Preventing Lawsuits To Spur Job Growth

by Lisa Rickard

Job growth depends on several
positive factors—hampering
businesses with more lawsuits
is not one of them.

The costs of frivolous lawsuits threaten businesses' bottom lines and force
many small businesses to close. (AP/Chuck France)

Just as periodic physical exams are indispensable to a patient's
long-term well-being, a regular check-up of a state's lawsuit
system is essential to the long-term fitness of its economy.
   It may not seem obvious, but a state with a fair and reasonable
legal system has a leg up on its neighbors when it comes to
encouraging businesses to grow their operations or locate jobs
within its borders. Conversely, those states with sickly lawsuit
systems can shackle their economic opportunities.
   With the national unemployment rate hovering around 10
percent, states can no longer afford ailing lawsuit climates that
can shutter small businesses and drive larger companies to
places with a better legal climate. Elected officials need to focus
on creating more jobs, not more lawsuits.
   In order to help state leaders understand how their legal
systems stack up against others, the U.S. Chamber Institute
for Legal Reform recently released its "Lawsuit Climate 2010:
Ranking the States" survey. This study, the eighth of its kind,
was conducted by the non-partisan market research firm Harris
Interactive and ranks all 50 states according to the perceived
fairness and reasonableness of their state liability systems.
   The "Lawsuit Climate" report is based on input from almost
1,500 in-house general counsel or senior litigators at some of
America's largest companies. Why does the perception of inhouse
counsel matter? Because these are the people who help
make far-reaching business decisions, such as where to locate
a new factory, whether to add additional employees or whether
to pull operations out of a state.

***

   Some—especially those who make a living by filing lawsuits—
argue that an ailing state legal environment has no impact on
economic opportunity. Yet, the study found that two-thirds (67
percent) of respondents believe that a state's lawsuit climate is
likely to impact important business decisions at their company.
   And while the "Lawsuit Climate" survey measures the
perceptions of America's largest companies, any state legal
system that encourages abusive lawsuits negatively impacts all
businesses, regardless of size.
   Small businesses, which create 64 percent of all new jobs,
are essential to turning our economy around, but lawsuits
are threatening America's entrepreneurs just when we need
them the most. In good times, small businesses operate on
a razor-thin margin. In this current economic environment,
many are only one frivolous suit away from closing their
doors forever.
   Take the lawsuits filed against Monroe Rubber and Gasket
in Monroe, La. The family-owned small business is currently
defending itself against more than 100 asbestos suits, which
were filed despite the fact that the company has not handled
anything related to asbestos in more than 20 years. Even then,
the company was an intermediary seller of a small amount of
materials containing encapsulated asbestos, a non-airborne
material that remains legal to this day. "This could take us out
of business," lamented owner Mike Carter. "It’s just sad because
I've got a group of people here that work with me. And it's their
livelihoods on the line."

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   Just like a sickly patient who has ignored his doctor’s dietary
and fitness recommendations for years, some states have
neglected their ailing lawsuit climates for far too long—and with
severe consequences.
   One obvious example is California, whose abysmal No. 46
ranking is not surprising given the fact that state courts remain
a haven for class-action lawsuits. Both Los Angeles and San
Francisco were cited by survey respondents as among the top
four most unfair and unreasonable litigation environments
in the country. In addition, state laws on the books have been
known to encourage professional plaintiffs and their lawyers
to bring lawsuits against businesses for technical violations
of disabled access laws—such as a bathroom mirror being two
inches too high—and receiving up to $4,000 plus attorneys' fees
per violation.
   As California's elected leaders consider actions to address one
of the country's highest unemployment rates at 12.6 percent,
they cannot ignore the poor impression that their pro-lawsuit
environment is giving to current and potential job creators.
   On the other hand, some sensible elected officials are attacking
their lawsuit ailments head-on. During the 2010 legislative
session, Florida's leaders enacted two measures that they hope
will incrementally improve its current No. 42 ranking.
   One new Florida law sheds light on the sometimes-murky
relationship between state attorneys general and the plaintiffs'
law firms they hire on a contingency fee basis to bring lawsuits
on the state's behalf. Another significant measure reformed the
state's flawed slip-and-fall statute, which previously stacked the
deck against business owners and their insurers—so much so that

they felt compelled to settle every slip-and-fall claim, regardless
of merit.
Some states, such as Texas—which has moved up 10 spots
since the survey began to No. 36 this year—have enacted
comprehensive tort reforms and have seen their "Lawsuit
Climate" rankings gradually improve. These states are on the
road to recovery, but just like the long-term health of a patient,
constant vigilance is required to prevent reforms from being
undercut by those who wish to turn local businesses into cash
machines.
The message to state officials is clear: Your check-up is
complete, and if your lawsuit temperature is high, then it is time
to consider whether your state's economic well-being will benefit
from more jobs or from more lawsuits. Job growth in this tough
environment will depend on many positive factors; hampering
businesses with more lawsuits is not one of them. •

Lisa Rickard is president of the U.S. Chamber Institute for Legal
Reform.
The U.S. Chamber Institute for Legal Reform (ILR) is a
national campaign, representing the nation's business
community, with the critical mission of making America's
legal system simpler, fairer and faster for everyone.
Founded by the U.S. Chamber of Commerce in 1998 to address
the country's litigation explosion, ILR is the only national legal
reform advocate to approach reform comprehensively by not only
working to change the laws but also changing the legal climate.