Learning to Fight Shakedown Lawsuits

Posted by on Feb 14th, 2013 and filed under News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry


Shakedown lawsuits have been a problem for business owners for years. States, including California, have passed laws to help protect the business owner from these lawsuits while continuing to support and protect the rights of the public. But the lawsuits have continued despite the efforts of legislators.

In response to a discussion with his Small Business Advisory Commission, Assemblymember Mike Gatto has taken action to help prevent these types of frivolous lawsuits.

On Feb. 4, Gatto introduced legislation that allows a business owner who receives notice of a Proposition 65 violation to remedy that violation and achieve compliance within 14 days without facing exorbitant retroactive fines.

In 1986, California voters approved Prop. 65, the Safe Drinking Water and Toxic Enforcement Act, which required the state to publish a list of chemicals known to cause cancer or birth defects. It required business owners to notify customers about these chemicals via a “clear and reasonable” warning as in posting signs in their establishments. In 2004, Prop. 64 was passed which, at the time, was heralded as a solution to stop frivolous lawsuits but, as is with most legislation, there were loopholes.

Gatto’s legislation was inspired by an Eagle Rock restaurant owner who had been sued for thousands of dollars for failing to notify his customers that beer could cause cancer.

During the commission meeting, the business owner said the lawsuits are difficult to fight because the owner doesn’t know when the person who is suing visited the business and if in fact the sign was not visible at the time. All it takes for a lawsuit, the restaurant owner said, is to be accused.

The law allows for fines of $2,500 per day for each day of the violation. Most larger companies settle out of court; however, small businesses can be driven out of business.

AB 227, the legislation introduced by Gatto, would further the intent of Prop. 65, which is to obtain compliance by displaying warnings of chemicals present on a site. It would allow a business that receives notice of a private action to correct the violation, i.e., post the Prop. 65 warning, within 14 days without being subject to the retroactive $2,500 per day fine, stated Gatto.

Gatto said the intent of the law was to warn the public, not drive out business.

“I had the opportunity to listen to concerns of local business owners on the Small Business Advisory Commission. The severe negative impact of shakedown lawsuits under Prop. 65 was immediately apparent,” stated Gatto.  “Most business owners work hard to protect customers so that the customers return. This is especially true with small business owners whose customers are neighbors, friends and relatives. This common-sense bill will help small businesses avoid costly litigation while ensuring that the public has the proper warnings about potentially dangerous chemicals.”

In addition to the Prop. 65 violations, there are also a growing number of ADA [Americans With Disabilities Act] lawsuits. The so-called drive-by lawsuits or shakedown lawsuits are also financially crushing small businesses.

“There are a lot of [ADA] lawsuits that are [being] filed against businesses,” said Aram Ordubegian, an attorney with Arent Fox LLP in downtown Los Angeles.

He added that in many of these lawsuits those suing will drive up and down the block and if they see one or two businesses that appear not to be in compliance, they sue everyone on the block.

“They send a letter that there wasn’t the [proper signage], so give us $5,000,” Ordubegian said.

If the business doesn’t comply, then they are taken to court, which could mean more fines and court fees.

“It’s horrible,” he said.

It is not just small businesses that get hit with these types of lawsuits; Ordubegian added that he is representing a large chain that has also been targeted.

Last year Gov. Jerry Brown signed Senate Bill 1186 that bans the demand for money letters that are sent by lawyers to businesses. The letters that are sent will give businesses 30 days before filing a lawsuit.

Business owners must keep up to date on new regulations and requirements while staying a step ahead of the drive-by lawsuits.

Being proactive was the subject of a recent seminar sponsored by the La Cañada Flintridge Chamber of Commerce.

“ADA Access Suits: How to Prevent Lawsuits from Disabling Your Business” was held in January to forewarn business owners of what they could be facing.

“It was well attended,” said Pat Anderson, president and CEO of LCFCC and Community Association. “Our goal of the event was to educate business and property owners of what the laws are.”

Anderson added that although she had not heard of these types of lawsuits in La Cañada she had heard of several in La Crescenta.

“This seems to be something that is growing,” she said.

The chamber handed out information to the audience including how to comply with ADA requirements. They supplied an ADA Top Ten List that included common mistakes and what drive-by lawyers would look for. These included  California tow away signs, which are supposed to be located at the entrance to each parking lot, either missing or not filled in correctly; missing signage at accessible parking stalls; incorrect or poorly marked disabled parking stalls; surface flatness not 2% maximum in all directions on access aisles and parking stalls; lack of a ramp leading to a store entrance; a step up into a store (threshold) that exceeds one half inch; a door’s opening force exceeds five pounds for doors; door handles rather than lever type for doors and faucets; a lack of grab bars at accessible toilets and lavatories; paper towel dispensers and mirrors that are set too high.

The speaker at the event was Frank W. Chen, Esq. He stated that “conflicting access standards under California and federal laws, lack of continuing education for building inspectors and architects, and inconsistent interpretations of state law have made compliance with disability-access standards in California difficult.”

He also stated “nearly 40% of all ADA accessibility lawsuits in the United States are filed in the State of California.”

Most business owners want to be compliant with all ADA and Prop. 65 requirements. It is not the law as much as the shakedown lawsuits that is distorting the actual goal that seems to be the concern of business owners, and attorneys who are defending against these type of lawsuits.

It is hoped that the legislation introduced, and the bill already signed, will help California businesses with this issue.

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