Pending State Bills Help, Harm Business
California business would escape some of the dangers posed by the state’s Unfair Business Practices Act under a bill before the state Senate.
The legislation, SB 109, written by Sen. Dick Ackerman (R-Irvine), is one of many bills pending in Sacramento that could have a significant impact on business.
The Ackerman bill would allow ordinary citizens, acting on behalf of the public, to sue businesses only once for unlawful, fraudulent or unfair business practices. At present the act allows anyone to sue any business repeatedly for the same offense--a potent threat often used to force businesses to settle lawsuits of little merit. To make matters worse, many businesses find that the costs of such settlements are not covered by their commercial liability insurance.
“Businesses try to settle these lawsuits because they’re a nuisance,” Ackerman said. “If you get sued and the matter is tried or settled, that should be the end of it; it shouldn’t be the opening volley of 10 or 20 more lawsuits.”
Ackerman admitted that his bill faces high odds in the Democrat-controlled Legislature, which refused to give similar legislation a hearing last year.
“But every year it’s a new ballgame,” Ackerman said, “and with the economy starting to decline in California, we’re hopeful that the more business-oriented Democrats will take a look at this bill. Tort reform is something we need badly in California.”
The Ackerman legislation has the backing of the Civil Justice Assn. of California in Sacramento, a longtime proponent of tort reform.
Enacted more than a century ago, the Unfair Business Practices Act threatens business on two grounds:
* It defines a fraudulent act as one likely to deceive, whether committed intentionally or not, but it does not define an unfair act at all, thus making it difficult to know what business practices might invite litigation.
* Insurers routinely deny coverage for litigation alleging fraud on the grounds that fraud is always an intentional wrong and therefore uninsurable, and they often balk at covering the costs of lawsuits alleging unfair business practices unless specifically covered in the policy and paid for via a higher premium.
The result is that a business might not know going into litigation whether it has the backing of its insurer--and could find its coffers emptied if it guesses wrong and the case goes against it.
Another tort-reform bill, AB 840 by Assemblyman Rod Pacheco (R-Riverside), would cap punitive damages against small businesses at three times economic damages.
At present, state law imposes no cap on punitive damages, which--also as a matter of state law--cannot be covered by insurance. The bill defines a small business as one employing fewer than 500 people; for larger businesses, the Pacheco bill would guarantee a full appellate review of punitive-damage verdicts exceeding three times economic damages.
The Pacheco legislation also has the support of the Civil Justice Assn. Its president, John Sullivan, said it would bring “a measure of fairness and predictability” to court fights involving punitive damages.
Also on the business-friendly side, legislation by Sen. Charles Poochigian (R-Fresno) would allow for appellate-court review of class certification rulings in class-action lawsuits. Under present law, trial courts must certify that the plaintiffs in such litigation actually represent a class of complainants, but their rulings are not automatically reviewable. As a practical matter, the Poochigian legislation might deter the prosecution of some frivolous class-action lawsuits.
On the not-so-friendly side are three bills to:
* Create a presumption that all discovery information--that is, information gathered by plaintiffs’ attorneys during the pretrial or “discovery” phase of litigation--is public information in cases alleging product defects, environmental hazards, financial fraud or unfair handling of insurance claims.
* Banish agreements between businesses and their employees and consumers to arbitrate certain disputes over health care, financial transactions and employment.
* Overturn a state Supreme Court decision requiring that contract law, not liability law, apply to litigation over construction defects not causing injury or damage.
The first of these, contained in bills SB 11 and AB 36 by Sen. Martha Escutia (D-Montebello) and Assemblyman Darrell Steinberg (D-Sacramento), would overturn long-standing practices enabling businesses to require that as a condition of settlement, plaintiffs’ attorneys agree not to reveal information gathered but never used in court in a civil lawsuit.
The threat under these bills, according to the Civil Justice Assn., is that discovery information could become public without ever being introduced in trial, much less subjected to cross examination. The practice also could invite additional litigation and perhaps reveal trade secrets including marketing data, customer lists and the results of proprietary research.
Similar legislation failed last year.
The second, contained in bills AB 1067 and SB 410 by Assemblywoman Hannah-Beth Jackson (D-Santa Barbara) and Sen. Sheila Kuehl (D-Santa Monica), would render many arbitration agreements null and void, effectively forcing disputes over health care, financial transactions and employment into court--a far costlier and more prolonged process.
The last, contained in SB 355 and AB 267 by Escutia and Steinberg, stems from the state Supreme Court ruling in the case of Aas vs. William Lyon Co. that buyers of real property may not sue builders for construction defects under liability law, as distinct from contract law, in the absence of actual damage.
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Recent Financing and Insurance columns are available at www.latimes.com/finin. Juan Hovey can be reached at (805) 492-7909 or at jhovey@gte.net.
