With a legislature that is seemingly run by and for personal injury lawyers and a wildly permissive judiciary, California remains ignominiously atop the Judicial Hellholes list for a second consecutive year. The once-Golden State continues to be a breeding ground for consumer class actions, disability-access lawsuits and asbestos claims, while also serving as something of a last-stand for a stubborn nuisance of a liability theory. Understandably then, Chief Executive magazine’s annual survey of the nation’s CEOs, the 2013 Best and Worst States for Business, ranked California at the very bottom. Not surprisingly, the state’s unemployment rate is one of the nation’s highest
(8.7% in October 2013) as businesses flee high taxes, stifling regulation and unsurpassed litigiousness. As Tom Scott, executive director of California Citizens Against Lawsuit Abuse, wrote in an online column, though California’s litigation climate may not have been the only issue on the minds of CEOs when they responded to the survey, “The legal climate is as critical to whether a business stays in a state or relocates” because “a single abusive lawsuit can cost a company tremendously.”
California’s addiction to lawsuits claims average residents as victims, too. The litigation system there effectively imposed a $33.5 billion hidden tax – or $883 per resident – just for the costs of lawsuits settled thus far in 2013, reported Orange County Register columnist Joseph Perkins. “Most California residents are blissfully unaware of the tremendous toll lawsuit abuse has on the state,” he observed.
Perkins pins California’s poor reputation, in part, on former class-action kingpin Bill Lerach, whose seaside La Jolla Farms mansion and revoked bar membership are testimony to both the profitability and unscrupulousness of California’s lawsuit industry. Lerach shows no remorse after pleading guilty for his role in concealing lucrative kickbacks that his former law firm gave to individuals for serving as on-call plaintiffs in its storied securities litigation racket. He told the Wall Street Journal, “I’m proud of the work we did,” even after he was disbarred, sentenced to two years in prison, and ordered to pay an $8 million penalty.
‘FOOD COURT’ ATTRACTS PREPOSTEROUS CLASS ACTIONS
Over the past two years, plaintiffs’ lawyers aspiring to their own seaside mansions have filed a surge of consumer class actions targeting what they have labeled as “Big Food.” Some of these claims are brought by veterans of lawsuits against the tobacco industry who are looking for the next deep pocket to sue. About a dozen plaintiffs’ law firms have taken to the courts with gusto, filing about 75 class action lawsuits between them in the past few years. By one count, which includes filings from additional firms, more than 100 consumer class actions were filed against food makers in 2012 alone, five times the number filed four years earlier. Rarely has there been a week in 2013 without a report of another class action filed against a food maker. In some instances, the lawyers bringing the cases do not even bother to find new clients – they recycle the same individuals as lead plaintiffs, over and over again, in lawsuits involving different manufacturers and products.
California is the epicenter of this litigation due to its plaintiff-friendly consumer laws, large population, and the U.S. District Court for the Northern District of California’s growing reputation for receptivity to such claims. Some also point to the federal Ninth Circuit Court of Appeals’ willingness both to uphold questionable class certifications and be quite lenient when it comes to requiring consumers to show they actually relied on allegedly misleading conduct when deciding to purchase a given product. The Northern District of California, located in San Francisco, has earned the derisive moniker of “the food court,” since it hosts more food-marketing and food- labeling lawsuits than any other federal court.
Arnold & Porter’s Angel Garganta says defense of food clients now represents the overwhelming majority of his practice. “I call it greener pastures,” he says. “The asbestos litigation has pretty much dried up (in San Francisco). Tobacco – the global settlement is done. Securities class actions are not what they used to be.” So “[t]he plaintiffs’ bar has just been looking around for other targets.”
California consumer protection laws are loosely written so as to provide judges with the latitude to adjudicate and regulate from the bench as they see fit. Opportunistic plaintiffs’ attorneys have taken advantage of these broad laws to challenge advertising terms for which there is no government-approved definition, such as ingredients that qualify as “all natural.” They often seek damages for minor technical violations of labeling regulations, too, such as the font size used. This litigation only serves to make plaintiffs’ lawyers richer while it actually hurts consumers – especially disad- vantaged consumers – as litigation costs are invariably passed on to them in the form of higher food prices.
For example, plaintiffs’ lawyers filed several cases over the past 15 months against companies like Chobani, Trader Joe’s and WhiteWave, which sells Horizon Organic dairy products and Silk brand products. These lawsuits claim that the companies use the term “evaporated cane juice” instead of “dried sugar cane syrup” or “sugar” to make consumers believe that there is no sugar in their product. As pointed out by WhiteWave, “evaporated cane juice was not controversial until this recent tsunami of lawsuits was filed.” An average consumer should not be surprised that cane means sugar.
Such lawsuits have resulted in varied outcomes in the Northern District, as plaintiffs’ lawyers look for the “sweet spot” in drafting their complaints to resonate with the court. Judges recently dismissed one cane juice lawsuit entirely, allowed another to continue intact, and narrowed the scope of two others. These rulings are illustrative of how other food lawsuits have fared in California federal courts. This unpredictability does not spur confidence in the civil justice system.
DESPITE SO-CALLED REFORM, DISABILITY-ACCESS LAWSUITS CONTINUE
Abusive lawsuits brought ostensibly to enforce technical standards of the Americans with Disabilities Act (ADA) in California reached an all-time high in 2012, making small business owners feel as though they have targets on their backs. In response to the crisis, Sacramento lawmakers enacted S.B. 1186 in September of 2012. Unfortunately, prior to final passage, the bill was stripped of a key provision requiring an attorney to notify a business owner of a violation at least 30 days prior to filing a claim so as to provide the business an opportunity to address the issue. California Citizens Against Lawsuit Abuse called the compromise measure the “most serious attempt at ADA litiga- tion reform to ever come out of the Legislature,” but added that it “does not go as far as we would have preferred.”
The most virulently active of California’s ADA plaintiffs have not been deterred by this half-hearted reform law and have continued to target mom-and-pop businesses all over the state, with a reportedly disproportionate impact on minority and immigrant entrepreneurs. (Why isn’t the Civil Rights Division of the U.S. Department of Justice applying its disparate impact analysis to this legal extortion racket?) Some plaintiffs’ lawyers have already found their way around the new law’s “anti-stacking” prohibition, which prevented them from sending the same client to visit the same business numerous times so that they could seek penalties for alleged access violations during each visit. Instead, they are filing lawsuits on behalf of multiple clients against the same business for a single violation, according to the California Chamber.
As a result of ADA lawsuit abuse, taxpayers in Torrance, California, are now on the hook for at least $75,000 in legal costs, as the town fights a lawsuit challenging the accessibility of a city-owned parking lot. The lawsuit also targeted a popular Italian restaurant and a family-owned bakery that use the lot, even though the businesses have no control over it. That case was filed by a man responsible for filing hundreds of lawsuits in Los Angeles County alone. The plaintiff, Jon Carpenter, is a Los Angeles resident, but is represented by a San Diego law firm that calls itself the Center for Disability Access. But “[w]e will never let a frivolous lawsuit hold the city and its residents for ransom,” Torrance Mayor Frank Scotto said. “It’s absolutely laughable…. These guys aren’t looking to right a wrong, they’re looking to make money.”
Another small business casualty was the historic Lake Forest Café in Folsom, which closed its doors in June 2013. An ADA lawsuit was filed after a man in an oversized wheelchair could not enter the restaurant for reasons beyond the restaurant owner’s control. The owner knew she could not afford to defend successfully against the suit, and pointed out that “[t]he problem with the ADA law, and everyone agrees with the intent, is these frivolous lawsuits. What was okay yesterday may not be okay today and certainly won’t be okay tomorrow. It’s created a loophole for some people to abuse the law. Typically, they settle out of court, not even caring if the modifications were made to comply with the ADA.”
As noted in previous Judicial Hellholes reports, there has been in recent years a steady migration of asbestos lawyers to California from states that, unlike California, have enacted reasonable civil justice reform laws to give asbestos defendants a fairer shake in court. Many of these transplants hail from reform-minded Texas, for example, and have eagerly opened offices in California, particularly in Los Angeles, where more plaintiff-friendly tort law, court procedures and juries give them a sizeable advantage over asbestos defendants.
Publicly available court records show that, as San Francisco County Superior Court Judge Teri Jackson has worked with plaintiffs and defendants in recent years to better balance rules and procedures for asbestos litigation, plaintiffs’ lawyers are looking more often to Los Angeles to file new cases – though Oakland, in Alameda County, also remains a popular if smaller jurisdiction. In 2012, a longtime trend was reversed as filings of new asbestos cases in Los Angeles (292) actually exceeded such filings in San Francisco and Oakland combined (277). Through November 2013, new filings in Los Angeles (222) again comfortably exceeded those in the two Northern California jurisdictions (166).
But knowledgeable defense counsel with whom Judicial Hellholes reporters have conferred suggest there may be reason to hope that the Los Angeles asbestos court may eventually be amenable to a better balancing of rules and procedures like that which has caused some plaintiffs’ lawyers to disfavor San Francisco in recent years. But no one is anticipating such progress in Oakland anytime soon. A 2013 case there, now on appeal, speaks volumes about the utter lack of balance some asbestos defendants face in California courtrooms.
The case is Rose-Marie and Martin Grigg v. Owens-Illinois Inc. (No. RG12629580). Mrs. Grigg, now 82, has been diagnosed with mesothelioma, and the case argued on her and her current husband’s behalf by lawyers from the politically well-connected Oakland firm of Kazan McClain plausibly claimed that she had been exposed to asbestos dust and fibers brought home on the work clothes of her former husband when he worked with insula- tion in the 1950s. But as defense council pointed out in pre-trial motions, California appeals court precedent in a similar “bystander” exposure case, Campbell v. Ford Motor Company, in essence established that, because many decades ago, when the exposures both in Grigg and Campbell occurred, it was “unforeseeable” that such exposures could lead to disease, the defendant “had no duty” to the family members of a worker.
The Griggs’ attorneys acknowledged that there was no “foreseeablity” with respect to asbestos fibers but then made an evasive argument about the duty of care in connection with known poisons. In her tentative ruling posted on the court’s website the night before oral arguments were to begin, Alameda County Superior Court Judge Jo-Lynne Q. Lee indicated she would grant the defendant’s motion for summary judgment. But by the next morning, the judge’s tentative ruling had mysteriously disappeared from the court website, and she ultimately decided to assign the case to Judge Ioana Petrou for trial.
Ultimately, the case was sent to the jury on questions of strict liability, negligence and fraud but not on the question of the foreseeability of household disease. An unbelievable $27.3 million compensatory and punitive damages verdict was returned, but Judge Petrou, in post-trial rulings, determined that the basis for the punitive damages award – the alleged fraud claim and evidence – should never have gone to the jury in the first place. Incredibly, however, she did not vacate the punitive damages award. In the end, the defendant was found liable both for an injury no one could have foreseen at the time the product was sold and for punitive damages, based on a theory the jury never should have considered. Injustices such as this help make California the #1 Judicial Hellhole.
DISCREDITED LIABILITY THEORY KEEPS GOING AND GOING…
Last but not least is the tellingly long tale of a personal injury lawyer-imagined theory of liability that has been dismissed and discredited everywhere it has been tried, including Illinois, Wisconsin, Missouri, New Jersey, New York, Ohio and Rhode Island. But since California courts are as permissive as any in the land, never-say-die lawyers at Cotchett Pitre & McCarthy and Motley Rice, among others, have convinced 10 California cities and counties to sign on to their $1.6 billion lawsuit, which began in July 2013 before Santa Clara County Superior Court Judge James Kleinberg. The lawsuit pursues yet again the repeatedly unsuccessful “public nuisance” theory of liability against five companies that stopped selling lead paint decades ago.
The standard of proof for public nuisance claims, conveniently, is considerably lower than that for product liability. And the plaintiffs’ case got a boost from the California Supreme Court in 2010 when it blessed the local governments’ contingency-fee arrangement with their private-sector counsel, contravening its own 1985 precedent that said contingency fees, as opposed to a straight hourly wage, create a conflict of interest by giving outside counsel a financial stake in the outcome of a law enforcement action. Brushing off that dated and apparently quaint concern, then-Chief Justice Ronald George noted that the defendants are “large corporations with access to abundant monetary and legal resources.” In other words, California courts really need not worry much about providing impartial civil justice for deep-pocket corporate defendants, especially when profit-driven plaintiffs’ lawyers gang up with government officials to rifle through those pockets.
During the bench trial, which concluded in late September, the defense adduced plenty of evidence that showed the paint companies had stopped selling lead paint once science demonstrated its threats to health and child development, and before the federal government ordered a halt to such sales in 1978. Still, trial observers report that Judge Kleinberg’s very California-like antipathy toward all things corporate was repeatedly on display, such as when he questioned the industry’s strict reliance on certain American doctors and experts about lead-paint risks when international researchers had noted such risks much earlier. “I’m quite troubled by the idea that because American doctors say ‘X, Y and Z’ that that is the end of the inquiry,” the judge snapped. (Yeah, what do those darn American doctors and scientists know, anyway? They’re not the boss of me.)
It remains to be seen whether Judge Kleinberg was impressed with the scientific fact that, despite the plaintiffs’ hysterical testimony, California suffers no appreciable lead exposure problems, at least not relative to the national average for such exposure. Another pesky fact is that lead paint poses no health risk whatsoever unless it’s allowed by property owners to chip, peel and flake – that’s when curious small children may ingest it. But quick, when was the last time a California judge resisted the chance to blame a corporate defendant for a perceived problem or injustice?
In any case, Judge Kleinberg’s ruling is expected sometime shortly after the release of this report, and an appeal, one way or another, is all but certain.
A LITTLE GOOD NEWS FOR BIG BUSINESSES AND MOM & POP SHOPS, TOO
Always hoping to find at least a little encouraging news in each of the Judicial Hellholes, we point to a recent devel- opment that might reduce some plaintiffs’ lawyers’ storied enthusiasm for California-based litigation challenging mergers and acquisitions.
In recent years, it has become routine for plaintiffs’ law firms to announce investigations of mergers or acqui- sitions within hours of such announcements. Lawsuits challenging major deals are filed, on average, within two weeks. According to Cornerstone Research, 93% of acquisitions announced last year and valued at over $100 million were almost immediately challenged, on average, by 5 lawsuits. Defendants typically settle these cases quickly, as a cost of doing business, in order to eliminate potential obstacles to the pending deal. As a result, the lawyers filing such suits, often using cookie-cutter complaints and offering no evidence that the deal hurts shareholders or the public, recover lucrative fees.
In March 2013, however, the U.S. Court of Appeals for the Ninth Circuit sanctioned a prominent California M&A lawyer, Joseph M. Alioto, and his firm for filing vexatious litigation related to his challenge of a $1.4 billion merger between Southwest Airlines and AirTran. Mr. Alioto sued the airlines to stop their merger, but did not get his claim filed until a day after the merger concluded. After the district court dismissed his case for that basic reason, he not only appealed, but sought an emergency order from the Ninth Circuit to stop the airlines from merging their assets, broader relief than he had requested in the lawsuit.
Attorneys for the airline characterized Alioto’s conduct as a modus operandi of targeting high-profile mergers at their most time-sensitive stages in an effort to win big cash settlements. The Ninth Circuit ordered Mr. Alioto and his firm to pay $67,495 of the airlines’ costs, the amount related to responding to the request for an emergency order. Mr. Alioto called the sanction, which he will pay himself, a “badge of honor” that will not deter him from challenging future mergers. Nevertheless, the ruling may give plaintiffs’ firms that repeatedly challenge mergers a reason to pause before engaging in aggressive, unjustifiable tactics.
And finally, California took a very rare, if rather modest, step to rein in personal injury lawyers in October 2013, when Gov. Jerry Brown signed into law a watered-down reform aimed at the infamously shameless extor- tion racket that has grown up around a well-intentioned, voter-approved anti-toxins law passed in 1986, known as
Prop 65 requires businesses to post notices about the presence of virtually unavoidable, everyday chemicals and substances, such as alcohol (in beer, wine and spirits), diesel engine exhaust (in every parking garage and bus depot) and coffee-roasting byproducts (in coffee shops), among countless others. And since Prop 65 allows for private lawsuits as a means of enforcement, it has “spawned a wave of frivolous lawsuits and excessive fines over improper signage,” reports the Los Angeles Times.
The reform bill, A.B. 227, aims to reduce both nuisance lawsuits and fines for businesses by giving businesses that are notified of a possible lawsuit two weeks to post proper signs and pay nominal fines before being subject to litigation or steeper fines. But the reform excludes manufacturers, suppliers and retailers of consumer products. And because its “provisions are not retroactive,” notes an analysis by McGuire Woods LLP, the new law “will not help the multiple businesses that received notices of violation early in 2013,” when a huge final round of litigation was served on outlets selling alcohol by lawyers desperate to make last call.