SACRAMENTO - The California Legislature is on the verge of a change in civil litigation procedure that will give companies yet another reason to flee the state for more hospitable business climes.
The State Assembly is about to follow the Senate in approving legislation that would remove the court’s discretion in deciding which information produced during the discovery process in environmental and products liability cases should remain sealed – releasing all information to the public post litigation.
Business defense lawyers say that besides violating privacy laws, the measure, SB 1149, the innocently named Public Right to Know Act, will only serve to increase litigation costs for businesses, in a state where businesses are already being driven out by prohibitive tax and regulatory compliance costs.
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“It’s costly, overly burdensome and will drag cases out,” Patrick Oot, co-chair of Shook, Hardy & Bacon’s Data & Discovery Strategies Practice Group, told Legal Newsline. “It’s terrible public policy.”
The legislation makes public all documents at the end of litigation, even those that contain personal information – some of it potentially embarrassing – and would violate not only state and federal privacy laws, but international ones as well.
As example, Oot cites cases involving companies operating within the European Union (EU), whose member countries follow the General Data Protection Regulation (GDPR), a key component of EU privacy and human rights law.
“A legitimized data transfer to the U.S. is only legal under the GDPR because the data is transferred for the purpose of confidential discovery and that confidential treatment governs the data the entire time it is in the U.S.,” Oot said. “S.B. 1149 will upend this entire regime, and is also a threat to a data transfer framework the Biden Administration just negotiated with the European Commission.”
Oot added that the legislation is one-side.
“It protects the personal information of the plaintiff but not of the defendant, their customers or anyone else even if the person has no connection to the case,” he said.
The trial bar, which has thrown its considerable influence in the Legislature behind the legislation, trumpets it as a public health and safety measure. Oot counters that the courts already have the authority to make documents public if they carry public health or safety benefits.
The bill is opposed by a coalition of business groups, led by the California Chamber of Commerce.
The legislation “will force companies to settle early so as to avoid public release of broad documents sought in discovery, as well as overwhelm California courts with unprecedented discovery fights as companies seek to protect their trade secrets,” the Chamber posted on its website.
In a separate post, the Chamber added: “Companies often deal with information that should not be shared publicly, such as customer lists, pieces of code, formulas or patents. This is information that may have to be exchanged in litigation and is viewable to both parties, but it’s something that shouldn’t necessarily be released publicly.”
In March, GlobeSt.com released a report “Exodus of Corporate HQ from California Keeps Growing” that noted that “more than two dozen California-based companies moved their headquarters to Texas last year, with Dallas-Fort Worth and Austin topping the list of TX metros that became the new home for these CA firms.”
GlobeSt cited a 2021 report by the Hoover Institution that “an exceedingly poor business tax climate is driving companies out of California.”
Moreover, in 2021, the Tax Foundation ranked California 49th for its business tax climate. Only New Jersey was worse.