STATE CONSUMER PROTECTION LAWS POSE UNEXPECTED RISKS
TO SHIPOWNERS
(Published October
2002)
Introduction
Maritime travel and commerce are fraught with risk and opportunity. For hundreds of years, shipowners and operators and their customers have allocated risks by way of insurance and a well-developed, largely uniform body of maritime law. In recent years, however, certain state courts and legislatures have chipped away at the uniform body of maritime law by endorsing a panoply of consumer claims, even where no consumer has been harmed, under the auspices of state consumer protection laws. The most pernicious of these are California's Unfair Competition Law ("UCL"), Business and Professions Code sections 17200 et seq. and its counterpart, the Consumer Legal Remedies Act ("CLRA"), Civil Code section 1750 et seq. Similarly, Florida has the Florida Deceptive and Unfair Trade Practices Act ("FDUTPA"), Fla. Stat. ch. 501.2105 (1991).
This article will introduce the reader to the myriad claims available to consumers and self-styled "consumer advocates" under these consumer protection statutes, the damages available under such statutes, defenses available to such claims, and legislative and judicial efforts to rein in these wayward laws.
17200 Lurks in the Shoals of California
Years ago, shipowners were challenged by California's rocky coast and the storms of the Pacific. Lately, like an iceberg in the North Atlantic, shipowners doing business in California with California consumers are presented with a host of diverse and largely unexpected claims under the Unfair Competition Law ("UCL" or "17200"). Unlike most other states' consumer protection laws (under Florida's FDUTPA, e.g., a person must have suffered injury in order to bring a private right of action), California's UCL has virtually no standing requirements and can be asserted by any "person," whether or not an affected consumer. The UCL can be used to enjoin perceived acts of "unlawful, unfair, or fraudulent" business practices and defendants can be forced to "disgorge" the "ill-gotten gains" of past practices within a statutory period of four years.
UCL claims may be brought as true class-actions or as "representative" actions that may be prosecuted as "class actions" with none of the safeguards of class certification. In such "non- class" class actions, unaffected consumers and consumer groups with no real clients can sue as "private attorneys general" and may be awarded significant attorney's fees under California Civil Code § 1021.5 if the court determines the injunctive relief sought confers a "significant benefit" on the general public. While no damages are available under the UCL, many such complaints include a cause of action for violation of the CLRA and seek treble damages. The relief available to consumers under the UCL and CLRA is cumulative to that provided for violation of the underlying statute.
The UCL is written in the disjunctive and establishes essentially three varieties of unfair competition. By statute, these include business practices that are "unlawful," "unfair," or "deceptive."
The "unlawful" prong of the UCL "borrows" violations of any other law, be they state, federal, or municipal, statutes or regulations, and treats them as "unlawful business practices" independently actionable under 17200. [See Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.]
In Southwest Marine, Inc. v. Triple A Machine Shop, Inc., 720 F. Supp. 805 (N.D. Ca. 1989), the plaintiff was an unsuccessful bidder on a Navy contract. Plaintiff sued the successful bidder alleging the defendant was able to underbid solely because of its practice of illegally dumping hazardous waste, thereby reducing its transaction costs. Plaintiff alleged violation of several environmental laws and a Naval procurement provision which required bidders to certify compliance with existing laws. The court agreed this was an "unlawful business practice" under the UCL and denied defendant's motion to dismiss.
Under the UCL, conduct may be perfectly lawful and yet still "unfair" and fully actionable. [See Cel-Tech, supra, at 20 Cal.4th 180.] This is by design. The "unfair" prong of the UCL is intentionally broad so as to allow courts broad discretion to enjoin new schemes to defraud consumers. [Motors, Inc. v. Times Mirror Corp. (1980) 102 Cal.App.3d 735, 740.] Thus, "unfair" business practices may be enjoined under the UCL even if they fit no pattern previously condemned by statute or case law. [Allied Grape Growers v. Bronco Wine Co. (1988) 203 Cal. App.3d. 432, 450.] Examples of "unfair" business practices include actions as diverse as a cigarette manufacturer's advertising campaign targeting minors [Mangini v. R.J. Reynolds Tobacco Co. (1994) 7 Cal.4th 1057], asserting a contractual right one does not have [People v. McKale (1975) 25 Cal.3d 626, 635], and bringing collection actions against debtors in distant forums [Barquis v. Merchant Collection Ass'n (1972) 7 Cal.3d 94].
Business practices may be deemed "fraudulent" or "deceptive" under the UCL even if no one is actually deceived. The test under the UCL is whether "members of the public are likely to be deceived." [Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267, emphasis added.] Claims under the "deceptive" prong of the UCL often involve advertising. For example, in Committee on Children's Television v. General Foods Corp. (1983) 35 Cal.3d 197, 213, the court found defendant's practice of advertising sugary children's cereal as "healthy" to be deceptive. The potentially deceptive effect of an advertisement is measured by the audience to which it is addressed. For example, the court in Children's Television found that advertising sugar-laden cereal as "healthy" was prohibited if it was likely to be deceptive to children, even though it might not mislead the parents who actually purchase the cereal.
Cruise Line Risks
Cruise line operators navigating California waters or catering to California consumers are subject to the full gamut of consumer claims under the UCL.
In a claim asserted against a major cruise line operator, a self-styled "consumer advocate" with no real clients and whose members have never sailed with, nor know anyone who has ever sailed with defendant, asserted several claims under the UCL. For example, plaintiff contended defendant's newspaper ads were "unlawful" in that a few of them lacked a Registered Seller of Travel ("RST") number as required by California Business and Professions Code § 17550.24(f). Plaintiff also contended defendant cruise line's use of boiler plate language in its passenger ticket contract, including forum selection clauses previously upheld as lawful by the United States Supreme Court in Carnival Cruise Lines v. Shute, 499 U.S. 585, 113 L. Ed. 2d 622, 111 S. Ct. 1522, 1991 A.M.C. 1697 (1991) (see also, Roberson v. Norwegian Cruise Line, 897 F. Supp. 1285 (C.D. Ca. 1995), was "unconscionable" and therefore "unfair," and that defendant cruise line's print ads were "deceptive" in that they did not clearly state a customer must take the subject cruise to obtain the discounted airfare advertised with that cruise.
Under the "unfair" prong of the UCL, a court may refuse to enforce otherwise lawful contract terms if they are deemed unconscionable. This is particularly true when there is a form contract used in hundreds of individual transactions. Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 927-928. Thus, the plaintiff consumer advocate in the above-referenced case is using the UCL to assert that various standard terms and clauses of defendant cruise line's passenger ticket contract Ð approved terms in use by virtually every cruise line the world over Ð are "unconscionable adhesion clauses," notwithstanding settled case law to the contrary, and therefore "unfair" under the UCL.
This case is an archetypal example of the abuse of the UCL by certain plaintiff's lawyers. Lest there be any dispute about this plaintiff's supposed consumer protection motivation, the injunctive remedy sought is to require that cruise lines publish the terms and conditions of their passenger ticket contracts in double-spaced 12 point type. As with many other UCL claims, this one is all about attorney's fees and not a single benefit would be bestowed upon the "general public," whom plaintiff's counsel purports to represent.
Another example of a UCL case against a cruise line arises out of facts inherent to travel and entirely out of the line's control. A group of elderly passengers booked an Alaskan cruise departing from Seattle. To save money, plaintiffs decided to take a flight to Seattle scheduled to arrive earlier in the day of embarkation. Plaintiffs could have arrived the day before, but would have incurred additional travel costs. Inevitably, plaintiffs' flight to Seattle was delayed and the cruise left without them. Notwithstanding contractual provisions disclaiming liability for flight cancellations beyond the line's control, plaintiffs contend the cruise line engaged in an "unfair business practice" and sued under the UCL.
Such cases are not limited to carriers calling on California ports. In Latman v. Costa Cruise Lines, N.V., (2000) 758 So.2d 699, Carnival Cruise Lines, Costa Cruise Lines, and Kloster Cruise Lines were sued in Florida state court for adding "port charges" to the total ticket price without separating the charge or defining the term. The cruise lines argued that the term "port charges" necessarily informs the consumer that these are "pass-through" charges paid by the cruise line to the relevant port authorities. The plaintiffs alleged that, in fact, the cruise lines passed through only a portion of the port charges to third parties, and kept the remainder for themselves. Plaintiffs alleged the practice of collecting port charges but keeping a part of them for their own account amounted to an unfair and deceptive trade practice for purposes of the FDUTPA and sought class certification of their claims.
Pointing out that a passenger cruise ticket is a maritime contract (see 1 Thomas J. Schoenbaum, Admiralty and Maritime Law § 5-5, at 168 (2d ed. 1994)), the cruise lines argued that maritime law necessarily governs to the exclusion of state law. The cruise lines' threshold argument was that the FDUTPA is completely displaced by maritime law and can have no application to a passenger cruise ticket. After all, it has long been accepted that uniformity is an important part of maritime law. Quoting from the United States Supreme Court's decision in American Dredging Co. v. Miller, 510 U.S. 443, 452, 127 L. Ed. 2d 285, 114 S. Ct. 981 (1994), the Florida appellate court disagreed:
"It is true that state law must yield to the needs of a uniform federal maritime law when this Court finds inroads on a harmonious system[,] but this limitation still leaves the States a wide scope." (citation omitted). A state remedy is permissible unless it "works material prejudice to the characteristic features of the general maritime law or interferes with the proper harmony and uniformity of that law in its international and interstate relations." [Latman, supra, at 758 So.2d 701.]
The Latman court reasoned that "Florida has a substantial interest in preventing deceptive and unfair trade practices, as thoroughly explained by the Fourth District in Renaissance Cruises, Inc. v. Glassman, 738 So. 2d 436, 438-40 (Fla. Dist. Ct. App.1999). "That is especially so where, as here, these cruise lines have their respective national headquarters within the State of Florida, and the passenger tickets specify Florida as the forum for litigation. [ ] We are unable to see how the enforcement of state law against deceptive and unfair trade practices would work material prejudice to the characteristic features of the general maritime law, or interfere with its proper harmony and uniformity." [Latman, supra, at 758 So.2d 701.]
General Maritime Risks
As noted in Southwest Marine (supra), any shipowner or operator doing business in California is exposed to an ocean of claims under the UCL. Lately, various environmental advocacy groups have attempted to use the UCL to enforce environmental laws. Typically, actions brought by environmental groups under federal statutes such as the Clean Water Act are dismissed for lack of standing. The UCL is attractive to these same groups because of its relaxed standing requirements. For this reason, at least one prominent environmental advocate has labeled the UCL the "biggest tool in the toolbox" for environmental prosecutors. [See Wheaton, California Business and Professions Code Section 17200: The Biggest Tool in the Toolbox, 16 J. Envtl. L. & Litig. (Fall, 2001).]
In recent years, state and federal governments have enacted laws in an attempt to combat the problems posed by introduction of nonindigenous invasive species when ships discharge their ballast water in port. [See Cruise & Carrier Legal Update, November 1998, August 1999, December 1999.] California, for example, has enacted the Ballast Water Management Act ("BWMA"), Public Resources Code §§ 71200. The BWMA mandates that all ships entering California waters after operating outside the U.S. Exclusive Economic Zone ("EEZ") "manage" their ballast water in one of three ways: (1) by retention; (2) by treatment by an approved system, or (3) by conducting a mid-ocean exchange 200 nautical miles from the California coast. The various state agencies charged with evaluating and enforcing the BWMA have until December 2002 to make recommendations to the Legislature. Until then, the only "approved" method of ballast water management is mid-ocean exchange.
A coalition of environmental advocacy groups has sued four major cruise lines in Los Angeles Superior Court for violation of the UCL. The gravamen of plaintiffs' claim is that the defendant cruise lines violate the BWMA by discharging ballast water into California harbors from San Francisco to San Diego without engaging in the "mandated" mid-ocean exchange. However, given that under § 71210(a) of the BWMA, the responsible state agencies have until December 31, 2002 to evaluate and put forth recommendations regarding alternative ballast water management technologies to reduce or eliminate the discharge of nonindigenous invasive species into California waters, such a suit may be premature. Nevertheless, the environmental groups see the cruise industry as a ready target in their misguided attempts to force the state to enforce an undeveloped law.
The doctrine of primary jurisdiction (below) may be invoked where, as here, the conduct in question is subject to or pending review and comment by an administrative agency.
Defenses to UCL Claims
Defenses to claims brought under the UCL can be based in law and equity and can address the form of the suit and the remedies sought.
Legal Defenses
Compliance with the law is a complete defense to a claim brought under the "unlawful" prong of the UCL. [See Schnall v. The Hertz Corp. (2000) 78 Cal.App.4th 1144, 1160-61.] Whether express regulatory approval of the conduct in question is a defense is an open question. In Walker v. Allstate Indemnity Co. (2000) 77 Cal.App.4th 750, the fact that California's Insurance Commissioner approved defense rates for auto insurance immunized the insurer against a UCL claim over those rates. However, In Hewlett v. Squaw Valley Ski Corp. (1997) 54 Cal.App. 499, 530, a decision relied upon by environmental groups, the Court of Appeal considered and rejected a defense based on the actions of the California Department of Forestry in withdrawing a timber harvest plan.
The doctrine of primary jurisdiction provides that the trial court may stay or decline to hear the UCL claim if the challenged conduct requires resolution of issues which have been placed within the special competence and jurisdiction of an administrative agency. [Farmers Insurance Exchange v. Superior Court (1992) 2 Cal.4th 377.] Additionally, there is an exception under the broad standing provisions for claims that are preempted by federal law. [See e.g. Day v. AT&T Corp. (1998) 63 Cal.App.4th at 325.]
A defense to a claim brought under the "unfairness" prong of the UCL may be asserted if a practice is expressly permitted by another statute. Thus, "when specific legislation provides a 'safe harbor,' plaintiffs may not use the general unfair competition law to assault that harbor." [Cel-Tech, supra, 20 Cal.4th at 163.] A UCL action may also be barred if the challenged conduct is absolutely privileged or immunized under some other principle of law. For example, in Rubin v. Green, (1993) 4 Cal.4th 1187, the California Supreme Court held that a UCL claim could not be based upon conduct that was protected under the litigation privilege.
As noted above, constitutional challenges may also be raised to a claim predicated under the UCL or some other state consumer protection statute. These include due process challenges, challenges that the underlying statute is unconstitutionally vague, or that the subject statute is overbroad on its face or as applied.
Equitable Defenses
Suits brought under the UCL and most other states' consumer protection statutes are primarily suits in equity. The broad range of conduct covered and relief available is founded upon the broad equitable powers of the courts. As to claims brought under the UCL, the only relief available is injunctive relief and restitution. Given the small amounts of "restitution" typically sought on behalf of individual claimants, and that so-called "representative" actions may be brought seeking restitution on behalf of parties not before the court and without the procedural safeguards of class certification, it must be recognized that the principal impetus for such suits is the recovery of "private attorney general" attorney's fees. In Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 179-181, the California Supreme Court endorsed the introduction of equitable considerations to defend against the remedies sought in UCL claims.
Thus, where the challenged conduct has been discontinued and is not likely to recur, mootness may be a defense. Where the claim as pleaded under the UCL is subject to an adequate remedy at law, this may be an effective defense. [See, e.g., Prudential Home Mortgage Co. v. Superior Court (1998) 66 Cal. App.4th 1236, 1249-11250.]
Although anyone can bring a claim under the UCL, even if not harmed by the challenged conduct, some of the statutes under which plaintiffs sue provide that remedies are only available to a "party aggrieved." Thus, the claim may be defended on the ground that there is not a "proper plaintiff." [See below.] This is a particularly apt defense for claims brought under Florida's FDUTPA, where a consumer only has a private right of action if he or she actually suffered loss as a result of the challenged conduct.
Future Battlegrounds
Ever since its inception, and continuing to the present day, the UCL has been a thorn in the side of those engaged in business in California. Consumer groups and the trial lawyers lobby to further expand the reach of the UCL, while business interests and Chambers of Commerce lobby to rein it in. The general consensus is that changes to the UCL are the province of the Legislature, not the courts, yet the California Legislature has been reluctant to pass any meaningful legislation amending the UCL.
Recent California Assembly Bill 2019 ("AB 2019") would have expanded the reach of the UCL by allowing any prosecutor (whether a public prosecutor or one acting as a "private attorney general") to demand that a business give up or "disgorge" all profits in any way related to the business practice the prosecutor claims is "unfair." In an attempt to legislate around the restrictions on disgorgement of profits set forth by the California Supreme Court in Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, AB 2019 would have permitted disgorgement of all funds paid to or earned by the defendant as a result of the challenged business practice to private consumer protection organizations without regard to the existence of individual consumers who would otherwise be entitled to restitution. Finally, AB 2019 would have perpetuated the problem that UCL actions have no res judicata effect, leaving businesses liable to multiple lawsuits and "fines" arising out of the same conduct. There are no comparable res judicata issues in states such as Florida, which require a plaintiff to have suffered actual injury in order to sue. California business interests lobbied for amendments to AB 2019 that would have restricted some of the perceived abuses. Lawmakers were unable to reach agreement and AB 2019 died on the Assembly floor, leaving for another day the battle between supporters and detractors of the UCL.
The California Supreme Court's decision in Kraus concludes with a statement that if the defendant can show the action is not one brought by a "competent" plaintiff for the benefit of injured parties, the court "may decline to entertain the action as a representative suit." [Id., at 23 Cal.4th 138.] Unless and until the Legislature acts, future cases will likely address whether the word "competent" should be equated with the concept of an adequate representative in a class action. Addressing the res judicata problem, the Kraus court notes:
If the possibility of future suits exists, it may be appropriate for the court to condition payment of restitution through beneficiaries of a representative UCL action on execution of acknowledgement that the payment is in full settlement of claims against the defendant, thereby avoiding any potential for repetitive suits on behalf of the same persons or dual liability to them. [Id., at 138-139.]
This is no solution, for it neglects to consider the due process rights of persons in interest not parties to the settlement.
Conclusion
Short of ceasing business entirely, there is little a shipowner or operator can do to prevent it from being sued under the UCL. The UCL is so liberally construed that it is no exaggeration to say that, under its auspices, anyone can sue anyone for anything. The best defense, when served with a complaint filed under the UCL or any other state unfair competition law, is to mount a vigorous defense. At least with respect to cases brought in California courts under the UCL and the CLRA, the vast majority of such cases are brought primarily to incite fear on the part of defendants and thereby induce a settlement in payment of the plaintiff attorney's fees. Such settlements, while appearing expedient in the short term, may have devastating consequences in the future. As noted, UCL cases have no res judicata effect. By choosing to settle rather than litigate specious UCL claims, defendants mark themselves as easy targets for trial lawyers particularly in hard markets and generally encourage the deleterious practice of filing representative UCL suits as a means of generating unwarranted attorney's fees. The vast majority of claims brought under the UCL and other state consumer protection statutes are specious and susceptible to summary disposition. If the shipowner or operator is to weather this new storm of litigation and remain profitable, it must govern itself accordingly.
