Be Careful What You Say In California: United States Supreme Court Refuses to Cut Back the Scope of California's Unfair Competition Law

On June 26, 2003, the United States Supreme Court issued an order in the case of Nike, Inc. v. Kasky, which dismissed a previously granted writ of certiorari, and thus leaves in place a decision of the California Supreme Court in the case. The California Supreme Court had allowed a state law based "unfair competition" lawsuit to proceed against Nike, Inc. concerning its corporate statements defending its labor policies, notwithstanding Nike's defense that its communications on this matter of public and political debate were protected by the free speech rights afforded by the First Amendment to the United States Constitution.

By way background, California has an unusual "unfair competition law," Business and Professions Code Section 17200, et.seq., which makes unlawful and provides a private cause of action against any conduct that is unlawful, fraudulent or unfair. Section 17200 gives quasi-class action injunctive and restitution relief, but without the formality of class certification procedures. Also, claims under Section 17200 frequently are alleged by plaintiffs concurrently with formal class action claims.

The "unfair" part of Section 17200 is extremely broad, and in the case of Nike, Inc. v. Kasky, Section 17200 was used by a labor and human rights activist to sue Nike for its public comments in defense of its labor policies. Nike and other major multi-national companies recently have come under considerable public criticism for allegedly poor working conditions in their factories in Asia. When Nike defended its labor policies in the public debate, it was sued for violation of Section 17200, with the plaintiff alleging that Nike's public statements were false and thus acts of "unfair competition."

Nike defended itself by claiming that its public statements were protected speech under the First Amendment of the U.S. Constitution. In a decision which I and many lawyers consider to be wrong, the California Supreme Court ruled that, based on the "commercial speech" exception to First Amendment protections, Nike was subject to a California Business and Professions Code Section 17200 "unfair competition " lawsuit for allegedly untruthful public statements made in defense of its labor policies, and that the case should not be dismissed at the pleading stage. The U.S. Supreme Court then granted hearing (called a writ of certiorari) to consider the question of whether Nike's statements, which were a mix of commercial self-interest and public/political comment on issues of public importance, were entitled to First Amendment protection against the Section 17200 lawsuit being maintained at all.

On June 26, 2003, the U.S. Supreme Court issued a per curiam order dismissing the writ of certiorari as improvidently granted, along with concurring and dissenting opinions. Today's dismissal of the writ of certiorari results in no decision of the U.S. Supreme Court on the merits of the case and thus leaves in place the decision of the California Supreme Court–at least for the present time. This decision has important implications for any large company that is sometimes the subject of public controversy.

The effect of the decision is that businesses now may be sued in California under Section 17200 for allegedly untruthful statements on matters of mixed commercial self-interest and public importance. The California Supreme Court's decision has broad implications beyond just Nike and its labor policies. For example: what about a plaintiff alleging that a large automobile manufacturer made false statements in support of the safety record of its new SUV? What about human rights activists suing pharmaceutical companies which defend their pricing policies regarding AIDS drugs? The list of possible examples is endless. Therefore, any corporation that becomes embroiled in a public or political controversy must now consider very carefully the accuracy and prudence of the public statements it makes on the controversial subject. The Supreme Court opinions recount in detail how Nike ceased a whole series of corporate communications that it had been making before the Section 17200 lawsuit.

The 35 pages of opinions that accompany the U.S. Supreme Court's one-line dismissal of the writ of certiorari are very revealing on both federal jurisdiction and First Amendment issues. They indicate that, if and when the case comes back up for review, there may well be a Supreme Court majority ready to reverse the California Supreme Court on the merits of the First Amendment issue. However, for at least the next few years, as the Nike v. Kasky case goes through trial and appeal, the decision of the California Supreme Court will remain in place.

Here is the lineup of the Supreme Court Justices and brief summaries of their opinions:

1. Voting in favor of dismissal of the writ of certiorari as improvidently granted, without any written opinion: Rehnquist, Scalia, Thomas.
2. Voting in favor of dismissal of the writ of certiorari as improvidently granted, with a concurring opinion: Stevens, joined by Ginsburg, Souter (concurring only as to part III of the concurring opinion).
3. Dissenting without opinion: Kennedy.
4. Dissenting with opinion: Breyer, joined by O'Connor.

In brief summary, the opinions indicate a good chance of a majority in favor of the merits of Nike's First Amendment argument, and against California allowing this Section 17200 lawsuit, if and when the U.S. Supreme Court again takes up this issue. The major points in the opinions were:

Concurring with dismissal of the writ of certiorari as improvidently granted: Stevens, joined by Ginsburg and Souter (as to part III of opinion only):

1. The California Supreme Court's decision as the demurrer stage is not yet a final judgment, and review now might lead to piecemeal appellate decision of diverse issues as they arose during the course of the litigation.
2. Because the lawsuit was brought by a plaintiff who lacked direct personal injury and was proceeding under California's private attorney general procedure for Section 17200, it did not meet the "case or controversy" requirement for federal jurisdiction.
3. Prudence indicates that the Supreme Court should better review this matter after a fully developed trial court record and final state court judgment.

Dissenting from dismissal of the writ of certiorari: Breyer joined by O'Connor:

1. Regardless of the plaintiff's lack of direct personal injury, Nike has suffered real injury (both financial and as to chilling of First Amendment rights) from the mere maintenance of the Section 17200 case, thus creating a "case or controversy" for purposes of federal jurisdiction.
2. The California Supreme Court's decision really was a "final judgment or decree" as to the federal question presented, and thus appropriate for Supreme Court review, because:
3. 1. The federal question (i.e., First Amendment rights) already had been finally decided by the California Supreme Court in allowing the lawsuit to proceed.
   2. In further proceedings the defendant might prevail on non-federal grounds (such as the question of whether Nike's statements were truthful or not), thus preventing review of the federal question.
   3. A reversal on the First Amendment federal question would preclude further proceedings and thus be dispositive of the case.
   4. Refusal immediately to review the case might seriously erode federal policy. Nike is already suffering a chilling effect on exercise of its claimed First Amendment rights, and other similarly situated corporations will too.
4. There is no prudential reason to delay review until after trial on the merits. The plaintiff's complaint attached the allegedly untruthful publications by Nike, so their character as protected or unprotected speech--which is the First Amendment issue–can be judged right now.
5. This case presents an important constitutional question that should be decided now. As Voltaire said, "I do not agree with what you say, but I will fight to the end so that you may say it."

On the merits there appears to be a present majority of at least 5 or 6 Justices (depending on where you put Justice Kennedy) who agree with Nike's position on the First Amendment issue. (This could change with expected retirements of some Justices from the Court.) The case was not decided on the merits now because the key swing block of Stevens, Ginsburg and Souter agreed that, for technical federal jurisdiction reasons, the case was not yet appropriate for U.S. Supreme Court decision. The fact that this block wrote a lengthy concurring opinion on the technical issues leads to the conclusion that they wanted to negate any inference that they agreed with the California Supreme Court on the merits. However, point 2 in Stevens' concurring opinion is troublesome (and fortunately was joined by only one other Justice) because it suggests that California plaintiffs' lawyers perhaps could forever evade federal appellate review in Section 17200 cases by simply making sure that their plaintiff was a pure "private attorney general" who had no personal stake or injury at issue in the case.

Thus, the bottom line is: unless and until the U.S. Supreme Court revisits this issue, the California Supreme Court's decision is the law in California. Corporations which make public comment on matters which are a mix of public/political issues and their commercial self-interest are potentially subject to a Section 17200 lawsuit for "unfair competition" based on allegedly false statements in their public comments. Thus, corporations which are embroiled in matters of public controversy should carefully review with legal counsel their public statements before those statements are released.