San Francisco City Attorney Dennis Herrera said today's ruling "goes to the heart of CEC's predatory business model, which is predicated on threats, deception and falsehoods."

Court rules that ‘corrective education’ scheme is extortion

‘This is textbook extortion,’ court finds. Herrera wins on two key issues in the case.

San Francisco City Attorney Dennis Herrera said today's ruling "goes to the heart of CEC's predatory business model, which is predicated on threats, deception and falsehoods."
San Francisco City Attorney Dennis Herrera said today’s ruling “goes to the heart of CEC’s predatory business model, which is predicated on threats, deception and falsehoods.”

SAN FRANCISCO (Aug. 15 2017) — City Attorney Dennis Herrera today hailed a key victory against Corrective Education Company after a court ruled that the private, profit-driven business was engaging in extortion and false imprisonment in its “diversion program” scheme.

“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.  “This ruling goes to the heart of their predatory business model, which is predicated on threats, deception and falsehoods. CEC is enriching itself on the backs of others, and many of the people they prey upon have limited means and are just barely getting by.”

Herrera sued the company in November 2015 over its “corrective education” scheme, asserting that the company’s practices amount to extortion and false imprisonment.  The lawsuit was filed in San Francisco Superior Court on behalf of the People of the State of California.  

Corrective Education Company contracts with major retailers, and when someone is suspected of shoplifting, they are taken to an isolated room and threatened with arrest and criminal prosecution unless they agree to watch a video created by CEC.  In that video, CEC threatens to have suspects criminally prosecuted unless they sign a confession, agree to pay CEC up to $500, and undergo a six-hour “cognitive restructuring” and “behavioral modification” program.  Faced with this Hobson’s “choice” between criminal prosecution and participating in CEC’s program, 90 percent of CEC’s victims — upwards of 13,000 Californians — “consent” to enroll in CEC’s program.  After obtaining the forced confessions, CEC follows up with phone calls to the victims, again threatening them with criminal prosecution unless they pay CEC hundreds of dollars. CEC has also sent over 2,000 debt-collection letters in which it cloaks itself with prosecutorial authority in further efforts to enrich itself.

CEC operates in more than 25 states across the country.

In a ruling issued Monday afternoon, San Francisco Superior Court Judge Harold Kahn found Corrective Education Company engaged in extortion and false imprisonment.

“The undisputed facts … establish that CEC’s diversion program runs afoul of California’s extortion laws,” Judge Kahn wrote in his ruling granting summary adjudication on the two central issues in the case. “This is textbook extortion under California law, and has been so declared for at least 125 years.”

Numerous jurisdictions in California, including San Francisco and Los Angeles, offer legitimate, pretrial diversion programs that are overseen by district attorney’s offices. CEC operates entirely outside of the criminal justice system and without the approval of local prosecutors.

In his ruling, Kahn ruled that each iteration of CEC’s diversion program in California constitutes extortion and false imprisonment and that Herrera was entitled to an injunction halting the unlawful practices.  CEC’s clients have included Walmart, Bloomingdale’s, Ralph’s, Abercrombie and Fitch, Burlington Coat Factory, and Kroger’s.

In the ruling, Kahn wrote: “By the quid pro quo of asking for money in exchange for forbearance in calling police, the retailer and CEC are acting in concert and are jointly liable for the extortionate conduct.”

The specifics of the injunction are still to be fleshed out, as is restitution and monetary civil penalties of up to $2,500 per violation.  

Read the LA Times’ coverage of the lawsuit here and CBS’ coverage here.

The case is: People of the State of California v. Corrective Education Company, San Francisco Superior Court Case No. CGC-15-549094 filed Nov. 23, 2015.

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