California’s Not-So-Golden Legal Climate

When people think of California, they often think of the Golden State’s world-leading industries, its incredible natural beauty and its optimistic, can-do spirit. Unfortunately, the state is also well-known for another, less positive feature: its poor legal climate for businesses.

For a decade now, my organization, the U.S. Chamber Institute for Legal Reform, has been measuring how businesses view the litigation climates in the fifty states. In the latest survey, conducted by Harris Interactive, a leading global, non-partisan polling firm, California’s legal climate is ranked 47th out of 50 states, a record low for the state. Only Mississippi, Louisiana and West Virginia ranked lower.

Why is California ranked so low? There are many possible reasons. First, the state has a number of laws and procedures that encourage questionable lawsuits. These include the state’s Unfair Competition Law, which allows lawsuits against businesses even when a plaintiff can’t demonstrate any injury or deception, and Proposition 65, a consumer protection statute that has led to lawsuits against parking lots (for failing to post warnings about automobile exhaust) and even businesses with painted walls (for failing to warn about chemicals in paint). Then there’s the state’s version of the Americans with Disabilities Act (ADA), which has led to thousands of drive-by lawsuits against small businesses that have nothing to do with improving access for the disabled and everything to do with making profits for plaintiffs’ lawyers.

California’s legal climate has been further weakened in recent years by massive court funding cuts. These cuts, totaling more than $650 million per year (with an additional several hundred million dollars in cuts currently proposed), have already caused the Los Angeles court system to announce the closing of 56 courtrooms and the elimination of court reporters for civil trials. Inevitably, court funding cuts will lead to litigation delays, hurting businesses that rely on the court system to resolve disputes in a fair and expeditious manner.

A bad legal climate matters to businesses. In fact, seventy percent of the corporate counsel surveyed for our state legal climate ranking said that a state’s legal climate was likely to impact important business decisions, such as deciding where to locate new facilities or expand operations. By having one of the worst legal climates in the country, California is discouraging the business investment needed to help grow its economy and reduce its double-digit unemployment rate.

Thankfully, California’s elected leaders can take meaningful actions to improve the state’s legal environment. Just last week, Governor Brown signed legislation to reduce the number of frivolous ADA lawsuits. This small step could be followed by other measures to discourage excessive litigation and limit court delays. And the dividend from legal reform could be significant: as much as $5 billion per year in reduced tort costs and 283, 000 new jobs according to NERA Economic Consulting. That would mark a truly golden improvement for the Golden State’s legal climate.

(Lisa A. Rickard is the President of the U.S. Chamber Institute for Legal Reform. Originally posted on Fox & Hounds.)