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CC - Item 4M - Authorize support of Legistive reform to Curtail Abuse of Unfair Competition Law - Box 070
7/ 6L- TO: HONORABLE MAYOR AND MEMBERS ROSEMEAD CITY COUNCIL FROM: BILL CROWE, CITY MANAGER DATE: JANUARY 28, 2003 RE: AUTHORIZE SUPPORT OF LEGISLATIVE REFORM TO CURTAIL ABUSE OF UNFAIR COMPETITION LAW Councilman Imperial has brought to staffs attention a spate of controversial lawsuits targeting restaurants in Rosemead and several other cornmunities in the West San Gabriel Valley. Councilman Imperial and other critics of California's consumer protection law, known as the Unfair Competition Law (Business & Professions Code Section 17200), contend that some law firms have tried to use this seventy-year old law to extort money from small, primarily minority-owned businesses. Recently, sixty-four Rosemead businesses were targeted in one such lawsuit brought by the Trevor Law Group of Beverly Hills. After being contacted by local restaurant owners, Councilman Imperial met with over 200 local area small-business owners who were defendants in this suit. Business owners described their outrage to find that consumer protection laws were being used in an extortionist fashion to force secret out-of-court settlements ranging from 51,000 to 526,000. Councilman Imperial subsequently attended an Assembly Business and Professions Committee hearing in Santa Ana, on January 10th, and provided written testimony requesting Attorney General Office intervention and immediate legislative action to reform the UCL Act. Additionally, Councilman Imperial has enlisted the assistance of the Rosemead Chamber of Commerce to advocate for reform. On January 14th, while attending the California Contract Cities Association's annual legislative meetings, Councilwoman Clark, and staff attended a Joint Informational Hearing of the Assembly and Senate Judiciary Committees on the subject of these controversial lawsuits. The all day hearing, which consisted of a number of panels, revealed a number of startling abusive and coercive tactics being employed by several law firms, not only against restaurants, but also auto repair and nail salon businesses. COUNCIL AGENDA JAN 2 3 2003 ITEM No. _ ~ ~c'h While the State Bar Association has opened an extensive investigation to determine whether misconduct has occurred and disciplinary action is warranted, ample evidence was submitted at the two hearings to suggest legislative reform is necessary to stem further abuses. Therefore, staff recommends that the City Council take formal action to authorize council, staff and our legislative advocate to work with members of the legislature and their staffs to reform state consumer protection laws to reduce the possibility for further abuses and restrict frivolous and extortionist lawsuits. . RECOMMENDATION: Support reform of state consumer protection laws in order to reduce the possibility for further abuses and restrict frivolous and extortionist lawsuits; and direct staff to work with the City's legislative advocate to seek legislative reform. WAIS Document Retrieval CALIFORNIA CODES BUSINESS AND PROFESSIONS CODE SECTION 17200-17210 17200. As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code. 17201. As used in this chapter, the term person shall mean and include. natural persons, corporations, firms, partnerships, joint stock companies, associations and other organizations of persons. 17201.5. As used in this chapter: (a) "Board within the Department of Consumer Affairs" includes any commission, bureau, division, or other similarly constituted agency within the Department of Consumer Affairs. (b) "Local consumer affairs agency" means and includes any city or county body which primarily provides consumer protection services. 17202. Notwithstanding Section 3369 of the Civil Code, specific or preventive relief may be granted to enforce a penalty, forfeiture, or penal law in a case of unfair competition. 17203. Any person who engages, has engaged, or proposes to engage in unfair competition may be enjoined in any court of competent jurisdiction. The court may make such orders or judgments, including the appointment of a receiver, as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition, as defined in this chapter, or as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition. 17204. Actions for any relief pursuant to this chapter shall be prosecuted exclusively in a court of competent jurisdiction by the Attorney General or any district attorney or by any county counsel authorized by agreement with the district attorney in actions involving violation of a county ordinance, or any city attorney of a city, or city and county, having a population in excess of 750,000, and, with the consent of the district attorney, by a city prosecutor in any city having a full-time city prosecutor or, with the consent of the district attorney, by a city attorney in any city and county in the name of the people of the State of California upon their own complaint or upon the complaint of any board, officer, person, corporation or association or by any person acting for the interests of itself, its members or the general public. Page 1 of 6 http://www.leginfo.ca..../waisgate?WAISdoc[D=10632828577+1+0+0&WAISaction=retriev 1/20/2003 WAIS Document Retrieval 17204.5. In addition to the persons authorized to bring an action pursuant to Section 17204, the City Attorney of the City of San Jose, with the annual consent of the Santa Clara County District Attorney, is authorized to prosecute those actions. This section shall remain in effect until such time as the population of the City of San Jose exceeds 750,000, as determined by the Population Research Unit of the Department of Finance, and at that time shall be repealed. 17205. Unless otherwise expressly provided, the remedies or penalties provided by this chapter are cumulative to each other and to the remedies or penalties available under all other laws of this state. 17206. (a) Any person who engages, has engaged, or proposes to engage in unfair competition shall be liable for a civil penalty not to exceed two thousand five hundred dollars ($2,500) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General, by any district attorney, by any county counsel authorized by agreement with the district attorney in actions involving violation of a county ordinance, by any city attorney of a city, or city and county, having a population in excess of 750,000, with the consent of the district attorney, by a city prosecutor in any city having a full-time city prosecutor, or, with the consent of the district attorney, by a city attorney in any city and county, in any court of competent jurisdiction. (b) The court shall- impose a civil penalty for each violation of this chapter. In assessing the amount of the civil penalty, the court shall consider any one or more of the relevant circumstances presented by any of the parties to the case, including, but not limited to, the following: the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant's misconduct, and the defendant's assets, liabilities, and net worth. (c) If the action is brought by the Attorney General, one-half of the penalty collected shall be paid to the treasurer of the county in which the judgment was entered, and one-half to the State General Fund. If the action is brought by a district attorney or county counsel, the penalty collected shall be paid to the treasurer of the county in which the judgment was entered. Except as provided in subdivision (d), if the action is brought by a city attorney or city prosecutor, one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered. (d) If the action is brought at the request of a board within the Department of Consumer Affairs or a local consumer affairs agency, the court shall determine the reasonable expenses incurred by the board or local agency in the investigation and prosecution of the action. Before any penalty collected is paid out pursuant to subdivision (c), the amount of any reasonable expenses incurred by the board shall be paid to the state Treasurer for deposit in the special fund of the board described in Section 205. If the board has no such special fund, the moneys shall be paid to the state Treasurer. The amount of any reasonable expenses incurred by a local consumer affairs agency shall be paid to the general fund of the municipality or county that funds the local agency. (e) If the action is brought by a city attorney of alcity and county, the entire amount of the penalty collected shall be paid to Page 2 of 6 http://www.leginfo.ca..../waisgate?WAISdocID=10632828577+1+0+0&WAISaction=retriev 1/20/2003 WAIS Document Retrieval the treasurer of the city and county in which the judgment was entered. However, if the action is brought by a city attorney of a city and county for the purposes of civil enforcement pursuant to Section 17980 of the Health and Safety Code or Article 3 (commencing with Section 11570) of Chapter 10 of Division 10 of the Health and Safety Code, either the penalty collected shall be paid entirely to the treasurer of the city and county in which the judgment was entered or, upon the request of the city attorney, the court may order that up to one-half of the penalty, under court supervision and approval, be paid for the purpose of restoring, maintaining, or enhancing the premises that were the subject of the action, and that the balance of the penalty be paid to the treasurer of the city and county. 17206.1. (a) In addition to any liability for a civil penalty pursuant to Section 17206, any person who violates this chapter, and the act or acts of unfair competition are perpetrated against one or more senior citizens or disabled persons, may be liable for a civil penalty not to exceed two thousand five hundred dollars ($2,500) for each violation, which may be assessed and recovered in a civil action as prescribed in Section 17206. Subject to subdivision (d), any civil penalty shall be paid as prescribed by subdivisions (b) and (c) of Section 17206. (b) As used in this section, the following terms have the following meanings: (1) "Senior citizen" means a person who is 65 years of age or older. (2) "Disabled person" means any person who has a physical or mental impairment which substantially limits one or more major life activities. (A) As used in this subdivision, "physical or mental impairment" means any of the following: (i) Any physiological disorder or condition, cosmetic disfigurement, or anatomical loss substantially affecting one or more of the following body systems: neurological; muscoloskeletal; special sense organs; respiratory, including speech organs; cardiovascular; reproductive; digestive; genitourinary; hemic and lymphatic; skin; or endocrine. (ii) Any mental or psychological disorder, such as mental retardation, organic brain syndrome, emotional or mental illness, and specific learning disabilities. The term "physical or mental impairment" includes, but is not limited to, such diseases and conditions as orthopedic, visual, speech and hearing impairment, cerebral palsy, epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart disease, diabetes, mental retardation, and emotional illness. (B) "Major life activities" means functions such as caring for one' s self, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, and working. (c) In determining whether to impose a civil penalty pursuant to subdivision (a) and the amount thereof, the court shall consider, in addition to any other appropriate factors, the extent to which one or more of the following factors are present: (1) Whether the defendant knew or should have known that his or her conduct was directed to one or more senior citizens or disabled persons. (2) Whether the defendant's conduct caused one or more senior citizens or disabled persons to suffer: loss or encumbrance of a primary residence, principal employment, or source of income; substantial loss of property set aside for retirement, or for personal or family care and maintenance; or substantial loss of payments received under a pension or retirement plan or a government benefits program, or assets essential to the health or welfare of the Page 3 of 6 http://www.leginfo.ca..../waisgate?WAISdoc[D=10632828577+1+0+0&WAISaction=retriev 1/20/2003 WAIS Document Retrieval senior citizen or disabled person. (3) Whether one or more senior citizens or disabled persons are substantially more vulnerable than other members of the public to the defendant's conduct because of age, poor health or infirmity, impaired understanding, restricted mobility, or disability, and actually suffered substantial physical, emotional, or economic damage resulting from the defendant's conduct. (d) Any court of competent jurisdiction hearing an action pursuant to this section may make orders and judgments as may be necessary to restore to any senior citizen or disabled person any money or property, real or personal, which may have been acquired by means of a violation of this chapter. Restitution ordered pursuant to this subdivision shall be given priority over recovery of any civil penalty designated by the court as imposed pursuant to subdivision (a), but shall not be given priority over any civil penalty imposed pursuant to subdivision (a) of Section 17206. If the court determines that full restitution cannot be made to those senior citizens or disabled persons, either at the time of judgment or by a future date determined by the court, then restitution under this subdivision shall be made on a pro rata basis depending on the amount of loss. 17206.5. In addition to the persons authorized to bring an action pursuant to Section 17206, the City Attorney of the City of San Jose, with the annual consent of the Santa Clara County District Attorney, is authorized to prosecute those actions. This section shall remain in effect until such time as the population of the City of San Jose exceeds 750,000, as determined by the Population Research Unit of the Department of Finance, and at that time shall be repealed. 17207. (a) Any person who intentionally violates any injunction prohibiting unfair competition issued pursuant to Section 17203 shall be liable for a civil penalty not to exceed six thousand dollars ($6,000) for each violation. Where the conduct constituting a violation is of a continuing nature, each day of that conduct is a separate and distinct violation.' In determining the amount of the civil penalty, the court shall consider all relevant circumstances, including, but not limited to, the extent of the harm caused by the conduct constituting a violation, the nature and persistence of that conduct, the length of time over which the conduct occurred, the assets, liabilities, and net worth of the person, whether corporate or individual, and any corrective action taken by the defendant. (b) The civil penalty prescribed by this section shall be assessed and recovered in a civil action brought in any county in which the violation occurs or where the injunction was issued in the name of the people of the State of California by the Attorney General or by any district attorney, any county counsel authorized by agreement with the district attorney in actions involving violation of a county ordinance, or any city attorney in any court of competent jurisdiction within his or her jurisdiction without regard to the county from which the original injunction was issued. An action brought pursuant to this section to recover civil penalties shall take precedence over all civil matters on the calendar of the court except those matters to which equal precedence on the calendar is granted by law. (c) If such an action is brought by the Attorney General, one-half of the penalty collected pursuant to this section shall be paid to the treasurer of the county in which the judgment was entered, and one-half to the State Treasurer. If brought by a district attorney or county counsel the entire amount of the penalty collected shall be Page 4 of 6 http://www.leginfo.ca..../waisgate?WAISdocID=10632828577+1+0+0&WAISaction=retriev 1/20/2003 WAIS Document Retrieval paid to the treasurer of the county in which the judgment is entered. If brought by a city attorney or city prosecutor, one-half of the penalty shall be paid to the treasurer of the county in which the judgment was entered and one-half to the city, except that if the action was brought by a city attorney of a city and county the entire amount of the penalty collected shall be paid to the treasurer of the city and county in which the judgment is entered. (d) If the action is brought at the request of aboard within the Department of Consumer Affairs or a local consumer affairs agency, the court shall determine the reasonable expenses incurred by the board or local agency in the investigation and prosecution of the % action. Before any penalty collected is paid out pursuant to subdivision (c), the amount of the reasonable expenses incurred by the board shall be paid to the State Treasurer for deposit in the special fund of the board described in Section 205. If the board has no such special fund, the moneys shall be paid to the State Treasurer. The amount of the reasonable expenses incurred by a local consumer affairs agency shall be paid to the general fund of the municipality or county which funds the local agency. 17208. Any action to enforce any cause of action pursuant to this chapter shall be commenced within four years after the cause of action accrued. No cause of action barred under existing law on the effective date of this section shall be revived by its enactment. 17209. If a violation of this chapter is alleged or the application or construction of this chapter is in issue in any proceeding in the Supreme Court of California, a state court of appeal, or the appellate division of a superior court, the person who commenced that proceeding shall serve notice thereof, including a copy of the person's brief or petition and brief, on the Attorney General, directed to the attention of the Consumer Law Section, and on the district attorney of the county in which the lower court action or proceeding was originally filed. The notice, including the brief or petition and brief, shall be served within three days after the commencement of the appellate proceeding, provided that the time may be extended by the Chief Justice or presiding justice or judge for good cause shown. No judgment or relief, temporary or permanent, shall be granted until proof of service of this notice is filed with the court. 17210. (a) For purposes of this section, "hotel" means any hotel, motel, bed and breakfast inn, or other similar transient lodging establishment, but it does not include any residential hotel as defined in Section 50519 of the Health and Safety Code. "Innkeeper" means the owner or operator of a hotel, or the duly authorized agent or employee of the owner or operator. (b) For purposes of this section, "handbill" means,, and is specifically limited to, any tangible commercial solicitation to guests of the hotel urging that they patronize any commercial enterprise. (c) Every person (hereinafter "distributor") engages in unfair competition for purposes of this chapter who deposits,~places, throws, scatters, casts, or otherwise distributes any handbill to any individual guest rooms in any hotel, including, but not limited to, placing, throwing, leaving, or attaching any handbill adjacent to, upon, or underneath any guest room door, doorknob, or guest room Page 5 of 6 http://www.leginfo.ca..../waisgate?WAISdocID=10632828577+1+0+0&WAISaction=retriev 1/20/2003 i WAIS Document Retrieval Page 6 of 6 entryway, where either the innkeeper has expressed objection to handbill distribution, either orally to the distributor or by the posting of a sign or other notice in a conspicuous place within the lobby area and at all points of access from the exterior of the premises to guest room areas indicating that handbill distribution is prohibited, or the distributor has received written notice pursuant to subdivision (e) that the innkeeper has expressed objection to the distribution of handbills to guest rooms in the hotel. (d) Every person (hereinafter "contractor") engages in unfair competition for purposes of this chapter who causes or directs any other person, firm, business, or entity to distribute, or cause the . distribution of, any handbill to any individual guest rooms in any hotel in violation of subdivision (c) of this section, if the contractor has received written notice from the innkeeper objecting to the distribution of handbills to individual guest rooms in the hotel. (e) Every contractor who causes or directs any distributor to distribute, or cause the distribution of, any handbills to any individual guest rooms in any hotel, if the contractor has received written notice from the innkeeper or from any other contractor or intermediary pursuant to this subdivision, objecting to the distribution of handbills to individual guest rooms in the hotel has failed to provide a written copy of that notice to each distributor prior to the commencement of distribution of handbills by the distributor or by any person hired or retained by the distributor for that purpose, or, within 24 hours following the receipt of the notice by the contractor if received after the commencement of distribution, and has failed to instruct and demand any distributor to not distribute, or to cease the distribution of, the handbills to individual guest rooms in any hotel for which such a notice has been received is in violation of this section. (f) Any written notice given, or caused to be given, by the innkeeper pursuant to or required by any provision of this section shall be deemed to be in full force and effect until such time as the notice is revoked in writing. (g) Nothing in this section shall be deemed to prohibit the distribution of a handbill to guest rooms in any hotel where the distribution has been requested or approved in writing by the innkeeper, or to any individual guest room when the occupant thereof has affirmatively requested or approved the distribution of the handbill during the duration of the guest's occupancy. http://www.leginfo.ca..../waisgate?WAISdocID=10632828577+1+0+0&WAISaction=retriev 1/20/2003 CONSUMER ENFORCEMENT WATCH CORPORATION vs. DEFENDANT Di Pillas Pizzeria Bun Boy Chuen Hing Cafe Rainbow Deli Bakery Jim's Burger #5 Casa Carlos 99 Ranch Market Ta Pong Foods Co. Valley Super Burger Royal Bakery Del Mar Supermarket Mien Nghia Noodle Express Pizza Hut 4705625 Lien Phat Restaurant Ji Rong Restaurant Kim Yung Fat Sunseri Market Mr. Stevens Donut V.K. Food Products Silver House Cafd Manor Seafood Restaurant ADDRESS 9013 Valley Blvd. 3361 San Gabriel Blvd. 3133 San Gabriel Blvd. 8150 Garvey Ave. #105 7561 Garvey Ave. 9544 Valley Blvd. 8150 Garvey Ave.# 121 8712 Garvey Ave. 9219 Valley Blvd. 8450 Valley Blvd. #117 7822 Garvey Ave. 7755 Garvey Ave. 7779 Garvey Ave. 8150 Garvey Ave. #117F 8450 Valley Blvd. #115 9014 Garvey Ave. #F 8400 Valley Blvd. 7940 Garvey Ave. # 101 9210 Valley Blvd. 8779 Valley Blvd. 8766 Valley Blvd. Kawa Supermarket 8729 Valley Blvd. CONSUMER ENFORCEMENT WATCH CORPORATION vs. DEFENDANT Kim Kee Noodle House Los Toro's Restaurant Nem Nuong Ninh Hoa Xin Bao Restaurant Amor Bakery Phong Dinh Restaurant Sea Harbour Seafood Restaurant World Pizza Restaurant China Way Fast Food V & L Restaurant Seaworld Seafood Restaurant The Rainbow Jade BBQ Restaurant Taqueria Amigos Tan My Le Hoa Restaurant 888 Seafood Restaurant ADDRESS 3219 San Gabriel Blvd. 8210 Garvey Ave. 9016 Mission Dr. 7940 Garvey Ave. #108 8829 Valley Blvd. 2643 San Gabriel Blvd. 3939 Rosemead Blvd. 9425 Valley Blvd. 3668 Rosemead Blvd. 9000 Garvey Ave. 8118 Garvey Ave. #A 2750 San Gabriel Blvd. 7808 Garvey Ave. 3149 San Gabriel Blvd. 8118 Garvey Ave. #B 8450 Valley Blvd. #121 La Lupita Meat Market 3119 San Gabriel Blvd. #F A-I Chinese Best Food 7637 Garvey Ave. Harlam's Kitchen 8150 Garvey Ave. #117J Hien Khanh 8150 Garvey Ave. #117I Golden Bull Noodle 8150 Garvey Ave. #117D 2 CONSUMER ENFORCEMENT WATCH CORPORATION vs. DEFENDANT Ledo Caf6 Pho 54 Nuoc Mia Vien Dong E-San Thai Kitchen Song Huong Restaurant Tin Tin Sunrise Donuts Ocean Plus Fish Market ADDRESS 8168 Garvey Ave. #B 8450 Valley Blvd. #111 8150 Garvey Ave. #117B 9711 Valley Blvd. #A 8966 Garvey Ave. #C&D 7621 Garvey Ave. 8528 Garvey Ave. 7960 Garvey Ave. #C Hue Thai Restaurant 8968 Garvey Ave. #D New Capital 7540 Garvey Ave. Seafood Restaurant Quanjude Beijing Duck 8450 Garvey Ave. #101 Los Toros 8216 Garvey Ave. Food To Go Tai Sin Restaurant Pho 54 Dadu Corp. Rose Room New Sahnghai Restaurant Banh Coon #1 BBQ My Dung Restaurant Red Chilly Restaurant Caf6 Givral 3313 San Gabriel Blvd. 8150 Garvey Ave. #101 8772 Valley Blvd. 8450 Valley Blvd.#108 8632 Valley Blvd. #J&K 8232 Garvey Ave. #101 8450 Valley Blvd. #119 9008 Garvey Ave. #E 3 MAYOR: ROBERTW. BRUESCH MAYOR PRO TEM: JOEVASOUEZ COUNCILMEMBEP.S: MARGARET CLARK JAYT. IMPERIAL GARY A. TAYLOR January 10, 2003 itch ~ Poscff icad 8838 E. VALLEY BOULEVARD • P.O. BOX 399 ROSEMEAD, CALIFORNIA 91770 TELEPHONE (626) 569-2100 FAX (626) 307-9218 Honorable Chairman and Members, Assembly Business and Professions Committee Dear Chairman Correa and Committee Members: Thank you for your careful consideration that you have brought to bear on the issue of revisiting the contents of Business and Professions Code Section 17200. I have recently attended two town-hall meetings around the Rosemead area These meetings were attended by hundreds of distraught families that own small businesses that I represent in the City of Rosemead. It is incomprehensible that a single law firm can file a blanket lawsuit against these immigrant and small "family owned" businesses and disrupt the lives of thousands of individuals. 1 have been a member of the City Council of the City of Rosemead for over twenty five years as both Mayor and City Councilmember. I have never seen such a blatant attack upon our business community, especially one aimed at those least able to defend themselves. As you are all aware, the current state budget crisis that we are facing in the coming year and the already high cost of doing business in California, it is a constant struggle for businesses to survive in this type of climate. Today, Governor Davis is proposing another increase in sales tax to try to balance the large state budget deficit. This is one more example of indirect costs to businesses that will affect their bottom line. Again, thank you for your attention to this matter and I look. forward to working with your committee to recommend changes to the Unfair Competition Act that will protect our local businesses from being attacked again by these frivolous lawsuits. I may be reached at my office at (626) 569-2110. Please do not hesitate to call me if you would like to discuss this issue further. Sincerely, Jay Imperial Councilman, City of Rosemead Assembly Committee on Business and Professions Lou Correa, Chair Friday, January 10, 2003, 11am Rancho Santiago Community College District Building 2323 North Broadway, Room 107 Santa Ana, CA Alleged Abuses of Unfair Competition Law Against Small Business Owners AGENDA ♦ Introductions: Assemblymember Lou Correa Expert Witnesses: Overview of Unfair Competition Law/B&P 17200 ♦ Albert Shelden - Supervising Deputy Attorney General, Office of the Attorney General (Consumer Law Section) ♦ Professor Robert Fellmeth - Executive Director, Center for Public Interest Law Price Professor, Public Interest Law ♦ Bill Newsome - Deputy City Attorney, City of San Diego California District Attorneys Association Defendants: Individual Stories from Small Business Owners ♦ Nail Salon Owners ♦ Auto Repair Shop Owners ♦ Restaurant Owners ♦ Real Estate Professionals Plaintiffs' Counsels: Justification for Suits in Question ♦ Trevor Law Group, LLP (invited) ♦ Brar & Gamulin, LLP (invited) 0 Law Offices of Brian Kindsvater (invited) Advocates: Perspectives and Possible Solutions ♦ Sharon Arkin - Partner, Robinson, Calcagnie & Robinson Secretary, Consumer Attorneys of California (CAOC) O John Sullivan - President, Civil Justice Association of California (CJAC) O Gail Hillebrand - Senior Attorney, Consumers Union, West Coast Regional Office ® Mike Metzler - President, Santa Ana Chamber of Commerce, California Chamber of Commerce A Steve Blackledge - Consumer Advocate, California Public Interest Research Group (CalPIRG) ♦ Maryann Maloney -Executive Director, Citizens Against Lawsuit Abuse (CALA) O Debra Bierman - Consumer Protection Attorney, Bet Tzedek Legal Services O Open Forum-Audience Comments O Adjourn f # 1 ,y f Y Y' ',GISLATURE " ~ +r SACRAMENTO CALIFORNIA I t A S h yt I4 Y Y9581a1 ' .4,5: t i l 8' xa . I a5 i ~ . . t Ty. jl , California's Unfair Competition Law: Why Is This One Of California's Landmark Consumer Protection Laws, And Is The UCL Being Abused?. Joint Informational Hearing of the Senate and Assembly Judiciary Committees January 14, 2003 9:45 a.m. - 3:00 p.m. (Lunch break: 12:00 Noon - 1:30 p.m.) State Capitol, Room 4202 Welcoming Comments (9:45 - 10 a.m.) Introduction (10 -10:10 a.m.) Bill Lockyer, Attorney General of California Panel 1: California's Unfair Competition Law: A History (10:10 -10:20 a.m.) Tom Papageorge, Head Deputy D.A., Consumer Protection Division, Los Angeles District Attorney's Office, representing California District Attorneys Association Panel 2: How the UCL Has Protected Californians (10:20 - 10:40 a.m.) Cynthia Rice, Director of Litigation, California Rural Legal Assistance, Inc. Patty Gates, Attorney; representing California Labor Federation Gail Hillebrand, Senior Attorney, Consumers Union Rosemary Shahan, President, Center for Auto Reliablility and Safety Panel 3: Recent Alleged Abuses of the UCL (10:40 - 11:10 a.m.) Marty Keller, Executive Director, Auto Repair Coalition Alex Moisa, Attorney, on behalf of auto repair shop owners Jeffrey Geren, Attorney, on behalf of restaurant owners Maria Ahumada, Director, Angel de la Comunidad Foundation, on behalf of restaurant owners Steve Sayler, Attorney, on behalf of nail salons Panel 4: Perspectives of Attorneys Bringing These Suits (11:10 a.m. -12:00 noon) Shane Han and Allan Hendrickson, Trevor Law Group Brar R Gamulin (invited) Lunch Break (12:00 -1:30 p.m.) Reconvene in Room 4202 Panel 5: Is Any Fine-Tuning Needed to Address Alleged Abuses? (1:30 - 2:45 p.m.) Mike Nisperos, Chief Trial Counsel, State Bar of California John Sullivan, President, Civil Justice Association of California Jim Sturdevant, President Elect, Consumer Attorneys of California Professor Robert Fellmeth, Executive Director, Center for Public Interest Law Tom Papageorge, representing California District Attorneys Association Closing Remarks A Primer on Business and Professions Code Section 17200: California's Unfair Competition Law by Claudia Wrazel, Counsel, Senate Judiciary Committee and Saskia Kim, Counsel, Assembly Judiciary Committee California State Legislature January 2003 BACKGROUND California law has prohibited "unfair competition" by one business against another since the first Civil Code was enacted in 1872. Since 1933; the Unfair Competition Law (UCL) (Business and Professions Code section 17200 et seq.) has authorized both public prosecutors and private plaintiffs, acting for themselves or on behalf of the general public, to bring civil actions to enjoin acts of unfair competition or false advertising. In 1963, the UCL was expanded to protect consumers from fraud and unfair business dealings by prohibiting any "unlawful, unfair, or fraudulent business act or practice."' California courts have interpreted the "unlawful" aspect of this amendment to mean that plaintiffs may "borrow violations of other laws and treat [them] as unlawful practices independently actionable" under the UCL.z Thus, a statute that declares a certain type of business practice unlawful, but does not expressly provide for an action to enforce its provisions, may be enforced by a plaintiff under the UCL. In 1977, the statute was again expanded to permit courts to order restitution as a remedy for UCL violations, requiring "disgorgement of money or property obtained by means of such [unfair or unlawful] practices.i3 For example, if a court finds that a business has been unlawfully overcharging customers for a good or service, the court may order the business to pay the difference between the actual price it received and the price it could have lawfully charged. HOW THE UCL WORKS- PRIVATE PLAINTIFFS' ACTIONS A recent background study characterized the UCL as providing "a broad but shallow scheme of relief,4 broad in that it covers a wide range of unfair or unlawful business practices, and allows virtually anyone to sue; but shallow in that it provides only for limited relief, particularly to private plaintiffs. Unlike public prosecutors, who may seek significant civil penalties for UCL violations, the remedies available to private plaintiffs are more limited: They may seek neither penalties nor damages to compensate for injuries caused by the violation. (Significantly, neither public prosecutors or private plaintiffs may seek punitive damages under the UCL, even for the most egregious practices. 5) Instead, private plaintiffs may seek an injunction to halt the unfair, unlawful or fraudulent practice, and restitution of any ill-gotten gains obtained as a result of the violation. As injunctions and restitution are equitable remedies that do not require submission to a jury, private UCL actions are tried before a judge, who has sole discretion to determine if the alleged wrongful act is an unfair, fraudulent, or unlawful business practice, and to determine the appropriate equitable remedy. A court may order restitution in a UCL action without individualized proof of injury if it determines that such a remedy is necessary to prevent the unfair practice.6 RECENT ALLEGED ABUSES OF THE UCL According to several recent news reports, a Beverly Hills law firm called the Trevor Law Group has filed lawsuits under the UCL naming approximately 1,400 automobile repair shops for violations ranging from not having valid business licenses to failing to give customers proper paperwork.? Defendants allege that many of the charges against them stem from complaints made to the state Bureau of Automotive Repair and listed on its Web site .8 Similar suits by the Trevor firm, plus others by the Long Beach law firm of Brar & Gamulin, have been filed against hundreds of other small, mostly immigrant-owned businesses, including nail salons (for using the same bottle of nail polish for more than one customer),9 restaurants (for health code violations),10 and grocery stores (for selling pirated videotapes)." The suits have provoked confusion, fear, and anger among the hundreds of business owners sued, who claim the UCL violations alleged against them are frivolous and unfounded. Further, these defendants claim they are being pressured to agree to quick, out-of-court settlements of 51,000 or more apiece, which many have paid either because they cannot afford to mount a defense, or because the plaintiffs' attorneys allegedly threaten sharp escalation of their demands if the cases are not settled immediately. Without knowing the underlying facts of each case, it is impossible to determine at this point whether any or all of the charges alleged against these defendants are meritorious or meritless UCL claims. The alleged settlement pressures on the defendants, however, do raise ethical implications, and the use of the UCL to sue masses of small defendants and then immediately attempt across-the-board, out-of-court settlements of those actions raises questions about the possible misuse of the UCL. ETHICAL IMPLICATIONS OF ALLEGED ABUSES In response to a request by Attorney General Bill Lockyer and others, on December 17, 2002, the State Bar of California confirmed publicly that it is investigating allegations that the Trevor Law Group used "extortion tactics" in urging defendants in the UCL suits to enter into quick settlements. 12 Several statutes and Rules of Professional Conduct governing attorney behavior may be implicated by the alleged abuses noted above. These include requirements that attorneys maintain only those actions as appear legal or just; that they employ only those means as are 2 consistent with truth; and that they not to bring an action to harass or maliciously injure any person, or from any corrupt motive. 13 Existing law also provides that the commission of any act involving moral turpitude, dishonesty or corruption constitutes a cause for suspension or disbarment. 14 The State Bar's Chief Trial Counsel has been invited to testify at the informational hearing. ANALYSIS OF THE COMPLAINTS Copies of the formal complaints filed by the Trevor and Brar firms in the above-referenced cases, as well as some of the settlement demand letters sent to defendants, have been provided to Committee staff. Although staff has no evidence of the truth or falsity, of the complaints' allegations, the following tentative conclusions may be drawn from an analysis of the allegations and the settlement demands themselves: (1) Even where a UCL violation is established, restitution will not necessarily be awarded. Settlement demand letters warning of potentially large restitution awards if the case isn't settled may exaggerate or misstate the actual prospect of restitution. Not all UCL violations result in measurable financial gains to the violators. For example, the complaints against the nail salon owners include allegations of unsanitary maintenance and sterilization of manicuring tools. While such behavior, if proved to exist and to constitute an "unlawful business practice," may be subject to an injunction for health reasons, it is not immediately apparent that unsanitary cleaning practices would lead to increased profits for the salons that would justify an award of restitution. (In fact, the practice could have allowed the salons to charge customers a lower price.) (2) Even where a UCL violation is established, plaintiffs' attorneys may not be entitled to attorneys'fees. The UCL does not directly provide for the award of attorneys' fees to prevailing plaintiffs. Rather, plaintiffs who bring UCL or similar actions may seek a fee award from the court when they prove that they have successfully enforced "an important right affecting the public interest," and that "the necessity of private enforcement" makes such an award appropriate. [Cal. Code Civ. Proc. Sec. 1021.5.] Assuming, for example, that a court were to find that any of the allegations against any of the auto repair dealers constitute legitimate UCL violations, news articles have indicated that all of these complaints already have been investigated by the Bureau of Automotive Repair, and presumably, appropriate remedial actions were instituted by the state agency. Under such circumstances, a court may well find that there was no "necessity of private enforcement" justifying an award of attorney fees under CCP Section 1021.5. (3) Even where these plaintiffs' attorneys might be entitled to attorneys' fees, the Attorney General has compared their settlement tactics to extortion. A letter from the Brar law firm to a nail salon owner dated November 15, 2002 (two weeks after the lawsuit against salon owners was filed), seeks to settle the case against that particular defendant for a payment of $1,000 and a written promise not to engage in future violations. The letter requires payment by December 2, after which the demand would escalate to $2,500. According to news articles, similar demand letters have been sent to all the defendants in these recent cases, seeking immediate settlements of $1,000 or more in exchange for early dismissal from the case. The Attorney General has likened this practice to extortion, in that it pressures businesses to agree to relatively small settlements to get out of the case when the business owners may not even understand their rights and potential defenses to the actions. 15 Do THESE CASES ABUSE THE UCL? IF SO, WHAT NEEDS To BE DONE? The purpose of this informational hearing is to explore whether the UCL has been abused by the filing of the recent actions against numerous small business. If the demands for restitution and attorneys' fees in some of these cases is of doubtful validity, such facts may reflect inexperience or competence problems on the part of the plaintiffs' attorneys. Or, they may signal intentional abuse. Further, the practice of making out-of-court settlement demands against multiple defendants - - the vast majority of whom are recent immigrants unsophisticated in the American legal system, and thus far more likely to simply accede to the demand in order to get out of the case as soon as possible has serious implications both ethically and as an abuse of the UCL. Although the State Bar has been asked to investigate the ethical issues involved, legislation may be appropriate to eliminate any incentive to use the UCL as an extortion tool. Panel 5 of the hearing will ask representatives of various organizations for their views on possible solutions to the alleged abuses. 3 Sen. J. (1963 Reg. Sess.) pp. 4441-42, 3 Assem. J. (1963.Reg. Sess.) p. 4999. Farmers Insurance Exchange v. Superior Court (1992) 2 Cal. 4th 377, 383. 3 State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal. App. 4th 1093, 1110. Fellmeth, California's Unfair Competition Act. Conundrums and Confusions, 26 Cal. L. Revision Commn Reports 227, 252 (1996). Bank of the West v. Superior Court (1992) 2 Cal. 4th 1254. e Committee on Children's TV, Inc. v. General Foods Corp. (1983) 35 Cal. 3d 197 (citations omitted). "Business Owners Claiming Old Law Used in Shakedowns," The Daily Breeze, December 17, 2002. e "State Bar Probes Duo's Tactics," The Daily Journal, December 19, 2002. s "Salon Owners Wring Hands Over Nail Polish Lawsuit," The Press Enterprise, November 25, 2002. The plaintiffs allege using the same nail polish brush on more than one customer is a violation of state regulations. It has been reported, however, that state rules do not specifically prohibit the practice and the California Bureau of Barbering and Cosmetology considers the practice "standard and safe." Id. 4 10 "Backlash Against Lawsuit Gains Stearn," Whittier Daily News, January 2, 2003. " Id. "State Bar Confirms Investigation of Los Angeles Lawyers After Multiple Small Business Sued," State Bar of California Press Release, December 17, 2002. Bus. & Prof. Code § 6068. " Bus. & Prof. Code § 6106. 15 "Attorney General Asks Probe of'Extortionist' Legal Tactics," The Los Angeles Times, December 17, 2002. The Sacramento Bee sacbee.com Lockyer probes legal firms Pagel of 3 Newsletters I Site Mao I Subscribe to the Print Edition I Traffic I Weather I Wireless Delivery Search Archives or S1te Search 8~tt11BCE T STOCK QUOTES ARE DELAYED UP t 0 88 ® J#e. Ca DOW +4 . J I Ufi Captttyed dditp t S&P +3.68 I I News I Sport s I Business I Politics I a Ip nion I Entertainment I Lifestvl e I Travel I Women I Classifieds I Homes I cars I Jobs I I Mall I s Powered by: accessBee Internet h i M ' B us nes Sacbee / Sections: 24-HOUR NEWS • Business Wire • Agriculture • Business • Technology • Stock Market News • Autos • State Business News • Wall Street Journal • Personal Finance ~ • Real Estate • Commercial COLUMNS/STOCKS 30-DAY ARCHIVES • Small Business • Columnists • Careers Taxes Technology Business FsaT( o~Q +t RETAIL Craft s E E I I ' ,neo ' t Whsler.. lJl~tl MORTGAGE E. Mo a e WHOLESALE ockyer probes legal firms 9 rash of unfair-competition lawsuits raises suspicions. PROPERTY MANAGEMENT Residential T y Gilbert Chan Bee Staff Writer : - ublished 2:15 a.m. PST Thursday, January 16, 2003 COLLECTORS 1113 National ttorney General Bill Lockyer is investigating five California law firms, including qi~ o in Sacramento, for their role in a rash of unfair-competition lawsuits filed in INSURANCE C a past year. Lines CSR 19 CONSTRUCTII p' he probe comes amid an outcry by hundreds of small business owners who SITEWORK ave been targeted by this litigation, which critics say amounts to a financial ESTIMATOR/ m akedown rather than an effort to protect consumers. Route ir. - Sales/Merchai "It is a problem. There are abuses," Lockyer told Universal [OUR NEWEST ADDITION lawmakers during a joint hearing of the Assembly and erCivil Senate Judiciary committees. Martin Martin.. . Lockyer is investigating whether these law firms TEACHER Mat ' A771 themselves have engaged in unfair business f lawsuits that cite d h d H .S. level o re s o un practices. At issue are SALES e violations business owners say are frivolous, such as failing to give customers proper paperwork or using MEEK'S . the same bottle of nail polish for more than one Insurance UC Davis Medical Center client. Birthing Suites Experience Moreover, Lockyer also is concerned about tactics FINANCE Co Sg Sleeping chair such as sending out follow-up letters on red the Valley At Soft lighting stationery that some law firms may have used to Independent prompt out-of-court settlements. He also is Si Audio system investigating the organizations the attorneys have ADMIN ASS] http://www.sacbee.com/contentibusiness/story/5901202p-68642] 3c.html 1/16/2003 The Sacramento Bee sacbee.com Lockyer probes legal firms Page 2 of 3 in these lawsuits. Inc. SHED, America's... 4g Refrigerates CM Natural wood furnishings Those being probed are: Brian Kindsvater of g p NURSE Fami Practitioner Sacramento and the Consumer Action League of Sg Expert maternity' care Rancho Cordova; David Byers of Sacramento and Machinist Californians for Fair Business Practices of Citrus PRODUCTIO S° Breestfeeding consultations Heights; the Trevor Law Group and the Consumer PROTOTYPE 4,t; portable fetal monitoring Watchdog Corp.; Brar & Gamulin law firm in Long Beach and California Watchdog; and Ken Berg of Electric fg Anosthesiologlsts 24 hours Costa Mesa and Citizens for Fair Business Practices. Operator o day , The State Bar a is conducting its own investigation of including the Trevor group. law firms Accountino ]u YOUR CAREEF 11 + r , did t l BANKING Yol Credit Y{ n. no in Kindsvater declined comment. Bran & Gamu For tours, call return telephone calls. Berg could not be reached for Enaineerino c 916.703-BABY (22291 comment. ENGINEERINC PROFESSION/ For additional C Shane Han, an attorney for Trevor, defended his Construction f L800-800DAVIS I1.800.282-3284) firm's practices during a legislative hearing this week, Pioefittgrs saying the goal is to level the playing field for Computers 5 . consumers. HVAC TECHD Byers said Wednesday he is cooperating with the attorney general's office. "This WANTED Grt is only a small part of my practice," he said. "I don't see that we're part of the sales-indep4 same thing that they're ( the state) looking at. In every case where I have filed a Rep Tired of suit, the people have been in violation." DELIVERY Lr Lawsuits by Californians for Fair Business Practices have focused on truth-in- , driver, heav, ilifting lending advertising pract ices in the real estate industry, Byers said. It has set up a Web site to promote consumer education. Legal Office SAFECO Insi At issue is the state's 70-year-old unfair-competition law Business and Embroidery i Profession Code Section 17200. The act, considered one of the most powerful Technician j consumer protection tools, allows prosecutors and private individuals to sue companies engaged in fraudulent or unfair business practices. It has been an view All Top important weapon to fight shady business practices ranging from misleading advertising by health maintenance organizations to predatory lending. Legal experts say the law also lends itself to abuse and has spawned a boutique money-making business for some lawyers. Business groups say some law firms have mined county health inspection records and the state Bureau of Automotive Repair's Web site for information for their lawsuits. Often, business owners receive a letter stating they can avoid a costly, drawn-out court battle by settling out of court. Moreover, some businesses, especially those owned by immigrants, are intimidated by the watchdog names of the groups filing the lawsuits. Certain buzzwords like "consumer" or "citizens" are very official-sounding, said John Salkin, associate creative director of Runyon, Salzman, Einhorn in Sacramento. "It gives a sense of fear and seriousness that there's an urgent need to rectify or clarify the situation," Salkin said. http://www,sacbee.com/content/business/story/5901202p-6864213c.htmi 1/16/2003 The Sacramento Bee sacbee.com Lockyer probes legal firms Page 3 of 3 Lawyers filing these suits defend them, saying they seek to protect the public's welfare. Han said his firm has sued 2,000 to 5,000 businesses on behalf of consumer groups and individuals. "We intend to take these cases to trial." Many of the cases represented by Trevor were filed on behalf of for-profit Consumer Watchdog of Santa Ana. Han said the two groups share the settlement fees, which have ranged from $6,000 to $26,000. Some of the proceeds would be used for a consumer education program, he said. State Sen. Bill Morrow, R-Oceanside, said Trevor's practices have cast a pall on the legal profession. "You probably have done nothing illegal," Morrow said. "The only reason you're doing this, however, is because you can do it and you can make a hell of a lot of money." Consumer and legal groups suggested a variety of reforms. They included notifying the state attorney general when a case is filed, court approval of settlements, banning secret settlements and strengthening ethics rules on attorneys. "There has to be some sort of screening process to weed out the good guys and bad guys," Morrow said. "This should have been resolved long before." About the Writer The Bee's Gilbert Chan can be reached at (916) 321-1045 or gchan0sacbee.com Contact Us/Feedback I Privacy Policy I Terms of Use News I Sports I Business I Politics 10_ ip NOn I Entertainment I Lifestyle I Travel I Women Cars I Classifieds I Homes I Jobs I Virtual Mall Help I Newsletters I Site a I Subscribe to the Print Edition 1 Traffic I Weather I Wireless Delivery About Us I Advertise in The Bee I Advertise Online 1 Contact Circulation Customer Service I Events [ Sacramento Bee Web sites ] Sacbee.com I SacTicket.com I Sacramento.com Copyright © The Sacramento Bee / ver. 4 http://www.sacbee.com/contentibusiness/story/5901202p-6864213c.html 1/16/2003 Coalition code suit ® The legal action was filed in November against 1,000 business owners countylvide - primarily area Asians - who had routine violations reported by health inspectors. By Cindy Arora STAFF WRITER Nearly 300 defendants of a lawsuit target- ing restaurateurs for violating county health codes have Joined together to fight the legal action as a group. The defendants, primarily area Asians, formed the SoCal Snnall Business League. They will have a toum hall meeting Thurs- day to write to government leaders, sign petitions and discuss options. Attorneys Bruce Armstrong. Rose Tsai and Milton C. Grimes will attend the meet- ing. Grimes was Rodney King's attorney. Icing's videotaped beating at the hands of Los Angeles Police Department officers sparked the 1992 Los Angeles riots. "As individuals. we are weak." said Judv To. owner of Z Sushi m Alhambra. "Burt if we band together. we can fight this case. They are picking on people who don't speak the language and aren't familiar with the law we are all very concerned." The lawsuit was filed by Trevor and Associates of Beverly Hills in November against 1.000 business owners countywide who had routine violations reported by health inspectors. The original suit named "Helping Hands for the Blind' as the plaintiff, but since then 0 2--) 13-~ 3DIa,~- SUIT Restaurateurs fight `frivolous' action Continued from Al they have pulled out. The new, plabitiff is "Consumer Enforce- ment Watch Corp." Leslie llufiman, spokes- woman for the California Restaurant Association, said they have been receiving several calls from restaurant owners asking for advice. 't'hey set up their Wet, site with information from the Law Office of Can-oll. Gilbert and Bachor, which pro- vides them with legal informa- tion. Officials from the law firm, based in Brea, are urging restau- rant owners not to settle. "Settlement only encourages the Trevor Law Group and sirni- lar law firms to conthme bring- ng these kinds of suits," accord- ing to the written statement fron the law Grm. Trevor representatives did not retum ells for comment. City officials from call Gabriel Valley communities are taking steps to help the local restaurant owners with what they say is a "h ivolous" lawsuit. . South El Monte Councilman Allen Co and Rosemead Council- man Jay imperial are working in their cities to educate small busi- ness owners on then- legal rights. Co has helped put together the town hall meeting, sched- uled for 9'hu sday at South El Monte Community Center, and huperial is working with Assem- blywoman Judy Chu, D-Mon- terey Park, to help propel roves tigations into the lawsuits by the Stale Bar, the state and federal attorneys general, as well as Dis. U icl Attorney Steve Cooley. "This has become like black- mail for them," said Co. "They can't wnn either way because if they fight, it's gobng to cost them thousands of dollars; and if Uney don't, they still have to pay. "They are so overwhelmed, they don't know what to do." City officials said they were approached by local business owners to help them fight this lawsuit. "1. got involved because it bothered me that this co.dd hau- ildn," huperial said. "All of these people :ue Just trying to make a living we have to go to the Legislahu'e amd ash them to Uo care of this." Co said that because of his own background as a resiau'aul owner and his Asian ties to the community, many restaurateurs tell condbrtable talking to him. Ttu is asleing all restaurateurs being sued by the 9'revor Law Group to attend the town hall meeting. The blanket lawsuit has included businesses from West Hollywood to San Gabriel, and 'Pu said many owners may not get die right representation. Cin p Arma can be reached at (626) 962-8811, E,d. 2720, or by c-mail at ci nd)-. area tFusgun. coni. Please turn to SUIT / A6 sacbee.conn/business Section DI: MONDAY January -13, 2003 .-Tbe Sacramento Bee G G lrte'reprerty upset about.it. It makes me operate my business with more caution. f 9 Jesus Diaz operator of a scum Sacramento useo-car lot -:Saaamenm 5ee'An Jesus Diaz of Los Compadres Auto Plaza, which has been open five mdnths in south Sacramento, was threatened with a lawsui his advertising. Attorneys who have filed similar suits against his colleagues are "just out to get our money he says. a~® la's bite ..By Gilbert Chan BEE SIAFF.WRITER -As Jesus Diaz sees if. he needs to adver- tise to drive new business to his fledgling south Sacramento used-car lot. But these days,-the young entrepre- neur is afraid to advertise after being threatened with alawsuit over previous print ads. "We're pretty upset about it," said Diaz, owner of Los Companies Auto Pla- za.-"It makes me operate my business with more caution." Diaz isn't alone. Throughout Califor- nia, hundreds of business owners - espe. cially small. and minority-owned busi- Businesses in the state say they are being . targeted in consumer- protection lawsuits that amount to shakedowns messes - are being sued or threatened with litigation under one of the state's most potent consumer-protection laws. Critics call them shakedown lawsuits, amounting to legalized extortion in which owners are pressured to pay up to thousands of dollars to settle out of court. Those same critics say the number of abusive lawsuits continues to rise as the mactice has become a cottage indus. try for a small band of attorneys. But those suing the business. owners defend the practice, saving they are only trying to protect the public welfare. Nevertheless, state lawmakers are con- cerned about the trend and are consider. ing ways to amend part of the state's Business and Professions Code. The California State Bar is also investi. gating the practice of a small group of Southern California attorneys who have sued countless nail salons, restaurant owners and auto shops. 0- LEGAL, page D4 > CALENDAR D2 0. ON THE MOVE D2 P CONVENTIONS D2 Legal businesses ; , ► CONTINUED FROM Dl - f on Friday, Assemblyman Lou Correa, D-Anaheim, and chair- man of the Business and Profes- sions Committee, conducted a town hall meeting in Santa Ana to discuss the rash of lawsuits in Orange and Los Angeles coun- ties. On Tuesday, a joint Senate and .Assembly 'Judiciary Committee hearing on the issue is scheduled ` in theCapitol. "'I want to get to the bottom of what's going on," said Assembly- woman Ellen Corbett, D-San Le- andro, chairwoman of the Assem= bly Judiciary Committee. "1'm. .very concerned therN may, be some law firms abusing the stat- ute for personal gains: Correa is more blunt."'Attor- neys that are perpetuating these (practices) are acting very unethi- cally. They're extortionists. All the groups I have talked to are in- timidated." So far, it's been-difficult for law- makers and consumer groups to assess the extent of the problem because of the state's vast and di- verse county court system. Businesses slapped with unfair competition lawsuits under the state Business and Professions Code Section 17200 include nail salons, restaurants, auto busi- nesses, travel agencies, software companies, jewelers and a-com- merce businesses - many owned by immigrants and those who speak little English: I. I Both government prosecutors and private individuals can.sue businesses on their own"or for the general pubbc for on au o fraudulent business acts and un true or.misleading advertising. Those attorneys who abuse th law "are frightening people, esp cially people that don't have exp rience with the legal system, said Marty Keller, director of th Automotive Repair Coalition i Sacramento. Consumer advocates credit th law for correcting corporal wrongs ranging from changin the sell=by date on meat packag to stopping a nursing home fro stealing money, from residents. But in November 1996, the Cal fornia Law Revision Commissio said the law's "open-ended stan ing provision has the potent', for abuse and overlapping" a tions." John H. Sullivan, president the Civil Justice Association California, said the law has b come a money-making general for some lawyers. "The targets are all overt feel e- scares you out of your wits until e- you look at the natureofthe thing es dressing it until I get an official r~• when he -,was notified last April - that his company was named in the lawsuit. - e "Your first. inclination is it and see it has no merit," Sarro e said. He talked to a colleague n who was slapped with a 75-page lawsuit and was told he could Set- e tie for $10,000. The fee was dater e 'lowered to $2,000. " g "I,thought, 'I'm not even ad- m; summons.' That's just someone looking to make a quick buck," i- Sarro said: n - Sarro and other travel agencies - d- say the missing travel code was al anove~IIsight and ithas since been c added to their Web sites',`+,. A'ccalition of'travel'agencies of successfully fought the lawsuit, of which was dismissed last month e- according to Sacramento Supe or rior Court records. The court, however, left open I the:opportu- he nity for the league's attorney„ place. What we're seeing is.just f S ento the tip of the iceberg, Sullivan said. In Sacramento County, for ex- ample, the Consumer Action League last year filed at least nine separateunfair competition law- suits against dozens of compa- nies doing business in California. One suit targeted more than 200 travel agencies for failing toin- clude a California sellers of travel code on their Web sites. . Attempts to contact the league were unsuccessful Jim Sarro, owner of Birdcage Travel in Fair Oaks, was shocked Brian Kindsvater o acram to recover legal fees. Kindsvater defends the unfair- competition lawsuits. "The law is valuable. It allows individuals to take action." Another attorney,- Parviz Darabi of Burlingame, said he is involved in 50 to 60 unfair-com- petition cases against auto deal- ers, most accused of misleading 'advertising.• "All we want to do is for them to stop ripping people off," ".he said. He denies the motive is fi- nancial. If dealers prove they are have a financial hardship and cor- ~ntirn'dated rect their practices, Darabi said, we let them go." But Diaz, the used-car dealer, said his colleagues are getting a different answer from the attor- neys filing the lawsuits. He said an attorney told one used-car dealer that he could settle for 510,000 and claimed 200 shops al= ready had done so. Diaz and other business own- ers say the violations cited are of- ten vague or minor and easily cor- rectable. ' "We're not trying to cheat bur, customers," Diaz said. "They're just out to get the small busi- nesses that don't have the means of . defending : (thernselvesj. They !re lust.out to get our mon- " - , ey. U u- calls it'double jeopardy. "The things; they're' accused of are what the Bureau of Automo- live Repair already dinged them - for. They already paid their penal- ty." Moreover, Keller cites one. Southern California shop owner who settled, only to, be sued again a few weeks later. Finding a fail-safe solution. won't be easy. "It'savery difficult balance to strike," said Frank Gevurtz, pro- lessor of business and corporate law at the McGeorge-School of '.Law. He said lawmakers need to stop the abuses without compro- mising consumer protection: ❑ ❑ The Bee's Gilbert Chan can be reached at,(916) 32111045 or gchan@sacbee.com. J 01 ion The Orange County Register • Wednesday, Jan. 15, 2003 Unfair.practices.11aw under. review State lawmakers hear from targets of lawsuits that some consider legalized extortion. aY LISA MUNOZ THE ORANGE COUNTY REGISTER SACRAMENTO • State legisla. tors heard testimony. Tuesday on a spate of controversial lawsuits brought against small-business owners under California's "broadest can. ' Sumer law The daylong hear- ing brought together for. the first time representatives of the sued parties and the at- Derneys filing the suits The hearing held by the Senate and Assembly judi- ciary committees, sponsored by Sen. Martha Escutia, D-Montebello, and Rep. Ellen Corbett, D-San Leandro, ad- dressed whether the state's unfair-competition law needs change.. Critics of California's on- fair-competition law, known by its section code 17200,' say some law firms have tried to use the law recently to extort money from small, mostly mi- nority-owned businesses. ,Speakers ranged from those who want to change the statute ED representatives of legal-defense funds testifying that the law has helped labor- ers and. consumers. But the most dramatic tend- mom• came from Shane Han and Allan Hendrickson, at. torneys- with Trevor Law' Group, the Beverly Hills law firm under investigation from the California' state bar for RICH PEDRONCELLI. THE ASSOCIATED TOUGH QUESTIONING: Shane Han, left, and Allan Hendrickson of Trevor Law Group face a joint legislative panel Tuesday. possible . ethics violations. Small businesses such as nail salons, auto-repair shops and restaurants have been sued by Trevor Law Groupand other firms- and have accused them of trying to extort. settlement money. Attorney General Bill Lock- yer, the first sneaker of the .da}'; announced that. he sub- poenaed records from Trevor and its consumer group, as well as other law firms. Among those subpoenaed are Long Beach-based Bran and Gamulin and the Cali- fornia Watchdog Association, and Costs Mesa attorney Ken Berg and Citizens for Fair Business Practices, Said Luck- yer spokesman Tom Dresslar. If Lockver determines the suits violated laws, the firms or groups could be sued under the same law they are accused of exploiting. Han defended the suits; say- ing they improve business standards.-V,lten asked who receives the settlement money that one official referred to as "hush money," 'Hari acknowl- ,edged that California Can- -Sumer Enforcement Watch is a for-profit venture, :drawing an angry response from.Sen. Bill Morrow, R-Oceanside. "You're nothing but a couple of two-bit legal whores who am,looking for the big'cash- ola," said Morrow.' Also hearing testimony was Assemblyman Lou Correa, D-Santa Ana, who sponsored a town-hall meeting Friday that attracted hundreds o; small-'business owners, con- sumer attorneys and localleg- islators. On Tuesday, legislators dis cussed holding another hear- ing to learn more about pos- sible abuses of the statute. _ 'you'll hear some people frustrated about the process, they want it to go faster," said Correa's chief of staff, Chris Leo, "but this is a legislative process." Corona and Escutia Sent a letter to Chief Justice Ronald George of the state Supreme Court asking for advice. t COMMEN TARY The Orange County Register • Sunday, Jar.. 15, 2003 FREEDOM AT ISSUE Some lawyers practice legal extortion ' Forget about shooting the ' yr answers. I d like to see a few of y them - those who specialize in a et "extortion lawsuits" drawn zooY and quartered, so the}- under- 5" ..+?!1'"a stand the agony they put other people through. - To understand this form of STEVEN' legal action, one needn't turn to GREENHUT the law books, but to the mo- stORI SENIOR vies. Think about mobster WRITER AND fucks, where some guy named c OLUMNIST FOR Tony tells the grocen- store THE REGISTER owner to pay "protection" money or face retribution. Nov, replace thuggish-look- ing Tony with a suit-wearing attorney who operates out of a respectable law office. Instead or coining to your business with ms goombahs with baseball bats, he.files a lawsuit against you and follows it with an in- timidating, albeit perfectly le- gal, letter. You might run a nail salon in Carden Grove, or a car repair shop in El Monte, or a restau- rant in Los Angeles or a small mortgage firm in Newport Beach. You might be an im- migrant. fearful of the legal sys- tem or an -American-born en- trepreneur doing his best to make payroll. To the attorney, you are an easy mark for quick money. Bascall), the attorney makes the dubious claim that reusing nail polish is hazardous. Or claims that your auto shop li- cense has expired. Or alleges that you jeopardized public hcalth because the county health department downgraded your restaurant from an 'A' to a "B." Or said you forgot to put your license number on an ad- vertisement you rats in a real estate guide. You treat your customers well, living according m the law as best as you can. No wronged party has been identified; and the plaintiff probably is a covet for the law firm, and might not even know how many IawsuiLs have been filed by the firm in her name. The lawyers letter demands up to a few thousand dollars to make the whole thin( go away. You call an attorney, and the attorney tells you to settle, simply because it is ' cheaper to pay up than to pay an attorney ED fight. Of course, if you do settle. another firm can come along and sue you fop SEE LAWYERS • PALE 5 LAWYERS: Small businesses are the target of `extortion lawsuitsI FROM PAGE 1 the same alleged offense. The problem has reached such proportions that Assemblyman Lou Correa. D _ rmheim, held a hearing with other .Assembh: members on ,an. 10 m Santa Ana. Hundreds of people, many who are victims of this legal shakedown. attended the hearing, with some sharing stories of abuse Jr. fact, the examples above refiec t testimony At the hear- ing. Ignacio Coronado, owner of a meal market in South Central Los Angeles, was served with a lawsuit He called the firm to straighten things out. "All the, want is nrzmeg" he said, "They don't want nothing else." When he first called on a Friday he was told he could pay S$000, but if he waited until Maned, then the price would go up to Mood Just how Tony would do It. A provision in the seta's unfair business practice law, section 17200, allows private attorneve to file these lawsuits, supposedly en behalf of the. public. This provision was add- ed to the law in the 1970s, but its taken a few years for enterprising atwrneys to game the system. Much attention - at. the hearing and from KPI radio DJs Jahn slid Ken - has been paid to imesuit: filed by the Trevor Law Group of Beverly Hills against. small immi- grant businesses, !to, other funs are getting in on this lucrative act now that the plaindffP bar gives seminars on how w do it Some possible solutions: requir- ing these cases to have cknss-a upon status so defendants can pool their resources to pay for a legal defense; requiring a wronged party to be named; or outlawing lawsuits once corrective action has been alien. Remove the profit. motive, Assem- blyman Todd Spitzer said, and the lawsuits will eo awav. For now however, small busi- nesses are on their own. On Dec. 15, the Register Editorial Page wrote about Barn Zanck, a Newport Beach mortgage broker who was sued by Cabaham McCune and Willis, LLP in Tustin. He had run a few magazine advertisements that didn't include all the required financing information. Attorneys Net Swenson and James Hansen demanded SIS,000 to settle the matter. Zanck was angry, and hired A lawyer instead. The dollar amount the Callahan firm sought kept falling, down to $1,500 and then to nothing, but the deal fell apart over the details. Zurek 's attorney, Terri Breer of Newport Beach, believes the firm treated Zanck vindictively. Cullahzn attorney Nerd Swenson denies that claim, and told me: "The goal is to stop the deceptive and il- legal advertising by the,mongage brokers." Oh, right, it's just. a public ser- sits. However. Judge James M. Brooks, in his .tan. 7 ruling, couldn't. see any harm to the public: '9 in effect not overlooking the fact they didn't technically comply moth putting the broker's license number on there, that's a big whoo- pee, or what the expectancy of the life of the loan would be.... This isn't. misleading.... I don't see that the public get hurl.... So judgment for the defense. There will be no In- iwtction because there's nothing to eruoin.' The victory wasn't cheap. Fomau nately, Correa's office is handing out the names of attorneys who will Sand up for argeted small busi- nesses on a pro Bono basis. The California Bar Association is launching an investigation into these abuses, as is the state at- torney geocral - although the at- torney general's represental lye at tire hearing spent his time talking about the glories of the law, and was even interrupted by victim an- gered by his seeming lack of sytnpa- mv for their plight My fear: This all gets brushed un- der the rug, or just one or two arms come under scrutiny. What's ,tall, needed is for the Legislature to overrule the plaintiffs bar and institute n meaningful correction. Someone has to stand no W the le- gal equivalent of Tony and hie goombahs, or small businesses and the consumers who rely on them mill keep on suffering. COMT4[T THE MRITER: Sgreen hotP hcre Glster.com or 17 14I 796 a aza immediate pollutants. Mr. Bruesch stated that this idea would be cost prohibitive as each trap was estimated at $1000 per unit - multiply that by all the storm drains on each street and staff time to maintain and clean the traps on a regular basis, etc. IV. CONSENT CALENDAR (Item CC-H was removed for discussion purposes) CC-A ACCEPTANCE OF BIDS AND AWARD OF CONTRACT FOR STREET LIGHTING IMPROVEMENTS ON VARIOUS STREETS CC-B ACCEPTANCE OF STREET DEDICATION FOR PARCEL MAP 26400 - 8925 CORTADA STREET CC-C AUTHORIZATION TO ATTEND 25Th ANNUAL INTERNATIONAL ASIAN ORGANIZED CRIME CONFERENCE, MAY 25-30, 2003, BOSTON, MASSACHUSETTS CC-D AUTHORIZATION TO ATTEND THE LEAGUE OF CALIFORNIA CITIES CITY MANAGERS DEPARTMENT MEETING, FEBRUARY 12-13, 2003, MONTEREY CC-E AUTHORIZATION TO ATTEND THE NATIONAL LEAGUE OF CITIES ANNUAL CONGRESSIONAL CITY CONFERENCE, MARCH 7-11, 2003, WASHINGTON, D.C:: CC-F REQUEST FOR BUS LOADING AND UNLOADING ZONE ON LOWER AZUSA ROAD FROM ROSEMEAD HIGH SCHOOL CC-G REQUEST FROM MEXICAN'-AMERICAN STUDENT ORGANIZATION CC-I COALITION FOR PRACTICAL REGULATION (CPR) MEMBERSHIP DUES FOR JANUARY THROUGH JUNE 2003 CC-J ROSEMEAD SCHOOL DISTRICT'S REQUEST TO PLACE TWO (2) BANNERS ON VALLEY BOULEVARD DURING FEBRUARY-MARCH 2003 CC-K APPROVAL OF 2003-04 BUDGET CALENDAR CC-L PURCHASE OF ADVERTISEMENT IN TRIBUTE JOURNAL FOR THE 19TH ANNUAL AFFAIR OF THE HEART FOR THE LINCOLN TRAINING CENTER, MARCH 8, 2003 ftwa3~iC-M AUTHORIZE SUPPORT OF LEGISLATIVE REFORM TO CURTAIL ABUSE OF UNFAIR COMPETITION LAW MOTION BY COUNCILMAN TAYLOR, SECOND BY MAYOR PRO TEM VASQUEZ that the Council approve the aforementioned items on the Consent Calendar. Vote resulted: CCMM:1-28-03 Page 5 Yes: Imperial, Taylor, Bruesch, Clark, Vasquez No: None Absent: None Abstain: None he Mayor declared said motion duly carried and so ordered. ~ Jr CC-H PARTICIPATION IN LOS ANGELES AREA INTEGRATED WASTE MANAGEMENT AUTHORITY AND APPROVE OF JOINT POWERS AGREEMENT AT A COST OF 52,637 FOR FY 2002-03 Juan Nunez, 2702 Del Mar, Rosemead, asked if the City is meeting the State mandated diversion rate? Councilman Taylor stated that other cities are joining the Joint Powers Authority in an effort to provide a better solution and to pool resources to have a stronger voice in Sacramento than exists for individual cities now. Mr. Nunez stated that many people do not have or do not use their recycling bins, that all recyclables are thrown in with the regular trash. MOTION BY COUNCILMAN TAYLOR, SECOND BY COUNCU-MEMBER CLARK that the Council approve participation in the Los Angeles Integrated Waste Management Authority by adoption of the Joint Powers Agreement; designate funds in the amount of $2,637, from the Health/Solid Waste portion of the budget to pay for the City's first year's prorated annual membership fee; and designate a representative from the City Council to serve on the Authority Board of Directors. Vote resulted: Yes: Imperial, Taylor, Bruesch, Clark, Vasquez No: None Absent: None Abstain: None The Mayor declared said motion duly carried and so ordered. MOTION BY MAYOR BRUESCH, SECOND BY COUNCILMEMBER CLARK that Mayor Bruesch be appointed to serve on the Los Angeles Area Integrated Waste Management Authority. Vote resulted: Yes: Imperial, Taylor, Bruesch, Clark, Vasquez No: None Absent: None Abstain: None The Mayor declared said motion duly carried and so ordered. M,frN:1-28-03 Nge o6