Question:

I read that the passage of Proposition 64, the proposition to stop frivolous lawsuits, will help small business, but I don’t really understand how it will help me. I own a restaurant in Carmel, and I am interested in all the new laws that are being passed because they are supposed to help the small business owner. What are the benefits of Proposition 64?

Answer:

Proposition 64 passed on Tuesday with 59% of the vote. This proposition amends Business and Professions Code Section 17200, which is California’s unfair competition law. Generally, California’s unfair competition law prohibits unlawful or fraudulent business acts. The law has been used in positive ways, including to stop pollution, stop misleading advertising, prevent discrimination, stop the mislabeling of meat, and win employees overtime pay that had been illegally withheld. But abuses of the law occurred because before the passage of Proposition 64, the unfair competition law could be used by anyone acting on his or her own behalf, or on behalf of “the public.” A person who sued under the unfair competition law did not have to suffer injury, or a loss of money or property in order to sue. This led to abuses that were very costly to small businesses.

For example, in southern California, a law firm filed lawsuits against more than 1,000 restaurants and markets for County Health Services violations, and 2,200 auto repair shops, for Bureau of Automotive Repair violations. Shortly after filing these lawsuits, the law firm sent the business owners letters seeking quick settlement of the cases. The business owners were told that these cases usually settle in the range of $7,000 to $13,000. Some business owners paid to settle these cases rather than fight them, even if there was no underlying violation, and some went out of business.

Another example of an abuse of the unfair competition law was a lawsuit filed against Ace Hardware, Kmart, Lowe’s Home Centers, Target Corporation, Sears Roebuck and Company, and Wal-Mart. These companies were sued on behalf of all consumers for selling Kwikset locks advertised as “Made in U.S.A” (and completely assembled in the U.S.) because the lock included six screws made in Taiwan. (James Benson v. Kwikset Corporation and The Black and Decker Corporation).

Proposition 64 addresses these abuses by providing that unfair competition lawsuits can only be filed by the Attorney General, local prosecutors, people who are injured, or who lose money or property because of unfair competition. Also, if someone wants to file suit on behalf of other people, the suit must meet certain class action lawsuit requirements. Private lawyers can no longer file lawsuits without a client or proof of financial loss. The supporters of Proposition 64 state that the unfair competition law will still protect consumers from unfair competition and deceptive advertising, as well as provide relief to businesses from the frivolous lawsuits.

Proposition 64 may help a small business like yours by making it less likely that unfair competition lawsuits will be brought against small businesses for the purpose of obtaining quick settlements and attorney’s fees. The amended unfair competition law will still allow suits to protect consumers and prevent unfair competition and business practices.

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