Business-killing cuts to state court systems

Oct. 3, 2012 — Across the United States, “business uses the courts far more than anyone else,” explained Frank B. Cross, a professor of business law at the University of Texas at Austin. And among those cases, “the vast majority is business-to-business.” Most common among these, Cross said, are breach of contract and fraud cases that involve any product or service — office equipment, software, the work of an accountant — that doesn’t live up to the contract’s promise. Another frequent problem comes when one company misses one or more payments to another. If the unpaid firm doesn’t have ready access to courts, Cross said, that firm’s financial stability is put at risk. “A working court system is absolutely essential to business,” he concluded.

Due to increasingly severe budget cuts, more and more state court systems have become dysfunctional in the last few years. According to data from the National Center for State Courts (NCSC), a nonprofit research, consulting, and advocacy group, 42 state legislatures reduced their state court budgets between 2008 and 2011. A variety of cutbacks ensued — including staff layoffs, reductions in courthouse hours, and pay cuts for courthouse personnel — and many state judicial systems have consequently slowed down (see visualization on next page). The NCSC’s data show that since 2008, 29 states have seen an increase in case backlogs, and 15 states have experienced an increase in the time it takes for cases to go from filing through resolution.

“Let’s say I’m in a business-to-business dispute over intellectual property,” Joseph Dunn, former California senator and current executive director of the State Bar of California, explained. If the case drags on for years as opposed to months, even if the aggrieved business is otherwise healthy and eventually wins, “No investor is willing to put money down.” The pendancy of litigation can make a company seem like an unwise bet. “Banks and investors looking for a good return will avoid this kind of risk,” Dunn said. He explained that in California, before the cuts, a typical intellectual property dispute would have taken 12 months to resolve. “Now it’s three to five years,” he said. These longer wait times “have become deadly to the business community.”

Cutting muscle, not fat

“In any system if you’re a legislator and you say we’re going to cut 5 percent from the budget, the fact is that doesn’t affect everyone in the same way,” explained Gregory Hurley, an analyst at the NCSC. “If you’re [the Fish and Game Department], you can cut the amount of fuel, you can drive less for the next year. If you’re a court system, you don’t have that equipment. What you have are staff, and if your budget gets cut, you have to start letting people go.”

Roy Weinstein, managing director of Micronomics Inc., an economic research and consulting firm that has produced two reports (see here and here) on the effects of underfunding state courts, explained that the direct victims of judicial system budget cuts are “the people who service those courtrooms…the court reporter who used to work there, the bailiff or two who used to work there, the court clerk who used to work there — they’re gone.”

It is a simple formula that has been repeated in state after state: fewer judicial clerks and other support staff equal less administrative work and case management getting done. With fewer people literally moving things through the system, the system becomes sclerotic. And judges — lacking the clerks they need to help with research and associated tasks — become overburdened. Those judges take longer to decide motions and to schedule trials.

Businesses paying more of the bill

In many court systems that have had their budgets cut, courts are passing more of their costs onto litigants. In Superior Court in San Francisco, court reporters used to be provided for free in civil cases — important because, among other things, a transcript is needed if a party wishes to appeal. Last year, the court shifted that cost to the litigants themselves in most civil cases. The daily court reporter’s bill can easily exceed $1,000.

A particularly common stratagem to compensate for reduced state funding is to increase filing fees. Since 2008, according to the NCSC, 26 states have increased their filing fees.

For example, in California, among the hardest hit state courts in the country, basic filing fees for a civil case have climbed from $335 in 2008 to $435 in 2012. For more complex cases, which are frequently business-against-business disputes, the filing fees have almost doubled, surging from $550 in 2008 to $1,000 today. On top of the basic filing charge, there are other fees assessed at various phases of a case, such as for filing motions.

In 2009, Florida raised its filing fees for disputes involving less than $50,000 by over 30 percent. Fees for disputes involving between $50,000 and $250,000 increased from $295 to $900, and disputes involving higher sums have had their fee surge from $295 to $1,900. One Democratic senator from the state, Maria Sachs, told Remapping Debate that she thinks the courts should be almost entirely funded through fees.