Case: California v. Corrective Education Company

On November 23, 2015, the State of California filed this lawsuit in the Superior Court of California for the County of San Francisco. The plaintiff, through the San Francisco City Attorney, sued the Corrective Education Company and other unnamed entities under California Business and Professions Code §17200, a.k.a. the Unfair Competition Law (UCL), which “prohibits unlawful, unfair, or fraudulent business acts or practices.” The plaintiff sought injunctive and punitive relief, claiming violations of California’s pretrial diversion, extortion, and false imprisonment laws. The case was assigned to Judge Richard Ulmer Jr.

The plaintiff alleged that the defendants would pay retailers to offer accused shoplifters a choice between criminal prosecution and participating in a behavior modification program that would cost the accused hundreds of dollars. The plaintiff further alleged that retailers, in agreement with the defendant, took accused shoplifters into a secluded back room and showed them a video filled with false and misleading information, leading them to sign a contract promising to pay the defendant a fee and admitting their guilt. The plaintiff alleged that 90% of accused shoplifters who were shown the video signed this contract, indicating the coercive nature of the defendant’s practice. Furthermore, it was alleged that because the defendant was paying retailers for each person who signed a contract, retailers were incentivized to pressure people into signing this contract, regardless of the evidence or their guilt.

On June 7, 2016, the plaintiff filed a Motion for Preliminary Injunction to enjoin the defendant from taking certain actions until the end of the trial. The motion sought to enjoin the defendant from taking money for its program and from agreeing to or enforcing any contracts with suspected shoplifters. The motion also sought to enjoin the defendant from providing the police with confessions from accused shoplifters and from detaining accused shoplifters and showing them the program video.

On August 10, 2016, Superior Court Judge Richard Ulmer Jr. denied the plaintiff’s Motion for Preliminary Injunction. Judge Ulmer “[a]ssum[ed] without deciding that [the People] might prevail at trial.” Under this assumption, Judge Ulmer held that the preliminary injunction sought by the plaintiff would do irreparable harm to the defendant by putting it out of business altogether in California.

On August 17, 2016, the plaintiff appealed the denial of the Motion for Preliminary Injunction, which was an appealable order under California civil procedure rules.

While the appeal of the denial of the Motion for Preliminary Injunction was pending, on February 27, 2017, the plaintiff filed a Motion for Summary Judgment, or, in the Alternative, Summary Adjudication. The argument laid out by the plaintiff in this motion largely mirrors the argument outlined in the plaintiff’s original complaint: that the defendant violated the UCL by committing extortion, false imprisonment, fraud, and unfair business practices. The plaintiff supported this motion by including evidence supporting these allegations gathered from the defendant in discovery. In this motion, the plaintiff requested the same injunctive relief as in the 2016 Motion for Preliminary Injunction.

On April 13, 2017, the First District of the California Court of Appeals reversed the trial court’s denial of the Motion for Preliminary Injunction and remanded to the trial court for further proceedings (Judges Simons, Jones, and Bruiniers). The appeals court held that the trial court abused its discretion in its decision because it did not sufficiently consider the likelihood of the plaintiff’s success on the merits, which is significant because the likelihood of success is correlated to the harm to the public that would result without the injunction. The trial court was required to weigh the balance of the plaintiff’s likelihood of success against the harm of the injunction to the defendant. The appeals court held that this balance did not weigh so heavily in favor of the defendant, even without considering the plaintiff’s likelihood of success on the merits, to support the trial court’s decision.

On August 14, 2017, Superior Court Judge Harold Kahn granted in part the plaintiff’s Motion for Summary Judgment, holding that the defendant’s program was a textbook violation of California’s extortion and false imprisonment laws. Judge Kahn denied the rest of the plaintiff’s causes of action under the UCL. Because the plaintiff proved at least one violation of the UCL, it was entitled to judgment and injunction. But Judge Kahn declined to craft an injunction order, instead deferring to the parties’ resolution of the scope of the injunction.

An Order for Permanent Injunction was entered on October 5, 2017, which essentially ended the defendant’s program. The injunction prohibited the defendant from showing the program video, accepting money for its program, entering into or enforcing a contract with a suspected shoplifter, and providing police of acknowledgment of guilt obtained through participation in the program.

On June 6, 2018, this lawsuit was dismissed with prejudice in accord with a settlement agreement reached by the parties. The Clearinghouse does not have access to the details of this settlement.

The case is now closed.