The States of Liability

Monday, September 28, 2015 - 15:47

We admit to being suckers for rankings of all stripes. That very much includes the “Lawsuit Climate Survey” released in September, with much fanfare, by the U.S. Chamber Institute for Legal Reform (ILR).

Now in its 10th edition, the survey attempts to chart the “fairness and reasonableness” of state liability systems. While it’s easy to snipe at it, and spin it this way and that, it is an enthralling production in both substance and style. We can muck around endlessly in its interactive infographics, and we always find something surprising to drill into. Are we guilty of shiny-object syndrome? So sue us.

Like most citizens, we rubberneck the headlines, cluck at the lawsuit hellholes – West Virginia, Louisiana, Illinois, California – and drive on. It’s lawsuit reform as sportscasting. Indeed, the Chamber itself winks at the whole thing with its parody of ESPN’s SportsCenter in a YouTube video accompanying the release of the survey. Coach Smith, correspondent for “States Center,” breathlessly breaks down the numbers for civil justice fans.

“I’m really concerned about states like Illinois, California and Louisiana,” he shouts at the camera. “These state have dropped in the rankings. That’s going to penalize job creation and block ‘em from growing the economy.”

It’s pretty funny.

The lawsuit climate survey has morphed over the years. Earlier versions were highly anecdotal, while the 10th edition, conducted by Harris Poll, is based on extensive interviews with a national sample of 1,203 GCs, senior litigators/attorneys, and other senior executives knowledgeable about litigation at companies with annual revenues of at least $100 million. The survey seems to be getting more empirical, though numerous weaknesses are noted in the methodology. To give just one example, the survey ranks entire states, which, as any litigator knows, are not of one piece. The lawsuit climate is decidedly local, and that has to be considered as one examines the rankings.

Still, the takeaways are interesting. Let’s get the hellholes out of the way first. Coach Smith, in keeping with the traditions of his profession, exaggerates a wee bit. He calls out California, Illinois and Louisiana for dropping in the rankings, but all three have been consistent cellar dwellers. Between 2010 and 2015, they all ranked in the bottom five of business-friendly environments, with California dropping one spot (#46 to #47) Illinois dropping three spots (#45 to #48) and Louisiana holding steady at #49, right above the hottest of the hellholes, West Virginia (#50).

Breaking it down, as Coach Smith would say, California is weak on damages and class actions; Illinois, also weak on class actions, gets killed on venue requirements; and Louisiana hits the judicial trifecta with the worst score on impartiality, competence and fairness. Ouch!

It’s worth noting that West Virginia, which year in and year out ranks at the bottom of the civil justice barrel, scores worst in three areas: overall treatment of tort/contract litigation, discovery and scientific/technical evidence. 

Even more interesting are the extra crispy pockets within the hellholes. Harris gets at this by asking which city or county courts have the least fair and reasonable litigation environment for both defendants and plaintiffs. The runaway winner is (drumroll please): East Texas. It’s followed by Chicago/Cook County, Los Angeles, Madison County (Illinois), and New Orleans/Orleans. These are the venues where, if you run a railroad, you start ripping up the tracks.

Why do senior litigators fear and loathe certain jurisdictions? Fully 25 percent say the #1 reason, by a wide margin, is biased judges and juries. A distant second and third, fully in keeping with the overall theme, are corrupt/unfair systems and poor quality of judges/juries.

Before climbing out from the bottom of the barrel, let’s give a shout-out to those states that have made progress in recent years. There’s Mississippi, which has edged up from #48 to #43, and South Carolina, which made it out of the bottom 10 with a seven-spot move from #43 to #36. While not moving up from such a dismal starting point, Wyoming (#23 to #8) and Idaho (#26 to #6) made some of the strongest upward moves of all to break from the pack and into the Top 10.

Before turning to the top performers, let’s pause to consider why this all matters. According to ILR, it matters because senior litigators say it matters. Three out of four of those surveyed say a state’s litigation environment is likely to have an impact on important decisions such as where to locate or where to do business. That’s up from two out of three who said the same thing in 2010.

What about the states perceived as having sunnier lawsuit climates than the dank hellholes? The overall news is positive. Just take a look at the trend lines on this page. They show that in the early days of the survey (2002-03), the gap between those who ranked the fairness and reasonableness of state court systems as excellent/pretty good (30 percent) and those who ranked them fair/poor (70 percent) was huge. Indeed, to many it seemed unbridgeable.  

Cut to 2007-08, when the lines are getting closer as the gap shrinks from 40 points to 20 points, thought it still tilts heavily negative. Now, we have the new survey, and, incredibly, the lines have converged. “[T]he overall average scores of the states are increasing,” ILR says, “and senior attorneys see the litigation environment improving generally.”

Let's look at the top of the leaderboard. We have perennial powerhouse Delaware at #1, followed by the N.Y. Mets of the list, Vermont, which soared from #25 in 2010 to #2 today. (Here’s the headline: “Socialism Drives Business-Friendly Lawsuit Environment.”)

Rounding out the Top 10 are: Nebraska, which has been #2 or #3 since 2003; Iowa, a fairly consistent Top 5 finisher; New Hampshire, which jumped from #21 to crack the Top 5; Idaho (#6) and North Carolina (#7), each of which has moved up strongly to settle into the Top 10; Wyoming, which backslid five spots to #8; South Dakota, which finally broke into the Top 10 after years flirting with it; and Utah, which is a steady Top 10 performer.

Focusing on the 10 key elements driving the rankings, Delaware is #1 in fully six areas (overall treatment of tort/contract litigation, venue requirements, class actions, damages, timeliness of summary judgment/early dismissal, and judges’ competence), and #2 in four others. Vermont takes the top spot in three areas (discovery, scientific/technical evidence, and judges’ impartiality), and Nebraska owns the top slot in juror fairness.

Clearly, many states are making progress, as are the states collectively. But with 50 percent of those weighing in still unhappy, there remains plenty of work to be done. At the top of the to-do list is eliminating unnecessary lawsuits, named by twice as many of those polled as any other item.

What’s the conclusion? While overall average scores are improving, senior lawyers at big companies continue to harbor mixed perceptions about the fairness and reasonableness of state civil liability systems.

“Clearly,” ILR concludes, “corporate counsel see specific areas for improvement in the individual states, and the perceptions of senior lawyers and executives in large companies matter.”