Legal reforms provide backdoor to state’s economic prosperity

This commentary originally appeared in the Midland Reporter-Telegram on June 8, 2015.

If one were to rank the beneficiaries of Texas’ triumphant economy, Midland would sit close to the top. The city witnessed 59 consecutive months of economic expansion and to this day enjoys an unemployment rate that turns comparable cities the same color green as Midland College’s athletic uniforms.

Much of that success has been fostered by reducing the number of restrictions on private enterprise. There’s even a moniker for the state’s particular combination of limited government policies — the Texas Model.

This past session, however, saw lawmakers take a slightly different but no less important track. Rather than peeling back the state codes, the 84th Texas Legislature placed a renewed emphasis on another aspect of the Texas Model, which would make the civil courts system more resistant to legal gamesmanship.

Plaintiff’s attorneys, for instance, will no longer have free rein to investigate and disclose a defendant’s net worth to a jury whenever their clients claim a right to punitive damages. Evidence of a party’s wealth can be extremely prejudicial. Permitting attorneys to use the information as leverage posed a serious risk that verdicts would be based on the contents of a defendant’s wallet, not the merits of the case.

The Legislature also opened up asbestos litigation to greater transparency. Past federal reforms had created a procedural loophole, where attorneys could hide their clients’ exposure history and submit conflicting claims. Manufacturers were therefore being saddled with damage awards far in excess of their responsibility.

Sick Texans received extra money on occasion — well, at least their legal counsel did — but the overpayments had a habit of pilfering the funds from future claimants, many of whom lacked alternative avenues of relief.   

Other reforms took umbrage with government overreach. State law grants thousands of organizations the power of eminent domain. But, until this session, property owners often could not discern which ones were properly delegated that authority without incurring heavy litigation expenses. An assertion alone was often enough to secure compliance.

To improve this situation, the Comptroller’s office will now maintain a database of all entities authorized to condemn property. It’s a small change to be sure, but one which will give Texans more information on when and how to defend their rights.

So, how does this connect back to the prosperity cities like Midland have seen over the last decade?

Economic growth hinges on the quality of courts the same way it depends on well-reasoned, pro-market laws. While statutes help contain harmful private behavior, it’s through the courts that these restrictions are enforced.

If that process was for some reason captured, then Texans stand at risk of having their rights left unaddressed. Litigation can even turn hostile so that it’s used to exact judicial rent-seeking or, in the case of state agencies, to circumvent the democratic process. Either way, the courts become just as disruptive to business activities as over-regulation.

Texans suffered through this exact scenario for years before reforms in the early 2000s brought much needed relief.

Thinking back to Midland, the city expanded because companies had the freedom to invest large amounts of capital. They were willing take the chance because the Texas Model lessened the risk of their investment coming to naught on the account of harmful government or private actions.

Does anyone expect that these companies would have been nearly as eager to invest if they couldn’t rely on an impartial jury? Or, if the rules of evidence denied them adequate opportunity to defend themselves in court? What happens when the specter of bankruptcy dogs every claim of wrongdoing regardless of fault?

Competitive markets demand more than just assurances written inside state codes. They need a judicial system that will resolve disputes fairly and interpret statutes within a short distance of their plain language.

The bills enacted over the last few months recognized the impact courts have on an economy, which is why the reforms of the recent legislative session were a solid victory for Texans in Midland and across the state.

Kathleen Hunker is a policy analyst with the Center for Economic Freedom at the Texas Public Policy Foundation. Follow her on Twitter @KathleenHunker.