Firm extorts suspected shoplifters, S.F. judge rules

The San Francisco city attorney’s office has notched a major legal victory in a longrunning legal dispute with a retail services company that it accused of extorting and falsely imprisoning shoplifting suspects.

Acting on behalf of the state of California, City Attorney Dennis Herrera’s office sued Correctional Education Co. in November 2015, claiming that the loss-prevention company’s business model amounted to extortion.

In a ruling issued late Monday, a San Francisco judge agreed, which could lead to the end of the firm’s ability to operate in California.

Correctional Education Co., or CEC, partners with retailers and security firms to offer a $500 “corrective education” diversion program to people accused of shoplifting that allows them to avoid criminal charges.

According to the 2015 lawsuit, apprehended shoplifting suspects are escorted by a retailer’s security personnel to “a secluded area in the back of the store,” where they’re shown a CEC video and offered the option of either admitting their guilt and enrolling in a six-hour “behavioral modification” course, or being sent to jail. The lawsuit alleged that 90 percent of approximately 20,000 people accused of shoplifting agreed to pay CEC and enroll in the course.

In announcing the ruling Tuesday, Herrera’s office noted that “CEC’s clients have included Walmart, Bloomingdale’s, Ralph’s, Abercrombie and Fitch, Burlington Coat Factory and Kroger’s.”

“This is a sad day for Californians,” CEC spokeswoman Laura Barnett said in a statement. “Given Tuesday’s decision, it is likely that police will be inundated with calls from retailers, as a result. We believe this ruling goes against the values of Californians. We stand resolute in our belief that everyone deserves a second chance.”

CEC contends that its programs reduce the burden on local law enforcement agencies and give offenders an opportunity to avoid criminal charges and possible jail time while learning how to make better life choices.

But San Francisco Superior Court Judge Harold Kahn said that whether the program is successful in reducing shoplifting is irrelevant to the allegations that CEC’s business model amounts to extortion.

The company’s strategy of threatening to call police unless suspects admit guilt and pay for a CEC course represents “textbook extortion under California law, and has been so declared for at least 125 years and repeatedly reaffirmed by the California Supreme Court and Court of Appeal decisions,” Kahn said. Retailers partnering with CEC were “acting in concert” and that “both the retailer and CEC are engaging in extortion,” he added.

Kahn was also persuaded by the city attorney’s arguments that the time suspects spent being introduced to CEC’s course constitutes false imprisonment. Suspects are being held against their will, Kahn ruled, when they’re “led to believe that the alternative to learning about and agreeing to CEC’s diversion program is the retailer’s calling the police.”

He added that while it may be “theoretically possible” to operate a private diversion program that doesn’t improperly detain suspects, “CEC has not done so.”

“We should all be concerned about privatizing our justice system, especially when a business like Corrective Education Company uses the threat of criminal prosecution to intimidate and extort people,” Herrera said in a statement on Tuesday. “This ruling goes to the heart of their predatory business model, which is predicated on threats, deception and falsehoods.”

Because Herrera’s office sued CEC on behalf of the state, Kahn’s ruling on the extortion and false imprisonment charges raises questions about whether the Utah company will be able to continue operating in California, and whether other states where CEC conducts business might be compelled to follow California’s lead. The city attorney’s office said that CEC has operations in “more than 25 states across the country.”

What, exactly, the consequences for CEC might be are unclear. In his ruling, Kahn instructed the city attorney’s office to confer with CEC’s lawyers to come up with an outline for how the company might change its business practices to comply with California law. Kahn would likely approve that plan if the two sides agree. If the two sides can’t reach an accord, the city will ask Kahn to determine CEC’s fate in California.