Proposition would halt lawyers' legal extortion of legitimate businesses

Frivolous lawsuits brought by predatory attorneys have long made life difficult for California businesses. But relief is in sight in the form of Proposition 64 on the Nov. 2 ballot.

Prop. 64 would limit who can bring a lawsuit under California's Unfair Business Competition Law, the 71-year-old statute that prohibits business owners from committing deceptive or fraudulent practices that compromise public health and safety. Although the law has been used successfully to stop fraudulent acts such as the relabeling of old meat in grocery stores, in its current form, lawyers often misuse the law to extort money from honest business owners.

That's because it contains a loophole that allows any person to sue a proprietor without proof of personal injury or monetary or property damages. In fact, the law doesn't even require that the claimant be a customer of the business. This permits lawyers to sue without a client and to profit when victorious.

Attorneys go after businesses for petty matters such as using an abbreviation for "annual percentage rate" or for minor health code violations already handled by county health departments. While the issues may be trivial, the lawyers' shakedown is not. They often demand settlements of a few thousand dollars, which can make or break a mom-and-pop store.

Faced with these claims, owners must choose between fighting in court or settling. Either option costs them time and money. Take the case of a Santa Ana auto body shop that was sued for not paying a licensing fee, when in fact the Bureau of Auto Repair misplaced the owners' check.

A law firm accused the shop of operating without a license and wanted $2,000 to settle the case. The owners chose to fight, and won, but it cost them $10,000.

Then there were the lawsuits against several nail salons for reusing the same nail polish on multiple customers, even though the practice is legal under the state's Barbering and Cosmetology rules.

Although no customers came forward to say they were injured, the law firm slyly gave the mostly immigrant owners the option of quietly settling for less than $1,000 each. Many conceded in order to save their salons and their reputations.

The most galling case involved a Lake Forest manufacturer accused of deceiving the public by promoting a door lock as "Made in America." The lock was made in America but had six Taiwanese screws, a detail the attorneys exploited to their benefit. The company lost the case and was forced to pay $3 million to the law firms involved. This is "jackpot justice" at its worst.

These shakedowns have become so lucrative that the Consumer Attorneys of California group offers a seminar in Hawaii on how law firms can profit from them. But while attorneys are gaining from these frivolous lawsuits, California's economy is suffering.

The 2002 Economic Report of the President estimates that the cost of lawsuit abuse in California is more than $24 billion a year. According to a study by the U.S. Chamber of Commerce, California's litigation environment is one of the least fair to businesses. Prop. 64 would provide much-needed and long-overdue reform.

In addition to closing the loophole allowing non-injured parties to sue, Prop. 64 would change the system so that only the state attorney general and local prosecutors can bring lawsuits on behalf of others. This would end the parade of private attorneys acting as self-appointed public advocates, while preserving channels to prosecute serious fraud.

Given the rampant misuse of the Unfair Business Competition Law, Prop. 64 is an important step toward ending lawsuit abuse in California. It would free business owners from raids by predatory lawyers bent on practicing jackpot justice.