Amicus Curiae Brief — Nike, Inc. v. Kasky

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Supreme Court, U.S.

| FILED

(4)

No. 02-575 | Nw 15 2

In the CLERK |

Supreme Court of the Anited States

Nike, INC., ET AL.,

Petitioners,

Vv.

Marc Kasky,

Respondent.

On Petition For Writ Or CERTIORARI

ToTue Supreme Court Or CALIFORNIA

AMICUS CURIAE BRIEF OF THE CIVIL

JUSTICE ASSOCIATION OF CALIFORNIA

IN SUPPORT OF PETITIONERS

WILLIAM L. STERN Frep J. HresTANpD

SEVERSON & WERSON Counsel of Record

1 EMBARCADERO CENTER 1121 L Street

Surre 2600 Surre 404

SAN Francisco, CA 94111 SACRAMENTO, CA 95814

(415) 398-3344 (916) 448-5100

Counsel for Amicus Curiae

BECKER GALLAGHER LEGAL PUBLISHING, INC.,

CINCINNATI, OHIO 800-890-5001

{ Wr 5

MOTION TO FILE AMICUS CURIAE BRIEF IN

SUPPORT OF PETITIONER

Respondent has refused to consent to the filing of an

amicus curiae brief by the Civil Justice Association of

California (CJAC). Accordingly, CJAC hereby moves,

pursuant to Supreme Court Rule 37.2(b), for leave to file an

amicus curiae brief in support of Nike Inc., et al.’s Petition

for a Writ of Certiorari. The brief immediately follows this

motion.

Amicus is a _ twenty-five year old non-profit

organization whose membership is made up of hundreds of

businesses, professional associations and local governments.

Our principal purpose is to educate the public about ways to

improve the state’s civil liability laws in terms of fairness,

efficiency, economy and certainty. Toward these ends, CJAC

regularly petitions the government - the judiciary, the

legislature and, through the initiative process, the people

themselves - for redress of laws concerning who pays, how

much, and to whom when wrongful conduct is charged.

California’s Unfair Competition Law (“UCL”) figures

prominently in CJAC’s efforts to restore some semblance of

fairness and sanity to the scope and application of liability

laws. It has become, for reasons we explain, a major source

of unfairness to those caught within its prohibitory sweep

against “business practices” deemed “unlawful, unfair or

fraudulent . . . [or] unfair, untrue or misleading advertising.”

(Cal. B & P Code § 17200.)

CJAC participated as amicus curiae in support of

petitioner Nike, Inc. in the California Supreme Court because

we feared that if appellant ultimately prevailed in his

argument there will be no realistic opportunity for those who

wish to publicly defend themselves against what they perceive

as unfair attacks on their business practices without paying

dearly for that defense. We argued that when, as here, it

comes to publicly uttered statements by a company in its own

defense against charges that its overseas subcontractors are

violating the laws of the countries in which they operate, the

constitutional guarantee to freedom of expression should

trump the ban of the UCL against false or misleading

advertising. We seek to participate here for the same reason,

and with the purpose of informing the Court about various -

anomalies of the UCL in comparison with analogous laws of

other states that make this case suitable for a grant of

certiorari.

Respectfully submitted,

Fred J. Hiestand

Counsel of Record

1121 L Street, Suite 404

Sacramento, CA 95814

(916) 448-5100

Table of Contents

Summary of Reasons For Granting the Writ

Reasons for Granting the Writ

I.

Il.

Conclusion

TABLE OF CONTENTS

The Scope of Speech and Conduct

Proscribed by the UCL Is Overbroad .. .

The UCL Is Unique in Comparison to

Analogous Laws of Other States in

That Anyone May Sue under it

Regardless of Whether That Person

Has Been Harmed or Misled by the

Challenged Conduct ..............

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TABLE OF AUTHORITIES

CASES

Allied Grape Growers v. Bronco Wine Co..,

203 Cal.App.3d 432 (1988) .............. 5

American Philatelic Soc. v. Claibourne,

ee -) ence kee ee ee ee es 5

Barquis v. Merchants Collection Assn..,

FG DO GFED occ ccccceces 10, 11, 14, 16

Burks v. Poppy Construction Co.,

Pe GPE cK ceneseeaseasecnes 6

Cel-Tech Communications, Inc. v. Los Angeles

Cellular Telephone Co..,

a a a ee ng 13

Committee on Children’s Television, Inc. v.

General Foods Corp., |

oe hk | | = rere 12, 14

Grand Ventures, Inc. v. Whaley,

Gee Pe es EESED cccccccccceceses 15

Green v. United States, 312 A.2d 788 (D.C. 1973) ... 16

Hall v. Walter, 969 P.2d 224 (Co. 1998) (en banc)... . 18

Himes v. Brown & Secs. Corp.,

518 So. 2d 937 (Fla. Dist. Ct. App. 1987)

SPEED sc ccivceccccvccosesneeees 18

Hewlett v. Squaw Valley Ski Corp..,

54 Cal.App.4th 499 (1997) .............. 13

Houston v. Hill, 482 U.S. 451 (1987) ............ 9

In re Sade, 13 Cal.4th 952 (1996) ............... 14

Mangini v. R. J. Reynolds Tobacco Co.,

7 Cal.4th 1057 (1994) .................. 14

May Dept. Stores Co. v. State,

863 P.2d 967 (Co. 1993) (enbanc) ......... 18

Midpeninsula Citizens for Fair Housing v.

Westwood Investors,

221 Cal.App.3d 1337 (1990) ............. 19

Morse v. Republican Party of Virginia,

BOGS. Ce. FEBS CISID nw cc ccc ccc cc cces 15

NAACP v. Claiborne Hardware Co.,

Ne eke ekenea 6

Olson v. Breeze, Inc., 48 Cal.App.4th 608 (1996) .... 13

New York Times Co. v. Sullivan, 376 U.S. 254 ...... 6

People v. McKale, 25 Cal.3d 626 (1979) ....... 11, 12

People v. E.W.A.P., 106 Cal.App.3d 315 (1980) .. 11, 12

People v. Sakai, 56 Cal.App.3d 531 (1976) ........ 14

Pickering v. Board of Education, 391 U.S. 563 (1968) . 5

Posadas de Puerto Rico Assocs. v. Tourism Co..,

ee as SD « wccececcescceceres 5

Saunders v. Superior Court,

27 Cal. App. 4th 832 (1994) ............. 13

Stockton v. Frisbie & Latta, 93 Cal.App. 277 (1928) .. 10

Stop Youth Addiction v. Lucky Stores, Inc.,

17 Cal4th 553 (1998) ........ 2, 14, 15, 16, 17

United States v. SCRAP, 412 U.S. 669 (1973) ....... 19

CONSTITUTIONAL PROVISIONS

ee ee ee are 3, 5,6

STATUTES

Alaska Stat. § 45.50.501(b) ................... 18

Cal. B&P Code § 17200 .................. passim

Se EEE ono cccceucceusennes 3, 16

Se, Gre GPR occ ccccccccsesccvese 9, 10

GGL aévsesseeeucesesesses 5

ee Ges Gs OU, HE wccccesaccenccesss 3

Se PEE sc ccacececesusesssess 12

OS Ee 12

iv

So Cee vc oceneeeeseeeeeeeeséen

Be. Gate Ba, SEGESS cc ccccccvcccesecses

OE. ©. GO cvcccnccccsscccscecss

Fla. Code Ann. §§ 817.41, 501.204 .............

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Ben Ge B FOG BEeD oc wc cece ce cseeseceeses

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Ohio Rev. Code Ann. § 1345.07(F) .............

OTHER AUTHORITY

McCall, Sturdevant, Kaplan & Hillebrand,

Greater Representation for California Consumers—

Fluid Recovery, Consumer Trust Funds, and

Representative Actions,

) Fee |) Pere

Monte Morin, Lawyers Who Sue to Settle,

LoS ANGELES TIMES, Oct. 26, 2002 ..............

INTEREST OF AMICUS CURIAE'

The Civil Justice Association of California (“CJAC”

or “amicus”) is a twenty-five year old non-profit organization

whose membership is made up of hundreds of businesses

professional associations and local governments. Our

principal purpose is to educate the public about ways to

improve the state’s civil liability laws in terms of fairness,

efficiency, economy and certainty. Toward these ends, CJAC

regularly petitions the government - the judiciary, the

legislature and, through the initiative process, the people

themselves - for redress of laws concerning who pays, how

much, and to whom when wrOngful conduct is charged.

California’s Unfair Competition Law (“UCL”) figures

prominently in CJAC’s efforts to restore some semblance of

fairness and sanity to the scope and application of liability

laws. It has become, for reasons we explain, a major source

of unfairness to those caught within its prohibitory sweep

against “business practices” deemed “unlawful, unfair or

fraudulent . . . [or] unfair, untrue or misleading advertising.”

(Cal. B & P Code § 17200.)

CJAC participated as amicus curiae in support of

petitioner Nike, Inc. in the California Supreme Court because

we feared that if appellant ultimately prevailed in his

argument there will be no realistic opportunity for those who

wish to publicly defend themselves against what they perceive

as unfair attacks on their business practices without paying

dearly for that defense. We argued that when, as here, it

comes to publicly uttered statements by a company in its own

defense against charges that its overseas subcontractors are

' This brief was written in whole by CJAC’s counsel, and not at all by

Nike, Inc. Further, CJAC made the only monetary contributions in the

preparation of this brief.

violating the laws of the countries in which they operate, the

constitutional guarantee to freedom of expression should

trump the ban of the UCL against false or misleading

advertising. We seek to participate here for the same reason,

and with the purpose of informing the Court about various

anomalies of the UCL in comparison with analogous laws of

other states that make this case suitable for a grant of

certiorari.

INTRODUCTION

The UCL is unlike any other unfair trade practice or

false advertising law - state or federal - in this country. It

bars anyone from engaging in “unlawful, unfair or

fraudulent” activity, or “unfair, untrue or misleading

advertising,” terms broad enough to sweep within their ambit

just about anything imaginable that gives offense to someone.

No one need actually suffer injury from, or be deceived by,

the conduct complained about in order to sue under the UCL.

A defendant stung by it, however, can take no solace from a

judgment rendered that the matter is concluded because there

is no finality to UCL litigation. It just keeps on keeping on.

A new and different plaintiff may, acting on behalf of the

general public, sue the same defendant for the exact same

complained of activity that was just resolved in an earlier

UCL suit. (Stop Youth Addiction v. Lucky Stores, Inc. (17

Cal4th 553, 583 (1998)).) While damages are not

recoverable, injunctive relief and restitution are; and a

defendant ordered to pay back money under the restitution

remedy can be forgiven for not fathoming how this differs

from being socked with a damage award. On top of all this,

a successful plaintiff can often obtain court-awarded

attorney’s fees for prosecuting the UCL claim as a self-

appointed representative of the amorphous “public,” an

extraordinary “bounty hunter” feature from another law that,

brigaded with the UCL, makes it almost self-executing. (Cal.

C. of Civ. Proc. § 1021.5.)

The UCL did not start out this way, overreaching laws

rarely do. It instead grew from a modest codification of the

‘common law of unfair competition into today’s virtual

omnibus law by the process of accretion combined with

occasional “leaps” of legislative and judicial gloss placed on

it. Understanding how that growth occurred makes clear

why, unless this Court acts now, the UCL will remain

uncabined and unconfined, an omnivorous statute that impairs

legitimate business activities, chills free expression and treads

on the public interest.

STATEMENT

. This case presents a constitutional issue of immense

importance—viz., are statements that a company makes in

press releases and news conferences defending itself against

charges that it subcontracts with foreign businesses who

engage in unfair or unlawful practices, subject to liability

under the UCL? notwithstanding the protections of the First

Amendment; and, if so, can the company be ordered to

undertake a court-approved public information campaign to

remedy its alleged “false advertising”? The trial and

intermediate state appellate court said “No,” but a bare

majority of the California Supreme Court disagreed.

By “false advertising” respondent Marc Kasky, a self-

appointed member of the public on whose behalf he brings

suit,’ refers entirely to statements made by “just do it”

* Cal. B & PC § 17200 et. seq.

* Cal. B & PC § 17204, which specifies who can bring UCL suits, “has

been interpreted by the . . . Court to authorize standing for any person or

organization to sue to enjoin an unfair practice, regardless of whether the

person or organization has suffered injury as a result of the practice.”

McCall, Sturdevant, Kaplan & Hillebrand, Greater Representation for

3

athletic shoe maker, Nike. These statements were made in

press releases, letters to the editor and the like, wherein Nike

defended itself against charges by its critics concerning the

wages, hours, and working conditions in its subcontracted

Asian footwear factories. The gravamen of the complaint is

that “Nike’s athletic shoes are made in [overseas]

sweatshops,” but there is no attempt in this UCL action to get

directly at those “sweatshops” in the countries where they

operate. Neither does respondent claim that the UCL

prohibits Nike from contracting with overseas companies who

are in violation of their own country’s laws on wages and

working conditions. He has not, so far at least, attempted to

“bootstrap” the violation of applicable foreign law by a Nike

subcontractor onto the “unlawful” or “unfair” prongs of the

UCL and thereby get at Nike in California, an approach

which, if successful, would convert California courts applying

the UCL into international ombudsmen, and jettison long

established principles of national sovereignty and international

law.

What respondent cannot accomplish directly by getting

at the conduct to which he objects, however, he has achieved

indirectly by getting at the “speech” given in defense or

denial of that conduct. This “indirection” is in terms of the

law used (the UCL rather than the laws of the foreign

countries where the subcontractors operate) and the target (not

the subcontractors themselves, but the domestic U.S.

company with whom they contract to make shoes, Nike). By

categorizing Nike’s statements in defense of its business

dealings with its overseas subcontractors as “commercial

speech,” respondent claims, and a majority of the state’s

highest court agrees, that expression is subject to regulation

California Consumers—Fluid Recovery, Consumer Trust Funds, and

Representative Actions (1995) 46 HAST. L.J. 797, 814-815 and authorities

therein cited. (Italics added.)

under the UCL, specifically the prohibition against

“fraudulent business practices.” This is an especially

draconian provision, as judicial gloss on it makes actionable

“speech” that does not involve advertising and even practices

that involve no untrue statements.* All a plaintiff need show

to prevail under this prong of the UCL is the likelihood of

public deception, not that any member of the public was

actually deceived.

Now, it has long been a cornerstone of First

Amendment jurisprudence that just because government can

abolish an activity does not mean that it can suppress

“speech” concerning that activity.” While creation of the

“commercial speech” category has resulted in occasional

backsliding from this principle,” respondent and California’s

high court have reduced it to a new nadir by standing it on its

head—i.e., while state law can do nothing directly about the

objected to conduct of foreign “sweatshops,” the UCL

prohibits any speech in defense of that alleged conduct which

is “misleading or false” by anyone who has business dealings

with the subcontractors. If this seems a bit of overstatement,

it is not. The UCL does not define what is a “business

practice,” but it is clear that it can be a single past act and is

likely as broad as the business practices that come within the

sweep of the Unruh Civil Rights Act, Cal. Civ. C. §51:

“{e]verything about which one can be employed,” and

See Allied Grape Growers v. Bronco Wine Co. (1988) 203 Cal.App.3d

432 and American Philatelic Soc. v. Claibourne (1935) 3 Cal.2d 689,

696-699.

> See, e.g., Pickering v. Board of Education (1968) 391 U.S. 563

(though school board may terminate from employment a non-tenured

teacher for no reason whatsoever, it cannot fire her for writing a letter to

the editor of which it disapproved.).

See, e.g., Posadas de Puerto Rico Assocs. v. Tourism Co. (1986) 478

U.S. 328, 345.

“synonymous with calling, occupation, or trade engaged in

for the purpose of making a livelihood or gain.””

Carried to the limits of its logic, respondent’s position,

sanctioned by the state supreme court, permits maintenance of

a UCL action against a newspaper that “falsely” or

“misleadingly” defends the labor practices of Nike’s Asian

subcontractors. After all, publication of the “false” or

“misleading” article, editorial or advertisement would be done

in the course of the newspaper’s business practice. It would

undoubtedly be in furtherance of a “commercial transaction,”

i.e., selling the newspaper to readers and the advertisement to

those who pay to run it. Curiously, a boycott of Nike goods

by appellant and those who wish to bring pressure on Nike to

improve its foreign subcontracting business is protected by the

First Amendment; but if respondent has his way, a rebuttal to

that boycott must be monitored by the court under the UCL

for its truthfulness. (NAACP v. Claiborne Hardware Co.

(1982) 458 U.S. 886 (economic boycott by civil rights

organization protected by First Amendment).)

Respondent and the narrowest majority possible of the

California Supreme Court would, in other words, have the

government instead of the public act as arbiter of what is

“true” and “false” in public debate over compliance by

foreign subcontractors with the laws of the countries where

they do business. This is not, to say the least, a role the

federal or state constitutions favor for government.

“(Authoritative] interpretations of the First Amendment

guarantees have consistently refused to recognize an exception

for any test of truth - whether administered by judges, juries,

or administrative officials - and especially one that puts the

burden of proving truth on the speaker.”*® Nonetheless,

’ Burks v. Poppy Construction Co. (1962) 57 Cal.2d 463, 468.

8 New York Times Co. v. Sullivan (1964) 376 U.S. 254, 270-271.

6

unless this Court reverses the decision below, those who do

business in California will be subject to government

regulation through liability laws for publicly defending their

business practices. It is an in terrorem means of regulation

because the UCL is unprecedented in the breadth of its scope,

its absence of any standing requirements and the lack of

finality in its application.

SUMMARY OF REASONS F

GRANTING THE WRIT -

The UCL was, like Mary Shelley’s Frankenstein,

created with good intentions that have now, as this case

shows, plainly gone awry. Its creators are two co-equal and

co-ordinate branches of state government - the legislature and

the courts. Each added a dimension or attribute to the UCL

during its growth over the past three decades, some seemingly

minor at the time and others of greater moment albeit, when

viewed in isolation, not especially worrisome. Now that the

UCL has, as this case again illustrates, morphed into a

malignancy in terms of its scope and application, neither

creator is realistically able to do the radical surgery necessary

to make it function fairly and efficiently. Each branch of

government points the finger of responsibility for the UCL’s

current incarnation to the other; and each claims that the other

branch, by acquiescing to whatever latest wrinkle its co-

ordinate last placed on the UCL, obviously approves of that

construction.

In the course of this “buck-passing” metamorphosis of

the UCL, vested interests have, not surprisingly, cropped up

to defend its most recent and expansive iteration. As the

UCL’s elastic reach has extrapolated, so have those who

benefit from that reach grown in size and influence sufficient

to thwart state legislative or judicial reform of the UCL, what

they describe as “turning back the clock” to the previous case

that expanded the UCL before the last one. Thus the

7

direction of the UCL’s movement has been consistent -

outward and expansionist, enveloping an ever greater array of

proscribed conduct, and upward, making it easier and more

attractive for more people to go after that conduct.

This peculiar historical development of the UCL yields

a statute different from that of all other states who have

analogous laws codifying common law prohibitions on unfair

competition, most modeled on the Federal Trade Commission

Act enacted at the turn of the 20" century. In these other

states, either the legislatures, the courts or both have imposed

limits on standing or who can assert the UCL, the scope of its

prohibited conduct and the relief available under it that are not

found in California’s unfair competition law. These

differences, while impacting most obviously and severely

upon those doing business in California, ironically also

effectively immunize cases brought in California state courts

from being brought in or removed to federal courts.

California’s UCL, then (as interpreted by its state courts)

effectively sets the standards for all the other states regarding

allowable business practices since no business is an island, but

a ship sailing in a stream of interstate commerce. Businesses

who want, then, to do what businesses do in California, will

conform their practices to what California, the state with the

most onerous unfair competition law, requires. Accordingly,

if the UCL is ever to become a fair law of reasonable scope

and sensible application, this case presents that rare and

essential opportunity.

REASONS FOR GRANTING THE WRIT

I. THE SCOPE OF SPEECH AND CONDUCT

PROSCRIBED BY THE UCL IS OVERBROAD.

It is difficult to imagine a statute more overly broad in

its sweep of protected as well as unprotected speech or

conduct than the UCL. Only by arbitrarily categorizing the

a ee

“speech” by Nike in this case as “commercial” and thus

entitled to lesser protection than “non-commercial” speech,

could the California Supreme Court majority shut its eyes to

the reality that this application of the UCL inhibits, at the

very least, a substantial amount of protected speech. (Houston

v. Hill (1987) 482 U.S. 451, 458.) Given the consistently

expansionist judicial gloss placed on the UCL over the past

quarter century, however, its resulting overbreadth was

predictable.

The precursor to today’s UCL was former Civil Code

section 3369, which originally read: “Neither specific nor

preventive relief can be granted to enforce a penal law, except

in a case of nuisance, nor to enforce a penalty or forfeiture in

any case.” In 1933, the Legislature created the modern UCL

by expanding section 3369's exception for nuisance cases to

include unfair competition cases. The 1933 amendment to the

Statute provided injunctive relief from unfair competition and

defined “unfair competition” to include “unfair or fraudulent

business practice” as well as false advertising.

In 1963, the Legislature further broadened section

3369 by adding in the disjunctive the word “unlawful” to the

types of wrongful business conduct that could be enjoined as

unfair competition. According to the author of this legislative

change, its purpose was “to clarify the statutory definition of

unfair competition. ”? The one page “Report on Assembly

* Letter of Assemblyman Philip L. Soto to Governor Edmund G. Brown

re: Assembly Bill 2929, dated July 10, 1963 and enclosing memorandum

of Charles A. James, Assistant Attorney General re: AB 2929. The two

page memorandum from Charles A. James, dated June 14, 1963 and

written on Department of Justice letterhead, states, in relevant part:

{T}he word “unlawful” is inserted in the definition to

clarify the statutory definition of “unfair competition”

to concur with judicial trends.

-

Bill 2929” from the Legislative Counsel dated July 1, 1963

merely states that the bill “[a]dds to the definition of the term

‘unfair competition’ for purposes of granting specific or

preventive relief, ‘unlawful’ as well as unfair or fraudulent

business practice and unfair, untrue or misleading

advertising.” Thus it appears from all available legislative

history that the purpose of this amendment was to provide an

injunctive remedy for the common law prohibition again::

“unfair competition” that was not necessarily “fraudulent,”

but did injure law abiding competitors (i.e., funeral homes

that obeyed zoning ordinances).

Despite this modest beginning, a series of judicial

interpretations have given a broader meaning to the 1963

amendment than it legislative history suggests was intended.

The first opinion to do this was Barquis v. Merchants

Collection Assn. (1972) 7 Cal.3d 94, a case that came before

The case of Stockton v. Frisbie & Latta (1928)

93 Cal.App. 277, enunciated the principle that an

unlawful act (here a violation of the zoning ordinance)

is a proper subject of injunction. Although the courts

have consistently held that the Attorney General has the

authority to enjoin unlawful acts [citations] it is clear

that the legislature intended the control of unfair

competition by the procedure set forth in section 3369.

It is not altogether clear that an individual acting in his

own interest can find the relief ostensibly afforded him

by the provisions of the section unless he shows the act

of unfair competition to be fraudulent... . Inasmuch

as the Legislature has seen fit to extent (sic) remedies to

all persons who wish to correct acts of unfair

competition, such acts should be clearly defined in the

statute so that individuals as well as the Attorney

General can be assured of prompt and effective remedy

against unlawful acts which may not fall within the

definition of fraudulent practices.

10

the state supreme court on a demurrer sustained to a UCL

complaint against a collection agency for filing small claims

court actions in improper counties to impair its adversaries’

ability to defend themselves. In a unanimous opinion, the

court acknowledged that as “originally enacted” in 1933 the

UCL defined “unfair competition” only in terms of “unfair or

fraudulent business practices”; and conceded that court

opinions had interpreted the “essence” of the UCL “as the

protection from any conduct likely to deceive the consumer.”

(/d. at 111.) Barquis stated that the 1963 amendment, about

which it felt the legislative history was “not particularly

instructive” (id. at 112) and which it did not discuss, intended

by the “sweeping language” of “unlawful, unfair or deceptive

business practice” to “permit tribunals to enjoin on-going

wrongful business conduct in whatever context such activity

might occur.” (Id. at 111.)

Barquis was followed by People v. McKale (1979) 25

Cal.3d 626, where a district attorney sued a mobile home park

under the UCL. The complaint alleged that the UCL had

been violated because the Mobilehome Parks Act and various

other sections of the Administrative Code made the particular

business procedures adopted by the mobile home park

unlawful. In opposition, the mobile home park argued that

the Commission on Housing and Community Development,

an administrative agency, was the only entity authorized to

enforce the Mobilehome Parks Act and the other related

sections of the Administrative Code; thus, precluding

prosecution by the district attorney. The Court disagreed and

held that the district attorney had authority to bring suit under

the UCL because “an unlawful business practice includes

anything that can properly be called a business practice and

that is at the same time forbidden by law.” (/d. at 632.)

Then came People v. E.W.A.P. (1980) 106

Cal.App.3d 315, which extended the reach of unlawful

11

business practices to include a violation of a penal statute.

The defendant in E. W.A.P. was a California corporation with

its principal place of business in Chatsworth. It was alleged

by the district attorney that defendant E.W.A.P. had been

engaged in commercially distributing and possessing for

commercial distribution “obscene” materials in violation of

Penal Code §311.2.'° The appellate court held that the

district attorney could maintain an action under the UCL for

violations of the Penal Code because the activity was

“unlawful.” (/d. at 318-319.) Furthermore, the court found

that defendant E.W.A.P.’s activities were “business

practices” because they were engaged in “commercial”

distribution or possession for “commercial” distribution of

obscene matter over a period of approximately a year. (/d.)

While McKale and E. W.A.P. were public enforcement

actions by district attorneys of, respectively , an administrative

regulation and a penal statute, they paved the way for yet

another expansion of the UCL: a private enforcement action

based upon a violation of state law. Committee on Children’s

Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197

involved a challenge by consumers to the marketing and

advertising of sugared breakfast cereals that the plaintiffs

contended were not really “cereals” but sugar products.

Besides the UCL, plaintiffs’ complaint referred to a cause of

action based upon the state’s Sherman Food, Drug and

Cosmetic Law, which provided that “[iJt is unlawful for any

person to disseminate any false advertising of any food, drug,

device, or cosmetic.” (Cal. H & S C § 26460.) The

defendant challenged plaintiffs’ right to bring a private

enforcement action under the Sherman Food, Drug and

as Apparently, the district attorney prosecuted E.W.A.P. civilly under

the UCL, as opposed to criminally under Penal Code §311.2, because of

the remedies offered by the UCL. Specifically, injunctive relief and

12

Cosmetic Act, which the court conceded did “not expressly

provide for private enforcement.” (/d. at 210.) Yet the court

said that the question “whether a private right of action should

be implied under this statute . . . is immaterial since any

unlawful business practice . . . may be redressed by a private

action charging unfair competition in violation of [the UCL].”

(Id. at 210-211.)

Not surprisingly, the disjunctive nature of the terms

“unfair” or “unlawful” in the UCL eventually led to the

judicial conclusion that a practice could be /awful, but still

proscribed because it was “unfair.” (Cel-Tech

Communications, Inc. v. Los Angeles Cellular Telephone Co.

(1999) 20 Cal.4th 163.) Thus there are two major

independent prongs to the UCL - “unfair” or “unlawful” - to

which a multitude of other laws can be “bootstrapped” and

become the predicate for UCL enforcement. Under the

“unlawful” prong it is now permissible for almost any other

law - “be it civil or criminal, federal, state, or municipal,

statutory regulatory, or court-made”'' - to secure a “toehold”

and be enforced through the remedies available under the

UCL. Even violation of a court order has been enforced by

the UCL’s injunctive remedy, permitting the plaintiff to

bypass contempt proceedings. (Hewlett v. Squaw Valley Ski

Corp. (1997) 54 Cal.App.4th 499, 533.)

The “unfairness” prong offers even more creative

possibilities. Thus far it has been interpreted to mean

“conduct that threatens an incipient violation of an antitrust

law, or violates the policy or spirit of one of those laws,” ”

and to also prohibit the insertion of “unconsionable”

provisions in contracts (Olson v. Breeze, Inc. (1996) 48

“" Saunders v. Superior Court (1994) 27 Cal. App. 4th 832, 838-839.

'2 Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone

Co., supra, 20 Cal.4th at 187.

13

Cal.App.4th 608.) But why not equate “unfair” with, or

“bootstrap” to that prong, the “due process” guarantee of the

Constitution, which is often itself viewed as synonymous with

“fundamental fairness”? (See Jn re Sade (1996) 13 Cal.4th

952, 966.) This way a lawyer cum social engineer can

incorporate and make applicable to private persons the Bill of

Rights without paying homage to the necessity of “state

action.” This is not far fetched, but a logical consequence of

the seemingly inexorable expansion of the UCL by the courts.

Over the years the variety of activities swept within

the UCL’s proscriptive prongs has grown to include the sale

of whale meat contrary to the Penal Code,'* the filing of

small claims court lawsuits by a collection agency in improper

counties,'* the use of the “Joe Camel” caricature in the

advertising of cigarettes because of its likely influence on

minors,’> the sale by convenience stores of cigarettes to

minors in violation of the Penal Code,'® and the marketing

and advertising of sugared cereals which, while labeled

“cereals,” were allegedly “sugar products or candies.” 7 Is

it any wonder that from this amorphous collection of ho!dings

a court would cobble together the instant case: a business

found facially liable under the UCL because it publicly

defends itself against what it feels are unfounded attacks on its

overseas operations? At this pace it will not take long, unless

this Court acts to tether the UCL to some “bright line”

parameters, before we see various provisions of the

Constitution enforced against private parties absent any “state

'* People v. Sakai (1976) 56 Cal.App.3d 531.

” Barquis v. Merchants Collection Assn., supra, 7 Cal.3d 94.

'S Mangini v. R. J. Reynolds Tobacco Co. (1994) 7 Cal.4th 1057.

'© Stop Youth Addiction v. Lucky Stores, Inc., supra. 17 Cal.4th 553.

'7 Committee on Children’s Television, Inc. v. General Foods

Corporation, supra, 35 Cal.3d 197.

14

action,” which is just another way of warning that Big

Brother, in the form of the UCL, is knocking on our doors.

Significantly, when the California Supreme Court was

recently presented with yet another opportunity to retreat from

the expansive gloss it had placed on the sweep of the UCL by

deciding that a private enforcement action should not be

permitted of a penal statute, it declined to do so, stating that

“had the Legislature at any time desired to change the UCL

SO as to restrict its application . . . [after judicial opinions

expanded it], it undeniably has had ample time to do so.”

(Stop Youth Addiction v. Lucky Stores, Inc., supra, 17 Cal4th

at 563.) The dissenting opinion remarked about this that

“[o]ne need only read the daily newspapers to see how much

easier it is to stall legislation than to enact it; how much

simpler to expand what exists than to contract it. Courts can

take advantage of this political infirmity by calling it

‘acquiescence.’” (/d. at 598, dissenting opn. of Brown, J.)

No other state has vested its unfair competition laws

with the stellar reach of California’s UCL. They have, in

fact, avoided California’s extrapolation to the stars when it

comes to defining the reach of their laws prohibiting unfair

competition. Delaware, for example, has codified the

common law of unfair competition for which it provides an

extensive list of proscribed practices, focusing on

unreasonable or unfair interference with the “horizontal”

relationships between various business interests. (See 6 Del.

C. §§ 2531-2536; Grand Ventures, Inc. v. Whaley (Del.

1993) 632 A.2d 63.) Illinois is similar. (815 ILCS 510/1 et.

seq.; 720 ILCS 295 et. seq.) The District of Columbia’s

*’ “Careful adherence to the ‘state action’ requirement preserves an area

of individual freedom by limiting the reach of . . . law and avoids the

imposition of responsibility on a state for conduct it could not control.”

(Morse v. Republican Party of Virginia (1996) 116 S. Ct. 1186, 1220.)

15

statute against false or deceptive advertising prohibits any

false advertisement that is made, in contrast to California's

strict liability approach, with the intent to sell goods, to

induce any person to purchase property, or to induce any

person to employ another’s services for a valuable

consideration. (D.C. Code Ann. § 22-1511; Green v. United

States (D.C. 1973) 312 A.2d 788, 789-90.) Indeed, a

comprehensive review of all the states with laws against unfair

competition and false advertising, reveal none as far reaching

as California’s UCL. When some facially appear to cover,

like the UCL, the gamut of all possible human activities,

brakes have been placed on them through restrictions on

standing or who may prosecute actions under them, something

the UCL totally lacks.

Il. THE UCL IS UNIQUE IN COMPARISON TO

ANALOGOUS LAWS OF OTHER STATES IN

THAT ANYONE MAY SUE UNDER IT

REGARDLESS OF WHETHER THAT PERSON

HAS BEEN HARMED OR MISLED BY THE

CHALLENGED CONDUCT.

When Barquis expanded the ambit of conduct that

came within the UCL’s proscription, it also relaxed any

“standing” requirements under it, effectively enlarging the

universe of those who could prosecute a UCL action to

anyone with a gripe. That opinion concluded that Business

and Professions Code section 17204 authorized prosecutions

by “the Attorney General [and other public attorneys] . . . or

by any person acting for the interests of itself, its members or

the general public.” (Barquis, supra, 7 Cal.3d at 109, italics

added.) It reached this conclusion, which it felt “clear,” from

the plain language of the statute. '9 ‘The dissent in Stop Youth

19" Section 17204 provides: “Actions for any relief pursuant to this

chapter shall be prosecuted exclusively in a court of competent

16

Addiction pointed out that this reading of the statutory

language runs “afoul of significant grammatical

impediments,” including making “the main clause superfluous

and fail{ing] to account for other language in the statute — ‘in

the name of the people of the State of California,’ ‘upon the

complaint of,’ and ‘exclusively.’” (Stop Youth Addiction v.

Lucky Stores, Inc., supra, 17 Cal.4th at 586-587, dissenting

opn. of Brown, J.) Taking account of those grammatical

considerations in parsing the meaning of the statute would

produce “a narrower reading” - “one that channels UCL

litigation through. government prosecutors who file actions in

the name of the people [and] . . . would explain why the

drafters failed to insert any qualification on standing. Indeed,

this ‘gatekeeper’ construction of the text is the only one

consistent with rudimentary notions of procedural fairness.”

(Id. at 587.)

Other states have confined their unfair competition and

unfair trade practice laws, or at least some of the remedies

available under those laws, to enforcement by public

prosecutors, or at least give public prosecutors the first

chance to consider whether to challenge the complained of

conduct. This furthers a more uniform and balanced

jurisdiction by the Attorney General or any district attorney or by any

county counsel authorized by agreement with the district attorney in

actions involving violation of a county ordinance, or any city attorney of

a city, or city and county, having a population in excess of 750,000, and,

with the consent of the district attorney, by a city prosecutor in any city

having a full-time city prosecutor or, with the consent of the district

attorney, by a city attorney in any city and county in the name of the

people of the State of California upon their own complaint or upon the

complaint of any board, officer, person, corporation or association or by

any person acting for the interests of itself, its members or the general

public.”

17

enforcement approach of the law because the prosecutorial

discretion of public lawyers, in contrast to the unfettered and

unchecked appetites of too many fee motivated private

counsel, are “curbed by established notions of ethical

responsibility” and “political accountability.” (/d. at 592.)

Thus numerous states require proof of individualized harm or

reliance for private enforcement actions under their unfair

competition or false advertising laws, but relax that

requirement when suit is brought by a public prosecutor.”

Some states, of course, restrict enforcement of their unfair

trade practices laws to public prosecutors.”! Still others limit

restitutionary relief under their laws to suits brought by the

Attorney General.”

Nonetheless, California’s high court holds in favor of

universal standing and emphasizes that “any unlawful

business practice . . . may be redressed by a private action”

under the UCL. (/d. at 561-563.) This effectively means the

UCL is completely disconnected from any notion, not only of

competitive harm, but any injury at all. Omission of the

requirement that a plaintiff show actual harm from the

conduct challenged invites litigation that is not genuine and

should not be filed. The requirement that a litigant show

™ See, e.g., Colo. Code § 6-1-113, Hall v. Walter, 969 P.2d 224, 235

(Co. 1998) (en banc), May Dept. Stores Co. v. State, 863 P.2d 967, 972-

73 (Co. 1993) (en banc); Fla. Code Ann. §§ 817.41, 501.204, Himes v.

Brown & Secs. Corp., 518 So. 2d 937, 938 n.1 (Fla. Dist. Ct. App.

1987) (per curiam). These features and others showing how the UCL

differs from analogous laws of other states are found in the chart attached

hereto as an Appendix.

2! Iowa Code § 714.16(7); Minn. Stat. §325F.67 ( “The duty of a strict

observance and enforcement of this law and prosecution for any violation

thereof is hereby expressly imposed upon the attorney general.”).

2 E.g, Alaska Stat. § 45.50.501(b); Ohio Rev. Code Ann. § 1345.07(F)

(Attorney General expressly authorized to seek restitution.).

18

actual, individualized injury “prevents the judicial process

from becoming no more than a vehicle for the vindication of

the value interests of concerned bystanders” ; “pleadings must

be something more than an ingenious academic exercise in the

conceivable.” (United States v. SCRAP (1973) 412 U.S. 669,

687, 688.)

The UCL not only omits any requirement of standing

to prosecute conduct under it, it goes further and effectively

strips away whatever standing requirements apply to the

predicate statutes that are bootstrapped to the UCL for

enforcement. Thus in Midpeninsula Citizens for Fair Housing

v. Westwood Investors (1990) 221 Cal.App.3d 1337 a citizens

group sued for housing discrimination under specific statutes

prohibiting discrimination and the UCL. When the plaintiff

organization could not demonstrate that any one member had

been refused housing at defendant’s apartments or even

wanted to live there, the appellate court held that they lacked

standing under the pertinent housing discrimination statutes,

but avoided that problem by attaching and enforcing them

through the UCL, which has no standing requirement. (/d. at

1393.)

The elimination of any requirement that a plaintiff

prosecuting under the UCL demonstrate tangible injury is

unique to California. The overwhelming majority of other

state laws on unfair competition and false ad’ertising require

actual injury, monetary damage, causation or something

specific besides the mere denunciation of defendant’s conduct,

somewhere, somehow, by someone, as “unlawful” or

“unfair.” These standing requirements, of course, serve to

distinguish a genuine lawsuit from a contrived or frivolous

one.~ They also allow, as Petitioner points out, for the

See Appendix herein of state laws analogous to the UCL showing why

respondent would be unable to prosecute his claim in each of those states.

19

removal of suits asserting these rights to federal court,

something that cannot be done when, as here, plaintiff

disavows any injury essential to make a claim cognizable in

federal court. Elimination of the “actual injury”

requirement under a law as expansive in its reach as the UCL

not only encourages social reformers without real clients to

misuse the courts and bypass the more representative and

political branches of government to get what they want, it

invites litigation primarily to collect attorney fees.~ This

does not further the public interest, but subverts it for the

benefit of a few.

CONCLUSION

For all the aforementioned reasons, as well as the

reasons articulated by petitioner, certiorari should be granted.

Respectfully submitted,

William L. Stern Fred J. Hiestand

Severson & Werson Counsel of Record

1 Embarcadero Center 1121 L Street, Suite 404

Suite 2600 Sacramento, CA 95814

San Francisco, CA 94111 (916) 448-5100

(415) 398-3344

Petition, p. 29.

>> A recent news article accurately described the inevitable consequence

of marrying the omnivorous UCL with ambitious lawyers desirous of

reaching out and touching someone with a lawsuit to obtain an attorney

fee. “They blanket the business world with hundreds of lawsuits at a

time, often making claims that appear fanciful, even absurd. Most of the

cases never get to trial. The lawyers make their money on settlements

paid by defendants who just want to make the suits go away. The

amounts typically are modest - from $2,000 to $50,000 - but they add

up.” (Monte Morin, Lawyers Who Sue to Settle, LOS ANGELES TIMES,

Oct. 26, 2002, Pt. 1, p. 1.)

20

APPENDIX A

Unfair Trade Practice Laws

and

False Advertising Laws

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