Los Angeles Business Journal

Courting Disaster

Nuisance suits have become law of the land and California is doing nothing to protect small businesses. By David Houston Monday, December 24, 2012

By DAVID HOUSTON

When I heard earlier this month that California had earned the humiliating title of the nation’s No. 1 “judicial hellhole” in the American Tort Reform Association’s 2012 Judicial Hellhole report, I have to admit I was not surprised. As a small-business owner in Los Angeles, I can personally attest to how California’s policies encourage abusive lawsuits that hurt small businesses and cost jobs.

My own experience with an abusive lawsuit opened my eyes to how damaging abusive lawsuits can be. A few years ago, my restaurant, Barney’s Beanery, was sued by former employees alleging that they did not receive the proper breaks mandated by law. While these accusations were completely baseless, I was forced to choose between paying expensive lawyers to litigate my case or quickly settle and move on. The settlement cost me almost $1 million and forced me to suspend my plans to expand my business and hire workers in downtown Los Angeles.

Why was I able to be sued even though I had done nothing wrong? For years, California’s lawmakers have encouraged lawsuits to be used as a mechanism to enforce regulations, and unscrupulous lawyers have increasingly taken advantage of their ability to sue by filing baseless lawsuits against small businesses like mine hoping for a quick settlement.

The sad part is that even when a business is not at fault, as with mine, it is almost always cheaper to settle a lawsuit than to go to court, so these unscrupulous lawyers and their clients often walk away with a payday while businesses are left with gaping holes in their budgets.

The results have devastating effects on local economies. Some businesses have to delay expansion but can otherwise continue operations with relatively little disruption. Others are forced to reduce hours and lay off workers. Those are the lucky ones. For too many businesses, the cost of a settlement is simply too high, and they are forced to shut their doors forever.

Encouraging lawsuits

California has earned the rank of the nation’s worst “judicial hellhole” by encouraging lawsuits in an astounding number of ways. It is easier here than in almost any other state to obtain class-action certification, allowing class-action lawsuits to move forward on ridiculous premises. Some examples include a claim against Nutella alleging it misled consumers into thinking the chocolate hazelnut spread was healthy, and a lawsuit against Kellogg’s for claiming that kids are more attentive when they eat Frosted Mini-Wheats cereal for breakfast.

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