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Carol Platt Liebau - Columnist

Carol Platt Liebau is a senior member of the editorial board. She is an attorney, political analyst and commentator based in San Marino, CA, and has appeared on the Fox News Channel, Orange County News Channel, Cox Cable and a variety of radio programs throughout the United States. A graduate of Princeton University and Harvard Law School, Carol Platt Liebau also served as the first female managing editor of the Harvard Law Review.

The Litigation Lottery
California's Unfair Competition Act and the Depredations of Unscrupulous Trial Lawyers
by Carol Platt Liebau 5/16/03

Anyone who truly wants to understand the legal concerns of everyday Americans can take a few minutes to tune into a Saturday morning Los Angeles radio program, where weekday morning drive time host and attorney Bill Handel offers what he flippantly characterizes as "marginal legal advice." Sometimes, of course, the callers are defendants -- but the really instructive calls are the ones seeking advice about whether to sue.

Last week, Handel took a call from a would-be plaintiff who had visited a 99-cent store and saw a lovely rug there . . . costing $24! He intended to sue. The call drove home a point: For too many Americans, undertaking a lawsuit has become tantamount to buying a lottery ticket . . . just another way to hope for a windfall.

Most sadly of all, if the caller really does decide to file suit, there will surely be a lawyer to help him. Over the past several decades, law school attendance has risen, and we are now confronted with a glut of lawyers who simply need a way to make a living.

Unfortunately, many of them have made their homes in California. And donated generous sums to the Democrat-controlled legislature. That's why there are laws like the California Unfair Competition Act (UCA). Under this legislation, any self-selected plaintiff (often a lawyer himself or a "shell" plaintiff) can sue on behalf of the People of California (serving, in effect, as a private attorney general). Suit can be brought without there being any injured party, and there is no need to prove that the challenged business practice actually damaged anyone at all. It's enough under the UCA to show that the business practice at issue was somehow "likely to mislead."

Not surprisingly, the law has been abused, resulting in virtual extortion of small businesses across California. Unscrupulous attorneys approach these businesses -- many of them owned by immigrants -- and allege some trifling violation of the UCA. In order to avoid the costs of defending a full-blown lawsuit, the small businesses frequently agree to settle for a few thousand dollars, effectively paying the lawyers just to go away.

Thanks in large part to Los Angeles radio personalities John Kobylt and Ken Chiampou, the targeting of small business by unethical personal injury attorneys emerged as a political issue last year, and legislation was drafted to effect major reform. At the last minute, however, Democratic Assemblywoman Ellen Corbett presented a measure drafted by Consumer Attorneys of California -- the personal injury attorneys' lobby. (Surely it's only a coincidence that Corbett received $48,100 from the trial lawyers in her last campaign - 15% of her total).

Rather than remedying the problem, the new bill actually increases the incentive for plaintiffs' lawyers to sue under the UCA. As the law currently stands, most remedies under the UCA are equitable in nature -- that is, requiring changes in a company's business practices, but disallowing any recovery of traditional money damages (although the plaintiffs' attorneys can ask to have their fees paid by the defendant businesses, effectively forcing the businesses to compensate them for the time spent on the lawsuit). But now, the "reforms" have added a provision making it easier for the plaintiffs' attorneys to seek "disgorgement," requiring the defendant business to surrender the money that it supposedly earned as a result of the alleged unfair competition. Ironically, the "reform" actually increases the chances that small businesses will be assessed money damages for supposed violations of the UCA, and therefore results in greater pressure on small businesses to settle when plaintiffs' attorneys threaten to sue.

Republicans across California should be screaming. The Democrats have chosen to protect plaintiffs' lawyers -- who, when they file frivolous unfair competition suits, produce nothing -- over small business, which produces goods and services for people of California, fills the government's coffers with tax money, and serves as the primary engine for the advancement of immigrant entrepreneurs. Every Republican in California should be asking every unaligned and Democratic voter: whose side are YOU on?

And every Republican in California should be able to explain a simple concept: the tort tax - that is, the cost of lawsuits in terms of higher prices for products and services. Here in California, a full decade ago, the group Citizens Against Lawsuit Abuse estimated that 20% of the cost of a stepladder and 50% of the cost of a football helmet was attributable to the tort tax. At that same time, wrongful termination lawsuits alone reduced hiring levels in California by 4-5%, costing as many as 650,000 jobs. There's no reason to believe that the figures have improved over the last ten years.

Especially at a time when the state economy is at its nadir, Californians need to understand that the costs imposed by trial lawyers are paid by ALL of us. In fact, the U.S. tort system as a whole costs each U.S. citizen $721 each year. At current levels, U.S. tort costs are equivalent to a 5% tax on wages, according to a new study by Tillinghast-Towers Perrin. These costs come in many forms - but predominantly in higher prices for goods and services (since those who provide them must factor in the costs of facing frivolous lawsuits); higher prices for medical and other insurance policies; bankrupt companies (resulting in lost jobs); and suppressed investment (resulting in jobs that are never created). And such a calculus doesn't even consider the lost productivity in a system where doctors and workers of all stripes must devote countless hours to completing paperwork intended to reduce the chances of a lawsuit, rather than practicing their trades.

Contrary to their self-styled myths, plaintiffs' attorneys are not necessarily "fighters" for the underdogs - the sick, the injured and those otherwise oppressed by the greedy hand of corporate America (as North Carolina Senator and presidential candidate John Edwards likes to claim). In fact, the Tillinghast study reveals that, as a mechanism for compensating injured parties, the U.S. tort system is actually highly inefficient. It returns less than 50 cents on the dollar to the people it is intended to assist, and returns only 22 cents to compensate for actual economic loss. There is only one segment of society that the tort system rewards with breathtaking efficiency. That segment is - surprise! - the trial lawyers, who routinely take up to a third of all the damages awarded to their clients.

Of course, there are plaintiffs' lawyers who do help truly injured clients, and they do so honestly and ethically. But they, most of all, should have a vested interest in seeing that the profession they serve so well remains untainted by the predatory tactics of those who apparently allow their greed to overwhelm their ethics. They should be in the forefront of demanding real reform of the California Unfair Competition Act and the American tort system as a whole.

With the abuse of the UCA, California's plaintiffs' bar has gone too far - and California Democrats, to their shame, have allowed them to place their own parochial interests above the good of the state as a whole. But as a result, Republicans have been offered a golden opportunity to explain to California's voters the economic consequences for all of us that stem from the Democrats' indebtedness to their staunchest contributors - the trial lawyers. And they have created a meaningful opportunity for Republicans to reach out to the immigrant population that is disproportionately victimized by the misuse of the UCA.

Who knows? If California Republicans do their jobs well, then perhaps one day, people like the man who called into the radio show about the $24 carpet won't bother. He'll know that the courts are intended as a mechanism for redressing real and serious wrongs - not as a way to earn a quick buck at the expense of a struggling small business.

CRO columnist Carol Platt Liebau is a political analyst and commentator based in San Marino, CA.


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