The Best States to Sue a Company

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Published September 14, 2012

| 24/7 Wall St.

According to the in-house lawyers of America’s biggest companies, the court system is making things easier for them. The U.S. Chamber of Commerce’s Institute for Legal Reform (ILR), a lobbying group that represents the legal interests of businesses, asked attorneys working for major corporations to describe how fair the corporate legal systems are in each of the 50 states. Nearly 50% responded that court systems were favorable and reasonable, up from 44% in 2010.

This story was originally published by 24/7 Wall St.

The survey asked the general counsels of companies with revenues of $100 million or more to grade each state on 10 key areas of legal fairness in the court system. This included how the state treated class-action suits, damages that were awarded to plaintiffs and judges’ fairness or competence. Respondents were only allowed to grade states with which they were at least somewhat familiar. The overall scores nationwide have improved substantially in the past 10 years, but businesses still perceive many states as being extremely unfair and unreasonable toward corporations. These are the 10 states that companies rated as the least fair.

While the survey attempts to rank the overall fairness of the legal climate in each state, some believe the survey only identifies the states’ with legal systems that benefit corporations the most. “This is purely from the perspective of big business,” says J. G. Preston, press secretary for the Consumer Attorneys for California, whose members represent plaintiffs in civil cases against companies. “We don’t think it’s any way to evaluate the civil justice system. I say it’s like asking the players what they think of the referees.”

A review of the rankings shows that states with legal climates that are perceived as unreasonable for businesses tend to do poorly in everything they are evaluated in. The three worst states scored among the worst 10 in each of the categories the group measured.

Respondents were asked to rate the five districts nationwide they viewed as the worst for overall fairness. The places most commonly referenced were located in states that also scored poorly overall. Chicago/Cook County, Ill. was mentioned a survey-high 17% of the time, followed by Los Angeles, Calif. at 16%.

Michael Lepage, spokesman for the Institute for Legal Reform — the group that conducted the study — said while all of the areas evaluated for fairness are important, some are bigger issues for American corporations than others. In particular, the practice of “venue shopping,” or “forum shopping” by plaintiffs looking for the best jurisdiction to file suits was a problem in these 10 states.

In many cases, the group states, people will choose locations where they believe they are most likely to win trials and be awarded the most damages. In Philadelphia, Pa., for example, 47% of all the asbestos cases tried in the area were from out-of-state, and more than 80% of all pharmaceutical cases were from out of state. Other states with similarly high proportions of out-of-state suits include Texas and Illinois.

In addition to making class-action lawsuits easier to bring, Lepage indicated that jurisdictions in some states, like California and Florida, award much larger jury awards than others. In West Virginia, the state rated by respondents as the least fair for awarding damages to plaintiffs, the debate was reignited last year after a judge awarded more than $90 million to a resident whose mother died of dehydration in a nursing home.

Not surprisingly, the states that are often viewed as exceptionally favorable to business were rated very well in some of these key areas. Delaware, for example, which has ranked number one every year the study was conducted, received the best scores of any state for venue requirements, strict requirements on the admissibility of scientific evidence and impartial judges.

10. Florida
> 2012 score: 55.3
> Treatment of class-action suits: 9th worst
> Damages: 10th worst
> Admissibility of evidence: 9th worst
> Judges’ impartiality: 17th worst

In each of the past three surveys, Florida was rated as one of the 10 worst states by the lawyers surveyed by the Institute for Legal Reform. In this year’s survey, Florida has been rated the eighth-worst state for companies looking for the prompt dismissal of a case. Respondents were also dissatisfied with how the state’s legal system assessed damages, with 61% of respondents giving Florida a C grade or worse. In a statement, Lisa A. Rickard, president of the ILR, said, “Florida’s litigation climate can be attributed in large part to its notorious reputation for exorbitant jury awards.” Tom Donohue, president of the U.S. Chamber of Commerce, similarly described the state’s jury awards as “ridiculously high.”

9. Oklahoma
> 2012 score: 55.0
> Treatment of class-action suits: 11th worst
> Damages: 8th worst
> Admissibility of evidence: 10th worst
> Judges’ impartiality: 10th worst

The corporate attorneys who responded to the survey are not big fans of Oklahoma’s court rules regarding damages. Only 7% of respondents gave the state an A in this area, while 34% gave it a D or F. This comes despite Oklahoma enacting tort reform in 2011 that included a $350,000 cap on noneconomic damages in civil liability cases. In fact, the Tulsa World reported in July that malpractice judgments against defendants are at a 10-year low due to these policies. Lawyers gave the highest marks to the state for “having and enforcing meaningful venue requirement,” which measures factors such as how easy it is to bring in a case in a pro-plaintiff jurisdiction. Of the respondents, 46% gave the state an A or a B in that regard.

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8. Alabama
> 2012 score: 52.8
> Treatment of class-action suits: 8th worst
> Damages: 5th worst
> Admissibility of evidence: 8th worst
> Judges’ impartiality: 4th worst

Alabama’s corporate attorneys had numerous concerns about how litigation was handled in the state. In particular, respondents to the ILR survey were dissatisfied with how the state determined and enforced rules for filing and trying lawsuits within the state, with 55% of respondents giving Alabama a grade of C or worse. Respondents also disliked how the state assessed damages, with almost two-thirds providing a grade of C or lower, and 15% or respondents giving Alabama an F. Of all the measures, lawyers gave judicial impartiality the lowest score.

7. New Mexico
> 2012 score: 52.7
> Treatment of class-action suits: 6th worst
> Damages: 7th worst
> Admissibility of evidence: 6th worst
> Judges’ impartiality: 7th worst

Only 2% of respondents gave New Mexico an A for the overall state grade. Meanwhile, 45% gave the state a C, while 26% gave it either a D or an F. In terms of fairness in assessing damages, 15% gave the state an F and an additional 13% gave the state a D. The American Medical Association notes that the state has a $600,000 cap on total damages, excluding punitive damages and the cost of medical care. The state also received a low score for treatment of class-action suits, with 21% of respondents giving the state a grade of D or F. The issue of class-action suits made headlines in New Mexico in Oct. 2011 when state judge James Browning allowed a class-action suit against credit rating agencies to proceed. Similar attempts to file suits against the agencies regarding the claims they made on mortgage-backed securities previously failed.

6. Montana
> 2012 score: 52.2
> Treatment of class-action suits: 19th worst
> Damages: 9th worst
> Admissibility of evidence: 5th worst
> Judges’ impartiality: 5th worst

Corporate lawyers gave Montana’s legal system a big thumbs-down, as 13% of survey respondents gave the state an overall F rating, while just 6% rated the state an A. Reviews were even worse when attorneys were asked to give their opinion on how well tort and contract cases were handled — 20% of respondents gave the state an F, while just 7% were A ratings. Judges in the state were also rated poorly by attorneys, who ranked both the impartiality and competence of Montana judges as being inferior to all-but four other states.

5. Illinois
> 2012 score: 51.3
> Treatment of class-action suits: 4th worst
> Damages: 4th worst
> Admissibility of evidence: 15th worst
> Judges’ impartiality: 6th worst

Compared to other states, Illinois scored the worst for having and enforcing meaningful venue requirements, which can limit forum shopping, ranking second lowest in that category behind West Virginia. The American Tort Reform Association consistently labels both Madison County and St. Clair County as one of a handful of “judicial hellholes” because they host litigation that originates outside of the state. The group notes that the counties are magnets for both asbestos and pharmaceutical litigation. According to the ILR, Chicago/Cook County was considered the jurisdiction with the “least fair and reasonable litigation environment,” while Madison County was considered the sixth-worst jurisdiction.

4. California
> 2012 score: 50.6
> Treatment of class-action suits: the worst
> Damages: 2nd-worst
> Admissibility of evidence: 12th-worst
> Judges’ impartiality: 11th-worst

Regarding jurisdictions with legal environments that are the “least fair and reasonable,” 16% of corporate lawyers mentioned Los Angeles, 9% mentioned San Francisco, and another 9% mentioned California but did not specify a jurisdiction. In a video statement, Donohue contends that “Los Angeles is the worst city in America, from a legal perspective, to have a business … and San Francisco is not far behind.” Respondents especially disapproved of how the state treated class action lawsuits, giving it the worst rating nationwide. Additionally, respondents criticized how the state assessed damages, giving it the second-worst rating nationwide. In one particular case, according to the San Francisco Chronicle, Philip Morris was ordered in 2009 to pay $13.8 million in punitive damages for causing the addiction and death of a 45 year-old smoker. The second court of appeals in Los Angeles upheld the ruling in 2011.

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3. Mississippi
> 2012 score: 46.6
> Treatment of class action suits: 3rd-worst
> Damages: 6th-worst
> Admissibility of evidence: 3rd-worst
> Judges’ impartiality: 2nd-worst

Only 3% of the survey respondents gave the state an A for its handling of tort and contract litigation, while 35% of respondents gave the state a D or F. Respondents also showed concerns about the fairness of judges and juries in the state. The state was rated the worst in judge competence and jury fairness, with 14% and 17% of respondents giving it an F in both measures. The state was ranked the sixth-worst in terms of how it assesses damages, with 33% of respondents grading it a D or an F. Currently, the Fifth Circuit U.S. Court of Appeals is determining whether the a state law limiting noneconomic damages in civil cases to $1 million is constitutional.

2. Louisiana
> 2012 score: 46.5
> Treatment of class action suits: 2nd-worst
> Damages: 3rd-worst
> Admissibility of evidence: 2nd-worst
> Judges’ impartiality: 3rd-worst

According to Rickard, “despite recent positive developments, Louisiana is still notorious for excessive verdicts, loose class-certification standards, and an unfair judiciary.” These assertions correspond to how corporate lawyers feel about the state, which ranked third-worst among all states for how it assessed damages, second-worst to California for how it accepted and handled class action lawsuits, and third-worst for both judicial impartiality and competence. Further, for each of the 10 measures the ILR used to assess states’ legal systems, Louisiana was rated among the worst five states.

1. West Virginia
> 2012 score: 44.8
> Treatment of class action suits: 5th-worst
> Damages: the worst
> Admissibility of evidence: the worst
> Judges’ impartiality: the worst

A whopping 29% of respondents gave the state an F for how it assesses damages, while another 22% gave it a D, making West Virginia the worst state in that category. While the state has a $500,000 cap on noneconomic damages in cases where a plaintiff suffers serious medical harm, it is unclear whether it only applies to medical doctors and hospitals or if it can be defined more broadly. This debate was reopened after a family was awarded $91.5 million after an 87-year old woman living at a nursing home died from dehydration. The verdict included $11.5 million in compensatory damages. Respondents to the ILR also had deep misgivings about judge and jury fairness. The state ranked at the bottom in terms of judge impartiality, and second from the bottom in judge competence and jury fairness.

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