California Judges Are Major Contributor to State’s Poor Business Climate

A variety of businesses, ranging from Yamaha to Public Storage, have announced recently that they will leave California. Each announcement has drawn attention to the state’s poor business climate. The Governor and Legislature attract most of the blame, but the members of the third branch of government have contributed more than their share to the state’s problems. Businesses need a low-cost environment, but they also need rules that are clear and consistently applied. California’s judges do not provide a low-cost or trustworthy environment.

We can start with the most basic business arrangements, written contracts. Most state courts rely on the words in the contract. California’s judges, however, believe that words have no particular meaning – that reliance on exact language is “a remnant of a primitive faith in the inherent potency of words.” They now use a three-step approach when they consider written contracts. First, they will accept a claim that wording could be ambiguous; then, they will accept evidence of the desired meaning; finally, the judge will decide the contract’s meaning. Judges will also nullify agreements favorable to business as “unconscionable,” unless of course the business pays for everything. Contracts in California do not mean what businesses think they mean, but rather what a (progressive) judge wants them to mean.

This creative approach to language helps explain some of the many counter-factual decisions. For instance, judges have held that harassment by surfers constitutes “development.” They count as “new” to the planet the greenhouse gas emissions of people who move into new housing, never mind that the people and their CO₂ already existed and are simply moving; thus, developers must pay to “mitigate” a non-existent “impact.” And in 2022, they decided that bees are fish. This last decision upheld a power grab by a state agency to regulate almond growing, with the results being uncertainty and higher costs. 

The bees-are-fish ruling is typical in causing economic harm. California’s judges invalidate environmental studies whenever they believe the studies weren’t thorough enough, despite being commanded by three legislative acts to defer to the agencies that had conducted the studies. Environmental studies can now consume thousands of pages and cost hundreds of thousands of dollars. Judges award attorneys’ fees, often exceeding a million dollars, to people challenging business, even if the challengers lost on most of the issues they had raised. Judges allow unions to sue on environmental grounds as leverage to gain union contracts while denying the unions’ self-serving motives and refusing corporations the same right. Rulings compel the productive sector to pay for unproductive, and even anti-productive, tasks.

These decisions raise an issue beyond politics and money. The “rule of law” has two commonly understood meanings. The simpler meaning is that crime is low. California certainly has difficulties there. 

The deeper meaning of “rule of law” is that there are written, consistently interpreted, and objectively enforced rules by which people and businesses can guide their conduct. But in California, the rules a business must obey are frequently not found in legislation, and the outcome often depends on who or what you are. A losing environmental group did not have to pay its opponent’s legal fees because the group was, in the judges’ eyes, good. Within months after an appellate court interpreted a law by using dictionary definitions, the same court, in an opinion written by the same judge, held the opposite; both of those decisions went against the business groups that had sued. Builders have no contract rights in zoning or statutes, but statutes supposedly give public employees a contractual right to pensions.

Two years ago, the state’s Supreme Court would not even let the public vote on an initiative that would have limited taxes. However, the same court, a few years earlier, had allowed initiatives to evade an express constitutional restriction on taxes because, they held, the public’s power to act by initiative was vital. Voters in California are so powerful they can raise taxes illegally, but not so powerful that judges will let the voters reduce them.

Some of these decisions are old, some are recent, but all are law of the state, and the trend is bad because governors appoint ever more progressive judges; older case law, for example, allowed initiatives, like the famous Proposition 13, that limited taxes. Lawyers get blamed for bad rulings, but for every lawyer there is an equal (more or less) and opposite lawyer, and nothing happens unless judges make it so. All of California government deserves criticism for raising taxes and imposing costly new regulations. But when judges do it, the effect can be more insidious because the result was unforeseen and is virtually impossible to overturn.