Businesses Look at Litigation Climate and Leave the Mountain State
In May, Chesapeake Energy Corporation shocked West Virginians when it canceled its plans to build a $35 million, futuristic headquarters in Charleston. The company’s decision, it said, was predicated upon the decision of the state supreme court of appeals not to review a $405 million verdict—including $270 million in punitive damages—that had been levied against the company by a Roane County jury. A corporate spokesman called the court’s decision “stunning” and noted that it “sends a profoundly negative message about the business climate in the state.”
Chesapeake Energy was not the first business to be scared off by the legal culture of the Mountain State. In a survey of national business leaders conducted by the Harris polling group for the U.S. Chamber of Commerce’s Institute for Legal Reform, 64 percent said that a state’s litigation climate would affect decisions on where to locate a business; in each of the last three years, the executives surveyed ranked West Virginia’s litigation climate dead-last among the fifty states (see map graph). West Virginia is also perennially featured in the American Tort Reform Association’s annual Judicial Hellholes reports; the Hellholes reports look at a variety of problem regions, but they have spotlighted West Virginia, the only state singled out in its entirety.
West Virginia can ill afford to drive away business, for even as Trial Lawyers, Inc. profits mightily from the state’s legal system, the average West Virginian suffers. The state is the forty-ninth-poorest in the nation, and per-capita income in West Virginia is only two-thirds the national average. Moreover, its economy has grown at a slower rate than that of the United States as a whole in each of the last four years. Cleaning up the state’s trial-lawyer-friendly litigation environment is not in itself sufficient to reverse these trends, but sending a strong message to businesses that West Virginia is no longer hostile to new investment would help.
A POPULIST JUDICIARY REDISTRIBUTES WEALTH
At the root of lawsuit abuse in West Virginia is a populist, elected judiciary that looks to punish large businesses on behalf of local plaintiffs and plaintiffs’ attorneys. Ten years ago, former supreme court of appeals justice Richard Neely admitted, “As long as I am allowed to redistribute wealth from out-of-state companies to in-state plaintiffs, I shall continue to do so.” Little wonder that corporate executives rank West Virginia’s judges the least impartial in the country.
The amount of wealth redistributed by West Virginia’s courts is staggering. In addition to Chesapeake Energy’s mammoth adverse verdict in 2007, DuPont was on the losing end of the largest toxic tort judgment in the nation when a Harrison County jury slapped it with a $251 million verdict. Each of these verdicts was among the five largest in the country, according to The National Law Journal; and these two verdicts alone are equivalent to over 1 percent of West Virginia’s entire economic output.