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.

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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).