United States: Momentum To Reform Section 17200 Is Building

Momentum to change California’s Unfair Competition Law, Business & Professions Code Section 17200, by initiative is rapidly building.

For years, bounty-hunting lawyers have filed Section 17200 claims against businesses, often based on no more than inconsequential technical violations of law. Often such claims are added to increase the settlement leverage of a lawsuit. Section 17200 authorizes relief akin to that available in a class action lawsuit, but without the procedural safeguards or protections afforded by a class action suit.

The appeal to lawyers is that they can claim and recover attorney’s fees, and they can bring the action on behalf of any person. They can have a relative, employee, or a non-profit organization that they just formed serve as the claimant. They can sue without a client asserting that he or she was misled or experienced a loss.

The public demanded reform when bounty-hunting lawyers targeted thousands of small businesses. First they attacked car dealers; then they went after restaurants, auto repair shops, and nail salons, many owned by ethnic minorities and immigrants.

Nearly a dozen bills were introduced in the Legislature to address the problem. The Attorney General, in an effort to defuse the demand for reform, filed a Section 17200 action against a law firm that had initiated several thousand Section 17200 claims against small businesses. The State Bar also brought disciplinary actions against some of the firm’s attorneys who ultimately surrendered their licenses to practice law.

Meanwhile, the legislative judiciary committees killed all of the reform measures. The only two bills to survive those committees were authored on behalf of bounty-hunting lawyers.

One of the two bills was amended to impose an even greater burden on businesses sued under Section 17200. In the final days of the Legislature, those two bills were defeated.

In short, the Legislature made no change to a law that overreaches and invites abuse. A broad coalition has been formed, an initiative drafted, and financial commitments are being made to fund the qualification and passage of a reform measure. The initiative would address one of Section 17200’s major excesses, that is, allowing lawsuits to be brought by any person, whether that person was misled or experienced a loss or not. This measure promises relief to all businesses, any one of which may be the next target.