Marcus Rayner • The Record / Op-Ed

According to Forbes Magazine, New Jersey is “one of the worst places to get sued in America.”

AS NEW JERSEY’S unemployment rate hovers around a regionally high 10 percent, our businesses face a stagnant economy coupled with high business costs, and our state and local governments must address significant spending cuts, some may not realize that New Jersey’s economy is taking another serious hit – from frivolous litigation.

According to Forbes Magazine, New Jersey is “one of the worst places to get sued in America.”

The American Tort Reform Association has listed New Jersey in its Top Five “Judicial Hellholes” for the third consecutive year. And that’s not an overstatement: For many high-tech, bio-tech and research-based companies, one frivolous lawsuit can spell financial ruin, and send ripple effects through our struggling economy.

Consider this: Consumers do not have to be defrauded in order to file a lawsuit under New Jersey’s Consumer Fraud Act. They don’t have to ask for a refund before suing in court, either. Warnock Dodge found this out when a customer believed she was overcharged by $40 and immediately marched to court. New Jersey courts also welcome out-of-state plaintiffs.

In one such case, an Alabama resident who claimed a popular acne medication gave him inflammatory bowel syndrome received a $25 million judgment – money he will take with him to Alabama.

Meanwhile, the New Jersey-based manufacturer stopped producing this popular product due to its costly legal battle.

Finally, when a questionable judgment is levied against a New Jersey business, many companies simply cannot afford the cost of an appeal. Defendants, like plaintiffs, deserve to appeal an unfair decision. But in New Jersey, businesses must pay in advance. A defendant cannot pursue an appeal without posting the entire award amount, and oftentimes attorneys’ fees, as a bond.

Awards have skyrocketed in recent years to the point where it is nearly impossible for many small and mid-sized businesses to obtain the financing they need to meet the bond.

As a result, it’s usually not cost-effective to fight, so many businesses are forced to settle by default, and accept the cost to their reputation instead.

Facing bankruptcy

We are one of only a few northeastern states that do not cap appeal bonds – except for tobacco companies, which do get a cap under state law. Should a company pursue an appeal, it may result in that company filing for Chapter 11 bankruptcy in order to stay the judgment.

The money used to finance a bond for the duration of an appeal – which often takes years – is lost and never recovered, no matter what the outcome.

Reforming our civil justice system is gaining traction in Trenton. It’s a cost-neutral approach to revitalizing our economy, and the Legislature is starting to notice: Sen. Raymond Lesniak, D-Union, and Assemblyman Gary Schaer, D-Passaic, introduced S-480/A-2473, which would limit the amount of appeal bond in a civil action to the total amount of the judgment, not exceeding $50 million.

Granted, this legislation seeks to alleviate dire consequences once a business has already been dragged into court. To keep companies out of abusive litigation to begin with, remedies to New Jersey’s Consumer Fraud Act need to be pursued, and higher standards for what may be considered expert evidence at trial are needed as well.

Testimony given by experts in court can determine a trial’s outcome – and consequently, whether a business will cease to exist. New Jersey’s court rules regarding what may be considered hard science have not been updated since 1991.

The rules also don’t require a witness’s testimony to be consistent with reliable scientific principles and methods used by other experts in that field, like they do in federal court.

Courtrooms as guinea pig

In turn, this has meant that New Jersey’s courtrooms have become somewhat of a guinea pig for personal injury lawyers promoting unsubstantiated scientific theory. There is a reason why 93 percent of mass tort litigation against our pharmaceutical companies have been filed by out-of-state plaintiffs: New Jersey has made it easy to sue businesses on the shakiest grounds possible that few other states would entertain.

It should come as no surprise that a class action lawsuit against Denny’s, which alleged the restaurant chain used too much sodium in its entrees, was filed in Middlesex County.

Governor Christie and the Legislature have an enormous task before them. The appropriate balance of taxes and spending reductions is always difficult to identify with certainty, especially when state and local governments’ revenue sources are less certain and businesses struggle to provide the stability on which many local economies depend.

Tort reform can help New Jersey businesses during this economic downturn. And it can do it without costing the state money.