Attorney-Client Fee Arrangements Initiative Would Boost Frivolous Lawsuits, Slow Economy; Study Sees $1.5 Billion Rise in Business Costs, 160,000 Decline in Jobs

Business Wire, June 24, 1996

SACRAMENTO, Calif.--(BUSINESS WIRE)--June 24, 1996--Voter approval of the Attorney-Client Fee Arrangements Initiative on the November ballot would add about $1.5 billion a year to the operating costs of California businesses, causing some to leave the state and discouraging others from moving in, according to a study released today by Taxpayers Against Frivolous Lawsuits (TAFL).

The increase in business costs would reduce the state's economic output by as much as $106 billion during the decade after the Initiative became law and could cost the state nearly 160,000 jobs, the study said.

The study, prepared by the Law and Economics Consulting Group in Emeryville, said approval of the initiative would significantly multiply the number of baseless securities class action suits against California companies and force them to shift resources from productive activity to employing various protective measures designed to reduce the risk and expected cost of such baseless lawsuits.

"The Attorney-Client Fee Arrangements Initiative invites lawyers from across America to race to California and make easy money by filing frivolous lawsuits," said Kirk West, president of the California Chamber of Commerce and TAFL Co-chair. "It means a weaker economy, fewer jobs and less total income for the people of California."

"By lowering the standards of evidence and proof for filing a lawsuit, the initiative would effectively compel California state courts to accept suits that Congress considered abusive and could not be filed under the new federal law," the study said. "The initiative would make California's courts the venue of choice for suits that won't stand up in federal court."

The study, "Analysis of the Effects of the Securities Litigation Initiative on the California Economy," said the costs created by the initiative would be equivalent to an average 1.6 percentage point boost in the state income tax on business. Like any new tax, the levy will soak up money that would otherwise be used for investment and expansion, the study added. It will also convince some businesses not to establish operations in California.

The initiative also would deprive the state of tax revenues by slowing economic growth. The California treasury would lose between $3.4 billion and $5.1 billion over the next decade if the initiative becomes law.

"This initiative would reverse the common sense decision of Congress, which with overwhelming bipartisan support, voted to crack down on frivolous lawsuits," West said. "It would create hundreds of millions in fees for a small group of lawyers and stick California taxpayers with the bill."

The study also showed that the initiative would be especially damaging to the state's high-tech community. It projected a 4.1 percent reduction in the economic output of computer related industries and a 3.5 percent drop in high-tech manufacturing should the initiative become law.

Taxpayers Against Frivolous Lawsuits is a coalition of seniors, small business, taxpayers, high technology and financial services companies and associations. -0-

Securities Litigation Initiative Threatens

California Economy and Jobs

Passage of the securities litigation initiative would greatly increase the number of baseless lawsuits filed against companies in California courts. In California, the ballot measure would result in lost jobs and reduced economic output in a multitude of industries, including real estate, health services and electronic components and accessories.

According to a recent study by the Law and Economics Consulting Group Inc. of Emeryville, over the next decade the initiative would:

-- Add $1.5 billion a year to operating costs of California businesses

-- Cost the state nearly 160,000 jobs

-- Reduce the state's economic output by $106 billion

-- Reduce economic output of computer-related industries by 4.1 percent, high-tech manufacturing by 3.5 percent and total manufacturing by 3.2 percent

-- Increase by 82 percent, from $137 million to $249 million, the cost of settlements and legal fees directly related to securities class action suits

-- Increase to $1.3 billion annually the amount California businesses pay for "protective" measures designed to reduce the risk of lawsuits

-- Cause a decline in economic activity that would reduce the average California household income by $155 to $235 each year

-- Reduce state tax revenues as much as $5.1 billion

-- Increase the state's court costs by $7.2 million per year

CONTACT: Edelman Public Relations, Sacramento

Jami Warner or Tina Harris, 916/442-2331