For most of the past 30 years, Mississippi has ranked as one of the poorest as well as one of the most litigious states. The two statistics are related.
I met with Mississippi Gov. Haley Barbour recently, and this politician, best known for helping his state rebuild after Hurricane Katrina in 2005, had a lot to say about lawsuits.
“We were America’s No. 1 judicial hell hole for jackpot jury verdicts,” the two-term Republican governor told me. “For trial lawyers, this was the state you wanted to come to if you wanted to sue someone.”
But it was not the state to come to if you wanted to start a business. Mississippi’s antibusiness reputation was so awful, Mr. Barbour said, that the CEOs of several Fortune 500 companies told him specifically that they wouldn’t consider locating in the state unless the tort system was fixed.
For doctors, the situation was a little different – many who were inside the state were getting out as fast as they could. With 25% annual increases in malpractice premiums, many physicians simply couldn’t survive if they stayed. The outflux left some counties without a single obstetrician. In some cases, residents had to drive 100 miles to find a doctor.
One of the worst places, in term of frivolous lawsuits, was Jefferson County. It became renowned as the lawsuit capital of the country, with more plaintiffs than residents. This is the infamous county where one pharmacist was named in more than 1,000 lawsuits. In one legendary case against a pharmaceutical company that sold the diet pill Pondimin (part of the weight-loss combination known as fen-phen, which was later banned), a Jefferson County jury awarded $1 billion to the family of a woman who had taken the drug.
But four years ago, Mississippi transformed itself from judicial hell hole to job magnet, a story that is instructive for other states trying to attract jobs in turbulent economic times. The lessons here are especially timely, because the pro-growth tort reform trend that was once spreading across the country may soon reverse course.
James Copland of the Manhattan Institute’s Center for Legal Policy reports that, thanks to big Democratic gains in state legislatures in 2006, trial lawyers from coast to coast have replenished their army of allies in state capitals. “The legislatures are busy at work repealing many of the reforms while creating new rights to sue, through such scams as patient bill of rights laws,” he says.
Shortly after winning election in 2003 by running on a tort-reform platform, Mr. Barbour stitched together a coalition of doctors, business groups, taxpayers and even unions to roll back the trial lawyer lobby.
“It was not just a battle,” recalls Charlie Ross, the Senate sponsor of the reform bill, “it was a five-year war.” The law that eventually passed was every trial lawyers’ worst nightmare. It capped awards for noneconomic damages, and prevented the popular practice whereby a plaintiff attorney seeking to bring a class-action shops around for a court where he’ll be likely to get a favorable ruling or judgment.
Almost overnight, the flow of lawsuits began to dry up and businesses started to trickle in. Federal Express invested $1 billion in a new facility in the state. Toyota chose Mississippi over about a dozen other states for a new $1.2 billion, 2,000-worker auto plant. The auto maker has stipulated that the company would pull up stakes if the tort reforms were overturned by the legislature or activist judges.
That hasn’t happened. About 60,000 new jobs have arrived in four years – not a small number in a workforce of about 1.3 million – and a sharp improvement from the 30,000 jobs lost in the four years before Mr. Barbour took office. Since the law took effect, the number of medical malpractice lawsuits has fallen by nearly 90%, which in turn has cut malpractice insurance costs by 30% to 45%, depending on the county.
Another encouraging sign: Fewer Mississippians are heading to law school and more are looking at business school as the best way to get rich. Many in the younger generation are pursuing a career path that will make them wealth creators, not wealth redistributors.
Meanwhile, in other states, the trial bar is spending record amounts on 2008 campaigns to make sure that the political massacre plaintiff lawyers suffered in Mississippi isn’t repeated. Next to the unions, trial lawyers are the biggest givers to Democrats. It is no secret they will want a payback if the Democrats have a big year on the state level. A big Democratic theme this year, starting with Barack Obama at the top of the ticket, is to roll back the well-heeled special interests. Trial lawyers – some of the richest people in the country – apparently don’t count.
The Pacific Research Institute estimates that the tort system nationwide costs the economy about $7,000 for every family in America. The pols in Washington are sending out tax-rebate checks of up to $1,200 for married couples in hopes of stimulating the economy. But outside of Mississippi and a few other places, there seems to be little understanding of how frivolous lawsuits and greedy tort lawyers weigh down the economy.
For too long class action lawsuits seemed to be Mississippi’s biggest industry, and tort lawyers seemed to be the only state residents making it big. That seems to be turning around. One of the richest tort lawyers of all is Dickie Scruggs. More than a decade ago he was one of the architects of the state tobacco settlement. He recently pleaded guilty to attempting to bribe Mississippi state Judge Henry Lackey.
Thanks to Mr. Barbour, the state’s unemployment rate is down to about 6% from nearly 9%. Last year, Mississippi’s per capita income growth was 6.7%, third highest of the 50 states and well above the national average of 5.2%. Mississippi tort reform is making the poor richer, and the rich lawyers less fabulously rich. Now that’s a good way to close the income gap.