Trial Lawyer Shakedowns in California
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 youve launched, youre
finding new customers. Your profit margins are shrinking, but youre
staying afloat just barely by hustling to find more
one day you get a call from a lawyer youve never heard of.
He says he noticed that you hadnt put your California Seller
of Travel number on your website. He tells you that youve
violated California law, and hes going to sue you. He spouts
some gobbledygook about Californias Unfair Competition Law.
You hear "seventeen two hundred" a few times. You dont
really understand what hes talking about.
what he says next is crystal clear: "Were going to sue
you, and we believe weve 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 Id be willing to settle the case right
now, for $5,000, and save you the time and cost of a lawsuit."
cant afford to lose $30,000. You cant 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 its a choice between paying $5,000 and going out
of business, its an easy decision. You ask him where you should
send the check.
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
farfetched? It isnt.
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.
shakedowns arent 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."
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
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
dont 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.
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.
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.
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 Californias small business
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.
short, Prop 64 is an outstanding way to start closing the legal
loophole that rewards trial lawyers for pursuing sleazy shakedowns.
64s 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.
in all, there is no question that Proposition 64 offers a long overdue
fix to a festering problem.
October 21, 2004]
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