Don't Get Sued in These States

Every small business owner's nightmare turned out to have a happy ending earlier this week when a judge in Washington, D.C. tossed out a $54 million lawsuit against a dry cleaner who had misplaced a pair of pants.

But the Chung family, which owns the dry cleaning business, might not have been so lucky in West Virginia. According to a new study by the U.S. Chamber of Commerce, the Mountaineer State has the worst legal climate for small businesses in the nation. Following closely on its heels are the southern states of Mississippi, Louisiana and Alabama. California and Illinois ranked just above them.

The survey, which also examined the legal climate in selected cities, found that small businesses fared the worst in major metropolitan areas such as Chicago, Los Angeles, New York, San Francisco, and Miami. But even mid-sized cities like Beaumont, Texas, had one of the worst municipal legal systems.

On the flip side, Delaware had the best legal climate for the fourth year in a row, followed in the most recent survey by Minnesota, Nebraska, Iowa and Maine.

The U.S. Chamber Institute for Legal Reform conducted the study by surveying in-house, corporate general counsels and other senior corporate litigators. Those surveyed were asked to rate states and cities on an "A" through "F" scale for such factors as enforcing meaningful venue requirements, handling of tort and contract litigation, treatment of class action suits and punitive damages awards. The grades were combined to create an overall ranking of state liability systems.

Small business owners have consistently cited the threat of lawsuits and litigation costs as major concerns. A majority (57%) in the Chamber survey said a state's litigation climate would be likely to impact important business decisions at their company, such as where to locate or do business. The Chung's experience proved to be a case in point. Although the judge ruled after a trial that the suit was baseless, the family still racked up more than $100,000 in legal bills over a two-year period. The case drew international attention and was considered an example of the nation's lawsuit-happy legal system.

Small business groups cited it as a prime example of the need for legal reform. When asked to identify problem areas, punitive damage awards topped the list. It was cited by 12 percent of those polled in the Chamber survey, followed by timeliness of decisions (9 percent), tort reform issues (8 percent), unnecessary lawsuits (7 percent), excessive jury awards (6 percent) and excessive non-economic damages (5 percent).