Proposition
64 May Limit “Shakedown” Suits
For business interests and consumer advocates, the big ticket item
on this November’s ballot is Proposition 64, which would narrow
the scope of California’s unfair competition law. Currently,
California law is unique, relative to other states, in allowing
anyone to sue for an unlawful or deceptive business practice, whether
or not the plaintiff has suffered any tangible injury. For example,
lawyers can review car dealer ads in the newspaper, spot a violation
of the Vehicle Code and file a complaint against the dealer, without
any client who was misled. Critics charge that the statute is abused
by “shakedown” lawyers who charge small businesses with
overly technical and victimless infractions, leaving them with a
vexing choice: either pay thousands of dollars to settle the suit
or even more to defend against it in court. Prop 64, endorsed by
the Governor but opposed by the Attorney General, would allow private
plaintiffs to sue only if they have suffered injury that includes
the loss of money or property. The measure also would increase judicial
oversight when private plaintiffs seek to recover money for third
parties. Critics contend that Prop 64 goes too far in limiting lawsuits
by “private attorney generals.” They complain that the
measure would preclude environmental and other actions in which
individuals have not lost money or property. Look for a media blitz
for and against Prop 64 in the countdown to the election.
Cigarette Surtax Can Fund
Ads Critical of Tobacco Industry
The U.S. Ninth Circuit Court of Appeals ruled on September 28 that
California may use the proceeds of its cigarette surtax to pay for
ads that sharply criticize the tobacco industry. Under Proposition
99, a portion of the 25-cent per-pack surtax must be spent on the
prevention and reduction of tobacco use. The California Department
of Health Services concluded that, rather than focusing on the health
risks of smoking, the government would seek to “denormalize”
smoking by creating an environment in which smoking would seem less
desirable and socially acceptable. To achieve this objective, the
government created a series of aggressive television ads that accuse
the tobacco industry of hypocrisy, cynicism and duplicity.
The tobacco companies argued that the First Amendment prohibited
the government from compelling them to subsidize negative advertising.
Two of the three appellate judges who heard the case rejected this
theory. The third judge sided with the tobacco companies, quoting
Thomas Jefferson for the proposition that “to compel a man
to furnish contributions of money for the propagation of opinions
which he disbelieves is sinful and tyrannical.” The tobacco
companies, no doubt, will continue their appeal.
Sacramento Judge Invalidates
Restrictions on Dental Specialty Advertising
On September 8, U.S. District Judge David F. Levi in Sacramento
ruled that a state statute restricting dental specialty advertising
violated the First Amendment. Section 651 of the Business &
Professions Code limited the advertising of dental specialty credentials
to those recognized by the American Dental Association or the Dental
Board of California. The plaintiff in the case, Dr. Michael L. Potts,
sought to advertise his credentials from the American Academy of
Implant Dentistry and its certifying board. Judge Levi ruled that
the state cannot prohibit such advertising because it is not actually
misleading. Rather than barring the advertising, Judge Levi observed,
the state could have required Dr. Potts to disclose that his credentials
are not recognized by the ADA or the Dental Board.
No Error for Steve Garvey
to Pitch Diet Product
Former baseball player Steve Garvey starred in frequently-aired
infomercials promoting two dietary supplements, “Fat Trapper”
and “Exercise in a Bottle.” Garvey invited viewers to
take the supplements and “then go ahead and enjoy the foods
that you love without the fear of fat. It’s that easy.”
The Federal Trade Commission successfully sued the company that
created and marketed the supplements, but failed to persuade a federal
judge that Garvey also should be held liable. The judge found that
Garvey and his wife had taken the supplements and lost weight, that
he had spoken with others who had experienced positive results,
and that he received and reviewed booklets that substantiated the
company’s weight loss claims. On September 1, the Ninth Circuit
Court of Appeals affirmed the ruling in Garvey’s favor, finding
that the FTC had failed to prove that Garvey was recklessly indifferent
as to the truth of his statements. Lesson learned: if celebrity
endorsers have a substantial factual basis to believe that product
claims are true, they should not be held liable for false advertising.
Governor Vetoes “Car
Buyer’s Bill of Rights”
Governor Schwarzenegger vetoed AB 1839, the “Car Buyer’s
Bill of Rights,” which would have specified when cars can
be advertised as “certified” and limited the amount
of dealer markup on interest rates offered to purchasers. In his
veto message, the Governor faulted the bill as too vague, but voiced
support for consumer protection and encouraged the Legislature to
return with improved legislation. Look for the battle over the Car
Buyer’s Bill of Rights to rev up again in 2005.
False Advertising Suit Flares
in Sacramento
SMA America, a manufacturer of solar power inverters based in Grass
Valley, sued rival PV Powered LLC in Sacramento Superior Court on
September 16. SMA alleges that PV Powered has overstated the efficiency
ratio of its inverters.
First Conviction Under the
CAN-SPAM Act of 2003
The U.S. Attorney for the Central District of California announced
the first conviction under the federal CAN-SPAM Act of 2003. A Hollywood
man allegedly drove around a Venice Beach community with a laptop
computer looking for unprotected wireless access points, a practice
known as “war-spamming.” When he located such a point,
he would send e-mail messages advertising pornographic websites.
He now faces a maximum sentence of three years in prison, where
Internet access will not be as readily accessible.
Please
contact us if you have questions or want more information. Please
note that the information contained in this newsletter is not intended
to provide specific legal advice. You should consult with an attorney
and not rely on any information contained herein regarding your
specific situation.
