Author: Tom Scott

For the past few weeks, a Los Angeles class action
law firm has been advertising for a Government Affairs Director. Now I know you
are wondering, why would we care, but personally, I thought it was a little
funny – a class action law firm looking for a government affairs director with
3-10 years of experience. And I might add that they are paying this position
$70,000 – $110,000 a year. Not bad. I even thought about applying…. kidding.

On one level I guess we should be thrilled that
someone is actually hiring people in California. But seriously, there has not
been any class action reform in this state for years. More than four class
actions are filed every day that California superior courts are in session,
according to the Civil Justice
Association of California. Not a day goes by, it seems, that there
isn’t another class action notice in the mail telling you that you will receive
a free DVD rental while the lawyers will get millions.

On June 7th, 2010 I
blogged about the California Commission on Disability Access (CCDA) and SB 1608,
noting how CALA felt that little or nothing was happening since the Commission
was created back in the fall of 2008 by then-Governor Arnold Schwarzenegger.

Well, I wish I could
report to you that the Commission is meeting regularly and that ADA lawsuits
against small businesses have vanished and there is peace in the valley. Sadly,
that is not the case. Nearly three years have passed since SB 1608 was signed
on September 28th, 2008 and little or nothing has been done.

As I write, the CCDA
has yet to even hire an Executive Officer. They had offered the position to an
individual, but it did not work out. So they had to go back to the drawing
board, but should be announcing something shortly. So at least after nearly
three years the Commission will have its own staff.  Since 2008, it has
had to use the Building Standards Commission staff.

I wish the title were an exaggeration, but sadly, it is not. On May 3rd, CEO Magazine came out with its annual survey of 550 business leaders asking about the best and worst states for doing business. The survey looked at a wide range of issues that included taxation, regulation, workforce quality and living environment. California came in dead last. The bottom five also included Michigan, New Jersey, Illinois and New York. What is interesting is that these are powerhouse states, with large populations and large employment bases. With all due respect, we are not talking about West Virginia or New Mexico (though they did not rank that high, either).

I spoke to the writer for the survey, J.P. Conlon, and asked whether they focused on litigation climate as one of the issues. He told me they did not, but that you could interpret areas like regulation and workforce quality and living environment as areas affected by litigation.

Trial lawyers are always looking for targets. Whether it is ADA, wage and hour, Proposition 65 or class actions, they always seem to find an avenue for profit. One of those avenues has been nursing homes. The care of seniors is a critical function in our society and in these economic times it is becoming an even bigger issue. People are living longer and healthcare costs are constantly a challenge to American families.

A recent study found that high quality nursing homes get sued almost as often as low quality nursing homes, illustrating that litigation, or the threat of litigation, does not actually lead to improvements in patient care. Personal injury lawyers are constantly arguing that these lawsuits are necessary in order to deter bad patient care and promote better care. Well, this study suggests that this is not the case. The only thing these lawsuits are doing is adding to the cost of housing and caring for the elderly.

A recent class action in California saw a $671 million jury verdict against a nursing home (not including punitive damages) – even though the nursing home had never received a single complaint against it. Proof of harm was not necessary for the lawsuit. Thankfully, the verdict was later reduced to $62.8 million, but if the original verdict had stuck this company would have been forced to file for bankruptcy.

Apparently you can’t. So far this year the Assembly Judiciary Committee has blown bills containing legal reform out of the water like sitting ducks. I’m not sure what it will take for the Legislature to embrace legal reform, but the evidence that lawsuit abuse is costing California jobs is mounting.

This past Sunday in The Sacramento Bee, Andrew Puzder, CEO of CKE Restaurants headquartered in Carpenteria wrote anop-ed about what California has to do to add jobs and make this state prosper once again. He laid out the question of whether California is a smart place to expand your business considering the tax, regulatory and legal climates or if it is smarter to just head to Texas. If you have not read it, you should. It should be required reading, especially for our Legislators on the Judiciary Committee.

What was more surprising is that he said in the 10 years he has been a CEO, he has never received a call from one of California’s Governors. It seems like the only time he spoke to a Governor was when Governor Perry of Texas called him to thank him for expanding the number of restaurants in his state. The Governor also asked what it would take to move CKE’s headquarters to Texas.

CALA would like to applaud Assemblymember Cathleen Galgiani (D-17) for being a part of the recent delegation that went to Texas to hear from businesses and other officials about ways to encourage job creation. The delegation was led byAssemblymember Dan Logue (R-3) and included nine other lawmakers plus Lt. Governor Gavin Newsom. Texas has added 165,000 jobs over the past three years while CA has lost 1.2 million, so it is good that a group of decision makers hit the road to find out what the problem is with California and what can be done.

Recently, the California Attorney General’s Office posted the summary of all settlements of Proposition 65 cases for 2010. Under Prop 65, any person suing "in the public interest" must notify the Attorney General of the lawsuit and the outcome of the case. This summary of private settlements lists all cases brought by private plaintiffs over the past year. The data shows the total penalties, attorney fees and all other funds collected.

Well, it seems that a few eager attorneys have found quite a revenue stream in filing lawsuits against businesses that might have violated some portion of Proposition 65. Most are related to warning signs if the business is using a particular chemical listed in Proposition 65.

The 2010 private settlements once again show an interesting trend. There were 187 settlements in 2010 totaling roughly $13.6 million dollars. Of that money, approximately $7.8 million went to attorneys’ fees. This is roughly 57% going to the lawyers. The remaining amounts either went to civil penalties or other distributions. Most of the time only a small portion went to support an environmental cause. This distribution of fees is surely not what Californians intended when they passed the initiative in 1986.

Recently, Steven Greenhut of Cal Watch Dog wrote in the Orange County Register on why Carl’s Jr.’s parent company, CKE, is likely going to move its headquarters from Carpenteria to Texas. It was a fascinating insight into what companies are seeing in the business climate of California and why they do not feel this state is business friendly. The article came from a speech CKE CEO Andrew Puzder gave to the California Chamber of Commerce recently.

In the speech Puzder stated that it costs CKE Restaurants $250,000 more to build a restaurant in California than one in Texas, and that once a restaurant is built in California, the labor laws are incredibly restrictive. For example, California’s rigid work rules classify managers as regular employees. They are mandated to work a maximum of eight hours a day and take breaks at specific times of their shift. So when a busload of tourists comes into a CKE restaurant, if the manager is on a break, he or she must sit there and do nothing, rather than do their job.

I do not think anyone will disagree that California has been experiencing a pretty bad run for the pass few years and it looks like it will continue into 2013. Unless there are major changes, we’ll have deficits hovering at over $25 billion and unemployment at slightly above12% (nearly 20% in the Central Valley) for the next few years at least. Not suprisignly, there’s not a lot of confidence in the Legislature, so why is it that California’s legislators continue to encourage lawsuits that hurt job creation and business growth? California is one of the most litigious states in the country. More than 1.2 million civil lawsuits were filed in this state just last year.

No matter where you look- from our courts to our state legislature to the office of our attorney general – California chooses to create obstacles for employers and small businesses owners by encouraging more lawsuits. Other states like Nevada and Arizona are adopting policies that make their business climates more attractive. Abusive and predatory lawsuits are seriously impacting or forcing businesses out of this state.