Lawsuit Reform Initiative By California Corporations Overreaches

Now that Inglewood voters have firmly spanked Wal-Mart Stores Inc. in the company's attempt to circumvent local ordinances and the City Council, it would be gratifying to see other business leaders abandon such attempts to take their cases "to the people" by spending lavishly on initiative elections.

Gratifying, but unrealistic. As early as today, the California Chamber of Commerce and a few associated lobbying groups, posing as a public-spirited body called Californians Against Shakedown Lawsuits, will announce that they've gathered enough signatures to place an initiative to reform the state's unfair business practices law on the November ballot. The groups have already raised more than $2.5 million to promote the initiative from contributors such as General Motors Corp., Bank of America Corp. and Microsoft Corp., which is as good a sign as you could ask for that nasty work is afoot.

Known familiarly as 17200, after its section of the business and professions code, the business practices law has been a stone in the corporate community's gizzard for years. That's because it allows a wide range of individuals or groups to sue businesses for unscrupulous behavior without jumping through the daunting procedural hoops of class-action law.

But 17200 has also been a handy weapon for unscrupulous lawyers who have used it to extort millions of dollars from small businesses by threatening to hale them into court if they don't pay "legal fees." The most renowned practitioners of this scam were a gang of Beverly Hills desperadoes known as the Trevor Law Group, which cut a wide swath through the state's auto repair and ethnic restaurant sectors before resigning from the state bar last year, one step ahead of the disbarment committee.

For the business lobby, Trevor's depredations became another count in the bill of particulars against 17200. But the proposed initiative goes far beyond curbing such abuses. Instead, it strives to shut the courthouse door to many legitimate, and publicly useful, applications.

Over the years there have been numerous attempts to bring the business lobbies, trial lawyers and consumer and public interest groups together to rewrite 17200 to curb lawyers' abuses without cutting out its heart. The most recent talks, between the Consumer Attorneys of California and the California Motor Car Dealers Assn., broke down last week.

What irks the business community most about 17200 is its so-called private attorney general provisions. These allow anyone to sue a business for unfair or unlawful activities - for example, ripping off tenants, cheating consumers, refusing to pay insurance claims, polluting the environment or advertising deceptively - without waiting for the attorney general or a regulatory agency to act first. (In this era of straitened government resources, these protectors of the powerless might never act.) The law allows individuals or groups to step in, bringing an action even if they haven't been directly harmed, and often on behalf of anonymous victims.

The business lobbies say that leaves the courthouse door too wide open. Their initiative would dramatically cut back the roster of those with standing to sue, limiting it to public officials or to those who can show direct harm from a targeted business practice. It's obvious this would gut the law by barring cases in which an individual victim can't easily be identified, such as in environmental violations, or when victims fear coming forward, as when a landlord is cheating immigrant tenants.

If the business groups truly want to eliminate Trevor-style abuses, as they claim, supporters of the law say that can be done with a few elegant alterations. "It's not brain surgery," says Robert C. Fellmeth, a University of San Diego law professor who wrote a 1995 reform of the law that died in the Legislature. Fellmeth now is a consultant to Assemblyman Lou Correa (D-Anaheim) on another reform attempt.

The Correa bill would add a number of procedural safeguards to 17200 that would eliminate any incentive for lawyers to threaten meritless cases just to cadge a quick fee. Any 17200 lawsuit would have to be publicly posted upon its filing and any settlement publicly announced and brought before a judge for approval after a 30-day window for third-party objections. Attorney fees would not be granted unless the case achieved an important public benefit, which would rule out lawsuits over trivialities.

Lawyers filing 17200 cases to protect the "public welfare" also would be prohibited from having conflicts of interest. This would have stopped the Trevor group, which set up its own public advocacy front groups to pose as plaintiffs. And anyone bringing a case against more than 20 defendants on related allegations would have to notify each defendant, and the courts, of the other cases. This would allow small businesses hit by the sort of broadband threats that were Trevor's specialty to band together cheaply in their own defense.

Fellmeth argues that these provisions would shine such a bright light on any attempted abuses that only the most idiotic lawyer would try to revive Trevor's game. It would make a blitzkrieg extortion of legal fees almost impossible, because public disclosure of the settlement terms would surely draw the attention of watchdog organizations, which could file their own objections.

"No attorney's going to walk to the end of the rainbow unless there's a pot of gold there," Fellmeth told me. "This takes away the pot of gold."
Fellmeth observes that state courts have recently been cutting back the reach of 17200 anyway. One appellate court exempted securities cases from the law, carving out a major area of potential consumer fraud. And the state Supreme Court last year barred the remedy known as disgorgement, in which the loser in a 17200 case could be forced to pay money into a general restitution fund or the state treasury. Efforts to restore a disgorgement provision, so that no one can profit from bad behavior, have been deal-breakers in negotiations over reforms ever since.
But that's not enough for the business groups. "Any reform has to address the issue of who's entitled to file a suit," says Brian Maas, government and legislative counsel to the Motor Car Dealers.

That's a hint of the business lobbies' real agenda - knocking most litigants out of the 17200 box. Another hint comes from the contributor roll of Californians Against Shakedown Lawsuits. Among those donating $100,000 or more, the bulk of the war chest, one finds Microsoft, BofA, Intel Corp., Blue Cross of California and Southern California Edison . These are outfits that would have no trouble swatting any Trevor-like flies who tried to sue them over trivialities; the legal fees involved wouldn't even register on their books as rounding errors. But keeping environmental groups, consumer protection organizations and utility watchdogs out of court? Priceless.

The very ability of such lobbies to resort to ballot-box campaigns is what makes legislative negotiating in California so futile. Why bother to compromise when you can shoot off an e-mail to Bill Gates for money to jump-start an initiative campaign? Then you can smear the law you're targeting as a lawyers' gold mine and label it a "job killer," and swank around as a protector of the public interest.

California's statute books are bursting with special interest laws that were grotesquely misrepresented to the voters as genuine reforms, because voters are often confused by glib, well-financed publicity campaigns. But the Chamber of Commerce may wish to consider that the electorate is finally wising up. If it wants details, it need only phone up the people at Wal-Mart.

© 2004 Los Angeles Times

Related features:

Our first response to learning of this initiative: Nation's Toughest Consumer Protection Law Under Attack

Wal-Mart Loses the Initiative Battle, But Why Do We Allow It to Fight?

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