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Trial
Lawyers Inc. Update No 6, October 2008
WATCHING
WEST VIRGINIA:
Businesses Look at Litigation Climate and Leave the Mountain
State
In May, Chesapeake Energy Corporation shocked West Virginians
when it canceled its plans to build a $35 million, futuristic
headquarters in Charleston.[1] The company’s
decision, it said, was predicated upon the decision of the
state supreme court of appeals not to review a $405 million
verdict—including $270 million in punitive damages—that
had been levied against the company by a Roane County jury.[2]
A corporate spokesman called the court’s decision “stunning”
and noted that it “sends a profoundly negative message
about the business climate in the state.”[3]
 Chesapeake
Energy was not the first business to be scared off by the
legal culture of the Mountain State. In a survey of national
business leaders conducted by the Harris polling group for
the U.S. Chamber of Commerce’s Institute for Legal Reform,
64 percent said that a state’s litigation climate would
affect decisions on where to locate a business; in each of
the last three years, the executives surveyed ranked West
Virginia’s litigation climate dead-last among the fifty
states (see map graph).[4] West Virginia
is also perennially featured in the American Tort Reform Association’s
annual Judicial Hellholes reports; the Hellholes
reports look at a variety of problem regions, but they have
spotlighted West Virginia, the only state singled out in its
entirety.[5]
West Virginia can ill afford to drive away business, for
even as Trial Lawyers, Inc. profits mightily from the state’s
legal system, the average West Virginian suffers. The state
is the forty-ninth-poorest in the nation, and per-capita income
in West Virginia is only two-thirds the national average.[6]
Moreover, its economy has grown at a slower rate than that
of the United States as a whole in each of the last four years
(see graph on next page).[7] Cleaning
up the state’s trial-lawyer-friendly litigation environment
is not in itself sufficient to reverse these trends, but sending
a strong message to businesses that West Virginia is no longer
hostile to new investment would help.
A POPULIST JUDICIARY REDISTRIBUTES WEALTH
At the root of lawsuit abuse in West Virginia is a populist,
elected judiciary that looks to punish large businesses on
behalf of local plaintiffs and plaintiffs’ attorneys.
Ten years ago, former supreme court of appeals justice Richard
Neely admitted, “As long as I am allowed to redistribute
wealth from out-of-state companies to in-state plaintiffs,
I shall continue to do so.”[8] Little
wonder that corporate executives rank West Virginia’s
judges the least impartial in the country.[9]
The amount of wealth redistributed by West Virginia’s
courts is staggering. In addition to Chesapeake Energy’s
mammoth adverse verdict in 2007, DuPont was on the losing
end of the largest toxic tort judgment in the nation when
a Harrison County jury slapped it with a $251 million verdict
(see box, page 4).[10] Each of these
verdicts was among the five largest in the country, according
to The National Law Journal;[11]
and these two verdicts alone are equivalent to over 1 percent
of West Virginia’s entire economic output.[12]
GIVE US YOUR TIRED, POOR, HUNGRY LAWYERS
 To
effect this wealth transfer, West Virginia’s judges have
repeatedly opened the state’s courthouse doors to plaintiffs’
lawyers from the nation at large. Their remarkably lax venue
standards have made it especially easy for out-of-state plaintiffs
and defendants to sue out-of-state corporations. Says circuit
court judge Arthur Recht: “West Virginia was a ‘field
of dreams’ for plaintiffs’ lawyers. We built it
and they came.”[13]
In 2006, the West Virginia supreme court of appeals ruled
that out-of-state plaintiffs could sue an out-of-state manufacturer
for injuries sustained out of state that were attributable
to one of its products, so long as a West Virginia company
had sold or distributed it.[14] This
decision was remarkable for the court’s brazen refusal
to apply the statute that the West Virginia legislature enacted
to rein in the courts. It stated: “[A] nonresident of
the state may not bring an action in a court of this state
unless all or a substantial part of the acts or omissions
giving rise to the claim asserted occurred in this state.”[15]
The court implausibly contended that the statute violated
the Privileges and Immunities Clause of the U.S. Constitution
by discriminating against out-of-state plaintiffs,[16]
yet failed to cite a decision of any other state appellate
court that had reached a similar conclusion.[17]
Unsurprisingly, the decision conflicted with clear U.S. Supreme
Court precedent.[18] Also unsurprisingly,
the same corporate executives who look askance at West Virginia’s
overall litigation climate and its judges rank the state fiftieth
out of fifty in “having and enforcing meaningful venue
requirements.”[19]
West Virginia Dr. Ray Harron reviewed as many as 75,000
potential asbestos claimants nationwide.[24]
According to CSX, he “identified asbestosis in
approximately 97.5 percent of the X-rays he read for
the Peirce firm since 2000.”[25]
Here, Dr. Harron is being sworn to testify before Congress
on his role in asbestos screenings. He asserted there
his right against self-incrimination.
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AN ASBESTOS LITIGATION SCAM
Business leaders also rank West Virginia’s courts dead-last
in the nation for their fairness in handling class action
and mass-consolidation suits.[20] For
example, the state has been the locus of some of the worst
abuses in asbestos litigation, the longest-running mass tort
in U.S. history and arguably the most unjust.[21]
In 2002, the state supreme court of appeals allowed a Kanawha
County judge to consolidate the claims of more than 8,000
asbestos plaintiffs into one legal action against more than
250 defendants.[22] While asbestos can
indeed cause deadly injury, such mass consolidations are fundamentally
unfair to defendants, since each plaintiff’s exposure
to asbestos and injury varies. Indeed, many asbestos plaintiffs—up
to 90 percent[23]—are actually uninjured,
but corporate defendants inundated with thousands of claims
find it “impossible . . . to investigate each claim on
an individual basis.”[34]
The CSX railroad corporation discovered what it claims to
be multiple frauds visited upon it in its asbestos litigation
in West Virginia, and the evidence CSX gathered, if proven,
presents a sordid picture of the ability of the Mountain State’s
courts to handle these claims. CSX’s case centers on
an out-of-state law firm that the railroad alleges solicited
clients from whom it encouraged testimony “without regard
to the true state of the facts.”[35]
In another West Virginia state case, CSX contends that the
doctor who had allegedly signed the diagnosis form of the
plaintiff simply did not exist.[36]
AWARD WITHOUT INJURY
West Virginia is the only state in the nation in which
plaintiffs who may have been exposed to dangerous substances
can recover cash awards without showing that there was
an actual injury. West Virginia’s “medical
monitoring” rule allows uninjured claimants to
receive annual cash payments, supposedly to be spent
on medical checkups, for as long as forty years, though
plaintiffs who receive these payments are not required
to spend them on medical tests. In effect, the medical
monitoring rule significantly multiplies the value of
the lawyers’ claims.
West Virginia’s medical monitoring rule figured
prominently in last year’s Perrine v. DuPont, a
case in which a Harrison County jury considered damages
alleged to have been caused by the defendant’s
zinc smelting plant.[26] No individual
claimed to have suffered medical harms caused by any
chemicals emitted by the plant; rather, the “damages”
were the “remediation” expenses of a “cleanup”
of nearby businesses, houses, and trailers.[27]
The jury awarded compensatory damages of over $55 million
for the cleanup and then slapped the company with punitive
damages of over $196 million.[28]
Those sums put the verdict among the top five in the
nation for 2007, according to The National Law Journal.[29]
But the Law Journal’s rankings actually understate
the verdict, since they omit the cost of the stipends
to be paid to the 7,000 class members for medical monitoring—but
not necessarily to be spent for that purpose.[30]
According to the circuit court order implementing the
monitoring plan, its cost will exceed $129 million.[31]
For the case, six law firms were awarded a staggering
$127,108,411 in legal fees.[32]
While the payoff to the litigation industry is obvious,
the benefits to the class members—even if they
should choose to be tested—are far from clear.
In a brief submitted to the supreme court of appeals
urging the court to review the verdict, the West Virginia
State Medical Association argued that “this plan
places the plaintiff class in unnecessary danger by
approving biennial computed tomography (‘CT’)
scans that will likely cause more cancer than they will
ever find.”[33]
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MENDING MEDICAL MALPRACTICE
Notwithstanding the trial bar’s successes in West Virginia,
there have been notable improvements in one crucial area of
litigation—medical malpractice. In 2001 and 2003, the
legislature passed major reforms in this area that have led
to declining insurance rates for doctors and encouraged them
to practice in the state.
In the early part of the new century, insurance companies
as well as doctors were fleeing West Virginia. Ohio-based
PIE Mutual, which had had about one-third of the West Virginia
medical-malpractice-insurance market, went bankrupt in 1998,
and the St. Paul Companies, which became the state’s
largest insurer as a result, exited the market at the end
of 2001.[37] Facing skyrocketing premiums,
specialty physicians started leaving for other states, and
maternity wards started shutting down.[38]
 In
reaction to the malpractice crisis, the West Virginia legislature
in 2001 passed a law requiring plaintiffs’ lawyers to
obtain a “certificate of merit” from a qualified
expert attesting to a claim’s validity before a case
could proceed.[39] In 2003, the legislature
established a $500,000 cap on noneconomic damages, the difficult-to-review
awards for unquantifiable harms like “pain and suffering,”
which are the main drivers of medical-malpractice costs.[40]
The effects of the legislature’s reforms were rapid
and striking. From a 2001 high, medical-malpractice claims
fell almost 69 percent by 2004, the year following the enactment
of the second round of malpractice liability reform (see graph),
and claim volumes have remained at manageable levels since
then.[41] Insurance companies began lowering
their medical-malpractice premiums in 2005, and the West Virginia
Mutual Insurance Company, now the state’s largest medical-malpractice
insurer, has reduced or held steady its malpractice insurance
rates in each of the last three years.[42]
The state supreme court of appeals has reviewed two different
cases that applied the 2001 and 2003 reform laws and did not
declare either law unconstitutional.[52]
For now, at least, the legislature’s medical-malpractice
reforms look like striking successes.
McGRAW'S LAW
Attorneys general are supposed to be states’ chief
law enforcement officers, but West Virginia’s top
prosecutor, Darrell McGraw, has instead used his powers
to circumvent the legislature, attack corporations,
and promote his own reelection. The result has been
to enrich Trial Lawyers, Inc. First elected in 1992,
McGraw soon followed other state attorneys general in
contracting out his own state’s civil enforcement
duties to private lawyers in a lawsuit against the tobacco
companies; the West Virginia portion of the settlement
ultimately paid out $33.5 million to the attorneys McGraw
selected.[43]
 Even
though McGraw drew criticism from a judge and the state
auditor for the contracting out of state legal business
in the tobacco litigation,[44]
he used the same techniques in scores of other cases.
Under McGraw’s leadership, the attorney general’s
office has, in many respects, become a major division
in Trial Lawyers, Inc.’s West Virginia operations:
in the last three years alone, McGraw has hired private
lawyers to act as “special assistant attorneys
general” in more than twenty-five cases.[45]
Unlike many other states, which limit the discretion
of their attorneys general to hire outside counsel,
West Virginia gave most of these lawyers no-bid contracts.[46]
McGraw’s privately contracted litigation came
under increased scrutiny as the result of the state’s
2001 lawsuit against Purdue Pharma, the maker of Oxycontin.[47]
The four private firms that McGraw’s office hired
to handle the case took in fees exceeding $3 million
in a settlement for $10 million.[48]
It was later reported that those same firms had given
$47,500 to McGraw’s reelection campaigns.
The aspect of the Oxycontin settlement that has sparked
the harshest criticism, however, is McGraw’s handling
of the funds that were not paid out to the private firms.
Rather than returning the monies to the legislature
for appropriation, or to the state agencies that were
the underlying plaintiffs in the case, McGraw decided
to dole out the proceeds himself to various charities
of his choosing.[49] In response,
the U.S. Department of Health and Human Services last
year withheld over $4 million in Medicaid funding, the
portion of settlement proceeds to which it claimed it
was entitled, though the amount will be reduced in accordance
with an appeals-board ruling this summer.[50]
West Virginia’s legislators should rein in these
abuses of their attorney general by passing the Private
Attorney Retention Sunshine Act, which would limit the
attorney general’s discretion to hire private outside
counsel, expose any such deals to public scrutiny, and
specify how settlement funds should be distributed.[51]
The people of West Virginia could also send a message
to McGraw by failing to return him to office; he’s
up for reelection this November.
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HOPE FOR THE FUTURE
The West Virginia legislature has not limited itself to medical-malpractice
liability reform. Now, under the state’s “joint-and-several
liability” rules, the deep pockets of a defendant that
a jury determines to be only slightly responsible for a given
injury do not by themselves put the defendant on the hook
for the entire damage award.[53] The
elected representatives’ willingness to pass laws addressing
the state’s lawsuit abuse ultimately is due to the citizenry’s
change of heart: in a 2005 survey conducted by Public Opinion
Strategies, almost eight in ten West Virginians thought that
the “number of lawsuits in West Virginia courts”
was a “serious problem,”[54]
and three-quarters thought that lawyers, rather than consumers
or victims, benefited most from the system.[55]
In 2004, the voters threw out state supreme court of appeals
justice Warren McGraw despite (or perhaps in part because
of) his having amassed an eye-popping $2.5 million in campaign
donations from plaintiffs’ attorneys.[56]
With a dash of panache, the ousted justice filed a lawsuit
against a television station that had aired negative advertisements
about him and another lawsuit, for $1.45 million, against
a truck driver who had allegedly rear-ended him; McGraw claimed
that pain from the injury had caused him to grimace during
a televised campaign debate, to which the former justice attributed
his defeat.[57]
Notwithstanding these positive trends, West Virginians continue
to have cause for concern. As the result of an extraordinary
decision of the state supreme court of appeals last year,
West Virginia is the only state in the union where
the “learned intermediary” doctrine for pharmaceutical
companies, under which warnings that drug companies convey
to the very physicians who prescribe a given medication exempt
the companies from liability for the side effects warned about,
does not apply.[58] Whether the state’s
highest court will continue to make such outlandish rulings
depends on whom voters select in the upcoming election to
fill the two vacant seats on the state’s highest court.
Even though the governor and the legislature have been supportive
of liability reform efforts, Attorney General Darrell McGraw—who
is Warren’s brother and himself a former state supreme
court of appeals justice—has had an all too close relationship
with plaintiffs’ lawyers and has regularly adopted policies
that promote the trial bar’s interests (see box). Attorney
General McGraw is up for reelection this year and is currently
ahead of his opponent, Dan Greear, in the polls, although
Greear appears to be closing in.[59]
Greear has promised a regime of transparency in the AG’s
office and has promised to open up all contracts between the
office and private attorneys to competitive bidding.
In any event, West Virginians now seem to understand that
what Justice Neely called “redistribut[ing] wealth from
out-of-state companies to in-state plaintiffs” ultimately
hurts themselves. For this economically struggling state,
the rejection of that idea by all three branches of government
is key to attracting businesses other than Trial Lawyers,
Inc.
Notes
- George Hohmann, Chesapeake Nixes New Building,
Charleston Daily Mail, 1A, May 29, 2008.
- See Estate of Tawney v. Columbia Natural Resources LLC,
633 S.E.2d 22 (W. Va. 2006).
- Hohmann, supra note 1.
- See U.S. Chamber of Commerce, Institute for Legal
Reform, Lawsuit Climate 2008, available at http://www.instituteforlegalreform.com/states/lawsuitclimate2008/pdf/LawsuitClimateReport.pdf.
- See American Tort Reform Foundation, Judicial
Hellholes 2007, available at http://www.atra.org/reports/hellholes/.
- See Bureau of Economic Analysis, Regional Economic
Accounts, available at http://www.bea.gov/regional/gsp/.
- See id.
- Richard Neely, The Product Liability Mess: How Business
Can Be Rescued From the Politics of State Courts 4 (1998)
(arguing that until product liability law becomes federalized,
which he calls for, judges can be expected to act in their
states’ respective interests).
- See U.S. Chamber of Commerce, supra note 4.
- See Perrine v. E.I. DuPont De Nemours & Co.,
No. 04-C-296-2 (W.Va. Cir. Ct., Harrison Co., 2007).
- See Top 100 Verdicts of 2007, available at
http://www.verdictsearch.com/index.jsp?do=top100.
- See Bureau of Economic Analysis, supra
note 6.
- AEI-Brookings Joint Center for Regulatory Studies, Judicial
Education Program: Critical Issues In Toxic Tort Litigation,
Washington, D.C., April 28-29, 2004.
- See Morris v. Crown Equipment Corp., 633 S.E.2d
292 (W. Va. 2006).
- W.Va. Code, 56-1-1(c) (2003).
- See Morris, 633 S.E.2d at 300.
- See id. at 297-301.
- Missouri ex rel. Southern Ry. v. Mayfield, 340
U.S. 1, 4 (1950) (quoting Douglas v. New York, N.H.
& H. R.R., 279 U.S. 377, 387 (1929) (“[I]f a State
chooses to ‘[prefer] residents in access to often overcrowded
Courts’ and to deny such access to all nonresidents,
whether its own citizens or those of other States, it is
a choice within its own control.”)).
- See U.S. Chamber of Commerce, supra note
4.
- See id.
- See Manhattan Institute Center for Legal Policy,
Trial Lawyers, Inc.: A Report on the Lawsuit Industry
in America, 2003 10, available at http://www.triallawyersinc.com/html/part05.html.
- See State ex rel. Mobil Corp. v. Gaughan, 565
S.E.2d 793 (W. Va. 2002).
- See Lester Brickman, Disparities between Asbestosis
and Silicosis Claims Generated by Litigation Screenings
and Clinical Studies, 29 Cardozo L. Rev. 513 (2007).
- See Jonathan D. Glater, Reading X-Rays in Asbestos
Suits Enriched Doctor, N.Y. Times, Nov. 29, 2005, at
A1.
- CSX Transportation v. Gilkison, No. 05-cv-202 (N.D. W.
Va. July 5, 2007) (Am. Compl. ¶ 36).
- See Perrine, supra note 10.
- See Thom Weidlich, DuPont Must Pay $55 Million
for Cleanup of Structures, Bloomberg.com, Oct. 15, 2007.
- See Cara Bailey, Jury Orders DuPont to Pay
Nearly $200 Million in Punitive Damages, W. Va. Record,
Oct. 24, 2007.
- See Top 100 Verdicts of 2007, supra note
11.
- See Perrine v. E.I. DuPont De Nemours & Co.,
No. 04-C-296-2 (W.Va. Cir. Ct., Harrison Co., Feb. 25, 2008)
(order regarding medical monitoring plan).
- See id. at 15.
- See Perrine v. E.I. DuPont De Nemours & Co.,
No. 04-C-296-2 (W.Va. Cir. Ct., Harrison Co., Feb. 25, 2008)
(order regarding plaintiffs’ counsel’s fees and
litigation expenses).
- Brief of Amicus Curae West Virginia State Medical
Association at 1, Perrine v. E.I. DuPont De Nemours &
Co. (W. Va. 2008) (No. 04-C-296-2) (filed June 24, 2008).
- Gilkison, supra note 25 (Am. Compl. ¶¶
169-70).
- Id. at ¶ 66.
- In Re: FELA Asbestosis cases, No. 02-C-9500 (Cir. Ct.
W. Va.) (Mot. to Dismiss Plaintiff Rodney Chambers ¶¶
15-18).
- Although St. Paul’s announced its withdrawal from
the market in December 2001, the process was not completed
until March 2003. See State of West Virginia, Medical
Malpractice: Report on Insurers with over 5 Percent Market
Share 26 (2004), available at http://wvinsurance.gov/reports/pdf/insurers_over_5_percent_market_2004.pdf.
- Office of the Asst. Secy. for Planning & Evaluation,
U.S. Dept. of Health & Human Servs., Confronting the
New Health Care Crisis: Improving Health Care Quality and
Lowering Costs by Fixing Our Medical Liability System 3
(July 24, 2002); New Jersey Hospital Association, Medical
Malpractice: The Crisis Deepens, Vol. 11, No. 2, Leading
Opinion 1, May 2002.
- See H.B. 601 (2001).
- See H.B. 2122 (2003).
- See State of West Virginia, Medical Malpractice:
Report on Insurers with over 5 Percent Market Share 77 (2007),
available at http://wvinsurance.gov/reports/pdf/insurers_over_5_percent_market_2007.pdf;
State of West Virginia, Medical Malpractice: Report on Insurers
with over 5 Percent Market Share I-C (2002), available
at http://wvinsurance.gov/reports/pdf/insurers_over_5_percent_market.pdf;
Medical Malpractice Suits on Rise in W.Va., Charleston Daily
Mail, Aug. 25, 2008.
- See State of West Virginia (2007), supra
note 41, at 89.
- See West Virginia Citizens Against Lawsuit Abuse,
Special Report: Flaunting Laws You Are Charged to Protect
– A Critical Look at Fourteen Years in the Office of
Attorney General Darrell McGraw 6 (June 2007) [hereinafter
“CALA Report”]; Lawyer Receives $3.85 Million;
Attorney Was Only Briefly Involved in Tobacco Lawsuit,
Charleston Daily Mail, June 27, 2002.
- See McGraw v. American Tobacco Co., No. 94-C-1707 (W.
Va. Cir. Ct. Nov. 29, 1995) (holding that a contingency
fee arrangement is an unlawful appropriation of state funds
and that the attorney general has neither statutory or constitutional
authority to retain such counsel); Phil Kabler, Legislative
Audit Questions Attorney General’s Authority, Charleston
Gazette, January 8, 2002, at 5A (citing “constitutional
requirement that the Legislature appropriate state funds”).
- AG’s Practices Questioned by House Committee,
W. Va. Rec., Feb. 2, 2007.
- See CALA Report, supra note 43, at 7.
- See id. at 1.
- See id. at 2.
- See John O’Brien, More OxyContin Money
Dished Out by AG McGraw, LegalNewsline.com., Aug. 6,
2007, at http://www.legalnewsline.com/news/198887-more-oxycontin-money-dished-out-by-ag-mcgraw.
- See Scott Sabatini, Oxycontin Case Divides
Mcgraw’s Fans, Foes, LegalNewsline.com., Aug. 8,
2008, at http://www.legalnewsline.com/spotlight/214766-oxycontin-case-divides-mcgraws-fans-foes.
- See H.B. 4767 (2006).
- See Riggs v. W. Va. Univ. Hosp., Inc., 656 S.E.2d
91 (W. Va. 2007); Westmoreland v. Vaidya, 664 S.E.2d 90
(2008).
- See S.B. 421 (2005).
- Public Opinion Strategies, Attitudes Toward Civil Justice
Reform In West Virginia (2005) (commissioned by the U.S.
Chamber of Commerce’s Institute for Legal Reform).
- See id.
- See Bill Bissett, Plaintiffs’ Lawyers
Were Spending, Too; They Put More Than $2.5 Million in Court
Contest, Charleston Daily Mail, Dec. 29, 2004, at 4A.
- See McGraw v. Blankenship, No. 04-C-317 (W. Va.,
Wyoming Cty. Cir. Ct.); McGraw v. Tugman, No. 06-C-91 (W.
Va., Greenbrier Cty. Cir. Ct.); see also Editorial, Frivolous
Suits; Former Supreme Court Justice McGraw Joins the Crowd,
Register-Herald, May 8, 2006.
- See Johnson & Johnson Corp. v. Karl, 647 S.E.2d
899, 914 (W. Va. 2007).
- See polling data at http://www.wsaz.com/political/headlines/28188244.html.
Center
for Legal Policy
Manhattan Institute for Policy Research
52 Vanderbilt Avenue
New York, NY 10017
(212) 599-7000
www.manhattan-institute.org
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