After twenty years of dormancy, California courts once again have the authority to impose sanctions against parties for bad faith tactics and frivolous litigation – good news for California business owners.
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Operating a business in California today presents many challenges. From an abundance of strict regulations to laws that were drafted with the express intent to favor employees. It will come as no surprise to California business owners that a special report issued by Forbes gave California an "F" for small business friendliness, placing the state in a tie for last place.
As lawyers servicing small businesses, one of the most prominent issues facing our clients is the prevalence of litigation, particularly frivolous litigation. Although legal disputes are often seen as an inevitable cost of doing business, California business owners can find that these costs are higher for them than their counterparts across the nation.
Especially problematic are several statutes that provide for mandatory, unilateral attorney fees awards to employee plaintiffs who receive even the most nominal recovery, but do not provide the same right to employer defendants, thereby effectively encouraging baseless lawsuits.
Furthermore, with the massive, unprecedented cuts in California's court funding since 2008, leading to the closure of 52 courthouses and reduced services throughout the state, defending against litigation can prove to be an exceptionally lengthy process. Even the simplest of cases can take years before they are resolved.
Given the expense of litigation, the possibility of being held liable for an award for attorney fees that far exceeds any reasonably conceivable damages, and the duration of the litigation process and the toll it takes on a company's resources, defendants frequently feel compelled to settle even the most frivolous of actions. Knowing this, the less scrupulous among plaintiffs' attorneys have been known to engage in bad faith actions and tactics to increase the cost of litigation and pressure defendants into settlement.
Unfortunately, in 1995 California courts lost one of their best tools to thwart such behavior – the ability to impose sanctions against a party or the party's attorney. However, on January 1, 2015, after twenty years of dormancy, the California State Legislature resurrected the courts' statutory authority to impose sanctions for "bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay." (Cal. Code Civ. Proc. § 128.5(a).)
The renewed provision allows a court to order a party, the party's attorney, or both, to pay reasonable expenses, including attorney fees, incurred by another party as a result of bad faith or frivolous "actions or tactics," including but not limited to "making or opposing motions or the filing and service of a complaint, cross-complaint, answer or other responsive pleading." Cal. Code Civ. Proc. § 128.5(b)(1).
Certainly this development alone will not bring an end to all frivolous litigation or to improper tactics that may occur in connection therewith. However, this statute does provide aggrieved parties with an avenue for confronting the most egregious and meritless conduct so that they are not forced to defend against such conduct without recourse. Furthermore, those who pursue frivolous litigation and engage in bad faith tactics again face potential liability for the unnecessary expenses they cause, and are no longer free to do so with impunity.
In the end, this statute will hopefully serve as a deterrent against frivolous lawsuits and bad faith tactics, which would significantly benefit California business owners by reducing at least one cost of doing business in the state.