The Rule of Law

1
The Rule of Law

• Russell S. Sobel, Ph.D.
• Professor of Economics
• James Clark Coffman Distinguished Chair
• West Virginia University

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First Book Unleashing Capitalism

• Over 5,000 copies sold
• Over 200 public presentations
• Presentations to 2 Governors
• Won Sir Antony Fisher Award

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Prosperity is the Result of Having Good
Institutions- Economic and Legal -
The Main Point
4
Economic Growth is a Function of Both Inputs
and Institutions
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Route 50
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Our New Book

• Focuses on Legal Institutions
• Book is Forthcoming in Spring 2009
• Edited Volume - Similar to Unleashing Capitalism
• 12 Chapters
• 15 Authors
• Today Ill Summarize Ideas from the Book

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WVs Legal Rankings

• Institute for Legal Reform
• State Liability Systems
• Ranking Study
• (U.S. Chamber of Commerce)
• American Tort Reform Association (ATRA) has named
  the entire state of West Virginia as a Judicial
  Hellhole

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WVs Legal Rankings

• In 2007 WV Circuit Courts awarded three of the 10
  largest plaintiffs verdicts in nation
• Retired West Virginia Supreme Court Justice
  Richard Neely
• As long as I am allowed to redistribute wealth
  from out-of-state companies to in-state
  plaintiffs, I shall continue to do so. Not only
  is my sleep enhanced when I give someone elses
  money away, but so is my job security, because
  the in-state plaintiffs, their families, and
  their friends will reelect me.

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Legal System Quality and Economic Prosperity
Evidence
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What Exactly is a Good Legal System?
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The Rule of Law

• The rule of law is a broad concept that
  describes a society that is governed not by
  people, but instead by established, fair, and
  predictable rules of interaction
• WV Supreme Court Justice Robert Jackson, 1943
• One's right to life, liberty, and property, to
  free speech, a free press, freedom of worship and
  assembly, and other fundamental rights may not be
  submitted to vote they depend on the outcome of
  no elections."
• "The very purpose of a Bill of Rights was to
  withdraw certain subjects from political
  controversy, to place them beyond the reach of
  majorities and officials and to establish them as
  legal principles to be applied by the courts.
• Your rights to life, property, etc., shouldnt
  arbitrarily depend on who is in power in
  government (all branches)

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Laws as Rules of the Game

• For the game to go smoothly, the rules must be
  applied in a predictable fair mannerthey cant
  be changing in the middle of the game

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Role of the Legal System in a Free Market Economy

• People free to do as they wish as long as they
  dont infringe on others
• Role of legal system is to be there when
  infringements happen, to
• Enforce property rights
• Enforce contracts
• Set the price of infringements

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Reasons Why a Poor Quality Legal System Hurts an
Economy

• Increases the Cost of Doing Business
• Rulings can significantly increase business costs
• Even unsuccessful lawsuits cost money to defend
• Increases Business Risk
• Market Risk vs. Legal Risk
• With legal risk can lose more than invested
• Productive vs. Unproductive Entrepreneurship
• Draws the states resources out of productive,
  wealth creating activities and devotes them
  instead toward attempts to secure (and defend
  against) wealth transfers
• Other Unintended Consequences
• Example Prescription drug warning sheets

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Specific Reforms
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The Rule of Law Suggested Reforms

• End Partisan Judicial Elections
• Most states (including N.C. in 2004) have
  switched away from partisan elections
• In West Virginia, moving to nonpartisan can be
  done legislatively, moving to appointment would
  require a constitutional amendment
• Pros Cons (more independents, less perception
  of politics/money, information?)

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Legal Quality Judicial Selection
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Selected Quotes

• The Honorable Sandra Day OConnor, U.S. Supreme
  Court (Retired) (Ch.1)
• I wish you success as you consider reforms to
  the judicial selection methods used in West
  Virginia that will safeguard judicial
  independence and the rule of law in the years to
  come An appointment process for judges followed
  by periodic retention elections offers clear
  advantages over partisan judicial elections If
  contested judicial elections are to continue,
  they should be made non-partisan.
• The Honorable Wanda G. Bryant, North Carolina
  Court of Appeals (Ch. 2)
• I have run for election under the old partisan
  system which allowed private financing of
  judicial campaigns as well as the new public
  financing systemThe nonpartisan aspect of
  campaign reform is a welcome change.
• Alexander Tabarrok, Ph.D., George Mason
  University (Ch. 3)
• Awards against businesses in general are larger
  in partisan states than in non-partisan states,
  but the majority of the partisan effect is due to
  a particular bias against out-of-state business
  defendants.

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The Rule of Law Suggested Reforms

• Joint several liability reform for civil tort
  claims
• Car/Concrete Truck Accident Example
• Should Coal Company be Held Liable for Full
  Amount?
• Now 30 (or 10) in some cases, but many
  exceptions
• Impose statutory limits on, or increase the
  standard for determining, punitive damages
• From earlier 3 of the 10 largest verdicts in
  2007
• Should we award punitive damages in breach of
  contract cases?

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The Rule of Law Suggested Reforms

• End venue shopping by imposing meaningful venue
  requirements
• Within state venue shopping picking your
  judge
• Example Justice Warren McGraw in one of 9
  single-judge circuits (Wyoming Co.) so a case
  filed will necessarily and predictably be heard
  by that judge
• Other popular venues Brooke McDowell counties
• 15 other circuits (out of 31 total) have only two
  judges
• Out-of-state cases in our state courts (esp. mass
  tort litigation like asbestos, tobacco)

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The Rule of Law Suggested Reforms

• Eminent Domain Reform
• Enact legislation restricting the definitions of
  public use and blight, and the use of eminent
  domain for private benefit
• Create an intermediate appeals court system in
  conjunction with a right of first appeal
• West Virginia is the only state to provide an
  appeal solely at the discretion of its appellate
  court in all cases decided in its lower courts
• Bureau of Justice Statistics Study
• 15 of lower court cases are appealed
• 3 are reversed, remanded, or modified
• If goal is reducing error a second opinion
  always helps

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The Rule of Law Suggested Reforms

• Revise the standard used to decide deliberate
  intent in workers compensation cases
• How the Workers Compensation System works
• Injured employees get workers compensation
  benefits on a no-fault basis
• Money is from the (employer funded) workers
  compensation fund
• Injured employees can not sue their employer
• UNLESS the injury was the result of a
  deliberate action of the employer
• Many believe that West Virginias current
  standard for determining whether an injury is
  deliberate is still too broadly interpreted,
  resulting in too many lawsuits, and an
  unnecessarily high cost of doing business in the
  state
• Mandolidis (1978) made unsafe deliberate
• Ryan v. Clonch failure to inspect / uphold OSHA
  regulations deliberate
• In addition, in Roberts v. Consolidation Coal
  (2000) the court ruled that in a deliberate
  intent case, an employer cannot introduce
  evidence of the employees contributory
  negligence
• (unless self-inflicted or the employee was
  intoxicated)
• Employee was injured while fixing a machine he
  wasnt allowed to work on, and jury found him to
  be 49 at fault, was overruled

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Do Legal Reforms Work? Evidence from Medical
Malpractice Reform

• Medical Malpractice Reform The Evidence
• West Virginias health care system crisis a few
  years ago happened because physicians could not
  find or afford medical liability insurance
  coverage
• Reform The Medical Professional Liability Act
  has led to improvements in claims statistics,
  number of new physicians, and insurance rates
• Unfortunately, the Supreme Court could strike
  down major provisions of the reform

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Thinking Properly About Reform

• In the end we are in competition with the other
  49 states and must have a competitive legal
  system

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Thank You / QA
Contact Information Russell S. Sobel,
Ph.D. Coffman Distinguished Chair Dept. of
Economics, WVU Russell.Sobel_at_mail.wvu.edu (304)
293-7864
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The Rule of Law Reform Summary

• Replace partisan elections of judges with
  nonpartisan elections
• Restrict the power of local governments to use
  Eminent Domain (prohibit private transfers
  redefine public use and blight)
• Eliminate joint and several liability in all
  civil tort claims
• End venue shopping by imposing meaningful venue
  requirements
• Impose statutory limits on punitive damage
  awards, or increase the standard for determining
  when to award punitive damages
• Create intermediate appeals court system and an
  appeal of right
• Revise the standard for deliberate intent in
  workers compensation cases