NEW YORK (Legal Newsline) - Businesses are skittish about investing their resources in West Virginia because of the state's troubled legal system, a report released Monday by The Manhattan Institute says.

The report -- part of the Trial Lawyers, Inc., series produced by the institute's Center for Legal Policy -- claims problems in the courts explain why the state's economic growth has lagged behind the rest of the country's.

The biggest offenders, the report says, are four-term Attorney General Darrell McGraw and a "populist, elected judiciary that looks to punish large businesses on behalf of local plaintiffs and plaintiffs' attorneys."

The report was released a day before two new candidates will be elected to the state Supreme Court and several circuit judgeships will be determined.

"Ten years ago, former Supreme Court of Appeals Justice Richard Neely admitted, 'As long as I am allowed to redistribute wealth from out-of-state companies to in-state plaintiffs, I shall continue to do so.'

"Little wonder that corporate executives rank West Virginia's judges the least impartial in the country."

Using Bureau of Justice statistics, the report shows the state's troubles keeping up with the rest of the country's growth, then blames the courtrooms.

"West Virginia can ill afford to drive away business, for even as Trial Lawyers, Inc., profits mightily from the state's legal system, the average West Virginian suffers," it says.

"The state is the 49th-poorest in the nation, and per-capita income in West Virginia is only two-thirds the national average. Moreover, its economy has grown at a slower rate than that of the United States as a whole in each of the last four years.

"Cleaning up the state's trial-lawyer-friendly litigation environment is not in itself sufficient to reverse these trends, but sending a strong message to businesses that West Virginia is no longer hostile to new investment would help."

One notable example features Chesapeake Energy, a company that recently decided to scrap plans to build a $35 million regional headquarters in Charleston. Included in its reasoning was its rejected appeal of a $405 million verdict against it.

That and two other jury awards in the state were three of the seven largest in the country in 2007.

"Chesapeake Energy was not the first business to be scared off by the legal culture of the Mountain State," the report says.

"In a survey of national business leaders conducted by the Harris polling group for the U.S. Chamber of Commerce's Institute for Legal Reform (the owner of Legal Newsline), 64 percent said that a state's litigation climate would affect decisions on where to locate a business; in each of the last three years, the executives surveyed ranked West Virginia's litigation climate dead-last among the fifty states."

The report also mentions an asbestos scheme previously referenced in another Trial Lawyers, Inc., edition, as well as the state's unique medical monitoring rule.

"West Virginia is the only state in the nation in which plaintiffs who may have been exposed to dangerous substances can recover cash awards without showing that there was an actual injury," the report says.

Medical monitoring makes up more than $100 million of a $381 million verdict against industrial giant DuPont. The company's appeal request has been granted by the state Supreme Court.

Plaintiffs allege DuPont dumped arsenic, cadmium and lead into the ground and water in Spelter, a town in Harrison County. Attorneys were awarded nearly $130 million in the case.

"While the payoff to the litigation industry is obvious, the benefits to the class members - even if they should choose to be tested - are far from clear," the report says.

"In a brief submitted to the Supreme Court of Appeals urging the court to review the verdict, the West Virginia State Medical Association argued that 'this plan places the plaintiff class in unnecessary danger by approving biennial computed tomography (CT) scans that will likely cause more cancer than they will ever find.'"

The report notes advances in medical malpractice laws, but also mentions the at least 25 times McGraw has appointed private lawyers to represent the state in the past three years. Most were no-bid contracts, and some were given to campaign contributors.

"West Virginia's legislators should rein in these abuses of their attorney general by passing the Private Attorney Retention Sunshine Act, which would limit the attorney general's discretion to hire private outside counsel, expose any such deals to public scrutiny, and specify how settlement funds should be distributed," the report says.

McGraw's top deputy attorney general, Fran Hughes, recently said the AG's office can't ask taxpayers to risk millions of dollars on "cutting-edge, pioneering litigation" with the risk of no payoff.

"For instance, in the Purdue Pharma case, we were the first party in the country to make Purdue Pharma pay for their unlawful activities," she said. "That case cost $462,000 to get ready for trial. You can't ask taxpayers, 'We need this money. We might be successful. We might not. You'll get a return on your money, maybe, in five years.

"So we've used the private sector, and very successfully. The proof is in the pudding. Obviously, we've chosen the most capable of attorneys because they've succeeded."

Another recent report, by The Federalist Society, analyzed the economic effect the Supreme Court has on the state.

The Manhattan Institute calls itself "a think tank whose mission is to develop and disseminate new ideas that foster greater economic choice and individual responsibility."

From Legal Newsline: Reach John O'Brien by e-mail at john@legalnewsline.com.