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League of Women Voters of California

LWV California Education Fund Nonpartisan Analysis of

Proposition 211

Attorney-Client Fee Arrangements. Securities Fraud. Lawsuits.

Initiative Statute

The Question

Should the Legislature be prohibited from making changes to the laws related to attorney-client fee arrangements in all types of cases, and, should state law be broadened to make it easier for an individual to sue for securities fraud?

The Situation

Current law limit provides for regulating attorney-client fees. It prohibits false or misleading statements or omitting facts in the sale of securities (stocks and bonds). It also limits liability for securities fraud to the business or corporation that engages in such practices--the CEO or director of the company is not personally liable. Current law regarding securities fraud applies only to people who are directly involved in the purchase or sale of a security (such as a broker) and only they can file suits claiming fraud.

The Proposal

Proposition 211 would:
  • prohibit the Legislature from restricting attorney-client fee arrangements.
  • allow the CEO or director of a company to be found personally liable for fraudulent acts committed by the business.
  • make it easier for individuals to sue for securities fraud regarding their retirement savings.
  • shift the burden of proof for securities fraud to the person being sued.
  • provide that punitive damages in a retirement savings fraud suit would go to the state General Fund.
Fiscal effect: Lawsuits could increase causing increased local and state court costs in insignificant amounts. Additional revenue to the state from punitive damages deposited in the General Fund would not be significant.

Supporters Say

  • individuals with retirement investments would be allowed to sue directly for securities fraud.
  • senior citizens, who are often victims of con artists, would have stronger legal rights.
  • frivolous lawsuits would be stopped.

Opponents Say

  • lawyers from other states would be allowed to file frivolous lawsuits in California
  • lawyers would be allowed to charge high fees.
  • high-tech firms and corporations with volatile stock prices would be crippled.
(Analysis prepared by the League of Women Voters of California Education Fund.)

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Last updated: October 20, 1996
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