Voters Close Loophole Allowing Shakedown Lawsuits

By Loretta Macktal, Executive Assistant to the Vice President, Government Relations

Capitol Update, Nov. 4, 2004 Share this on FacebookTweet thisEmail this to a friend

In a huge victory for small and large manufacturers, California voters approved Proposition 64 which closes a legal loophole in California law that has allowed personal injury attorneys fees from California businesses even when no one has been injured or damaged, and no consumer or other business has requested a lawyer to file a lawsuit.

Prop 64 was approved by 59 percent of the electorate and comes after many, many years of the legislature killing even the most modest attempts to reform the state’s Unfair Competition Law (UCL). Countless cases over the years have illustrated that many lawyers who abuse this loophole never intend to take their frivolous lawsuit to court, but rather use threatening letters to demand a business owner pay thousands of dollars in settlement or face an even more costly lawsuit.

Prop 64 will improve existing law by providing that UCL suits can only be brought by those "who have suffered actual injury and have lost money or property as a result of such unfair competition." The law, as reformed, still permits actions initiated by the attorney general, prosecutors from district and city attorneys' offices, and other governmental counsel. While those elected and appointed to protect the "public interest" will have the power to invoke the law, the new law will prevent reckless private parties from extortion-like tactics at the expense of businesses.

Non-governmental lawyers will be held to a standard that simply requires that they have an actual person to represent before filing a lawsuit against a business. The passage of Prop 64 is a very welcome victory and a sensible reform to a problematic law.

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