Litigation Costs and Opportunities Lost

The Fiscal Impact of Lawsuit Abuse on California’s Largest Counties and Cities

 A Report from Citizens Against Lawsuit Abuse July 2007

Introduction

Lawsuit abuse inflicts an enormous burden on our economy. When sued, defendants must pay for attorneys to represent them and often choose to settle their cases to avoid further legal fees and the risk of a jury awarding a large verdict of either economic or non-economic damages (such as pain and suffering). A large portion of these verdicts are given not to the alleged victims but rather to their attorneys.

Yet lawsuit abuse negatively impacts more than just defendants; it also has indirect economic impacts. A recent study by Tillinghast-Towers Perrin found that every American pays an extra $880 each year to offset the costs of lawsuit abuse.1 Another study by the Pacific Research Institute indicates that, when all costs are taken into account, the figure is almost three times higher.

When a city or county is party to a lawsuit, taxpayers in those jurisdictions get hit again. Cities and counties are forced to use their tax dollars to pay for legal counsel, settlements and verdicts in addition to the administrative costs taxpayers already pay. This is money that otherwise would have been spent on providing services to its citizens.

From slip-and-falls on government property to employment-related suits to conflicts between government agencies, unnecessary lawsuits clog the courts, delaying justice for true victims while costing all Californians. An examination of these costs demonstrates the full extent of taxpayers’ burden.

While some lawsuits filed against cities and counties are certainly legitimate, many others illustrate the problem of unnecessary lawsuits. For example

• While rollerblading in Newport Beach, a woman tripped over the sidewalk and fell. She claimed the fall caused an increased risk of breast cancer as a result of her injury. She filed a claim for $30,210, of which $210 was for current medical bills and $30,000 was for pain and suffering related to worrying about developing breast cancer.A man sued the City of Lodi for damages when a dump truck backed into his car, even though he – a city employee – was the person driving the dump truck. Even after admitting fault in the accident, the man filed a $3,600 claim for damages to his car.
• In San Diego, a man was attending a concert at Jack Murphy Stadium when he needed to use the bathroom, but found women in the men’s facility due to a long line for the women’s room. He sued the stadium and the city for $5.4 million on the claim that emotional distress prohibited him from being able to "go," and he therefore had to hold it in for around four hours.

Regardless of the nature of these particular suits, cities and counties must spend time and resources to defend themselves in court, even if a case is ultimately dismissed.

This report exposes a fact often not publicly discussed at city and county council meetings: that personal injury lawyers who target municipalities in their lawsuits are costing California taxpayers millions of dollars each year.

Methodology

In order to examine the impact of litigation costs on municipal budgets, Citizens Against Lawsuit Abuse (CALA) made inquiries to the following jurisdictions: County of Los Angeles, Orange County, Sacramento County, San Diego County, City of Los Angeles, City of Anaheim, City of Sacramento and City of San Diego. Each was asked for the amount the city or county spent on verdicts and settlements and outside counsel for fiscal years 2005 and 2006. Only the City of Anaheim said it did not report that information publicly.

Once the litigation costs were received, CALA examined city and county budget documents published on the Internet to find line items for cost comparison purposes. The full sources for these items are noted throughout this report.

Litigation Costs of California Counties

In fiscal year 2005, California’s four largest counties paid $79.2 million in litigation costs - $38.4 million in verdicts and settlements and $44.9 million on outside counsel. (See Table 1)

These counties must forgo expenditures on other services for citizens when burdened by these costs. For example:

• In Los Angeles County, automated fingerprint ID systems for the entire Sheriff’s Department could have been installed almost two times over, at a cost of $34 million each.6 These devices help law enforcement agents identify and apprehend criminals more quickly;
• Approximately 33 acute psychiatric beds could have been funded at an average annual cost of $250,000 per bed, moving patients in need of assessment and treatment out of Orange County emergency rooms and into psychiatric care;
• The County of Sacramento could have more than tripled the $1.7 million spent to add positions to staff an interim prisoner housing facility at Rio Cosumnes Correctional Center; and
• The $3.8 million spent by the County of San Diego was enough to replace 84 pre-1987 diesel school buses with buses using natural gas or clean diesel, at a cost of $107,500 per bus.

• Hire more than 73 emergency response staff in Los Angeles County at an average cost of $1 million each. The response staff act as first responders for the city in case of a natural disaster;
• Hire 196 Emergency Management employees who lead, promote, facilitate and support Orange County and operational area efforts to mitigate, prepare for, respond to and recover from disasters, at a cost of $61,075 per employee;
• Install in-car cameras in Sacramento County squad cars to increase officer safety and improve community understanding of law enforcement activities six times over, at a cost of $1.8 million; and
• Cover almost half of the $3.4 million spent on the Mission Road Improvements Projects in San Diego County.13

Table 1: County Litigation Costs, Fiscal Years 2005 & 2006 Cost (in millions)

Litigation Costs of California Cities

In fiscal year 2005, California’s largest cities also bore high litigation costs, paying $49.1 million - $42.8 million in verdicts and settlements and $6.3 million on outside counsel. (See Table 2)

Had these cities not incurred these large costs in lawsuits, taxpayers dollars could have been better spent on needed resources and services. For example:

• The City of Los Angeles could have repaired and added necessary new street lights for the entire city, increasing visibility and safety, for the next ten years;
• The City of Sacramento could have hired 23 new firefighters at a cost of $115,820 per firefighter; and
• The $7.6 million spent by the City of San Diego could have repaved over 46 miles of streets with asphalt.

These numbers held steady in fiscal year 2006, costing these cities $47 million in litigation, with $42 million spent on verdicts and settlements and $5 million spent on outside counsel.

Again, this money could have been better spent on other budget items. For example:

• In Los Angeles, the $38.6 million is more than one-half of the city’s total expenditures on libraries;
• The City of Sacramento could have paid for three and a half years worth of maintenance to every Sacramento neighborhood park; and
• The $7.6 million spent by the City of San Diego was enough to pay for seven and a half lifeguard docks at the cost of $1 million each.

Discussion

The impact of litigation costs on city and county governments is often overlooked by policymakers and citizens. However, this report demonstrates that when personal injury lawyers set their sites on municipal governments, taxpayers wind up paying a hidden tax—not for additional services but to enrich those lawyers who make a living targeting California’s public entities.
In just two fiscal years, the cities and counties of San Diego, Los Angeles and Sacramento, together with Orange County spent more than $276 million on settlements, verdicts and outside counsel.

While staggering in its own right, this figure still does not reflect all costs associated with city and county legal cases. The counsel costs reported here do not include the time and money that staff attorneys on the public payroll of cities and counties spent defending against frivolous lawsuits. Nor do those figures include the opportunity costs – the lost ability to spend this money on other items – of litigation.

Often, opportunity costs are amorphous. But when it comes to the way that local governments conduct their business, citizens and taxpayers can regularly see the effects of ill-spent funds. Overcrowded schools, police officers, ambulances and emergency personnel delays due to understaffing, and roads, libraries and parks in disrepair, all force us to call into question the expenditure of millions of dollars on litigation.

No doubt there are legitimate claims against city and county governments, for which they need to defend themselves. However, for too many personal injury attorneys, governments are yet another deep pocket to attack in hopes of landing a big payday.

Local governments certainly do not enjoy paying out these verdicts and settlements. In fact, many cities, like the City of Sacramento, are taking aggressive measures to fight predatory lawsuits. By ensuring ongoing communication between the City Council, city attorneys, appropriate city agencies and the risk management department, Sacramento’s City Attorney has adopted a “no surprises” policy that encourages transparency about the litigation of which the city is a party.

Earlier this year, Los Angeles Mayor Antonio Villaraigosa issued an executive order requiring senior staff in every city agency be assigned as a risk manager and submit quarterly reports to the mayor’s office on claims, lawsuits and settlements.

“The public is justifiably frustrated with the big multimillion-dollar judgments and settlements and payouts that they see the city meting out,” noted City Controller Laura Chick at a news conference announcing the executive order.

Efforts to cut down on city and county liability should be applauded and encouraged. Many county leaders, including Los Angeles County Supervisors Gloria Molina and Mike Antonovich, are calling into question policies that shield information about litigation costs from taxpayers. “I think there is a responsibility to be effective lawyers and to protect ourselves, but the public should know what these settlements are,” said Molina. “It’s their money…We’ve got to strike a balance.”

It is only through complete public disclosure and a full understanding of the implications of municipal settlements that city and county managers can more effectively control these costs. The public needs to demand accountability from their local governments and encourage action to fight lawsuit abuse that – at its heart – victimizes taxpayers every day.

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