Attorney's Fees.Shareholder Actions. Class Actions.
- Requires losing party to pay winning party's reasonable attorneys' fees and expenses in shareholder actions against corporations and in class actions based on securities law violations.
- Payment by member of losing party not required if position was substantially justified and payment would be unjust. Court may require losing party's attorney to pay.
- After hearing, court may require plaintiff to furnish bond for defendant's estimated fees and expenses, unless plaintiff owns or traded at least 5%of shares. Plaintiff's attorney may agree to furnish bond and pay defendant's fees and expenses for plaintiff.
The information below was provided by the California Journal.Background: Few issues in the realm of state government have had a longer shelf life, and generated more special-interest attention, than the effort to change the state's civil liability system. Tort reform has been a priority for businesses and local governments since the early 1980s, as the number and scope of lawsuits began a precipitous climb. Many of these suits were brought with the help of attorneys who worked on a contingent-fee basis: If the plaintiff loses, they pay nothing; if they win or settle, the lawyer gets a percentage of the settlement, sometimes as much as a third of the total. Concurrent with the rise in civil suits against businesses and government was a marked increase in auto-insurance rates in the state. Insurance companies claimed these increases were the result of an explosion in the number of auto-accident cases that were winding up in court.
Business and government got some relief in 1986 with voter approval of Proposition 51, which limited plaintiffs' ability to extract huge awards from the "deepest pocket" in a civil case. Less than two years later, the Legislature ratified an agreement that stabilized the escalation in medical malpractice lawsuits. While individual special interests crafted their side-deals in secret, however, the fight over automobile cases was being waged in a noisy and expensive initiative war. In 1988 insurance companies and the state's trial lawyers spent tens of millions of dollars bashing each other and pushing their own wish-list insurance initiatives, among them an industry-backed no-fault proposal. When the dust settled, the one initiative left standing was the one both sides agreed they didn't want--Proposition 103, which proposed strict regulation of the insurance industry and sought to slash auto rates by 20 percent.
Sacramento tort wars then went on hiatus for a few years. The business community, however, was still far from satisfied, and liability costs consistently ranked near the top of the California Business Roundtable's annual survey of concerns. The focus of its anger remained contingent-fee lawyers, whom it believed were targeting it with meritless cases for the sole purpose of extorting a settlement. Meanwhile, another high-profile tort-reform advocate -- the insurance industry -- was making effective use of the tort system to block implementation of Proposition 103. Even though car insurance rates had stabilized, the long-promised rate rollbacks were slow to materialize.
When an unconventional attempt to implement a pay-at-the-pump insurance system died a quiet death in the Legislature, some consumer groups began to take a second look at the concept of no-fault car insurance. Rather than drivers in an accident suing and counter-suing each other in an effort to prove the other's liability, those involved in traffic accidents would simply submit their damage and medical claims to their own insurers. Consumer groups had united in opposition to the insurance companies' 1988 no-fault plan, but some concluded that a properly constructed system could work. Others, like renowned activist Ralph Nader, were adamant in their opposition to any no-fault plan.
The split over no-fault led Proposition 103 spearhead Harvey Rosenfield to part ways with the Voter Revolt consumer group he helped found, and the chain reaction from this fissure has resulted in the three tort-reform initiatives on the March ballot. With no-fault advocates at the helm, Voter Revolt began looking for no-fault supporters, and found one in Andrew Tobias, best known as the author of the popular personal finance software, Managing Your Money. Tobias, who conceived the ill-fated pay-at-the-pump concept, enlisted the help of one of his erstwhile rivals -- Intuit chairman Tom Proulx, co-creator of the even more popular Quicken software. As they shopped the insurance concept, the pair found some interest from their Silicon Valley colleagues, but what the executives really wanted to talk about was the tort system, in particular, the lawsuits being filed against them by shareholders. These so-called "strike suits" generally appeared when company profits dipped precipitously. So, in the interest of getting funding for their initiative, the no-fault advocates decided to pool their efforts with tort-reform backers. Result: The alliance to Revitalize California. Funded largely by loans and contributions from computer giants such as Intel and Seagate, the Alliance drafted, circulated and qualified the three initiatives described below. The feat was accomplished primarily by vilifying the state's trial lawyers and their trade association, the Consumer Attorneys of California. With lawyer-bashing a sport that crosses party lines, the well-funded alliance collected a record number of signatures, while the CAOC failed to qualify a counter-initiative for the March ballot. The alliance then hired a pricey group of political consultants, whose strategy was simple: present all three initiatives as a comprehensive package and peg them to public antipathy toward lawyers.
While the alliance advertises itself as a business-consumer coalition, its supporters weigh heavily toward businesses. Backers include Governor Pete Wilson, an array of business organizations and a large chunk of Republican legislators. In addition to the trial bar, most of the state's better-known consumer advocates oppose the alliance initiatives, including Ralph Nader, Rosenfield and Consumer's Union. As of this writing, the insurance industry had remained neutral on the measures, but the alliance is actively seeking its support and concede it is counting on the industry for significant financial support. Opponents say these overtures to insurers suggest the supporters are less interested in protecting consumers than they are in protecting corporate profits.
Proposal: Proposition 201 attacks the class-action "strike suits" brought by a company's shareholders by implementing a "loser-pays" provision in actions based on securities-law violations. If the plaintiffs in the suit lose, or a judge rules the case is groundless, the plaintiffs must pay the "reasonable" legal costs of the defendants. If the suit is ultimately judged meritorious, and the plaintiffs win, reasonable legal fees will be paid to the plaintiff's lawyers over and above any settlement amount. The court has the discretion to impose the requirement on the plaintiff's attorneys, if the judge determines the plaintiffs themselves can't afford it. The court may also require plaintiffs to post a bond for the defendant's legal fees, if those plaintiffs don't own at least 5 percent of the company's stock. The legislative analyst says the fiscal impact of the measure is unknown, but probably minimal.
Arguments for: Proponents, which include all those supporting Proposition 200 along with computer executive Alan Shugart, brokerage executive Charles Schwab, and the California Chamber of Commerce, say shareholder class action suits are simply a means by which a few unscrupulous attorneys seek to earn a fast buck. These lawyers, say proponents, round up "professional plaintiff" shareholders anytime a company's stock drops, file a huge class-action suit, then wait for the company to settle out of court. High-tech companies, they argue, are especially vulnerable to these suits, as the stream of new products generates broad fluctuation in stock prices. According to proponents, these suits cost the state jobs and jack up the prices of products. Prop. 201, they say, will weed out the phony cases by holding plaintiffs' lawyers liable if their case proves groundless. Legitimate cases will still be filed, but "professional plaintiffs" won't want to the risk of being socked with a big legal bill.
Arguments against: Opponents, which include those opposed to Proposition 200 along with the Congress of California Seniors and the Keating Victims Association of Leisure World, say the initiative is a direct assault on the rights of investors to hold companies accountable for bad or illegal investments. Opponents say that had Proposition 201 had been in effect a few years ago, victims of Charles Keating's Lincoln Savings and Loan debacle -- largely elderly pensioners -- would have been forced to post a huge bond before they could have sued, and could have been forced to pay Keating's legal fees. Opponents say the initiative is being bankrolled by high-tech executives who are looking for ways to reduce their exposure to legitimate lawsuits targeting the defrauding of investors. They contend the other two tort-reform initiatives were drafted to provide political cover for Proposition 201, which they say would never pass on its own merits.
For additional information please see:
Secretary of State Ballot Pamphlet
Campaign Finance Data from the Secretary of State
California State Senate Office of Research
California League of Women Voters
Easy Reader Voter Guide
Related News Articles
Campaign Web Sites:
- Yes on 201
Alliance to Revitalize California
- No on 201
The Consumer Attorneys of California
The Consumer Network Home Page - Sponsored by The Network Project
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