SACRAMENTO, Calif. (Legal Newsline)- California Gov. Arnold Schwarzenegger on Wednesday outlined an ambitious agenda for his final year in office, with legal reform being a top priority for his administration.

In his annual State of the State address, the Republican governor announced the California Jobs Initiative, a $500 million program aimed at jumpstarting the Golden State's beleaguered economy by creating or retaining 100,000 jobs in the state where unemployment topped 12 percent in November.

"Creating jobs and getting our economy back on track, protecting education, reforming our tax and pension systems and putting an end to our boom and bust budget cycle must all be priorities," Schwarzenegger said. "I know that if we can recreate the teamwork we built last year and focus together on these priorities, California, already seeing clear signs of recovery, will emerge from these difficult times stronger and more vibrant that ever."

In a position paper released Wednesday, Schwarzenegger said he plans to ask the state Legislature to address frivolous lawsuits and said he plans to seek a series of changes to the rules governing class-action and product liability lawsuits. He also wants a cap on punitive damage awards.

For medical malpractice cases, California has the Medical Injury Compensation Reform Act, which limits noneconomic damages to $250,000. The 34-year-old law has been credited with keeping doctors in the state and keeping their malpractice insurance premiums in check.

"California's current litigation laws lead to large settlements with little value to consumers but become worth millions to lawyers at the expense of California businesses," the governor's paper said. "Current statutes also impede growth by holding businesspersons liable for defective products -- even if the seller had no knowledge or control over the defect -- and allowing for punitive damage awards that are wildly unpredictable among similar cases."

The governor's office said Schwarzenegger will also propose statutory changes that will set clear guidelines for class action lawsuits.

The governor also wants to "improve California's litigation climate" by allowing defendants to appeal class action certifications and by requiring plaintiffs rather than defendants to pay for notification to other potential class members.

His proposed tort reforms could be a difficult sell to the Democratic-controlled state Assembly and Senate. That is because such efforts are typically opposed by trial attorneys, a key Democratic source for campaign cash.

Even so, the governor's announcement that tort reform will be one of the top five focuses of his last year in office won praise from California Citizens Against Lawsuit Abuse's co-chairman, David Houston.

"We will not get out of this economic nightmare without policies to support job growth, including reforming our legal system to prevent abusive lawsuits from crippling California businesses," Houston said.

Schwarzenegger's speech came as he and lawmakers struggle to address a nearly $20 billion budget shortfall. Budget-related matters are widely expected to consume much of the legislative session.

"The budget crisis is our Katrina," Schwarzenegger said. "We knew it was coming. We've known it for years. And yet Sacramento would not reinforce the economic levees."

Also in his speech, the governor said the federal government should help ease California's budget woes, noting that the state sees only 78 cents for every dollar it sends to Washington, D.C.

"We are not looking for a federal bailout, just for federal fairness," said Schwarzenegger, who releases his proposed budget for the 2010-11 fiscal year Friday.

From Legal Newsline: Reach staff reporter Chris Rizo at chrisrizo@legalnewsline.com.