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The California Court of Appeal recently ruled that a firm used a “shill plaintiff” in a failed suit over a “Made in the USA” label, potentially opening the door for suit against similar repeat plaintiffs in other types of litigation.

Citizens of Humanity, LLC v. Hass, 46 Cal. App. 5th 589, 259 Cal. Rptr. 3d 380 (Ct. App. 2020)

In Citizens of Humanity, a plaintiff’s law firm filed a class action lawsuit against clothing brand Citizens of Humanity, LLC, for allegedly violating “Made in the USA” labeling requirements on its jeans.  The labeling case was dismissed after a new law relaxed the labeling requirements.  Following the dismissal, Citizens of Humanity filed a malicious prosecution suit against the plaintiff’s law firm claiming that the plaintiffs bringing the suit were “shill” plaintiffs – i.e., they only purchased the jeans to bring the lawsuit based on the label. 

A malicious prosecution plaintiff must establish three elements: (1) the defendant brought (or continued to pursue) a claim in the underlying action without objective probable cause; (2) the claim was pursued by the defendant with subjective malice (i.e., with an improper purpose); and (3) the underlying action was ultimately resolved in the plaintiff’s favor. 

To establish these elements, Citizens took the deposition of the original named plaintiff.  She admitted that she was related to one of the attorneys handling her case.  She also testified that she was a named plaintiff in at least two of the law firm’s other Made in the USA labeling lawsuits involving other products.  Specific to this lawsuit, the plaintiff testified that she purchased a pair of Citizens of Humanity jeans, brought them home, left the tags on, and only when she went to wash them did she notice that the jeans’ inside care stated that they were made with imported fabric. 

In response to Citizen’s malicious prosecution complaint, each defendant law firm filed motions to dismiss under California’s Anti-SLAPP statute (C.C.P. 425.16).  Finding that Citizens met its burden to establish a probability of prevailing on the merits of its malicious prosecution claim, the trial court denied defendants’ motions.  Defendants appealed, contending Citizens failed to make a prima facie showing that it would prevail on its claims. The appellate court affirmed the trial court’s ruling finding (1) there were no undisputed facts on which it could determine, as a matter of law, whether the Defendants had probable cause to pursue Made in the U.S.A. case against Citizens<span>; (2) there was evidence which would support a reasonable inference the Defendants were pursuing the litigation against Citizens with an improper purpose; and (3) the district court’s dismissal of the underlying action, with prejudice, constituted a favorable termination in the context of a malicious prosecution suit. 

In so doing, the court referenced plaintiff’s testimony that she frequently purchased jeans without looking to see where the jeans were made before she purchased them.  She brought 32 pairs of jeans to her deposition and, apparently, all but three of them had labels indicating they were made outside the United States. She also testified that she owned “a lot” of shoes but could only think of one pair that was made in the United States.  Indeed, Clark admitted that she does not look to see where other products are made before she buys.

The court relied on this evidence – the plaintiff’s relationship with the attorney, her history of serving as a plaintiff on mislabeling cases, her willingness to buy foreign made products (including jeans and shoes), her admission that she did not look at the labels before buying products, and the fact she left the tags on her jeans – as support for the reasonable inference to be drawn that she was a “shill” plaintiff.  These facts convinced the court that Citizens could make out a prima facie case of malicious prosecution.

Can the “Shill Plaintiff” Malicious Prosecution Approach Work in Other Matters with Repeat Plaintiffs?

Manufacturers, distributors and retailers know far too well that there are cottage industries in California where the same plaintiff, represented by the same plaintiff’s law firm, files lawsuit after lawsuit asserting the same claims, be they cases about Prop 65 warnings, ADA websites or parking lots, Telephone Consumer Protection Act (TCPA) robo-dialing or “Made in the USA” labeling cases.  And those companies likely all share the same opinion of those plaintiffs – that the plaintiff never had any intent to actually use the product, or the website or the parking lot. Instead, the goal of the conduct was to become a plaintiff in a lawsuit.  And typically, even in cases where there is no genuine claim, the cost of defense outweighs the settlement those plaintiffs are willing to accept thus leaving those companies with unpalatable choice of settling meritless lawsuits.  Does Citizens of Humanity offer hope to those targeted companies?  Perhaps.

For example, Proposition 65 (“Prop 65”) requires warning labels on products that contain chemicals on the Prop 65 list that are known to the state of California to cause cancer or birth defects or other reproductive harm.  The regulations allows plaintiffs to act as a private “attorney general” to bring suit against a company for failing to provide a Prop 65 warning on a product that includes a Prop 65 chemical.

Prop 65 has created an entire cottage industry of plaintiff firms suing companies over the alleged failure to provide Prop 65 warnings.  Even where companies can show that their products do not require warning labels, for example where the product does not contain the listed chemicals or cause the prohibited exposure, they often choose to settle and warn rather than fight a claim because the cost of defense far exceeds settlement value.  The California Attorney General’s Office in its Annual Summary of Proposition 65 Settlements (“Annual Summary”) showed that in 2018, a total of 829 in-court settlements returned $35,169,924 to plaintiffs and their lawyers (with only a fraction going to the state). 

This Prop 65 model appears to be a favorite of “shill” plaintiffs.  The Annual Summary makes clear that a handful of plaintiff’s law firms and individual plaintiffs account for the vast majority of Prop 65 lawsuits.  In 2018, one plaintiff’s law firm, Custodio & Dubey LLP, filed 386 claims on behalf of a single plaintiff.  Another plaintiff’s law firm filed 312 claims on behalf of its own plaintiff.  It seems unlikely that when visiting California retailers or websites these individual plaintiffs are shopping for anything other than a lawsuit.

Is this Malicious Prosecution? 

The challenge in the Prop 65 context is the cost to prove the lack of merit to the claim.  The first prong of malicious prosecution – that the plaintiff brought an action without objective probable cause – could be satisfied, according to the Citizens of Humanity court, by showing that on the basis of facts then known, a reasonable attorney would not have believed that instituting or maintaining the action was tenable.  In the Prop 65 context, a defendant would have to show that the product did not contain the listed chemical (or that, if it did, the amount was less than what is allowed) or cause any exposure and plaintiff and her lawyer persisted in their lawsuit despite this knowledge.  Second, to find that a claim was pursued by the defendant with subjective malice, the Citizens of Humanity court explained that malice is not limited to actual hostility or ill will but that it is present when proceedings are instituted primarily for an improper purpose, including for the purpose of forcing a settlement which has no relation to the merits of the claim.  Here, the pattern of conduct suggests that these matters are filed almost solely for the purpose of forcing a settlement, regardless of the merit.  If a retailer can satisfy prong one and the Prop 65 plaintiff pushed for settlement anyway, prong two would likely be satisfied as well.  Finally, prong three requires that the underlying action was decided in the plaintiff’s favor.  Here is the rub – the Prop 65 defendant would likely need to litigate to the end to set up the malicious prosecution case.  This investment and risk would likely only be worth to a frequently targeted entity or industry, but when that cost may far exceed the cost of settlement, the value of such an approach may be limited.  When the bottom line is the bottom line, making a point can be difficult.

Application to other areas of the law?

Because Prop 65 level reporting is not required in the same way for ADA website or premises matters or with respect to TCPA, Made in the USA or similar laws where cottage plaintiff industries have arisen, it may be more difficult to quantify and show the volume of repeat plaintiffs and law firms, and utter lack of probable cause for their claims, but some data points do exist to suggest that the malicious prosecution approach could prove fruitful there as well.  To set up a possible malicious prosecution claim, defendant should collect as much information as it can about the plaintiff, potentially even taking plaintiff’s deposition.  A review of Pacer or other online filing databases for the plaintiff’s name to determine if she is a repeat filer can also prove useful.  Was there video evidence of the purchase?  Is the plaintiff related in any way to the law firm that is bringing the claim?  How frequently do this plaintiff and this plaintiff’s law firm work together on these types of cases?

Proposition 65, the Made in U.S.A Labeling Law, Digital Accessibility Laws and the others were all likely written and passed with the best intentions; but at least one unintended consequence has been to strafe companies doing business in California and encourage Prop 65 “bounty hunters” and the like.  Until Citizens of Humanity, defendants have only had a shield to defend themselves.  Perhaps now they have a sword.