Baseball Crank
Covering the Front and Back Pages of the Newspaper
July 27, 2003
LAW: Anyone Can Sue

The Wall Street Journal carries an alarming op-ed by Walter Olson of Overlawyered.com (it actually ran in the print edition on Tuesday) on moves to further expand California Business & Professions Code section 17200, which permits anyone (whether or not they have been injured, suffered any damages, or even been a customer of the business) to sue a business for any "unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." As I've noted before, Justices Breyer and O'Connor recently questioned this statute's constitutionality, at least when applied to lawsuits challenging businesses that seek to defend their reputations in public controversies:

I doubt that this particular instance of regulation (through use of private attorneys general) can survive heightened scrutiny, for there is no reasonable “fit” between the burden it imposes upon speech and the important governmental “interest served,” . . . . Rather, the burden imposed is disproportionate.

I do not deny that California’s system of false advertising regulation–including its provision for private causes of action–furthers legitimate, traditional, and important public objectives. It helps to maintain an honest commercial marketplace. It thereby helps that marketplace better allocate private goods and services. It also helps citizens form “intelligent opinions as to how [the marketplace] ought to be regulated or altered.”

But a private “false advertising” action brought on behalf of the State, by one who has suffered no injury, threatens to impose a serious burden upon speech–at least if extended to encompass the type of speech at issue under the standards of liability that California law provides, see Cal. Bus. & Prof. Code Ann. §§17200, 17500 (West 1997) (establishing regimes of strict liability, as well as liability for negligence); Cortez v. Purolator Air Filtration Products Co., 23 Cal. 4th 163, 181, 999 P.2d 706, 717 (2000) (stating that California’s unfair competition law imposes strict liability). The delegation of state authority to private individuals authorizes a purely ideological plaintiff, convinced that his opponent is not telling the truth, to bring into the courtroom the kind of political battle better waged in other forums. Where that political battle is hard fought, such plaintiffs potentially constitute a large and hostile crowd freely able to bring prosecutions designed to vindicate their beliefs, and to do so unencumbered by the legal and practical checks that tend to keep the energies of public enforcement agencies focused upon more purely economic harm.

That threat means a commercial speaker must take particular care–considerably more care than the speaker’s noncommercial opponents–when speaking on public matters. A large organization’s unqualified claim about the adequacy of working conditions, for example, could lead to liability, should a court conclude after hearing the evidence that enough exceptions exist to warrant qualification–even if those exceptions were unknown (but perhaps should have been known) to the speaker. Uncertainty about how a court will view these, or other, statements, can easily chill a speaker’s efforts to engage in public debate–particularly where a “false advertising” law, like California’s law, imposes liability based upon negligence or without fault. At the least, they create concern that the commercial speaker engaging in public debate suffers a handicap that noncommercial opponents do not.

At the same time, it is difficult to see why California needs to permit such actions by private attorneys general–at least with respect to speech that is not “core” commercial speech but is entwined with, and directed toward, a more general public debate. The Federal Government regulates unfair competition and false advertising in the absence of such suits. 15 U.S.C. § 41 et seq. As far as I can tell, California’s delegation of the government’s enforcement authority to private individuals is not traditional, and may be unique, Tr. of Oral Arg. 42. I do not see how “false advertising” regulation could suffer serious impediment if the Constitution limited the scope of private attorney general actions to circumstances where more purely commercial and less public-debate-oriented elements predominate. As the historical treatment of speech in the labor context shows, substantial government regulation can coexist with First Amendment protections designed to provide room for public debate.

These reasons convince me that it is likely, if not highly probable, that, if this Court were to reach the merits, it would hold that heightened scrutiny applies; that, under the circumstances here, California’s delegation of enforcement authority to private attorneys general disproportionately burdens speech; and that the First Amendment consequently forbids it.

(Emphasis added; citations omitted). Of course, the dynamics of litigation identified by Justice Breyer apply more broadly to actions under this statute even outside the area of speech regulation; the unique nature of California's statutory enforcement scheme presents burdens on any kind of business activity. But if you're looking for suspects in the ailments that plague the California economy, the litigation costs imposed by this statute are a good place to start.

Posted by Baseball Crank at 10:25 AM | Law 2002-04 | Comments (0) | TrackBack (1)
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