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Lawsuits cause businesses to leave state

Posted: September 25, 2008 9:43 p.m.
Updated: November 27, 2008 5:00 a.m.

Too often I am reminded of the impact that California state regulations and litigated claims can have against companies doing business in California, resulting in businesses closing or moving out of state.

One of the more poignant reminders is the history of Price Pfister, a manufacturer of bathroom and kitchen faucets, previously located in nearby Pacoima since 1960, which closed its operation in 1997, resulting in layoffs of hundreds of individuals with decent paying jobs.

The primary cause of the plant closure and relocation was statutory fines imposed upon them for failing to warn to the surrounding area that their facility used lead, especially as lead is "known to the state of California to cause cancer or reproductive harm" as set forth in the Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65. The case settled for $2.4 million in January 1996 and the company closed its Pacoima facility permanently in January 1997.

Thereafter, lawsuits were filed by more than 200 former Price Pfister workers against the various suppliers of equipment and material used at the Price Pfister plant based upon the theory that the manufacturers and distributors failed to properly warn the Price Pfister workers that use of the equipment and/or supplies they sold to Price Pfister could cause various respiratory injury and other illnesses.

Low ranking
In December 2007, a Los Angeles County trial court judge dismissed all 200 cases after our law firm successfully challenged the sufficiency of these claims.

However, many of these manufacturers and distributors certainly evaluated the costs of doing business in our state given the cost of defending these and similar claims regularly filed against them.
Proposition 65 and general "failure to warn" product liability claims are part of the reason why California was ranked as the 44th worst state in which to conduct business.

The recent annual survey was conducted by the respected Harris Poll on behalf of the U.S. Chamber Institute for Legal Reform. The poll encompassed responses from 957 individuals nationwide that were comprised of "in-house general counsel, senior litigators and other senior attorneys who are knowledgeable about litigation matters at companies with annual revenues of at least $100,000,000."
The first question you might be asking yourself is why care about companies who earn in excess of $100,000,000?

The answer is we all should care because of the employment opportunities they provide and, therefore, the resulting benefit to the local economy. The reasonably well-paying hundreds of jobs offered by Price Pfister were eventually replaced by a modest number of retail jobs paying close to minimum wage.

The second question you may be asking yourself is why do we care what in-house attorneys think?
The simple answer is that this group influence decisions of where companies establish businesses (corporate headquarters, manufacturing centers, distribution centers, warehouse and transport facilities; service and call centers; administrative and logistic support, etc.), as well as influence the decision as to what states the company should do business.

Given California's low ranking (and its low ranking throughout the life of this seven-year survey), those in the position of influencing business decisions based upon litigation and regulatory concerns, have expressed strong concern about doing business in California.

Unfortunately, the news gets worst. Not only does the Harris Poll gauge the view of these individuals as to the health of the business environment in the state of California in general, but asked open-ended questions concerning any particular venue of particular concern.

Based upon this particular inquiry, the concept of a "judicial hell hole" was created for purposes of describing the particular county where it is perceived that judges systematically apply laws and court procedures in an inequitable manner, generally against defendants in civil lawsuits. In the past, these judicial hell holes have included Cook County and Madison County in Illinois, Jefferson County in Texas and in general, the entire state of Mississippi.

Judicial hell hole
However, the new number one judicial "hell hole" in the country has been awarded to Los Angeles County.

A recent example of how bad the litigation environment has gotten in California was Toyota's decision this year not to open a manufacturing plant in the state, but to open in Mississippi, home of the former notorious judicial hell hole "award" for most of the past decade until it enacted various tort reform measures.

John H. Shaffery is a partner with Poole & Shaffery, LLP, a full-service business, corporate and employment law firm in Valencia. His column represents his own views, and not necessarily those of The Signal.


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