Opinion

‘Bounty hunter’ lawsuits are destroying California businesses

Photo of Michael Marlow
Michael Marlow
Professor of Economics, Cal Poly

California is known for many great things: abundant sunshine, a wonderful climate, stunning scenery. But it is also the land of so-called “bounty hunter” lawsuits — essentially frivolous lawsuits brought against businesses for minor violations of state law. To ease the burden on California businesses, the state must do more to regulate these legalized shakedowns.

The biggest problem comes from several laws the state has passed in the name of protecting public health and disability rights that allow private citizens to sue and collect damages from any business violating safety laws.

For example, the Americans with Disabilities Act (ADA) and California’s Unruh Act require most businesses that serve the public to make all facilities accessible to individuals with disabilities. California is one of the only states that gives individuals the right to sue for monetary damages if businesses fail to comply with ADA laws. As a result, California has 40 percent of the nation’s ADA lawsuits, but only 12 percent of the country’s disabled population.

The law encourages plaintiffs to visit a business out of compliance with ADA as many times as possible before reporting a violation, suing for each instance of non-compliance. Fortunately, last week Governor Jerry Brown signed much-needed legislation (SB 1186) that fixes some of the law’s most problematic provisions.

Another favorite target of lawsuit “bounty hunters” is California’s Safe Water & Toxic Enforcement Act of 1986 (Prop 65). The law requires the state to publish and update a list of chemicals known to cause cancer, birth defects or other reproductive harm. This list now includes nearly 900 chemicals and requires businesses to notify Californians about any possible exposure to significant amounts of these chemicals.

There is no scientific evidence that posting signs informing citizens about possible chemical exposure has led to lower cancer rates in California. There is, however, ample evidence that lawyers are milking businesses that don’t post signs. There are even law firms specializing in these lawsuits, as well as law firms promising to defend business owners from them. Private law firms reached 327 settlements worth $15.9 million in these cases in 2011 alone, of which $12 million went to attorneys’ fees.

These numbers underestimate the true damage to California businesses. After businesses are forced to dole out thousands of dollars to settle these lawsuits, customers foot the bill through higher prices. Some employers may have to lay off employees or make salary cuts, while others are forced to close up shop or consider moving out of state.

Unfortunately, the potential for lawsuit abuse continues. In November, voters will consider Proposition 37, a ballot initiative that is ostensibly about labeling certain foods in order to inform consumers, but is really another statute written by and for trial lawyers looking for additional income. It would impose a California-only ban on thousands of foods containing genetically engineered ingredients unless they are specially repackaged, relabeled or made with higher-cost ingredients. The scientific literature has yet to find genetically engineered foods to be anything but safe, but again it’s more about finding ways to profit from new litigation than about ensuring the safety of California’s food supply.

Instead of contemplating further tax increases, California officials should be lessening regulatory burdens on businesses that not only pay business taxes, but also employ citizens who pay income taxes and serve customers who pay sales taxes. The only losers will be the shakedown artists who keep coming up with new statutes to enhance their incomes at everyone else’s expense.

Michael L. Marlow is a professor of economics at Cal Poly, San Luis Obispo.