Trial Lawyers Inc. California: A Report on the Lawsuit Industry in California

In September 2003, the Manhattan Institute’s Center for Legal Policy released Trial Lawyers, Inc.: A Report on the Lawsuit Industry in America. Structured as an annual report, Trial Lawyers, Inc. was our attempt to shed light on the size, scope, and inner workings of the litigation industry.

The report found that the plaintiffs’ bar had developed an increasingly sophisticated business model and was taking for itself an increasingly large share of national income. Beginning with asbestos litigation and exploding after the multistate tobacco litigation, trial lawyers’ fees were skyrocketing, with leading plaintiffs’ attorneys raking in as much as a billion dollars, at exorbitant rates as high as $30,000 per hour. Viewed in the aggregate as a single business, Trial Lawyers, Inc. was among the most profitable businesses in the world, and its lobbying influence was unparalleled. Given the trial bar’s unique access to the government’s monopoly on the use of force—unlike normal businesses, Trial Lawyers, Inc. reaps its profts from unwilling customers—the litigation industry’s growth and sophistication seemed deeply troubling.

A year and a half later, we find our concerns validated by subsequent events. The “tort tax,” or share of the American economy consumed by tort litigation, has continued to grow faster than the overall economy. Trial Lawyers, Inc.’s revenues have risen to a staggering $46 billion.[1] Over the past three years for which data are available, the litigation industry’s revenues grew by 11.1 percent annually, as compared with 3.9 percent growth in gross domestic product, 2.22 percent growth in in.ation, and a 5.6 percent annual decline in the stock market.[2]

But American tort law is not uniform throughout the 50 states, so that any efforts to reform the civil justice system must come at the state as well as the national level. Since releasing the original Trial Lawyers, Inc., the Manhattan Institute has hosted events in a number of states. Some of these had strong tort-reform records, such as Colorado; others, like Georgia and Oklahoma, were considering comprehensive reforms.

We came to discover that there was a strong appetite not only for the national profile we painted in Trial Lawyers, Inc. but also for more comprehensive analyses of the situation in specific states. Trial Lawyers, Inc.: California is our first look at how the litigation industry operates on the state level. California is a logical starting place for such an endeavor: with a gross state product of over $1.4 trillion, California would easily be a member of the G-7 industrialized nations as a standalone economy, and the state has far more lawyers than any industrialized nation other than the U.S. as a whole (see graph on page 3).[3]

In the late 1980s, a combination of legal rulings, legislative enactments, and a sharp drop in auto accidents led to a decline in tort filings in California, but in each of the last four recorded years, nonmotor - vehicle tort filings have risen.[4] Jury awards have been growing dramatically in the state: from 1996 to 2001, the average jury award in large California counties increased 144 percent, to a staggering $1.5 million.[5] Trial Lawyers, Inc. now has a firm and tightening grip on the state and its resources. The plaintiffs’ bar in California has tremendous influence over the state legislature and has been able to manipulate Sacramento politics to facilitate its “bounty hunter” tactics. The state’s courts have abetted these efforts, allowing California attorneys to collect fees even in losing cases. Little wonder that surveyed executives have ranked California among the seven worst states for litigation in each of the last four years.[6]

Trial Lawyers, Inc. has carved out profitable niches for itself in California:

• Suits over alleged construction defects have kept housing starts below the level needed to sustain the state’s growing population—including the near-extinction of the California condo;
• Employment lawsuits make the state one of the riskiest places for companies to hire new workers; and
• Securities class action lawsuits aggressively target the state’s core high-technology businesses.

Each of these profit centers for Trial Lawyers, Inc. drives businesses and jobs from the state. This report will examine these and other business lines in more detail.

Although the prospects for change in the entrenched California legislature seem slim, a number of positive developments give thestate’s residents some hope. First, Governor Schwarzenegger has been a strong proponent of legal reform. Among his initial legislative triumphs was a badly needed overhaul of the state workers’ compensation program.

Moreover, in the most recent election, California voters themselves pushed back against the power of Trial Lawyers, Inc. through their referendum process by overwhelmingly passing Proposition 64. That initiative amends California’s notorious “shakedown” statute—section 17200 of the state’s civil code—to prevent lawyers from bringing claims without showing actual harm to their clients.

Finally, in medical malpractice liability, California has been a national tort reform leader. The state’s MICRA legislation, passed in the mid-1970s, has kept the growth rate in malpractice payouts and premiums to less than one-third the national average.

Despite these advances, California remains a trouble spot for lawsuit abuse, and much more work remains. We hope that you find Trial Lawyers, Inc.: California to be a useful resource in understanding the operations of the litigation industry in our nation’s most populous state.

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