VIEWPOINT: Law Reform?
Ed Sybesma, an attorney with Rutan & Tucker LLP in Costa Mesa, traveled to Sacramento last month to testify before the Assembly Judiciary Committee in support of proposals to reform Business & Professions Code Section 17200, which has been the basis for hundreds of lawsuits against thousands of small businesses in California in recent years.
Despite lengthy remarks by plaintiffs’ lawyers in opposition to statutory reform, the committee gave Sybesma only two minutes to testify in support, forcing him to severely truncate his prepared remarks. The committee subsequently voted down all the bills intended to reform Section 17200, although at least one, AB 69 by Assemblyman Lou Correa, could be brought back for reconsideration. Two trial lawyer-sponsored measures are moving through the state legislature.
Meanwhile, the State Bar of California filed 36 counts of misconduct against three lawyers at Beverly Hills-based Trevor Law Group LLP, one of the most active firms pursuing 17200 suits. Here is what Sybesma would have told the committee, had he been given a few more minutes:
Madame Chair and Members of the Committee:
I come to you today in support of Assemblyman Lou Correa’s bill, AB 69, to reform California Business & Professions Code Section 17200.
This bill would go a long way to providing relief to the thousands of small, family owned–and predominantly minority owned–auto repair shops, restaurants, nail salons and other businesses hit recently with “shakedown” lawsuits using Section 17200 as the vehicle and the excuse to conduct the rip-offs.
As you know, Section 17200 is a California law that permits private parties to bring suit on behalf of the general public–all of the people of the state of California–against any person engaged in business who has violated any law whatsoever.
The plaintiff need not be a victim of the wrong for which suit is brought. The plaintiffs in such cases are referred to as “private attorneys general” because they are given the power to act on behalf of the people of the state, a power normally reserved to elected or appointed government officials.
While the law was intended to be, and can be, a powerful tool against abuses by unscrupulous business people, it has in recent years been turned on its head, being used by unscrupulous attorneys to harass and shake down legitimate businesses for the most minor of legal infractions.
We have seen nail salons sued for using the same bottle of nail polish for multiple customers. We have seen auto body shops sued on the basis of unverified complaints listed in a state database.
We have seen travel and real estate agents sued for neglecting to put their license numbers in print ads. And often the nominal plaintiff in these actions is not a customer of any of these businesses but a staff member or relative of the attorney filing the suit, or a dummy corporation set up by that attorney.
These attorneys sue dozens, even hundreds, of small businesses at a time. Then they send a form letter to all the defendants, offering to settle the suit for a couple thousand dollars.
The businesses, faced with the prospect of spending several times that to defend the suit, have no choice but to cave in to the shakedown and pay the settlement. Thus, for the cost of preparing and filing a boilerplate complaint and mailing a few dozen letters, these attorneys can rake in tens or hundreds of thousands of dollars.
But–and here’s the kicker–that’s not necessarily the end of it for the defendant businesses. Under Section 17200, a business can be sued repeatedly for the same act, regardless of whether anyone has been harmed. For example, if a business places an advertisement that anyone in the state considers misleading, that person can sue the business on behalf of everyone in the state even if that person did not purchase the product advertised or otherwise rely upon the ad.
Whether the defendant wins, loses or settles the case, there is nothing to prevent a second, third, fourth and in fact an unlimited number of additional plaintiffs from bringing new lawsuits against the same defendant for exactly the same advertisement under this law. This is not just a hypothetical example. It has happened to many defendants.
Clearly, this was not the legislative intent when Section 17200 was enacted. But it will take legislative action to rein in the shakedown artists that use Section 17200 as their club.
AB 69 is a carefully drafted bill that would go a long way toward accomplishing this. It has three major provisions:
& #149; Requiring that plaintiffs and attorneys representing the general public meet minimum qualifications and engage in that representation without conflicts of interest. This would preclude attorneys from having a financial interest in the suit beyond reasonable legal fees.
& #149; Preventing repeated lawsuits against a single defendants for a single instance of alleged wrongdoing; and
& #149; Preventing cases which are brought in the name of the people of the State of California from being kept secret from the people of the State of California by requiring Section 17200 complaints, judgments and settlements to be reported to the attorney general or local district attorney. This would bring the shakedown operations out of the shadows and into the glare of official scrutiny.
The bill was crafted in large part by professor Robert Fellmeth, Price Professor of Public Interest Law and founder of the Center for Public Interest Law at the University of San Diego.
Professor Fellmeth is a strong supporter of Section 17200, having prosecuted many cases under that law. He was also the principal author of the 1996 California Law Revision Commission Report on Section 17200, which identified several problems with the law that open the way for abuse and that warrant statutory reform.
Contrary to claims made by those in opposition to the Correa bill, the bill would not impose any significant burdens on legitimate plaintiffs but only upon plaintiffs bringing frivolous and inappropriate actions.
In my view, it should not be too much to ask that lawsuits filed for the benefit of the public should be made public and not concealed from the public.
It should not be too much to ask of our judicial system that private individuals, acting as self-appointed private attorneys general, should be required to have minimum levels of experience and competence beyond simply having just passed the bar and to be free from conflicts of interest which would permit them to pursue their own hidden agendas and personal interests, to the detriment of the public, on whose behalf they have been given this extraordinary authority.
And it is not too much to ask that these private attorneys general, and the courts, get it right the first time, rather than subjecting often completely innocent businesses to the equivalent of double, triple or infinite jeopardy.
I thank the committee for its time and consideration in this matter.
