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Two years ago, California car dealers and trial lawyers held a series of secret meetings to try to avoid a political war. The influential interest groups, both with access to millions of dollars in campaign contributions, got together to discuss how to prevent abuses under California’s liberal unfair competition law, Business & Professions Code �17200. Three plaintiffs firms had targeted car dealers, using 17200 to sue mainly over mistakes in advertising copy. Nearly all of the state’s 1,400 dealers were hit, and they eventually paid $10 million in settlements. The trial lawyers and dealers met outside the Capitol and kept the gatherings off-the-record to avoid attention, according to participants. They wanted to strike a deal and then take their package to the Legislature. The talks, however, failed. And now California voters are about to witness an initiative fight that by some estimates could cost $100 million. Both sides have already started unfolding their strategies to win over voters and are attempting to collect allies to help with the fight. The car dealers, for example, have joined forces with the state Chamber of Commerce and tort reformers. Together, they’ve already raised millions of dollars and hope the same voters who made Arnold Schwarzenegger governor will buy their brand of business-friendly reform. If legislators can craft a bill to modify 17200 that pleases businesses and isn’t too distasteful to the trial lawyers, the car dealers could still hold their fire. After a legislative battle earlier this year that ended in a contentious stalemate, few are holding hope. “It has most definitely gotten out of control in the political arena, when reasonable minds would like to come to a compromise,” said Sen. Joe Dunn, a Democrat from Orange County and a former trial lawyer. He said he was instrumental in bringing the trial lawyers and auto dealers together in the first place. Signature gathering hasn’t started yet to put the initiative on the November 2004 ballot. But already trial lawyers have responded to the initiative as a declaration of war and are running their own polls to determine whether they’ll respond with an initiative of their own. Under the initiative backed by tort reformers and businesses, a plaintiffs attorney could act as a private attorney general in a 17200 action only if he shows that someone has actually been harmed. Cases would then have to follow class action rules. The initiative’s backers will try to make their case to voters by telling stories of frivolous 17200 suits filed against small businesses, mostly in Southern California. Those same cases prompted the State Bar and the attorney general’s office to crack down on several plaintiffs firms and inspired the Legislature’s failed attempt to fix the problem in the last session. But the trial lawyers, led by the Consumer Attorneys of California, say such an initiative pitch is hypocritical. They contend that tort reformers are merely doing the bidding of large corporations and are using the plight of small businesses to get what they want. The plaintiffs bar likes to point out that the tort reform group leading the charge, the Civil Justice Association of California, has on its board representatives from oil, health care and tobacco companies. Furthermore, nearly all the money CJAC has raised to support the initiative — only $254,500 so far — has come from big corporations unconnected to the recent controversy, such as Blue Cross and Intel Corp., which each gave $100,000. In response, CJAC President John Sullivan said organizations that represent smaller businesses also have a place on his board. And, he said, initiative money will eventually come from sources throughout the business community. “All the public has to do is look at the diversity of money that’s flowing in. I would rather be a front for the entire business community than a front for the personal injury lawyers,” Sullivan said. Sullivan said selling the initiative doesn’t depend solely on the recent 17200 controversy. “My emphasis has been about shakedown suits against businesses of all sizes. We’re blessed with an abundance of victims. It’s unfortunate we’re blessed,” he said. The California Motor Car Dealers Association has also raised money — $3.5 million so far — but it’s keeping it out of the hands of tort reformers for now and says it’ll return the cash to the car dealers if a deal to reform the law can be reached during the next legislative session. Dunn said he’s encouraged that the auto dealers aren’t just turning over their checks. He said the tort reformers picked up on the recent, controversial cases “because they see the car dealers as a very deep pocket to pick.” Sullivan laughed at that accusation. “Whatever the source, the funding that is coming into this camp is dedicated to fixing a loophole in a law that’s harming everyone collectively. � People contribute to campaigns because they want to see the object of the campaign achieved,” Sullivan said. So far, none of the interest groups hit in the wave of recent 17200 cases has contributed any money to the initiative. In those cases, several plaintiffs firms filed 17200 claims over minor technical violations against thousands of small businesses, many owned by immigrants, and demanded settlements to avoid trial. Attorney General Bill Lockyer called the practice “extortion.” Though those targeted groups haven’t put up money, many say they’ll give their support, including the California Restaurant Association, whose members paid thousands in settlements. Another influential group, the Auto Repair Coalition, would rather see a legislative solution but likely will throw its weight behind the initiative if legislators fail, said the group’s lobbyist, Christopher Walker of Nossaman Guthner Knox & Elliott. Though they’ve given up on the Legislature, initiative backers are now looking to newly sworn Gov. Arnold Schwarzenegger for a boost. The governor listed 17200 reform on his campaign Web site as part of his plan to improve California’s business climate, although he has not discussed it publicly. Still, Sullivan remains hopeful. He is on a committee that he said is working with the governor’s team to help shape the new administration’s civil justice policy. Schwarzenegger also has very close ties to the Chamber of Commerce, one of the initiative’s co-sponsors. The chamber’s support was center stage during the inauguration last week, when the group put on a luncheon honoring the new governor. A governor’s spokesman said Schwarzenegger hasn’t taken a position on the initiative. While proponents will tell the public the initiative is designed to stop “greedy” trial lawyers, the plaintiffs bar likely will respond by warning that a yes vote will spell the end of consumer protection. “Our polling shows that citizens might not love lawyers, but they don’t want to give up their rights to hire a lawyer and hold someone accountable,” said Consumer Attorneys President Bruce Brusavich, a partner at Torrance-based Agnew & Brusavich. Brusavich’s group is already forming its own coalition with other organizations. They’re working on a message they hope will be appealing to voters: that the initiative will undercut popular environmental and consumer groups and allow corporate greed to go unchecked. Besides that kind of direct fight, the Consumer Attorneys is also contemplating its own ballot measure. Brusavich said ideas include an initiative that would restore disgorgement in 17200 cases, which is a method for returning ill-gotten gains to plaintiffs. Lawyers lost that power under recent state Supreme Court decisions. Brusavich said his “personal favorite” idea is to tie disgorgement to a new law that would make corporate executives pay for wrongdoing out of their own pockets. He said such a provision would be very appealing to voters, “especially in this climate of white-collar crime,” like Enron and other high-profile debacles. Consumer Attorneys has given itself until December to decide what to do. Money to fight the initiative would come from the group’s “issues” political action committee, which has about $835,000. CJAC’s proposal is currently with the attorney general’s office, which is scheduled to release by Dec. 16 the title and summary — language people will see on petitions they’ll be asked to sign to put the measure on the ballot. Then the coalition has until April to collect about 370,000 signatures. Sullivan, the CJAC president, estimates those will cost just under $1 to $2 each to collect. The Legislature will try again to modify 17200 when it begins its regular January session, according to several lawmakers. But it’s going to have to act fast. If the initiative passes, a special provision will be invoked that moots anything the Legislature does on the topic. Orange County Assemblyman Lou Correa, a moderate Democrat, is working on a new version of a 17200 bill he introduced last year, which he plans to present in January. During the most recent session, Correa’s AB 69 was defeated in the Assembly Judiciary Committee, which is chaired by trial-lawyer ally Ellen Corbett, D-San Leandro. Instead, Corbett and Senate Judiciary leader Sen. Martha Escutia, D-Montebello, another trial-lawyer ally, introduced their own proposal. Critics said it didn’t do enough to prevent frivolous 17200 suits and were incensed that the package initially included a provision that would return disgorgement to the plaintiffs bar. The package was voted down. Correa said he’s more hopeful this year because the political landscape has changed. “What this initiative does is possibly change the political equation,” Correa said. “Has it changed enough to motivate all the parties? That’s a question that nobody can answer.” Although Correa has a shot of getting some support — many interest groups say they’d rather see a legislative solution instead of the initiative — Sen. Dunn doesn’t think Correa will succeed. “If we just go back to same-old, same-old and the same legislators are involved, there is zero chance that there will be a consensus,” Dunn said. The senator, who plans to run for attorney general in 2006, also thinks an initiative fight is a bad idea that will leave “both sides very badly bruised.” Instead, he wants trial lawyers and auto dealers to ignore legislative bickering and the public relations fight that is brewing. “My call to all sides throughout the nonsense of this year is to return to their discussion to finalize the deal,” Dunn said. That’s not looking very likely. If anything, according to the auto dealers and trial lawyer leaders, positions are only hardening.

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