GOVERNOR'S VETO

GV Bill Id:AB 1477

Author:(Gloria)

As Enrolled Ver:September 12, 2019

2/3 vote

SUMMARY:

Provides that if an action is brought by a city attorney of a city having a population in excess of 750,000 in response to unfair competition, as defined, the penalty collected shall be paid to the treasurer of the city whose attorney brought the action, unless a county agency participated in the prelitigation investigation, in which case penalties shall be split evenly between the treasurer of the city and the treasurer of the county.

The Senate Amendments:

1. Remove the provision which details the division of penalties for an action prosecuted jointly by two or more authorized parties in the name of the people of the State of California. This amendment was taken to resolve a conflict with existing laws governing the division of these penalties (Government Code Section 26506).
2. Specify that if a county agency participated in the prelitigation investigation of the action, one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half of the penalty shall be paid to the treasurer of the county in which the judgment was entered.
3. Specify that one-half of any penalty collected by the Los Angeles City Attorney's office on or before January 1, 2021 shall be paid to the treasurer of the County of Los Angeles, and include legislative findings declaring the necessity of this special statute.

Governor’s Veto Message:

This bill would adjust the distribution of civil penalties recovered by government entities in Unfair Competition Law actions.

This existing division is intended to ensure that both the city and county have resources to enforce consumer protection laws. This measure will revise longstanding practices and reduce the resources allocated to counties, putting in jeopardy important consumer protection services they provide.

I encourage the counties and cities impacted by this bill to work together to reach a resolution on this matter that is in the best interests of the public they serve.

COMMENTS:

The Unfair Competition Law (UCL) is a broad set of consumer protection statutes prohibiting unfair competition in business practices, including "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." Actions brought against a person on behalf of the public, whether brought by a public or private entity, can, under the UCL, be remedied by injunctive relief and restitution, and, if brought by a public prosecutor of the state or permitted local authority, civil penalties. Proposition 64, passed in 2004, limited the ability of a private entity to bring an action under the UCL on behalf of the public to instances in which the person had suffered "injury in fact and has lost money or property as a result of such unfair competition." Consequently, standing for actions on behalf of the public under the UCL is essentially limited to the Attorney General, a district attorney, any county counsel, any city attorney of a city having a population in excess of 750,000, any city attorney of any city and county, or, with the consent of the district attorney, by a city prosecutor in any city having a full-time city prosecutor. Though a city attorney with a population in excess of 750,000 does not need consent from or, necessarily, assistance from the district attorney to bring such an action, any civil penalties recovered as a result of the action must nonetheless be split equally between the city and the county. This may disincentivize city attorneys of these large cities from independently prosecuting some unfair competition cases, as the financial incentives are tempered relative to the resources expended. With the limitations placed on private action by Proposition 64, it is imperative that public action on behalf of the people of California to prosecute unfair competition be appropriately supported and encouraged. This bill would entitle a city attorney of a city having a population in excess of 750,000 to the entirety of civil penalties recovered from an action brought by the city attorney under the UCL on behalf of the public, unless a county agency participated in the prelitigation investigation of the action. In the latter case, the penalty would be split evenly between the treasurer of the city in which the judgment was entered and the treasurer of the county in which the judgment was entered. This bill would currently apply only to city attorneys representing Los Angeles, San Diego, and San Jose. However, as amended, the bill specifies that one-half of any penalty collected by the Los Angeles City Attorney's office on or before January 1, 2021 shall be paid to the treasurer of the County of Los Angeles.

According to the Author:

The Unfair Competition Act authorizes public prosecutors, like the Attorney General and district attorneys, to file lawsuits charging unfair business practices. Similarly, certain city attorneys of large cities in California, like San Diego, Los Angeles, and San Jose, are able to bring similar suits forward. However, even if those eligible city attorneys receive no counsel, resource, or assistance from their district attorney, any civil penalties awarded to the city attorney must be shared equally with their district attorney. AB 1477 will ensure an equitable distribution of penalties awarded under the Unfair Competition Act and empower those eligible city attorneys to prosecute against unscrupulous businesses in the interest of consumers and the environment.

Arguments in Support:

This bill is sponsored by the City Attorney of San Diego, Mara W. Elliot, who argues:

[W]hen a city attorney brings such an action, existing law requires that civil penalties must be split evenly with the district attorney of that county – even when the district attorney had no role in the prosecution, providing neither counsel, resources nor assistance. This division of civil penalties serves as a disincentive to consumer and environmental protection. City attorneys are less likely to bring actions that protect consumers and the environment when they are forced to split the proceeds with an agency that has not invested any resources in the prosecution.

By requiring that penalties collected by an eligible city attorney from an action under the Unfair Competition Act be paid to the treasurer of the city whose attorney brought the action, AB 1477 will empower the impacted city to reinvest the proceeds back into the community that was harmed by unscrupulous businesses.

Arguments in Opposition:

The California State Association of Counties argues:

Civil penalties are not intended to simply reward or compensate the office that brought the action, but rather to impose a penalty against the offender and broadly support consumer protection actions. By dividing the funding between the cities and counties—it provides both the city and the county the resources that they need to enforce consumer protection laws. AB 1477 would take these resources away from the county.

FISCAL COMMENTS:

None

VOTES:

ASM JUDICIARY: 9-3-0

YES: Mark Stone, Chau, Chiu, Gonzalez, Holden, Kalra, Maienschein, Petrie-Norris, Reyes

NO: Gallagher, Kiley, Obernolte

ASSEMBLY FLOOR: 58-15-7

YES: Aguiar-Curry, Bauer-Kahan, Berman, Bloom, Boerner Horvath, Bonta, Burke, Calderon, Carrillo, Cervantes, Chau, Chiu, Cooley, Cooper, Daly, Eggman, Frazier, Friedman, Gabriel, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, Maienschein, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Weber, Wicks, Wood, Rendon

NO: Bigelow, Brough, Choi, Cunningham, Flora, Fong, Gallagher, Kiley, Lackey, Mayes, Melendez, Obernolte, Patterson, Voepel, Waldron

ABS, ABST OR NV: Arambula, Chen, Chu, Dahle, Diep, Kamlager-Dove, Mathis

SENATE FLOOR: 28-12-0

YES: Allen, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NO: Archuleta, Bates, Borgeas, Chang, Dahle, Grove, Jones, Moorlach, Morrell, Nielsen, Stone, Wilk

ASSEMBLY FLOOR: 61-18-0

YES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bloom, Boerner Horvath, Bonta, Burke, Calderon, Carrillo, Cervantes, Chau, Chiu, Chu, Cooley, Cooper, Daly, Eggman, Frazier, Friedman, Gabriel, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Levine, Limón, Low, Maienschein, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Weber, Wicks, Wood, Rendon

NO: Bigelow, Brough, Chen, Choi, Cunningham, Diep, Flora, Fong, Gallagher, Kiley, Lackey, Mathis, Mayes, Melendez, Obernolte, Patterson, Voepel, Waldron

UPDATED:

VERSION: September 12, 2019

CONSULTANT: Landon Klein / JUD. / (916) 319-2334 FN: 0001408

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1477

Author:(Gloria)

As Amended Ver:August 15, 2019

Majority vote

SUMMARY:

Provides that if an action is brought by a city attorney of a city having a population in excess of 750,000 in response to unfair competition, as defined, the penalty collected shall be paid to the treasurer of the city whose attorney brought the action, unless a county agency participated in the prelitigation investigation, in which case penalties shall be split evenly between the treasurer of the city and the treasurer of the county.

The Senate Amendments:

1. Remove the provision which details the division of penalties for an action prosecuted jointly by two or more authorized parties in the name of the people of the State of California. This amendment was taken to resolve a conflict with existing laws governing the division of these penalties (Government Code Section 26506).
2. Specify that if a county agency participated in the prelitigation investigation of the action, one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half of the penalty shall be paid to the treasurer of the county in which the judgment was entered.
3. Specify that one-half of any penalty collected by the Los Angeles City Attorney's office on or before January 1, 2021 shall be paid to the treasurer of the County of Los Angeles, and include legislative findings declaring the necessity of this special statute.

COMMENTS:

The Unfair Competition Law (UCL) is a broad set of consumer protection statutes prohibiting unfair competition in business practices, including "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." Actions brought against a person on behalf of the public, whether brought by a public or private entity, can, under the UCL, be remedied by injunctive relief and restitution, and, if brought by a public prosecutor of the state or permitted local authority, civil penalties. Proposition 64, passed in 2004, limited the ability of a private entity to bring an action under the UCL on behalf of the public to instances in which the person had suffered "injury in fact and has lost money or property as a result of such unfair competition." Consequently, standing for actions on behalf of the public under the UCL is essentially limited to the Attorney General, a district attorney, any county counsel, any city attorney of a city having a population in excess of 750,000, any city attorney of any city and county, or, with the consent of the district attorney, by a city prosecutor in any city having a full-time city prosecutor. Though a city attorney with a population in excess of 750,000 does not need consent from or, necessarily, assistance from the district attorney to bring such an action, any civil penalties recovered as a result of the action must nonetheless be split equally between the city and the county. This may disincentivize city attorneys of these large cities from independently prosecuting some unfair competition cases, as the financial incentives are tempered relative to the resources expended. With the limitations placed on private action by Proposition 64, it is imperative that public action on behalf of the people of California to prosecute unfair competition be appropriately supported and encouraged. This bill would entitle a city attorney of a city having a population in excess of 750,000 to the entirety of civil penalties recovered from an action brought by the city attorney under the UCL on behalf of the public, unless a county agency participated in the prelitigation investigation of the action. In the latter case, the penalty would be split evenly between the treasurer of the city in which the judgment was entered and the treasurer of the county in which the judgment was entered. This bill would currently apply only to city attorneys representing Los Angeles, San Diego, and San Jose. However, as amended, the bill specifies that one-half of any penalty collected by the Los Angeles City Attorney's office on or before January 1, 2021 shall be paid to the treasurer of the County of Los Angeles.

According to the Author:

The Unfair Competition Act authorizes public prosecutors, like the Attorney General and district attorneys, to file lawsuits charging unfair business practices. Similarly, certain city attorneys of large cities in California, like San Diego, Los Angeles, and San Jose, are able to bring similar suits forward. However, even if those eligible city attorneys receive no counsel, resource, or assistance from their district attorney, any civil penalties awarded to the city attorney must be shared equally with their district attorney. AB 1477 will ensure an equitable distribution of penalties awarded under the Unfair Competition Act and empower those eligible city attorneys to prosecute against unscrupulous businesses in the interest of consumers and the environment.

Arguments in Support:

This bill is sponsored by the City Attorney of San Diego, Mara W. Elliot, who argues:

[W]hen a city attorney brings such an action, existing law requires that civil penalties must be split evenly with the district attorney of that county – even when the district attorney had no role in the prosecution, providing neither counsel, resources nor assistance. This division of civil penalties serves as a disincentive to consumer and environmental protection. City attorneys are less likely to bring actions that protect consumers and the environment when they are forced to split the proceeds with an agency that has not invested any resources in the prosecution.

By requiring that penalties collected by an eligible city attorney from an action under the Unfair Competition Act be paid to the treasurer of the city whose attorney brought the action, AB 1477 will empower the impacted city to reinvest the proceeds back into the community that was harmed by unscrupulous businesses.

Arguments in Opposition:

The California State Association of Counties argues:

Civil penalties are not intended to simply reward or compensate the office that brought the action, but rather to impose a penalty against the offender and broadly support consumer protection actions. By dividing the funding between the cities and counties—it provides both the city and the county the resources that they need to enforce consumer protection laws. AB 1477 would take these resources away from the county.

FISCAL COMMENTS:

None

VOTES:

ASM JUDICIARY: 9-3-0

YES: Mark Stone, Chau, Chiu, Gonzalez, Holden, Kalra, Maienschein, Petrie-Norris, Reyes

NO: Gallagher, Kiley, Obernolte

ASSEMBLY FLOOR: 58-15-7

YES: Aguiar-Curry, Bauer-Kahan, Berman, Bloom, Boerner Horvath, Bonta, Burke, Calderon, Carrillo, Cervantes, Chau, Chiu, Cooley, Cooper, Daly, Eggman, Frazier, Friedman, Gabriel, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, Maienschein, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Weber, Wicks, Wood, Rendon

NO: Bigelow, Brough, Choi, Cunningham, Flora, Fong, Gallagher, Kiley, Lackey, Mayes, Melendez, Obernolte, Patterson, Voepel, Waldron

ABS, ABST OR NV: Arambula, Chen, Chu, Dahle, Diep, Kamlager-Dove, Mathis

SENATE FLOOR: 28-12-0

YES: Allen, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NO: Archuleta, Bates, Borgeas, Chang, Dahle, Grove, Jones, Moorlach, Morrell, Nielsen, Stone, Wilk

UPDATED:

VERSION: August 15, 2019

CONSULTANT: Landon Klein / JUD. / (916) 319-2334 FN: 0001408

 THIRD READING  

Bill No: AB 1477

Author: Gloria (D), et al.

Amended: 8/15/19 in Senate

Vote: 21

SENATE JUDICIARY COMMITTEE: 7-2, 6/18/19

AYES: Jackson, Durazo, Lena Gonzalez, Monning, Stern, Umberg, Wieckowski

NOES: Borgeas, Jones

ASSEMBLY FLOOR: 58-15, 5/9/19 - See last page for vote

SUBJECT: Unfair Practices Act

SOURCE: San Diego City Attorney Mara Elliott

DIGEST:

This bill adjusts the distribution of civil penalties recovered by governmental entities in Unfair Competition Law actions.

Senate Floor Amendments of 8/15/19 provide that the changes shall not take effect as to penalties collected by the Los Angeles City Attorney’s office on or before January 1, 2021.

ANALYSIS:

Existing law:

1. Establishes the Unfair Competition Law (UCL) and defines “unfair competition” to mean and include any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code. (Bus. & Prof. Code § 17200 et seq.)
2. Provides that any person who engages, has engaged, or proposes to engage in unfair competition may be enjoined in any court of competent jurisdiction. The court may make such orders or judgments as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition or as may be necessary to restore to any person in interest any money or property, which may have been acquired by means of such unfair competition. Any person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of Business and Professions Code Section 17204 and complies with Section 382 of the Code of Civil Procedure, but these limitations do not apply to claims brought under this chapter by the Attorney General, or any district attorney, county counsel, city attorney, or city prosecutor in this state. (Bus. & Prof. Code Sec. 17203.)
3. Requires actions for relief pursuant to the UCL be prosecuted exclusively in a court of competent jurisdiction and only by the following:
   1. the Attorney General;
   2. a district attorney;
   3. a county counsel authorized by agreement with the district attorney in actions involving violation of a county ordinance;
   4. a city attorney of a city having a population in excess of 750,000;
   5. a city attorney in a city and county;
   6. a city prosecutor in a city having a full-time city prosecutor in the name of the people of the State of California upon their own complaint or upon the complaint of a board, officer, person, corporation, or association with the consent of the district attorney; or
   7. a person who has suffered injury in fact and has lost money or property as a result of the unfair competition. (Bus. & Prof. Code Sec. 17204.)
4. Holds any person who engages, has engaged, or proposes to engage in unfair competition liable for a civil penalty not to exceed $2,500 for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General, by any district attorney, by any county counsel authorized by agreement with the district attorney in actions involving violation of a county ordinance, by any city attorney of a city having a population in excess of 750,000, by any city attorney of any city and county, or, with the consent of the district attorney, by a city prosecutor in any city having a full-time city prosecutor, in any court of competent jurisdiction. (Bus. & Prof. Code § 17206(a).)
5. Requires the penalties collected pursuant to the UCL to be used for enforcement of consumer protection laws and provides for the distribution of those funds based on the entity bringing the action:
   1. if the action is brought by the Attorney General, one-half of the penalty collected shall be paid to the treasurer of the county in which the judgment was entered, and one-half to the General Fund;
   2. if the action is brought by a district attorney or county counsel, the penalty collected shall be paid to the treasurer of the county in which the judgment was entered;
   3. if the action is brought by a city attorney of a city and county, the entire amount of the penalty collected shall be paid to the treasurer of the city and county in which the judgment was entered; and
   4. if the action is brought by a city attorney or city prosecutor, one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered, except as provided. (Bus. & Prof. Code § 17206.)
6. Provides that if the action is brought at the request of a board within the Department of Consumer Affairs or a local consumer affairs agency, the court shall determine the reasonable expenses incurred by the board or local agency in the investigation and prosecution of the action. Before any penalty collected is paid out pursuant to the provisions above, the amount of any reasonable expenses incurred by the board shall be paid to the Treasurer for deposit in the special fund of the board described in Section 205. If the board has no such special fund, the moneys shall be paid to the Treasurer. The amount of any reasonable expenses incurred by a local consumer affairs agency shall be paid to the general fund of the municipality or county that funds the local agency. (Bus. & Prof. Code § 17206(e).)
7. Provides that the proceeds of civil penalties or other monetary awards recovered in any civil action brought jointly in the name of the people of the State of California by the Attorney General, one or more district attorneys, or by one or more city attorneys, or any combination thereof, shall be paid as approved by the court. (Gov. Code § 26506.) A district attorney, city attorney, or any combination thereof, may, in agreement with other district attorneys or city attorneys, act jointly in prosecuting a civil cause of action of benefit to his own county in a court of the other jurisdiction. (Gov. Code § 26507.)

This bill provides that if a UCL action is brought by a city attorney of a city having a population in excess of 750,000, the penalty collected shall be paid to the treasurer of the city whose attorney brought the action, unless a county agency participated in the prelitigation investigation of the action, in which case one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered. However, this change shall not apply to a penalty collected by the Los Angeles City Attorney’s office on or before January 1, 2021.

Background

The UCL, Business and Professions Code Section 17200 et seq., protects consumers against unlawful, unfair, or fraudulent business practices and advertising. The UCL provides for civil penalties to be assessed and recovered from violators in the name of the people of California by various governmental agencies. The UCL specifically details how the proceeds from those actions are to be distributed and used.

Currently, if the action is brought by a city attorney or city prosecutor, one-half of the penalty collected is paid to the city in which the judgment was entered, and one-half to the county in which the judgment was entered. This bill amends that allotment by directing the penalties collected in a UCL action brought by a city attorney of a city having a population in excess of 750,000 to the city whose attorney brought the action. However, if a county agency participated in the prelitigation investigation of the action, one-half of the penalties go to the county in which the judgment was entered. Recent amendments provide that this change will not apply to penalties collected by the Los Angeles City Attorney’s office on or before January 1, 2021.

Comments

UCL enforcement

Unfair business practices encompass fraud, misrepresentation, and oppressive or unconscionable acts or practices by businesses, often against consumers. In California, affected individuals and specified governmental agencies are authorized to bring civil actions for unfair competition and to recover civil penalties or injunctive relief pursuant to the UCL.

The UCL identifies specific agencies authorized to bring such actions and to recover civil penalties. This includes the Attorney General and district attorneys. County counsel are also permitted to bring such actions if authorized by the district attorney and only in actions involving a county ordinance violation. City prosecutors in cities having a full-time prosecutor can also bring UCL claims on behalf of the people of California if they have the consent of the district attorney.

Certain city attorneys have expanded authority. City attorneys of cities with populations in excess of 750,000 and city attorneys of a city and county may bring UCL actions without seeking consent. Currently, the City and County of San Francisco is the only consolidated city-county in California, a status it has held since 1856. Thus, in practice, San Francisco is the only public entity that is affected by the statutory provisions granting authority to a city attorney of a city and county to bring unfair competition actions. Currently, the only city attorneys granted authority to bring actions under the UCL based on population are those in San Jose, San Diego, and Los Angeles.

Distribution of UCL civil penalties

The UCL also specifically details how the civil penalties collected pursuant to it are to be distributed. This is currently based primarily on which governmental entity is bringing the action. Relevant here, the law provides that “if the action is brought by a city attorney or city prosecutor, one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered.” (Bus. & Prof. Code § 17206.) Therefore, regardless of whether the county was involved, the county is receiving half of the proceeds from these actions. For comparison, if the action is brought by a district attorney or county counsel, the entire penalty collected is received by the county in which the judgment was entered.

This bill amends the above provision by providing that if a UCL action is brought by a city attorney of a city having a population in excess of 750,000, the total penalty collected gets paid to the city. The Office of the San Diego City Attorney, the sponsor of the bill, makes the case for why the bill is needed:

When the Attorney General or a district attorney brings forward an action under the Unfair Competition Act, that office receives all civil penalties awarded by a court. Those resources are then used to conduct additional investigations and prosecutions of consumer fraud, unfair business practices, and similar crimes.

However, when a city attorney brings such an action, existing law requires that civil penalties must be split evenly with the district attorney of that county—even when the district attorney had no role in the prosecution, providing neither counsel, resources nor assistance. This division of civil penalties serves as a disincentive to consumer and environmental protection. City attorneys are less likely to bring actions that protect consumers and the environment when they are forced to split the proceeds with an agency that has not invested any resources in the prosecution.

Nothing in AB 1477 would prohibit district attorneys, county counsel, and city attorneys from continuing their practice of cooperating in prosecutions and mutually agreeing to penalty-splitting arrangements.

This bill essentially provides city attorneys with all of the proceeds if they bring the action, rather than sharing with a county that may not have been involved in the litigation.

It should be noted that existing law provides that if the UCL action is brought at the request of a board within the Department of Consumer Affairs or a local consumer affairs agency (such as the Los Angeles County Department of Consumer and Business Affairs), the board’s reasonable expenses incurred as a result of the investigation and prosecution of the action are to be reimbursed before the penalty collected is otherwise paid out.

In response to these concerns and similar concerns from the County of Los Angeles that their support of Los Angeles City Attorney-prosecuted UCL actions would go unrewarded, the bill was amended to provide that where a county agency “participated in the prelitigation investigation” of the UCL action brought by the city attorney, half of the penalties collected go to the treasurer of the county in which the judgment was entered. This attempts to strike a balance between cities and counties that allots the funds based on some nexus to the work involved in successfully carrying out the action.

“Participated in the prelitigation investigation” is not specifically defined. A plain reading of the provision is that any effort on the part of the county in the investigation of a UCL violation before a complaint is filed triggers this provision. Therefore, only minimal effort on the part of the county in the investigation of a city attorney’s case entitles them to half of the penalties collected in an action prosecuted, otherwise solely, by the city attorney. However, given the lack of a clear threshold and the often large penalties at stake, the phrase is likely to be the subject of future litigation.

The County of Los Angeles argues the recent amendment “could discourage the Los Angeles City Attorney from involving the County’s Department of Consumer and Business Affairs [(DCBA)] in pre-filing investigations because by excluding them the City Attorney could keep all of the civil penalties recovered.” The county reasserts its concern that by “eliminating a vital source of funding for the County's consumer protection efforts by DCBA, the District Attorney, and County Counsel . . . the bill would continue to have an adverse fiscal impact on the County and on the consumer protection work that it does for the over 10 million people living in the County.”

It is true that there would be an added incentive for a city attorney to not involve a county in its investigative work, as including them at all would require them to share half of the penalties collected. This could decrease the amount of collaboration between city attorneys and county entities in prosecuting these consumer protection actions. In order to allow some time before the change in law takes effect in Los Angeles, recent amendments make clear that any penalties collected by the Los Angeles City Attorney’s office on or before January 1, 2021 must continue to be split with the County of Los Angeles.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 8/16/19)

San Diego City Attorney Mara Elliott (source)

City of San Jose

Los Angeles City Attorney Michael Feuer

OPPOSITION: (Verified 8/16/19)

California State Association of Counties

County of Los Angeles

County of Santa Clara

ARGUMENTS IN SUPPORT: According to the author, “The Unfair Competition Act authorizes public prosecutors, like the Attorney General and district attorneys, to file lawsuits charging unfair business practices. Similarly, certain city attorneys of large cities in California, like San Diego, Los Angeles, and San Jose, are able to bring similar suits forward. However, even if those eligible city attorneys receive no counsel, resource, or assistance from their district attorney, any civil penalties awarded to the city attorney must be shared equally with their district attorney. AB 1477 will ensure an equitable distribution of penalties awarded under the Unfair Competition Act and empower those eligible city attorneys to prosecute against unscrupulous businesses in the interest of consumers and the environment.”

ARGUMENTS IN OPPOSITION: The California State Association of Counties writes, “Civil penalties are not intended to simply reward or compensate the office that brought the action, but rather to impose a penalty against the offender and broadly support consumer protection actions. By dividing the funding between the cities and counties—it provides both the city and the county the resources that they need to enforce consumer protection laws. AB 1477 would take these resources away from the county.”

ASSEMBLY FLOOR: 58-15, 5/9/19

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bloom, Boerner Horvath, Bonta, Burke, Calderon, Carrillo, Cervantes, Chau, Chiu, Cooley, Cooper, Daly, Eggman, Frazier, Friedman, Gabriel, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, Maienschein, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Weber, Wicks, Wood, Rendon

NOES: Bigelow, Brough, Choi, Cunningham, Flora, Fong, Gallagher, Kiley, Lackey, Mayes, Melendez, Obernolte, Patterson, Voepel, Waldron

NO VOTE RECORDED: Arambula, Chen, Chu, Dahle, Diep, Kamlager-Dove, Mathis

Prepared by: Christian Kurpiewski / JUD. / (916) 651-4113

8/21/19 15:20:38

**** END ****

 THIRD READING  

Bill No: AB 1477

Author: Gloria (D), et al.

Amended: 6/10/19 in Senate

Vote: 21

SENATE JUDICIARY COMMITTEE: 7-2, 6/18/19

AYES: Jackson, Durazo, Lena Gonzalez, Monning, Stern, Umberg, Wieckowski

NOES: Borgeas, Jones

ASSEMBLY FLOOR: 58-15, 5/9/19 - See last page for vote

SUBJECT: Unfair Practices Act

SOURCE: San Diego City Attorney Mara Elliott

DIGEST:

This bill adjusts the distribution of civil penalties recovered by governmental entities in Unfair Competition Law actions.

ANALYSIS:

Existing law:

1. Establishes the Unfair Competition Law (UCL) and defines “unfair competition” to mean and include any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code. (Bus. & Prof. Code § 17200 et seq.)
2. Provides that any person who engages, has engaged, or proposes to engage in unfair competition may be enjoined in any court of competent jurisdiction. The court may make such orders or judgments as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition or as may be necessary to restore to any person in interest any money or property, which may have been acquired by means of such unfair competition. Any person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of Business and Professions Code Section 17204 and complies with Section 382 of the Code of Civil Procedure, but these limitations do not apply to claims brought under this chapter by the Attorney General, or any district attorney, county counsel, city attorney, or city prosecutor in this state. (Bus. & Prof. Code Sec. 17203.)
3. Requires actions for relief pursuant to the UCL be prosecuted exclusively in a court of competent jurisdiction and only by the following:
   1. the Attorney General;
   2. a district attorney;
   3. a county counsel authorized by agreement with the district attorney in actions involving violation of a county ordinance;
   4. a city attorney of a city having a population in excess of 750,000;
   5. a city attorney in a city and county;
   6. a city prosecutor in a city having a full-time city prosecutor in the name of the people of the State of California upon their own complaint or upon the complaint of a board, officer, person, corporation, or association with the consent of the district attorney; or
   7. a person who has suffered injury in fact and has lost money or property as a result of the unfair competition. (Bus. & Prof. Code Sec. 17204.)
4. Holds any person who engages, has engaged, or proposes to engage in unfair competition liable for a civil penalty not to exceed $2,500 for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General, by any district attorney, by any county counsel authorized by agreement with the district attorney in actions involving violation of a county ordinance, by any city attorney of a city having a population in excess of 750,000, by any city attorney of any city and county, or, with the consent of the district attorney, by a city prosecutor in any city having a full-time city prosecutor, in any court of competent jurisdiction. (Bus. & Prof. Code § 17206(a).)
5. Requires the penalties collected pursuant to the UCL to be used for enforcement of consumer protection laws and provides for the distribution of those funds based on the entity bringing the action:
   1. if the action is brought by the Attorney General, one-half of the penalty collected shall be paid to the treasurer of the county in which the judgment was entered, and one-half to the General Fund;
   2. if the action is brought by a district attorney or county counsel, the penalty collected shall be paid to the treasurer of the county in which the judgment was entered;
   3. if the action is brought by a city attorney of a city and county, the entire amount of the penalty collected shall be paid to the treasurer of the city and county in which the judgment was entered; and
   4. if the action is brought by a city attorney or city prosecutor, one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered, except as provided. (Bus. & Prof. Code § 17206.)
6. Provides that if the action is brought at the request of a board within the Department of Consumer Affairs or a local consumer affairs agency, the court shall determine the reasonable expenses incurred by the board or local agency in the investigation and prosecution of the action. Before any penalty collected is paid out pursuant to the provisions above, the amount of any reasonable expenses incurred by the board shall be paid to the Treasurer for deposit in the special fund of the board described in Section 205. If the board has no such special fund, the moneys shall be paid to the Treasurer. The amount of any reasonable expenses incurred by a local consumer affairs agency shall be paid to the general fund of the municipality or county that funds the local agency. (Bus. & Prof. Code § 17206(e).)
7. Provides that the proceeds of civil penalties or other monetary awards recovered in any civil action brought jointly in the name of the people of the State of California by the Attorney General, one or more district attorneys, or by one or more city attorneys, or any combination thereof, shall be paid as approved by the court. (Gov. Code § 26506.) A district attorney, city attorney, or any combination thereof, may, in agreement with other district attorneys or city attorneys, act jointly in prosecuting a civil cause of action of benefit to his own county in a court of the other jurisdiction. (Gov. Code § 26507.)

This bill provides that if a UCL action is brought by a city attorney of a city having a population in excess of 750,000, the penalty collected shall be paid to the treasurer of the city whose attorney brought the action, unless a county agency participated in the prelitigation investigation of the action, in which case one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered.

Background

The UCL, Business and Professions Code Section 17200 et seq., protects consumers against unlawful, unfair, or fraudulent business practices and advertising. The UCL provides for civil penalties to be assessed and recovered from violators in the name of the people of California by various governmental agencies. The UCL specifically details how the proceeds from those actions are to be distributed and used.

Currently, if the action is brought by a city attorney or city prosecutor, one-half of the penalty collected is paid to the city in which the judgment was entered, and one-half to the county in which the judgment was entered. This bill amends that allotment by directing the penalties collected in a UCL action brought by a city attorney of a city having a population in excess of 750,000 to the city whose attorney brought the action. However, if a county agency participated in the prelitigation investigation of the action, one-half of the penalties go to the county in which the judgment was entered.

Comments

UCL enforcement

Unfair business practices encompass fraud, misrepresentation, and oppressive or unconscionable acts or practices by businesses, often against consumers. In California, affected individuals and specified governmental agencies are authorized to bring civil actions for unfair competition and to recover civil penalties or injunctive relief pursuant to the UCL.

The UCL identifies specific agencies authorized to bring such actions and to recover civil penalties. This includes the Attorney General and district attorneys. County counsel are also permitted to bring such actions if authorized by the district attorney and only in actions involving a county ordinance violation. City prosecutors in cities having a full-time prosecutor can also bring UCL claims on behalf of the people of California if they have the consent of the district attorney.

Certain city attorneys have expanded authority. City attorneys of cities with populations in excess of 750,000 and city attorneys of a city and county may bring UCL actions without seeking consent. Currently, the City and County of San Francisco is the only consolidated city-county in California, a status it has held since 1856. Thus, in practice, San Francisco is the only public entity that is affected by the statutory provisions granting authority to a city attorney of a city and county to bring unfair competition actions. Currently, the only city attorneys granted authority to bring actions under the UCL based on population are those in San Jose, San Diego, and Los Angeles.

Distribution of UCL civil penalties

The UCL also specifically details how the civil penalties collected pursuant to it are to be distributed. This is currently based primarily on which governmental entity is bringing the action. Relevant here, the law provides that “if the action is brought by a city attorney or city prosecutor, one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered.” (Bus. & Prof. Code § 17206.) Therefore, regardless of whether the county was involved, the county is receiving half of the proceeds from these actions. For comparison, if the action is brought by a district attorney or county counsel, the entire penalty collected is received by the county in which the judgment was entered.

This bill amends the above provision by providing that if a UCL action is brought by a city attorney of a city having a population in excess of 750,000, the total penalty collected gets paid to the city. The Office of the San Diego City Attorney, the sponsor of the bill, makes the case for why the bill is needed:

When the Attorney General or a district attorney brings forward an action under the Unfair Competition Act, that office receives all civil penalties awarded by a court. Those resources are then used to conduct additional investigations and prosecutions of consumer fraud, unfair business practices, and similar crimes.

However, when a city attorney brings such an action, existing law requires that civil penalties must be split evenly with the district attorney of that county—even when the district attorney had no role in the prosecution, providing neither counsel, resources nor assistance. This division of civil penalties serves as a disincentive to consumer and environmental protection. City attorneys are less likely to bring actions that protect consumers and the environment when they are forced to split the proceeds with an agency that has not invested any resources in the prosecution.

Nothing in AB 1477 would prohibit district attorneys, county counsel, and city attorneys from continuing their practice of cooperating in prosecutions and mutually agreeing to penalty-splitting arrangements.

This bill essentially provides city attorneys with all of the proceeds if they bring the action, rather than sharing with a county that may not have been involved in the litigation.

It should be noted that existing law provides that if the UCL action is brought at the request of a board within the Department of Consumer Affairs or a local consumer affairs agency (such as the Los Angeles County Department of Consumer and Business Affairs), the board’s reasonable expenses incurred as a result of the investigation and prosecution of the action are to be reimbursed before the penalty collected is otherwise paid out.

In response to these concerns and similar concerns from the County of Los Angeles that their support of Los Angeles City Attorney-prosecuted UCL actions would go unrewarded, the bill was amended to provide that where a county agency “participated in the prelitigation investigation” of the UCL action brought by the city attorney, half of the penalties collected go to the treasurer of the county in which the judgment was entered. This attempts to strike a balance between cities and counties that allots the funds based on some nexus to the work involved in successfully carrying out the action.

“Participated in the prelitigation investigation” is not specifically defined. A plain reading of the provision is that any effort on the part of the county in the investigation of a UCL violation before a complaint is filed triggers this provision. Therefore, only minimal effort on the part of the county in the investigation of a city attorney’s case entitles them to half of the penalties collected in an action prosecuted, otherwise solely, by the city attorney. However, given the lack of a clear threshold and the often large penalties at stake, the phrase is likely to be the subject of future litigation.

The County of Los Angeles argues the recent amendment “could discourage the Los Angeles City Attorney from involving the County’s Department of Consumer and Business Affairs [(DCBA)] in pre-filing investigations because by excluding them the City Attorney could keep all of the civil penalties recovered.” The county reasserts its concern that by “eliminating a vital source of funding for the County's consumer protection efforts by DCBA, the District Attorney, and County Counsel . . . the bill would continue to have an adverse fiscal impact on the County and on the consumer protection work that it does for the over 10 million people living in the County.”

It is true that there would be an added incentive for a city attorney to not involve a county in its investigative work, as including them at all would require them to share half of the penalties collected. This could decrease the amount of collaboration between city attorneys and county entities in prosecuting these consumer protection actions.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/20/19)

San Diego City Attorney Mara Elliott (source)

Los Angeles City Attorney Michael Feuer

OPPOSITION: (Verified 6/20/19)

California State Association of Counties

County of Los Angeles

County of Santa Clara

ARGUMENTS IN SUPPORT: According to the author, “The Unfair Competition Act authorizes public prosecutors, like the Attorney General and district attorneys, to file lawsuits charging unfair business practices. Similarly, certain city attorneys of large cities in California, like San Diego, Los Angeles, and San Jose, are able to bring similar suits forward. However, even if those eligible city attorneys receive no counsel, resource, or assistance from their district attorney, any civil penalties awarded to the city attorney must be shared equally with their district attorney. AB 1477 will ensure an equitable distribution of penalties awarded under the Unfair Competition Act and empower those eligible city attorneys to prosecute against unscrupulous businesses in the interest of consumers and the environment.”

ARGUMENTS IN OPPOSITION: The California State Association of Counties writes, “Civil penalties are not intended to simply reward or compensate the office that brought the action, but rather to impose a penalty against the offender and broadly support consumer protection actions. By dividing the funding between the cities and counties—it provides both the city and the county the resources that they need to enforce consumer protection laws. AB 1477 would take these resources away from the county.”

ASSEMBLY FLOOR: 58-15, 5/9/19

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bloom, Boerner Horvath, Bonta, Burke, Calderon, Carrillo, Cervantes, Chau, Chiu, Cooley, Cooper, Daly, Eggman, Frazier, Friedman, Gabriel, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, Maienschein, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Weber, Wicks, Wood, Rendon

NOES: Bigelow, Brough, Choi, Cunningham, Flora, Fong, Gallagher, Kiley, Lackey, Mayes, Melendez, Obernolte, Patterson, Voepel, Waldron

NO VOTE RECORDED: Arambula, Chen, Chu, Dahle, Diep, Kamlager-Dove, Mathis

Prepared by: Christian Kurpiewski / JUD. / (916) 651-4113

6/21/19 11:43:05

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: AB 1477 (Author:Gloria)

Version: June 10, 2019

Hearing Date: June 18, 2019

Fiscal: No

Urgency: No

Consultant: CK

SUBJECT

Unfair Practices Act

DIGEST

This bill adjusts the distribution of civil penalties recovered by governmental entities in Unfair Competition Law actions.

EXECUTIVE SUMMARY

The Unfair Competition Law (UCL), Business and Professions Code Section 17200 et seq., protects consumers against unlawful, unfair, or fraudulent business practices and advertising. The UCL provides for civil penalties to be assessed and recovered from violators in the name of the people of California by various governmental agencies. The UCL specifically details how the proceeds from those actions are to be distributed and used.

Currently, if the action is brought by a city attorney or city prosecutor, one-half of the penalty collected is paid to the city in which the judgment was entered, and one-half to the county in which the judgment was entered. This bill amends that allotment by directing the penalties collected in a UCL action brought by a city attorney of a city having a population in excess of 750,000 to the city whose attorney brought the action. However, if a county agency participated in the prelitigation investigation of the action, one-half of the penalties go to the county in which the judgment was entered.

This bill is sponsored by the Office of the San Diego City Attorney. It is supported by the Los Angeles City Attorney. It is opposed by the California State Association of Counties, the County of Santa Clara, and the County of Los Angeles.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Establishes the UCL and defines “unfair competition” to mean and include any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code. (Bus. & Prof. Code § 17200 et seq.)
2. Provides that any person who engages, has engaged, or proposes to engage in unfair competition may be enjoined in any court of competent jurisdiction. The court may make such orders or judgments as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition or as may be necessary to restore to any person in interest any money or property, which may have been acquired by means of such unfair competition. Any person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of Business and Professions Code Section 17204 and complies with Section 382 of the Code of Civil Procedure, but these limitations do not apply to claims brought under this chapter by the Attorney General, or any district attorney, county counsel, city attorney, or city prosecutor in this state. (Bus. & Prof. Code Sec. 17203.)
3. Requires actions for relief pursuant to the UCL be prosecuted exclusively in a court of competent jurisdiction and only by the following:
   1. the Attorney General;
   2. a district attorney;
   3. a county counsel authorized by agreement with the district attorney in actions involving violation of a county ordinance;
   4. a city attorney of a city having a population in excess of 750,000;
   5. a city attorney in a city and county;
   6. a city prosecutor in a city having a full-time city prosecutor in the name of the people of the State of California upon their own complaint or upon the complaint of a board, officer, person, corporation, or association with the consent of the district attorney; or
   7. a person who has suffered injury in fact and has lost money or property as a result of the unfair competition. (Bus. & Prof. Code Sec. 17204.)
4. Holds any person who engages, has engaged, or proposes to engage in unfair competition liable for a civil penalty not to exceed $2,500 for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General, by any district attorney, by any county counsel authorized by agreement with the district attorney in actions involving violation of a county ordinance, by any city attorney of a city having a population in excess of 750,000, by any city attorney of any city and county, or, with the consent of the district attorney, by a city prosecutor in any city having a full-time city prosecutor, in any court of competent jurisdiction. (Bus. & Prof. Code § 17206(a).)
5. Requires the penalties collected pursuant to the UCL to be used for enforcement of consumer protection laws and provides for the distribution of those funds based on the entity bringing the action:
   1. if the action is brought by the Attorney General, one-half of the penalty collected shall be paid to the treasurer of the county in which the judgment was entered, and one-half to the General Fund;
   2. if the action is brought by a district attorney or county counsel, the penalty collected shall be paid to the treasurer of the county in which the judgment was entered;
   3. if the action is brought by a city attorney of a city and county, the entire amount of the penalty collected shall be paid to the treasurer of the city and county in which the judgment was entered; and
   4. if the action is brought by a city attorney or city prosecutor, one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered, except as provided. (Bus. & Prof. Code § 17206.)
6. Provides that if the action is brought at the request of a board within the Department of Consumer Affairs or a local consumer affairs agency, the court shall determine the reasonable expenses incurred by the board or local agency in the investigation and prosecution of the action. Before any penalty collected is paid out pursuant to the provisions above, the amount of any reasonable expenses incurred by the board shall be paid to the Treasurer for deposit in the special fund of the board described in Section 205. If the board has no such special fund, the moneys shall be paid to the Treasurer. The amount of any reasonable expenses incurred by a local consumer affairs agency shall be paid to the general fund of the municipality or county that funds the local agency. (Bus. & Prof. Code § 17206(e).)
7. Provides that the proceeds of civil penalties or other monetary awards recovered in any civil action brought jointly in the name of the people of the State of California by the Attorney General, one or more district attorneys, or by one or more city attorneys, or any combination thereof, shall be paid as approved by the court. (Gov. Code § 26506.) A district attorney, city attorney, or any combination thereof, may, in agreement with other district attorneys or city attorneys, act jointly in prosecuting a civil cause of action of benefit to his own county in a court of the other jurisdiction. (Gov. Code § 26507.)

This bill provides that if a UCL action is brought by a city attorney of a city having a population in excess of 750,000, the penalty collected shall be paid to the treasurer of the city whose attorney brought the action, unless a county agency participated in the prelitigation investigation of the action, in which case one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered.

COMMENTS

1. UCL enforcement

Unfair business practices encompass fraud, misrepresentation, and oppressive or unconscionable acts or practices by businesses, often against consumers. In California, affected individuals and specified governmental agencies are authorized to bring civil actions for unfair competition and to recover civil penalties or injunctive relief pursuant to the UCL.

The UCL identifies specific agencies authorized to bring such actions and to recover civil penalties. This includes the Attorney General and district attorneys. County counsel are also permitted to bring such actions if authorized by the district attorney and only in actions involving a county ordinance violation. City prosecutors in cities having a full-time prosecutor can also bring UCL claims on behalf of the people of California if they have the consent of the district attorney.

Certain city attorneys have expanded authority. City attorneys of cities with populations in excess of 750,000 and city attorneys of a city and county may bring UCL actions without seeking consent. Currently, the City and County of San Francisco is the only consolidated city-county in California, a status it has held since 1856. Thus, in practice, San Francisco is the only public entity that is affected by the statutory provisions granting authority to a city attorney of a city and county to bring unfair competition actions. Currently, the only city attorneys granted authority to bring actions under the UCL based on population are those in San Jose, San Diego, and Los Angeles.

1. Distribution of UCL civil penalties

The UCL also specifically details how the civil penalties collected pursuant to it are to be distributed. This is currently based primarily on which governmental entity is bringing the action. Relevant here, the law provides that “if the action is brought by a city attorney or city prosecutor, one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered.” (Bus. & Prof. Code § 17206.) Therefore, regardless of whether the county was involved, the county is receiving half of the proceeds from these actions. For comparison, if the action is brought by a district attorney or county counsel, the entire penalty collected is received by the county in which the judgment was entered.

This bill amends the above provision by providing that if a UCL action is brought by a city attorney of a city having a population in excess of 750,000, the total penalty collected gets paid to the city. The Office of the San Diego City Attorney, the sponsor of the bill, makes the case for why the bill is needed:

When the Attorney General or a district attorney brings forward an action under the Unfair Competition Act, that office receives all civil penalties awarded by a court. Those resources are then used to conduct additional investigations and prosecutions of consumer fraud, unfair business practices, and similar crimes.

However, when a city attorney brings such an action, existing law requires that civil penalties must be split evenly with the district attorney of that county—even when the district attorney had no role in the prosecution, providing neither counsel, resources nor assistance. This division of civil penalties serves as a disincentive to consumer and environmental protection. City attorneys are less likely to bring actions that protect consumers and the environment when they are forced to split the proceeds with an agency that has not invested any resources in the prosecution.

Nothing in AB 1477 would prohibit district attorneys, county counsel, and city attorneys from continuing their practice of cooperating in prosecutions and mutually agreeing to penalty-splitting arrangements.

The bill essentially provides city attorneys with all of the proceeds if they bring the action, rather than sharing with a county that may not have been involved in the litigation.

It should be noted that existing law provides that if the UCL action is brought at the request of a board within the Department of Consumer Affairs or a local consumer affairs agency (such as the Los Angeles County Department of Consumer and Business Affairs), the board’s reasonable expenses incurred as a result of the investigation and prosecution of the action are to be reimbursed before the penalty collected is otherwise paid out.

The California State Association of Counties (CSAC) writes in opposition:

Civil penalties are not intended to simply reward or compensate the office that brought the action, but rather to impose a penalty against the offender and broadly support consumer protection actions. By dividing the funding between the cities and counties—it provides both the city and the county the resources that they need to enforce consumer protection laws. AB 1477 would take these resources away from the county.

In response to these concerns and similar concerns from the County of Los Angeles that their support of Los Angeles City Attorney-prosecuted UCL actions would go unrewarded, the bill was recently amended to provide that where a county agency “participated in the prelitigation investigation” of the UCL action brought by the city attorney, half of the penalties collected go to the treasurer of the county in which the judgment was entered. This attempts to strike a balance between cities and counties that allots the funds based on some nexus to the work involved in successfully carrying out the action.

“Participated in the prelitigation investigation” is not specifically defined. A plain reading of the provision is that any effort on the part of the county in the investigation of a UCL violation before a complaint is filed triggers this provision. Therefore, only minimal effort on the part of the county in the investigation of a city attorney’s case entitles them to half of the penalties collected in an action prosecuted, otherwise solely, by the city attorney. However, given the lack of a clear threshold and the often large penalties at stake, the phrase is likely to be the subject of future litigation.

CSAC and the County of Los Angeles remain opposed. The County of Los Angeles argues the recent amendment “could discourage the Los Angeles City Attorney from involving the County’s Department of Consumer and Business Affairs [(DCBA)] in pre-filing investigations because by excluding them the City Attorney could keep all of the civil penalties recovered.” The county reasserts its concern that by “eliminating a vital source of funding for the County's consumer protection efforts by DCBA, the District Attorney, and County Counsel . . . the bill would continue to have an adverse fiscal impact on the County and on the consumer protection work that it does for the over 10 million people living in the County.”

It is true that there would be an added incentive for a city attorney to not involve a county in its investigative work, as including them at all would require them to share half of the penalties collected. This could decrease the amount of collaboration between city attorneys and county entities in prosecuting these consumer protection actions.

1. Stated intent of the bill

According to the author:

The Unfair Competition Act authorizes public prosecutors, like the Attorney General and district attorneys, to file lawsuits charging unfair business practices. Similarly, certain city attorneys of large cities in California, like San Diego, Los Angeles, and San Jose, are able to bring similar suits forward. However, even if those eligible city attorneys receive no counsel, resource, or assistance from their district attorney, any civil penalties awarded to the city attorney must be shared equally with their district attorney. AB 1477 will ensure an equitable distribution of penalties awarded under the Unfair Competition Act and empower those eligible city attorneys to prosecute against unscrupulous businesses in the interest of consumers and the environment.

SUPPORT

San Diego City Attorney Mara Elliott (sponsor)
Los Angeles City Attorney Michael Feuer

OPPOSITION

California State Association of Counties

County of Los Angeles

County of Santa Clara

RELATED LEGISLATION

Pending: None known

Prior: AB 814 (Bloom, 2017) would have granted certain city attorneys the power to conduct investigations, including the ability to issue pre-litigation subpoenas, when they reasonably believe there has been a violation of the UCL. This bill died on the Senate Floor.

PRIOR VOTES:

Assembly Floor (Ayes 58, Noes 15)

Assembly Judiciary Committee (Ayes 9, Noes 3)

**************

ASSEMBLY THIRD READING

ATR Bill Id:AB 1477

Author:(Gloria)

As Amended Ver:May 2, 2019

Majority vote

SUMMARY:

Entitles a city with a population greater than 750,000 to keep the entirety of any civil penalty recovered from an action brought by the city attorney of that city in response to unfair business or advertising practices.

Major Provisions

1. Provides that if an action is brought by a city attorney of a city having a population in excess of 750,000 in response to unfair competition, as defined, the penalty collected shall be paid to the treasurer of the city whose attorney brought the action.
2. Provides that if two or more persons authorized to obtain civil penalties for unfair competition in the name of the people of the State of California jointly prosecute the action, penalties collected shall be divided in a manner that is mutually agreeable for all such persons.

COMMENTS:

The Unfair Competition Law (UCL) is a broad set of consumer protection statutes prohibiting unfair competition in business practices, including "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." Actions brought against a person on behalf of the public, whether brought by a public or private entity, can, under the UCL, be remedied by injunctive relief and restitution, and, if brought by a public prosecutor of the state or permitted local authority, civil penalties. Proposition 64, passed in 2004, limited the ability of a private entity to bring an action under the UCL on behalf of the public to instances in which the person had suffered "injury in fact and has lost money or property as a result of such unfair competition." Consequently, standing for actions on behalf of the public under the UCL is essentially limited to the Attorney General, a district attorney, any county counsel, any city attorney of a city having a population in excess of 750,000, any city attorney of any city and county, or, with the consent of the district attorney, by a city prosecutor in any city having a full-time city prosecutor. Though a city attorney with a population in excess of 750,000 does not need consent from or, necessarily, assistance from the district attorney to bring such an action, any civil penalties recovered as a result of the action must nonetheless be split equally between the city and the county. This may disincentivize city attorneys of these large cities from independently prosecuting some unfair competition cases, as the financial incentives are tempered relative to the resources expended. With the limitations placed on private action by Proposition 64, it is imperative that public action on behalf of the people of California to prosecute unfair competition be appropriately supported and encouraged. This bill would entitle a city attorney of a city having a population in excess of 750,000 to the entirety of civil penalties recovered from an action brought by the city attorney under the UCL on behalf of the public. This bill would currently apply only to city attorneys representing Los Angeles, San Diego, and San Jose.

Because the constituencies and jurisdictions of district attorneys and city attorneys overlap, these entities are likely to frequently prosecute joint actions. This bill clarifies that in the event of joint action brought under the UCL, the provisions of this bill would not provide the full penalty to the city, but rather would distribute the penalties in a manner agreed upon by the prosecuting parties.

According to the Author:

The Unfair Competition Act authorizes public prosecutors, like the Attorney General and district attorneys, to file lawsuits charging unfair business practices. Similarly, certain city attorneys of large cities in California, like San Diego, Los Angeles, and San Jose, are able to bring similar suits forward. However, even if those eligible city attorneys receive no counsel, resource, or assistance from their district attorney, any civil penalties awarded to the city attorney must be shared equally with their district attorney. AB 1477 will ensure an equitable distribution of penalties awarded under the Unfair Competition Act and empower those eligible city attorneys to prosecute against unscrupulous businesses in the interest of consumers and the environment.

Arguments in Support:

This bill is sponsored by the City Attorney of San Diego, Mara W. Elliot, who argues:

[W]hen a city attorney brings such an action, existing law requires that civil penalties must be split evenly with the district attorney of that county – even when the district attorney had no role in the prosecution, providing neither counsel, resources nor assistance. This division of civil penalties serves as a disincentive to consumer and environmental protection. City attorneys are less likely to bring actions that protect consumers and the environment when they are forced to split the proceeds with an agency that has not invested any resources in the prosecution.

By requiring that penalties collected by an eligible city attorney from an action under the Unfair Competition Act be paid to the treasurer of the city whose attorney brought the action, AB 1477 will empower the impacted city to reinvest the proceeds back into the community that was harmed by unscrupulous businesses.

Arguments in Opposition:

None

FISCAL COMMENTS:

Unknown.

VOTES:

ASM JUDICIARY: 9-3-0

YES: Mark Stone, Chau, Chiu, Gonzalez, Holden, Kalra, Maienschein, Petrie-Norris, Reyes

NO: Gallagher, Kiley, Obernolte

UPDATED:

VERSION: May 2, 2019

CONSULTANT: Landon Klein / JUD. / (916) 319-2334 FN: 0000336

Date of Hearing: April 30, 2019

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 1477

Author:(Gloria) – As Introduced Ver:February 22, 2019

As Proposed to be Amended

SUBJECT: CIVIL PENALTIES: UNFAIR COMPETITION LAW

KEY ISSUE: should a city with a population greater than 750,000 be entitled to the entire civil penalty recovered from an action brought by the city attorney IN RESPONSE TO UNFAIR business or advertising practices, rather than sharing that penalty evenly with the county in which the city is located?

SYNOPSIS

The Unfair Competition Law (UCL) is a broad set of consumer protection statutes prohibiting unfair competition in business practices, including “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” Actions brought against a person on behalf of the public, whether brought by a public or private entity, can, under the UCL, be remedied by injunctive relief and restitution, and, if brought by the state or a permitted local authority, civil penalties. Proposition 64, passed in 2004, limited the ability of a private entity to bring an action under the UCL on behalf of the public to instances in which the person had suffered “injury in fact and has lost money or property as a result of such unfair competition.” Consequently, standing for actions on behalf of the public under the UCL is essentially limited to the Attorney General, a district attorney, any county counsel, any city attorney of a city having a population in excess of 750,000, any city attorney of any city and county, or, with the consent of the district attorney, by a city prosecutor in any city having a full-time city prosecutor. Though a city attorney with a population in excess of 750,000 does not need consent from or, necessarily, assistance from the district attorney to bring such an action, any civil penalties recovered as a result of the action must nonetheless be split equally between the city and the county. This may disincentivize city attorneys of these large cities from independently bringing some unfair competition actions, as the financial incentives are tempered relative to the resources expended. With the limitations placed on private action by Proposition 64, it is imperative that public action on behalf of the people of California to prosecute unfair competition be appropriately supported and encouraged. This bill would entitle a city attorney of a city having a population in excess of 750,000 to the entirety of civil penalties recovered from an action brought by the city attorney under the UCL on behalf of the public.

Because the constituencies and jurisdictions of district attorneys and city attorneys overlap, these entities are likely to frequently bring joint actions. The author has accepted an amendment to clarify that in the event of joint action brought under the UCL, the provisions of this bill would not provide the full penalty to the city, but rather would distribute the penalties in a manner agreed upon by the prosecuting parties. This bill is sponsored by the City Attorney of San Diego, Mara W. Elliot, and has no registered opposition.

SUMMARY: Entitles a city with a population greater than 750,000 to keep the entirety of any civil penalty recovered from an action brought by the city attorney of that city in response to unfair business or advertising practices. Specifically, this bill:

1. Provides that if an action is brought by a city attorney of a city having a population in excess of 750,000 in response to unfair competition, as defined, the penalty collected shall be paid to the treasurer of the city whose attorney brought the action.
2. Provides that if two or more persons authorized to obtain civil penalties for unfair competition in the name of the people of the State of California jointly prosecute the action, penalties collected shall be divided in a manner that is mutually agreeable for all such persons.

EXISTING LAW:

1. Provides that any person who engages, has engaged, or proposes to engage in unfair competition shall be liable for a civil penalty not to exceed $2,500 for each violation. (Business and Professions Code Section 17206 (a). All further code references are to the Business and Professions Code, unless otherwise stated.)
2. Provides that any person who intentionally violates any injunction prohibiting unfair competition issued pursuant to the Unfair Competition Law shall be liable for a civil penalty not to exceed $6,000 for each violation. (Section 17207 (a).)
3. Provides that the penalties described in 1) and 2) shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General, any district attorney, any county counsel authorized by agreement with the district attorney in actions involving violation of a county ordinance, any city attorney of a city having a population in excess of 750,000, any city attorney of any city and county, or a city prosecutor in any city having a full-time city prosecutor with the consent of the district attorney. (Section 17206 (a).)
4. Provides that if the action described in 3) is brought by a city attorney or city prosecutor, one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered. (Section 17206 (c).)
5. Provides that if the action described in 3) is brought by a district attorney or county counsel, the penalty collected shall be paid to the treasurer of the county in which the judgment was entered. (Section 17206 (c).)
6. Provides that if the action described in 3) is brought by the Attorney General, one-half of the penalty collected shall be paid to the treasurer of the county in which the judgment was entered, and one-half to the General Fund. (Section 17206 (c).)
7. Provides that the funds collected pursuant to actions described above shall be for the exclusive use by the Attorney General, the district attorney, the county counsel, and the city attorney for the enforcement of consumer protection laws. (Section 17206 (c).)
8. Defines “unfair competition” to mean and include any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising. (Section 17200.)
9. Holds that an Unfair Competition Law action that is brought in the name of the people of the State of California to enforce a statewide legislative scheme is not considered an action brought by a county, city, or county and city. (GameStop, Inc. v. Superior Court (2018) 26 Cal. App. 5th 502, 512.)
10. Holds that a district attorney’s authority to bring an unfair competition action does not extend to seeking civil penalties and restitution for violations alleged to have occurred in other counties. (Abbott Laboratories v. Superior Court (2018) 24 Cal. App. 5th 1.)
11. Provides that, notwithstanding any other provision of law, the proceeds of civil penalties or other monetary awards recovered in any civil action brought jointly in the name of the people of the State of California by the Attorney General, one or more district attorneys, or by one or more city attorneys, or any combination thereof, shall be paid as approved by the court. (Government Code Section 26506.)
12. Provides that a district attorney, city attorney, or any combination thereof, may, in agreement with other district attorneys or city attorneys, act jointly in prosecuting a civil cause of action to benefit their own county in a court of the other jurisdiction. (Government Code Section 26507.)
13. Provides that a district attorney, with the concurrence of the district attorney of another county and the boards of supervisors of both affected counties, may provide to the district attorney of such other county legal or investigative services, or both, pertaining to the prosecution of a civil cause of action in the other county by the district attorney of that county. (Government Code Section 26508.)
14. Provides that under the circumstances described in 13), the county provided with such services shall compensate the county providing the services at a rate which is mutually agreeable to the counties as parties to the agreement. (Government Code Section 26508.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: The Unfair Competition Law (UCL) is a broad set of consumer protection statutes prohibiting unfair competition in business practices, including “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” Actions brought against a person on behalf of the public, whether brought by a public or private entity, can, under the UCL, be remedied by injunctive relief and restitution, and, if brought by a public prosecutor of the state or permitted local authority, civil penalties. Proposition 64, passed in 2004, limited the ability of a private entity to bring an action under the UCL on behalf of the public to instances in which the person had suffered “injury in fact and has lost money or property as a result of such unfair competition.” Consequently, standing for actions on behalf of the public under the UCL is essentially limited to the Attorney General, a district attorney, any county counsel, any city attorney of a city having a population in excess of 750,000, any city attorney of any city and county, or, with the consent of the district attorney, by a city prosecutor in any city having a full-time city prosecutor. Though a city attorney with a population in excess of 750,000 does not need consent from or, necessarily, assistance from the district attorney to bring such an action, any civil penalties recovered as a result of the action must nonetheless be split equally between the city and the county. This may disincentivize city attorneys of these large cities from independently prosecuting some unfair competition cases, as the financial incentives are tempered relative to the resources expended. With the limitations placed on private action by Proposition 64, it is imperative that public action on behalf of the people of California to prosecute unfair competition be appropriately supported and encouraged. This bill would entitle a city attorney of a city having a population in excess of 750,000 to the entirety of civil penalties recovered from an action brought by the city attorney under the UCL on behalf of the public.

Because the constituencies and jurisdictions of district attorneys and city attorneys overlap, these entities are likely to frequently prosecute joint actions. The author has accepted an amendment to clarify that in the event of joint action brought under the UCL, the provisions of this bill would not provide the full penalty to the city, but rather would distribute the penalties in a manner agreed upon by the prosecuting parties.

According to the author:

The Unfair Competition Act authorizes public prosecutors, like the Attorney General and district attorneys, to file lawsuits charging unfair business practices. Similarly, certain city attorneys of large cities in California, like San Diego, Los Angeles, and San Jose, are able to bring similar suits forward. However, even if those eligible city attorneys receive no counsel, resource, or assistance from their district attorney, any civil penalties awarded to the city attorney must be shared equally with their district attorney. AB 1477 will ensure an equitable distribution of penalties awarded under the Unfair Competition Act and empower those eligible city attorneys to prosecute against unscrupulous businesses in the interest of consumers and the environment.

California’s Unfair Competition Law protects businesses and consumers from unfair business practices, but Proposition 64 (2004) limited consumer standing to bring such actions. California boasts the most sweeping consumer protection laws of any state. These laws, in addition to guaranteeing certain consumer privacy and safety protections, also strictly prohibit unfair, fraudulent, or anticompetitive business practices and prohibitions against false or misleading advertisements. These practices are, in part, governed by a set of strict prohibitions and sizable penalties collectively referred to as the California Unfair Competition Law (UCL). An early form of the UCL was originally enacted in 1872 as Section 3369 of the Civil Code, which provided for the “availability of civil remedies for business violations in cases of penalty, forfeiture, and criminal violation,” and was amended in 1933 to prohibit “any person [from] performing an act of unfair competition,” which included unfair or fraudulent business practice as well as false advertising. However, until 1935, the prohibitions under the UCL applied only to business competitors, and relief and penalties were not available to consumers. The availability of consumer protection under the UCL emerged from interpretations by the California Supreme Court in American Philatelic Soc. v. Claibourne (1935) 3 Cal. 2d 689, 698, and the court of appeal in People ex re. Mosk v. National Research Co. (1962) 201 Cal. App. 2d 765, 771, which held that “the rules of unfair competition should protect the public from fraud and deceit,” and that “equitable relief authorized by [the UCL] is not circumscribed by any prerequisite showing that the conduct in question be limited to the field of business competitions,” respectively. In 1977, the UCL was moved from the Civil Code to Section 17200 et seq., of the Business and Professions Code, which was “a move not intended to alter it substantively nor to affect the applicability of pre-existing interpretive case law.” (Fellmeth, California’s Unfair Competition Act: Conundrums and Confusions, Recommendation on Unfair Competition Litigation, 26 Cal. Law Revision Com. Rep., p. 232, Nov. 1996.)

In its current form, the UCL defines “unfair competition” to mean and include “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by” other statutory provisions prohibiting false advertising, and provides that “any person who engages, has engaged, or proposes to engage in unfair competition” may be enjoined and subject to civil penalties. (Section 17200; see also Section 17500 et seq.) Prior to 2004, an action alleging unfair competitive practice could be brought by any private plaintiff on behalf of the public, or by the Attorney General, a district attorney, any county counsel, any city attorney of a city having a population in excess of 750,000, any city attorney of any city and county, or, with the consent of the district attorney, by a city prosecutor in any city having a full-time city prosecutor. (Section 17206.) Though the standing to bring an action under the UCL was accordingly broad, available remedies were limited for private plaintiffs in order to minimize frivolous lawsuits; injunctive relief and/or restitution were available as remedies, but damages were not. Nonetheless, in the 13 years preceding 2004, 352 private actions were brought under the UCL compared to only 27 by public prosecutors. (Arkin, The Unfair Competition Law after Proposition 64: Changing the Consumer Protection Landscape, 32 W. St. U. L. Rev. 155 (2005).)

In 2004, following an aggressively funded advertising campaign centered on frivolous lawsuits, California voters voted 59% to 41% to pass Proposition 64, which limited standing for private action under the UCL to those who have “suffered injury in fact and [have] lost money or property as a result of such unfair competition,” and required that all civil penalties collected from an action under the UCL be used for the enforcement of consumer protection laws. In short, this ballot measure prohibited private enforcement of unfair business competition laws on behalf of the public and limited such enforcement to the Attorney General and local government prosecutors enumerated above. Resources to enforce the UCL on behalf of the public thus suffered a significant blow with the onus for prosecuting unfair competition now resting entirely on the state.

Certain city attorneys are permitted to bring actions to prosecute unfair competition, but any civil penalties recovered must be shared equally with the county. In addition to the district attorney, the chief prosecutor for a county, many cities also elect or appoint city attorneys to provide counsel to the city government, to represent the interests of the city in litigation, and to prosecute certain civil and criminal offenses that occur within the city limits. The particular division of labor and criminal or civil jurisdiction varies with the district and city, depending on the size and the needs of those cities. In the case of large cities, the city attorney often operates more or less autonomously from the office of the district attorney, in part due to the fact that charter cities may be governed by a unique set of local laws relative to the rest of the county, and in part due to the prosecutorial needs associated with a city of that size that would otherwise subsume the bulk of the resources for the county.

The UCL permits an action for injunctive relief and/or civil penalties to be brought by a district attorney, or by a city attorney either with the consent of the district attorney or if the city has a population in excess of 750,000, without the need for consent. Currently, the latter criterion includes only the cities of Los Angeles, San Diego, and San Jose. While the population of San Francisco also exceeds 750,000, its status as a consolidated city-county is provided for separately by these statutes. If the action is brought by the district attorney, all penalties recovered as a result of that action are provided to the county treasurer for the use of consumer protection enforcement. However, if the action is brought by the city attorney, even in cases where district attorney consents or assistance is not necessary, the penalties are nonetheless split between the city treasury and the county treasury for their respective enforcement of consumer protection laws. The sponsor of the bill argues that in the case of cities with populations in excess of 750,000 which require no involvement from the district attorney to bring an action and often engage in enforcement activities autonomously, this arrangement is not appropriate and discourages city attorneys from taking action for consumer and environmental protection, as the expenditure of city resources often outweighs the potential penalties recouped by the city.

As California cities continue to grow as centers of commerce, the burden of prosecuting unfair business practices will likely fall increasingly on city attorneys. According to a demographic report by the Department of Finance, the cities of Los Angeles, San Diego, and San Jose account for over 15% of the population of California. (See New Demographic Report Shows California Population Nearing 40 Million Mark with Growth of 309,000 in 2017, California Department of Finance, May 1, 2018.) In 2017 alone, the population living in one of these three cities increased by roughly 60,000, with each city’s population growing by about 1% on average. (Ibid.) These figures are expected to continue similar growth in the years to come.

As California moves away from an industrial and manufacturing economy and toward a service and idea-based economy, the concentrated commercial infrastructure of cities will likely become far more economically viable than the vast tracts necessary for instruments of manufacture and industry. With new jobs becoming available in cities accordingly, it is reasonable to expect sustained population growth, particularly in large cities, along with associated increases in commercial and economic activity. The ongoing concentration of commercial activity in cities therefore underscores the necessity of city-level oversight in regulation of business practices based both on the proximity of city prosecutorial and oversight resources to business interactions and on the familiarity of city officials with the particular municipal laws governing their practices. However, without proper incentives for cities to bring often costly and time-consuming actions against unfair business practices, limitations on city resources may leave untoward commercial behavior relatively unfettered. By entitling cities with populations in excess of 750,000 to the entirety of civil penalties recovered, this bill seems to resolve the arguably inappropriate incentive structure that discourages prosecution by cities under the UCL, allowing cities to better meet the burden of regulatory protection of their growing consumer constituencies.

Author’s amendment clarifies that an action brought on behalf of the people of California does not supersede entitlement to penalties of persons jointly prosecuting that action. Many unfair competitive practices generally affect residents of several jurisdictions and actions on behalf of the public are thus often brought jointly by the local prosecutorial authorities of those jurisdictions. In these cases, Section 26506 of the Government Code provides that, notwithstanding any other provision of law, the proceeds of civil penalties recovered in any civil action brought jointly in the name of the people of the State of California by the Attorney General, one or more district attorneys, or by one or more city attorneys, or any combination thereof, shall be paid as approved by the court. (Emphasis added.) The code section amended by this bill and the provisions of the bill as in print, however, are somewhat unclear with respect to whether Section 26506 of the Government Code is applicable. Since the provisions of that section apply notwithstanding any other provision of law, it is possible that subsection (c) of Section 17206 of the Business and Professions Code supersedes the aforementioned provision, which would result in the full penalty going to county, or, pursuant to this bill, the city in the event of joint action that was initially brought by one party or the other.

Although the courts have held that actions brought by district attorneys on behalf of the people of the State of California were extensions of the authority of the Attorney General as agents of the state and not as local agencies (GameStop, Inc. v. Superior Court (2018) 26 Cal. App. 5th 502), the courts have also held that a district attorney’s authority under Section 17206 of the Business and Professions Code to bring an unfair competition action did not extend to seeking civil penalties and restitution for violations alleged to have occurred in other counties, because their authority provided to act on behalf of the state is geographically restricted. (Abbott Laboratories v. Superior Court (2018) 24 Cal. App. 5th 1.) Consequently, the jurisdictional authority of a given district attorney with respect to actions under the UCL is clearly defined by violations occurring in or affecting their own county, and they can participate in a joint action if these criteria are met. In the case of a city attorney and district attorney, however, the distinction is not as clear, and both parties could reasonably claim jurisdiction to bring an action for unfair competition affecting their constituents based on any violation occurring within the city. Under the current penalty distribution structure, this is not a problem, as both the city and county are statutorily entitled to receive penalties if the city attorney brings the action, regardless of whether the district attorney participates. However, the provision added by this bill obfuscates how this distribution works in cases where the city attorney brings the action and the district attorney later joins. To resolve this issue, the author has accepted an amendment to add the following clause to line 36 of page 2 of the bill as in print:

If two or more persons authorized by this article to obtain civil penalties in the name of the People of the State of California jointly prosecute the action, penalties collected shall be divided in a manner that is mutually agreeable for all such persons.

It is unclear whether this amendment pertains to the provision of investigatory or legal services that are not officially considered joint actions. This amendment clarifies that in the event of a joint action involving both a district attorney and a city attorney, the penalties will be divided between them appropriately, rather than going to one body entirely or creating unnecessary competition between the two. It is still unclear, however, whether this provision would apply in a case where, for example, a district attorney provides investigatory or legal support to an action brought by a city attorney, but does not officially join the action. If “jointly prosecuting” an action does not include such services, the author may wish to consider expressly providing for agreement on penalty distribution in these situations as well. Section 26508 of the Government Code seemingly addresses these situations by providing that a district attorney, with the concurrence of the district attorney of another county and the boards of supervisors of both affected counties, may provide to the district attorney of such other county legal or investigative services, or both, pertaining to the prosecution of a civil cause of action in the other county by the district attorney of that county, and that the county provided with such services shall compensate the county providing the services at a rate which is mutually agreeable to the counties as parties to the agreement. However, this applies only to interactions between district attorneys of different counties rather than to interactions between district attorneys and city attorneys. Furthermore, in light of the GameStop decision (supra), it is unclear whether that provision applies to prosecution of a civil cause of action on behalf of the people of the State of California. Since a district attorney may likely have resources useful to prosecution of the cause of action by the city attorney, clarifying that they would be duly compensated for those services would avoid discouraging district attorney participation in city actions that do not rise to the level of joint prosecution.

ARGUMENTS IN SUPPORT: This bill is sponsored by the City Attorney of San Diego, Mara W. Elliot, who argues that the current penalty-splitting provision wherein a city must pay half of the penalties collected to the county regardless of their contribution to the action disincentivizes cities from prosecuting unfair competition practices.

Elliot states:

[W]hen a city attorney brings such an action, existing law requires that civil penalties must be split evenly with the district attorney of that county – even when the district attorney had no role in the prosecution, providing neither counsel, resources nor assistance. This division of civil penalties serves as a disincentive to consumer and environmental protection. City attorneys are less likely to bring actions that protect consumers and the environment when they are forced to split the proceeds with an agency that has not invested any resources in the prosecution.

By requiring that penalties collected by an eligible city attorney from an action under the Unfair Competition Act be paid to the treasurer of the city whose attorney brought the action, AB 1477 will empower the impacted city to reinvest the proceeds back into the community that was harmed by unscrupulous businesses.

REGISTERED SUPPORT / OPPOSITION:

Support

Mara W. Elliot – City Attorney of San Diego (sponsor)

Oppose

None on file

Analysis Prepared by: Landon Klein / JUD. / (916) 319-2334