West Virginia Manufacturers Association

Daily Mail Capitol Reporter, Thursday, October 9, 2008: CHARLESTON, W.Va.-  In the last three years, the West Virginia Supreme Court has created additional costs on companies investing in the state, according to a report by a team of West Virginia University researchers.

Economics professor Russell Sobel, law school graduate Kristen Leddy and economist/law student Matthew Yanni studied court cases from 2006 through 2008 that posed detriments on the business sector in West Virginia.

The report, released this week, is titled "Should We Keep This Court? An Economic Examination of Recent Decisions Made by the West Virginia Supreme Court of Appeals." It was sponsored by the Federalist Society for Law & Public Policy Studies, a Washington, D.C.-based nonpartisan institution comprised of 40,000 lawyers, law students and scholars.

"The cases examined here create additional costs on companies doing (or thinking of doing) business in West Virginia," the report states. "They also create cost uncertainty for businesses, which can lower the attractiveness of investing in the state. To the extent that these cases are won by the lawyers who pursue them, and their clients, this may increase the number of cases filed in the future. This draws resources away from investment and instead involves devoting resources toward litigation costs and potential wealth transfers through settlements or judgments."

The authors examine several high profile cases such as Caperton versus Massey, in which Justice Elliott "Spike" Maynard recused himself from after vacation photographs appeared of him and Massey chief executive officer Don Blankenship. Justice Larry Starcher also recused himself from the case after comments he made about Blankenship.

Justice Brent Benjamin, however, did not disqualify himself from the case after outside pressure to do so because Blankenship contributed to his campaign.

The paper's authors write, "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 also highlights 2007 cases involving Columbia Natural Resources, DuPont and Wheeling Pittsburgh Steel Corp - cases that accounted for three of the nation's top 10 largest plaintiffs' verdicts that year.

Roane Circuit Court awarded plaintiffs $404 million in a breach of contract claim against Columbia; Harrison Circuit Court awarded plaintiffs $251 million in a toxic tort claim against DuPont; and Brooke Circuit Court awarded Wheeling Pittsburgh Steel $220 million in a breach of contract claim against the Central West Virginia Energy Co.

Sobel, Leddy and Yanni say that most cases like these include large punitive damage awards designed to punish the businesses involved.

"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 states. "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."

For 2006, the authors highlighted Supreme Court case that showed justices' willingness to increase tax revenue and leave the bounds of the workers' compensation system to levy additional punishments on employers.

That year, a Delaware credit card company, MBNA, sought a refund of the West Virginia business franchise and corporate net income tax. MBNA claimed it had no real or tangible personal property or employees in the state in 1998 and 1999.

The company, however, issued credit cards and promoted itself through mail and telephone solicitation in the state. The court ruled that businesses such as MBNA are still required to pay taxes because they make money in the state, despite lacking a physical presence.

"Rightly or wrongly, this decision increases the taxes associated with doing business in the state," says the report.

In their conclusion, the authors write, "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."

To view the report online:  www.fed-soc.org/publications/pubid.1160/pub_detail.asp.

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