CHARLESTON – Sixty percent of West Virginia small business owners say they are very or somewhat concerned about the impact of frivolous lawsuits on their businesses, according to a study by the nonpartisan market research firm Harris Interactive released this week by the U.S. Chamber Institute for Legal Reform.
The survey also showed that many of those small business owners alter business decisions as a result. According to the researchers, these business owners respond to their fears about the lawsuit climate by increasing prices for goods and services, reducing or eliminating products, and reducing employee benefits or employee layoffs.
"Some people have tried to characterize West Virginia's lawsuit crisis as a problem only for large corporations," ILR president Lisa Rickard said in a statement. "But this new study shows frivolous and unfair lawsuits are a serious concern for all West Virginians, especially small businesses."
The West Virginia Association for Justice disputes the findings of the survey, questioning the methodology.
WVAJ Executive Director Beth White said the survey has no legitimacy because it questioned only businesspeople who already said they were concerned about the state's legal climate.
"It's like going to Mountaineer Field and only asking people in WVU sweatshirts about who they want to win the Backyard Brawl," White said. "Or asking a 10-year-old if he wants pizza or liver for dinner. What do you think they're going to say?"
The executive director of another group, however, said the survey results highlight an ongoing problem in the state.
"Once again employers rank West Virginia as being the worst state legal climate in the country for creating jobs," said Steve Cohen of West Virginia Citizens Against Lawsuit Abuse. "Unfortunately our 'Open for Business' slogan is mimicked by many as actually being 'Open for Lawsuits.'
"Until the politicians in Charleston stop personal injury lawyers from hauling their out-of-state plaintiffs into West Virginia courts and stop Attorney General Darrell McGraw's abuse of power, young people here will continue their exodus."
Harris Interactive surveyed owners and managers of West Virginia small businesses who were most concerned about the tort liability system in the state. It targeted 237 owners and managers for firms with $10 million or less in annual revenues with at least one employee.
White said the WVAJ had Washington-based Peter D. Hart Research Associates review the survey.
"Earlier this month the U.S. Chamber Institute for Legal Reform released a survey among West Virginia small businesses that purports to measure the attitudes of the state's small business owners on important civil justice issues," that review said. "Unfortunately, the methodology of the survey is so badly flawed that it should not be considered in any way to be an accurate survey among West Virginia small business owners."
Other things mentioned in the Hart review include how a small number of people were used in the survey, that it took nearly four months to conduct the survey and that exact wording of the questions were not released.
"The most egregious flaw in the methodology is that only business owners who are likely to share the U.S. Chamber's perspective on these issues were allowed to participate," the review continues. "Until these questions are available for public review and scrutiny, including the potential placement of additional questions that may have biased responses to those questions whose results have been released, no news organization should accept its findings as legitimate.
Eighty-five percent of those surveyed said they were concerned about being drawn into a frivolous or unfair suit, and 60 percent said they were "very" or "somewhat" concerned.
Eighty-four percent of those polled said West Virginia needs to pass new laws to protect businesses from frivolous or unfair lawsuits, 76 called frivolous or unfair lawsuits a "major problem," and 47 percent described the overall fairness of the lawsuit system in West Virginia as poor.
The survey found that, if they felt like they would be protected from lawsuit abuse, 59 percent of these concerned owners say they could grow their businesses. The owners would use the increased revenue to improve their facilities or buying new equipment (86 percent), increase wages and benefits for their current employees (84 percent), or by hiring new employees (71 percent).
The Harris study polled 237 owners and managers for businesses in West Virginia with $10 million or less in annual revenues who had at least one employee, and who were very or somewhat concerned about being sued in a frivolous or unfair lawsuit.
Among all small business owners in West Virginia, 85 percent are concerned they might be the target of a frivolous or unfair lawsuit, with 60 percent being "very" or "somewhat" concerned. The researchers considered those who said "very" or "somewhat" concerned to be "qualified respondents." A survey with this sample size has a theoretical sampling error of plus or minus 6 percentage points.
"Although some liability costs represent legitimate compensation for damages sustained, these studies leave no question that West Virginia small businesses pay an extremely high price for the excesses of our lawsuit system-money that the business owners could use to expand operations, develop new products, hire additional employees and grow the Mountain State's economy," Rickard said.
The new study confirms the state liability ranking report released by ILR last month, which showed West Virginia falling dead last nationwide on all 12 factors considered in a survey of lawyers for companies with annual revenues of at least $100 million.
The study of the impact of lawsuits on West Virginia small businesses was done in conjunction with a national small business impact study, as well as a study measuring the national economic impact of lawsuits to small businesses.
The Tort Liability Costs for Small Businesses study, conducted by NERA Economic Consulting, found that small businesses nationally (those with $10 million or less in annual revenue) paid $98 billion in tort-related costs in 2005, the latest year for which data is available, with $20 billion coming from the assets of the businesses rather than through insurance. For a small business with just under $5 million in annual revenue, that translates into about $120,000 a year that it will pay out in tort-related costs, the study says.
"Given that the lawsuit culture transfers billions of dollars in assets critical to the continued survival of small businesses into the bank accounts of trial lawyers, it's no wonder so many West Virginia business owners worry about their broken lawsuit system" Rickard said.
The Record is owned by the U.S. Chamber of Commerce.
Copies of the NERA Consulting study and the West Virginia small business survey are available online at www.instituteforlegalreform.com.