Report analyzes economic effect of W.Va. SC

John O'Brien Oct. 9, 2008, 10:43am


WASHINGTON, D.C. (Legal Newsline) - An economics professor at West Virginia University has authored a piece criticizing the effect the state Supreme Court has had on the business climate.

Professor Russell Sobel examined decisions from three years in an effort to explain the reputation some feel the state has, in a paper sponsored by The Federalist Society. The American Tort Reform Association called West Virginia the No. 1 judicial hellhole in the country.

"The decisions made (or refused to be made) on these cases have the potential to affect economic growth and job creation," Sobel wrote. "In the end, West Virginia is in competition with the other 49 states to attract and grow businesses that create jobs and income.

"The cost of litigation certainly will have an impact on the State's standing."

The only 2008 case mentioned is Massey Energy's dispute with Harman Mining over a broken coal supply contract. The Court overturned a $50 million award, but not without controversy.

After Massey's initial victory, photographs surfaced of Justice Spike Maynard and Massey CEO Don Blankenship on vacation in Monaco. The two, lifelong friends, say they happened to be vacationing at the same place at the same time.

Harman was given another chance and asked Justice Brent Benjamin to recuse himself because Blankenship spent millions of dollars supporting his 2004 campaign. Not only did Benjamin refuse, but in his role as acting chief justice (Maynard has recused himself from all Massey cases) was allowed to pick replacements for Maynard and Justice Larry Starcher, who had hoped recusing himself would set an example for Benjamin.

Massey emerged victorious again. A provision in the disputed contract required all actions to be brought in a county in Virginia, the majority felt.

"In sparsely populated states, such as West Virginia, it is especially critical that judges fairly apply the law, given the personal relationships judges often have with case parties," the report says.

Most of the report concentrates four 2007 cases, three of which were among the seven highest awards in the country that year.

The Court did not hear a $404 million appeal of a Roane County verdict against Chesapeake Energy and NiSource, causing Chesapeake to scrap its plans for a more-than-$30 million regional headquarters in Charleston.

It also did not hear a $220 million verdict against Massey, but recently decided to hear arguments in DuPont's appeal of a $381 million Harrison County verdict against it. The company is alleged to have polluted the ground and water near the town of Spelter with lead, cadmium and arsenic.

The final 2007 case discussed involved Johnson & Johnson, which felt the learned intermediary doctrine prevented it from having to warn consumers about the risks associated with its prescription drugs because prescribing physicians could do so.

The Court refused this argument, and became the only jurisdiction in the country not to adopt the learned intermediary doctrine, the report says.

"(C)ommentators suggest that the ruling may have potentially damaging effects on other doctrines, such as product identification, remote causation and burden of proof in pharmaceutical products liability cases," the report says.

"The results of the case arguably amount to an absolute liability on pharmaceutical manufacturers."

Only one of the 2007 cases discussed did not contain a large punitive damages award.

"These awards are not related to the amount of damage the defendant party caused, and are instead related to the jury's interpretation of the 'badness' of the defendant party's behavior," the report says.

"It is much easier for jurors to internalize injuries that plaintiffs present in jury trials than it is for jurors to internalize the damage a large punitive damage award may have on the state's business climate, their future employment prospects and their incomes.

"Rulings such as these can reduce the willingness of businesses to invest and/or locate in West Virginia. Rules that operate in derogation of the common law also can make West Virginia's legal climate less attractive to business development."

Two 2006 decisions highlighted the Court's "willingness to increase tax revenue, and the court's willingness to leave the bounds of the Workers Compensation system to levy additional punishments on employers."

MBNA was forced to pay the state's business franchise tax and corporate net income tax for two years despite not having any employees or properties in the state. Instead, the credit card company, based in Delaware, solicited business through mail and phone calls.

The Court said it must pay the taxes because of its substantial presence in the state.

The final case mentioned in the report dealt with a Clonch Industries worker who was struck in the eye and sued his employer under the deliberate intent statute.

"The Court reasoned that even though the employer's actual subjective knowledge of the unsafe working condition was lacking, it held that the employer unconscionably violated a mandatory duty to perform a hazard evaluation pursuant to an OSHA regulation," the report says.

"The dissent argued that the majority contravened legislative intent by using a general safety regulation to 'satisfy the statutory specificity requirement of a deliberate intent cause of action.'"

Sobel wrote that the two 2006 decisions "decrease the predictability of West Virginia's legal system because they present sudden changes to established rules."

Kristen Leddy, a 2007 graduate of WVU's College of Law, and Matthew Yanni, who holds a master's degree in economics and is in his second year at law school, contributed to the report.

The Federalist Society for Law and Public Policy Studies has 40,000 members. It takes no position on legal or public policy questions, "but is founded on the principles that the state exists to preserve freedom, that the separation of governmental powers is central to our constitution, and that it is emphatically the province and duty of the judiciary to say what the law is, not what it should be."

Sobel says the state's legal system must be competitive with other states.

"(I)t is critical to examine how individuals and businesses are treated in West Virginia's court system relative to the way they would be treated in other states," he wrote.

"If the West Virginia court system imposes more costs and uncertainty than would be present in other states, it will detract from West Virginia's ability to sustain economic growth and prosperity."

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