Location, Location, Location: The Best & Worst Legal Climates in America

by Steven Hantler on July 17, 2007

Given the economic costs imposed by today’s legal system (a staggering $865 billion per year according to one recent estimate), it’s surprising more companies don’t take into account a state’s liability climate when making critical decisions like where to open a new plant or invest in existing facilities.

A new report could help change that.

Risky Business: The Annual Boardroom Guide to Litigation in the 50 States provides the first ever ranking of state legal environments that combines economic science, real world corporate experience and input from state legal reform experts – people with the most current intelligence from the front lines.

It builds on a few landmark studies, including the American Tort Reform Association’s “Judicial Hellholes,” the Pacific Research Institute’s U.S. Tort Liability Index, and the Institute for Legal Reform/Harris Interactive survey.

So where are the soundest states – and where is the swampland?

Nebraska and Virginia top the list with the best legal climates. What do they have in common? Reasonable limits on punitive damages, a “rule of law” majority on the state Supreme Court, and Attorneys General who specialize in law enforcement, not grabbing the spotlight at the expense of businesses.

In stark contrast, West Virginia, Rhode Island and Florida round out the bottom of the list. All have activist Supreme Court majorities who consistently rule in favor of trial lawyers. West Virginia has a governor who supports legal reform – a reminder that having a pro-reform governor does not necessarily translate into a sound legal environment.

To see the full list go here.

Steve Hantler

{ 9 comments }

1 Steve Nowlan 07.17.07 at 10:29 am

One recent development overlooked by many Americans is that, because of recent European Union developments, it is less risky for American companies to do business in Europe – a market of 400 million people – than it is to do business in the U.S. where there are 50 different sets of liability laws. Europe is far less litigious and now with barriers dropped between countries, it is a far better legal environment than in the U.S. State officials seem to be worried about competing with other states for jobs and expansion, when they need to see the larger picture and realize that the U.S. is losing jobs and opportunities to Europe, India and China. Legal reform is not just about creating fair liability laws — it is about keeping the U.S. from becoming a second tier economy in ten years. I hope every state official reads your “Risky Business” article and reviews what can be done to keep jobs and innovation from moving offshore. One day we may wake up and realize that we are no longer leaders but followers.

2 Drew Drytellar 07.17.07 at 10:43 am

Word to the wise–I wouldn’t uncritically cite that $865 billion dollar figure. As was pointed out on this site (among many other places), you can’t measure the costs of the tort system to anything close to 3 digit accuracy. The true figure could be more, it could be less, or perhaps the measuring the dollar costs of the tort system is just beyond the abilities of “economic science” (is that distinct from economics, by the way?). Writing the rest of the post in the same preach-to-the-choir tone of a certain bizarro site doesn’t help matters either. Take it from someone generally sympathetic to reforming our legal system and leave the corporate talking points at the door.

3 randy 07.17.07 at 11:21 am

well at least the 3 worst states aren’t ones you’d really want to visit anyway.

florida — aka flori-DUH

west virginia — beyond redneck

rhode island — guido mobbed up gangstalang. pretty coast.

4 Patrick 07.17.07 at 1:31 pm

One has to doubt the intellectual honesty of these polls. The tort reform passed here in Mississippi in 2004 was dubbed by the Wall Street Journal to be the most comprehensive in the nation. Moreover in 2006 the US Tort Liability Index Report declared “Mississippi is first in frivolous-lawsuit reform, venue reform, and the standard for expert witnesses.”

Fast forward to today and the Harris Poll ranks Mississippi as 49th just ahead of West Virginia and just one spot ahead of the last place Mississippi held before the measures took hold. Mississippi has done more to limit its citizens access to the court system and yet it persists to be ranked near the bottom. Therefor the only conclusion that can be drawn from these polls is they are intellectually dishonest and do not rely on things called “facts.”

Moreover, one thing of interest I found in Steve Hantler’s report is Michigan is ranked 7th in judicial “fairness,” however, as we all know Michigan has suffered from numerous companies and corporations fleeing the state for elsewhere. The once mighty automobile manufacturing state is now known as part of the “rust belt.”

And where have these auto-manufacturing companies fled to? Well Nissan came to Mississippi before tort reform was passed (we were 50). Now Toyota is coming, we are 49. Mercedes and other auto manufacturers are located in Alabama which is 40. And I have never heard ANYONE say Florida does not have a booming economy (even though its based primarily on tourism not manufacturing). So the question I have for you is what benefits come from tort reform? Where a company chooses to do business has just as much to do if not more to do with land value, workforce education, TAX INCENTIVES, labor relations, population, highway access etc. The fact of the matter is Nebraska, North Dakota, Kansas and Utah are at the top of your “tort reform” list, but I have not heard of any major manufacturers clamoring to be located in those states. When if tort reform is everything shouldn’t they be?

5 Darren 07.17.07 at 3:55 pm

Patrick’s run-on comment implies that Steve Hantler is claiming that the ONLY factor companies consider when deciding where to invest or relocate is a state’s litigation climate. But as we all know, that factor is but one of several that business executives consider.

Certainly the overreaching of the United Auto Workers union and resulting legacy costs have had far more to do with the collapse of Michigan’s auto industry than anything else. Speaking of overreaching, factory shutdowns announced by the pharmaceutical industry there were driven by wild eyed liberal legislators in Lansing who tried earlier this year to reward their principal benefactors — the trial lawyers — with a repeal of an 11-year-old liability protection for drug makers.

And as for Nissan, Toyota and Mercedes moving into southern states that, by some measures, ranked or still rank high in tort liability, it’s quite possible these manufacturers were able to strike great deals for themselves with respect to taxes and land since so many other employers had fled those “judicial hellholes” previously.

Patrick’s correct in suggesting that no two states or counties are exactly alike when it comes to the variety of factors he mentions. But I’d bet my right arm that if he assembled a cross section of American business executives — from large companies and small — and asked them hypothetically, “If all other factors were equal, would you be more likely to invest in a high-litigation jurisdiction or a low-litigation jurisdiction?,” every single one of them would choose the low-litigation jurisdiction without hesitation.

Regardless of how you measure it or whose study you favor over others, the commonsense bottom line is this: Frivolous and abusive lawsuits are bad for our economy. And that, I believe, is Hantler’s basic point.

6 Lawrence J. McQuillan 07.17.07 at 7:01 pm

Our measure in “Jackpot Justice” of the total cost of the U.S. tort liability system is best thought of as the lower bound of a range.

Our cost calculations rely on the best available scholarly studies by top economists and legal scholars — 34 studies by 52 authors to be precise. When selecting which study to rely on, our first choice was to base our calculations on statistically significant results in the most prestigious academic publications. We gave preference to more recent studies over older studies whenever possible, since recent studies tend to use more up-to-date data and more advanced statistical techniques.

Whenever we were faced with two or more equally plausible assumptions, we always based our calculations on the most conservative assumption that would yield the lowest number. Thus, our estimate is best thought of as the lower bound of a range, and was purposely constructed in this manner to provide a very conservative estimate of the total cost of the U.S. tort liability system.

Lawrence J. McQuillan, Ph.D.
Co-author of “Jackpot Justice”
Pacific Research Institute
San Francisco, California

7 R.P. Rush 07.17.07 at 8:11 pm

Ride Straight On Mr. Hantler! Until we take the “Bullseye” off the back of the American business community, and cleanse our Legal System of unethical jackals who abuse Justice we will all pay the price.
RPR

8 Ted 07.18.07 at 8:17 am

Let’s grant the self-evident point that tax incentives have a large effect in location decisions. (Also a big factor, relevant to Overlawyered, but not to the civil justice study in question or yet mentioned in the comments: the presence or absence of “right-to-work” laws.) I doubt Mr. Hantler disagrees.

Wouldn’t it be cheaper for taxpayers in a state to offer a fair legal system than a relatively unfair legal system that raises costs so much that a state has to bribe companies to compensate for the difference?

Given the problems that beset Michigan, including a deeply dysfunctional urban environment and the absence of right-to-work laws imagine how much worse off the state would be if it also had West Virginia-esque courts.

The proposed repeal in Michigan was not just a proposed repeal, but a proposed *retroactive* repeal, a real disaster for the rule of law. One doesn’t have to be a pharmaceutical company to be afraid when a legislature announces a Venezuelan intent to expropriate like that.

9 Bob DJ 07.19.07 at 7:43 am

Steve Hantler deserves kudos for encouraging businesses to focus on how their state’s liability climates affect their company’s bottom line. While most job providers have been busy tending to business, the personal injury lawyers have been busy gaming the civil justice system to their advantage. His weighted index that incorporates the various rankings is very useful because it reveals where job providers need to become more engaged in legal reform – and more engaged in the political process – for the legal climate to improve. It also shows how quickly things can change if a key election for a state supreme court seat or attorney general post is ignored.

The business owner in Oklahoma who has just made the painful decision to settle her third frivolous lawsuit so she can cut her legal losses needs to know how other states are doing a better job of stopping this extortion. Knowing what other states are doing is often the first step toward getting meaningful reform at home.

State lawmakers also need to hear about these rankings when they are debating tort reform bills. They can certainly expect to see these rankings again in campaign ads and brochures if they vote to make it easier to sue. How can a state representative in Michigan, a state that is bleeding jobs, vote to erode the one competitive advantage the state has – its favorable liability climate – by making it easier to sue pharmaceutical companies who provide the very kind of jobs the state needs? Where is the sense in that?

These rankings provide a mechanism for holding people accountable!

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