A Remedy for Shakedowns

Consumer groups have used the state’s unique law against unfair competition to protect Californians from a grocery chain that was relabeling days-old meat and a nursing home that duped families of residents into paying higher rates. But the powerful law that protects against “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising” also is riddled with loopholes that unprincipled lawyers use to shake down small businesses.

They quietly threaten to sue for imaginary breaches -- and then pressure the owners to reach cash settlements before the cases go to court. The Trevor Law Group raised this kind of legalized shakedown to an art form before authorities stepped in and shut down the Beverly Hills-based firm.

The question isn’t whether to close the loopholes, but how. The law gives individuals, consumer groups and businesses the power to be “private attorney generals” who can file lawsuits when a business is suspected of engaging in unfair business practices.

Assemblyman Robert Pacheco (R-Walnut) has introduced business-friendly AB 2604, which would stop future Trevors by severely limiting who can file the special civil lawsuits -- but in the process would block legitimate suits by many consumers.

Assemblyman Lou Correa (D-Santa Ana) has introduced AB 2369, a detailed bill to discourage frivolous threats by, among other things, requiring plaintiffs to file their initial complaints publicly and submit all settlements to judicial review.

If legislators cannot forge a compromise by mid-April, the California Chamber of Commerce intends to use its members’ deep pockets to put an initiative similar to Pacheco’s bill on the November ballot.

Chamber President Allan Zaremberg maintains that the initiative would “stop these shakedown lawsuits before they happen.” Yes, but like the Pacheco bill, it would make it very difficult for citizens, businesses and consumer groups to file justified lawsuits.

Fortunately, a report issued in 1995 by the California Law Revision Commission offers a solution crafted by a bipartisan panel of politicians, business leaders and consumer advocates. The plan is similar to Correa’s, but simpler and more palatable to businesses. Yet the various interests that agreed nine years ago they could live with that compromise now have headed off on separate paths.

The loopholes continue to exist. And the recommendations are a valid starting point for finding a badly needed solution that would spare voters from yet another divisive ballot initiative.