Senator Tom Harman
October 9, 2009

Legal Shakedown is Back

By Senator Tom Harman

Reprinted and/or posted with the permission of Daily Journal Corp. (2009)

In California some 1.4 million lawsuits are filed each year. Businesses and local governments are many times the targets in these suits and one thing is certain, they ultimately cost all of us a lot of money. 

A recent Wall Street Journal piece poked fun at an Oklahoma attorney who sent out an alert warning his fellow plaintiff attorneys to file their lawsuits quickly – before newly passed tort reforms limiting awards and discouraging baseless lawsuits go into affect.  Unlike in California, the legislatures in Okalahoma and its neighboring state, Texas, have taken action to nix the frivolous lawsuits that cost businesses and the government a small fortune to fight, which only serve to make a handful of attorneys rich.

Consumers injured or harmed by the errant actions, either intentional or unintentional, of business should have every legal right to make their claim in court.  And proven in err, businesses should make those consumers whole.  What is not right, however, are greedy lawyers shopping for large class action lawsuits merely to pad their own pockets or bolster their own images rather than righting a wrong done to an individual or class of people.  Typically, the only winners in these cases are the lawyers – who pocket large fees - while the injured consumers end up with a $10 gift certificate or a free lipstick.

These types of lawsuits are many times frivolous and cost businesses millions of dollars just to defend.  Those costs are passed onto consumers either through increased prices, lost jobs or shuttered business - none of which California can afford right now.

California voters wisely recognized the inequity of these shakedown lawsuits when they passed Proposition 64 in 2004, which effectively limited class action lawsuits in California to only those actions where plaintiffs have actually experienced harm at the hands of the defendant. 

Sadly, a decision earlier this year by the California Supreme Court in the In re Tobacco II Cases, may have turned back the clock.  The Supreme Court ruled that plaintiffs who have not suffered injury may band together with thousands of other uninjured class members to seek money damages and injunctive relief from a defendant, provided they can find just one plaintiff who actually was injured to serve as the named class plaintiff.

While it is not the state Supreme Court’s job to assess the impact of its decision on the economy, returning to the era of businesses spending millions of dollars fighting frivolous lawsuits is not something California can afford.  The state’s economy is teetering on the brink of collapse.  The record unemployment rate and devastating fiscal crisis facing the state are all tied to the health of our business community.  Most experts agree that California’s economic crisis has resulted from the fall in personal income tax revenues – which loss of employment surely impacts.

While policy-makers are wringing their hands trying to fund thousands of state-run programs, there appears to be a disconnect between how actions, such as this Supreme Court ruling, impact the job market - which in turn effects the state’s coffers.  The Supreme Court’s ruling is highly likely to drive even more jobs out of California and fill already overcrowded court dockets with huge class action lawsuits based on the sometimes questionable impact a business may have had on one person. 

Money hungry lawyers will be trolling for would-be clients.  Enterprising attorneys will turn a single claim into a class action lawsuit brought on behalf of thousands of phantom clients in order to up the possible damage award, or, even better for the attorney, force businesses into a costly settlement just to avoid the expense of trial.

In 2004, California voters made their position clear - greedy, profit driven lawsuits had to stop.  They wisely saw that, for the most part, the never ending cycle of class action suits provided little financial relief to the injured as the attorneys received the lion’s share of any judgment. 

Voters, instead, wanted to see a system where only the injured parties were part of a lawsuit and if they prevailed, would actually receive reasonable compensation.  It was time for the unnecessary shakedown of business by insatiably greedy lawyers to end. 

According to Citizens Against Lawsuit Abuse, 81 percent of southern Californians now believe California’s economy is damaged by the number of lawsuits filed against businesses.  Sixty-three percent believe lawsuit reforms will help keep businesses in the state; and the vast majority of southern Californians –61 percent – would now support a candidate who favors legal reform over those who do not. 

California already ranks among the least business friendly locations in the country.  The net effect of reverting back to the days of big class action suits just cements this ignominious position and exacerbates our joblessness and budget problems, leaving us with only one “growth industry” – lawyers.