Remove the Incentive to Abuse ‘Unfair’ Law

A recent spate of dubious lawsuits brought under California’s Unfair Competition Law has targeted small businesses, among them Indian-owned convenience stores, Vietnamese-owned nail salons and at least 2,000 auto repair shops and 1,000 restaurants.

The lawyers bringing these suits aren’t trying to address any grievances. Instead, they push for quick cash settlements that, as they explain, are cheaper than fighting in court. As a result, a handful of unscrupulous lawyers has extracted millions of dollars from thousands of businesses across California.

This law must be reformed to eliminate these frivolous lawsuits and to protect consumers and businesses.

Under the law, a business can be liable whenever it fails to follow any federal, state, county or municipal statute or ordinance, no matter how minor or obscure, and without regard to whether anyone was harmed. The law states that any action “likely to deceive members of the public,” even if no one is actually deceived, also constitutes a violation. Furthermore, an “unfair” act is grounds for a suit, although the California Supreme Court has admitted that the definition is too broad -- “unfair” can be whatever a clever lawyer thinks it is.

Finally, the law allows a private lawyer to bring a lawsuit on behalf of the general public without any oversight to ensure that the lawyer is really acting in the interests of the public.

Although small-business owners -- often immigrants with neither large bank accounts nor strong English skills -- might seem to be easy targets, the vast majority of those targeted are vigorously opposing the lawsuits. Why? They understand something many have forgotten: This nation’s financial might was built on its laws -- laws that have brought both unparalleled economic freedom and well-being for its people.

Many of these immigrants saw firsthand in their native countries the ruinous effects of restrictive laws, red tape and corruption. They believed in the American dream and came here. Now, as victims of the lawyers pushing the Unfair Competition Law to its limit, thousands of shop owners and their families are again experiencing unjust barriers to making a living.

Many proposals to deal with this abuse have been suggested -- from repealing the law to leaving it untouched and investigating the lawyers filing the lawsuits. In fact, the California Bar Assn. has already initiated an investigation, and the state attorney general’s office has sued some of the lawyers involved.

Focusing on the lawyers, however, will not solve the problem. The problem is the law. Every business in California is at risk. And, unlike other laws, the broad language of this law makes it almost impossible for a court to make an early decision on whether a lawsuit is justified.

Investigations of, and sanctions against, individual attorneys will not work because they do nothing to change the incentives of pursuing settlements by threatening expensive legal action. A 1995 investigation did not stop the abuse of this law, and the current probes won’t either.

It is critical that the Unfair Competition Law be amended so that suits are filed only to rectify actual injuries rather than to obtain quick cash payments. Defendants should settle because they fear losing the lawsuit, not because they fear legal bills.