What is 17200 Reform? Depends on Who’s Asked
By CHRIS CZIBORR
The clamor for action on a consumer protection law gone wrong has been heard. What’s to be done is unclear.
California Attorney General Bill Lockyer recently filed suit against controversial Trevor Law Group LLP for its alleged abuse of California’s consumer protection law.
The State Bar of California is moving to disbar Trevor law attorneys. Several other law firms, including one in Tustin, also are being investigated for violations.
Meanwhile, lawmakers are considering changes to the code governing fair business practices as mom-and-pop shops targeted by the law firms throw their hands up in frustration and demand action.
But what exactly constitutes reform varies from Democrat to Republican, auto dealer to lawyer. The only consensus: some change is needed.
The call for reform comes after more than a year of lawsuits filed by Beverly Hills-based Trevor Law and other California law firms against auto repair shops, restaurants, car dealers and other retail outlets. The law firms used section 17200 of the state’s Business and Professions Code as the basis for their suits. The code allows anyone to sue businesses for alleged infractions, even if the plaintiff wasn’t harmed by the business.
“The whole thing pretty much blindsided everybody when it happened,” said Mission Viejo Transmission owner Kevin Hurley, who was hit by a Trevor Law suit last year.
The state says Trevor Law’s method of operation included filing suit against a business, then sending a letter offering to drop the suit if the business paid a fee, typically ranging from $6,000 to $26,000, according to Lockyer.
Numerous auto repair shops and other small businesses targeted by the law firms paid Trevor Law to have suits against them dismissed. Critics say it amounts to legal extortion.
So what are the remedies?
At one extreme are business owners and state Republicans.
They want the code scrapped altogether or changed substantially. Reform for them comes in a couple of forms: plaintiffs should be required to show direct harm to sue. Or businesses violating the code should be forced to pay a fine that goes to the state, not to aggressive law firms.
Assemblymen Robert Pacheco (R-Walnut) and Tom Harmon (R-Huntington Beach) have introduced a law that would require a judge’s consent before a 17200 claim could be filed.
The proposed law,Assembly bill 102,also would require that the plaintiff have a “distinct and palpable injury.”
On the other side are consumer attorneys and state Democrats, which draw big campaign funds from trial lawyers. They want to see little or no change to the code, which they say is essentially good, but has been abused by bad attorneys.
Sen. Joe Dunn (D-Santa Ana) said lawmakers and businesses have wanted to make changes to the code for some time.
“Last year no one,not even the businesses at that time that were targeted by these law firms,wanted to take the heart and soul out of 17200,” Dunn said. “But everyone did want to stop lawyers from abusing 17200. By January there were many more industries targeted and it became front-page news. Debate over the issue took on a life of its own at that point.”
Reform for Dunn: strict court supervision of all 17200 settlements as well as court approval of any attorney’s fees arising out of 17200 claims.
“A judge could say, ‘Fine, I’ll give you a reasonable rate for five hours. I approve an attorney’s fees award of $2,500.’ None of these lawyers would file such lawsuits if the most they’re going to get out of it is $2,500,” Dunn said.
Dunn said such an approach would leave the heart and soul of 17200 untouched, but would take “profiteers” out of the game.
Assemblyman John Campbell (R-Irvine) wants to take a bigger swing at the code.
Campbell has first-hand experience with a 17200 suit: he’s been sued under the consumer protection code stemming from his part ownership of Saab dealerships in Santa Ana and Mission Viejo.
“Clear reform in my mind would require the plaintiff to have seen or experienced the violation and prove harm,” Campbell said. “Otherwise, even if no one is harmed, the money should go to the state or the jurisdiction that’s appropriate, via a fine. It shouldn’t go to a law firm or plaintiff.”
Not surprisingly, auto repair shop owner Hurley wants major changes to the code.
“I would like to see that anytime the law is used that there is a victim, and that plaintiffs prove they suffered real harm,” Hurley said.
Trevor Law partner Allan Hendrickson said 17200 reform is inevitable. But he said he’s naturally skeptical of Republican lawmakers’ suggestion to divert settlement money to state coffers.
“I could understand changes requiring a percentage of the money to go to a government agency or entities within the government that regulate the industry,I don’t trust such a move, though,” he said. “It sounds like revenue collection. The Bureau of Automotive Repair’s ineffective impact on that industry was one of the things that generated lawsuits in the first place.”
Other trial lawyers want to see few,if any,changes to the code.
“The law has been a wonderful consumer protection statute since the 1930s,” said Bruce Brusavich, president of Sacramento-based Consumer Attorneys of California.
Brusavich said the group is keeping close tabs on lawmakers proposing changes to the code.
“We’re going to be involved, working out different scenarios and proposals,the litigation tactics being used by these firms is a concern,” said Brusavich, partner at Torrance law firm Agnew & Brusavich.
One of the biggest problems with the 17200 code is that it doesn’t protect defendants from being sued again over the same alleged infraction, according to Ed Sybesma, a partner at Costa Mesa law firm Rutan & Tucker LLP.
“17200 creates a situation different from almost every other statute that is out there,” said Sybesma, who’s counsel for Nashville-based Bridgestone/Firestone Americas Holding Inc.,part of Japan’s Bridgestone Corp.,which owns a La Habra store named in the auto shop lawsuits launched by Trevor Law.
“I can settle or go to trial and have a judgment against me with one plaintiff,” Sybesma said. “And tomorrow his next-door neighbor can sue me for the same thing and nothing can prevent that under the code.”
Sybesma also supports requiring plaintiffs to prove actual harm, but doesn’t think lawmakers will pass such legislation.
Meanwhile, Nhan Vu, an assistant professor of law at Orange-based Chapman University, said he’d like to see lawmakers give judges more power.
“I’d like to see reforms that would allow a judge to take a critical look at a lawsuit at an early stage so that unmerited lawsuits can be thrown out early and that plaintiffs allege with particularity the basis of their claim,” Vu said.
Fending Off the State
By CHRIS CZIBORR
Trevor Law Group will count on its First Amendment rights as a defense against a number of recent challenges to the controversial firm.
The state bar plans to hold a hearing next month on suspending,and possibly eventually disbarring,Trevor Law partners Damien Trevor, Allan Hend-rickson and Shane Han.
And state Attorney General Bill Lockyer late last month sued Trevor Law for unfair business practices.
Trevor Law partner Hendrickson said he believes the attorney general’s suit is without merit and that it has a right to sue retail outlets.
“We’re going to file a motion claiming that bringing a lawsuit is a First Amendment right,” he said. “Lockyer made it out to be some kind of good guy-bad guy villainous game being played. The allegations he brought have no teeth, but at least he’s accusing us of extracting money rather than extorting money.”
Hendrickson said the recent round of suits launched by Trevor Law against car dealers for their advertisements,only two days after the attorney general launched his suit against Trevor Law,was unrelated to Lockyer’s actions.
“Our investigators found ads in violation,” Hendrickson said. “This was independent from the attorney general’s actions.”
Trevor Law has run into other snags.
The firm has seen Los Angeles consumer attorney lender Litfunding Corp. cut off its funding.
Litfunding had promised $1 million in cash loans to Trevor Law and so far has only dished out $600,000, according to a lawsuit filed by Trevor Law against Litfunding and its chief executive, Morton Reed, in February.
“That we even have to rely on a lender really highlights the brutal financial commitment involved in a case like this,we have over 2,600 defendants,” Hendrickson said. “Litfunding lent us $600,000 and then pulled the plug on us when the media stuff opened up.”
Hendrickson said the firm is talking with two investors about funding and is shopping for more money sources.
