A new skirmish in ‘tort wars’

No session of the California Legislature would be complete without at least one skirmish in the decades-long conflict known to Capitol insiders as “tort wars” — and this year is no different even though the COVID-19 pandemic dominates political consciousness.

A tort is, as one dictionary defines it, “a wrongful act or an infringement of a right (other than under contract) leading to civil legal liability.”

If another driver is talking on a cellphone instead of paying attention to the road and slams into the rear of your car, that’s a tort and you or your insurer can sue the errant motorist and his insurer for damages.

More broadly, however, defining actionable wrongful acts is left largely to the Legislature, which makes it a very political process with countless billions of dollars at stake.

Perennially, lawyers who specialize in personal injury lawsuits, through the Consumer Attorneys of California, and groups with legal axes to grind attempt to expand opportunities to sue and collect damages. Opposing them are business, employer and insurance interests which have their own umbrella lobby, the Civil Justice Association of California.

This year, in response to the pandemic, legislative leaders have tightly limited the number of bills they will consider, but one of them, if enacted, would expand a state law dealing with “false claims” into state tax cases. Assembly Bill 2570, a new version of a bill that failed last year, would allow the attorney general and private lawyers to go after taxpayers alleged to be cheating.

It would be a new role for the Department of Justice because the False Claims Act now specifically bars its use in tax cases, leaving them to the Franchise Tax Board.

Attorney General Xavier Becerra is sponsoring the bill, carried by the chairman of the Assembly Judiciary Committee, Santa Cruz Democrat Mark Stone, and they have backing from local governments, labor unions and, of course, personal injury attorneys. The sponsors say hundreds of millions of dollars could be collected from “ tax scofflaws,” as Stone describes them.

A phalanx of business groups, led by the California Chamber of Commerce, opposes the legislation, saying it would be a hunting license for rapacious lawyers to go after taxpayers even if they’ve been cleared by the state’s notoriously aggressive tax collectors. And, they say, the bill would impose new burdens on businesses already struggling to survive during the pandemic.

How much revenue such a law would generate is very unclear. After New York enacted such a law, the proponents argue, it generated about a half-billion dollars over 10 years. They also point to an estimate by the California Franchise Tax Board of a “tax gap” — taxes owed but unpaid for one reason or another — of $20-25 billion a year.

However, that was a horseback estimate in 2010, based on a federal study, and when the California Taxpayers Association questioned its validity, the tax board could produce no supportive data and removed the estimate from its website.

So the real answer is that no one knows how much, if any, additional revenue would be generated by loosing the attorney general and private attorneys to seek out corporate whistleblowers and initiate tax suits.

Bill opponents say it could also morph into legal shakedowns in which companies accused of cheating on their taxes would be pressured to pay up rather than take their chances in courts — analogous to the scattergun suits filed under the Americans with Disabilities Act. However, Stone, Becerra and other proponents say there are safeguards against misuse of the law, which would be invoked only in cases involving tax liabilities of $200,000 or more.

Ultimately, however, as with countless other tort wars skirmishes, raw politics, not facts or logic, will determine the outcome.