CALIFORNIA'S BIGGEST BUSINESS PRODUCES PRECISELY NOTHING BUT COSTS A FORTUNE

Wells Fargo. Intel. Walt Disney. Cisco Systems. Most Californians would have little difficulty identifying these corporate giants, which are the state's largest high-profit, high-growth companies — save one. Far bigger than any of these biggest of big businesses are the operations of the plaintiffs' attorneys we at the Manhattan Institute have dubbed "Trial Lawyers, Inc.," who rake in over $46 billion a year from their American operations.

The Manhattan Institute first explored the inner workings of Trial Lawyers, Inc. in an eponymous report issued in fall 2003. Today, we are releasing an update, focused this time on our nation's largest state.

What we find is that California is peculiarly dominated by lawyers. California's legal system is enormous, with over 136,000 practicing attorneys — that's 50 percent more lawyers than in Britain, twice as many as in Germany and almost 10 times as many as in Japan.
The cost of supporting those lawyers is large and growing. Punitive damages grew more than 300 percent in the state in the 1990s, and nonpunitive awards in the state's largest counties grew almost 150 percent from 1996 to 2001. By 2001, those verdicts, on average, topped $1.5 million apiece.

Trial Lawyers, Inc. has exploited these trends by focusing on its most lucrative profit opportunities, which are more a function of legal loopholes than actual merit. For example, in the 1990s, California lawyers made a killing from construction-defects claims by peppering condominiums with flyers to gather clients and filing suits for even minor infractions. Predictably, construction insurance premiums skyrocketed by as much as 500 percent, and new condominium construction plummeted, falling from 18,691 units in 1994 to 2,945 in 1999. The California Legislature subsequently tightened the laws for suing condo builders, but litigators have now taken on single-family homes, and single-family housing is increasingly unaffordable for most California families.

At least as troubling for California is the state's employment litigation, another profit center for Trial Lawyers, Inc. Workplace litigation has become so severe that half of all California's major companies have "explicit policies" to stop employment growth in the state. California's courts were early leaders in stretching the law to eviscerate "at-will" jobs, even in the face of a state statute that provided for such employment, and over time California's Legislature has helped create a maze of wage-and-hour regulations that provide almost limitless opportunities to sue your boss.
For corporate shakedowns, though, nothing surpasses shareholder lawsuits, which typically shift money from one class of stockholders to another with little or no deterrent effect. With almost one-fourth of all federal securities cases filings in recent years coming in California, and fully half of those against technology companies, securities class actions are a tax on the state's top engines of job creation. Disturbingly, such suits are often instigated by the state's own public pension funds, CalPERS and CalSTRS, which are led by highly political boards.

The politicians on the public pension fund boards, such as state Treasurer Phil Angelides, are heavily financed by Trial Lawyers, Inc., as are key politicians at all levels of state government. Plaintiffs' attorneys have given roughly $10 million to state political candidates in the two most recent electoral campaigns, and these "government relations" efforts have effectively stymied efforts at civil justice reform in Sacramento.

Fortunately, Gov. Arnold Schwarzenegger has shown a willingness to stand up to powerful foes, and California's initiative and referendum process provides an opportunity to circumvent government gridlock, as voters proved last fall in passing Proposition 64. Let's hope this positive momentum continues, because the list of essential reforms left to enact is long: California not only needs to stop abusive construction defect suits, employment litigation and shareholder "activism" by the state's pension boards, but also needs to reform its class-action process, the way it processes asbestos claims and the way it pays out attorney contingency fees.

The litigation industry won't go down without a fight, but with Gov. Schwarzenegger's leadership and determined efforts, Californians can say "hasta la vista" to Trial Lawyers, Inc.'s most egregious lawsuit abuses.

From here


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