Learning to Fight Shakedown Lawsuits

By Mary O’KEEFE

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.

Brett Schoenhals owner of The Coffee Table in Eagle Rock

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...

You can read the rest of this article, and more, at the Crescenta Valley Weekly HERE

Mike Gatto is the Chairman of the Appropriations Committee of the California State Assembly.  He represents Burbank, Glendale, La Canada-Flintridge, La Crescenta, Montrose, and the Los Angeles neighborhoods of Los Feliz, Silver Lake, Atwater Village, and portions of the Hollywood Hills and East Hollywood.   www.asm.ca.gov/gatto