Drastic measure

Saying they are unsatisfied with legislative efforts to curb frivolous lawsuits, the California Chamber of Commerce and other business groups are taking their cause directly to the voters. Proponents say a proposed ballot measure to “Stop Shakedown Lawsuits” would stop abuses by unethical attorneys who make millions off of nuisance suits.

It also might make it a lot harder to stop businesses from breaking laws that protect the environment and public health.

When Dow Chemical Co. failed to deal with a toxic plume that was contaminating San Francisco Bay, an environmental group called Baykeeper forced the company to clean up its mess by suing under the provisions of California’s Unfair Competition Law.

The same law was used by the Center for Environmental Health to force Bristol-Myers Squibb to stop manufacturing diaper powder that contained high levels of lead.

Another environmental group used the law to force Crystal Geyser to install better water-filtration equipment, after its bottled water was found to have illegal levels of arsenic and bacteria.

Such is the power of California’s Unfair Competition Law, often called 17200 after its section in the state’s Business and Professions Code. Not one of the cases alleged that a specific victim was harmed by the companies’ illegal actions; no one claimed to have gotten sick from drinking Crystal Geyser or claimed that the lead in the diaper powder had harmed any individual baby.

That is because 17200 allows individuals and citizens to sue a company in order to enforce environmental or consumer laws on behalf of the general public, even when no victim has stepped forward. These cases often fall under the notion of “unfair competition” because the defendant is alleged to have profited by not following the law.

It has been touted by public- interest groups as the law to use to stop violations of consumer or environmental law before somebody gets hurt.

“It’s one of the best tools in the toolbox. It’s particularly effective for preventing environmental disasters before they happen,” said Mike Schmitz, with the California League for Environmental Enforcement Now.

But 17200 can be used for much more nefarious purposes, as well. Two years ago, a law firm called the Trevor Law Group used the same law to file thousands of frivolous lawsuits against small businesses around the state. The suits often involved very minor violations of consumer law and typically had little chance of winning in court. But Trevor, along with a handful of other attorney groups, made millions of dollars by using 17200 to scare business owners into paying settlements, just to make the lawsuits go away.

Now, a major tort-reform group, the Civil Justice Association of California (CJAC), along with the California Chamber of Commerce and several large corporations, has seized on the example of the Trevor Law Group to push a ballot measure that would remove 17200 from the toolbox.

The measure is close to gathering enough signatures to be placed on the November ballot. If passed by voters, the new law would prohibit a suit by private citizens unless actual harm could be shown. The law allows only the state attorney general or local government prosecutors to use 17200 on behalf of the general public.

“No other state allows lawyers to do this. Private lawyers are filing suits without any clients and without showing that any harm has been done,” said John H. Sullivan, director of CJAC and co-chair of the initiative campaign.

When the Trevor Law Group made headlines last year, the Legislature responded with a flurry of bills aimed at reforming 17200, all of which failed. Sullivan blamed trial lawyers for getting all but two of the bills killed in committee. Those two bills, Assembly Bill 95 by Ellen Corbett, D-San Leandro, and Senate Bill 122 by Martha Escutia, D-Norwalk, were in turn killed by heavy opposition from the California Chamber of Commerce and other business groups. The bills would have required anyone filing a suit under the provisions of 17200 to advise the target of its right to retain a lawyer. The bills also required any settlement to be reviewed by the court. Schmitz said the bills struck a balance between discouraging abuses of the law and eviscerating it.

“What the Trevor group and others did was unethical, vicious and wrong,” Schmitz said, noting that many of the attorneys engaged in shakedown lawsuits have been disbarred and prosecuted by the state attorney general since then.

But Sullivan said the Corbett and Escutia bills failed because they were “handcrafted by the trial lawyers” and did little to protect small-business owners who weren’t savvy enough to fend off such predatory practices. He noted that the kinds of businesses targeted—nail salons, travel agencies and auto shops—often were owned by recent immigrants or by small-business owners without easy access to effective legal help.

“The kinds of victims you are seeing are often new to the country, or [they] don’t understand the process,” Sullivan explained.

The major contributors to the Stop Shakedown Lawsuits campaign, however, hardly could be called unsophisticated. Much of the money is coming from individual car dealerships around the state, which have pooled nearly $4 million in the last year.

The Clorox Company has given $10,000. GlaxoSmithKline has given $20,000. Nike is in for $50,000. And Microsoft, Oracle and Intel each have anted up $100,000, as has Southern California Edison.

Considering the initiative’s donor list, Sierra Club lobbyist Bill Magavern said matter-of-factly, “Corporate polluters don’t want to be held accountable. This law is one of the few tools we have for citizen enforcement, and the corporations would like to take that tool out of the public’s hands.”

Critics of the measure say that the attorney general and local district attorneys just don’t have the resources or the political will to go after polluters, especially in these tough economic times. “And this would wipe out many of the cases brought by public-interest groups in this area because of the onerous new requirement to show personal or property injury,” said Schmitz. He added that having to show harm before filing a lawsuit invites disaster. “Saying that a polluter can’t be stopped from doing midnight dumping until you can find the child who got sick from drinking the water makes no sense,” he said. “You shouldn’t have to wait to find the cancer cluster before you take action.”