eliminated by passage of Proposition 64, which now requires that such cases involve a client who suffered "injury in fact" and real monetary or property damages.

But the law is less clear for lawsuits already before the court. One question is whether the ballot measure created a "procedural" or "substantive" change in the 17200 cases, as defined by past court cases that have interpreted those terms. Making that determination will help determine if existing cases will have to meet the stricter requirements imposed by the measure.

"I think they are going to cut down a lot of trees arguing that," said Ed Gartenberg, a partner at the Los Angeles office of Thelan Reid & Priest who defends business against the lawsuits.

John Sullivan, president of the Civil Justice Association of California and co-chair of the Yes on 64 committee, said there could be dozens of cases already before the courts. "We are learning about cases we did not know of before we filed the proposition," he said. "It's bigger than I thought it would be."

Another question is whether environmental groups and consumer advocates will continue to use the law in their litigation against businesses.

Up until now, these lawsuits could have been brought without a named, harmed plaintiff--no longer possible under the new question. The added requirement of class action status would represent another difficult hurdle.

Proposition 64's wording may allow new environmental cases to proceed without class action status, as long as no monetary damages are being sought. That's because the proposition contained the wording "injury in fact"; in past environmental cases that phrase has been interpreted by the courts to be valid in such matters as a person's aesthetic dislike of a proposed building project.

"Say you are trying to stop the development of a resort in Yosemite. You don't even need to live there. You just have to show you go there and your interest in enjoying the natural beauty might be harmed," said one attorney. "Throwing those three words in is just horribly ambiguous."

Before and After

Changes to Business & Professions Code Section 17200 as a result of Proposition 64.

Pre-reform

* Individuals could sue on behalf of the public to halt unfair business competition.

* Attorneys could act as so-called "private attorneys general" without a named client who suffered damages.

* Cases involving deceptive advertising and violations of environmental and health and safety laws could be brought.

Post-reform

* Individuals may only bring suit if they were injured by the practice and suffered financial or property loss.

* Claims on behalf of the general public cannot be pursued by individuals without gaining class action status. Some attorneys think there could be exceptions in environmental and consumer advocacy cases that do not seek monetary damages.

* The state Attorney General and local prosecutors may file suit on behalf of the general public without class action status, but all proceeds from awards must be used to support enforcement of consumer protection laws.