A $54 million lawsuit

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It isn’t every day that tort reformers and personal-injury lawyers find themselves in agreement. But when the American Association for Justice (formerly known as the Association of Trial Lawyers of America) recently joined the American Tort Reform Association and small-business owners everywhere in condemning an outrageous and seemingly vengeful lawsuit against a neighborhood dry-cleaning store, a rare opportunity for nonpartisan legal reform may have presented itself.

Many readers of The Washington Times know by now that D.C. administrative law Judge Roy Pearson Jr. initially sued Custom Cleaners over a supposedly lost pair of suit pants for a jaw-dropping sum that exceeded $65 million. (In a May 31 court filing, Mr. Pearson lowered his demand to $54 million and the trial is expected to conclude today.) What many may not know, however, is that the District’s statute and many similar state consumer protection acts (CPAs) around the country are increasingly subject to comparable lawsuit abuse.

When Congress in 1914 passed the Federal Trade Commission Act, it specifically excluded a “private right of action,” meaning that only the government could sue to protect consumer interests — not private-sector plaintiffs. Sen. William Joel Stone, a Democrat from Missouri, anticipated the likes of Mr. Pearson and the industrialization of personal-injury litigation when he convincingly warned his colleagues during debate that, “[A] certain class of lawyers… will arise to ply the vocation of hunting up such… [law]suits,” the number of which “no man can estimate.” But most state CPAs and the District’s law, written decades later, allow private lawsuits, and, not surprisingly, small businesses such as Custom Cleaners are frequently targeted because they don’t have the resources to defend themselves like larger companies do. Many CPAs — including D.C.’s — also are particularly attractive to plaintiffs’ lawyers because they provide for minimum statutory damages or tripling of actual damages, and for an award of attorneys’ fees. And many judges have begun interpreting these laws rather loosely, wherein plaintiffs don’t even need to claim an injury or loss, much less knowledge of or reliance upon the allegedly “unfair or deceptive” commercial practice.

In Mr. Pearson’s case, the District’s law allowed him to seek $1,500 for each day that the dry cleaner displayed window signs stating “Satisfaction Guaranteed” and “Same Day Service,” regardless of whether these signs had anything to do with his lost pants. His lawsuit also asks for half a million dollars to compensate for the time he’s spent attacking this small business and the anticipated hours he’ll spend wasting court and taxpayer resources at trial. His suit even suggests that D.C. law allows him to receive damages for mental suffering and rental-car costs now that he has to drive each weekend to another dry cleaner not within walking distance.

But policy-makers in D.C. and in statehouses across the country can make some simple changes to their respective CPAs that will go a long way in restoring fairness.

Requiring plaintiffs to prove they actually relied on a supposedly fraudulent or deceptive advertisement or representation would drastically reduce CPA lawsuit abuse. Limiting plaintiffs’ claims for damages to out-of-pocket costs except in cases when it can be proved that a defendant’s actions were knowingly and willfully fraudulent or deceptive would help, too. In Mr. Pearson’s case against his cleaners, for example, his out-of-pocket costs, at most, would include the price of a replacement suit, alterations and any reasonable legal expenses.

As lawmakers take these suggested reforms under advisement, the D.C. Bar Association and D.C.’s CommissiononTenureand Appointment of Administrative Law Judges (the bodies with a say in whether Mr. Pearson will keep his law-judge job) may wish to consider the advice of Melvin Welles, former chief administrative law judge at the National Labor Relations Board.

In part, Mr. Welles’ April 30 letter to the editor published in The Washington Post read, “I would also direct any bar to which Mr. Pearson belongs to immediately disbar him and the District to remove him from his [law judge] position.” Jon Haber, the CEO of the national trial-lawyers group, offered a similarly scathing critique of Mr. Pearson in his May 8 letter to the D.C. Bar: “Our court system has no place for those who abuse the instruments of justice for personal gain or the intimidation of others.”

Most small-business owners in the District agree, and, along with other taxpaying entrepreneurs across the country, they want reforms that would keep consumer protection laws from being so readily abused by “a certain class of lawyers.”

Karen Harned is executive director of the National Federation of Independent Business’ Legal Foundation. Sherman Joyce is president of the American Tort Reform Association.

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