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To Grow California’s Economy, Legislature Must Act to Stop Junk Lawsuits

Fox and Hounds, March 22, 2017

By: Kerry Jackson 

California’s business climate is more predictable than its weather. It’s always one storm after the other. Companies relocate to states where they are welcomed rather than vilified and preyed upon. Capital is moved to more jobs-friendly states. Productive workers just get out, or are left behind with few good opportunities to prosper in their field.

There are several causes, but one factor is the state’s overly litigious culture. The American Tort Reform Foundation branded California as the country’s No. 1 state-level “judicial hellhole” in its 2016-2017 report, and the nation’s overall judicial hellhole in its 2015-2016 report. It’s a dishonor the state also held in 2012-2013 and 2013-2014. The Foundation reports that every year a million lawsuits are filed in state courts, one lawsuit for every 39 Californians. Tens of thousands more are filed in federal courts across the state.

California is a sanctuary state for the litigious. National Public Radio has reported that more than 40 percent of the nation’s disability access lawsuits are brought in California. The American Tort Reform Foundation says, “the principal reason the claims are so prevalent in California is that they can be brought by plaintiffs with various alleged disabilities under a combination of both the federal Americans with Disabilities Act (ADA) and state civil rights law, which allows for damages and attorney’s fees.”

The legal stew is so rancid in California that it is even a destination for “litigation tourism,” says the Civil Justice Association of California. Plaintiffs from other states troll the halls of California courthouses hoping to cash in on jackpot justice.

“These claims can make real money for a certain class of plaintiffs’ attorneys with lots of time, limited integrity and a specialized willingness to browbeat small business owners – particularly minorities and recent immigrants who are unable or unwilling to fight back – this malevolent practice has boomed as a cottage industry,” the Foundation’s 2015-2016 Judicial Hellholes report says.
Lest anyone think that the Foundation is picking on California, there is additional evidence of judicial malpractice. According to the U.S. Chamber of Commerce’s Institute for Legal Reform 2015 Lawsuit Climate Survey, the group’s most recent rankings, this state has the 47th worst overall lawsuit environment in the country. The state was last in the sub-category of damages and 49th in jury fairness.

California was 47th overall in the institute’s rankings in 2012 and 46th in 2010. Between 2002 and 2010, it never ranked lower than 46th but never higher than 44th.

The problem has been festering for some time. The Pacific Research Institute reported throughout the 2000s that the state consistently ranked low in terms of monetary tort losses and litigation risks.
Issues created in an atmosphere where abusive civil litigation is tolerated are not limited to only the defendants who lose in court. The harm is spread broadly. The Institute for Legal Reform says that “a state’s litigation environment continues to be important to senior litigators, with three-quarters (75%) of respondents reporting that it is likely to impact important business decisions at their companies, such as where to locate or do business.”

In other words, wretched judicial conditions chase away jobs. And nowhere is business less welcome than it is in California. For 12 straight years, Chief Executive magazine has named it the worst state for business. Thumbtack, a web service that matches customers with small-business professionals, gave California an “F” in its “2016 Small Business Friendliness Survey.” It was the fourth time in the last five years that the San Francisco-based startup gave the state a failing grade. The exception was a “D” in 2013.

The consequence of the state’s constant conflicts with business has been a flight of commercial interests. Relocation firm Spectrum Location Solutions reported last year that from 2008 to 2015 almost 10,000 companies escaped California or cut back on their investments in the state. Not all left because the state is a trial lawyer’s paradise, but it would be foolish to think it had no impact.

A year ago, Gov. Jerry Brown signed a bill providing some protections to small businesses. But when the “hellhole” is as deep as it is, one piece of legislation isn’t enough. Climbing out of the ditch requires comprehensive tort reform similar to what Texas passed in the early 2000s. Texas didn’t perfect its civil litigation system, but it’s no longer known as a judicial hellhole. Thanks to tort reform, doctors are returning after being chased out by trial lawyers, jobs have boomed, and the Texas Public Foundation reports there’s been an “unanticipated positive economic impact” on the economy.
Until Texas-size tort reform comes to California, Texas will continue to welcome our state’s best.

Kerry Jackson is a fellow with the Center for California Reform at Pacific Research Institute.