May 10, 2011
An Old Statute Needs an Update
Daily Journal
May 10, 2011
By Kim Stone
One day about two years ago, Cary Cheldin answered his telephone at work to hear a litany of abuse from the other end. Cheldin owns his own insurance business and the man on the other end was an attorney demanding $13,000 for damage to a 1973 Chevy pick-up truck caused by one of Cheldin's customers. Cheldin was offering $3,500 (coincidentally, he once owned the same year and model of the truck, and sold it for $1,500 in 1998.) When Cheldin requested some evidence to substantiate the demand, the attorney refused and threatened litigation.
This was only the beginning... Since then, the attorney has sued not only the insured customer multiple times, but also sued one of the insured's employees, the insured's personal attorney, Cheldin and some of his employees personally, the U.S. Postmaster General, and 80 partners of the law firm hired to defend the insured. He has filed five motions to disqualify all three trial judges that were assigned to the case based on allegations of corruption, mental incompetence, and bias. In writing, and in violation of Penal Code Section 523, the attorney committed extortion by threatening to report Cheldin's company to the Internal Revenue Service and to the state Department of Insurance unless his monetary demand was paid. Finally, the attorney's veiled threats of murder led to the filing of a police report by one of the defense lawyers.
Harassment? Yes. Malicious? Yes. Costly? Most definitely. In 1963, California enacted the Vexatious Litigant Statute (Code of Civil Procedure Section 391 et seq.) in an effort to curb this type of misuse of the courts. As one court has noted: "The constant suer...becomes a serious problem to others than the defendant he dogs. By clogging court calendars, he causes real detriment to those who have legitimate controversies to be determined and to the taxpayers who must provide the courts." (Taliaferro v. Hoogs, (1965) 237 Cal.App.2d 73). A vexatious litigant is one who is a "persistent and obsessive litigant...who has constantly a pending a number of groundless actions..." (Wolfgram v. Wells Fargo Bank, (1997) 53 Cal. App. 4th 43).
The statute defines a "vexatious litigant," provides a procedure in pending litigation for declaring a person a vexatious litigant, and establishes procedural strictures that can be imposed on vexatious litigants. Once someone is labeled a vexatious litigant, he must get permission from a judge and post a bond before suing again. These restrictions deter and provide some respite from harassing conduct, while still allowing genuine claims to go forward.
The statute, however, is only triggered when plaintiffs are representing themselves and do not have an attorney. Since the plaintiff targeting Cheldin's company was represented by an attorney, the current statute is of no help to him.
Moreover, under the law there is a loophole because courts have been inconsistent about whether a vexatious litigant designation still applies if an attorney is later present. Some courts have observed that those who are found to be vexatious litigants cannot avoid the statute by thereafter hiring counsel because the purpose of the statute would be frustrated (Forrest v. Dept. of Corporations (2007) 150 Cal. App. 4th 183, Camerado Ins. Agency Inc. v. Superior Court (1993) 12 Cal.App.4th 838, and In re Shieh (1993) 17 Cal.App.4th 1154), while others have found differently or limited the application of the restraints (Flores v. Georgeson (2011) 191 Cal.App.4th 881, Shalant v. Girardi, 183 Cal.App.4th 545 (2010), certiorari granted).
This is why the Civil Justice Association of California is sponsoring Senate Bill 603 this year, authored by Tom Berryhill (R-Modesto), which will be heard in the state Senate Judiciary Committee today. The bill expands the protections afforded by the vexatious litigant statute by allowing a judge to appropriately designate a harassing complainant a vexatious litigant whether they are represented by a lawyer or not. Unfortunately, despite an attorney's presence, vexatious litigants are often still, well, vexatious. SB 603 would afford courts more tools to reduce needless filings and deserving defendants some measure of respite.
In the case of Cary Cheldin, had SB 603 been enacted, the vexatious litigant statute could have provided some reprieve while still allowing a dispute over the value of the truck to go forward. At this time, Cheldin's small company has spent more than $300,000 because it refused to submit to this attorney's exploitative tactics. Instead of spending hundreds of thousands in litigation to take a stand against abusive behavior, he could have been using that money to grow his business. Businesses who are already struggling to stay afloat in this economic downturn should not have to use their resources on shakedown lawsuits instead of keeping their doors open or hiring more employees.
It should be noted that fighting these nuisance suits rather than settling can have benefits. A recent study by the city of Chicago found that, although litigating one case often costs the city more than it would to settle that one case, fighting all cases makes financial sense. Fighting back saved Chicago taxpayers $2.5 million over two years because, as word got around that Chicago was fighting back, fewer suits were filed.
More needs to be done to prevent the collateral damage that comes with fighting back. Simply finding a lawyer to represent you does not mean your case has merit. No one benefits from having our overburdened courts clogged by vexatious litigants. SB 603 would provide judges with one additional tool to control out-of-control lawyers.
