The Recorder
Monday, November 30, 1998
Just File It: Nike Case Tests Limits of §17200: Damages sought over alleged sweatshops in Asia

By: Rinat Fried

With his long, sinewy legs sprawled in the air in an infinite leap toward the basket, Nike pitchman Michael Jordan took the game of professional basketball to a new level.

Now a couple of middle-aged white lawyers are attempting a similar feat- this time in a court of law- trying to take California law to new heights by alleging that Nike Inc. exploits workers in its Southeast Asian sneaker factories.

If they manage to score, Alan Caplan, of Bushnell, Caplan & Fielding, and Patrick Coughlin, of San Diego's Milberg Weiss Bershad Hynes & Lerach, could open up an entire new front for litigation over California Business and Professions Code §17200, the state's controversial unfair competition statute.

Their suit, filed in San Francisco Superior Court in May, is scheduled to get its first test Tuesday in a demurrer hearing before Judge David Garcia.

While §17200 isn't new- it has been used to sue everything from R.J. Reynolds Tobacco Co.'s Joe Camel to computer makers who exaggerate the size of their monitors- its use in Kasky v. Nike, 994446, represents a leap. Never before have lawyers attempted to use the decades-old statute to pressure a company into changing working conditions for laborers in other countries.

"It's fair to say I don't know of another case challenging an American company's representation about its labor practices overseas," Caplan says.

Nike contends that there's good reason the case has no precedent

"They are trying to expand as far as possible the use of §17200," says Nike defense attorney David Brown, a partner at Brobeck, Phleger & Harrison. "I think in this case they have taken it several steps too far."

The broadly worded statute- and a related law, §17500- is a powerful weapon for plaintiffs. It allows any person to bring a suit alleging an "unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." It is controversial among defense attorneys, who say the law is too sweeping: It allows just about anybody to sue, whether or not they have been harmed.

Given the history of §17200 in California, however, it's not quite that easy to write off the case against Nike.

After all, attorneys scoffed when an upstart lawyer from Albany filed a $10 billion suit in 1994 accusing Lucky Stores of selling cigarettes to minors.

Defense attorneys at the time squawked that the case was an abuse of the private attorney general statute, since it sought to enforce the Penal Code. But the justices of the California Supreme Court voted 6-1 in February to let attorney Donald Driscoll's case- Stop Youth Addiction v. Lucky Stores Inc., 17 Cal.4th 553-go forward.

"Whenever the Legislature has acted to amend the [unfair competition act]," Justice Kathryn Mickle Werdegar wrote with an almost perceptible shrug, "it has done so only to expand the law."

Caplan says his case falls squarely in line with previous §17200 cases.

"There are lots of precedents in terms of misrepresentation under §17200," says the 54-year-old attorney, who worked together with Milberg Weiss on a successful §17200 case against the tobacco industry over Joe Camel advertising. "It's not a unique case. It's a classic case of a corporation misrepresenting to the public."

The suit alleges that Nike, a $9.2 billion-a-year company headquartered in Beaverton, Ore., fraudulently induced California consumers to buy Nike gear when it denied underpaying and overworking laborers in Vietnam, China, Indonesia and other Southeast Asian countries- charges that Nike denies.

In a Kafkaesque twist, though, it's not the labor practices that are a issue in the complaint. Rather, Caplan and Coughlin maintain the company is liable for falsely denying wrongdoing under the misleading advertising provisions of §§17200 and 17500.

As examples of Nike's alleged deceit, Caplan and Coughlin point to corporate press releases in which Nike responded to media criticism over alleged slave labor practices in Asia. The plaintiffs say such statements violate §§17200 and 17500 by misleading consumers about what actually occurred. In one press release, "Nike Responds to Sweatshop Allegations," for example, Nike stated that it pays Asian factory workers double the government minimum wage. But, the plaintiffs say, an Ernst & Young report commissioned by Nike shows that in one Vietnamese factory, workers earned on average $40 per month, or less than the minimum wage in that country.

In order to prove their case, the plaintiffs will have to travel to Southeast Asia and prove that the underlying allegations about unfair labor practices are true. Then they will have to show Nike's public statements are "unfair" or "misleading."

"There are a lot of people [who] if they hadn't known the true facts about the production methods wouldn't have bought the shoes," Caplan maintains, adding that he believes Nike should disgorge all "tens of millions of dollars" it made as a result of its alleged deceit. He also says he wants to prevent Nike from further misrepresenting the working conditions under which its products are made.

Brown, Nike's lawyer, calls the plaintiffs' use of the statute absurd- and a violation of his client's free speech rights.

Section 17200 is supposed to address "cases that deal with the value or quality of what you're getting. That's what these statutes are meant to address- not how product should be manufactured," he says.

Furthermore, Nike denies using slave labor in Southeast Asia.

"What we've maintained all along is that we don't have a chronic problem with labor violations," says Vada Manager, a Nike spokesman.

On Tuesday, Brown will ask Judge Garcia to dismiss the case based on a First Amendment defense. He says Nike can't be sued for speech it made in self-defense after its labor practices came under fire.

"That is your classic public debate as opposed to an advertising campaign," says Brown.

Such speech is not commercial speech and is therefore protected by the First Amendment, he adds.

The First Amendment defense could trip the plaintiffs up as easily as running full force down court with untied shoelaces.

But Caplan begs to differ. "The First Amendment doesn't apply," he says, "because Nike is engaged in commercial speech when [it is] making public statements in an effort to convince the public to buy [its] product."

But Brown has reason to believe that Garcia will agree with him. In August, Garcia dismissed a §17200 and §17500 case, Keimer v. Hyperion Press Ltd., 994076, against the publisher of the homespun stock investment book, The Beardstown Ladies' Common Sense Investment Guide based on a somewhat similar First Amendment defense.

The authors, a group of retirees from Beardstown, Ill., admitted that they grossly misstated their average profits from their investments in a chapter of the best-seller. A California reader sued for false and misleading advertising, because the publisher used the exaggerated figure in promotional material for the book. But Garcia ruled that the suit could not go forward because the advertisements quoted from clearly protected material in the book.

Plaintiffs' attorneys in the Nike case say they aren't worried, noting there is a big difference between the protections the First Amendment affords the content of a book and a corporate press release.

But Boalt Hall of School of Law professor Stephen Barnett says that the U.S. Supreme Court has defined commercial speech as speech that explicitly proposes a transaction. Nike's press releases probably don't fit that description, and could prevent the §17200 case from going forward, he says.

"The statute has been interpreted very broadly," Barnett says, "but it could meet a limit if it is applied to pure speech."