Businesses Fear Lawsuit Bill

Honolulu Advertiser

By John Duchemin Advertiser Staff Writer

HONOLULU – Consumer advocates are praising a little-known state Senate bill that would greatly expand the ability of island residents to file class-action lawsuits against big companies.

But businesses are worried that Bill 1320, which awaits Gov. Ben Cayetano’s signature, will lead to a flood of frivolous litigation.

The bill, which slipped almost unnoticed through the Legislature, lets anyone file a class-action antitrust lawsuit against companies that distribute goods through a middleman. The bill also lets companies sue other companies over violations of antitrust laws.

The bill has had the support of the state attorney general’s office, many plaintiffs’ lawyers, and consumer groups who say it will help ensure that businesses don’t subject Hawai’i residents to unfairly high prices.

Cayetano has taken no position on Bill 1320, which passed the Senate on April 30, but businesses including Microsoft and the Hawaii Medical Service Association testified against the measure. An attorney for Microsoft Corp. said several businesses are doing last-minute lobbying against the legislation, hoping the governor will veto it.

“The potential for a big impact on businesses here is very real, and I think lots of people are writing to the governor about it,” said Gary Slovin, a partner at Honolulu law firm Goodsill Anderson Quinn & Stifel who testified on behalf of Microsoft against the bill.

The bill is one of the least-known of several “consumer rights” bills approved by the Legislature this session, including a proposed cap on gasoline prices and a limit on health insurance rates.

If Senate Bill 1320 is not vetoed, Hawai’i would be the 14th state with such a law, several observers said.

The bill lets “indirect buyers” file class-action lawsuits over price-fixing and other monopolistic behavior. An indirect buyer is someone who buys a product through a distributor; the law would let the buyer sue not just the distributor, but also the company that made the product.

For example, when individuals feel they are overcharged for an item bought at a local supermarket, the new law would let the consumer join a class-action lawsuit against the maker of the item – not just the supermarket.

Under current law, only the state attorney general’s office can file class-action lawsuits on behalf of indirect buyers.

That restriction was intended to squelch frivolous lawsuits that don’t pass muster with state attorneys. But bill proponents say several legitimate cases were ignored in the late 1990s as the attorney general’s office concentrated its limited antitrust resources on a few big cases, such as the recently settled price-fixing lawsuit against oil companies.

The attorney general’s office testified in favor of the bill, arguing that it expands consumer protection and takes some pressure off state attorneys.

“From a pure resource standpoint, it made no sense to have us be the only ones who could file such an action,” Deputy Attorney General Rod Kimura said.

Opponents of the bill argue it will help only the plaintiffs’ attorneys, who stand to reap millions of dollars in profits from class-action verdicts and settlements.

“This is a good thing for attorneys – it presents them with an opportunity to make quite a bit of money,” Slovin said.

Also, Slovin said, indirect-buyer lawsuits are fiendishly complex, and can be a real drag on businesses.

“The real purpose of these lawsuits is to generate enormous attorneys’ fees, especially in relation to the alleged injuries,” he said. “At that point, you’re discouraging commerce rather than helping the consumer.”

Several members of the Chamber of Commerce of Hawai’i have also expressed concern, Chamber president Jim Tollefson said – though the bill “passed before most were really aware of it,” he said.

Sen. Sam Slom, R-8th (Hawai’i Kai, ‘Aina Haina), called the bill the “attorneys’ full employment law.” He said a provision that lets companies sue other companies on antitrust grounds could lead to legal messes – like gas stations suing each other for dropping prices.

“This bill is much too broad, much too vague, and only welcomes more lawsuits,” Slom said.

But bill supporters said the bill’s only opponents should be those who engage in unfair trade practices.

The bill merely backs up decades of legislation that define the right to sue, said Tom Grande, a partner in Honolulu law firm Davis Levin Livingston.

Grande said businesses had long been able to sue each other over antitrust practices until the late 1990s, when the Hawai’i Supreme Court said that law was unclear.

The latest legislation refines the law, Grande said, so that “it’s clear that pursuing antitrust remedies in court is a good thing.”

“Any business not engaging in antitrust activities has no reason to oppose this,” he said. “Some businesses talk about how bad class-action lawsuits are, how this is just another mechanism for frivolous lawsuits.

“But if a lawsuit is frivolous, then file a claim showing that it is so. And then you get attorney’s fees.”

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