July 23, 2003
Shakedown suits cost California
I've written about how tort law abuse is the number one domestic problem in this country and also provided some examples, but to really get a feel for this problem look no further than this piece from WSJ.com - The Shakedown State.
Crooked lawyers are blackmailing businesses--costing jobs and increasing costs for consumers--based on dubious legal merit. But with such heavily pro-plaintiff rules in this state the blackmail works because businesses can't aford the risk--juries can be manipulated and it is costly just to defend even a frivilous suit. And for those who have little sympathy for anything that smacks of "business" note that large businesses can afford legal teams to fight these things, so it is the small businesses, often " mom-and-pop immigrant defendants" who get hurt the most.
Why such a dysfunctional system in California? The trial lawyer lobby has the Democrats, who totaly control state governnment, in its pocket.
Shakedown suits are nothing new in the Golden State, but Damian Trevor and two colleagues effectively mechanized the process. They combed through state regulatory records for businesses that had been issued some kind of reprimand, often over trivial paperwork omissions or missed deadlines. They sent letters in the name of Consumer Enforcement Watch, a newly organized group whose mailing address was the same as theirs, offering not to sue the businesses if they came across with checks in the thousands of dollars. The firm's "red letter," named after the color of the paper on which it was printed, put matters bluntly: "Either pay even more money to fight in court or settle out of court and get on with business." Many did pay.
In part because of press sympathy for mom-and-pop immigrant defendants, a furor began to build. And while trial-lawyer spokesmen took a "few bad apples" line, business groups saw Mr. Trevor's treasure hunt as merely the latest logical extension of section 17200, a law so bizarrely pro-plaintiff as to be a major disincentive for many companies to do business in the state. Indeed, the chairman and CEO of mortgage giant Countrywide pointedly cited 17200 in a recent letter to Gov. Gray Davis explaining the company's decision to halt expansion in California. …
Robert Fellmeth, a University of San Diego law professor with strong liberal and consumerist credentials, supports 17200's broad objectives but has said that its current configuration "really creates an environment for extortion." This spring Mr. Fellmeth worked with Assemblyman Lou Correa (D., Anaheim) to craft a very modest measure that would have required court approval of settlements and provided public hearings to vent defendant objections. They might have saved themselves the effort: In May the Judiciary Democrats deep-sixed Mr. Correa's bill along with more far-reaching GOP alternatives that in one instance would even (of all things!) have required lawyers to line up actual injured clients before they sued.
But that was just a prelude to what happened next. On July 8 the respective Judiciary chairs stunned business observers by pulling from a hat and passing substitute bills devised by the state's trial lawyer group, which styles itself Consumer Attorneys of California. …
After that begins a trial-lawyer wish list, starting with liberal rules for "joinder" of defendants, along with explicit authority for lawyers to sue multiple businesses without knowing which ones have actually committed a violation. Most ominous of all, the bill would overturn a March decision in which the state supreme court barred lawyers from demanding the "disgorgement" under 17200 of any and all revenue a business had earned while an infraction was in progress, as opposed to restitution for customers affected by a practice, which they are still free to seek. The difference between the two is dramatic: If you're a pizzeria owner and get sued for unfairly claiming that your pie is the best in town, restitution might consist of giving away consolatory baskets of garlic bread, but disgorgement could mean paying out all the revenue you've taken in while the slogan was printed on your boxes. It's a remedy so drastic that courts seldom impose it; its real function is usually to give lawyers the leverage to terrify defendants into settlement. To top it all, the Escutia bill would allow lawyers to steer settlement funds not paid to actual consumers to organizations that "promote justice," code for the consumer and pro-litigation groups with which the lawyers are allied.
The trial lawyers' bill has now passed both houses in different forms and could reach final-action votes any day now. Don't count on Democratic Gov. Gray Davis to exercise his veto: trial lawyers are likely to be major sources of the war chest he'll need for his forthcoming recall battle.