The Legislature opened an investigation Tuesday into complaints that a California consumer protection law is being abused by attorneys who sue small businesses on flimsy charges, then quickly exact settlement payments when the business owners can't afford to defend themselves in court.
At one point in a fact-finding hearing of the judiciary committees of the Assembly and Senate, Sen. Bill Morrow (R-Oceanside), an attorney, denounced a pair of plaintiffs attorneys at the witness table as "nothing but a couple of two-bit legal whores looking for the cashola."
The two, lawyers Shane Han and Allan C. Hendrickson of Beverly Hills, are partners in the Trevor Law Group, which has filed thousands of suits against car repair garages and restaurants in Los Angeles and Orange counties and obtained thousands of settlements.
After the hearing, the pair accused the committees of staging a "slanted" hearing in order to restrict private lawsuits and protect "rip-off" corporations and big business.
At issue is the Unfair Competition Law, which forbids such practices as false advertising and price fixing. The act empowers the state attorney general, county district attorneys and city attorneys to prosecute violators but also allows private attorneys to sue businesses even if the plaintiffs haven't been personally victimized.
Witnesses testified that some lawyers have abused the law so thoroughly that their lawsuits against thousands of small-business operators have threatened to put the defendants out of business. Operators who can't afford to fight the allegations in court must settle, even though they might not have committed the offense, witnesses said.
The committee was told that favorite targets of such suits are immigrant-operated car repair garages, nail shops and restaurants, which are sued as unnamed defendants in mass filings. In some cases, they may not know they have been sued until a letter arrives from the plaintiff lawyer suggesting that a settlement be reached quickly in order to avoid a more expensive suit.
The lawmakers indicated plans to write a reform bill but said at least one more hearing would be held because the issue is more far-reaching than first believed.
"This is greater than what we see before us," said Assemblyman Robert Pacheco (R-Walnut).
Atty. Gen. Bill Lockyer, who said a small number of attorneys he called "bad actors" are abusing the law, is investigating several law firms, including the Trevor Law Group. The State Bar of California is also investigating the firm.
Despite their tactics, Morrow told the committee he believed that Han and Hendrickson were operating within the law. But he said the law needed to be tightened, perhaps by empowering the attorney general to screen which lawsuits should be filed and which should not.
Lockyer cautioned the committee that in attempts to weed out attorney abuse, the Legislature must be careful not to destroy the statute, which he described as a valuable tool for protecting consumers and fair competition among businesses.
In lawsuits against garages by the Trevor group, witnesses said, defendants were picked from a public list on the Web site of the state Bureau of Automotive Repair, which licenses owners and regulates the repair business. In most cases, witnesses said, the operators have already been disciplined by the bureau for such minor offenses as failing to get a customer's signature on a repair cost estimate.
Under questioning, Han conceded that in downloading the Web site information and filing a suit, he does not know the details of the case.
"And you use that as the basis for a cause of action?" Assemblyman Lou Correa (D-Anaheim) asked. Typically, details emerge later, Han said, adding that within a few days he sends the defendant a letter urging a settlement and suggesting a sum that can range from $6,000 to $26,000.
But Sen. Martha Escutia (D-Whittier), chairwoman of the Senate committee and an attorney, suggested that "very technical and very minor paperwork violations" alleged in Han's lawsuits were hardly important enough to warrant an expensive lawsuit against a small business.
Han replied that "these violations are the foundation for fraud in this industry." He identified his only client as a 9-month-old company known as California Enforcement Watch Corp., which splits money from the settlements with the law firm.