Backers say they want to curtail frivolous lawsuits against businesses.

The Orange County Register

SACRAMENTO — Gov. Arnold Schwarzenegger‘s aides are laying the groundwork for legislation that would dramatically scale back the right of private attorneys and citizens’ groups to sue businesses for unfair or fraudulent practices.

The legislation, which has not been finalized or reached the governor’s desk, stems from numerous recent discussions between Schwarzenegger’s administration and business groups, which say that giving private citizens the right to sue forces companies to spend millions defending against frivolous suits and unscrupulous attorneys.

“They’re looking at options and considering submitting a bill” to reform the state’s unfair- business-practices law, said John H. Sullivan, who heads a business-backed tort-reform advocacy group and has advised Schwarzenegger.

The law – section 17200 of the state Business and Professions Code – allows private individuals, groups and elected prosecutors to sue companies for false advertising, scams or other harmful or fraudulent business practices.

An administration spokesman declined to discuss tort-reform specifics. Schwarzenegger said in his campaign that reforming 17200 was a priority. But Sullivan and other business advocates said they have spoken repeatedly with administration officials in recent weeks about eliminating private attorneys’ and citizens’ right to sue unless they can prove financial loss.

Sullivan, who headed a transition tort-reform advisory team of attorneys for high-tech corporations, homebuilders, school districts and local governments, said such reform is a top priority of California’s business community.

Already, a coalition of auto dealers and some of the state’s largest corporations has raised nearly $5 million to put an initiative on the November ballot that would reform section 17200 if legislation fails.

California is the only state that allows individuals and consumer groups, as well as prosecutors, to sue companies for unfair-competition violations. A spokesman for Attorney General Bill Lockyer said there are no reliable estimates of how many suits are filed each year using the law.

Consumer and environmental advocates say prosecutors often lack the resources to pursue every violator of the law. Allowing individuals or advocacy groups to sue on behalf of the public instead of a specific victim helps force companies to clean up environmental messes or stop fraudulent practices whose effects are difficult to calculate in strictly financial terms.

Consumer advocates used the law recently to force Kaiser Permanente, the state’s largest HMO, to disclose to patients the guidelines doctors use to treat ailments. The state attorney general used the law in 2002 to sue oil giant BP for failing to upgrade underground storage tanks that leaked MTBE, a fuel additive that is a known carcinogen.

James Branham, undersecretary at the Environmental Protection Agency, said representatives of his agency have talked with aides preparing the legislation to ensure that “the end product truly focuses on correcting problems and not unnecessarily limiting the ability” to enforce environmental laws.

Still, Jamie Court, an activist with the Foundation for Taxpayer and Consumer Rights, said that “if the governor steps onto the side of (fraudulent or polluting) companies and against communities and against the environment, then he’s making society a whole lot less safer place.”

Business groups say that no matter the law’s intentions, it is ripe for abuse.

Two years ago, three lawyers from The Trevor Law Group, a Beverly Hills firm, made millions by forcing thousands of auto dealers, nail salons and auto-repair shops to settle costly lawsuits over minor violations of the law. Last year, the lawyers resigned from the state bar and were sued by the attorney general.

“It represents a significant cost to business, a cost that doesn’t need to be there. This is sort of a cost that you can’t predict, and it represents predatory legal practices,” said Dominic DeMare, lobbyist for the California Chamber of Commerce.

State Sen. Joe Dunn, D-Santa Ana, said Schwarzenegger’s support for reform is “the same old conservative Republican approach. The business community forever wants to curtail the tort system to prevent consumers from holding them responsible for their negligence and misconduct.”

Dunn, a trial lawyer by profession, said Schwarzenegger may have signed on to reforming the law simply “to talk about it in front of business groups to crank up contributions. Reform measures won’t get through the Legislature unless they’re fair.”

Many of the companies donating money to put the reform initiative on the November ballot have given heavily to the governor.

Auto dealers around the state, who collectively gave nearly $500,000 to Schwarzenegger during the recall, have donated $3.2 million to the initiative. Other large donors include American International Group, a multinational insurance firm that gave $100,000 to Schwarzenegger in November and $25,000 to the initiative the following month.

 Business advocates said they hope Schwarzenegger’s deal-making skills push through reform that in past years was blocked by Democrats and lobbyists for trial lawyers.

Gary Balikji, owner of Lauto Body Shop in Stanton, agreed. In 2002, the Trevor Law Group sued his shop for minor advertising violations just as his father was retiring and he was preparing for a long- awaited vacation to Hawaii.

The day his plane was leaving, he had to drive to Beverly Hills, where he was kept waiting an hour before signing a $2,000 settlement. Balikji’s lawyer told him it would cost twice that sum to defend the case.

 “That would be great,” Balikji said of 17200 reform. “No one should have the power to sue (as the Trevor Law Group did), no matter who you are.”

SOME RELATED LAWSUITS
Some prominent lawsuits using Business and Professions Code section 17200:
California Disability Rights Inc. v. Warner-Lambert: Disability-rights activists sued drug manufacturer for failing to warn consumers that Rezulin, a diabetes drug, causes liver damage. The case is pending.
Hewlett v. Squaw Valley Ski Corp.: Activists sued ski resort for illegally cutting trees for a new ski run. The court halted the cutting.
People v. First Federal Credit Corp.: Consumers sued credit corporation for misleading borrowers about loan terms and forcing them to pay larger cancellation fees than agreed upon. The court found more than 300 separate violations.
Warren v. Safeway Stores Inc.:Consumers sued grocery chain for changing dates on meat packages so expired meat could be sold as fresh. Safeway changed its labeling practices.

Source: Foundation for Taxpayer and Consumer Rights