Regulatory Inflammation Syndrome

What do you get when you combine pervasive regulation with zealous enforcement? You get the legal disease currently afflicting California: regulatory inflammation syndrome. Policy doctors pin the cause on California’s Unfair Business Competition Law, Cal. Bus. & Prof. Code section 17200. For the cure, they offer Proposition 64, medicine that California voters will decide to take or reject in the next election.

I plan to vote for Prop. 64, which I regard as necessary relief from the rash of lawsuits currently afflicting California businesses. I suspect, though, that Prop. 64 treats merely a symptom of a California’s regulatory disease. The problem lies in too many regulations, rather than simply in their over-zealous enforcement.

In very brief, section 17200 empowers any lawyer to act as a “private attorney general”empowered to sue businesses for a very wide range of regulatory violations. A business found guilty under section 17200 may have to disgorge all its ill-got gains and pay the fees of the winning attorney. Attorneys bringing section 17200 suits need not act on behalf of a wronged client or even prove that a member of the public has been harmed or deceived. Many suits have been brought for minor or technical violations of state law, such as failing to date an invoice. Not all such suits would survive litigation, of course, but that is seldom the goal. Rather, unscrupulous attorneys exploit section 17200 to squeeze settlements out of their victims—often small or minority-owned businesses.

For more information about section 17200 and the current effort to amend it, see this apparently objective view of Prop. 64, the arguments in favor of Prop. 64 offered by California Citizens Against Lawsuit Abuse , or the arguments against Prop. 64 offered by the Consumer Attorneys of California.

As I said, I plan to vote for Prop. 64. Section 17200 plainly does encourage frivolous lawsuits, much to the harm of businesses and, consequently (if ironically), consumers. Nonetheless, it bears emphasizing that section 17200 would not prove so deadly a legal weapon if California’s excessive regulations did not give attorneys so many targets to aim it at. The problem with section 17200 is not that it punishes innocent businesses, in other words. Rather, 17200 makes it all too clear that California’s regulations makes nearly every business guilty of something.

Prop. 64 treats merely a symptom of California’s chronic regulatory inflammation. Even if Prop. 64 passes, California businesses will still risk being found guilty of doing nothing wrong. True, they will suffer prosecution less seldom than at present. That, however, will reflect not the achievement of justice but rather the degradation of the rule of law. Prosecutors will remain at liberty to hound unpopular or uppity businesses for trifling regulatory violations. Meanwhile, the bulk of the business community will cower in fear, buying favors or buying time in hopes of avoiding a like fate. Prop. 64, though perhaps necessary as emergency relief, thus ultimately threatens to aggravate the underlying legal disease.