Amicus Curiae Brief — Nike, Inc. v. Kasky

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No. 02-575 FEB 28 ams

[| OPPICE OF THE CLERK

In the ae

Supreme Court of the Anited States

NikE, INC., ET AL.,

Petitioners,

Vv.

Marc Kasky,

Respondent.

On Writ OF CERTIORARI

To THe SupREME Court Or CALIFORNIA

AMICUS CURIAE BRIEF OF THE CIVIL

JUSTICE ASSOCIATION OF CALIFORNIA

IN SUPPORT OF PETITIONERS

Frep J. HiESTAND

Counsel of Record

1121 L Srreer

Surre 404

SACRAMENTO, CA 95814

(916) 448-5100

Counsel for Amicus Curiae

Br “KER GALLAGHER LEGAL PUBLISHING, INC.,

CINCINNATI, OHIO 800-890-5001

TABLE OF CONTENTS

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INTRODUCTION AND

SUMMARY OF ARGUMENT

"ots eee | | : ; . THE UCL VIOLATES DUE PROCESS

O15 aS are : BECAUSE IT FAILS TO PROVIDE

ADEQUATE NOTICE OF

PROHIBITED CONDUCT. ............ 11

THE UCL VIOLATES DUE PROCESS

BY CREATING AN IMPERMISSIBLE

RISK THAT DEFENDANTS WILL BE

SUBJECT TO REPETITIVE SUITS

FOR THE SAME CONDUCT. ......... 18

THE UCL IMPERMISSIBLY

DELEGATES GOVERNMENTAL

POWER TO PRIVATE PERSONS. ...... 21

IV. THE UCL IMPOSES IMPERMISSIBLE

EXTRATERRITORIAL

ice ry, s writ

CONCAATIIIN oc cccccccccsessnenneenne

APPENDIX

Appendix A

Unfair Trade Practice Laws and False

Advertising Laws

TABLE OF AUTHORITIES

Cases:

Ace v. Aetna Life Ins.,

40 F. Supp.2d 1125 (D. Alaska 1999) ....... 28

Alfred Dunhill, Ltd. v Interstate Cigar Co.,

499 F.2d 232 (2d Cir. 1974) ..... 2.0... cee. 6

Allied Grape Growers v. Bronco Wine Co.,

203 Cal. App.3d 432 (1998) .............5. 3

ASARCO v. Kadish, 490 U.S. 605 (1989) ......... 21

Barquis v. Merchants Collection Assn.,

7 Cal. 3d 94 (1972)... 0... cee eeeeeeeeuueee 3

Bigelow v. Virginia, 421 U.S. 809 (1975) .......... 29

BMW of North America, Inc. v. Gore,

517 U.S. 559 (1996) ........ 0.0 ee. 16, 27, 28

Bonaparte v. Tax Court, 104 U.S. 592{1881) ...... 29

Broderick v. Rosner, 294 U.S. 629 (1935) ......... 28

Bronco Wine Co. v. Frank A. Logoluso Farms,

214 Cal. App. 3d 699 (1989) ............. 21

Brown-Forman Distillers Corp. v. New York State

Liquor Auth.,

476 U.S. 583 (1986) ..........ceeeeeeee: 29

Burks v. Poppy Construction Co.,

WORM cin ceidccdicccces: 9-10

Burson v. Freeman, 504 U.S. 191 (1992) .........- 17

C&A Carbone, Inc. v. Town of Clarkstown,

SE MEE sis:cceeeacbcenaiiest 29

Carlson v. Coca-Cola Co.,

483 F.2d 279 (9th Cir. 1973) .......--+05-- 6

Caro v. Procter & Gamble Co.,

18 Cal. App. 4th 644 (1993) ...........-.. 21

Carter v. Carter Coal Co.,

298 U.S. 238 (1936) ... 2c ccccccccccccces 25

Cel-Tech Communications v. Los Angeles Cellular

Tel. Co.,

20 Cal.4th 163 (1999) .......eeeeeeeeeeee: 3

City of Chicago v. Morales,

ME ccciessenssitanadices 15

City of Mesquite v. Aladdin’s Castle, Inc.,

495 US. 203 (990B) 2... ccccccccccces 16

iv

Committee on Children’s Television v. General

Foods Corp.,

35 Cal.3d 197 (1983) ..............0. 12, 23

Commodity Futures Trading Comm'n v. Schor,

eee er 24

Consumers Union of the United States, Inc. v.

Fisher Development, Inc.,

208 CalApp.3d 1433 (1989) ........... 13-14

Continental Trend Resources, Inc. v. OXY USA Inc.,

101 F.3d 634 (10 Cir. 1996) ............. 28

Cortez v. Purolator Air Filtration Products Co.,

2 Catt 0D GED .....occcccccccccces 13

Dean Witter Reynolds, Inc. v. Superior Court,

211 Cal. App. 3d 758 (1989) ............. 21

Dunn v. HOVIC,

1 F.3d 1371, 1385-87 (3d Cir),

cert. denied, 510 U.S. 1031 (1993) .......... 20

Edgar v. MITE Corp., 457 U.S. 624 (1982) ........ 29

Edwards v. Armstrong World Industries, Inc.,

911 F.2d 1151 (Sth Cir. 1990) ............ 20

Eubank v. Richmond, 226 U.S. 137 (1912) ........ 25

Ex Parte Lange,

85 U.S. (18 Wall.) 163 (1874) ............. 18

Fuentes v. Shevin, 407 U.S. 67 (1972) ........++-- 25

Giaccio v. Pennsylvania,

382 U.S. 399 (1966) ........0eeeeeeee 14, 15

Gibson v. Berryhill, 411 U.S. 564 (1973) .......... 25

Grayned v. City of Rockford,

408 U.S. 104 (1972) .......0eeeeeeceeee: 15

Hall v. Walter, 969 P.2d 224 (Co. 1998) ........--. 5

Healy v. Beer Institute, 491 U.S. 324 (1989) ........ 29

Hewlett v. Squaw Valley Ski Corp.,

54 Cal.App.4th 499 (1997) ......-.-...0-. 13

Himes v. Brown & Secs. Corp.,

518 So. 2d 937

(Fla. Dist. Ct. App. 1987) ........--+.045- 5

Hoffman Estates v. Flipside, Hoffman Estates, Inc.,

455 U.S. 489 (1982) ..........0000ee- 15-16

Holloway v. Bristol-Meyers Corp.,

485 F.2d 986 (D.C. Cir. 1973) .........-.. 6

Honda Motor Co. v. Oberg,

512 U.S. 415 (1994) ....... 2. cece eee eee 7

Hughes Aircraft Co. v. United States ex rel. Schumer,

520 U.S. 939 (1997) ooo. eee cece eee ee eee. 22

Huntington v. Attrill, 146 U.S. 657 (1892) ........ 28

In re “Agent Orange” Product Liability Litigation,

100 F.R.D. 718 (E.D.N.Y. 1983),

mandamus denied, 725 F.2d 858 (2d Cir.),

cert. denied, 465 U.S. 1067 (1984) ......... 20

In re Federal Skywalk Cases,

680 F.2d 1175 (8 Cir. 1982) ............. 19

In re Northern Dist. of Cal. “Dalkon Shield” IUD

Prods. Liab. Litig.,

526 F. Supp. 887 (N.D. Cal. 1981),

vacated on other grounds,

693 F.2d 847 (9th Cir. 1982),

cert. denied, 459 U.S. 1171 (1983) .......... 19

In re School Asbestos Litig.,

789 F.2d 996 (3d Cir.),

cert. denied, 479 U.S. 852 (1986)........... 20

Jackson v. Johns-Manville Sales Corp.,

727 F.2d 506 (5th Cir. 1984) (Jackson J);

750 F.2d 1314 (5th Cir. 1985) (Jackson II);

781 F.2d 394 (Sth Cir. 1986) (Jackson II)... . 20

vil

Johansen v. Combustion Engineering, Inc.,

170 F.3d 1320 (11 Cir. 1999) ............ 28

Johnson v. Celotex Corp.,

899 F.2d 1281 (2d Cir.),

cert. denied, 498 U.S. 920 (1990)........... 20

Juzwin v. Amtorg Trading Corp.,

705 F. Supp. 1053 (D.N.J. 1989),

vacated on other grounds,

718 F. Supp. 1233 (D.N.J. 1989) .......... 19

Kraus v. Trinity Management Services, Inc.,

23 Cal. 4th 116 (2000) ............0.. 20-21

Lujan v. Defenders of Wildlife,

$04 US. $55 (1992) ...........ecececees 24

Luther v. Borden, 48 U.S. (7 How.) 1 (1849) ....... 26

May Dept. Stores Co. v. State,

863 P.2d 967 (Co. 1993) .....eeeeeeeeeeees 5

Maynard v. Cartwright, 486 U.S. 356 (1988) ....... 17

Midpeninsula Citizens for Fair Housing v.

Westwood Investors,

221 Cal.App.3d 1377 (1990) .........224-. 13

NAACP v. Claiborne Hardware Co.

458 U.S. 886 (1982) ...........eceeeeeee 10

Vill

New York v. United States, 505 U.S. 144 (1992) .... 26

New York Times Co. v. ‘Sullivan,

376 U.S. 254 (1964)... 0... eee e eee ees 11, 17

Pan American World Airways v. United States,

371 U.S. 296 (1963)... cece cece ecceeeeee 6

People v. McKale, 25 Cal. 3d 626 (1979) .......... 23

Pickering v. Board of Education,

391 U.S. 563 (1968)... 0. eee e cece ceeeeee. 9

Pike v. Bruce Church, 397 U.S. 137 (1970) ........ 27

Pope v. Illinois, 481 U.S. 497 (1987) .... .. 22.0. 17

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

478 U.S. 328 (1986)... 0. cece cece ceeeeee. 9

Racich v. Celotex Corp.,

887 F.2d 393 (2d Cir. 1989) .............. 20

Roginsky v. Richardson-Merrell, Inc.,

378 F.2d 832 (2d Cir. 1967) ........-.000. 19

Rubin v. Green, 4 Cal. 4th 1187 (1993)........... 23

Samura v. Kaiser Foundation Health Plan, Inc.,

17 Cal. App. 4th 1284 (1993),

review denied, 1993 Cal. LEXIS 6487

(Cal. Dec. 16, 1993), cert. denied,

511 US. 1084 (1994) ...... 0. ccc cee eee 23

Saunders v. Superior Court,

27 Cal. App. 4th 832 (1994) ..........005- 12

Sealover v. Carey Canada,

793 F. Supp. 569 (M.D.Pa. 1992) .......... 20

Simpson v. Pittsburgh Corning Corp.,

901 F.2d 277 (2d Cir. 1990) ........000 eee 20

Smith v. State Farm Mutual Automobile Ins. Co.,

93 Cal. App. 4th 700 (2001) ............6: 23

Southern Pac. Co. v. Arizona ex rel. Sullivan,

325 U.S. 761 (1945)... cece cece eee e es 29

State Farm Mut. Automobile Ins. Co. v. Campbell,

No. 01-1289 (U.S. S. Ct., pending) ..... 18, 28

State of California ex rel. Van de Kamp v. Texaco, Inc.,

46 Cal. 3d 1147 (1988) ........... sce eee. 13

Stop Youth Addiction v. Lucky Stores,

17 Cal. 4th 553 (1998) .........00eee. 13, 22

United Farm Workers of America, AFL-CIO v.

Dutra Farms, |

83 Cal. App.4th 1146 (2000) ............. 13

Wang v. Massey Chevrolet,

97 Cal. App. 4th 856 (2002) .............. 23

White v. Ford Motor Co.,

2002 WL 31687641 (9"" Cir. Dec. 3, 2002)... 27

Yu v. Signet Bank/Virginia,

69 Cal. App. 4th 1377 (1999) ...........0. 26

Constitution, Codes and Statutes:

U.S. Constitution, Article] ... 2... ccccccccccs 27

U.S. Constitution, Article IV, §4 ............... 25

U.S. Constitution, First Amendment ....... passim

U.S. Constitution, Fourteenth Amendment .. passim

Pes OED Saevdnseceswaseccecencusees 6

Alaska Stat. § 45.50.501(b) .. 02... 2. eee eee ee eee 5

Cal. B & P Code § 17200 .............005: passim

Cal. B & P.C§ 17204... . cece cee ccc eeccueee 5,7

xl

Cal. Code of Civil Procedure section 1021.5 ....... 5

Colo. Code § 6-1-1132... .ccccccccccecceces 4-5

Fla. Code Ann. §§ 817.41, 501.204 ............4.. 5

Iowa Code § 714.16(7) ...... cece cece cece ee eees 5

Minn. Stat. §325F.67) ....... 0c cece cece eee eens 5

Ohio Rev. Code Ann. § 1345.07(F) ..........+.-- 5

Unruh Civil Rights Act, Cal. Civ. C. $51 .......-. 9

Other Authorities:

American Law Institute, REPORTERS’

STUDY: ENTERPRISE RESPONSIBILITY FOR

PERSONAL INJURY 260-64 (1991); John C.

Jeffries, Jr., A Comment on the

Constitutionality of Punitive Damages, 72

U. VA. L. REV. 139 (1986) ......---- eee 20

Anthony G. Amsterdam, Note, |

The Void-for-Vagueness Doctrine in the

Supreme Court, 109 U. PA. L. REV. 67

Se hacks ci cnuiaaialainain 14

Hans A. Linde, When Initiative Lawmaking

ts Not “Republican Government”: The

Campaign Against Homosexuality, 72 Or.

a Re 26

Margaret M. Cordray, The Limits of State

Sovereignty and the Issue of Multiple

Punitive Damages Awards, 78 OR. L.

REV. 275 (1999) . 00... ccc eeeeeeeceeeees 28

McCall, Sturdevant, Kaplan & Hillebrand,

Greater Representation for California

Consumers—Fluid Recovery, Consumer

Trust Funds, and Representative Actions

(1995) 46 HAST. L.J. 797

Monte Morin, Lawyers Who Sue to Settle,

LOS ANGELES TIMES, Oct. 26, 2002, Pt. 1,

Robert Fellmeth, Unfair Competition Act

Enforcement by Agencies, Prosecutors, and

Private Litigants: Who’s on First?, 15 CAL.

REGULATORY L. RPTR.,1 (1995)

Thomas M. Cooley, CONSTITUTIONAL

LIMITATIONS (1868)

Unfair Competition Litigation,

26 CAL. L. REVISION COMM’N REPORTS

191 (1996)

INTEREST OF AMICUS’

The Civil Justice Association of California

(“CJAC”) is a twenty-five-year-old nonprofit

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 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”)

has figured prominently in CJAC’s efforts to restore

some semblance of fairness and sanity to the scope and

application of liability laws. Amended 60 years ago to

codify the common law tort of “unfair competition,” it

has - largely from an expansive reading of its capacious

language by courts - become a major source of

unfairness to those ensnared by its ban on “business

practices” deemed “unlawful, unfair or fraudulent . . .

' All monetary contributions toward the preparation

of this brief were made by CJAC; and the brief was written

by CJAC’s counsel and not at all by Nike, Inc. The brief is

submitted pursuant to Rule 37 of the Rules of this Court,

both petitioner and respondent having consented to its filing

by letters filed with Clerk of the Court.

1

[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

and in urging this Court to grant certiorari from the

decision because it impermissibly chills the rights of

those who wish to publicly defend themselves against

unfair attacks on their business practices. We argued

that when, as here, it comes to publicly uttered

statements by a company defending itself against charges

that its overseas subcontractors are violating the laws of

the countries in which they operate, the constitutional

guarantee to freedom of expression trumps the ban of

the UCL against false or misleading advertising. We

now explain why prosecution under the UCL violates

due process and other constitutional guarantees.

INTRODUCTION AND SUMMARY OF

ARGUMENT

California’s UCL impairs a number of due

process and other constitutional rights beyond the First

Amendment claim on which this Court granted review.

These rights include the absence of adequate notice to

those charged with violating it, repetitive punishment of

defendants for the same acts, impermissible delegation of

2 All code section references are, unless otherwise

described, from the California Business and Professions Code.

2

governmental power to private parties, and

extraterritorial reach of state regulation.

The UCL engenders these questions because, as

applied and construed, it is an open-ended license to file

abusive litigation. To those harboring social reform or

entrepreneurial instincts, the siren call of the UCL is its

broad definition of “unfair competition,” a wrong

described in the statute as any “unlawful, unfair or

fraudulent business practice and unfair, deceptive, untrue

or misleading advertising ... .” (§ 17200.) The

California Supreme Court has explained the Legislature

intended this “sweeping language” to ban “anything that

can properly be called a business practice and that at the

same time is forbidden by law.” (Barquis v. Merchants

Collection Assn., 7 Cal. 3d 94, 111 (1972) (citation

omitted).) Later the court diffused this definition

further by dropping the requirement of “illegality” and

explaining that the UCL prohibits conduct that, though

perfectly legal, may still be “unfair.”

Equally disturbing is the lack of finality to UCL

litigation. A new and different plaintiff, purportedly

acting on behalf of the same “general public,” may sue

the sam defendant for the same activity resolved in a

> Cel-Tech Communications v. Los Angeles Cellular Tel.

Co., 20 Cal.4th 163 (1999). See also Allied Grape Growers v.

Bronco Wine Co., 203 Cal. App.3d 432, 448 (1998) (test under

Section 17200 is that “practice merely be unfair”; actual fraud

need not be shown).

previous UCL suit. Case after case can be brought

under the UCL for the same conduct against the same

defendant. According to a study by the state’s Law

Revision Commission, this makes the California law

unique. “No statute of which we are aware in this state

or nation confers the kind of unbridled standing to so

many without defirition, standards, notice

requirements, or indepen’ cat review . . . . [I]t is unclear

who can sue for whom, what they have to do, whether

it is final, and as to whom.” (Robert Fellmeth, Unfair

Competition Act Enforcement by Agencies, Prosecutors,

and Private Litigants: Who’s on First?, 15 CAL.

REGULATORY L. RPTR., 1, 11 (1995).)

A major incentive for the UCL’s assertion by

potential plaintiffs is its dispensation from any

requirement of “standing.” No one, in fact, need suffer

any concrete harm from, or be deceived by, the

complained of conduct in order to sue under the UCL.

A gripe against someone for something is, as this case

shows, sufficient to bring a UCL suit and survive a

challenge to standing. If successful - and “success” in a

* As the appendix to this brief demonstrates, the claim

asserted by the plaintiff in this case could not be brought

under the analogous laws of any other state. Other 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. See, e.g., Colo. Code § 6-1-

(continued...)

UCL action may well be a settlement by defendant to

avoid the cost of protracted litigation - a plaintiff may

also recover a court-awarded attorney’s fee for having

vindicated the “public interest,”° a requirement partially

satisfied by merely claiming that the suit was brought

“for the interests of . . . the general public.” (§ 17204.)

The UCL does not provide “any mechanism to

distinguish among” plaintiffs with genuine business

disputes, “‘true’ private attorney{s] general,” and those

who use the law as a means of leveraging settlements for

“tactical advantage” at the expense of the public interest.

(Unfair Competition Litigation, 26 CAL. L. REVISION

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). Some states restrict enforcement of their

unfair trade practices laws to public prosecutors (lowa Code

§ 714.16(7); Minn. Stat. §325F.67), while others limit

eee

the Attorney General. E.g, Alaska Stat. § 45.50.501(b); Ohio

Rev. Code Ann. § 1345.07(F).

* If a plaintiff prevails in an unfair competition law

claim, it may seek attorney fees as a private attorney general

pursuant to Cal. Code of Civil Procedure section 1021.5.

There is no provision for such a right for a successful

defendant.

COMM’N REPORTS 191, 207 (1996).) “This invites

‘blackmail’ suits.” (/d. at 208; citation omitted.)®

The UCL is also completely different from federal

statutes such as the Federal Trade Commission Act,’

upon which most state unfair competition and false

advertising laws are modeled. The FTC Act provides no

private remedy. (See Pan American World Airways v.

United States, 371 U.S. 296, 306 (1963); Alfred Dunbill,

Ltd. v Interstate Cigar Co., 499 F.2d 232, 237 (2d Cir.

1974); Holloway v. Bristol-Meyers Corp., 485 F.2d 986,

988-92 (D.C. Cir. 1973); Carlson v. Coca-Cola Co., 483

F.2d 279, 280 (9th Cir. 1973).) Instead, the FTC Act

authorizes suits by the Commission for injunctions and

restraining orders, 15 U.S.C. § 53, and suits by the

Commission for dishonest or fraudulent acts. (Jd. at §

57b.)

* 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 is aptly described by a front page newspaper

article. “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.)

715 U.S.C. §§ 41-58.

The unprecedented nature of the UCL in these

respects makes its constitutionality suspect. (See, e.g.,

Honda Motor Co. v. Oberg, 512 U.S. 415, 427, 430 (1994)

(holding Oregon procedure invalid under Due Process

Clause where “[e]very other State in the Union” has

adopted different procedure and “Oregon’s abrogation

of a well-established common-law protection against

arbitrary deprivations of property raises a presumption

that its procedures violate the Due Process Clause”).)

STATEMENT OF THE CASE

Respondent Marc Kasky, a_ self-appointed

representative of the public on whose behalf he brings

suit,’ claims that utterances by “just do it” athletic shoe

maker Nike are “fraudulent” under the UCL. These

statements were made by Nike in press releases and

letters to the editor when it sought to defend itself

against charges by its critics concerning the wages,

hours, and working conditions in its subcontracted

Asian shoe factories.

* 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 California Consumers—Fluid Recovery,

Consumer Trust Funds, and Representative Actions (1995) 46

HAST. L.J. 797, 814-815 and authorities therein cited. (Italics

added.)

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 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 so far achieved indirectly by getting at the “speech”

given in defense of that conduct. This “indirection” is

achieved by use of the “fraudulent” prong of the UCL

against Nike because it contracts with foreign companies

allegedly violating their own countries’ labor laws. 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 in the form of UCL liability.

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 stood it on

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

about the objected to conduct of foreign “sweatshops,”

the UCL imposes liability on any speech in defense of

these charges which is “misleading or false.”

If this seems a bit of an overstatement, it is not.

The UCL does not define what is a “business practice,”

but it is clear 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

“synonymous with calling, occupation, or trade engaged

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

” See, e.g., Pickering v. Board of Education, 391 U.S.

563 (1968) (though school board may terminate from

emp t anon-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. Teuriem

Co., 478 US. 328, 345 (1986).

" Burks v. Poppy Construction Co., 57 Cal.2d 463, 468

(continued...)

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

“misleadingly” defends the labor practices of Nike’s

Asian subcontractors. After all, publication of the

“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. Ironically, a boycott of Nike goods by respondent

and those who wish to bring pressure on Nike to

improve its foreign subcontracting business is protected

by the First Amendment” but, according to California’s

high court, a rebuttal to that boycott must be judicially

monitored under the UCL for its truthfulness.

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 a role

the constitution favors for government. “[Authoritative]

"(.. continued)

(1962).

12 NAACP v. Claiborne Hardware Co., 458 U.S. 886

(1982) (economic boycott by civil rights organization

protected by First Amendment).

10

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.”

Unless this Court reverses the decision below,

those who do business in California will be subject to

government regulation through this strict liability law

for publicly defending their business practices. This is

an in terrorem means of regulation because the UCL is

unprecedented in terms of the breadth of its scope, its

absence of any standing requirements and the lack of

finality in its application. Accordingly, the UCL raises

grave constitutional questions, even apart from the First

Amendment.

ARGUMENT

I. THE UCL VIOLATES DUE PROCESS

BECAUSE IT FAILS TO PROVIDE

ADEQUATE NOTICE OF PROHIBITED

CONDUCT.

The UCL authorizes potentially massive civil

liability even when a defendant’s conduct is not contrary

to existing state statutes or judicial decisions, and even

when the defendant has no notice of his potential

liability.

' New York Times Co. v. Sullivan, 376 U.S. 254, 270-

271 (1964).

11

The elements of a violation under the UCL are

amorphous and elastic. “Unfair” simply means any

practice “whose harm to the victim outweighs its

benefits.” (Saunders v. Superior Court, 27 Cal. App. 4th

832, 839 (1994).) Whatever that may mean as an

intelligible guide to one’s future conduct, conformity to

law does not satisfy it. An unfair practice may be

deemed actionable even if it is not unlawful. This

“weighing” of benefits and harms is a squishy calculus,

utterly devoid of any “bright line” standard for

determining what is allowed and what is forbidden.

Indeed, this “unfair” test raises more questions than it

provides answers, a principal one being, “Who counts as

a ‘victim’ and how is ‘harm’ to be ‘weighed’ when no

‘harm’ or ‘actual injury’ is required to bring suit under

the UCL?”

“Fraudulent,” the prong in the UCL upon which

respondent rests his case, does not, we have seen, “refer

to the common law tort of fraud, but only requires a

showing that members of the public are likely to be

deceived.” (Saunders, supra., 27 Cal. App. 4° at 839;

citation omitted.) Thus neither the plaintiff nor any real

person need actually be deceived or rely upon the

challenged statements. In fact, as with the prohibition

against misleading advertising under the UCL, the ban

on engaging in a “fraudulent business practice” extends

to misleading representations that are quite literally true.

(Committee on Children’s Television v. General Foods

Corp., 35 Cal.3d 197, 211 (1983).) In 1992, the

12

Legislature overruled precedent limiting the statute’s

application to cases of multiple transactions."* Thus,

even a single episode of past conduct that is “likely to

deceive” if repeated may give rise to liability."

“Unlawful” under the UCL means conduct or, in

this case, “speech” in violation of any law - whether

federal, state or local - including statutes, regulations,

ordinances and even court rules. (See Hewlett v. Squaw

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

Should any law from this seemingly bottomless

compendium expire for going beyond its own

limitations period, the UCL can, by giving it a “toehold”

to its unlawful prong, revive and extend it up to four

years. (Cortez v. Purolator Air Filtration Products Co., 23

Cal.4th 163, 178-179 (2000).) Never fear that the

plaintiff lacks standing under the “predicate” law to sue

the defendant, because by “bootstrapping” the predicate

statute to the UCL’s “unlawful” prong a plaintiff can

strip away that otherwise troubling “standing” barrier.

(Midpeninsula Citizens for Fair Housing v. Westwood

Investors, 221 Cal.App.3d 1377, 1393 (1990); Consumers

* See State of California ex rel. Van de Kamp v. Texaco,

Inc, 46 Cal. 3d 1147, 1169-117 (1988) (“ ‘practice’

requirement envisions something more than a single

transaction”).

'® See Stop Youth Addiction v. Lucky Stores, 17 Cal. 4th

553, 570 (1998); United Farm Workers of America, AFL-CIO

v. Dutra Farms, 83 Cal. App.4th 1146, 1163 (2000).

13

Union of the United States, Inc. v. Fisher Development,

Inc., 208 CalApp.3d 1433, 1443-1444 (1989.)

This case illustrates the abusive nature of the

UCL. There is no way Nike could, from reading the

UCL, have reasonably known that defending itself

publicly and denying charges it contracted with overseas

sweat shops would make it strictly liable to anyone who

disagreed with those statements. Any person can, like

Nike, find itself subject to crushing liability under the

UCL with no prior notice that its conduct was unlawful.

This prospect offends the basic due process principle

that a defendant must be afforded fair notice of what is

prohibited. “It is scarcely consistent with ordered

liberty that the amenability of an individual to

punishment should be judged solely upon the sum total

of badness or detriment to the legitimate interests of the

state which can be found, or inferred, from a backward

looking appraisal of his trial record.”"®

This Court has held that “a law fails to meet the

requirements of the Due Process Clause if it is so vague

and standardless that it leaves the public uncertain as to

the conduct it prohibits . . . .” (Giaccio v. Pennsylvania,

382 U.S. 399, 402-03 (1966).)

‘© Anthony G. Amsterdam, Note, The Void-for-

Vagueness Doctrine in the Supreme Court, 109 U. PA. L. REV.

67, 81 (1960).

14

It is a basic principle of due process that an

enactment is void for vagueness if its

prohibitions are not clearly defined. Vague

laws offend several important values. First,

because we assume that man is free to steer

between lawful and unlawful conduct, we

insist that laws give the person of ordinary

intelligence a reasonable opportunity to know

what is prohibited, so that he may act

accordingly. Vague laws may trap the

innocent by not providing fair warning.

Second, if arbitrary and discriminatory

enforcement is to be prevented, laws must

provide explicit standards for those who apply

them. A vague law impermissibly delegates

basic policy matters to policemen, judges, and

juries for resolution on an ad hoc and

subjective basis, with the attendant dangers of

arbitrary and discriminatory application.

(Grayned v. City of Rockford, 408 U.S. 104, 108 (1972);

see also City of Chicago v. Morales, 527 U.S. 41, 58 (1999)

(plurality) (invalidating municipal anti-loitering

ordinance because “the purpose of the fair notice

requirement is to enable the ordinary citizen to conform

his or her conduct to the law”).)

The vagueness doctrine is not limited to criminal

penalties.” In Giaccio v. Pennsylvania, 382 U.S. 399, 402

” See Hoffman Estates v. Flipside, Hoffman Estates, Inc.,

(continued...)

15

(1966), this Court expressly repudiated any distinction

between civil and criminal measures for purposes of the

vagueness doctrine.* In the punitive damages context,

for example, this Court has held that “[eJlementary

notions of fairness enshrined in our constitutional

jurisprudence dictate that a person receive fair notice not

only of the conduct that will subject him to punishment,

but also of the severity of the penalty that a State may

impose.” (BMW of North America, Inc. v. Gore, 517 U.S.

559, 574 (1996).)

The vice of a vague law is particularly pernicious

when, as here, the conduct upon which it seeks to

impose liability is intertwined with expression that is

constitutionally protected. “[E]rroneous statement is

(...continued)

455 U.S. 489, 498-99 (1982); City of Mesquite v. Aladdin’s

Castle, Inc., 455 U.S. 283, 290 (1982) (“[T]Jhe definition of

‘connections with criminal elements’ in the city’s ordinance

is so vague that a defendant could not be convicted of the

offense of having such a connection; we may even assume,

- without deciding, that such a standard is also too vague to

support the denial of an application for a license to operate an

amusement center.”).

18 See 382 U.S. at 402 (“Both liberty and property are

specifically protected by the Fourteenth Amendment against

any state deprivation which does not meet the standards of

due process, and this protection is not to be avoided by the

simple label a State chooses to fasten upon its conduct or its

statute. So here this state Act whether labeled ‘penal’ or not

must meet the challenge that it is unconstitutionally vague.”).

16

inevitable in free debate,” [and error, too,] “must be

protected if the freedoms of expression are to have the

‘breathing space’ that they ‘need to survive.’ ” (New

York Times v. Sullivan, supra, 376 U.S. at 272-273.)

Courts apply strict scrutiny to vague laws that impinge

on free expression. (Burson v. Freeman, 504 U.S. 191,

198 (1992).) “Objections to vagueness under the Due

Process Clause rest on the lack of notice . . . Vagueness

challenges to statutes not threatening First Amendment

interests are examined in light of the facts of the case at

hand ....” (Maynard v. Cartwright, 486 U.S. 356, 361

(1988).) “We have been especially intolerant of vague

statutes in the First Amendment area.” (Pope v. Illinois,

481 U.S. 497, 515, fn. 8 (1987)(dissenting opinion by

Justice Stevens).)

The UCL violates this bedrock principle of due

process. It fails to provide constitutionally adequate

notice of prohibited conduct or to provide proper

standards confining the discretion of enforcing courts.

17

Il. THE UCL VIOLATES DUE PROCESS BY

CREATING AN IMPERMISSIBLE RISK

THAT DEFENDANTS WILL BE SUBJECT

TO REPETITIVE SUITS FOR THE SAME

CONDUCT.

The UCL creates an impermissible potential for

multiple, repetitive suits by interlopers seeking to sue on

the behalf of victims of perceived illegality. “The

potential for a multiplicity of actions under the unfair

competition law and overlapping or parallel proceedings

is troublesome. Some commentators have termed this

prospect the ‘two-front’ war. This situation can result

because there is no limitation on multiple plaintiffs

seeking relief for the same injury to the general public.”

(Unfair Competition Litigation, 26 CAL. L. REVISION

Comm’N REPORTS at 209 (footnote omitted).)

Allowing multiple plaintiffs repetitively to punish

a defendant’s unitary course of conduct fundamentally

conflicts with what this Court long ago called “the

maxim” in civil cases “that no man shall be twice vexed

for one and the same cause. Nemo debet bis vexari pro

una et eadem causa.” (Ex Parte Lange, 85 U.S. (18 Wall.)

163, 168-69 (1874).)”

' This issue is related to the question of multiple

punishment presented in State Farm Mut. Automobile Ins. Co.

v. Campbell, No. 01-1289 (U.S. S. Ct., pending).

18

Although the Double Jeopardy Clause is limited

to criminal penalties, numerous courts have indicated

that repetitive civil judgments for the same misconduct

violates due process. Judge Henry Friendly is one of the

most prominent jurists who holds this viewpoint. (See

Roginsky v. Richardson-Merrell, Inc., 378 F.2d 832, 839-40

(2d Cir. 1967) (Friendly, J.).) In Juzwin v. Amtorg

Trading Corp., 705 F. Supp. 1053 (D.N.J. 1989), vacated

on other grounds, 718 F. Supp. 1233 (D.N_J. 1989), for

example, the court concluded that “due process places a

limit on the number of times and extent to which a

defendant may be subjected to punishment for a single

course of conduct. Regardless of whether a sanction is

labelled ‘civil’ or ‘criminal’ in nature, it cannot be

tolerated under the requirements of due process if it

amounts to unrestricted punishment.” (/d. at 1064.)

“Common sense dictates that a defendant should not be

subjected to multiple civil punishment for a single act or

unified course of conduct which causes injury to

multiple plaintiffs.” In re Northern Dist. of Cal. “Dalkon

Shield” IUD Prods. Liab. Litig., 526 F. Supp. 887, 900

(N.D. Cal. 1981), vacated on other grounds, 693 F.2d 847

(th Cir. 1982), cert. denied, 459 U.S. 1171 (1983).

soe *° See In re Federal Skywalk Cases, 680 F.2d 1175, 1188

(8 Cir. 1982) (Heaney, J. dissenting) (“Unlimited multiple

punishment for the same act determined in a succession of

individual lawsuits and bearing no relation to the defendants’

culpability or the actual injuries suffered by victims, would

(continued...)

19

The UCL creates an impermissible risk of

repetitive punishment because there is no finality to that

litigation. A suit by one plaintiff does not prevent

another self-appointed “private attorney general” from

suing the same defendant on precisely the same theory.

UCL suits are not class actions.” California courts have

°(...continued)

violate the sense of ‘fundamental fairness’ that is essential to

constitutional due process.”); Jn re “Agent Orange” Product

Liability Litigation, 100 F.R.D. 718, 728 (E.D.N.Y. 1983)

(Weinstein, J.), mandamus denied, 725 F.2d 858 (2d Cir.), cert.

denied, 465 U.S. 1067 (1984) (“There must, therefore, be

some limit, either as a matter of policy or as a matter of due

process, to the amount of times defendants may be punished

for a single transaction.”); see also Dunn v. HOVIC, 1 F.3d

1371, 1385-87 (3d Cir.), cert. denied, 510 U.S. 1031 (1993);

Edwards v. Armstrong World Industries, Inc., 911 F.2d 1151,

1155 (Sth Cir. 1990); Simpson v. Pittsburgh Corning Corp., 901

F.2d 277 (2d Cir. 1990); Johnson v. Celotex Corp., 899 F.2d

1281 (2d Cir.), cert. denied, 498 U.S. 920 (1990); Racich «.

Celotex Corp., 887 F.2d 393 (2d Cir. 1989); In re School

Asbestos Litig., 789 F.2d 996 (3d Cir.), cert. denied, 479 U.S.

852 (1986); Jackson v. Johns-Manville Sales Corp., 727 F.2d 506

(5th Cir. 1984) (Jackson I); 750 F.2d 1314 (5th Cir. 1985)

(Jackson I1);781 F.2d 394 (5th Cir. 1986) (Jackson III); Sealover

v. Carey Canada, 793 F. Supp. 569, 582 (M.D.Pa. 1992);

American Law Institute, REPORTERS’ STUDY: ENTERPRISE

RESPONSIBILITY FOR PERSONAL INJURY 260-64 (1991); John

C. Jeffries, Jr., A Comment on the Constitutionality of Punitive

Damages, 72 U. VA. L. REV. 139 (1986).

21 See Kraus v. Trinity Management Services, Inc., 23

(continued...)

20

held that nonparties cannot be bound to prior judgments

involving UCL claims by different plantiffs. (See Bronco

Wine Co. v. Frank A. Logoluso Farms, 214 Cal. App. 3d

699, 717 (1989).) Accordingly, the UCL violates the due

process right of defendants to be free from multiple,

repetitive punishment for the same course of conduct.

Ill. THE UCL IMPERMISSIBLY DELEGATES

GOVERNMENTAL POWER TO PRIVATE

PERSONS.

Ordinarily, states are free to create their own

standing rules. (See ASARCO v. Kadish, 490 U.S. 605,

617 (1989).) The UCL, however, does something quite

different when it obliterates any semblance of a standing

requirement - it turns over the machinery of state

government to politically unaccountable private

plaintiffs acting as bounty hunters. The plaintiff in this

*1(_. continued)

Cal. 4th 116 (2000); Dean Witter Reynolds, Inc. v. Superior

Court, 211 Cal. App. 3d 758, 773 (1989) (“The court in such

a suit is empowered to grant equitable relief, including

restitution in favor of absent persons, without certifying a

class action,” even though “[a]bsent persons generally are not

bound by a judgment unless they were in privity with a party

and the adjudication of their rights comports with due

process.”); Caro v. Procter & Gamble Co., 18 Cal. App. 4th

644, 661 (1993) (“In a suit arising under Business and

Professions Code section 17200 et seq., the court ‘is

empowered to grant equitable relief, including restitution in

favor of absent persons, without certifying a class action.’ ”

(citation omitted)).

21

case, who is acting essentially as a professional litigant,

demonstrates the danger created by the UCL.

“(PJursuant to section 17200 as construed by this court

and the Courts of Appeal, ‘a private plaintiff who has

himself suffered no injury at all may sue to obtain relief

for others.’” (Stop Youth Addiction v. Lucky Stores, supra,

17 Cal. 4th at 561.) In Stop Youth Addiction, for

example, the California Supreme Court held a private

person may sue to enforce penal laws even where the

Attorney General and law enforcement officials oppose

the suit.

Under the UCL, any unelected, unaccountable

social engineer or gadfly can prosecute the law

independent of the Attorney General or District

Attorneys. State administrative and criminal law is

transformed by the UCL into a body of civil law giving

rise to private causes of action. Defendants cannot

protect themselves even if they enter into agreements or

consent decrees with the Attorney General and other

governmental officials. As this Court has opined, qui

tam relators have “different incentives” from the

government, which usually involve money “rather than

the public good.” (Hughes Aircraft Co. v. United States ex

rel. Schumer, 520 U.S. 939, 949-50 (1997).) The same 1s

true of UCL plaintiffs.

Moreover, the UCL authorizes a private person

to sue even if the substantive cause of action does not.

The UCL borrows violations of other laws and treats

22

I

them as independently actionable unlawful practices.

The “unlawful” practices prohibited are “any practices

forbidden by law - be it civil or criminal, federal, state,

or municipal, statutory, regulatory, or court-made. It is

not necessary that the predicate law provide for private

civil enforcement.” (Wang v. Massey Chevrolet, 97 Cal.

App. 4th 856, 871 (2002).)

“[E]ven though a specific statutory enforcement

scheme exists, a parallel action for unfair competition is

proper pursuant to applicable provisions of the Business

and Professions Code.” (People v. McKale, 25 Cal. 3d

626, 632 (1979).) “Virtually any law ~ federal, state or

local - can serve as a predicate for an action under

Business and Professions Code, section 17200.” (Smith v.

State Farm Mutual Automobile Ins. Co., 93 Cal. App. 4th

700, 718 (2001).)”

? See, e.g., Samura v. Kaiser Foundation Health Plan,

Inc., 17 Cal. App. 4th 1284, 1299, n.6, (1993), review denied,

1993 Cal. LEXIS 6487 (Cal. Dec. 16, 1993), cert. denied, 511

U.S. 1084 (1994) (recognizing right of private plaintiff to sue

to enjoin acts made unlawful by the Knox-Keene (HMO

licensing) Act); Committee on Children’s Television, Inc. v.

General Foods Corp., supra, 35 Cal. 3d at 210-11 (unfair

competition action available to remedy cereal adulteration

and misbranding, despite existence of criminal penalties under

Sherman Law); Rubin v. Green, 4 Cal. 4th 1187, 1204 (1993)

(unfair competition action proper to remedy improper

solicitation of litigation clients, notwithstanding existence of

“additional sanctions against attorney solicitation” available

(continued...)

23

The UCL thus raises two related constitutional

questions. First, permitting private plaintiffs to enforce

federal statutes that do not contain private rights of

action raises a serious issue of separation of powers. It

usurps the congressional prerogative of deciding whether

to include a private remedy as an appropriate

enforcement mechanism. It also “ ‘impermissibly

undermines’ the powers of the Executive” with respect

to the public enforcement of federal law. (Commodity

Futures Trading Comm’n v. Schor, 478 U.S. 833, 856

(1986).) This Court has opined that converting “the

undifferentiated public interest in executive officers’

compliance with the law into an ‘individual right’

vindicable in the courts” would “transfer from the

President to the courts the Chief Executive’s most

important constitutional duty, to ‘take care that the

Laws be faithfully executed,’ Art. II, § 3.” (Lujan v.

Defenders of Wildlife, 504 U.S. 555, 577 (1992).) “It

would enable the courts . . . ‘to assume a position of

authority over the governmental acts of another and co-

equal department,’ and to become ‘virtually continuing

monitors of the wisdom and soundness of Executive

action.’ ” (Id.; citations omitted.)

Second, permitting UCL plaintiffs to enforce state

law gives rise to serious federal constitutional questions.

This Court has long condemned the delegation to

(continued) eay

to “the State Bar and prosecutorial authorities”).

24

private plaintiffs of a power obviously governmental in

character, particularly when the delegation is made to

someone in an adverse position to the aggrieved party.

“[IJn the very nature of things, one person may not be

entrusted with the power to regulate the business of

another, and especially of a competitor.” (Carter v.

Carter Coal Co., 298 U.S. 238, 311 (1936) (striking down

statute delegating power to private persons to draw up

regulatory codes); of Gibson v. Berryhill, 411 U.S. 564,

578-79 (1973) (plaintiff may not be required to exhaust

an administrative remedy that is in the hands of a board

composed of his potential competitors); Fuentes v.

Shevin, 407 U.S. 67, 93 (1972) (replevin statutes allowing

private parties to repossess property based on ex parte

averments impermissibly “abdicate effective state control

Over state power”); Eubank v. Richmond, 226 U.S. 137

(1912) (invalidating city ordinance which conferred

power to establish building setback lines upon the

owners of two-thirds of the property abutting any

street).)

In fact, for a state government to abdicate the

basic machinery of law enforcement to private plaintiffs

would raise questions under the Republican Form of

Government Clause, Article IV, § 4, because it would

eliminate politically accountable leadership responsible

for lawmaking and law enforcement responsibilities.

The UCL eliminates the ability of citizens to hold state

government officials accountable for prosecutorial

25

decisions regarding the manner in which state laws are

enforced.”

IV. THE UCL IMPOSES IMPERMISSIBLE

EXTRATERRITORIAL REGULATION.

The UCL also raises serious constitutional

questions because it extends California law

extraterritorially to cover nationwide business conduct.

Section 17200 was amended a decade ago to clarify that

it authorized injunctive relief against out-of-state

conduct. In Yu v. Signet Bank/Virginia, 69 Cal. App.

4th 1377, 1392 (1999), for example, the court held that

California residents could invoke the UCL to sue a

Virginia bank under California law on the basis of the

bank’s allegedly unfair practice of suing its out-of-state

credit card holders in Virginia. The court held that

2 See Hans A. Linde, When Initiative Lawmaking is

Not “Republican Government”: The Campaign Against

Homosexuality, 72 Or. L. Rev. 19, 33-45 (1993). Although

claims under the Clause have traditionally been regarded as

non-justiciable, see Luther v. Borden, 48 U.S. (7 How.) 1, 42

(1849) (choice between rival state governments is for

Congress, not the courts), in New York v. United States, 505

U.S. 144 (1992), this Court has suggested that the Clause

might be interpreted as conferring judicially cognizable

rights, although it indicated that “[w]e need not resolve this

difficult question today.” (/d. at 185.) The Court noted that

the challenged law did not violate the Republican Form of

Government Clause because “state government officials

remain accountable to the local electorate.” (/d.) The UCL,

in contrast, eliminates such accountability.

26

whether the practice might be entirely lawful in Virginia

was irrelevant on the supposed ground that California

could “punish the conduct of an out-of-state defendant

if it has an impact on [plaintiffs] regardless of whether

the conduct might be lawful elsewhere.” (/d.)

Indeed, in this case, Nike’s speech was hardly

confined to California. Yet the California courts have

shown no interest in confining their application of the

UCL to California’s borders. California’s assertion of

nationwide regulatory jurisdiction violates the dormant

Commerce Clause” and principles of federalism.

For example, in White v. Ford Motor Co., 2002

WL 31687641 (9" Cir. Dec. 3, 2002), the Ninth Circuit

held a California punitive damages award could not be

based on out-of-state sales of allegedly defective pick-up

trucks, even if the trucks qualified as “defective” under

the product liability laws of every relevant jurisdiction.

White followed this Court’s decision in BMW v. Gore,

supra, 517 U.S. 559, which held, based on “principles of

state sovereignty and comity,” “punitive damages may

not be imposed to punish lawful conduct in other

States.” (Jd. at 572.) The power of each State is

** The “dormant Commerce Clause” invalidates state

laws that unduly burden interstate commerce, which

Congress is authorized to regulate by Article I. See generally

Pike v. Bruce Church, 397 U.S. 137 (1970) (invalidating a state

official’s order regarding cantaloupe packaging as burdensome

on interstate commerce).

27

“constrained by the need to respect the interests of other

States” because no single State has the authority to

impose “policy for the entire nation, . . . or even impose

its own policy choices on neighboring States.” (Id. at

517.) This issue is related to the question of

extraterritorial punishment presented in State Farm Mut.

Automobile Ins. Co. v. Campbell, No. 01-1289 (U.S. S.

Ct., pending). Lower courts have recognized these

principles prohibit punishing out-of-state conduct even

where it is unlawful where it occurs.”

It has long been settled that each State “can

legislate only with reference to its own jurisdiction.”

(Broderick v. Rosner, 294 U.S. 629, 643 (1935).) “The

legislative authority of every State must spend its force

within the territorial limits of the State.” (Thomas M.

Cooley, CONSTITUTIONAL LIMITATIONS 127-28 (1868).)

“Laws have no force of themselves beyond the

25 See Continental Trend Resources, Inc. v. OXY USA

Inc., 101 F.3d 634, 637 (10 Cir. 1996) (“[W]e read the [BMW]

opinion to prohibit reliance upon inhibiting unlawful

conduct in other states.”); Johansen v. Combustion

Engineering, Inc., 170 F.3d 1320, 1333 (1 1° Cir. 1999); Ace v.

Aetna Life Ins., 40 F. Supp.2d 1125, 1133 (D. Alaska 1999); see

also Margaret M. Cordray, The Limits of State Sovereignty and

the Issue of Multiple Punitive Damages Awards, 78 OR. L. REV.

275, 308 (1999) (“When one state imposes punitive damages,

using its own substantive and procedural standards for

awarding punitive damages, based on the defendant’s

extraterritorial conduct, that state projects its own regulatory

choices regarding punitive damages onto other states.”).

28

jurisdiction of the state which enacts them, and can have

extraterritorial effect only by the comity of other

states.” (Huntington v. Attrill, 146 U.S. 657, 669 (1892).)

“No State can legislate except with reference to its own

jurisdiction.” (Bonaparte v. Tax Court, 104 U.S. 592, 594

(1881).) Thus, a State may not regulate conduct in other

State “merely because the welfare and health of its own

citizens may be affected when they travel” to that State.

(Bigelow v. Virginia, 421 U.S. 809, 823-24 (1975).)

This Court held the dormant Commerce Clause

also prevents States from regulating outside their

borders. (See, e.g., C&A Carbone, Inc. v. Town of

Clarkstown, 511 U.S. 383, 393 (1994) (“States and

localities may not attach restrictions to exports or

imports in order to control commerce in other states.”);

Healy v. Beer Institute, 491 U.S. 324 (1989) (striking

down law requiring out-of-state beer shippers to affirm

competitiveness of prices for state residents); Brown-

Forman Distillers Corp. v. New York State Liquor Auth.,

476 U.S. 583 (1986) (similarly ruling with respect to

New York liquor price affirmation law); Edgar v. MITE

Corp., 457 U.S. 624, 644 (1982) (striking down law

allowing Illinois Secretary of State to evaluate fairness of

any takeover offer for the shares of an Illinois company

regardless of residency of shareholders); Southern Pac.

Co. v. Arizona ex rel. Sullivan, 325 U.S. 761 (1945)

(invalidating Arizona train law governing length of

trains in state as disruptive of interstate commerce).)

29

The UCL offends these principles. It projects

California law extraterritorially by authorizing

California courts to punish conduct or speech that

offends the UCL’s vague provisions no matter where it

occurs. It does not matter whether the conduct

challenged is perfectly legal under the law of the

defendant’s domicile or under the law of the forum

where the conduct occurs. So long as a California court

can identify a jurisdictional basis, it is apparently free to

override the prerogatives of sister States by applying the

UCL. Such global extension of California law outside

the State’s borders raises serious constitutional questions

under the dormant Commerce Clause and principles of

federalism.

CONCLUSION

For all the aforementioned reasons, the judgment

of the California Supreme Court should be reversed.

Respectfully submitted,

Fred J. Hiestand

Counsel of Record

1121 L Street, Suite 404

Sacramento, CA 95814

(916) 448-5100

February 28, 2003

30

APPENDIX A

Unfair Trade Practice Laws

and

False Advertising Laws

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