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A Message from the Director
In September 2003, the Manhattan Institute’s Center for Legal Policy released
Trial Lawyers, Inc.: A Report on the Lawsuit Industry in America. Structured
as an annual report, Trial Lawyers, Inc. was our attempt to shed light
on the size, scope, and inner workings of the litigation industry.
The report found that the plaintiffs’ bar had developed an increasingly
sophisticated business model and was taking for itself an increasingly large
share of national income. Beginning with asbestos litigation and exploding after
the multistate tobacco litigation, trial lawyers’ fees were skyrocketing,
with leading plaintiffs’ attorneys raking in as much as a billion dollars,
at exorbitant rates as high as $30,000 per hour. Viewed in the aggregate as
a single business, Trial Lawyers, Inc. was among the most profitable businesses
in the world, and its lobbying influence was unparalleled. Given the trial bar’s
unique access to the government’s monopoly on the use of force—unlike
normal businesses, Trial Lawyers, Inc. reaps its profts from unwilling customers—the
litigation industry’s growth and sophistication
seemed deeply troubling.
A year and a half later, we find our concerns validated by subsequent events.
The “tort tax,” or share of the American economy consumed by tort
litigation, has continued to grow faster than the overall economy. Trial Lawyers,
Inc.’s revenues have risen to a staggering $46 billion.[1]
Over the past three years for which data are available, the litigation industry’s
revenues grew by 11.1 percent annually, as compared with 3.9 percent growth
in gross domestic product, 2.22 percent growth in in.ation, and a 5.6 percent
annual decline in the stock market.[2]
But American tort law is not uniform throughout the 50 states, so that any efforts
to reform the civil justice system must come at the state as well as the national
level. Since releasing the original Trial Lawyers, Inc., the Manhattan
Institute has hosted events in a number of states. Some of these had strong
tort-reform records, such as Colorado; others, like Georgia and Oklahoma, were
considering comprehensive reforms.
We came to discover that there was a strong appetite not only for the national
profile we painted in Trial Lawyers, Inc. but also for more comprehensive
analyses of the situation in specific states. Trial Lawyers, Inc.: California
is our first look at how the litigation industry operates on the state level.
California is a logical starting place for such an endeavor: with a gross state
product of over $1.4 trillion, California would easily be a member of the G-7
industrialized nations as a standalone economy, and the state has far more lawyers
than any industrialized nation other than the U.S. as a whole (see graph on
page 3).[3]
In the late 1980s, a combination of legal rulings, legislative enactments,
and a sharp drop in auto accidents led to a decline in tort filings in California,
but in each of the last four recorded years, nonmotor - vehicle tort filings have
risen.[4] Jury awards have been growing dramatically in
the state: from 1996 to 2001, the average jury award in large California counties
increased 144 percent, to a staggering $1.5 million.[5]
Trial Lawyers, Inc. now has a firm and tightening grip on the state and its
resources. The plaintiffs’ bar in California has tremendous influence over
the state legislature and has been able to manipulate Sacramento politics to
facilitate its “bounty hunter” tactics. The state’s courts have
abetted these efforts, allowing California attorneys to collect fees even in
losing cases. Little wonder that surveyed executives have ranked California
among the seven worst states for litigation in each of the last four years.[6]
Trial Lawyers, Inc. has carved out profitable niches for itself in
California:
- Suits over alleged construction defects have kept housing starts
below the level needed to sustain the state’s growing population—including
the near-extinction of the California condo;
- Employment lawsuits make the state one of the riskiest places for
companies to hire new workers; and
- Securities class action lawsuits aggressively target the state’s
core high-technology businesses.
Each of these profit centers for Trial Lawyers, Inc. drives businesses
and jobs from the state. This report will examine these and other
business lines in more detail.
Although the prospects for change in the entrenched California
legislature seem slim, a number of positive developments give thestate’s
residents some hope. First, Governor Schwarzenegger has been
a strong proponent of legal reform. Among his initial legislative triumphs
was a badly needed overhaul of the state workers’ compensation
program.
Moreover, in the most recent election, California voters themselves
pushed back against the power of Trial Lawyers, Inc. through their
referendum process by overwhelmingly passing Proposition 64. That
initiative amends California’s notorious “shakedown” statute—section
17200 of the state’s civil code—to prevent lawyers from bringing
claims without showing actual harm to their clients. 
Finally, in medical malpractice liability, California has been a national
tort reform leader. The state’s MICRA
legislation, passed in the mid-1970s, has kept
the growth rate in malpractice payouts and
premiums to less than one-third the national
average.
Despite these advances, California remains a trouble spot for lawsuit abuse,
and much more work remains. We hope that you find Trial Lawyers, Inc.: California
to be a useful resource in understanding the operations of the litigation industry
in our nation’s most populous state.
James R. Copland
Director, Center for Legal Policy
Manhattan Institute for Policy Research
next section>>
1. Trial Lawyers, Inc. revenues are assumed to be 19 percent of
total U.S. tort costs in 2003, both as defined by Tillinghast, see U.S.
TORT COSTS: 2003, TRENDS AND FINDINGS ON THE COSTS OF THE U.S. TORT SYSTEM 17
(Tillinghast-Towers Perrin 2003); U.S. TORT COSTS: 2004 UPDATE, TRENDS AND FINDINGS
ON THE COSTS OF THE U.S. TORT SYSTEM 5 (Towers Perrin [Tillinghast] 2005) [hereinafter
U.S. TORT COSTS: 2004].
2. The compound annual growth rate of Trial Lawyers, Inc.'s revenues is calculated
from 2000–03 based on Tillinghast data, see id. (showing U.S. tort costs
of $245.7 billion in 2003 vs. $179.2 billion in 2000); in gross domestic product
from the Bureau of Economic Analysis, see http://www.bea.doc.gov/bea/dn/gdplev.xls
(last visited Mar. 3, 2005) (estimating U.S. GDP for 2000 and 2003 at 9,817
and 11,004, respectively); in in.ation from the Bureau of Labor Statistics,
from 2000 and 2003, see ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
(last visited Mar. 3, 2005) (showing average CPI of 172.2 in 2000 and 184.0
in 2003); in the stock market from Standard and Poor's (ending value of 500
Index on December 31, 2000 and 2003, at 1,320.28 and 1,111.916, respectively).
3. California gross state product (2003) is estimated by the Bureau of Economic
Analysis, Regional Economic Accounts, see http://www.bea.gov/bea/regional/gsp/
(last visited Mar. 3, 2005). The "group of seven" nations other than the United
States, and their gross domestic products in trillions of U.S. dollars (2003,
at purchasing power parity), are Japan (3.6), Germany (2.3), France (1.7), the
United Kingdom (1.7), Italy (1.6), and Canada (1.0), see THE WORLD FACTBOOK
2004 (updated as of Feb. 10, 2005), available at http://www.cia.gov/cia/publications/factbook/index.html
(last visited Mar. 3, 2005) [hereinafter WORLD FACTBOOK 2004].
4. See Tort Filings in 16 States, 1975-2000, National Center for State
Courts, at http://www.ncsconline.org/D_Research/csp/FRI/1975-2000_Tort.xls
(last visited Mar. 3, 2005); 2004 COURT STATISTICS REPORT: STATEWIDE CASELOAD
TRENDS 50 at tab. 4 (Judicial Council of California 2004). Notably, however,
these measures do not include .lings for medical malpractice and products liability
claims. See National Center for State Courts, State Court Caseload Statistics,
2003 196 at fn. A.
5. The mean statewide verdict is calculated from the total jury verdicts and
number of plaintiff wins in the nine California counties included among the
75 largest counties sampled in 2001 by the Bureau of Justice Statistics, see
Thomas H. Cohen & Steven K. Smith, Civil Trial Cases and Verdicts in Large
Counties, 2001, BUREAU OF JUSTICE STATISTICS BULLETIN app. F (Apr. 2004).
The statewide rate of growth is calculated from the weighted average change
in mean verdicts in the eight California counties included in both the Bureau’s
2001 survey, see id., and its survey for 1996, see Civil Trial Cases
and Verdicts in Large Counties, 1996, BUREAU OF JUSTICE STATISTICS BULLETIN
app. D (Sept. 1999). The median jury verdict increased for each county in the
survey between 1996 and 2001; five of the counties saw their median verdict
increase over 50 percent, and the largest increase was 273 percent. The percentage
of cases tried in which the plaintiff won a verdict increased from 44 percent
in 1996 to 52 percent in 2001 in the comparison counties. Total jury compensatory
damage awards increased 90 percent. Of course, only a small fraction of claims
ever reach a jury—for civil tort claims, there were only 1,275 jury trials in
California in 2002–03, a scant 1.7 percent of total dispositions. See
2004 COURT STATISTICS REPORT, supra note 4, at 47 tab. 3. Nevertheless, jury
verdicts undoubtedly drive the expected value of litigation and thus the settlement
value of claims.
6. See U.S. CHAMBER OF COMMERCE, 2005 STATE LIABILITY SYSTEMS RANKING
STUDY 13 tab. 3, available at http://www.instituteforlegalreform.org/harris/pdf/HarrisPoll2005-FullReport.pdf(last
visited Mar. 4, 2005).
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