The American Tort Reform Association has released its annual report on “Judicial Hellholes”—a term it popularized for jurisdictions in which defendants often contend that they can’t get a fair shake. This year’s report identifies California, Louisiana, New York City, West Virginia, Madison & St. Clair Counties (Illinois), and South Florida as the most unfavorable jurisdictions. According to the report, these jurisdictions suffer from (among other things) overly-aggressive plaintiffs’ bars, expansive liability rules, court procedures that advantage plaintiffs, and welcoming attitudes toward forum-shopping out-of-town plaintiffs.

While the report is worth reading in full, here are some of the highlights that jumped out at us:

  • California won the slot as the top Judicial Hellhole, serving as “a breeding ground for consumer class actions, disability-access lawsuits and asbestos claims”—and an “unemployment rate [that] is one of the nation’s highest,” which the report indicates shouldn’t be surprising given the productivity-stifling effects of the skyrocketing costs of litigation. The Report highlighted the Northern District of California’s receptiveness to food-labeling and food-marketing class actions, noting that “[b]y one count, . . . more than 100 consumer class actions were filed against food makers in 2012 alone, five times the number filed four years earlier.” The report suggests that the “unpredictable” outcomes of litigation in “Food Court” have the perverse effect of harming consumers, “as litigation costs are invariably passed on to them in the form of higher food prices.” (According to a Law360 article, some advocates of class-action litigation have pushed back against California’s #1 ranking, contending the report focused on a “small number of clearly abusive lawsuits” rather than (in their view) providing a fuller context.)
  • According to the report, a decision from the West Virginia Supreme Court of Appeals is likely to increase the pressure for defendants to settle even meritless suits by allowing a plaintiff’s attorney’s fees to factor into the calculation of punitive damages. An individual sued her mortgage lender, alleging it had made an unconscionable loan. After a bench trial, the trial court agreed, and awarded the plaintiff “about $17,000 in restitution,” in addition to “void[ing] the remainder of the $144,800 loan obligation,” and “awarded the plaintiff nearly $600,000 in attorney fees and costs.” The trial court included that attorney-fee award as part of the compensatory damages used in calculating a punitive-damages award with a 3x multiplier—equal to a $2.2 million punitive damages award. The West Virginia high court agreed in Quicken Loans v. Brown, 737 S.E.2d 640 (2012), concluding that the state Consumer Credit and Protection Act’s fee-shifting provision is “compensatory in nature.” When the court remanded for the trial court to make written findings in support of the punitive-damages award, the case was reassigned to another judge who “increased the multiplier” and ultimately awarded approximately $3.5 million in punitive damages.
  • The report touched on a phenomenon we have described in the past: State attorneys general around the country hire contingency-fee plaintiffs’ lawyers to sue companies in the name of the state. According to the report, after the Attorney General of Louisiana hired plaintiffs’ firms that had donated to his campaign, he defended himself against accusations of cronyism by noting that state law authorized no-bid contracts for professional services. Meanwhile, the West Virginia Supreme Court of Appeals rejected a challenge to that state’s AG’s practice of hiring outside contingency-fee lawyers to pursue claims for damages that, by statute, could only be recovered by the state. The report went on to note that the Nevada attorney general hired a plaintiffs’ firm to pursue claims against mortgage lenders under a “deal that gives the private firm ‘virtual veto power’ over any settlement offer” in a nationwide settlement. The report asks—as we have—whether state AG actions should be permitted at all when the AG hires private class-action lawyers to bring the case, and the government is involved in name only.

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