California Voters Act to Stop Shakedown Lawsuits

By Ken Gibson | February 21, 2005

For the third year in a row, the American Tort Reform Association has declared Los Angeles County, California one of the nation’s nine “judicial hellholes.” Los Angeles is famous for many things, but this dubious distinction is very damaging to its reputation and its economy.

ATRA specifically defines judicial hellholes as places that have a disproportionately harmful impact on civil litigation. A number of factors earn their designation as judicial hellholes including forum shopping, novel legal theories, discovery abuse, frequent certification of class action lawsuits, proliferation of junk science and uneven application of evidentiary rules. Simply put, a judicial hellhole is a place where the law is not applied fairly to everybody.

Los Angeles comes in at #9 on the latest ATRA list of the nation’s worst judicial hellholes. The City of Angels is joined on this dubious list by: 1. Madison County, Illinois; 2. St. Clair County, Illinois; 3. Hampton County, South Carolina; 4. the entire state of West Virginia; 5. Jefferson County, Texas; 6. Orleans Parish, Louisiana; 7. South Florida; and, 8. Philadelphia, Pennsylvania. Wrapping up the list with dishonorable mentions are Oklahoma, the Utah Supreme Court, the District of Columbia and the New Mexico Appellate Court.

Los Angeles County won this unflattering award primarily because of a loophole in California’s Unfair Competition Law, Section 17200. This law was intended to serve as a consumer protection against improper behavior by businesses, but over the years it morphed into something quite different. The flaw in Section 17200 allowed private attorneys to file lawsuits on behalf of the general public against businesses for unfair business practices. That means the attorney did not need a victim to file a suit nor that actual personal damage had to occur.

Attorneys in Los Angeles County abused this law and filed numerous suits for countless normal business practices that did not bring harm to anyone. These cases became known as “shakedown lawsuits.”

The shakedown occurred when plaintiff attorneys sent form letters to the alleged wrongdoer seeking settlement money for minor technical violations. Many small businesses like nail salons, travel agents, small auto dealers and restaurants were extorted by these abusive lawsuits. Trying to avoid the high cost of litigation, many small businesses capitulated and paid the extortionists to settle these sham lawsuits as quickly as possible.

One Beverly Hills law firm, the Trevor Law Group, filed 2,200 “shakedown lawsuits.” Eventually, the California attorney general filed suit against this firm and the attorneys involved surrendered their law licenses in order to avoid disbarment. Some said this problem was solved when the Trevor Group was put out of business, but the shakedown lawsuits refused to go away.

After years of monitoring these frivolous actions, the California Civil Justice Association of California decided to do something to stop them once and for all. CJAC joined forces with the business community and sponsored a ballot initiative to fix the loophole in the Unfair Competition Law. After a very expensive ballot fight in 2004, Proposition 64 was approved by voters 59 percent – 41 percent. Now, under California’s revised Section 17200, lawyers must have a real plaintiff who has suffered actual harm before a lawsuit can be filed.

The results of ATRA’s recent report should serve as a wake-up call for elected officials. States with abusive court systems often experience harmful economic effects that are damaging to consumers and businesses. The American Insurance Association has been a longtime advocate of tort reform in all 50 states and on the federal level. Passage of Proposition 64 demonstrates that bad judicial environments can be changed.

According to ATRA, each resident in the U.S. pays an annual “tort tax” of more than $800.00. Out-of-control courtrooms, like those in Los Angeles, contribute to this annual unnecessary tax consumers must pay through higher fees, services and more expensive products. Hopefully, the elimination of shakedown lawsuits in California through the enactment of Proposition 64 will reduce the “tort tax” paid by residents there, and will help remove L.A. County from ATRA’s list of judicial hellholes.

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