In 2015, Forbes magazine ranked California 48th out of 50 in regulatory environment. So why is the world’s 8th largest economy behind Rhode Island when it comes to business climate? Some of the answers were the topic of discussion during the Independent Voter Project’s annual Business and Leadership conference.
Four days of conversation among business leaders and members of the California legislature bore out some of the challenges facing the country’s most populated state. Topics entailed an unintended legal vulnerability in insurance rate policy, disposal of pharmaceutical products, an emerging phenomenon of ‘mass-action’ lawsuits, and the common-sense solutions that can protect consumers and businesses alike.
Ultimately, the legitimacy of California’s legal system will play the key role for preventing regulatory catch-22’s from adding to the Golden State’s already dismal regulatory climate.
Kim Stone, president at Civil Justice Association of California, summed up the sentiment by saying, “We have this problem of extortionate lawsuits and it’s not even working.”
In each one of the highlighted policy areas, a common thread emerged: California’s courts too often become a place for legal strong-arming and intimidation rather than a medium for impartial justice.
For Stone, it’s a problem that can easily sink any small business. When it becomes too easy to cash in on the legal system, no one is going to try to start or grow a business in California. She added, “That’s the public policy failing.”
As a result, regulations on domestic businesses aren’t working as intended and are easily taken advantage of through minor technicalities. This ultimately serves neither the intended goal of the law nor results in positive outcomes for businesses or even consumers. Opportunistic actors are taking advantage of previous policies, which are not being enforced as intended.
How is this problem impacting business in California?
- What seemed like a relatively minor technical change to the definition of ‘proceeding’ with respect to insurance rate changes in 2007 has opened the gate for opportunistic litigants to delay normally routine court proceedings. This has left Californians with a substantially longer rate-change process than most other states while consumers are stuck in Court until enough legal fees are collected to warrant the investment.
- Pharmaceutical providers are trying to comply with product reclamation rules passed by local counties, but the mandated programs are having little impact. To add insult to injury, the businesses participating in the program are getting fined for being in receipt of non-recognized substances that were never supposed to be collected anyway.
- The fairly recent development of mass-action lawsuits conglomerate residents of multiple states into one lawsuit. Usually it is filed in California due to plaintiff-friendly court policies. Consequently, California courts are filling up with lawsuits where many plaintiffs are not CA residents and don’t receive adequate legal representation.
With all these issues now on the table, examining exactly where the current policy failings lie is the next step. Ironically, in changing current rules and regulations, there's always the danger of unforeseen consequences leading once again to ineffective and inefficient government bureaucracy.