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Corporate chief executives deem the once Golden State the very worst state in America for business, and perhaps no other state more clearly illustrates the direct impact of excessive litigation on job creation and the ability of businesses to survive and thrive. Unlike legislatures in most other states, California’s General Assembly rarely acts to limit lawsuit abuse. For instance, California, like Florida, is among the few states that continue to apply an insufficiently rigorous standard for the admission of purported expert testimony and, as discussed below, despite a critical need to do so, its courts are powerless to stop “vexatious” litigants. With the nation’s second highest state unemployment rate (as of this report’s production deadline), evidence suggests that California may be losing jobs to tort-reforming Texas, which has promoted a pro-business environment with tort reform and other policies. Though voters have occasionally taken matters into their own hands, directly passing reform referenda at the ballot box, the effectiveness of such reforms is sometimes eroded by periodic waves of liability-expansion that emanate from the California Supreme Court. While Los Angeles County historically has been the most lawsuit-loving jurisdiction, this job-killing embrace of litigiousness is steadily spreading to tarnish much of the once Golden State.

ADA ‘Frequent Filers’ Destroy More Small Businesses

During the past few years, a small group of lawyers has combined federal disability access standards embodied in the Americans with Disabilities Act (ADA), which does not provide a private right of action for damages, with a California law that has led to thousands of lawsuits for minute technical violations. Such “violations” include faded paint on a disabled parking space or a bathroom mirror or support bar installed an inch too high or low. There is no opportunity for the defendant to cure the violation. Rather, the actions often state a claim for injunctive relief under the federal ADA and tack on the state claim for damages so they may be brought in federal or state court.

Professional pro se plaintiffs and a cadre of personal injury lawyers file thousands of these claims against restaurant owners, shops and other small businesses. These lawsuits often target business owners who are English-as-second-language immigrants or otherwise lack understanding of their legal rights; and the plaintiffs’ demand letters typically encourage the owner to settle the case for about $3,000 to $5,000, considerably less than what it would cost to go to court. Even if the business owner promptly addresses the alleged violation and incurs substantial costs doing so, he or she must pay to settle the case or otherwise spend thousands more going to court.

One individual alone, Scott Johnson, is responsible for over 1,500 of these suits since 2003. He filed more this year against a popular burger joint in Davis, Redrum Burger, and five restaurants and salons at a strip mall in Rosemont. In Auburn, where Johnson sued Machado Orchards over “worn out” disabled parking, and also filed ADA claims against a restaurant and a smoke shop, Mayor Bill Kirby has said Johnson borders on being a “domestic terrorist.”

Another frequent filer, a West Sacramento man dubbed “Litigious Louie,” branched out in 2011 to areas of California that had not experienced such extortionate litigation before. He has raised the ante by suing not only small businesses, but even two of California’s largest cities, Stockton and Lodi, alleging certain sidewalks are not fully accessible to those with disabilities. Local taxpayers will pick up the tab.

Since publication of last year’s Judicial Hellholes report, the Sacramento Bee has documented how an ADA lawsuit shut down a local bookstore, Thidwick Books. In the spring, a columnist shined a light on how ADA abuse shut down Donner Lake Kitchen, a family-owned and operated restaurant that had been pleasing customers for 17 years. The couple that owns Barney’s Coffee Shop in Pico River, working long hours because they cannot afford to hire a hostess, took out a home equity loan to cover the thousands of dollars they spent on a settlement, lawyer’s fees and renovations to their modest restaurant. And this summer, an ABC-affiliated TV station caught a serial plaintiff out for his daily hike even though the scores of ADA lawsuits he’s filed against small businesses claim he has “end-stage emphysema” and is largely confined to a wheelchair.

Despite such media attention, the California Senate Judiciary Committee in May rejected legislation that would have made clear the ability of California judges to declare such serial plaintiffs “vexatious litigants” and require them to obtain permission from the court before suing.

More recently, U.S. Rep. Dan Lungren (CA 3rd), a former state attorney general, introduced federal legislation that would reasonably address this excessive and unnecessary litigation. He has the support of local business owner Travis Hausauer of the Squeeze Inn, who was squeezed out of his original restaurant location after a lawsuit complained that the structure’s tiny size discriminated against the disabled. “Too often these lawsuits are filed and the accuser takes the settlement money and moves on down the road,” said Lungren, as reported by the Auburn Journal. “Access for the disabled does not get fixed because the business owner has spent his money on the lawsuit.” The bill would require an individual who experiences a problem with access to an establishment due to an alleged violation of ADA guidelines to provide notice and an opportunity for the business to explain what steps it will take to address the issue within 90 days, and 120 days to complete the work, before a lawsuit could be filed.

Lawsuit with Zero-Percent Merit

This year legal observers were treated to an epic battle between Taco Bell and out-of-state personal injury lawyers hoping to capitalize on California’s easily exploited consumer protection law and appetite for ridiculous class actions. Ultimately, their lawsuit wilted faster than shredded lettuce under a heat lamp and the lawyers ran for the border.

Alabama-based Beasley, Allen, Crow, Methvin, Portis & Miles, P.C. teamed up with a San Diego law firm to sue the fast-food chain on behalf of every person in the United States that purchased a Taco Bell product advertised as containing beef. Taco Bell’s “seasoned ground beef,” the lawyers alleged, should have been advertised as “taco meat filling” since a “substantial majority” of the filling comprised substances other than beef, according to the lawyers’ “independent” testing.

Like CSX in a West Virginia asbestos fraud case (see p. 14), Taco Bell, to its credit, responded aggressively to the Beasley lawsuit, not in the more typically muted style of many corporate defendants. It went on the offensive with a slew of newspaper ads, television spots and YouTube videos, defending its product with generous portions of good humor. Taco Bell reportedly spent between $3 and $4 million to tell its customers that its taco filling consists of “88 percent premium ground beef and 12 percent signature recipe.” The signature recipe includes spices and fillers for texture. Obviously, any taco dish will have ingredients other than beef, such as seasonings, tomato sauce, water, oil, and, yes, when it is fast food, some fillers and preservatives.

In April, Beasley Allen withdrew the lawsuit, claiming it did so after Taco Bell made changes to its marketing and disclosure practices. Not so, said Taco Bell, which, rather than stand down and declare victory, ran full page ads in newspapers across the country asking, “Would it kill you to say you’re sorry?”

Other news out of California

  • Million, billion. Flashback to the first Judicial Hellholes report when, in 2002, a Los Angeles County jury awarded the family of a smoker $850,000 for medical expenses and pain and suffering, plus $28 billion in punitive damages, the largest individual verdict in the nation’s history at the time. The trial court cut the punitive award from $28 billion to $28 million. That amount was further reduced to $13.8 million when the punitive damages portion of the case was re-tried after the U.S. Supreme Court placed new safeguards prohibiting introduction of evidence unconnected to the plaintiff. This past August, the Second District Court of Appeal in Los Angeles upheld the award. Justice Patti Kitching, however, dissented, noting that the punitive damages award was still 16 times the substantial compensatory damages awarded, making it disproportionally high under the constitutional standards set by the high court. She would have reduced the award to $7.65 million.
  • Court chips away at proposition aimed at ending shakedown lawsuits. Early in the year, a California Supreme Court decision disrespected the will of voters who had overwhelmingly approved Proposition 64 in 2004. That measure limited “shakedown lawsuits” brought under the state’s consumer law by requiring those who claim they were misled by a deceptive advertisement or business practice to show they had suffered an actual loss of money or property. The Court’s 5-2 ruling allowed plaintiffs to sue Kwikset on the basis that its locks were advertised as “Made in the U.S.A.” when a few of the components, such as screws, were produced abroad. As dissenting Justice Ming Chin recognized, there was no allegation that the locks were overpriced or defective, or that the plaintiffs had actually lost any money or property, but the claim was based on the subjective motivations of some consumers to purchase the lock. In fact, as Justice Chin noted, the Kwikset case was used as an example of a shakedown lawsuit in advocating for Prop 64.
  • California hosts first Wal-Mart mini-class action. After the U.S. Supreme Court ruled that the largest class action in history, brought against Wal-Mart, could not proceed, where did the plaintiffs’ lawyer turn? California. The high court had found that the nationwide class action had no glue holding it together since the 1.5 million past and present employees had little in common and alleged no uniform policy or practice that discriminated against them. The new lawsuit was filed on behalf of just under 100,000 women employed in California stores. Plaintiffs’ lawyers filed the lawsuit in San Francisco, and it is believed to be the first of an “armada of cases” around the nation.
  • D.A. pushes “sudden acceleration” case forward. As reported in the 2010/11 Judicial Hellholes report, in July 2010, the California Supreme Court took a major step backward by allowing state and local officials to hire private lawyers on a contingency-fee basis to represent the public. Here is an example of the types of claims that result in California. Orange County District Attorney Tony Rackauckas is the only D.A. in the nation to sue Toyota in connection with the alleged “sudden acceleration” of its vehicles, and he’s hired Mark Robinson, an attorney in a plaintiffs’ product liability law firm, to do so through a no-bid contract. Rackauckas refused to release the agreement to the public for months, doing so in August after a threatened lawsuit by the Civil Justice Association of California. The lawsuit does not claim that people were hurt or lost money due to the claimed defect, but that the company is deceiving consumers by claiming that sudden acceleration is a mechanical issue related to driver error rather than an electronic issue. That’s not what the National Highway Traffic Safety Administration, with the help of trained engineers from NASA said, but hey, who are we to argue with a D.A./personal injury lawyer team?
  • Hot-air lawsuit deflates balloonists. A dozen hot-air balloon tour companies went out of business or stopped flying in eastern Coachella Valley due to a lawsuit filed by JCM Farming, which claimed the balloons flew too low over their olive farm compound, invading the privacy of its residents. When the Federal Aviation Administration said otherwise, twice, it too was sued. One small business spent $177,000 to fight the suit until a Palm Desert law firm, Guralnick and Gilliland, offered to represent the balloonists pro bono. After over two years of litigation, JCM abruptly dropped its lawsuit this past summer.
  • No penalty for fraudulent lawsuit. The State Bar of California declined to discipline Los Angeles attorney Juan Domingez, whose ads grace city buses. Domingez was referred to the bar by Superior Court Judge Victoria G. Chaney, who found that he had “designed, executed and funded a fraud upon the court” as a central player in a scheme to recruit fake plaintiffs in Nicaragua, coach them to lie about being exposed to pesticides on Dole-affiliated banana farms, and fabricate evidence. Domingez responded that he felt “unjustly framed.” Last year, ATRF reported that the U.S. Court of Appeals for the Ninth Circuit had imposed sanctions on several California lawyers and suspended an attorney after they submitted allegedly fraudulent materials in an effort to collect a $489 million default judgment entered by a Nicaraguan court in similar litigation.
  • More fraud? In August, California Attorney General Kamala D. Harris announced that her office has filed actions against four California lawyers who allegedly defrauded thousands of distressed owners of millions of dollars by luring them to pay upfront fees of between $4,000 and $10,000 to collect on a settlement that did not exist. “Consumers are led to believe that joining these lawsuits will stay foreclosures, reduce their loan balances, entitle them to monetary benefits and potentially get them their homes free and clear of their mortgage,” said the attorney general’s suit, filed in Los Angeles County Superior Court.
  • Some good news. As discussed among this year’s Points of Light (see p. 39), the California Supreme Court made a sound ruling this year that prohibited collection of damages based on medical bills that no one ever paid. Also, in a rare act of legislative intervention, the General Assembly passed, and Gov. Jerry Brown signed, a bill preventing any lawsuits against gas stations that collect ZIP codes as a means of consumer fraud protection. A slew of class actions had resulted from a California Supreme Court ruling in February that held that ZIP codes are personally identifiable information, allowing a class action lawsuit against Williams-Sonoma by a customer who was offended that the retailer collected such information to add her to its mailing list. Speaking of Sonoma, Superior Court Judge Mark Tansil there showed there is still some sanity in California law when he ruled that an overly exuberant drunk who falls on someone while showing off his “Cossack dance” moves at a school fundraiser does not act with “an evil intent” worthy of punitive damages.

On a grim closing note that does not bode well for economic growth or access to healthcare, to say nothing of the once prominent concept of personal responsibility, the new president of the Consumer Attorneys of California, Niall McCarthy, recently told the state’s leading legal journal that his group in the last 10 years has managed to “[wipe] out a lot of tort reform bills. What we’re going to do this year is bring some impact legislation to affirmatively improve the civil justice system.” And by “improve” the civil justice system, of course, McCarthy means to expand liability and make the litigation industry that much more profitable for his group’s dues-paying members.

One of McCarthy’s top legislative goals, he says, is to “attack” California’s pioneering Medical Injury Compensation Reform Act, which has been reasonably limiting the liability of healthcare providers since 1975. “Changes to MICRA will come,” he promises. “The only question is when.”