Consumer-Protection Law Abused in Legal Shakedown
Proprietors of ethnic restaurants and auto repair shops across the state undoubtedly breathed a sigh of relief when California authorities put the Trevor Law Group out of business.
The Trevor lawyers were a clutch of Beverly Hills shakedown artists who perfected a technique that involved suing thousands of mom-and-pop businesses at a time -- some of their lawsuits listed 30,000 “John Doe” defendants -- for violating Section 17200 of the state’s business and protection code, which imposes sanctions for unlawful, fraudulent or unfair business practices.
The lawyers would troll state agency Web sites for lists of alleged violations of small-business codes, such as restaurant hygiene infractions. They would sue the businesses on the lists, which are notoriously preliminary. Then they would contact the defendants with offers to settle for a few thousand dollars a pop. Since most of their victims didn’t have the wherewithal to hire their own lawyers, and had little experience responding to formal legal complaints, this scam began to look like a new frontier in legal extortion and a distinctive California scourge, like medflies and recall campaigns.
Eventually, the Trevor gang attracted the attention of Atty. Gen. Bill Lockyer and the State Bar of California. The latter filed a disbarment case that resulted in the resignation of the three Trevor lawyers from the bar earlier this month. (They resigned before the disbarment could be formally concluded, but they still face a lawsuit from Lockyer demanding restitution of all the settlement money they received.)
So that ended the problem, right?
Not quite. “There’s no reason to think that the resignation of the Trevor lawyers will stop the shakedown,” says Edward Sybesma, a lawyer at the Costa Mesa firm Rutan & Tucker whose defense against a Trevor lawsuit may have helped sink the firm.
Let’s leave aside the fact that the State Bar has active cases against two other law firms accused of similar scams, and that ludicrous 17200 claims against small businesses materialize anew every day. (As I write I’m looking at a letter sent two weeks ago by a Bay Area lawyer to a San Jose pool company, offering to settle a potential 17200 claim over a supposedly deceptive newspaper advertisement in exchange for a “reasonable attorney’s fee” of $5,000).
What’s more important is that the Trevor Law Group affair has provided new ammunition for a battle over the law itself that the state’s various legal interest groups have been waging for years. We’re talking about a statute that ranks -- depending on whom you ask -- as one of the most potent consumer-protection weapons in the country or as a poster child for this state’s skill at driving off business in ever new and imaginative ways.
One thing on which both sides agree is that Section 17200 is unique in the nation. It allows any Californian to sue a business for wrongdoing on behalf of the general public even if no one, including the plaintiff, has been personally injured. All that is necessary to state a 17200 claim is an assertion of unfair or deceptive business practices, which is a pretty broad limitation, especially if, as in the Trevor cases, the plaintiffs have no intention of actually going to trial.
Legal experts note that some other states allow individuals as well as government agencies to bring civil suits against alleged violators. But in those states there are usually procedural safeguards to keep such lawsuits from getting out of hand.
“Nobody is as loose with the right to represent the general public as California,” says Robert C. Fellmeth, a University of San Diego law professor who was a member of a state commission that tried unsuccessfully a few years ago to rewrite the law so it might be more effective and less prone to casual abuse. “We’re off the spectrum.”
Plenty of lawyers in California think that’s not entirely a bad thing. Section 17200 claims have indeed been indispensable in bringing to justice polluters, slumlords, deceptive HMOs and others who make a living abusing the defenseless.
“It’s a very powerful tool for good,” says Lauren Saunders, deputy director of litigation at Bet Tzedek Legal Services, a Los Angeles legal aid agency that used Section 17200 last year to pry a $1.2-million settlement out of Lance Robbins, who was accused of being a major Los Angeles slumlord and is now enjoined from further housing violations.
The power that 17200 grants plaintiffs to file essentially anonymous lawsuits is particularly valuable, she says, when the victims are immigrants understandably loath to attach their names to legal papers. Its flexibility is valuable, she told me, because “fraud takes a lot of forms, and people engaging in unscrupulous conduct can be very creative.”
Saunders expresses concern that Trevor-style abuses are giving pro-business groups a pretext to gut a law they have other reasons to dislike. “We all know there are frivolous lawsuits filed every day under millions of laws,” she says. “I don’t know that this law is abused more than any other.”
It is true that the Trevor Law Group’s troubles may have stemmed less from its exploiting the peculiar shortcomings of Section 17200 than from overreaching: Among the more serious charges in the State Bar’s disbarment brief is that the group misrepresented the terms of settlements with defendants, in part by suggesting that once the businesses settled, they would be exempt from further lawsuits -- which isn’t so under the law.
(The group also made the mistake of picking on the wrong victims; thinking that it was suing only ma-and-pa service stations, it named, apparently unwittingly, a couple of repair shops owned by the big tire maker Bridgestone/Firestone North American Tire, which took umbrage and put Sybesma on the case. “How was I supposed to know this was Bridgestone/Firestone?” Sybesma recalls one of the Trevor lawyers lamenting one day -- a line one wouldn’t be surprised to hear during an episode of “America’s Dumbest Criminals.”)
But business attorneys contend that 17200 claims are an unremitting nuisance in their professional lives.
“Trevor was a drop in the bucket,” says David McDowell, a partner in the L.A. office of Morrison and Foerster who defends larger companies against 17200 claims. He and others say it’s second nature for plaintiffs’ attorneys to throw in 17200 claims to give otherwise conventional commercial lawsuits such as contract disputes a public-interest veneer. “We see 17200 claims in almost every area where we practice,” he says. “I’ve got five or six on my desk right now.”
One would think that great legal minds would find a way to preserve the so-called “private attorney general” aspects of 17200 without leaving legitimate businesses vulnerable to frivolous claims. In fact, there have been plenty of attempts to do just that over the years.
In the current legislative session, as it happens, both houses have passed complementary amendments to the law. Taken together, the bills would require a judge’s approval of any settlement resulting in an award of attorney’s fees, including out-of-court settlements of the type extracted by Trevor. Defendants in such lawsuits would have to be presented with an extensive notice setting forth their legal rights, and there would be limits on lawyers’ ability to file omnibus cases against scads of unrelated businesses all at once.
Lawyers I talked to on all sides of the 17200 debate said these are due-process provisions they could live with. But the bills also include provisions that could penalize businesses that lose such lawsuits by forcing them to pay portions of their profits into general restitution funds, a process known as disgorgement that is apparently a deal-killer. The disgorgement provision, which was written in to answer objections voiced by the California Supreme Court in a couple of recent rulings, has provoked pro-business groups such as the Civil Justice Assn. of California to rally opposition to the bills, and their fate may now be in question.
Those two bills were the last reform measures left standing after consumer advocates killed off several other versions they say would have hopelessly diluted the law’s consumer-protection powers. (That’s not a recent phenomenon: “We’ve been fighting a seven-year onslaught by the tort-reform crowd to gut the act,” says Bruce M. Brusavich, president of the Consumer Attorneys of California.)
It’s also true that there’s no guarantee that any particular reform will cure some lawyers of the impulse to “take advantage of their education to intimidate unsophisticated people,” in the words of Michael Nisperos, the State Bar’s chief prosecutor, who handled the case against the Trevor attorneys. “I don’t know if there’s a real cure for greed and stupidity, and that’s what you really need.”
Golden State appears every Monday and Thursday. Michael Hiltzik can be reached at golden.state@latimes.com.
