State Litigation Guide

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Commentators taking note of the recent felony convictions of several high-profile plaintiffs’ lawyers, including Bill Lerach and Melvyn Weiss, have declared that the tort reform battle is over and the corporate defenders have won. Nothing could be further from the truth. While a few big guys may be cooling their heels in jail, it’s still not safe to tread in America’s litigation waters.

Even states considered to have favorable litigation climates might not stay that way. In fact, 10 of the 18 states in this year’s Boardroom Guide to State Litigation Climates that have liability climates conducive to growth and job creation are also identified as “atrisk” states. In other words, the liability climates in these states are trending downward, while tort costs continue to rise.

The Guide is a collaboration of Directorship and the American Justice Partnership (AJP), a coalition of more than 70 state and national organizations that work together to achieve tort and other business liability reform at the state level through legislative action and public support for pro-reform candidates for state office.

Why the mobilization? Trial Lawyers Inc. has created nearly a trillion-dollar tort industry. If America’s tort system was a country and tort awards were its gross domestic product, our tort system would be the 17th largest economy. The total direct and indirect costs of our tort system are $865 billion annually; Australia’s GDP is only $24 billion more than this.

Then there’s the danger of the “litigation trifecta.” The first stage was asbestos lawsuits, the longest running mass-tort category in history. The second stage was the $265-billion national tobacco settlement between states and tobacco companies. The R&D arm of Trial Lawyers Inc. hopes to cash in on the third stage of the trifecta: global climate-change litigation. If the plaintiffs’ lawyers hit the “litigation trifecta,” U.S. tort costs could soon exceed Russia’s GDP of $1.2 trillion.

One of the first of these lawsuits was recently filed in Alaska by an Eskimo village against 24 defendants representing most of the major global and U.S. energy companies. (See related story: “The Coming Global-Warming Litigation Onslaught.")

To make matters worse, the American Tort Reform Association, an AJP partner, reports a surge in anti-business and pro-plaintiff legislation being introduced in most states in the country. The AJP has mobilized in key states to defeat these legislative proposals, but in view of changes in the composition of state legislatures as a result of the 2006 elections, some of this legislation will almost certainly pass.

A number of states have made improvements and now have litigation climates that favor growth and job creation since this Guide was first presented last year. They include Tennessee, which topped our list this year, as well as Alaska, Oklahoma, and South Carolina. Yet other states slipped over the past year, meaning that their litigation climates have worsened. Nebraska dropped from first to seventh, while Colorado, Kansas, and Washington also fell in this year’s rankings.

With these states slipping back, as well as other factors like the looming possibility of climate-change litigation that could dwarf the tobacco settlement, opponents declaring victory over the plaintiffs’ bar are wrong. Worse, the false perception of victory and a softening economy have caused cutbacks in corporate funding for tort reform, according to many reform advocates. Such cutbacks will only slow the pace of advancement on reform.

Directors, CEOs, and general counsel take heed: the tort liability climate remains unpredictable. Don’t assume a few bright spots mean all is well: In many states, there’s stormy weather ahead.

1. TENNESSEE

Moving up from 11th place in last year’s rankings, Tennessee is now the top-ranked state. Pacific Research Institute’s 2008 report listed Tennessee as the state with the lowest litigation risks in the country. While the state’s liability climate encourages growth and job creation, it’s also a state to watch because its tort laws do not place limits on non-economic and punitive damages and there are some plaintiff-friendly venues in Tennessee. The state Supreme Court is considered neutral on liability issues.