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California Drops in Rankings for “Business Friendliness,” Litigious Environment Could Be to Blame

According to an annual poll from CNBC, California dropped to 32nd in the nation for ease of doing business from 25th last year. Over this past year, the Manufacturers’ Accountability Project has repeatedly warned about California’s litigious environment, which is clearly taking its toll on its reputation for business and job growth.

Manufacturers are especially concerned about a new wave of lawsuits, in which local governments sue manufacturers, even though the manufacturers are making and selling lawful products and did not cause the alleged harms. The lawsuits, pushed by trial attorneys, are attempts at scoring big payoffs.

The California business community shares MAP’s concerns about the CNBC report.

“California is going to need manufacturing expansion so we can employ our middle class and keep our economy growing,” said Lance Hastings, president and CEO of the California Manufacturers and Technology Association. “Making long term manufacturing investments in the state is challenging for many reasons, and increased risks associated with unwarranted litigation will push new investment elsewhere.”

Kyla Christoffersen Powell, president of the Civil Justice Association of California, echoed this sentiment. “The deterioration of California’s legal climate increases costs and risks business owners face on a daily basis,” Powell told Legal Newsline. “Until we address the problem of rampant shakedown lawsuits, they will continue to burden businesses.”

The two most significant examples of the locality lawsuit trend in California are suits against paint companies over lead paint made and sold before 1950 and energy producers over impacts of global climate change.

Paint manufacturers were forced to spend 20 years in court, ultimately paying $305 million in liability. But the lead paint at issue was sold before the 1950s, when it was completely lawful to sell lead paint, and there is no proof that any of these companies’ paint is in any of the homes in question. This type of industry-wide, retroactive liability has been rejected in every other state it has been tried, including Illinois, Missouri, New Jersey, Rhode Island and Wisconsin.

As National Association of Manufacturers Senior Vice President and General Counsel Linda Kelly has warned, this lawsuit has disturbing implications for manufacturing throughout California: “Today, it’s paint manufacturers potentially forced to pay for replacing paint that’s more than 66 years old in every impacted structure in some of the most populous counties in America. Tomorrow, it could be any other industry.”

Now, energy manufacturers are being targeted, with lawsuits claiming they should be liable for harms caused by global warming. A federal judge sitting in California has already dismissed two of these cases, ruling that companies are not to be subject to liability merely for making and sell fossil fuels. Nevertheless, private lawyers seeking contingency fees to bring these lawsuits are still actively trying to sign up more governments for their lawsuits.

It is time for California to meaningfully change their burdensome litigation environment. If the state wants to improve its standing, it should start by enforcing traditional liability law and urging local governments to stop these baseless lawsuits.