Return to Home
  State Issues

In short, Prop 64 is an outstanding way to start closing the legal loophole that rewards trial lawyers for pursuing sleazy shakedowns.

Send this story to a friend
Enter recipient's e-mail:



Stopping Trial Lawyer Shakedowns in California

Imagine. … You own a small travel agency that you spent all of your savings to start a few years ago. You have three employees. With airlines and cruise lines cutting back on commissions, you have to work very hard to make ends meet, but you manage. Thanks to the Internet and that new website you’ve launched, you’re finding new customers. Your profit margins are shrinking, but you’re staying afloat — just barely — by hustling to find more new clients.

Then one day you get a call from a lawyer you’ve never heard of. He says he noticed that you hadn’t put your California Seller of Travel number on your website. He tells you that you’ve violated California law, and he’s going to sue you. He spouts some gobbledygook about California’s Unfair Competition Law. You hear "seventeen two hundred" a few times. You don’t really understand what he’s talking about.

But what he says next is crystal clear: "We’re going to sue you, and we believe we’ve got a good case. If we win, we could collect tens of thousands of dollars. But even if we lose, your cost in legal fees and time away from your business could be $30,000, $40,000 or more. But I’d be willing to settle the case right now, for $5,000, and save you the time and cost of a lawsuit."

You can’t afford to lose $30,000. You can’t even afford to pay a lawyer $10,000 or more to fight this vulture on the phone. It would put you out of business and your employees out of work. But maybe you can afford $5,000 — if it will make this rascal go away. If it’s a choice between paying $5,000 and going out of business, it’s an easy decision. You ask him where you should send the check.

Two weeks later, the check sent and the legal papers signed, you think the matter is closed. That is, until the phone rings again, with another lawyer on the line…

Sound farfetched? It isn’t.

Across California, hundreds of small travel agents were victimized by trial lawyers suing or threatening to sue them just for failing to post their California Seller of Travel number on their website.

Such shakedowns aren’t limited to travel agencies. All over the Golden State, trial lawyers are bringing and threatening absurd lawsuits under Section 17200 of the California Business and Professions Code, the "Unfair Competition Law." This provision allows private citizens (acting for themselves or on behalf of the general public as "private attorneys general") to file lawsuits in order to "protect" consumers from any "unlawful, unfair or fraudulent business act or practice" and any "unfair, deceptive, untrue or misleading advertising."

Over the years, state courts have refused to narrowly define what constitutes an "unfair business practice" and have generally given free reign to 17200 actions, allowing the law to be applied in almost any situation. Worse, separate 17200 suits can be brought against the same business owner by a multitude of law firms, all acting as "private attorneys general," and seeking a payout — or payoff.

The law has become a cash cow for trial lawyers. As the earlier story illustrates, opportunistic lawyers look for the most trivial errors and use them as an excuse for a shakedown. The lawyers taking advantage don’t even need a client, since they can bring the suit on behalf of all Californians, without ever having to show that they were actually harmed in any way. And for many of the businesses involved, it is far less expensive to quietly pay off the scoundrels than fight them in court.

The result: thousands of businesses are forced to pay millions of dollars for violations such as abbreviating "Annual Percentage Rate," overlooking a typographical error in a newspaper ad, or even using the same bottle of nail polish on more than one customer in conformity with industry (and state) standards.

For years, business advocates have been trying to convince the California legislature to fix this legal boondoggle, but trial lawyers, demonstrating their opposition to common sense once more, have vigorously opposed even the most basic reforms.

As a result, on November 2, California voters will have the opportunity to overcome legislative intransigence and enact appropriate reforms themselves. Proposition 64 begins to close the loophole that allows unscrupulous trial lawyers to prey on California’s small business owners.

First, Prop 64 requires an attorney who files a lawsuit to have an actual client who has been harmed or suffered financial injury. Second, it reserves the public responsibility of filing lawsuits on behalf of the people of California to elected officials who actually represent Californians — the state Attorney General, District Attorneys and some City Attorneys. In addition, Prop 64 also protects the right of consumers to sue if they have been harmed.

In short, Prop 64 is an outstanding way to start closing the legal loophole that rewards trial lawyers for pursuing sleazy shakedowns.

Prop 64’s basic reforms should go a long way toward protecting small businesses from frivolous 17200 claims. That, in turn, will protect existing California jobs, promote a positive climate for economic growth and free up cash for expansion and job creation.

All in all, there is no question that Proposition 64 offers a long overdue fix to a festering problem.

[Posted October 21, 2004]

Return to State Issues Index