Legislators Ready New Bills to Stem Wide Code Abuse

Staff Reporter

Spurred by widespread complaints that a state law aimed at protecting consumers has resulted in a shakedown of local merchants, legislators are mounting yet another an effort to refine the law.

Seven failed pieces of legislation have been proposed since 1997, but this time the state Attorney General and California Bar Association are mounting their own assault on what some call large-scale abuses of the 17200 section of the once-obscure business and professions code.

The law is intended to protect consumers against illegal and unfair business practices by giving any individual the authority to sue a business on behalf of the public. But a handful of small law firms have targeted tens of thousands of California businesses for alleged 17200 violations, ranging from automotive repair shops to minority-owned restaurants to nail salons. Small business owners claim they are the victims of widespread abuse of the code.

What's different this year from previous efforts to reform 17200 is the outcry resulting from the increased volume of litigation.

"Just the sheer number of business owners that have been hit with a lawsuit makes this a substantial problem," said Tom Dresslar, spokesman for the Attorney General's office. "It may be a few attorneys engaging in this conduct, but it is a substantial problem."

Expected opposition

Assemblyman Robert Pacheco, R-City of Industry, has authored amendments that have failed in the past and is trying again this year.

"We'll probably get a strong opposition from consumer attorneys," said Pacheco. "The Attorney General hasn't taken any decisive action, either, which leads me to believe I'll have an uphill road. But I have a greater possibility than I did last year."

Past legislative attempts at reform have not succeeded because the plaintiffs' bar is adamantly opposed to changing 17200. Also dampening support has been the reticence of many Democratic Assembly members, many of whom are supported by consumer attorney groups, to support certain legislation.

"We have a lot of interests on both sides of this," said Assembly Member Lou Correa, D-Santa Ana. "When you have issues as hot as this one, you want to work with the parties and come up with a solution before people shoot down your proposed solution from one side or the other."

Raymond Boucher, vice president of the Consumer Attorneys of California, acknowledged that a handful of lawyers have abused 17200 and he welcomed "surgical fixes." But he said the changes being proposed so far would only hurt consumers.

Attorney General Bill Lockyer earlier this month announced he subpoenaed five law firms investigating abuses of 17200. Among the five are Trevor Law Group LLP of Beverly Hills and Brar & Gamulin LLP of Long Beach.

Trevor Law Group has sued more than 1,000 restaurants in the Los Angeles area for allegedly violating state health codes. Brar & Gamulin sued hundreds of ethnic retailers across the state for allegedly selling pirated Indian movie videos.

The firms notified predominantly small and minority-owned businesses of the lawsuits, offering to settle the claims out-of-court for between $1,000 and $3,000. They claim they are suing on behalf of the public, with plaintiffs named Helping Hands for the Blind and Consumer Enforcement Watch Corp.

Some businesses became suspicious, however, when they received multiple lawsuits alleging the same violations from the same lawyer but for a different plaintiff.

Attorneys at Trevor Law Group and Brar & Gamulin did not return phone calls.

Gathering steam

The investigations commenced after a Jan. 14 hearing in Sacramento in which Lockyer met with legislators to discuss the scope of the problem and proposed legislative changes.

Meanwhile, the California Bar Association, which typically keeps mum on pending investigations, announced it was investigating Trevor Law Group and Brar & Gamulin. E.J. Bernacki, spokesman for the Bar Association, said confidentiality requirements were lifted to assure the public that it is investigating potential 17200 abuses.

He said the bar association could impose disciplinary actions, such as suspension or disbarring, against attorneys who violate professional codes of conduct. Such codes cover an array of behavior, from not returning phone calls from clients to not turning over settlement amounts to clients.

"In this case, we may not have jurisdiction and may not be able to charge them with anything," Bernacki said. "If they're not in violation of any rules of professional conduct, there's little we can do other than turn over our files to the local District Attorney's office."

Reform proponents say the investigations are helpful, but legislative changes are needed the most.

"Until the law itself is fixed, the loophole is open," said Mark Taylor, a local vice president of the California Restaurant Association, many of whose members are defending themselves against Trevor Law Group's lawsuit filed late last year. "There are a number of ways to use the law to file lawsuits, and that's the long-term problem."

Until that legislation succeeds, some defendants in 17200 cases are taking a more aggressive tack.

Last week, Irvine-based Caliber Collision Centers filed a lawsuit in L.A. Superior Court against the Bureau of Automotive Repair for posting small technical and administrative violations and human error mistakes on its Web site as "confirmed violations" of the Automotive Repair Act. As a result, Caliber claims it has been subjected to frivolous 17200 lawsuits.

Pacheco's bill would require attorneys to show their client has suffered real injury or harm because of a business' violations of 17200 in order to proceed with a suit.

It is designed to limit filings derived by other means, such as posting violations of state health code on Web sites. Also, if a defendant can prove it has eliminated the violation by changing its business practices, the business may collect attorneys' fees and avoid expensive judgments against it, he said.

Pacheco admitted the second aspect of the bill is primarily for larger businesses that can afford litigation, not the thousands of small businesses now being targeted. But the first, a requirement to have an injured plaintiff, could curb abusive attorneys' filings against small businesses, he said.

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