Defaulting Makes Good Economic Sense for Small Businesses in California’s Frivolous ADA Lawsuits

Since the COVID-19 pandemic began, small business owners have struggled to sustain their businesses. Still, serial filers like Scott Johnson have found a clever way to bulk up their bank accounts. The California federal courts got 9,7061 ADA (Americans with Disabilities Act) violation lawsuits filed between August 15, 2020, and October 12, 2021. As the following chart shows, only a handful of people filed half of these cases, and Scott Johnson tops the list.

The following chart shows only the individuals who filed at least 200 cases each since the start of the COVID-19 pandemic.

This booming California cottage industry seems to stem from the abuse of the state’s Unruh Civil Act concerning construction-related accessibility standards bill SB-1608. This CA Senate Bill allows plaintiffs (ADA victims) to be awarded $4,000 for each violation and up to $12,000 per case. In 2012 another California Senate Bill (SB-1186) was introduced to amend the accessibility standards to reduce punitive damages and avoid stacking up violations. Along with increased filing fees, these restrictions were supposed to help prevent litigation abuse in the state; instead, they forced all new cases into the federal courts. However, federal ADA law does not award punitive damages to plaintiffs (i.e., only plaintiff’s legal costs). The only available relief for ADA plaintiffs in federal court is injunctive relief to remove access barriers. In other words, to make sure the defendants fix the identified compliance issues. Therefore, serial filers cleverly use the federal supplemental jurisdiction clause to claim damages over California’s Unruh Act by circumventing Senate Bill 1186’s restrictions. Unfortunately, this loophole has enabled serial filers to target many more small businesses in California.

A handful of people in the entire ecosystem – plaintiffs, plaintiff attorneys, and even ADA defense attorneys and ADA compliance inspectors – have taken advantage of small businesses in these frivolous lawsuits. With the help of their attorneys, the serial ADA filers perform their due diligence before formally filing a case. In most cases, they never enter the facilities they sue; instead, they send their staff to purchase something to show proof of visit and take some pictures in disguise. Thus, the odds of prevailing a case are low, given the ADA’s arcane requirements. Of course, you may be sued for minor violations or sometimes technically not even a violation. For instance, Scott Johnson sued many Bay Area restaurants during the COVID-19 pandemic for missing outdoor wheelchair-accessible tables. But this is not mandated in the ADA unless a business owner provides a specialty service outdoors (Title III, Section 36.308). But the issue is that you have to hire a good ADA attorney to convince the court, which costs a lot of money and time.

In such ADA cases, the plaintiffs sometimes demand in the range of $75,000 to $150,000 in damages. But they usually settle cases outside of court for amounts ranging from $10,000 to $20,0002, in some cases by intimidation. The out-of-court settlement amount doesn’t include defense attorney fees if an attorney is involved in the negotiation. Moreover, they force business owners to sign an NDA, but it doesn’t mean you may not get sued again by them or some other serial filer. If businesses decide to fight back, they might need to spend more than $30,000 on legal costs alone regardless of the case’s outcome. Because most small businesses cannot afford to hire capable attorneys to fight back, plaintiffs target small businesses to rack up the same amount of money with less effort by settling out of court. As a result, unfortunately, some restaurants, gas stations, auto repair shops, and other mom-and-pop shops went bankrupt in this fight. So, it is not fair for small business owners alone to bear the cost of regulating expensive ADA.

California Senate Bill 1186 introduced the disability access amendments to protect disabled patrons and small businesses. But it does not go as far as is needed to stop frivolous lawsuits. For example, while California had 9,706 cases between August 15, 2020, and October 12, 2021, Arizona had only 63 cases during the same period, which translates to Arizona having only 1103 cases per million businesses compared to California’s 2,4274 cases per million businesses.

However, court data shows that before Arizona Senate Bill 1406 took effect in August 2017, their ADA lawsuit rate was as alarming as California’s current rate. This bill, which requires advance notice and a cure period, has helped reduce unwarranted lawsuits since then. So, California’s small business owners should advocate for legislation to amend the disability bill to provide a reasonable timeframe for correcting alleged violations before any businesses can be sued for punitive damages, as in Arizona’s Senate Bill 1406. Please contact your local representative using this link and let them know we need the advance notice. Of course, a generic solution to this problem is amending the federal ADA law itself. But that effort (H.R.620) is not widespread and is currently stalled in Congress.

Meanwhile, the federal courts are the only hope for small business owners. The recent trend in central district court judgments seems to show some signs of relief. More and more cases are denied awards over supplemental jurisdiction claims based on 28 U.S.C. § 1367(c), thereby dismissing the plaintiffs’ Unruh Act claims. For instance, in the default judgment of Carmen John Perri v. CA 199 Arcadia Owner LLC (2:20-cv-05849) case, the court only awarded legal costs of $2,053 (denying punitive damages). In another case, Anthony Bouyer v. LAXMI Hospitality, LLC (2:19-cv-05464), the court even rejected the motion for default judgment and dismissed the case with prejudice. However, there is no guarantee that all defaulting cases would have the same outcome as those above. But in any case, it is not worth it for a small business to fight an ADA civil lawsuit with an existing loophole. In the worst-case scenario, the cost of defaulting an ADA civil case could be less than $7,000. This estimate includes punitive damage for one violation as the court rejects 2nd violation claims in most cases for valid reasons. This amount is much less than what you would end up otherwise paying as a legal cost to negotiate or fight back. In the best-case scenario, your case could get dismissed with prejudice.

At the same time, defaulting businesses should make sure they are complying with ADA standards before they run into another ADA lawsuit. Many online resources are available to identify ADA compliance issues. For example, search online for the keyword “ADA compliance checklist for restaurants” – if you are a restaurant owner. You can also refer to one of my mini checklists here. Surprisingly most problems you find will be easy to fix and cost less. However, you may need to talk to your landlord to resolve parking and other common areas compliance issues in some cases. Another option is to hire a state’s CASp inspector, but it would cost $1500 to $2000 just for the inspection alone.

Although it might sound crazy but defaulting not only makes absolute economic sense for small businesses but can also deter serial filers and their attorneys from pursuing more lawsuits. Defaulting should only be a short-term option until California can make legislative changes to restore ADA integrity. Because as a restaurant owner, I believe people with disabilities should receive the same level of care as any other patron of my business. Making these accommodations is easy as long as the frivolous lawsuits don’t get in our way. These lawsuits hurt both small businesses and the same people this ADA law was supposed to protect in the first place. The last thing that we want is a lengthy litigation battle with an outcome that favors serial plaintiffs and attorneys. It all boils down to educating small business owners on disability access.

Disclaimer

I’m not an attorney; the information provided in this article does not, and is not intended to, constitute legal advice; instead, all content in this article is for general informational purposes only. 

About the Author

Sankaran G. is a restaurant owner and tech entrepreneur with firsthand experience on the subject who has spent significant time researching federal court data and the laws related to the topic.

References

[1] https://pcl.uscourts.gov/

[2] These numbers are based on input from many small-business victims of this ADA scam.

[3] https://cdn.advocacy.sba.gov/wp-content/uploads/2019/04/23142641/2019-Small-Business-Profiles-AZ.pdf

[4] https://cdn.advocacy.sba.gov/wp-content/uploads/2019/04/23142641/2019-Small-Business-Profiles-CA.pdf

3 responses to “Defaulting Makes Good Economic Sense for Small Businesses in California’s Frivolous ADA Lawsuits”

  1. Great article and well written, however I’m not sure it’s a good strategy (I’m not a lawyer), because defaulting on a Federal case, the plaintiff has the write in suing you under State, fixing your property can moot the Federal case but not the state case. In my opionion as a CASp Accessibility specialist is to immidiatly fix your property and file for summary judgment to dismiss the case. We have been successful doing that multiple times against the plaintiffs you mentioned above. Tax credits help also with paying for fixing your property, tax code 44 gives landlord and tenant speratly a $5000 credit each year for any ADA fix and tax code 190 gives each $15000 deductions for the same, that could reduce the cost if the inspection, best defense is to not get sued and be compliant with the codes, afterall it is the law.
    Bassam Altwal CASp#109
    http://Www.calaccessibility.com

    Like

    • The SB1186 restrictions, like reduced $1,000 punitive damages if the violations are fixed within 60 days, prohibit plaintiffs from suing on State’s court that too with increased filing fees! Moreover, the plaintiff can’t claim punitive damages for more than one violation as per SB1186. As this article mentions, the plaintiffs are being forced to file in federal court in the first place because of SB1186 restrictions. So, it doesn’t make economic sense for the plaintiff to pursue further in the state court, period. 

      Like

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