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PRODUCT LIABILITY REFORM

THURSDAY, APRIL 10, 1997
House of Representatives,
Committee on the Judiciary,
Washington, DC.
  The committee met, pursuant to notice, at 10:07 a.m., in room 2141, Rayburn House Office Building, Hon. Henry J. Hyde (chairman of the committee) presiding.
  Present: Representatives Henry J. Hyde, F. James Sensenbrenner, Jr., Bill McCollum, George W. Gekas, Howard Coble, Charles T. Canady, Bob Inglis, Bob Goodlatte, Stephen E. Buyer, Ed Bryant, Steve Chabot, Bob Barr, William L. Jenkins, Asa Hutchinson, Edward A. Pease, John Conyers, Jr., Jerrold Nadler, Robert C. Scott, Melvin L. Watt, Zoe Lofgren, Sheila Jackson Lee, Martin T. Meehan, William D. Delahunt, and Steven R. Rothman.
  Also present: Diana Schacht, deputy staff director-counsel; Peter Levinson, counsel; Annelie Weber, office manager; Julian Epstein, minority staff director; and Perry Apelbaum, minority chief counsel.

OPENING STATEMENT OF CHAIRMAN HYDE

  Mr. HYDE. We'll come to order.

  Today we begin what will be a series of hearings in the Judiciary Committee on the subject of civil justice reform. Poll after poll shows the American public wants reform of our current out-of-control legal system, and they deserve it.

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  We need to replace the liability lottery that pervades our courts with sensible procedures which will fairly compensate injured parties, but at the same time will not make a defendant liable beyond its share of the fault. We also need to interject certainty into the system and impose rational limits on damages.

  All of society now pays for the lucky tort jackpot winners. The corporation which is forced to pay punitive damages at amounts wildly higher than a plaintiff's actual damages is not suffering alone. Increasingly, as more and more citizens invest in 401(k) plans, their retirement security becomes inextricably linked with corporate performance.

  For example, about two-thirds of all stocks are owned by retirees, those near retirement, or by pension funds, with retirement security highly dependant on corporate health. So it is a myth that ordinary citizens don't bear the cost of these exorbitant punitive damages awards.

  Furthermore, the potential award of unlimited punitive damages leads to unnecessarily prolonged lawsuits. Plaintiffs who think a jury might award punitive damages will not accept a settlement which merely makes them whole. On the other hand, defendants cannot estimate their risk of exposure without concrete measures upon which to quantify potential damages.

  Imposing limitations on the award of punitive damages would allow all parties to realistically assess the value of a case and move towards settlement. By providing such benchmarks, at whatever level, we would encourage early settlement of claims, thereby eliminating unnecessary lawsuits, reducing overcrowded court dockets, and putting compensation in the hands of injured parties when they need it, not years after the fact.
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  Although few disagree with the need to improve the way our tort system operates, consensus on the appropriate breadth and contour of reform is elusive. As we all know, the President vetoed the very modest package of product liability litigation reforms we sent him in the 104th Congress. We were successful in adopting improvements in the area of securities litigation, but there are many other aspects of our civil justice system where change is overdue.

  In addition to product liability cases, we need to address reforms in the areas of liability of nonprofit organizations and their volunteers, automobile insurance litigation, medical malpractice litigation, procedures for class action litigation, punitive damage awards--the list goes on and on.

  The consequences of failing to enact reform are high. The burden on the economy of the liability system which unfairly sanctions businesses is a drag on employment and an impediment to effective competition with foreign manufacturers. Just as our tort system should make plaintiffs whole, it should recognize that making a defendant pay just because it is a deep pocket is counterproductive, in that it discourages the development of new products and allocates the cost of injuries to the wrong products.

  Reform legislation would unleash an American job creation boom, translating into real growth for our economy. It would particularly benefit small business, which has created the vast majority of all new jobs in this country since 1987. The need for this relief for the small business community is evidenced by the fact that it was among the top issues to emerge from the 1986 and 1995 White House Conference on Small Business.

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  Today we will hear from many sides of the debate. Businessmen who have been harassed with frivolous lawsuits, burdened with liability for alterations to their products over which they had no control, are forced to compensate for injuries they did not cause.

  We will also hear from individuals who have been injured by faulty products and deserve to be compensated by our legal system. And we will hear from representatives of State government who are trying in their own jurisdictions to battle the evils of our present tort system. With their help we seek to identify reforms which fairly balance the interests of both plaintiffs and defendants in product liability cases.

  Reform, whatever its exact contour, is desperately needed to restore some fairness to our present system and to remove roadblocks to our country's economic growth and job creation. I'm confident, based on the excellent testimony we expect to hear today, this committee and this Congress will once again produce a bipartisan package of reforms and one which the President will sign into law.

  I'm now pleased to recognize the ranking Democratic member, John Conyers.

  Mr. CONYERS. Thank you and good morning, Mr. Chairman. I would defer opening remarks to Mr. Scott.

  Mr. SCOTT. Thank you, Mr. Chairman. I don't have many comments to make. I just want to point out that if we're going to have reform, it should be fair to all, not just relieve corporate wrongdoers from responsibility for their wrongdoing.

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  If we're going to have uniform laws, they should be uniform, not just a one-way preemption so that the corporate wrongdoers can get the best deal they can from the Federal Government and then possibly get even a better deal from the States.

  Mr. Chairman, the President was correct in vetoing this legislation last year on behalf of the consumers, and if we're going to do anything in terms of reform we ought to have the consumers' rights and remedies in mind as well as the business rights. And I yield back the balance of my time.

  Mr. HYDE. I thank the gentleman, and as for opening statements, I would ask the members to forgo in the interest of time. We have two panels, and any remarks that you would like to make will certainly be included in the record by unanimous consent.

  On our first panel this morning, we're pleased to have with us Roger F. Joyce, vice president for engineering at the Bilco Co. Bilco is a family-owned and managed company located in New Haven, CT, which manufactures horizontal access products for the residential and commercial construction markets. Mr. Joyce is testifying on behalf of the Bilco Co. and the National Association of Manufacturers.

  Also with us is Peter H. Hickok, president and owner of the W.O. Hickok Manufacturing Co. of Harrisburg, PA. Hickok Manufacturing has been in business since 1844, producing machinery which puts lines on papers for ledgers and blank books. In addition to representing Hickok Manufacturing, he is testifying on behalf of the National Federation of Independent Business.

  Following Mr. Hickok we will hear from Stephanie T. Kanarek. Ms. Kanarek will tell her personal story, which centers around her mother's ingestion of the drug DES, a synthetic estrogen.
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  And to close out this first panel we'll hear from the Honorable Tom Miller, attorney general of the State of Iowa. I thank you all in advance for your testimony, and I remind you and beseech you to limit your remarks to 5 minutes. Your written statements will be inserted in the record in their entirety.

  Mr. Joyce.

  Mr. GEKAS. Mr. Chairman.

  Mr. HYDE. Mr. Gekas, the gentleman from Pennsylvania.

  Mr. GEKAS. Thank you, Mr. Chairman. We have a special guest, with respect to our constituency, who is part of this panel. Mr. Hickok, whom you have already introduced, heads the Hickok Manufacturing Co. in the capital city of Pennsylvania in Harrisburg.

  One who walks through the city of Harrisburg notes the number of magnificent institutions that befit a capital city: the capitol dome, several beautiful new buildings that are a part of the capitol complex, churches that are old and stately that surround the capitol, and the John Harris mansion on Front Street, which is the original home of the founder of Harrisburg who participated in the Revolutionary War. I must say that all the buildings, all the institutions, are younger than the Hickok Manufacturing Co. except for John Harris' founder's house.

  So with that understanding, every newsboy, every person who ever was raised in Harrisburg, all the people who take pride in that community, point to Hickok as one of their cherished long-time institutions. As a matter of fact, if the name of Harrisburg, after its own founder, were ever changed, I submit that it will be Hickokburg. [Laughter.]
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  Mr. HYDE. I thank the gentleman for his tour of Harrisburg--[Laughter]--and I look forward to visiting Gettysburg with the gentleman.

  Mr. Joyce.
STATEMENT OF ROGER F. JOYCE, VICE PRESIDENT, ENGINEERING, THE BILCO CO., ON BEHALF OF THE NATIONAL ASSOCIATION OF MANUFACTURERS


  Mr. JOYCE. Mr. Chairman, members of the Judiciary Committee, thank you for this opportunity to allow me to present this testimony on behalf of the National Association of Manufacturers in support of product liability reform.

  I think it would be helpful to spend a couple of minutes talking about our company. We were founded in 1926 by my grandfather, George W. Lyons, Sr., in New Haven, CT. George was a young iron worker, had some good ideas, built some useful products and today has led us to be a world-class company.

  We are presently in the third generation of ownership and management of the Bilco Co. in New Haven. Our product line consists of specialty horizontal access doors, highly-engineered products, very useful products that are used throughout the world. We are at this state of our being as a company in a very strong position. We're looking into global markets doing well overseas, but have a very great concern given that we are dealing every single day with the product liability issue that seriously threatens our very existence.

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  What we deal with is, in grossest terms, unconscionable, and I'd like to share one example of a situation that we dealt with very recently in Dallas. We were named in a lawsuit along with another defendant because an individual was injured when he fell through an opening, a roof opening, that is protected by one of our products.

  Now as discovery continued, we learned that individuals had misused the product. They had hauled propane tanks up through this product to the roof, damaged the product in the process, and at some later date a refrigeration technician went to the roof, stepped on the cover to our product--right next to a warning label--up to a platform. When he did this the cover opened, because of that damage, and he fell back down through the opening and was injured when he fell to the floor.

  Now what's interesting about this case is that the responsible parties, the people who did damage the product stepped forward, acknowledged their liability, and settled the situation with this plaintiff. We were left, unfortunately in this case, alone, and weren't allowed to be let out by the plaintiff's attorney.

  So with the facts certainly in our favor, we went to trial to find out that all of these facts of the case--that is, the situation where the settlement has occurred and the plaintiff himself has been well-compensated--weren't going to be allowed into testimony. So we were facing a jury unknowing of the facts and looking at us as the sole party that could help this injured person. And, unfortunately, we were held hostage and had no choice but to settle ourselves.

  That kind of situation is extremely troublesome and very costly. As a matter of fact, this particular case cost us $507,000, and most of that is out of our pockets since our product liability insurance coverage carries a $500,000 deductible. All of that cost and all of the 3 years of intense management attention was, I think, wasted to defend a product that was not at fault.
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  What we're looking for in terms of reform is a balance. What we're trying to do as a company and what I try to do as incoming chairman of the Greater New Haven Chamber of Commerce is promote economic development, and that means promoting jobs. As we do that we are faced with these situations that simply aren't fair, and what we're encouraging is a balanced, rational approach to legislation so that victims' rights aren't at all jeopardized, but certainly that the scales be balanced here so that businesses aren't then taken unfair advantage of.

  So it's my hope that together we can work through this process. The administration has expressed their desire to reach meaningful reform, and I think with their interest and the interest of Congress, and certainly the support of business, we can reach that point. And I thank you very much for your attention.

  [The prepared statement of Mr. Joyce follows:]

PREPARED STATEMENT OF ROGER F. JOYCE, VICE PRESIDENT, ENGINEERING, THE BILCO CO., ON BEHALF OF THE NATIONAL ASSOCIATION OF MANUFACTURERS

  Mr. Chairman and members of the Committee on the Judiciary, thank you for allowing me to testify this morning regarding the vital need for enactment of product liability reform. My name is Roger Joyce, and I am vice president for engineering for the Bilco Company, based in New Haven, Connecticut. I am here representing the views of the National Association of Manufacturers (NAM), which is also a member of the Executive Committee of the Product Liability Coordinating Committee (PLCC).

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  The National Association of Manufacturers (NAM) is the nation's oldest and largest broad-based industrial trade association. Its 14,000 member companies and subsidiaries, including approximately 10,000 small manufacturers, are in every state and produce about 85 percent of U.S. manufactured goods. Through its member companies and affiliated associations, the NAM represents every industrial sector and the interests of more than 18 million employees. In accordance with House Rules, I would like to disclose that the NAM receives no federal funding.
  The Bilco Company was founded in 1926 by my grandfather, George W. Lyons, Sr., who, as an enterprising young ironworker, coupled his inventive mind with a determined spirit to build a successful business. The Bilco Company is now in its third generation of family ownership and management. We manufacture specialty access products for the residential and commercial construction markets. These products are focused on horizontal access and include the Bilco basement door (or bulkhead door) for homes, roof access hatches, fire vents, floor, pit and sidewalk doors. Our 175 employees produce these products at plants in West Haven, Connecticut, and Trumann, Arkansas.
  Our growth over the past 71 years has been steady. The quality and performance of Bilco-engineered products have earned the loyalty of architects, engineers, builders and owners. Our reputation for providing products of the highest quality is well-known in the construction industry. One example of our work is a subway emergency exit door that was designed for the Metro system here in Washington. Our product is installed horizontally at the surface over emergency-escape stairways throughout the system. The remarkable performance of this product becomes evident when one considers that each heavily reinforced door leaf weighs nearly 800 pounds, and, due to technology developed by our engineers, will open with ease from the underside.
  The Bilco Company is an inspiring story--my grandfather started with nothing but a dream and created a world-class company. But we are facing a threat to our very existence. The present product liability system encourages lawsuits rather than fair treatment. Our products have never been found to be the cause of an injury, yet much time and resources are spent defending our fine products. As a result, the capital and human resources of our company are being diverted from growth initiatives such as product development and job creation. All of us are working hard to promote economic development, be it at the policy level or in the market. Most frustrating to me is the fact that the true cost of the current system is reflected in the loss of the very jobs we are trying to create.
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  At the outset, let me be clear that neither the Bilco Company nor the NAM is advocating reform of the nation's product liability laws as a way of escaping responsibility where there is true liability. What we are instead asking is for Congress to rein in a few core areas of product liability law that have invited abusive, unwarranted and unjustified lawsuits and extortionist settlements. This environment has led to an unnecessary ''tort tax'' ultimately borne by consumers, a chilling effect on innovation and good products that have been withheld from the market for fear of liability. It has also diverted money away from job creation, worker training, research and development, and capital investment, placing it into a black hole known as the legal system. Just last year, the Joint Economic Committee of the U.S. Congress released a report titled ''Improving the American Legal System: The Economic Benefits of Tort Reform,'' which noted that ''[a] recent actuarial study by Tillinghast-Towers Perrin indicates that tort costs rose from $67 billion in 1984 to $125 billion in l994, an increase of 125 percent.'' While numbers can sometimes be debated, I can say without a doubt that, for my company and other NAM companies, unfair product liability laws are a very real problem for businesses and consumers.
  States have attempted to address the national product liability problem. The National Governors Association, however, has long favored a federal solution because the conflicts in state law allow ''forum shopping,'' where the plaintiff's bar seeks out jurisdictions with the most plaintiff-friendly laws and juries. Thus, rational reforms adopted by a particular state may be circumvented if the plaintiff chooses to file in a different state. Since more than 70 percent of products are involved in interstate commerce, and since states have been frustrated in attempting to solve the problem on their own, there is ample justification for Congress to invoke the Interstate Commerce Clause of the U.S. Constitution.
  In meetings the NAM had on February 25 with 60 Senate offices, a number of senators from both sides of the aisle expressed their opinion that this issue should be viewed in terms of job creation and retention, and, indeed, it should. Over the years, a solid record has been built regarding the wasted dollars spent on the current liability system and why those dollars would be better directed to industrial growth. Both of these are among the reasons why, according to a 1994 Gallup Poll, 83 percent of Americans support reform.
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  Rather than recite a number of cases that I know only from press reports or other second-hand sources to illustrate the problem, I would like to address a number of cases that I have confronted in my tenure at the Bilco Company.
  For example, we were named in a lawsuit from San Jose, California, that claimed a Bilco roof hatch caused an individual to fall down a flight of stairs and become injured.
  Depositions indicated that this person was carrying a heavy toolbox and a coil of hose over his shoulder as he descended the stairs, in direct violation of his safety training. He simply lost his balance and fell. This was an unfortunate accident not caused by our product. Our insurance carrier proceeded to settle without our permission. In an extraordinary coincidence, another fall occurred on the same stairs about a year later, again unrelated to our product. A lawsuit was filed by the same attorney, who blamed the product and stated the previous settlement proved that we agreed with him. As the trial proceeded, we reluctantly settled, despite the fact that no testimony identified a problem with the product. The total cost to our company was more than $300,000. It is important to note that all of these costs were borne by our company since our product liability insurance policy carries a $500,000 deductible.
  A recent case in Dallas involved injuries suffered by a refrigeration technician who fell through a roof opening provided for smoke venting in a warehouse. We manufactured the fire vent and were named as defendants in a lawsuit along with a number of other parties. During the arduous process of discovery, it was determined that workers hauled propane tanks to the roof through our fire vent. As these heavy tanks were hoisted upward, they damaged the latching mechanism that holds the cover closed. At a later date, the plaintiff stepped on the cover to reach a platform, ignoring a warning label urging him to use caution. The damaged latch released the cover and the plaintiff fell through the opening. The facts of this case are clear. After more than 10 years of trouble-free service, our product, that is intended only for venting smoke, was misused by those hauling the tanks. The product was damaged in the process. Defendants who were shown to be responsible for the misuse and damage agreed to a settlement. Justice had been served, we thought. We remained the sole defendant at that point, and expected to be released from the suit since it was proved that Bilco was not at fault. But here is where this case becomes truly incredible. Since there was no applicable statute of repose, the plaintiff's attorney refused to release us from this action hoping that we would feel threatened and also contribute to a settlement. We chose, rather, to go to trial with full confidence. As the trial proceeded, however, we were told that the previous settlements would not be allowed into evidence. We were facing a jury unaware that the plaintiff was already well compensated, and they felt we were the only defendant available to help the injured party. We were also advised that we could be found responsible for the entire judgment awarded by the jury, minus what the other defendants paid, even if we were found to be only 1 percent at fault. We could not risk a jury decision under these circumstances and were forced to settle. The total cost of this case was $507,000 and three years of intense management attention, all to defend a product that was not at fault.
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  Currently, we are dealing with additional suits. One involves a contractor who ignored safe working practices and cut his finger. I have inspected the product and found no unsafe condition. Another lawsuit claims our product contributed to the asbestosis of the plaintiff. Our products have never contained asbestos, but we are forced to stop our normal productive activities and concentrate on resolving this frivolous claim.
  The Bilco Company and the NAM believe strongly that a meaningful change in product liability laws will make a substantial contribution to improving the legal environment for both businesses and consumers in a fair and balanced way. Specifically:
Ending abuse of punitive damages. Last year, in BMW of North America, Inc. v. Gore, the Supreme Court finally recognized that at some point, uncontrolled punitive damages can be ''grossly excessive,'' thereby violating the Constitution. While this was not a product liability case, legislation should reflect the spirit of the Court's landmark decision by allowing excessive (and possibly unconstitutional) awards to be limited. For small businesses, in particular, a very large award can be a death sentence, rather than an instrument to punish and deter, bankrupting the company and throwing its employees out of work. Thus, any bill should limit punitive damages for firms with fewer than 25 employees to $250,000. For larger companies, a limit could be set at two times compensatory damages or $250,000, whichever is greater. In addition, the threshold of ''clear and convincing'' evidence should help to clarify that punitive damages are meant as punishment and not as additional compensation.
Apportioned Damage Awards. A product liability reform measure should appreciate that it is unfair and bad public policy for a defendant with an insignificant degree of responsibility for a harm to be held responsible for the full amount of an award, as was Bilco's experience detailed above. Joint liability has produced serious adverse consequences for society. Legislation needs to address these problems in a fair and more equitable manner.
Statute of Repose. At some point in time, it is not socially useful to hold manufacturers liable for older products, especially when they have proved their overall safety through considerable years of use without incident. To this effect, there should be a statute of repose for most products. Statutes of repose now exist in many states as well as in countries that are our principal competitors: the European Community, Australia and Japan.
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Misuse and Alteration. Society needs to hold persons who misuse or alter products accountable for their actions, and a reform bill should contain a provision to accomplish this.
Drug and Alcohol Defense. Persons who cause injuries to themselves--and potentially others--because they are drunk or under the influence of illegal drugs should not be allowed to reap awards from such irresponsible actions.
Alternative Dispute Resolution. If parties could proceed to a voluntary, nonbinding alternative dispute resolution procedure established under applicable state law, this should help to clear the court dockets. Such a provision would speed up the time it takes for cases to go to trial.
Statute of Limitations. The NAM supports a pro-claimant ''discovery rule'' statute of limitations. This would allow a person up to two years after he or she discovered or should have discovered both the harm and its cause to bring a product liability action. In some states, this would actually extend the time limit for people who have suffered a toxic or otherwise latent harm.
Limited Product Seller Liability. A provision needs to be included to make product sellers, as well as persons who rent- or lease-out products, liable for injuries caused by their negligence or under their own warranty, but not liable for the manufacturers' conduct unless the manufacturer is bankrupt or cannot be sued.
Biomaterials Access Assurance. This important section--contained in last year's conference report--provided incentives for suppliers of raw materials used in medical devices. It would have assisted in preventing a public health crisis by helping to assure the availability of life-saving and life-enhancing medical devices that are threatened by the high costs of responding to litigation, even though courts are not finding suppliers liable.
  On March 6, the Subcommittee on Consumer Affairs, Foreign Commerce and Tourism of the Senate Committee on Commerce, Science and Transportation, held oversight hearings on the results of the General Aviation Revitalization Act of 1994 (GARA). GARA, which was signed by President Clinton on August 17, 1994, has more than lived up to its name. An industry that had been in severe decline is back and is growing. Thousands of high-quality jobs have been created since enactment and more are expected. By all accounts, general aviation is as safe--if not safer--than at the time of passage. In fact, according to a National Transportation Safety Board press release issued on February 21, 1997, ''general aviation logged its safest year [1996] in recent history, in terms of both the number of people killed and fatal accident rate.'' GARA demonstrates the good for consumers and business that can come from federal product liability reform.
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  The NAM was, of course, disappointed that President Clinton last year chose to veto the Common Sense Product Liability Legal Reform Act, despite the strong public support cited earlier. The association takes him at his word, however, that he supports and would like to sign a meaningful product liability reform bill. Given the history of strong bipartisan support for this issue, we look forward to working with the President and others in his Administration, along with congressional supporters in both parties, to fashion a reform measure that meets everyone's concerns. In reviewing the President's veto statement, many issues he raised (along with some members of Congress who voted against the conference report) can easily be accommodated. Others will require tougher work, but the NAM pledges a good-faith effort to reach a compromise that will result in a meaningful product liability reform law.
  On behalf of the NAM and the Bilco company, I urge this committee and the full Congress to work with the Administration to ensure that a meaningful product liability bill can become law this year.
  Thank you.

  Mr. HYDE. Thank you, Mr. Joyce.

  Mr. Hickok.

  Would you pull the microphone close to you and flip the little switch there? Thank you.

  Mr. HICKOK. Certainly. Is that better?

  Mr. HYDE. Much better.
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STATEMENT OF PETER H. HICKOK, OWNER, THE W.O. HICKOK MANUFACTURING CO., INC., HARRISBURG, PA, ON BEHALF OF THE NATIONAL FEDERATION OF INDEPENDENT BUSINESS


  Mr. HICKOK. Mr. Chairman, and distinguished members of the committee, thank you for inviting me to testify on behalf of myself and the National Federation of Independent Business's 600,000 small business members.

  I am the president of a small family-owned manufacturing company, Hickok Manufacturing, which has been in business since 1844. Hickok Manufacturing was started when my great-great grandfather learned bookbinding from his father. He developed a ruling machine which puts lines on paper using modified fountain pen points.

  Over the years, we at Hickok have worked long and hard solving the problems that have appeared as we have developed new and better designs. Unfortunately, it seems that the harder we work, the more time and money is drained away from our primary purpose by a multitude of government rules and regulations, many of which are not achieving their purpose.

  One of my biggest fears, and that of all small business manufacturers, is the constant threat of frivolous and unfounded product liability suits. During the first 130 years, Hickok Manufacturing never saw a product liability suit. Since then we have had 14 product liability suits filed against us. The litigation explosion has caused liability insurance costs to skyrocket. Our premiums have risen from several hundred dollars in the mid 1970's to over $40,000 today.
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  In the worst accident ever to occur on a Hickok machine, the customer replaced a broken part with a homemade part which did not fit properly and left the gears exposed. Rather than modify the homemade part, the customer decided to continue operating the machine with the guard open, and the operator, who had been running the machine less than 6 months, was warned to stay away from the open gears. The very next day the operator caught his arm in the gears, resulting in a very serious injury.

  In this instance, customer neglect caused the original part to break. Customer alteration made it impossible to close the guard. Customer misuse--running the machine with the guard open--and operator negligence disregarding the warning to stay away from the gears enabled the accident to occur.

  Hickok Manufacturing had no control over any of the preceding. As a matter of fact, several years before the accident we had recommended to this customer that he upgrade the safety devices on his machine to include automatic shutoff switches, which were not standard at the time the machine was originally manufactured, and even offered these parts to the customer at our cost. While I sincerely deplore the grievous injury to the operator and his lifelong disability, I do not in any way agree with an assessment of the accident which holds Hickok Manufacturing responsible for the injury.

  We have survived many challenges over the past 25 years. Changes in the retail business have driven two-thirds of Hickok's customers out of business. Computer technology has significantly changed the way in which machines are designed, built, and operated. Large Japanese and German competitors have entered the market, yet even the threat of foreign competition pales in comparison to the threat posed by our own tort system to Hickok's proud continuation as a producer of high-quality, productive, and durable machinery.
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  I said at the beginning of my testimony, Mr. Chairman, that I appreciate the opportunity to sit before you and share my unfortunate legal experiences with you. However, I must confess that this is not entirely true. I really wish that I did not have to be here at all today. The truth is, I would not have to be here if the President had signed the product liability reform legislation that Congress passed last year.

  I am not here simply as one business owner, but as a representative of the NFIB who in turn represents 600,000 small business owners who have created over 7 million jobs. Many of these small business owners will find it harder and harder to stay in business without passage of these reforms, such as reduction of damages for misuse and alteration, enactment of a 15-year statute of repose, and reform of joint and several liability, which were all vetoed by the President last year.

  Small business owners have waited a long time for meaningful product liability reform. For some, the wait has been too long, and they have given up, to the detriment of us all. We have been very patient over the last 20 years while Congress debated the issue. I hope that Congress will recognize the importance of the legislation passed last year and stand up to those who object to these much-needed reforms.

  Please pass a fair and balanced liability bill, and let the small business community get back to what it knows best: creating new products for a more productive future, a higher standard of living, more jobs, and economic expansion.

  [The prepared statement of Mr. Hickok follows:]
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PREPARED STATEMENT OF PETER H. HICKOK, OWNER, THE W.O. HICKOK MANUFACTURING CO., INC., HARRISBURG, PA, ON BEHALF OF THE NATIONAL FEDERATION OF INDEPENDENT BUSINESS

  Mr. Chairman and distinguished members of the Committee, thank you for holding this hearing on product liability reform, an issue of great importance to small business. I appreciate the opportunity to testify before you today on behalf of myself and the National Federation of Independent Business (NFIB).
  I am the President of a small, family-owned manufacturing company, Hickok Manufacturing, which has been in business since 1844. Hickok employs about 40 people in a safe, challenging and rewarding workplace, and has been a lifetime place of employment for many people over the years. In the 20+ years that I have worked at Hickok, I have had the pleasure of working with fellow employees who have worked at Hickok anywhere from 30 to 77 years. The vast majority of our business is in the private sector; however, Hickok contracts for approximately $2500 per year with the U.S. Navy and over the last two years, we sold approximately $16,800 worth of equipment to the Government Printing Office.
  Most small businesses start because one person has an idea that they think will help fill a need in our society. In the case of Hickok Manufacturing, my great-great grandfather learned bookbinding from his father, then started developing better bookbinding machinery. His bookbinding customers were looking for a machine which would put lines on paper for ledgers and blank books, and he developed a ruling machine which put lines on paper using modified fountain-pen points. From that beginning, we at Hickok Manufacturing have risked and invested large amounts of time and money improving the design of the ruling machine, adapting it to the changing requirements of the marketplace, and constantly improving its productivity. The original ruling machines were hand-fed and put lines on paper at a rate of 600 sheets per hour; today's machines are twice as large and put lines on sheets at a rate of 750 sheets per minute. With a new Hickok ruling machine, one person can now convert over 20 tons of large rolls of paper into ruled sheets in 8 hours. Because of these productivity improvements, the cost and availability of making loose-leaf filler paper and spiral notebooks is so low that no one questions whether even the poorest families can afford school paper for their children.
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  We work long and hard solving problems that appear as we develop and test new designs, persevering through failure before achieving success. Unfortunately, it seems that the harder we work, the more time and money is drained away from our primary purpose by a multitude of government rules and regulations, many of which are not achieving their purpose.
  One of my biggest fears, and that of all small business manufacturers, is the constant threat of frivolous and unfounded product liability suits. The cost of obtaining liability insurance has skyrocketed over the last 25 years, due mostly to the nation's litigation explosion. Hickok Manufacturing's premium went from an initial several hundred dollars to this year's $40,000+. In a recent Small Business Problems and Priorities survey by the NFIB Education Foundation, small business owners rated the cost and availability of liability insurance 12th out of their top 75 problems.
  Because small businesses do not self-insure, we are usually forced to settle suits because the insurance company wants to avoid the high cost of going through a trial. It does not matter whether or not the suit is meritorious. For the insurance company, it is simply a matter of cost-effectiveness. The insurance companies then, of course, raise their rates in subsequent years to cover the losses.
  In today's legal climate, in which companies are held liable for injuries which are not in any way connected with their products, regardless of fault, small business owners are forced to consider the liability aspect of every decision. This severely hampers the development of the new products which would otherwise have improved our standard of living, and, more importantly, our children's standard of living. Many of the products developed 50 and 100 years ago would not have seen the lights of day under our current tort laws. These are the products which are the foundation of our standard of living today.
  In my opinion, this stultification of the dreamers and developers in our society will have far more serious consequences for our children and grandchildren than other looming problems, such as the potential bankruptcy of the social security system. I personally know of several talented machine designers who, because of the uncontrollable risk posed by current unjust liability laws, decided not to go into business for themselves and develop their ideas.
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  During the first 130 years of existence, Hickok Manufacturing had never seen a product liability suit. This changed dramatically with the Restatement of Torts in 1974, which imposed strict liability and added unfairness and injustice to the law. Since then we have had 14 product liability suits filed against us, which, in our attorney's and insurance company's opinion, is a very low number considering the hundreds of machines, some over 100 years old, which Hickok's customers are still operating.
  Hickok Manufacturing has always made very durable, productive machinery. This adherence to high quality standards has now proven to be a tremendous threat to the continuation of the company. Hickok Manufacturing cannot control how their customers maintain their machines and train their operators, but Hickok is held strictly liable for accidents on old machines resulting from alteration, misuse, or neglect of the machine. The primary cause of all 14 accidents was either alteration, misuse, and/or neglect.
  In the worst accident ever to occur on a Hickok machine, the customer replaced a broken part with a home-made part which did not fit properly in the machine. Because the part did not fit, the guard over some of the gears in the machine could no longer be closed. Rather than modify the home-made part (a matter of 30 minutes work at most), the decision was made to continue operating the machine with the guard open, and the operator, who had been operating the machine less than six months, was warned to stay away from the open gears. The next day, the operator caught his arm in the gears, resulting in a very serious injury which effectively rendered his arm useless for the rest of his life.
  At the time this particular machine was built, interlock switches which shut machines off when a guard is open were not an industry standard and were not included on Hickok machines. Prior to this accident, as these switches started to be accepted as a standard safety device, Hickok recommended to this customer several times that they upgrade the safety devices on this machine, including these switches. Hickok offered these parts at cost with no mark-up for profit, but the customer refused to buy them.
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  In this instance, customer neglect caused the original part to break. Customer alteration (installing the home-made part) made it impossible to close the guard. Customer misuse (running the machine with the guard open) enabled the accident to occur. Customer's refusal to upgrade safety devices permitted the machine to run with the guard open. Operator disregard for his supervisor's warning and an obvious safety hazard permitted the accident to occur. Hickok Manufacturing had no control over any of the above. While I deplore the grievous injury to the operator and his life-long disability, I do not in any way agree with an assessment of the accident which holds Hickok Manufacturing responsible for the injury.
  Hickok has survived many challenges over the past 25 years: Changes in the retail business has driven two-thirds of Hickok's customers out of business. Large Japanese and German competitors have entered the market. Computer technology has significantly changed the way in which machines are designed, built, and operated. Hickok operates a small iron foundry to make the castings for Hickok machines, and has had to completely revamp that operation three times in response to changing environmental regulations. Hickok can and has been able to control and respond to these threats to the continuation of the business, but Hickok cannot control what customers do with their old Hickok machines. The threat of Japanese competition pales in comparison to the threat posed by our own tort system to Hickok's proud continuation as a producer of high quality, productive, and durable machinery.
  Of the 14 suits brought against Hickok, some were dismissed, one went to trial, and the majority were settled by the insurance carrier, often without consultation with Hickok. When I have been consulted on a settlement, I have always had to agree to it because, if the case were to go to trial and result in a verdict higher than the settlement offer, Hickok Manufacturing would have to pay the difference between the verdict and the settlement offer. With the unreasonable level of verdicts today and the high lawyer's fees, Hickok Manufacturing is simply too small to take a risk and refuse a settlement that the insurance company has agreed to pay. Settlements become a part of Hickok's loss record, however, and usually result in much higher premiums, and have occasionally made it very difficult to obtain insurance at all.
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  The price of liability insurance has varied from an initial several hundred dollars in the early 1970's to a high of more than $40,000 today. That is only a part of the cost, however; thousands of hours and tens of thousands of dollars have been spent responding to the suits, collecting the information which exonerates Hickok Manufacturing. This information has in many cases kept settlements at a relatively low level, but has become a significant cost of doing business.
  The total cost of the current liability laws has been very high for a small company such as Hickok, and has taken away much of the money which should have been spent developing better products and buying new production equipment so as to be better able to compete in today's global marketplace.
  The gravest risk posed to Hickok Manufacturing by the current liability laws, however, is the risk that insurance will become completely unavailable. At least a half dozen times over the years Hickok's insurers have decided to abandon the product liability market entirely, or to drop Hickok specifically because of our large number of old machines. In several instances, we had a long search to find a new insurer, and premiums jumped dramatically. Unlike a service business, which may have relatively few assets at risk if it operates without insurance, a company such as Hickok with full production facilities such as a foundry, machine shop and computers for design engineering, is likely to have too much invested in equipment, buildings, and land to take the risk of operating without insurance.
  Current liability law makes Hickok Manufacturing liable for accidents which it did not cause and is powerless to prevent, and is more of a threat to Hickok, which has survived over 150 years, than foreign competition and today's fast-changing markets. Even if Hickok continues to be able to purchase insurance, the cost is very high in both dollars and time, and significantly diminishes Hickok's ability to continue its long tradition of developing the high-quality productive equipment which will enhance our children's and grandchildren's lives.
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  I said at the beginning of my testimony that I appreciate the opportunity to sit before you and share my unfortunate legal experiences with you, Mr. Chairman. However, I must confess that this is not entirely true. I really wish that I did not have to be here at all today. The truth is that I would not have to be here if the President had signed the product liability reform legislation that the Congress passed last year.
  I am not here simply as one business owner, but as a representative of the NFIB who represents 600,000 small business owners who have created over 7 million jobs. Many of these small business owners will find it harder and harder to stay in business without passage of the reforms that were vetoed by the President. Existing small business owners will be forced out of business because the lawsuits are just too costly or future bright entrepreneurs will simply decide that it is too risky to pursue their dream of owning their own business. Conversely, if the Government removes the unjust burden imposed by the portion of the liability law which last year's legislation attempted to reform, many of these businesses will have more dollars available to grow and create more jobs.
  The product liability bill that passed last year and was ultimately vetoed by the President would have gone a long way toward a fairer and more balanced liability system for this nation's businesses and its consumers. I would like to take a minute to touch on some of the reforms contained in the bill vetoed by the President that would begin to restore fairness and balance to our product liability system and would have specifically helped me and other small business owners:
REDUCTION FOR MISUSE OR ALTERATION

  As I illustrated above, the current liability system requires defendants to pay for harm caused by no fault of their own. It encourages a claimant who injures himself while grossly misusing a product to turn to the ''deep pocket'' for compensation regardless of whether that deep pocket was at fault. As noted earlier in my testimony, this applies to all 14 suits brought against Hickok. It is also graphically demonstrated by an injury on a Hickok machine which did not result in a lawsuit In this instance, a machine operator put his hand in a machine just as the machine cycled, and his wrist was broken. Fortunately, there was no permanent damage to his wrist, he was back to work in about six weeks, and healed completely. Shortly after the accident, the worker's compensation insurance company for the customer sent us a form legal notice that demanded restitution for their costs, and joined in any suit filed by the injured machine operator. I found out shortly afterward that the lawyer for the worker's compensation insurance company was regularly calling the injured man to urge him to sue us. The injured man responded that he could not do this--that the accident occurred because of his own mistake, and that he would not sue me, whom he had met during various visits to their plant, for something that was not my fault. The lawyer argued that Hickok's insurance company would pay any loss, and that it would not cost me anything. After several months, the lawyer began calling every night, and finally became quite abusive, telling the man that he was a fool.
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  Perhaps this man, who would probably have received a good part of a year's pay in settlement, was a fool for standing up for honesty and justice, and refusing the lawyer and the current liability law, but he certainly set an example for me of honesty and probity which I will not forget.
  Incidentally, Hickok Manufacturing's liability insurance carrier, over my objections, sent $1000 to the worker's compensation insurance carrier in order to obtain a release from any future liability.
  The product liability bill recognized that laws that result in situations like this one are not good laws, and proposed reform by including a provision that would allow for reduction of damages based on the misuse or alteration of a product. The reduction for misuse or alteration provision is a fair and balanced provision that restores the notion of individual responsibility while encouraging consumers to use products in the safe and recommended way. It in no way relieves the manufacturer of his responsibility to manufacture a safe and responsible product. As I said before, Hickok Manufacturing has been in business for over 150 years. We stay in business because we produce a product that is reliable, safe and productive. We are constantly looking for ways to make our product better and freeing up our capital and time from unnecessary and unwarranted lawsuits would only make that easier.
STATUTE OF REPOSE
  Hickok Manufacturing first began producing and selling bookbinding machinery in 1844 and began producing ruling machinery in the 1850's. In addition to ruling machines, we have made a wide variety of products through the years, including (but not limited to) apple cider presses, bicycles, seed spreaders, the official brass measuring pots for the state of Pennsylvania, parts for iron bridges, and a few pieces which neither I nor the local historians can figure out. Under the current law, I can be held liable for the very first machine our company ever manufactured even though it is over l50 years old. I have enjoyed very pleasant calls from cider enthusiasts who have purchased our old cider presses at flea markets after they had passed through who-knows-how-many owners. These enterprising gentlemen have replaced the broken wooden parts, and have taken the presses to apple festivals. In the back of my mind as I listen, however, it occurs to me that if someone suffers a hernia or back injury while carrying or operating the press, Hickok Manufacturing will be sued because, under the current law, my ancestors should have reasonably foreseen that this injury would occur, and should have redesigned the unit to prevent the injury, as well as attaching warning labels which would last as long as the life of the machine. Living with a legal system which encourages this type of injustice is unbelievably discouraging to inventors and entrepreneurs.
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  Although manufacturers of older products, like Hickok, almost always win these types of lawsuits, we still must invest time and resources into legal and transaction costs, let alone the personal time I must invest fighting a lawsuit resulting from an injury that I could not prevent. This is time and money that could and should be spent growing our companies, creating jobs, and helping the economy.
  Congress recognized the need for a reasonable, fair outer time limit on litigation involving older products in the bill which passed last year. You included a statute of repose that would bar a claim fifteen years after the time of delivery of the product. A claimant's right to bring a suit during that fifteen years would not be affected.
JOINT AND SEVERAL LIABILITY
  Finally, the one provision of current law that small business owners find the most unbelievable and unfair, is joint and several liability. The fact that a defendant who is only one percent at fault can be held responsible for 100 percent of the damages is unfathomable in the mind of a small business owner, like myself. Under joint and several liability, small business owners are often dragged into lawsuits involving a product with which they had little, or nothing, to do with. Hickok sells some of its smaller machines through local dealers, who have nothing to do with the design or manufacture of the machine. It is, if possible, even more unfair that they can be brought into a liability suit when a machine is altered, misused, and neglected.
  Thirty-three states have recognized the need for reform in this area of the law and have either abolished or modified the principle of joint liability. However, until federal reforms are made, any manufacturer who sells its product in different states takes their chances with that states' law. Last year's bill took a moderate step toward reforming joint liability by eliminating joint and several liability for ''non-economic damages'' while retaining joint and several for economic or actual losses. This would allow a claimant to recover full compensation for their actual losses from any defendant while limiting the damages for pain and suffering to a defendant's proportional share of the fault.
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CONCLUSION
  Small business owners have waited a long time for meaningful product liability reform. For some, the wait has been too long, and they have given up, to the detriment of us all. We have been patient over the past 20 years while Congress debated the issue. Finally last year, we had some hope. A strong, fair and balanced bill that would greatly curb lawsuit abuse and begin to restore common sense and justice to the country's legal system, and build a better future for our children and grandchildren, was passed by Congress. Unfortunately, the President chose to turn his back on the hundreds of thousands of small business owners and their employees and vetoed the bill.
  I hope the Congress will recognize the importance for our future of the legislation passed last year, and will stand up to those (many of whom are acting in obvious self-interest) who object to these much-needed reforms. Let the small business community get back to what they know best, creating: new products for a more productive future, a higher standard of living, more jobs, and economic expansion.
  Thank you. I will be happy to answer any questions.

  Mr. HYDE. Thank you, Mr. Hickok.

  Next, we will hear from Stephanie T. Kanarek, of New York. Ms. Kanarek.

STATEMENT OF STEPHANIE T. KANAREK, NEW YORK, NY


  Ms. KANAREK. Chairman Hyde, and members of the committee, thank you for inviting me to share with you my experiences and views on product liability.
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  My name is Stephanie Kanarek, and I reside in New York. My daughter Amy is severely disabled, unable to care for herself at all. Amy is this way because of an FDA-approved drug. My mother, wanting to have a baby, followed the advice given to her by her obstetrician and ingested an FDA-approved drug known as DES. DES, or diethylstilbestrol, caused deformities in the offspring of the women who took it.

  These deformities are easy to miss: a misshapen uterus too small to carry a pregnancy for 9 months, the inability to conceive or carry a child, testicular cancer, malformed sperm, to name a few--all hidden deformities. If DES produced deformed arms or legs, certainly Eli Lilly, its primary manufacturer, would not have dared request FDA approval for use in pregnancy.

  You will be seeing my daughter, Amy, on the screen. I thought as time passed that the pain would be less. I was wrong. You want to limit the ability to recover for noneconomic losses. Are Amy's damages only economic? She has cerebral palsy; she is legally blind, and her speech is severely delayed. She is wheelchair-bound, wears braces on her legs, and has undergone two orthopedic surgeries. On a day-to-day basis, this all means that Amy requires total care. My husband and I are no longer able to care for her without help.

  Let me share with you some of the impact this FDA-approved drug has had on my life--more hidden damage caused by DES. My husband and I still cry for what never will be. Our other children don't understand why their sister cannot function in the world of regular children. Our 9-year-old says, ''Grandma took medicine she wasn't supposed to take.''

  My husband and I cannot take the risk of another pregnancy. All of the high-risk pregnancy specialists we consulted advised us that I would most likely again deliver prematurely. Rationally, my mother knows that she was following doctor's orders when she took DES for 8 months. Emotionally, can you imagine what she must hold inside?
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  Handicapped children require a great deal of care and hands-on involvement. You put an awful lot in, and you don't get a whole lot back. Who will help bear the cost of Amy's care? Ultimately, it is the taxpayer who will pay for Amy's care. Who should be held responsible for Amy's loss of functioning? And who will compensate my family for what we have endured? We strongly believe it should be the pharmaceutical companies who acted irresponsibly when they sold DES for use for pregnant women.

  Why would you protect the wrongdoer at my expense? Nothing will ever compensate me for what I've lost. However, those who have caused my pain must be held accountable for their actions. They realized the profits from the sale of DES; they must also bear the responsibility. If a drug or medical device is found to be harmful, the victim must be allowed to recover and the wrongdoer must be punished. The manufacturer must be sent a loud, strong message that as a society we will not tolerate such a callous disregard for the health of our mothers, wives, and daughters.

  Punitive damages were designed to do exactly that: to deter corporate decisionmakers from putting harmful products into the marketplace. Punitive damages serve as a deterrent because they are unpredictable. A cap on punitive damages eliminates this unpredictability, allowing the industry to include this risk as just another cost of doing business.

  The drug industry produced a product that was marketed to 5 million pregnant women, and they sold it for one reason and one reason only; and that was to make money. Look at my daughter now, and tell them that they cannot walk away from what they did, not from me and not from Amy.

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  Despite FDA rules and regulations, the pharmaceutical industry continues to market products to women that are not safe. Just ask any DES daughter or son--let's not forget the sons--or any user of the Dalkon Shield, or any recipient of a silicone breast implant. Now they would have us believe that menopause is a disease and that it should be treated with replacement estrogen.

  I do not believe that any regulatory agency, in spite of all the resources that might be made available, will prevent damaging products from reaching the market. Ultimately, even with FDA approval, a manufacturer must be held accountable for what it does and the harm it may inflict.

  My statement to you today will not impact my family's situation. The pharmaceutical companies who manufactured, sold, and profited from the sale of DES have been successful in their efforts to keep Amy out of court. In our attempt to sue the manufacturers of DES, my husband and I have exposed every detail of our lives. It is cases such as these, where the pharmaceutical industry must stand and face the damaged victim, that are the final and only remedy for many of us. We are not asking for anything other than the opportunity to have our day in court.

  Thank you.

  [The prepared statement of Ms. Kanarek follows:]

PREPARED STATEMENT OF STEPHANIE T. KANAREK, NEW YORK, NY

  Chairman Hyde and members of the committee, thank you for inviting me to share with you my experiences and views on products liability. What I offer is my personal statement; I invite you to consider how the legal modifications under consideration would affect families such as mine.
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  My name is Stephanie Kanarek and I reside in New York. My daughter Amy, who is 12 years old is severely disabled, unable to care for herself at all. Amy is this way because of an FDA approved drug. My mother, wanting to have a baby, followed the advice given to her by her ob-gyn, and ingested an FDA approved drug known as DES.
  DES, or diethylstilbestrol, is a synthetic estrogen that was approved by the FDA in 1947 for use in pregnancy. This approval was given in spite of the fact that DES had never been tested for use during pregnancy. Furthermore, evidence documented 10 years earlier showed that synthetic estrogens given to pregnant animals resulted in cancer as well as the malformation of the reproductive organs in their offspring. In 1952 a study from the University of Chicago showed that DES was not effective in preventing miscarriage. Let me emphasize--I have a handicapped daughter because the pharmaceutical companies ignored evidence that told them not to market this chemical for use in pregnancy. By 1971, when DES was linked to a rare form of vaginal cancer, the FDA directed doctors not to prescribe DES to pregnant women.
  DES caused deformities in the offspring of the women who took it. These deformities are easy to miss--a misshapen uterus too small to carry a pregnancy for 9 months, the inability to conceive or carry a child, an increased risk of ectopic pregnancies, testicular cancer, malformed sperm, to name a few. All hidden deformities. If DES produced deformed arms or legs, certainly Eli Lilly, its primary manufacturer, would not have dared request FDA approval for use in pregnancy.
  Meet my daughter Amy. She is now 12 years old. I thought as time passed that the pain would be less. I was wrong. You want to limit the ability to recover for non-economic losses.
  Are Amy's damages only economic? She has cerebral palsy, she is legally blind, and her speech is severely delayed. She is wheelchair bound, wears braces on her legs, and has undergone 2 orthopedic surgeries. On a day to day basis, this all means that Amy requires total care. My husband and I are no longer able to care for her without help.
  Let me share with you some of the impact this FDA approved drug has had on my life--not the concrete realities of taking care of Amy, but what you don't see; more hidden damage caused by DES. After 12 years, my husband and I still cry for what never will be. Our other children don't understand why their sister cannot function in the world of regular children. Our 9 year old says, ''Grandma took medicine she wasn't supposed to take.'' My husband and I cannot take the risk of another pregnancy; all the high risk pregnancy specialists we consulted advised us that I would most likely again deliver prematurely. Rationally, my mother knows that she was following doctors orders when she took DES for 8 months; emotionally, can you imagine what she must hold inside herself?
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  Handicapped children require a great deal of care and hands on involvement; you put an awful lot in and you don't get a whole lot back. Who will help bear the cost of Amy's care? Ultimately, it is the taxpayer who will pay for Amy's care. Who should be held responsible for Amy's loss of functioning and who will compensate my family for what we have endured? We strongly believe it should be the pharmaceutical companies who acted irresponsibly when they sold DES for pregnant women.
  Why would you protect the wrongdoer at my expense? Nothing will ever compensate me for what I've lost. However, those who have caused my pain must be held accountable for their actions. They realized the profits from the sale of DES; they must also bear the responsibility. If a drug or medical device is found to be harmful, the victim must be allowed to recover, and the wrong-doer must be punished. The manufacturer must be sent a loud, strong message that, as a society, we will not tolerate such a callous disregard for the health of our mothers, wives, and daughters. Punitive damages were designed to do exactly that; to deter corporate decision-makers from putting harmful products into the marketplace. Punitive damages serve as a deterrent because they are unpredictable. A cap on punitive damages eliminates this unpredictability, allowing the drug industry to include this risk as just another cost of doing business. A cap on punitive damages would be a mistake. The drug industry produced a product that was marketed to 5 million pregnant women and they sold it for one reason and one reason only; and that was to make money. Look at my daughter now and tell them that they cannot walk away from what they did, not from me and not from Amy.
  Despite FDA rules and regulations, the pharmaceutical industry continues to market products to women that are not safe. Just ask any DES daughter or son--let's not forget the sons--any user of the Dalkon Shield or any recipient of a silicone breast implant. Now they would have us believe that menopause is a disease, and that it should be treated with replacement estrogen. If you want to watch history repeat itself, compare DES and Hormone Replacement Therapies. Watch as millions of baby boomers approach and enter menopause, and their doctors tell them to take estrogen. The pharmaceutical industry is creating a disease so it can profit from the cure. Just as it tried to improve on normal pregnancies by selling DES to ensure bigger, healthier babies, they will tell millions of women that their menopause can be cured by taking estrogen. I do not believe that any regulatory agency, in spite of all the resources that might be made available, will prevent all damaging products from reaching the market. Ultimately, a manufacturer must be held accountable for what it does and the harm it may inflict.
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  My statement to you today will not impact my family's situation. The pharmaceutical companies who manufactured, sold and profited from the sale of DES have been victorious in their efforts to keep Amy out of court. New York State's highest court has refused to hear third generation DES cases. The opinion stated, ''for all we know, the rippling effects of DES exposure may extend for generations. It is our duty to confine liability within manageable limits.'' In our attempt to sue the manufacturers of DES my husband and I have exposed every detail of our lives. It is cases such as these, where the pharmaceutical industry must stand and face the damaged victim, that are the final and only remedy for many of us. We are not asking for anything other than the opportunity to have our day in court.

  Mr. HYDE. Thank you, Ms. Kanarek.

  The last witness on this panel is the distinguished attorney general from the State of Iowa, the Honorable Tom Miller.

  General Miller.

STATEMENT OF THOMAS J. MILLER, ATTORNEY GENERAL, STATE OF IOWA


  Mr. MILLER. Thank you, Mr. Chairman, and thank you, members of the committee.

  I am 1 of the 22 attorneys general that have sued the tobacco companies and recently entered into what we believe to be the historic settlement of the Liggett Co. I'll talk primarily from the perspective of how any legislation that might be proposed would affect the tobacco litigation, and also end with some general comments as well.
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  As we know, tobacco products are the Nation's leading cause of preventable disease and death. According to the medical experts, 420,000 Americans die each year as a result of tobacco-related disease, and there are $50 billion in medical costs. The States have joined together, 22 of us, to sue the tobacco companies to try and get back the damages that have flowed from the States, the damages are the costs that the States pay for Medicaid, for tobacco-related disease.

  We feel that's an obligation the tobacco companies should have to the States for that type of expense. It's basically an unjust enrichment theory; the tobacco companies have made profits through their wrongdoing over a period of many, many years--very large profits--and they stuck the States with the expense of the medical treatment.

  We would ask that you not enact any legislation that would impact on the courts' ability to justly and fairly decide those cases. Some of the language in the previous drafts, from last year and the year before, would have included language that could be harmful to that type of litigation. Language that would prohibit, in some instances, recovery based on any theory concerning this kind of liability.

  Secondly, we would ask you also to consider when you deal with the statute of repose language and provision, that you don't do anything that would deny individual plaintiffs their day in court against the tobacco companies. I believe you've talked in terms of a 15-year statute of repose from the time of the first purchase. I think it's very, very important that any kind of tobacco litigation be exempted from that statute of repose so that tobacco plaintiffs have an opportunity for their day in court.
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  There's also the provision of punitive damages. Some of the proposals from the past indicated that punitive damages would be limited to the greater of $250,000 or three times the actual economic losses. There are many, many damages in tobacco-related deaths that are noneconomic. We're talking about pain and suffering. We're talking about very, very difficult deaths of lung cancer and emphysema. I don't think you should put any limits on punitive damages relative to those cases.

  Indeed, I believe that if what's alleged is true--that the tobacco companies over decades have engaged in a series of propaganda and misinformation about their product to induce Americans to smoke, to induce Americans to become addicted at a very young age--this, if true, is that for which punitive damages were created. It's exactly the situation where punitive damages should apply, and they shouldn't be unduly restricted.
  More generally, as I was coming up here to talk to you this morning, I picked up jury information from the Polk County Bar Association. Polk County is the county in which Des Moines, our largest city, is located. And what the Polk County Bar did is they listed--on actually two pages, front and back--all the verdicts in Polk County for the first 6 months of 1996. There was only one case that was tried concerning products liability. It was a serious case; it was a gas explosion that ended in a fairly large verdict of $880,000 to be reduced by a 30-percent fault on the part of the plaintiff, so a verdict of about $616,000.

  So, for Iowa's largest county, and, I might add, most litigious county, one case tried, one verdict of $616,000 net, for a very serious injury. So, like the other witnesses, I'd ask you to keep in mind a fair and balanced effort to deal with this situation, and, most of all, keep in mind that you shouldn't come riding to the rescue of the tobacco companies regarding their litigation. That litigation should go forward and be decided on its merits by judges and juries throughout the country.
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  Thank you, Mr. Chairman.

  [The prepared statement of Mr. Miller follows:]

PREPARED STATEMENT OF THOMAS J. MILLER, ATTORNEY GENERAL, STATE OF IOWA

  Thank you, Mr. Chairman and members of the Committee for the opportunity to present these remarks.

  I am the Attorney General of Iowa. I also am one of twenty-two state attorneys general who have joined together in an history effort on behalf of our states to seek reimbursement of the millions of dollars spent each year by the states to care for the diseased, disabled and dying consumers injured by tobacco-related disease.
  Tobacco products are this nation's leading cause of preventable disease and death. According to the experts, tobacco use accounts for over 420,000 deaths in a year, and $50 billion in direct health care costs. Federal or state governments pay for over half of those costs. At the very least, our coalition of attorneys general is committed to the principle that tobacco companies should reimburse the states for the money that is paid to treat tobacco-related disease and compensate victims for the harm they suffer.
  Congress may shortly consider legislation to dramatically alter the tort laws of this country that govern how and under what circumstances a consumer injured by a dangerous product may seek compensation for that injury. The various proposals for this asserted reform must be discussed and reviewed seriously to determine what effect they will have on the ability of consumers injured by tobacco products to obtain fair compensation.
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  Any asserted tort reform legislation that would limit the ability of victims of tobacco products to obtain civil justice, or that would prevent states from seeking reimbursement for health-related tobacco costs, should be opposed. According to the recent Liggett admissions, the tobacco industry has known about the health risks and the addictive qualities of its products for many years. The victims of this deception should be allowed to seek fair compensation.
  Specifically, there are several things any bill should not do, because they would undermine the ability of victims to seek fair and just compensation for tobacco-related illness and death:
1. The legislation should not define its coverage over a product liability action based upon a theory of recovery which would preclude states from seeking Medicaid reimbursement.
2. The legislation should not place drastic time limits (called statutes of repose) on the period during which a law suit could be brought against a manufacturer whose products injure a consumer, because such limits would unfairly restrict consumers injured by tobacco products. Because tobacco products have been on the market for a longer period of time than the statutes of repose, liability would be barred unless an exception is created for tobacco. Previous drafts have included an exception for injuries which develop more than 15 years after use. Tobacco should be specifically included in any exception.
3. The legislation should not unfairly or arbitrarily cap punitive damage awards, which are a major deterrent to corporate wrongdoing. Referencing punitive damage awards to a multiplied amount of ''economic'' damages, or arbitrarily limiting punitive damages to a specific dollar award, could create a windfall to the tobacco companies and decrease the costs of their deceptive practices. Economic damages are usually only a part of deserved compensation, and thus the punitive damages would be limited to a specific dollar amount in most cases, irrespective of the wrongdoing of the tobacco industry. At present, punitive damages are based on a variety of factors, including how much money is necessary to punish a wrongdoer and deter similar conduct by others. Given the billions in profits repeated by the tobacco industry, a punitive damages award limited by statute is unlikely to have that effect.
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4. The legislation should not fix a problem that does not need to be fixed. There is presently no empirical evidence that such a total disruption of state authority concerning product liability is necessary. While many are injured each year, some severely, product liability remains are, only about 3% of all civil jury trials nationwide, according to the U.S. Department of Justice.
Tort law traditionally has been a state responsibility. The issues of proper compensation for injured persons and suitable protection for businesses are matters of social values and public policy that are appropriately addressed at the state level. Without a showing of need for or increased effectiveness of federal legislation, such an alteration of traditional state functions comes at a time when those states are themselves looking at reforms of their own tort laws.
  Consumers who have been injured by the false claims and deceit of the tobacco industry should not be victimized again by legislation which is offered in the guise of tort reform, but which in reality denies full and fair access to the remedies of the legal system for those injuries.
  This is not the time for Congress to come running to the rescue of the tobacco industry. With the new information about the industry from the Liggett Settlement and from many other sources now available for the first time, it is important and fair to let the courts, judges and juries alike have the opportunity to pass judgment on the tobacco industry without any impediments or obstructions put in place at the last minute by the Congress.
  Thank you very much for the opportunity to share these views with the Committee.

  Mr. HYDE. Thank you, General. You don't have any statistics on settlements, do you?

  Mr. MILLER. I don't have any statistics on the settlements. I keep fairly close contact with the lawyers. You know, I think there clearly have been settlements, but there hasn't been a rash of settlements for fear of going to trial. The settlements are in the ordinary course in Polk County, I would think, over that 6-month period.
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  Mr. HYDE. Very well.

  Mr. Conyers.

  Mr. CONYERS. Thank you, Mr. Chairman. That was pretty short questioning on your time, sir.

  Welcome witnesses. We've come here today without a bill before us, so I can only refer you to H.R. 10 that on February 13, 1995, we had this same hearing on this same subject. It may be a good sign that we don't have a bill in front of us, because it leaves us open to perhaps negotiate with the full committee as to where we're going.

  But, Mr. Miller, is it true that if we limit punitive damages then Liggett-Meyers Tobacco Co.'s admission that nicotine, that they've concealed it, that they targeted youth and minorities, which could make them eligible on the face for punitive damages, might end up getting far less of their just desserts in court if the legislation like the kind that we had before us last year was moved into law?

  Mr. MILLER. Yes, I certainly would agree with that. In the Liggett case, many of the states have settled with Liggett so Liggett does not have the exposure that others would have. But if the other four major manufacturing companies of tobacco products did the same thing as Liggett, then you would have a situation where they would have an immense courtroom advantage because of severe limitations on punitive damages.

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  Mr. CONYERS. And would the changes that the conservative members of the committee have proposed for joint and several liability be adversely affected to those who suffered--well, the whole Nation perhaps has suffered under this tobacco problem--but wouldn't joint and several liability work adversely against a lot of plaintiffs under the old H.R. 10?

  Mr. MILLER. It very well could. Some of the joint and several liability proposals deal with the noneconomic loss, which is the pain and suffering loss, basically, which is immense in tobacco-related disease in terms of lung cancer and emphysema. You do have a situation where the four remaining tobacco companies do have a considerable amount of resources. At least in the initial going, the changes to joint and several liability might not be as severe, but could be at the end in terms of consequences.

  Mr. CONYERS. Well, if one of these big tobacco companies decided to go into bankruptcy, which I understand is not an unheard of tactic when the consumers come at them, some of the provisions of the joint and several liability in H.R. 10 could work adversely against the plaintiffs who have recovered because they might not be able to go after other corporations.

  Mr. MILLER. If there is a bankruptcy by one of the four, that's exactly right, Congressman. Now there could be some real severe implications in terms of joint and several liability.

  Mr. CONYERS. Thank you so much.

  Mr. Hickok, we know there is another side to the lawsuit that you have told us about. I feel sorry for you. But have you sought remedy? Those were State laws, weren't they? The case was tried in a State court? You're not sure? Was it Federal or State?
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  Mr. HICKOK. I think it was Federal.

  Mr. CONYERS. It was Federal?

  Mr. HICKOK. Yes.

  Mr. CONYERS. OK. Do you remember----

  Mr. HICKOK. One point I should make--the case was not tried.

  Mr. CONYERS. Oh, it was not tried?

  Mr. HICKOK. It was settled.

  Mr. CONYERS. It was settled.

  Mr. HICKOK. Yes.

  Mr. CONYERS. But you didn't like the settlement that your lawyers----

  Mr. HICKOK. That's the fact.

  Mr. CONYERS. OK. Well, why did you settle if you didn't like the case?

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  Mr. HICKOK. I had no choice.

  Mr. CONYERS. What was----

  Mr. HICKOK. My insurance company settled the case.

  Mr. CONYERS. You mean they forced you to settle?

  Mr. HICKOK. Absolutely.

  Mr. CONYERS. You wanted to fight it out.

  Mr. HICKOK. I would have preferred. I did not think it was just, sir.

  Mr. CONYERS. Were you happy with your lawyers?

  Mr. HICKOK. Not particularly. [Laughter.]

  Mr. CONYERS. Not particularly. I guess not.

  Mr. HICKOK. And you have to understand, this case dragged on for years. I spent the better part of 4 to 6 weeks in New York City in depositions over a period of, I think, if I remember correctly, about 8 years.

  Mr. CONYERS. Wow.
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  Mr. HICKOK. And the law firm that was originally retained to defend me went through about three or four lawyers on the case and then disintegrated.

  Mr. CONYERS. Holy smoke.

  Mr. HICKOK. And I ended up with another law firm----

  Mr. CONYERS. This is terrible. Did you ever go to the bar association?

  Mr. HICKOK. No, I didn't. I really have no familiarity with that.

  Mr. CONYERS. You didn't know about that?

  Mr. HICKOK. No.

  Mr. CONYERS. Do you know about it now, now that you're experienced?

  Mr. HICKOK. No, I don't hang around lawyers any more than I have to, sir. [Laughter.]

  Mr. CONYERS. Well, there are a lot of lawyers that have adopted that view.

  Mr. HYDE. I wasn't going to tell you that your time is up, but I think I see some wisdom in curtailing this. [Laughter.]

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  Mr. CONYERS. Yes, there are a lot of lawyers that agree with you, Mr. Hickok, and some of them are in the Congress.

  Well, thank you, Mr. Chairman.

  Mr. HYDE. The gentleman from Florida, Mr. McCollum.

  Mr. MCCOLLUM. Thank you very much, Mr. Chairman.

  Mr. Miller, the States of Washington, Nebraska, Louisiana, and New Hampshire do not have any punitive damages at all, as you are probably aware. Do you have any evidence that in those States there is more abuse by corporations, or that, in fact, the absence of punitive damages in those cases has resulted in a disadvantage for people who live in those States from the standpoint of the kind of abuses that occur in product liability cases?

  Mr. MILLER. I have no empirical data to indicate that the citizens are less protected there. In Iowa, punitive damages occur fairly rarely, but I think there is a value to have it for the exceptional case in which there is significant wrongdoing. And I think that if the facts and allegations are proved in the tobacco cases, it's fair and just to have punitive damages in that kind of setting.

  Mr. MCCOLLUM. Now I'm sure you're aware the National Governors Association has embraced the concept of product liability reform that encompasses some limitation on punitive damages; in fact, they're going to have a witness on the next panel. Don't you think the Governors have as good a perspective on this subject as you do? And why would 22 of them, representing States that have tobacco suits, why would they embrace a bill like this, in principal at least, without taking into the account the same things that you are? I assume they must.
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  Mr. MILLER. Well, Governors and attorneys general do occasionally have different perspectives----

  Mr. MCCOLLUM. I'm sure.

  Mr. MILLER [continuing]. Particularly on matters of litigation; some very honest differences of opinion. For instance, my Governor--I don't know whether he's 1 of the 22--and I have worked very closely together on the tobacco litigation. He's a Republican, I'm a Democrat. I think there are times when we agree; there are times when we disagree.

  My view on punitive damages continues to be that in the severe case, when there's really been reprehensible conduct, punitive damages is an appropriate remedy, having an appropriate chilling effect protecting those people that are good people and law abiding.

  Mr. MCCOLLUM. Well, you know, I don't disagree that there ought to be punitive damages. I think the real issue here, and I would say that to all of the witnesses on the panel, is whether we limit them, whether we put a cap on them. Maybe $250,000 is too small; maybe it should be considerably bigger. But there are many cases out there where I know and you've read about, and I'm sure you may have seen, where these huge gigantic results come down.

  And in cases like tobacco and others, where there are multiple claimants potentially out there, you could have a punitive damage recovery that wipes out the company and other litigation that's pending against that company for claimants for compensatory damages that are very real for pain and suffering and where actual economic losses would never be satisfied. It just seems to me that there ought to be some limit, somewhere.
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  Antitrust laws have a limit; that's a three-to-one ratio and has been in the law for years at the Federal level. You can't just have punitive damages without having some limit.

  Don't you think some limit is appropriate? Maybe you don't agree with the amount, but some limit?

  Mr. MILLER. I agree there have been cases that have gone wild, that have gone crazy on the punitive side. I think many of those have been cut back by the trial judge or on appeal, or perhaps in settlement. The problem with limits of $250,000 is that for some companies that's a very severe penalty. For other large corporations, that's a very, very small amount so you don't have the deterrent effect.

  Mr. MCCOLLUM. What if it was $1 million instead of $250,000? Or $2 million? I mean some limit, some cap; would you be objecting to that?

  Mr. MILLER. I think certainly in the tobacco context; I would think $1 million or $2 million would be inadequate.

  Mr. MCCOLLUM. Well, with 22 States suing already--I mean, suppose they were all successful. Where do you stop with this stuff? And don't forget, and the reason I'm being a little argumentative with you is that while you're pursuing this and thinking about tobacco, and maybe you're urging us to special exception for that, but generally we don't do that sort of thing, there are the companies like Mr. Hickok represents, and Mr. Joyce. I mean, there are plenty of other product liability suits that involve a lot smaller players, and the problem of product liability is the abuse of threats and the settlements and so on. Shouldn't there be some limit?
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  Mr. MILLER. I agree with the one point that you raised about multiple punitive damage awards, I think there should be some limit there. There should be some way that there not be multiple punitive damage awards, and I think the courts are working towards that.

  You know, I listen to the two people on my right and far left and understand their situation. I am concerned about their situation, but it doesn't sound like punitive damages was the problem in their situation. It was more the economic damages and other nonpunitive damages.

  Mr. HYDE. The gentleman from New York, Mr. Nadler.

  Mr. NADLER. Thank you, Mr. Chairman.

  First, let me welcome Ms. Kanarek here, who is a constituent of mine, a resident of my district, and thank her for coming and for her testimony, which will be helpful in this discussion.

  Let me ask Mr. Joyce--the policy that you're favoring would stress a uniform product liability law; correct?

  Mr. JOYCE. I don't understand the question, sir.

  Mr. NADLER. You would support a uniform national product liability law as opposed to letting the States have different laws?

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  Mr. JOYCE. Yes, sir.

  Mr. NADLER. OK. Now we don't have a bill before us, but the bills on that subject that would do such a thing that have been debated in the last few years, in particular, last year's conference report have one way preemption provisions. For example, States with no cap on liability, on punitive damages, would have to take the bill's cap. But the States that don't allow punitive damages at all would get to keep their law.

  In other words, if a State has a $500,000 punitive damages cap and the bill says $250,000, they would to go down to $250,000. But a State that has no punitive damages would not go up to $250,000. Or if a State had $100,000, it wouldn't go up to $250,000. It's a one-way prodefendant, antiplaintiff preemptive provision. Some States don't have a statute of repose. They would have one under this bill. But a State with a statute of repose of less than 15 years would get to keep their law. I could give other examples.

  And let me say one thing. In New York, I was the cosponsor of a bill that was enacted into law in 1986 when I was in the legislature called the toxic port law, which was specifically enacted because of problems dealing with the drug DES which was negligently allowed to be marketed, which was negligently marketed by the manufacturer and caused untold tragedies, one of which we have heard about this morning. The problem was that under New York tort law prior to that date, the statute of limitations ran from the time the drug was administered. The statute usually had run by the time you discovered the problem because you were having a child or the child discovered the problem that had been caused, because it was a hidden defect.

  So we amended the law in New York to do two things. One, to say that the statute of limitations started running when you discovered the problem, not when the drug was administered. Secondly, we reopened for 1 year all actions that had already been time barred or that had not been brought because they were time barred. This is the public policy in the State of New York with respect to toxic torts with respect to DES or other such drugs, you should not be time barred because you couldn't have known that you had been damaged.
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  Now under most of the bills that you are favoring, the statute of repose would repeal this New York law, would repeal the toxic tort law. Do you think that that is fair that people who are damaged, that the Federal Government should step in and say we're having a one-way statute of repose for States, but we're not going to allow you to have a more generous law?

  Mr. JOYCE. Thank you. I would like to answer that at two levels. I think the enactment of a uniform product liability reform bill is critical to manufacturing. To give you an example, today all of us deal with 50 different sets of rules with regard to product liability.

  Mr. NADLER. Excuse me. While you answer this, could you just take into account an answer assuming such a thing is critical, and I don't agree with that, but assuming a uniform law is critical why should it be one way? In other words, why should it allow diversity in one direction and not in the other?

  Mr. JOYCE. That is the second part of my answer. I will address that to be sure. Having uniform legislation throughout the country allows us the control, the management, if you will, of this area of our business, and also allows plaintiffs to reach us, if you will, in a very fair and balanced way.

  Presently, back to your specific point with regard to the subject of DES, I think it is unnecessary and perhaps unwise to have individual preemptive rules in States, and maintain the uniformity of all these rules throughout the country for everyone to deal with or we'll have these exceptions. So I agree with your position on that, Congressman.

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  Mr. NADLER. Excuse me. You agree that if you are going to have a statute of repose or any other uniform law, they should completely preempt, not only one-way preempt? Is that what you are saying?

  Mr. JOYCE. Let me rephrase that then to be clearer.

  Mr. NADLER. That's what I thought you were saying.

  Mr. JOYCE. No. What I am saying is there--would it not be more fair to all parties involved that we don't have any preemptive exceptions to the rules, is what I am saying.

  Mr. NADLER. Well, now I am beginning to be confused.

  Mr. HYDE. At that point I must remind the gentleman his time has expired.

  Mr. NADLER. Can I have 2 extra minutes just to explore this, Mr. Chairman, because I think it's an important point?

  Mr. HYDE. Well, without objection, the gentleman is granted 2 additional minutes.

  Mr. NADLER. Thank you, Mr. Chairman.

  Mr. HYDE. That's your quota for the month.

  Mr. NADLER. I'll accept that, Mr. Chairman.
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  Mr. CONYERS. No quotas, Mr. Chairman. We're against quotas. [Laughter.]

  Mr. NADLER. Mr. Chairman, I hope this laughter doesn't count under the 2 minutes.

  Mr. Joyce, how is that different from saying that the preemption should be total and not one-way? In other words, you said there should be exceptions to the preemption.

  Mr. JOYCE. What I am saying in the simplest of terms is that we need to establish a set of rules here that we can all work with nationwide without exceptions.

  Mr. NADLER. OK. Well, let me pursue it this way: I think it's the next-to-last question in my pursuit on this. The bill we had last year, the conference report, does not apply to limit the product liability rights of businesses suing manufacturers because it includes a commercial loss exception. In other words, the bill would only have applied to limit the rights of workers and individual citizens, not corporations. That would be an exception.

  Secondly, the bill, and again, we have no bill before us, I am assuming we're talking about last year's conference report. The bill said in effect that a State couldn't have a more stringent law. If the bill set a statute of repose of 15 years, the State couldn't say 18, but the State could say 10, shorter statute of repose. If uniformity is the goal, why shouldn't it be total uniformity and say you can't say 18 because it's longer than 15, but you can't say 10 because it's shorter than 15?

  My second-to-last question, so I get it in, is, if we did that and by so doing we eliminated a law like New York's toxic tort laws, what would you say to Ms. Kanarek not about her daughter, but had she suffered damages because her mother took this drug when she was pregnant and it took more than whatever the statute of limitations in New York, I think 5 years, to discover that damage--what would you say to her about the interest of uniformity to say that her family would have to suffer and not be able to even get into court to judge the equities?
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  Mr. JOYCE. That's a very good question. I appreciate the opportunity to respond to that. But before I do that, the first comment you made relative to commercial law versus product liability, it was determined, and what we're focused on today is product liability irrespective of commercial law. So with regard to product liability, this----

  Mr. NADLER. Commercial laws, not commercial law, sir. In other words, product liability, your uniformity says an individual can't sue the manufacturer who suffered from product liability, but the company could.

  Mr. HYDE. Mr. Nadler, I'd like to move on, if we could. Please answer.

  Mr. JOYCE. Could I answer the question on DES, if I might, to respond to the Congressman? Truly this is a very tragic situation. I don't think--as a matter of fact, I know that the proposed legislation would broaden the rights of victims in this matter toward the end that the Congressman is suggesting.

  In terms of recognizing the timing of discovery of the situation, which can be decades later perhaps, this reform bill does address that and allow that. I think that is exceptionally fair in what should occur in this legislation. Thank you.

  Mr. HYDE. The gentleman's time has expired. The gentleman from Pennsylvania, Mr. Gekas.

  Mr. GEKAS. I thank the chairman.
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  Mr. Miller, in answer to the question that was posed to you by Mr. Conyers of Michigan in which he gave a hypothetical about one tobacco company going bankrupt, therefore enjoined in several liability, under current law the other three would suck up all the damages as it were. If, furthering on his example, if all of them went bankrupt save one, would you and your cohorts favor all the damages being paid by the remaining one tobacco company, even if the evidence could not point to their product as being liable for all the damages or even used by those consumers who have sued?

  Mr. MILLER. I think that would be the key question, if the consumer used in a substantial way the products of that company, then that company should have liability. If they didn't, the company shouldn't be liable.

  Mr. GEKAS. That is exactly what the reform that we have offered in last year's bill and which I assume will be duplicated this year contemplates. That in enjoined in several liability, that we ought to be pinpointing the source of the damage regardless of the multiplicity of defendants. But I wanted to get that point straight from you.

  Mr. MILLER. What I am saying is that if the company had no responsibility at all, if they didn't use the product, didn't use say Philip Morris products, Philip Morris should have no responsibility. But if they did use Philip Morris as well as other cigarettes, and the other cigarette makers went into bankruptcy, then I think joint and several liability should still apply and Philip Morris should be responsible for all the damages at that point.

  Mr. GEKAS. Should be responsible even if it's the only one left standing, for all the damages?
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  Mr. MILLER. For people that use their product, yes.

  Mr. GEKAS. We agree on that. Nobody disagrees that wrongdoing or negligence on the part of an individual company should go unpunished. What we're saying in the joint and several liability reform that we want to make is that we shouldn't have a little fellow be responsible for the totality of damages when it can not be proved that that individual company was liable for an individual item of damage.

  Mr. MILLER. I think that's certainly the law in Iowa and I think in practically every other State. If the company did not contribute to the damage at all to this particular plaintiff, the company is not liable; it's not responsible for anything.

  Mr. GEKAS. Then I would ask you to read, reexamine what we propose in joint and several liability reform.

  Mr. Hickok, in the statute of repose, according to your written statement, you support that concept and the 18 years that we have settled upon as the statute of repose. In your case, some of your products could withstand a statute of repose of 100 years. Isn't that the case?

  Mr. HICKOK. Yes, sir. That's correct.

  Mr. GEKAS. And your testimony reflects that some of your products made in the late 1800's are still extant and still being used. Is that correct?

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  Mr. HICKOK. That is correct, sir. I got a letter, actually this does not apply, but I got a letter from an owner in Mexico about 3 weeks ago congratulating me on the fact that he was successful in starting up and running a machine we built in 1892.

  Mr. GEKAS. With that, I withdraw the remainder of my time and continue to offer trips to Harrisburg, PA.
  Mr. HYDE. Thank you. Mr. Miller, just in passing, have you considered suing the retailers? Anybody who sells a pack of cigarettes is making money off of it, and they are as culpable. Even the Government ought to be sued for permitting--your own State sue for permitting--the sale of this addictive, dangerous drug.

  Mr. MILLER. We have not seriously considered suing the retailers for one primary reason. They have not made the representations that the tobacco companies have.

  Mr. HYDE. They are offering a product for sale.

  Mr. MILLER. They are selling the product. But our major complaint, our major concern is that the tobacco company knew about these hazards for a long, long time. They engaged in a campaign of misinformation and even in a sense, propaganda to get people to think: ''well, we really don't know whether cigarettes cause cancer, heart disease, emphysema.'' That is the substantial wrongdoing we allege. The retailers did not do that. The Government units did not do that.

  Mr. HYDE. Well, we could carry that on for a little bit.
  The gentleman from Virginia, Mr. Scott.
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  Mr. SCOTT. Thank you, Mr. Chairman. I would like to thank the gentleman from Pennsylvania for inviting us back to Hershey, PA. Apparently, as I was reading the news this morning, I think we desperately need another weekend in Pennsylvania.

  Mr. GEKAS. It's already scheduled.

  Mr. SCOTT. I look forward to another invitation.

  Thank you, Mr. Chairman. I would like to ask Mr. Joyce a couple of questions.

  Following up the comments from the gentleman from New York, do I understand your organization would support a national uniform law on comparative negligence?

  Mr. JOYCE. Yes.

  Mr. SCOTT. You would, OK. And on statute of repose, you would like the clock to start running at, did I understand, from discovery?

  Mr. JOYCE. That is correct.

  Mr. SCOTT. OK. In the case you mentioned, if you had gone to court, do you think you would have won?

  Mr. JOYCE. The case that I outlined?
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  Mr. SCOTT. Right.

  Mr. JOYCE. Well, I felt strongly, since it was proven that our product wasn't at fault, that if we actually did get into trial on that, on that situation----

  Mr. SCOTT. You would have won?

  Mr. JOYCE. Yes.

  Mr. SCOTT. Mr. Hickok, you had indicated that your insurance premiums have gone up significantly?

  Mr. HICKOK. Yes, sir.

  Mr. SCOTT. Do you know whether or not the premiums have gone up as a result of insurance companies just charging you more or whether they are actually paying out more in premiums, in settlements, and defense costs?

  Mr. HICKOK. I am absolutely certain that they have paid out more in settlements and defense costs than we have paid over all the years that we have had liability insurance.

  Mr. SCOTT. That's on your personal situation.

  Mr. HICKOK. They are losing money, yes. They are losing money on us.
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  Mr. SCOTT. On you. Overall, are they losing money or are they paying out more in terms of--I mean, you can say if one person has an automobile accident, that insurance company lost on that case. But the question is whether or not you have evidence that the insurance companies are actually paying out more in premiums and defense costs, or are they just raising the premiums and making more money?

  Mr. HICKOK. I'm sorry I didn't quite follow that.

  Mr. SCOTT. When we did insurance reform in Virginia, we had some liability companies that were paying out in defense costs and settlements about 17 percent. Of every dollar they brought in, they paid out 17 cents. The rest was accounting, setting aside for reserves and cases that were never paid. Insurance companies were making a lot of money. That had nothing to do with the liability law. They just had some accounting ways that they could hide their profits.

  Mr. HICKOK. I certainly am not privy to that information.

  Mr. SCOTT. So you don't know why your premiums went up. You just know they went up.

  Mr. HICKOK. Well, I think my premiums went up because the losses from the suits were higher than the premiums, let alone the cost of defending them.

  Mr. SCOTT. In terms of the various people that were involved in the litigation and who ought to pay, could you have worked out an agreement in advance with insurance as who would pay if something went wrong with your product?
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  Mr. HICKOK. I don't think I understand the question.

  Mr. SCOTT. When you sell a product, you could make sure that they indemnify you from any loss if they change the product.

  Mr. HICKOK. In other words, you are asking if I could have my customer indemnify me?

  Mr. SCOTT. Right.

  Mr. HICKOK. Well, most of the machines on which we have been sued were shipped long before tort law took its present law. So that was never an issue at that point.

  I have refused to sell machinery to people who ask me to ship it to them without safety devices. I simply will not do it because my attorney--I asked my attorney about it one time. He said any indemnification you get is not worth the paper it's written on.

  Mr. SCOTT. But you could have insurance coverage rather than just indemnification, and you can work this out, whereas the injured party is just sitting there injured, without the ability to protect himself, as you could have in advance?

  Mr. HICKOK. Sir, I think if I go in to my customer and start talking to him about this, he will show me the door very quickly.

  Mr. SENSENBRENNER [presiding]. The gentleman's time has expired.
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  The gentleman from North Carolina, Mr. Coble.

  Mr. COBLE. I thank the chairman. It's good to have you all with us.

  Mr. Joyce and Hickok, I probably have a 95 to 96 voting approval record by NAM and NFIB, of which I am proud. One reason it's not 100 percent, is because I am one of the very few Republicans who voted against this measure last session, primarily because of a philosophical hangup that I have. I think that matters involving insurance, and product liability for the most part involves insurance either directly or indirectly, ought to be administered and regulated by the 50 State legislatures and/or the 50 insurance commissioners, I think all of whom are elected.
  Secondly, when you start imposing caps, then you are tampering with the jury. I appreciate the stories that you all have shared with us today, but that's the direction from which I am coming.

  Let me insert my oars into the troublesome tobacco waters. Mr. Miller, I think a good argument could be made that this is not the appropriate forum for the tobacco discussion. Product liability reform defines harm as any physical injury, illness, disease or death or damage to property usually as a result of a defective product or an instrumentality. This is economic loss. I think a good argument could be made that this is not the forum for that.

  But having said that, product liability also involves in many instances people who are not contributing to their own problem, but innocently injured. Tobacco consumers, however, voluntarily consume tobacco. Now I am not talking about minors. I am talking about people who have obtained their majority. At that point, they have the option to choose whether or not they consume tobacco. I think an assumption of risk may well come into play here.
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  I go to Iowa. I purchase five cartons of cigarettes. Do I pay a tobacco tax in that transaction?

  Mr. MILLER. Yes, you do.

  Mr. COBLE. Here is what bothers me, Mr. Miller. I don't mean you personally. But I see an evidence of hypocrisy and greed surfacing in these multiple State lawsuits where the States, the attorneys general, not you personally, prance up to the courthouse. They have their pleadings in hand naming parties defendant as tobacco companies, while, in the other hand, they have warmly embraced the receipts that result from the purchasing of tobacco products. They like those receipts that come into their coffers, and I presume find their way to the general fund and then pay for services for their citizenry. However, on the other hand, they are quick to bring action against them. Am I missing something here, Mr. Miller? The two don't jibe. I see the ugly heads of greed and hypocrisy forthwith. It goes back to what Chairman Hyde said about what have you all done to that at the retail side. Maybe I am missing something. If I am, educate me.

  Mr. MILLER. I hope that the 22 of us are not motivated by greed or affected by hypocrisy. I don't think so. I think that the 22 attorneys general who have brought these lawsuits have brought them in very good faith.

  In terms of----

  Mr. COBLE. Mr. Miller, let me ask you this question. You will admit that you do accept those receipts and you expend those receipts for whatever reason in your respective States?
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  Mr. MILLER. We do accept those receipts, but the damages to the States far exceed the receipts. Our hope is that we will receive less and less. I have gone to the Iowa Legislature with a package that I think will reduce tobacco use in Iowa, particularly among young people. So the whole effort I think is to reduce those receipts and to recover what we feel are legitimate damages.

  Mr. COBLE. What do you say, Mr. Miller, about the person who voluntarily consumes the product?

  Mr. MILLER. I think that person has some responsibility. I think the tobacco companies have some responsibility too. I think the whole question now at this stage of litigation is to assess the responsibility in terms of both the tobacco user and in terms of the tobacco company.

  Mr. COBLE. The chairman is just about to gavel me down.

  Mr. SENSENBRENNER. The gentleman's time has expired. Let me say that there is a vote on the floor, a suspension on H.R. 1003, the Assisted Suicide Prevention Act. So I will have to recess the committee. Mr. Hyde has already gone over to vote and will resume this hearing as soon as he comes back.

  But before you escape, Mr. Coble--Mr. Coble, after listening to this last colloquy, let me say that Wisconsin has got the second highest cigarette tax in the country. I would like to ask you to come to Wisconsin to buy your cigarettes in our State because we will be happy to spend your money.
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  Mr. COBLE. After I go to Harrisburg, PA, I'll come to Wisconsin.

  Mr. SENSENBRENNER. The committee is recessed.

  [Recess.]

  Mr. HYDE [presiding]. The committee will come to order. The Chair intends to wait for the arrival of prospective questioners. However, we do have some questioners who are in the room now, and we can proceed with them, so as not to unduly prolong this panel's torture by having to wait here indefinitely. So we will proceed.

  The Chair recognizes the gentleman from Tennessee, Mr. Bryant, for 5 minutes of questions.

  Mr. BRYANT. Thank you, Mr. Chairman. I thank the distinguished panel for being here today.

  I, for a lot of reasons, echo Mr. Coble's comments, particularly as they pertain to tobacco, although I did disagree with him on the support of this bill.

  Mr. Attorney General, I know you are 1 of the 22 States that have brought litigation against the tobacco industry. I guess having practiced law before and having represented people, and governmental entities, and Iowa may be different from Tennessee, I find it somewhat unusual for you to come in and be concerned about limiting punitive damages or capping damages when most States have in the past had complete immunity from lawsuits. Over the years though, legislation has lifted, in a limited fashion, that immunity. In Tennessee, we don't allow punitive damages. You can't sue the State for punitive damages. We have a cap. You can only recover x amount of dollars, no matter how egregious, no matter how reprehensible, to use your word, the conduct of the State official is.
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  I just wonder if that is the case in Iowa. If it is, as the chief lawyer in that State, how you can make that statement to the public in general or to the private sector, that they should not attempt to limit damages or cap damages, and yet represent a State that may or may not do it on the statewide basis.

  Do you have limited damages for court liability against the State of Iowa?

  Mr. MILLER. In 1965, the legislature waived sovereign immunity. Essentially, we have rather wide open potential liability for the State. We defend the State and have numerous lawsuits against the State which we defend on a routine basis.

  Mr. BRYANT. That's unlimited? No limitation on an amount you can recover or punitive damages?

  Mr. MILLER. There's no limit on the amount that can be recovered. The State is not liable for punitive damages, but in terms of actual damages, economic loss, or noneconomic loss--it's a wide open situation.

  Mr. BRYANT. How do you justify that the private sector should be liable for punitive damages and yet the State that you represent, and I assume have a tremendous amount of influence over, is not liable for punitive damages?

  Mr. MILLER. Less than a tremendous amount of influence, but, hopefully, some influence, Congressman.
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  I think the difference is in part a respect for conservation of government resources. That would be tax money that would have to be paid for the punitive damages.

  Mr. BRYANT. Is that any more important than the private sector's assets and hopefully they can keep that too? I mean I fail to see an intellectual difference in that, but maybe we could argue over that all day.

  Mr. MILLER. I think the exposure to the tax money is at least somewhat different. There are other ways that I think people deal with outrageous conduct within the Government. There are responsibilities that I have--that the governor has, for instance. There is press scrutiny. But you make an interesting point. I will go home and rethink whether the State should be responsible for punitive damages.

  Mr. BRYANT. If you want to follow up any of my questions with written answers or additions, please feel free to do so.

  Let me just cover a couple of other quick things with you. You are also talking about tobacco litigation. As I understand this bill, it is prospective. It will not affect any of the existing cases. It also has a number of provisions, I think if you carefully study last year's bill and this bill that comes out this year, that will address all of your concerns, not the least of which is the fact that if it's such egregious conduct, that if it's intentional hiding information that would cause the implementation of punitive damages at court, the judge in this bill has the ability to come outside and go beyond that cap, to award additional damages. If those types of actions which you allege against tobacco companies are true, that they intentionally covered up and mislead the public and hidden information, that's provided for in this bill so that you can go beyond that in that type of case.
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  So, again, I feel that if you look at aspects of this bill, I believe they are going to address most, if not all of your concerns, particularly as they relate to tobacco. I think this bill treats tobacco no differently than it does any other product. Tobacco is certainly not a durable good under the statute of repose that we talk about. So I think your concerns would be adequately addressed by this bill.

  I see my red light, and I will quit talking at this point. Thank you, Mr. Chairman.

  Mr. HYDE. I thank the gentleman. The gentlelady from California, Mr. Lofgren.

  Ms. LOFGREN. Thank you, Mr. Chairman.

  I found your testimony, Mr. Miller, very interesting.

  I note that California's attorney general has within the last week announced that California will be joining you and the other attorneys general in the litigation which I think is pleasing to the legislature and most citizens in California. As I listened to your comments and to Ms. Kanarek's very moving testimony, I understand your position as someone who is taking an aggressive stand for the taxpayers of your State to recover the taxpayers financial damages from treating those who are damaged through this product, but I wonder whether the exceptions that you have proposed for tobacco shouldn't also be extended to someone such as Ms. Kanarek, who has had similar types of damage and trauma. There are other people who are not before us today who have had other really devastating experiences. I understand you are here to speak about your own litigation, but how do you distinguish or do you distinguish the carve-outs you have suggested for tobacco from other traumatic sorts of situations?
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  Mr. MILLER. I don't think there's any distinction on the punitive damage issue. I think punitive damages are in place and should be in place to have a chilling effect--a deterrent effect on reprehensible conduct. So I don't think punitive damages should be treated any differently for tobacco. I think that the kind of limitations that were proposed last time on punitive damages should not be placed in any situation. They won't have the deterrent effect for which punitive damages are designed.

  As I mentioned before, $250,000 to a large corporation is no deterrent at all. Certainly in terms of noneconomic damages, mentioned so ablely and so articulately earlier today, there shouldn't be those kinds of limitations for any type of litigation.

  Ms. LOFGREN. Now continuing forward, I note that on our next panel, we have a representative from the National Conference of State Legislatures, who if I am reading the written testimony correctly, will oppose the idea of preemption. I think legislatures, and attorneys general, need to look out not just for victims of tort wrongdoing, but taxpayers generally, and the economy generally. Obviously, the State legislatures of the United States have weighed the economic impact of tort litigation and its being federalized versus the impact on taxpayers who might not recover from defendants such as the tobacco industry.

  As the attorney general of your State, did you have to go through a process of balancing not only the impact for taxpayers in this litigation, but the impact and the health of your economy generally in your State in whether or not federalization of tort law would really boost your economy, and therefore lead to a contrary conclusion?

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  Mr. MILLER. I have always said that the way I approach the tort debate and the tort issues is with the realization that really we're on both sides of the issue. We don't know when we leave today whether we might be a victim and have to be a plaintiff. But we as a people pay for all the costs either through insurance premiums or increased cost in products or in taxes. So that the key is really to have a balanced system, and that's what I have tried to do in Iowa. I have agreed with the plaintiff side a number of times. I have agreed with the defense side a number of times, to try and reach that balanced system, and I might add, have received the ire of both sides at various times.

  I think the key is to reach the balance. That is what we have tried to do in Iowa. I think we should have a right to try and do that in our State and not be preempted by the Congress.

  Ms. LOFGREN. So in closing, you don't think you need the U.S. Congress' help in finding that balance?

  Mr. MILLER. I think we can find it ourselves and, indeed, have struck a pretty good balance in Iowa.

  Mr. HYDE. If men were angels and all States were Iowa, it would be great.

  Mr. MILLER. Mr. Chairman, you know that line from ''Field of Dreams.'' ''Is this Heaven? No it's Iowa.''

  Mr. HYDE. Absolutely.

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  The gentleman from South Carolina.

  Mr. INGLIS. I have no questions, Mr. Chairman.

  Mr. HYDE. The gentleman from Cincinnati, Mr. Pease, the gentleman from Ohio.

  Mr. PEASE. Mr. Chairman, I had one question.

  Ma'am, I heard your name pronounced several ways. I want to do it correctly.

  Ms. KANAREK. It's Kanarek.

  Mr. PEASE. Ms. Kanarek, your discussion, and I looked at your written notes as well, dealt with the issue of punitive damages. I guess I have a question in that regard. My understanding is that compensatory damages generally deal with economic losses and those that can be proven in an economic sense, and that punitive damages are generally reserved for punishing intentional or reckless behavior.

  Is it your contention that the pharmaceutical industries knew that they were putting a product in the market that would cause harm to people and did so anyway?

  Ms. KANAREK. There was a study done in 1952 at the University of Chicago, a double-blind study, that showed that DES was not effective in preventing miscarriage. The study was ignored by all the pharmaceutical companies. As a matter of fact, they went on to promote it not only for preventing miscarriage, but for all pregnant women. It wasn't until 1971 that it was removed from the market because it was linked to a rare form of cancer. So yes, it has been shown that DES was put on the market and the drug companies ignored the information that they had.
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  Mr. PEASE. There is a difference between knowing as you contend that it might not be effective to prevent miscarriage and knowing that it would cause harm to people that used it. That's my question.

  Ms. KANAREK. The study showed that also there were studies that showed that it caused cancer in laboratory animals.

  Mr. PEASE. So your contention is that there was knowing behavior in this case?

  Ms. KANAREK. Absolutely.

  Mr. PEASE. Thank you.

  Mr. HYDE. I thank the gentleman. Mr. Meehan, the gentleman from Massachusetts.

  Mr. MEEHAN. Thank you, Mr. Chairman.

  It's interesting, the discussion here about tobacco. During last year's debate about products liability legislation, we heard a lot of arguments against the products liability bill that the President ultimately vetoed. But strangely, we heard very little about the potential impact of this legislation on litigation against the tobacco industry. I think today's hearing is a good sign that it is going to be a major issue. It will be part of the discussion on products liability in this Congress. As much as we don't have a piece of legislation before us, I think we can make an assumption, given the fact that Senate 5 has been filed in the Senate. That is the bill that we're talking about. H.R. 10 from last session is likely to be the bill we're talking about. So I think we can draw some reasonable conclusions of what the effect of this legislation would be on tobacco litigation.
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  But I think it is important that we put it in perspective. We are not talking about just another product here. We are talking about the leading preventable cause of death in America today. This is not just another product. It is the leading preventable cause of death in America today. We have undergone a process over the last three or four years in this country where we have been able to learn all kinds of information we didn't formerly know about what the tobacco companies knew and when they knew it.

  Now a little over 3 years ago, the CEO's of the tobacco companies that came before the Commerce Committee and testified under oath that tobacco products were no more addictive than twinkies. I call that the twinkie defense. They are the same people that testified before the Congress that really the health effects of the product had been well overstated.

  But in that time period, since they testified before Congress, we have seen volumes, millions of pages of internal documents from the tobacco companies that show that in truth and in fact, they knew that it was an addictive product. In fact and in truth, they manipulated the levels of nicotine in their products and saw themselves in the ''delivery of nicotine'' business. So that's what we have learned.

  In addition to that, I think State courts have begun to see through these claims by the tobacco companies that plaintiffs knowingly volunteered or assumed the risk involved in smoking. They recognize the fact that package warnings say nothing today about the addictiveness of nicotine. Tobacco companies have not in any way, shape or manner been forthright about what's in their product. The tobacco industry said they didn't target children. At the same time, they had a campaign in America to target a billion dollars' worth of advertising, creating Joe Camel.
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  There are 400,000 Americans who are going to die this year as a result of tobacco products. Many of them started using this product in the early 1960's, when there wasn't any warning on products. You know what else? We know from internal documents from the tobacco companies that in the 1950's and the 1960's and the 1970's, they knew the product was killing people. They withheld that information from the Government, from the American people, and from consumers.

  So we are not talking about just another product here, and I am going to enjoy this discussion because the tobacco companies finally are not invincible. Just last year, Grady Carter won a $750,000 judgment from Brown & Williamson. So this is very important legislation.

  I want to specifically talk to the issue of eliminating joint and several liability. We saw recently that the Liggett Co. made a historic settlement as a result of your efforts and that of other attorneys general, where it made all kinds of admissions relative to the marketing of their product and the addictiveness of nicotine. I assume, Attorney General Miller, that will have an effect on other States joining in your efforts. I assume that that will help in terms of negotiations with the other tobacco companies. However, didn't Liggett also agree to turn over internal documents, and don't the tobacco companies have a temporary restraining order in effect? Is that true?

  Mr. MILLER. They have agreed to turn over a significant number of documents that have been represented to us to be very significant in terms of their evidentiary value.

  Mr. MEEHAN. But you haven't seen those documents yet.
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  Mr. MILLER. We have started to see some of them, a few of them. The tobacco companies are in court with us on the most sensitive documents. And the decision is expected fairly soon in Florida on those documents. If you are making the point that they are trying to withhold those documents from the inspection and attention of the American people, they are doing that in court presently.

  Mr. HYDE. Could the gentleman bring his questioning to a close?

  Mr. MEEHAN. Yes. Could I get 2 more minutes too, as my colleague? Sometimes in the front row, you don't get quite as much of an opportunity.

  Mr. HYDE. The gentleman wants the Nadler dispensation?

  Mr. MEEHAN. Yes.

  Mr. HYDE. I will if the gentleman will agree not to be so cavalier in dismissing twinkies as addictive, because it varies from person to person. [Laughter.]

  The gentleman may have 2 additional minutes, without objection.

  Mr. MEEHAN. I want you to know, Mr. Chairman, that my sister has brought that argument up to me on occasion, but I will.

  What I am trying to get at, Attorney General Miller, is the fact that we haven't even begun fully to assess the culpability or liability of tobacco companies with regard to these suits. Are you aware of the potential that this legislation would have on other States from doing the same thing that Iowa and Massachusetts and other States, are you aware of the effect that would have on other States joining in the Medicaid suits?
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  Mr. MILLER. I am concerned that it could stop those suits, depending on how some of the provisions are interpreted, particularly dealing with the statute of repose. I know other States are sort of looking to see what happens to the first few cases that are tried to decide whether they want to file. I think that's a very very rational and good use of public resources. But to make them file immediately, because of concern about this legislation is not a public good. I don't think any part of the statute of repose should apply to the tobacco type setting.

  Mr. MEEHAN. One other quick question because Mr. Hickok had talked about the frustrating process of being in court. I can sympathize with many of those arguments because I think the attorneys general and the plaintiffs against the tobacco companies have seen many of these techniques used by the best law firms in America in order to delay, procrastinate, and prolong litigation without any kind of interrogatories, where you get an opportunity to get the facts out.

  Have you had that experience during the course of your litigation with the tobacco companies relative to depositions and other things?

  Mr. MILLER. We are just getting into the discovery process in our State, so we really haven't gotten to that stage. But the whole history of 30 or 40 years demonstrates the tobacco companies have been the most difficult to litigate against in terms of producing documents--the most costly to litigate. That has been part of their strategy, to make it so time-consuming and so costly that people can't litigate against them.

  Mr. MEEHAN. So, Attorney General, in conclusion, given the grand jury investigations of criminal culpability, given the class action suits, given the attorney general suits, given the FDA regulation and litigation over that issue, we're not anywhere near assessing the true culpability or liability of the tobacco companies for what they knew and when they knew it, as well as the impact their inability to tell the truth about the product has had on Americans.
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  Mr. MILLER. We have started to get some of that information. But you are right, I don't think we are near having all the information. I think that process should continue, and that the greatest way to cut down on smoking is through information. The information that will come out potentially will have an enormous beneficiary effect on the use of tobacco in our country and the number of deaths, so that we don't have to look at 400,000 deaths each year, 1 out of every 5 deaths, as a matter of fact.

  Mr. MEEHAN. Thank you, Mr. Chairman.

  Mr. HYDE. The gentleman's time once again has expired. The gentleman from Cape Cod is recognized for 5 minutes.

  Mr. DELAHUNT. Thank you very much, Mr. Chairman. I will attempt to pose my questions within the appropriate time limit.

  My friend, the distinguished chair of the Subcommittee on Intellectual Property, alluded to the fact that he's a Republican and has enjoyed high ratings from the organizations represented by both Mr. Hickok and Mr. Joyce. But it kind of spawned a question in my mind to pose to Mr. Miller. Can you give us a breakdown in terms of the partisan representation of the 22 attorneys general that came together, I mean Republican and Democrat breakdown?

  Mr. MILLER. It is a bipartisan group. One of the greatest values that we have internally in the attorneys general organization is to do things on a bipartisan basis. Indeed, some of our members don't know the party of the other members. There's a number of Democrats that have brought suit, including the early ones, Mike Moore of Mississippi and Bob Butterworth of Florida, and Skip Humphrey of Minnesota.
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  Mr. DELAHUNT. But it really is bipartisan?

  Mr. MILLER. There are some very strong Republicans involved, including Grant Woods of Arizona. Grant was the lead negotiator for us in the Liggett settlement. He's the one most responsible for bringing about Liggett.

  Mr. DELAHUNT. Let me ask you this question. Do you feel that your statements here today would be reflective of, for example, the attorney general from Arizona's attitude about the issue that's being addressed here today?

  Mr. MILLER. You know, I can't claim the ability to speak for all 22. But I will tell you that the attorneys general----

  Mr. DELAHUNT. Just give us the sentiment of the attorney general.

  Mr. MILLER. I'll give you an example. The attorney general of Arizona lead the effort to defeat a public referendum on a tort reform proposal. I know he feels very strongly about these provisions.

  Mr. DELAHUNT. Thank you.

  Mr. Hickok, earlier you made mention of the fact that during the course of 150 years, you have only been sued once in terms of a product liability case. Is that an accurate statement?

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  Mr. HICKOK. We had no suits up until about 25 years ago. Since then, we have had 14.

  Mr. DELAHUNT. OK. You would acknowledge that the marketplace has changed during the course of the past 150 years. I mean, there was no consumer legislation that I am aware of that existed 100 or 150 years ago. It was only recently in a historical sense that we've had Medicare and Social Security and child labor laws.

  But I am a new Member. I don't have the benefit of having been here and listened to the debate that occurred during the course of the last Congress. But my staff just handed me a note saying that according to the National Center for State Courts, product liability cases represent only four percent of all tort filings throughout the Nation. I wonder, and I would address this to both Mr. Joyce and Mr. Hickok. If you have some statistics in terms of the filings, verdicts for plaintiffs, verdicts for defendants, I would just be interested in hearing the dimensions of what you perceive to be the problem.

  Mr. JOYCE. Perhaps I could respond to that. Our experience is very similar to that of the Hickok Co. in that in our 71 years in business, we had none of this activity until the past couple of decades, let's say. Then it's been exceptionally active.

  In that time, I can't quote a number of suits. It's probably between 25 and 35, I would say.

  Mr. DELAHUNT. But I am talking on a national level.

  Mr. JOYCE. On a national level, I am not aware of the particular statistics, but I can say this. In the 25 or 35 suits that we have experienced, we have never once received a judgment against us. Not once has there ever been a case where any fault has been blamed or any injury has been blamed on our product. That is one of the----
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  Mr. DELAHUNT. And how many of those cases actually went to a jury and returned a verdict?

  Mr. JOYCE. Probably two-thirds, I would say.

  Mr. DELAHUNT. So in your experience, most of these cases or all of the cases end up in a result that's favorable to the defendant.

  Mr. JOYCE. In those that went to trial. In those that didn't go to trial, similar to the one that I cited earlier, we have settled out of those because of unfortunate circumstances not beyond our control. In that case, even those products were not----

  Mr. DELAHUNT. Let me ask my next question. Is there anywhere through some trade association, whether it be the insurance industry, whether it be the National Association of Manufacturers, or NFIB, some hard data establishing the dollar amount of settlements that have been made in these kinds of cases? I mean I can hear your individual representations, but again, I think we have an obligation here to really define the dimensions of what you perceive to be a problem in terms of doing business. I don't see that evidence before us.

  Mr. JOYCE. It's a very good question. I think it would be appropriate to conduct that research. Through the National Association of Manufacturers, we will study that question.

  Mr. DELAHUNT. I pose that question, too, to Mr. Hickok.

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  Mr. HICKOK. Yes. I certainly do not have any statistical information. I am here speaking more on behalf of my company. But I am sure the NFIB will provide for you, sir, everything that they have.

  I would just make the point that for myself and the 30 to 40 employees that I have, statistics really don't make a whole hill of beans difference. When we are held liable for circumstances which we did not cause and over which we had no control, that is not just.

  Mr. DELAHUNT. No. At the same time, I am sure the statistics don't amount to a hill of beans to Ms. Kanarek and her family also.

  Mr. HICKOK. Exactly.

  Mr. HYDE. The gentleman's time has expired. The gentleman from Tennessee, Mr. Jenkins.

  Mr. JENKINS. Mr. Joyce, you have mentioned a case in which your company was involved. What State was that case in? Was it a State court case or a Federal case?

  Mr. JOYCE. It was a State court case in Dallas, TX.

  Mr. JENKINS. Do you know if Texas is a comparative fault State?

  Mr. JOYCE. I don't know.

  Mr. JENKINS. Do you know the reason that--you mentioned that a witness was not allowed, the party who had made a settlement was not allowed to testify in that case. Do you know the reason that that party was not allowed to testify in that particular case?
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  Mr. JOYCE. I don't know the technical legal reason for that. But once we get into trial, the judge made that ruling. At that point we were faced with that situation, unfortunately. I don't know on what basis he made the ruling.

  Mr. JENKINS. Did you have a discussion with your lawyers about what instructions would be given in the event that that case went to trial in Texas with respect to the element of misused product or damage to the product before?

  Mr. JOYCE. This was discussed prior to the commencement of trial, yes. I might add----

  Mr. JENKINS. Were you like Mr. Hickok? Would you have liked to have gone to trial too in Texas on that case?

  Mr. JOYCE. I might add though that in the pretrial discussions, the restriction that would be placed on this later was not brought forward.

  Mr. JENKINS. You mentioned that the cases that have come against your company have been I believe you said in the last few years or in a relatively short period of time back through the years? Can you tie those in, in any way, with lawyer advertising?

  Mr. JOYCE. I don't think I could, no.

  Mr. JENKINS. General Miller, now you don't grow any tobacco in Iowa, do you?

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  Mr. MILLER. We do not. We grow corn and beans.

  Mr. JENKINS. Now corn is sometimes distilled into a product known as whiskey. Is that correct?

  Mr. MILLER. Indeed it is.

  Mr. JENKINS. Do you intend, and the theory of your lawsuit is that there is societal cost connected with tobacco and therefore, the tobacco companies should pay those costs. Do you intend to pursue with the same vigor cases against distilleries for the damage that alcohol causes?

  Mr. MILLER. No, we don't. Let me tell you why. We see a huge difference that goes back to what Congressman Meehan said. Tobacco is a unique product in America today because of two reasons, the amount of death that's caused. One out of five deaths in America is caused by tobacco-related disease.

  Mr. JENKINS. Where did you get those statistics?

  Mr. MILLER. It's from the medical community and the Centers for Disease Control. Of every three people that get addicted to nicotine and smoke throughout a lifetime, one of those three will die as a direct result. No other product used for its intended purposes has that kind of result. Liquor or alcohol does not have the addictive nature for the vast population that tobacco does.

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  For anybody that smokes a relatively small amount, particularly at a young age, will become addicted. Most of us drink alcohol products and are not addicted. Those are two incredible differences between the two situations.

  Mr. JENKINS. Are you telling us that alcohol is not addictive?

  Mr. MILLER. For some people. For a small minority of our population, it is addictive. For most people, it's not. Tobacco and nicotine are addictive for everyone.

  Mr. JENKINS. Can you give us a percentage of the people in this country who are addicted to alcohol?

  Mr. MILLER. I cannot. I certainly can find that for you.

  Mr. JENKINS. Can you give us a percentage of the people in this country who are addicted to tobacco?

  Mr. MILLER. About 25 percent of Americans smoke tobacco. I assume that most, if not all of them, are addicted to tobacco. Nicotine is a very addictive product.

  Mr. JENKINS. Have you ever used it?

  Mr. MILLER. I have.

  Mr. JENKINS. Are you addicted?
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  Mr. MILLER. Not anymore.

  Mr. JENKINS. So you are a recovering cigarette smoker then?

  Mr. MILLER. Indeed I am, the worst kind I suppose.

  Mr. JENKINS. Let me ask you. In Iowa, are automobiles assembled? Are component parts made there?

  Mr. MILLER. Tractors are. We do have fatalities in farm tractors.

  Mr. JENKINS. There are societal costs connected with people who use automobiles. Correct?

  Mr. MILLER. Indeed there are.

  Mr. JENKINS. Do you intend to pursue with the same vigor actions against the automobile manufacturer for the societal costs that we all incur?

  Mr. MILLER. I do not, for the reasons I stated before.

  Mr. JENKINS. What's the difference in that case?

  Mr. MILLER. If you use the automobile for its normal intended purposes, you don't have a situation that one out of three drivers die as a result. While some people like to drive, they are not addicted to driving like nicotine hooks them on tobacco.
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  Mr. HYDE. I want to say, as much as I am enjoying this line of questioning----

  Mr. JENKINS. Is my time expired?

  Mr. HYDE. Your time has expired. The gentlelady from Texas, Ms. Jackson Lee.

  Ms. JACKSON LEE. Mr. Chairman, thank you very much for your kindness. Let me offer to the witnesses my apologies for being several meetings at one time, one appointed time. Certainly the wisdom of our chairman causes me to want to rush here to be with you and this very important hearing.

  Might I also apologize for saying déjá vu. I thought that we had answered and asked these questions in the 104th Congress. In fact, I would offer to say to you very briefly that I am asking what is the crisis and what problem do we have.

  With those remarks, and Mr. Chairman, asking unanimous consent that I might have my opening statement submitted for the record.

  Mr. HYDE. Without objection.

  [The prepared statement of Ms. Jackson Lee follows:]

PREPARED STATEMENT OF HON. SHEILA JACKSON LEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
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  Mr. Chairman, I appreciate the interest in product liability reform but I would like to say for the record that I do have some concerns about this oversight hearing. While some elements of the current product liability system need to be reformed, there really has been no great explosion of product liability lawsuits that some proponents of product liability reform would have this committee believe. The National Center for State Courts have concluded in a study that product liability cases represent only 4% of all tort filings. Thus, the actual percent of actual products liability cases is very small. In fact, the General Accounting Office reports that insurance costs to business represent less than 1% of most businesses' gross annual receipts. Moreover, the National Association of Insurance Commissioners indicate that product liability insurance premiums have dropped by nearly 30 percent over the last six years. Also, there is no evidence to suggest that courts are awarding excessive punitive damages to plaintiffs in the majority of product liability cases. Moreover, even when plaintiffs receive excessive awards, judges have discretion, and usually exercise such discretion, to reduce the punitive damages awarded to an amount reasonably related to the nature of the defendant's conduct. Although product liability reform passed in both houses of Congress during the last session, the President vetoed it because it went too far. One of the reasons why the President vetoed the legislation was because the legislation made it harder for plaintiffs to fully recover non-economic damages. These types of damages are not simply ''pain and suffering'' damages. They include loss of sight, gross disfigurement, and something most concerning to me because I am a woman ... loss of fertility. I am concerned that any bill offered before this committee harms women like the last bill did that was passed in the last Congress. By eliminating joint liability for noneconomic damages such as fertility, this would devalue the types of injuries uniquely suffered by women that have been caused by defective medical devices and drugs. Unsafe drugs and devices have been exclusively marketed to women. DES, an anti-miscarriage drug, caused cancers and reproductive problems in the children of women who took it. The Dalkon Shield and Copper-7 intrauterine devices (IUDS) caused infertility, pelvic inflammatory disease, and septic abortions. Defective tampons caused deadly toxic shock syndrome. Accutane, an acne medication, caused birth defects when taken by pregnant women. Clomid, Perganol and other fertility drugs have been associated with birth defects and ovarian cancer. It was punitive damage awards that have spurred companies to remove dangerous products from the market. The Dalkon Shield and Copper-7 IUDs and high-estrogen birth control pills are only a few products exclusively marketed to women that were taken off the market after punitive damages. In fact, almost half of all punitive damage awards received by women have been for defective medical devices or drugs. We must make sure that product liability reform is indeed true ''reform,'' and any legislation that is passed in this committee does not interfere with the right of American citizens to seek redress in the courts for actual damages and punitive or non-economic damages caused by the misconduct of individuals or businesses.
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  Ms. JACKSON LEE. I want to proceed very quickly with questions. Let me follow up on my good friend and colleague, Mr. Delahunt, on the issue of the number of tort filings. I understand that out of the 4 percent that he mentioned, that only 9 percent of the tort filings, only 9 percent of all civil cases. So it is an interesting phenomenon that we come today to try to address this question.

  Mr. Joyce, I just want a simple question. Generally speaking amongst your membership, how is business going at this point?

  Mr. JOYCE. I think it depends on the sector. I know I can speak clearly for my business which is doing well. But as I mentioned earlier, we're very concerned about the growth and creating new jobs and developing new products that we can market because of this issue.

  Ms. JACKSON LEE. I want to help you with that as well. I think the fact that you have mentioned your business, it sort of swings. It has to do possibly with patent law and the economy. But generally speaking as we look at our numbers nationally, business is doing well. You can generally give that impression?

  Mr. JOYCE. I would agree.

  Ms. JACKSON LEE. Mr. Miller, let me ask you, and thank you very much. Let me ask you the individuals that you have gathered together, the attorneys general, is a personal stake, is this remuneration that may come to your State pursuant to the litigation? Are you personally invested in it? Do you get personal remuneration, compensation in this process? Is there a personal stake that Mr. Miller will be getting out of any lawsuit dealing with tobacco companies?
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  Mr. MILLER. Only my personal satisfaction, which I hope will be immense.

  Ms. JACKSON LEE. So you get no personal remuneration at all and personal compensation?

  Mr. MILLER. No.

  Ms. JACKSON LEE. This is in fact consumer oriented, I understand, but also in your public responsibility as an attorney general for that particular State?

  Mr. MILLER. That is exactly right. That's how I view it.

  Ms. JACKSON LEE. Let me try to explore the understanding of this legislation. I thank you for that. I was unclear whether or not you all had some personal involvement and maybe that's why we needed to correct the present status of the law.

  I do also understand as in my State, many States have already corrected, if I want to use that term, the products liabilities series of laws. I say corrected only because individual States can assess individual needs of their constituents, meaning of the particular litigants in their State. Would you just generally say that individual States have responded if there has been some concern in the State about product liability law?

  Mr. MILLER. Individual States I think have responded across the board on tort reform, that the States have been laboratories of democracy in various kinds of tort reform, including products liability.
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  Ms. JACKSON LEE. So the process is working?

  Mr. MILLER. I think it is.

  Ms. JACKSON LEE. Ms. Kanarek, let me move quickly to you and thank you and your husband, Mr. Smith, and say that there need be said no more about Amy. She is a delight. Certainly the statement that you made, but also the visuals were very eloquent.

  But I want to get a sense of how we relate Amy's life and quality of life to a prominent CEO that tragically is injured by some product in his life or her life during the time frame of course that accounts for a certain amount of dollars in their pocket. Meaning that you can assess their worth. Are you suggesting to us that under this proposed legislation, we would unfairly give little worth to Amy's life?

  Ms. KANAREK. Sure. I bring to this a business background. I am an accountant and I understand what the business folk are saying here. The economic loss to a CEO is certainly far far superior to somebody like Amy's. Amy's losses are much much more noneconomic. They have to do with her loss of functioning, with her vision, with quality of life issues. It would be my greatest pleasure to be able to relate Amy's economic losses to the loss of a CEO, but clearly they are not in the same ballpark. Clearly, they don't belong in the same ballpark. Amy's day-to-day life doesn't exist in the world of regular children. It doesn't exist in the world of regular people. It just exists in a very small self-contained world where she is able to function on a very limited basis. But Amy will never have economic losses as we understand them because she will never live an economic life.
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  Ms. JACKSON LEE. So if we had a balance on the scales of justice, we heavily weigh in favor of the individual who may have certainly had the opportunity with all their faculties to make millions of dollars and tragically are injured, compared to a tragic victim. Not tragic in her life. She has a wonderful life and quality to the extent that she gives love and receives love, but we have nothing to value her and her ultimate living in this community. Is that my understanding?

  Ms. KANAREK. Most of the people who receive awards for noneconomic are children, elderly, and women. So I don't think that they can be looked at in the same way.

  Ms. JACKSON LEE. Mr. Chairman, I conclude with the question to Mr. Joyce since the light is still on.

  You want consistency, and I understand, thank you very much, that I can not or this limits my suing a business, but it allows and does not cover businesses suing businesses. How is that consistent? How are you denying me the opportunity to be compensated, but businesses still can be in the midst and in the ballpark?

  Mr. JOYCE. This proposed legislation in fact does not limit the rights of victims in terms of suing and achieving compensation. As a matter of fact, the broadening of victims rights in the case of the statute of limitations running from the time of discovery is very helpful in these situations. So I do not see a dichotomy there. I see a sense of fairness, true fairness, to give the opportunity for a claimant to proceed with a case if they deem that appropriate.

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  Ms. JACKSON LEE. Well, it caps our recovery and it does not cap the recovery of businesses suing businesses. So it is an inequitable bill because I am capped, you are not capped. I think there should be certainly a consistency in that. What is good for you has to be good for me.

  Mr. HYDE. I thank the gentlelady.

  Ms. JACKSON LEE. I thank the gentleman.

  Mr. HYDE. Her time has expired.

  I want to thank this panel for a most illuminating morning and early afternoon. Thanks for your patience and your contribution.

  Now the next panel. First of all, I want to say that we are delighted that our colleague, Tom Campbell of California, is able to appear before us this afternoon. He wears two hats: first, as the distinguished Representative from the 15th District of California. For purposes of this hearing, it's more significant perhaps that he is professor of law at Stanford University Law School and holds a Ph.D. in economics from the University of Chicago. I believe he's also an Elk; I'm not sure. If he isn't, he should be. He recently authored a study regarding the economic impact of liability reform which he will share with us.

  Joan Claybrook is president of Public Citizen, a nonprofit, public interest advocacy organization and previously has held positions as the Administrator of the National Highway Traffic Safety Administration of the U.S. Department of Transportation and the founder and director of Public Citizens' Congress Watch.
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  The National Conference of State Legislatures is represented before us today by its general counsel, John R. Felde.

  Our final panelist will be James L. Martin, director of State Federal Relations for the National Governors' Association. Mr. Martin holds a bachelor's degree and a master's degree in economics from the University of Maryland as well as a master's degree in theology from the Dallas Theological Seminary--there I think you have trumped Mr. Campbell on that one.

  Once again I ask that the witnesses confine their oral statements to 5 minutes, and I assure you your written testimony will be included in the record and studied carefully.

  Congressman Campbell.

STATEMENT OF HON. TOM CAMPBELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA


  Mr. CAMPBELL. Mr. Chairman, it gives me such pleasure to be back with you and recall the happy days when I served on this committee. The reason I left the committee, as you might remember, was an unhappy event; I lost for the U.S. Senate in the Republican primary in California. God opened another door, however; I went back to being a full-time professor at Stanford, and Stanford University said, ''You know you earned your sabbatical.''

  And I said, ''What? I've been in politics all these years.''

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  And they said, ''Yes, well, we're counting your sabbatical, so take it.''

  So I said, ''Gee, that's great,'' and then the Center for Economic Policy Research at Stanford said, ''Why don't you just study what you think is most important to study for a year, and we'll pay your salary and cost of doing so?''

  As a result, Mr. Chairman, it's a good thing to lose occasionally I suppose is one lesson. The other is that I did a study on the effects on productivity and employment of liability reforms adopted by the several States over a 30-year period involving all 50 States--20-year period, pardon me, involving all 50 States--the results of which were picked up by the National Bureau of Economic Research and have now been published by Stanford University Press and the Mosaic of Economic Growth.

  My coauthors are Professor Kessler of Stanford Business School and Professor Shepard of Duke, and we all worked together on this for over a year, and here's what we did: we meticulously--I think is a fair adverb--went through each State's laws, decision laws and statutory laws, from 1969 to 1990 to identify when they adopted liability-changing rules. Most of them were to diminish liability in tort suits; a couple were to increase liability.

  We then attempted to correlate those in a statistically-reliable way, holding constant all other factors, which is the real difficulty in economic research; the effects on productivity and employment from these changes, and it was important not just to do productivity because a cynic might say, ''Sure, if you make liability less, output per employee looks better, because the liability's a cost of doing business.''

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  The key is employment also went up, and the findings were dramatic and consistent across the 21 years of study and across the 50 States, and they were that--those states that had adopted the reform such as joint and several liability, such as caps on total damages, such as caps on contingent fees, the liability-reducing reforms improved their productivity and improved their employment almost without exception in the areas that we studied, again, almost without exception, and we chose a broad range of areas.

  The types of changes that increased liability had the opposite effect, and once again, almost as powerfully statistically. I hasten to add, how to do you hold everything else constant? Well, it's difficult, but you use an econometric term called instrumental variables; you stepwise multiple regression analysis. It would not have been picked up by the National Bureau of Economic Research if we hadn't done that; it would not be published by Stanford University Press if we had not done that.

  Now, for the purposes of our hearing today, Mr. Chairman and colleagues, there's a very important lesson in what wasn't proved. Whereas employment and productivity were improved in those industries that you might say are localized, retail sales, for example, in manufacturing there were not.

  Now I warn immediately you cannot prove statistically from a nonproof; it did not show up so I draw the line and say I am now going to conjecture. But what's significant is that where the reform that a State adopted could be implemented within the State itself, you saw improved employment and improved productivity, but in manufacturing you don't have that, because you make the good here and it goes somewhere else, and you can't capture the reform of that particular State.
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  And I conclude my testimony to try to fit under the 5-minute rule with two observations on federalism. Federalism's a very important issue to me, Mr. Chairman, as you know, and I don't think it's the business of the Federal Government to go about curing every problem; far from it. States generally are better off doing it.

  I'll also confess that I have some difficulty with at least one part of the Senate bill concerning intoxication; whether the intoxication level of a plaintiff is a complete defense to a defendant seems to me pretty much a local issue.

  What is not a local issue, though, is that if one State adopts a liability reform like joint and several; if one State adopts a liability reform like caps on contingent fees or caps on punitives and the other doesn't, there's a whale of a reason for business to relocate, and there's a bidding between the States. This is an interstate effect that I suggest is the correct premise for Federal legislation.

  And lastly, in that my study and Professor Kessler and Professor Shepard's study showed we couldn't get the benefits for the manufacturing sector, and whereas we did for all the localized sectors, there is a national good to be sought for manufacturing which the States cannot do, because their goods travel across State lines.

  Thank you, Mr. Chairman.

  [The prepared statement of Mr. Campbell follows:]

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PREPARED STATEMENT OF HON. TOM CAMPBELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

  For years, the debate has raged over whether our country sues itself excessively. Trial lawyers have offered the argument that lawsuits are socially useful in defusing workplace tension, preventing strikes, deterring dangerous means of production, and compensating those who have been harmed. Entrepreneurs have as strongly maintained that lawsuits have siphoned off scandalous amounts of time and energy, caused many good ideas never to be commercialized, dried up capital for investment, and crippled America in competition with the world. About two years ago, I, along with Dan Kessler and George Shepard, two colleagues at Stanford, set out to do a fair study of who was right. The work was funded by the Center for Economic Policy Research at Stanford University.
  Other studies had tracked the effect of such reforms upon the number of lawsuits filed, and the average amount awarded per lawsuit. Our work is the first to take the question down to the bottom line: does it pay for states to reform their civil liability systems? The answer is an overwhelming yes.

  Working for over a year, we cataloged every state that had adjusted its civil liability system in one of six ways so as to lower the likelihood of lawsuits over the years from 1970 to 1990. We then correlated the number of reforms each state adopted with their economic performance in terms of productivity and overall employment. We needed the appropriate multivariate statistical techniques to hold constant the influence of other factors. We studied seventeen different industries in each state, using U.S. Department of Commerce data on productivity. The results: a state that implemented one of the civil liability reforms we studied tended to increase its productivity between 3 to 10 percent in the next year--everything else constant. Statistically significant results were obtained in eleven of the seventeen industries: in ten, productivity improved, in one (electricity, gas, sanitation) it declined, in the others, there was no statistical relationship. Employment was positively correlated with implementing civil litigation reform in thirteen industries, negatively correlated in only one, no statistical correlation in three.
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  As a check, we also studied two changes in civil liability systems that tended to increase litigation frequency and awards in eleven industries. These changes depressed productivity, in one it increased it (utilities again) and in five there was no statistical significant results. And these changes depressed employment in seven industries, increased it in one, and had no significant effect in nine.
  To be sure we were not just measuring common reactions to the same underlying conditions, we modeled the factors that were correlated with a state adopting litigation reforms. We found that high numbers of lawyers per capita were one of the strongest indicators of those states that adopted liability reforms: a result that suggests that the perceived effect of lawyers' activity on the need for reform swamps whatever political effect a large number of lawyers might have on state legislators.
  The reforms we studied were: placing caps on contingent fees, allowing juries to take into account the fact that a plaintiff had already recovered from his or her insurance company, placing caps on damages, allowing defendants to pay damages over time, making the standard tougher to prove punitive damages where warranted, and modifying the joint and several liability rule whereby a party only partly at fault can end up paying the entire damage award.

  Depending upon the industry and the state, each reform had its own effect. The most striking result of our study, however, was the cumulative effect. States that adopted more reforms improved their productivity and employment more. We believe this result is true for two reasons. First, the greater the number of reforms, the greater the likelihood of hitting upon the change in the state's system that will deter the frivolous, but costly lawsuit. Second, the greater the number of reforms, the stronger the signal a state is sending that it means business, and is willing to curb the appetite of its litigious attorneys to get it.

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  Mr. HYDE. Thank you, Tom.

  Ms. Claybrook.

STATEMENT OF JOAN CLAYBROOK, PRESIDENT, PUBLIC CITIZEN


  Ms. CLAYBROOK. Thank you, Mr. Chairman. I very much appreciate the opportunity to testify. I would point out that this is a hearing about product liability and of course that deals with manufacturing. So, I'm not sure that Mr. Campbell's testimony really has much relevance to the issue at hand----

  Mr. CAMPBELL. Thank you, Joan. [Laughter.]

  Ms. CLAYBROOK [continuing]. But I'm happy to discuss this more.

  For the last 16 years corporate lobbyists have had wild claims of out-of-control juries, phony and distorted statistics about a litigation explosion to limit access to the courtroom by family members killed or injured by defective schoolbuses, baby cribs, farm equipment, heart valves, and much more.

  The richest corporations in America are really asking for a bailout of responsibility while at the same time they have pushed hard for welfare mothers to take responsibility for their actions.

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  The product liability system manages and deters violence and assures that wrongdoers and not taxpayers foot the cost. They're really asking, in my view, for one-stop injustice.

  This bill would be a major interference with the traditional authority of the State courts, and the judges and juries in civil cases. This is a massive Federal preemption of State law that the Conference of Chief Justices have called a radical departure. and quote, ''Neither justified by experience or wise as a matter of policy.''

  There have been a number of comments already today on the issue of uniformity; I would say that in terms of manufacturers that, if they don't manufacture defective products, they don't have liability, and if they don't want to have liability as well in any particular State, they need only look at the laws of all the States which are often similar and match the highest standard.

  In addition, it's been mentioned that the bill leaves out any corporate responsibility where there is corporate limitations on liability for businesses; that is, if a business has product liability claims, they have no limitations under this bill, something I think is grossly unfair.

  I'd like to comment briefly on the major provisions of the bill. The statute of repose is an absolute bar; it's a provision in the bill that is pushed by the machine tool industry as various and sundry provisions in this bill are pushed by particular industries for their own particular needs. It would bar any case for a product over 15 years old and yet many are built to last longer than that.

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  The punitive damage cap, of course, serves the interest of the largest corporations in America and essentially gives them immunity from punitive damages, because the amount of punitive damages that would be permitted under this legislation are so tiny. In fact, the $250,000 cap for businesses of less than 25 employees is about the same as the weekly salary as the head of AIG Insurance Co., and he has no pain and suffering.
  The joint and several liability exclusion of noneconomic damages doesn't take into account the fact that women, children, and others obviously have much less economic damage, and when their noneconomic damages are capped, they're severely hurt by this exclusion.

  There are also some tricky provisions; there's been a lot of talk about how the statute of limitations is a two-way street, but in fact, the actual notice of wrongful conduct is not protected under the statute of limitations provision in this legislation, thus cutting back the rule in many States.

  And the biomaterials provisions immunizes raw materials and component parts suppliers of medical implants from heart valves to tooth fillings. There's really no need for this provision in our view; there's been a lot of claims about how the industry is threatened, but that's not what they're telling their stockholders. We went and took a look and we will submit for the record what this industry is telling its stockholders, and its quite different from what they're telling this committee.

  [The information follows:]

THE FINANCIAL HEALTH OF MEDICAL DEVICE COMPANIES: BELIEVE WHAT THEY TELL SHAREHOLDERS, NOT CONGRESS
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  In their news releases and congressional testimony, the medical device industry paints a ''sky is falling'' scenario about an impending shortage of biomaterials due to product liability litigation.
  For example, in 1994, Pierre M. Galletti, President of the American Institute for Medical and Biological Engineering, testified, ''The resulting crisis could bring to a halt the fabrication of implantable devices in the U.S.'' James S. Benson, Senior Vice President of the Health Industry Manufacturers Association, testified, ''[T]he medical device industry is one of America's most competitive. That competitiveness, like the improved medical care that new technologies make possible, is very much at stake ... as we consider remedies to the shortage of biomaterials our companies face in the very near future.'' Subcommittee on Regulation and Government Information, Committee on Government Affairs, May 20, 1994.
  In fact, the medical device industry is extremely strong, showing tremendous growth and handsome profits.
According to a recent article in Medical Economics, ''Stock analysts grin broadly when they discuss the likes of UroMed, EndoSonics, Optical Sensors, and other trailblazers in medical devices, a hot market that's only getting hotter.'' Doreen Mangan, Medical Economics, January 13, 1997.
In 1995, the biotechnology industry raised $2.1 billion in 61 public offerings, a 79 percent increase from 1994, according to a Coopers & Lybrand market study. Analysts say that new products, a healthy stock market and a more favorable FDA were keys to this growth.
Biotechnology Newswatch predicts that a large number of mergers, acquisitions and collaborations will make the next few years extremely profitable for medical device companies. Biotechnology Newswatch, 1996.
The web home page of the Health Industry Manufacturers Association (HIMA) shows U.S. production of medical devices and diagnostic products was worth $56.7 billion in 1995, with $70.9 billion projected for 1998.
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  The better test may not be what they tell Congress--but what they tell their shareholders.
  The attached companies are major players who lobby for weakened product liability laws, including immunity for biomaterials suppliers. They are also some of the most profitable companies in the medical device industry.
CORPORATE PROFILE: AMERICAN HOME PRODUCTS
Biodmedical Devise Subsidiaries: Davis & Geck, Various Sutures; Quinton Instrument Company, Arteriovenous Shunt; Sherwood Medical Company, Arteriovenous Shunt; and Storz Instrument Company, Intraocular Lens

The current product liability laws and availability of biomaterials have not prevented American Home Products' development and marketing of medical devices
  According to their 1995 Annual Report, American Home Products reported:
''increased worldwide sales for [their] medical device business'' and expansion of their subsidiaries in critical and chronic care products.
that their subsidiaries ''manufacturer and market one of the world's leading portfolios of specialized medical devices''
''strong growth'' and ''major [market] share'' for medical devices such as umbilical vessel catheters, naso-gastric tubes, incentive breathing exercisers and chest drainage products.
American Home Products' profitability has not been adversely affected by current laws protecting patients from dangerous pharmaceuticals and faulty medical devices
  According to American Home Products' 1995 Annual Report:
The company ranks among the top five competitors in health care products.
Pharmaceutical and medical devises represent 65% of the company's total net sales.
Total net sales topped $13 billion, a 49% increase from 1994.
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Stock price has increased 80% since 1994.
Shareholder dividends have increased for the 44th consecutive year.
American Home Products has spent millions of dollars attempting to influence the legislative process
  According to Lobbying Disclosure reports, in only the first half of 1996, American Home Products spent a total of $3.63 million to weaken federal laws that protect patients from dangerous products, prevent illegal price-fixing of prescription drugs and preserve clean air and clean water.
American Home Products has spent thousands of dollars supporting congressional candidates who decide on matters of direct concern to the company
  In the 1995—96 election cycle, American Home Products' corporate PAC made $144,512 in campaign contributions:
$18,000 was contributed to Senate Republicans.
$3,500 was contributed to Senate Democrats.
  An additional $69,100 in campaign contributions was made by employees of American Home Products in the 1995—96 elections, including:
Two $10,000 contributions to the RNC made by John Stafford, the President and CEO of American Home Products.
$55,000 from officers of the company.

CORPORATE PROFILE: BAXTER INTERNATIONAL
Biomedical Devise Subsidiary: Baxter Healthcare Corporation, Hydrocephalic Shunt, Cardiac Catheters & Implants
The current product liability laws and availability of biomaterials have not prevented Baxter International's development and marketing of medical devices
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  According to their current world wide web page:
Baxter International manufactures 20 different kinds of cardiac catheters, more than 20 million of which have been sold since 1970.
Baxter's Novacor left ventricular assist system (LVAS) has been implanted in 500 people in the last ten years and the company estimates that the market or LVAS is 70,000 to 150,000 people per year.
Baxter's new periotoneal dialysis system was used by more than 10,000 patients in its first year on the market and company estimates that the global market for the product could reach $700 million by the end of the decade.
Baxter International's profitability has not been adversely affected by current laws protecting patients from dangerous pharmaceuticals and faulty medical devices
  According to Baxter internal's 1995 Annual Report:
Net sales topped $5 billion in 1995, an increase of 13% over 1994.
Cardiovasclar products sales increased 16% over 1994.
''Sales growth of the company's cardiovascular products was strong in 1995 and 1994. Market share gains in [...] continuous cardiac output monitoring catheters were important growth contributions in 1995.''
Baxter International has spent thousands of dollars attempting to influence the legislative process
  According to Lobbying Disclosure reports, in the first half of 1996, Baxter International spent a total of $160,000 lobbying Congress to weaken federal laws that protect consumers from dangerous products, prevent illegal price-fixing of prescription drugs and preserve clean air and clean water.
Baxter International has spent thousands of dollars supporting congressional candidates how decide on matters of direct concern to the company
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  In the 1995—96 election cycle, Baxter's corporate PAC made $74,887 in campaign contributions:
$17,300 was contributed to Senate Republicans.
$13,500 was contributed to Senate Democrats.
  An additional $85,790 in campaign contributions was made by employees of Baxter International in the 1995—96 elections, including:
$15,000 in soft money contributions to the RNC Republican National State Elections Committee.
$23,000 from officers of the company.

CORPORATE PROFILE: BRISTOL-MEYERS SQUIBB
Biomedical Devise Subsidiaries: Convatec Incorporate, Foley Catheters & Ostomy Products; Linvatec Incorporated, Orthopaedic Devices; and Zimmer Incorporated, Orthopaedic Implants
The current product liability laws and availability of biomaterials have not prevented Bristol-Meyer's development and marketing of medical devices
  According to the Bristol-Meyers 1995 Annual Report:
Sales of orthopaedic implants represented 40% of the companies medical device business.
  According to the current world wide web page:
Bristol-Meyers' subsidiary Zimmer, Inc. is ''the world leader in design, manufacture and distribution of orthopaedic implants'' and manufactures nineteen different orthopaedic implants.
Bristol-Meyers' subsidiary Convatec is ''one of the fastest-growing Bristol-Meyers Squibb companies'' and is the ''leading global supplier of wound care products.''
Bristol-Meyers's profitability has not been adversely affected by current laws protecting patients from dangerous pharmaceuticals and faulty medical devices
  According to Bristol-Meyers' 1995 Annual Report:
Net sales topped $13 billion in 1995, setting a company record.
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Sales of medical devices increased 13% over the previous year yielding nearly $500 million in profits for the Company.
  According to Lobbying Disclosure reports, in the first half of 1996, Bristol-Meyers spent at least $1,430,000 lobbying Congress to weaken federal laws that protect consumers from dangerous products, prevent illegal price-fixing of prescription drugs and preserve clean air and clean water.
Bristol-Meyers has spent thousands of dollars supporting congressional candidates who decide on matters of direct concern to the company
  In the 1995—96 election cycle, Bristol-Meyers's corporate MAC made $194,153 in campaign contributions:
$50,00 was contributed to Senate Republicans.
$8,600 was contributed to Senate Democrats.
  An additional $181,739 in campaign contributions was made by employees of Bristol-Meyers in the 1995—96 elections, including:
Numerous high-dollar hard and soft money contributions; $15,000--RNC (2), $15,000--RNS Republican State Electronics Committee, $10,000--NY Salute 1996 Non-Federal Committee (2).
$45,250 from officers of the company.

CORPORTE PROFILE: JOHNSON & JOHNSON

Biomedical Device Subsidiaries: Cordis Corporation, Cardiovascular Stents; Ethicon Endo-Surgery Incorporated, Sutures; Ethicon Incorporated, Sutures; GynoPharma, Inc.--Intrauterine Devices; Johnson & Johnson Professional Incorporated, Orthopaedic Devices; Joint Medical Products Corporation, Hip & Knee Joints; and Mitek Surgical Products Incorporated, Suture Anchor Products
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The current product liability laws and availability of biomaterials have not prevented Johnson & Johnson from expanding its medical device business
  On February 23, 1997, Johnson and Johnson announced its merger with Cordis Corporation, a manufacturer of cardiovascular stent systems. The merger's total value was $1.8 billion.
  In 1995, Johnson & Johnson acquired numerous medical device companies:
Mitek Surgical Products, Inc., a manufacturer and marketer of suture anchor products for soft tissue reattachment.
Joint Medical Products Inc., a developer and marketer of artificial hips and knee joints.
Gyno Pharma, Inc., the exclusive licensor and marketer of the Paragard T380A, an intrauterine device.
Johnson & Johnson's profitability has not been adversely affected by current laws protecting patients from dangerous pharmaceuticals and faulty medical devices
  According to Johnson & Johnson's 1995 Annual Report:
Worldwide company sales increased for the 63rd consecutive year, growing $3.11 billion of 19.8% over 1994
Sales of medical devices increased 20% to $6.7 billion in 1995
Operating profits for medical device sales increased 30% to $1.2 billion in 1995.
Medical devices make up the largest business segment of Johnson & Johnson (36% of total sales).
Johnson & Johnson has spent more than $1 million attempting to influence the legislative process
  According to Lobbying Disclosure reports, in the first half of 1996, Johnson & Johnson has spent at least $1,070,000 lobbying Congress to weaken federal laws that protect consumers from dangerous products, that prevent illegal price-fixing of prescription drugs and that preserve clean air and clean water.
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Johnson & Johnson has spent thousands of dollars supporting congressional candidates who decide on matters of direct concern to the company
  In the 1995—96 election cycle, Johnson & Johnson's corporate PAC made $326,819 in campaign contributions:
$26,500 was contributed to Senate Republicans.
$7,000 was contributed to Senate Democrats.
  An additional $101,329 in campaign contributions was made by employees of Johnson & Johnson in the 1995—96 elections, including: $26,100 from officers of the company.

CORPORATE PROFILE: PFIZER
Biomedical Device Subsidiaries: American Medical products, Impotence & Incontinence Implants; Howmedica Incorporated, Hip, Knee & Other Orthopaedic Prostheses; Schneider (USA) Corporation, Angioplasty Catheters, Vascular & Non-vascular Stents; Shiley Incorporated, Cardiac Implants; Strato/Influsaid Corporation, Vascular Access Devices & Implantable Pumps

The current product liability laws and availability of biomaterials have not prevented Pfizer's development and marketing of medical devices
  According to Pfizer's 1995 Annual Report:
Howmedica, a subsidiary of Pfizer, manufactures twenty-seven different biomedical devices: Hip products--8, Endoprotheses--4, Knee products--4, Other joints--2, Bone cement--2, Cerclage systems--1, IM nails--5, Plates & screws--6, External feration--3, Spine products--2, and Specialty fixation--1.
Howmedica enjoys the second largest market share in the medical device industry.
In January 1996, Pfizer acquired the Leibinger Companies, manufacturers of implantable devices used in oral and craniomaxillofacial surgery.
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Sales of Pfizer's subsidiary Schneider increased 31% in 1995 ''primarily due to the launch of new angioplasty and angiography catheters and strong demand for stents.''
Pfizer's profitability has not been adversely affected by current laws protecting patients from dangerous pharmaceuticals and faulty medical devices
  According to Pfizer's 1995 Annual Report:
Total net sales in Pfizer's pharmaceuticals and medical devices division topped $8.4 billion, an increase of 21% over 1994.
Pharmaceuticals and medical devices represented 84% of Pfizer's net sales in 1995.
Pfizer has spent more than $1 million attempting to influence the legislative process
  According to Lobbying Disclosure reports, in the first half of 1996, Pfizer spent at least $1,070,000 lobbying Congress to weaken federal laws that protect patients from dangerous products, prevent illegal price-fixing of prescription drugs and preserve clean air and clean water.
Pfizer has spent hundreds of thousands of dollars supporting congressional candidates who decide on matters of direct concern to the company
  In the 1995—96 election cycle, Pfizer's corporate PAC made $423,381 in campaign contributions:
$51,000 was contributed to Senate Republicans.
$18,000 was contributed to Senate Democrats.
  An additional $133,620 in campaign contributions was made by employees of Pfizer in the 1995—96 elections, including:
A $20,000 soft money contribution to the RNC National State Election Committee.
$26,000 from officers of the company.

  Ms. CLAYBROOK. There are a number of myths; some of them have been mentioned, and some questions were asked by Mr. Delahunt about the total cost of this system; it's about $4 billion a year; it's about what we spend on cat food every year. That is the total cost of this system. There are about 56,000 cases that are litigated. We have a $6 trillion economy; the cost is about $4 billion, and that includes attorney's fees. That information is gathered by the National Association of Insurance Commissioners.
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  There is no competitive disadvantage created by this system. In fact, every business in the world is trying to get into the United States, and if it were at a competitive disadvantage, they wouldn't. The insurance data indicates that 26 cents per $100 of retail product is the cost to industry, and insurance premiums have dropped 45 percent between 1987 and 1993, the latest year for which we have such data.

  In addition, there are very few punitive damage awards, 379 over a period from 1965 to 1994, 30 years, total number of punitive damage awards, and they're often reduced on appeal. Why have a cap which protects the largest corporations in America when they're supposed to be punished, and it's chicken feed to many of them, rather than allow the juries and the judges who hear the evidence of the cases to make that decision. Often in appeal judges do listen and reduce the awards by the jury if they think that they're too large? So, the appeal system is working.

  Why have the Federal Government come in with a template, if you would, rather than have individual justice administered by individual judges and juries in individual State courts?

  Individual justice is a basic factor on which this country is built, and yet this would take away that concept of individual justice and have it made by lobbyists who have been pushing this legislation for 15 or 16 years at the cost of tens of millions of dollars as they throw out endless different arguments: competitiveness, uniformity, and none of those really hold a candle.

  This bill is opposed by every consumer organization in the United States. It's a bill that would have no protection for consumers. For example, it has one-way preemption; it protects businesses; there's no antisecrecy provision; there's no requirement for record retention; there's no protection against discovery abuse, prejudgment interest, no insurance data disclosure. This bill has nothing for the consumer, and in addition, the only way consumers really have an ability to oversee this marketplace--this marketplace that's huge and enormous--is by access to the courts to oversee the marketplace. They don't have to come to Congress; they don't have to go to the criminal justice system and prosecutors; this is the only way the average everyday consumer has any ability to resolve their disputes. I thank you.
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  Mr. HYDE. I wonder if the gentlelady--and I hesitate to foreclose her; she's certainly on a roll--but could you bring your remarks to a----

  Ms. CLAYBROOK. I will, Mr. Chairman, and I appreciate your ability to let me finish my statement. I appreciate that very much.

  I would just close by saying that the question that was asked by Mr. Delahunt is one that has never been answered by the proponents of this legislation, and it does seem to me that knowing the full economic effect and the effect on the economy of this legislation, its annual cost in terms of product defects and casualties, and the number of cases filed, the number dismissed, the number settled, so that there be some real evaluation of why this legislation is needed, that burden has never been met by the proponents of this legislation. I would like to submit for the record some material, since the time is so short, to substantiate what I've said----

  Mr. HYDE. Without objection.

  Ms. CLAYBROOK [continuing]. As well as some letters that have been written to the NFIB by Ralph Nader last year trying to get answers to a number of questions about the impact of this legislation on small business which have never been answered. Perhaps the chairman could ask them to respond; we would very much appreciate that. Thank you.

  Mr. HYDE. Well, I thank the gentlelady, and we'd be interested in knowing the trial lawyer's role in this operation as well, something we have never gotten any information----
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  Ms. CLAYBROOK. In my organization?

  Mr. HYDE. Mr. Nader.

  Ms. CLAYBROOK. Oh, Mr. Nader's organization? Well, as far as I know there is none. Mr. Nader is an individual who takes no business and no government money.

  Mr. CONYERS. Why don't we call him, Mr. Chairman?

  Ms. CLAYBROOK. That would be a good idea; I think you ought to call him.

  Mr. HYDE. If the gentleman wants to call him and get an answer, I'll accept your answer.

  Mr. CONYERS. I'd like him to come before the committee.

  Ms. CLAYBROOK. I think he would adore to come before this committee.

  Mr. CONYERS. He'd love to come before a Judiciary Committee.

  Mr. HYDE. Would he really adore to come before the committee? [Laughter.]

  Ms. CLAYBROOK. He would. He would. He would, Mr. Chairman, particularly because you're such a fair chairman, and I know that he would feel very welcomed here.
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  Mr. HYDE. Well, thank you, and I appreciate--and the gentlelady's additional material will be made a part of the record without objection.

  Ms. CLAYBROOK. Thank you so much.

  [The prepared statement of Ms. Claybrook follows:]

PREPARED STATEMENT OF JOAN CLAYBROOK, PRESIDENT, PUBLIC CITIZEN

  Mr. Chairman, members of the Committee, I am Joan Claybrook, President of Public Citizen, a national public interest organization with 125,000 supporters nationwide. I appreciate the opportunity to address the issue of federal product liability legislation. For the last 16 years, lobbyists for America's biggest corporations have come to Congress with wild claims about out of control juries and junk statistics about a product liability litigation explosion. They've asked Congress to limit access to the courtroom by consumers or their family members who are killed or injured by defective school buses, baby cribs, farm equipment, heart valves, and other defective products. These lobbyists for rich and powerful corporations are asking Congress for nothing short of a bailout from liability at the expense of your constituents.

  Like all federal products liability bills introduced over the past 16 years, last year's conference report, vetoed by President Clinton and now reintroduced in the Senate as S. 5, would present a major interference with the traditional authority of state court judges and juries in civil cases. It would be a massive federal preemption of state law, probably the greatest in this century, pandering to this country's richest corporations. Such preemption was strongly opposed by the Conference of Chief Justices in the 104th Congress, as presented in testimony before the Senate Commerce Committee by the Honorable Stanley Feldman, Chief Justice of the Supreme Court of Arizona. Justice Feldman said, ''tort remedies must lie with State courts and legislatures, which are most aware of and best suited to determine the social and economic impact of present law on their own communities.'' He called the conference report ''a radical departure from our current legal regime ... neither justified by experience nor wise as a matter of policy.''
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  Proponents of this legislation say that it would standardize laws across 50 states and thereby achieve cost efficiencies for business. However, its one-way preemption of all proconsumer state law provisions makes clear that the intent of this legislation is not to make product liability laws uniform in the 50 states. Rather, it is a carefully crafted bill to provide relief and protections for major industries lobbying for it. In almost every case, the conference report places a ceiling on consumer recovery in tort litigation, but allows state laws to survive where those laws place more restrictions on victims' rights. There is nothing at all in this bill to protect consumers. For example, the conference report would cap punitive damages, as well as establish a new standard and burden of proof for obtaining punitive damages. However, it permits punitive damages only to the extent permitted by applicable State law, preserving more restrictive punitive damage state caps, as well as prohibitions on punitive damages.
  Moreover, while the bill is designed to limit victims' ability to recover damages, it leaves corporations completely out of the bill's restrictions. Under the bill, corporations would not face the same limitations if they suffer commercial loss from defective products. Further, it does not touch corporate actions under contract or property law. Corporations would have unfettered access to the civil justice system. Yet businesses file 10 times as many lawsuits as consumers, according to a study by Citizen Action. While product liability suits have been decreasing proportionately, business to business lawsuits are significantly increasing. If businesses believe there are too many lawsuits, they should first enact restrictions on business to business suits.
  It is important to examine how some provisions of last year's conference report would hurt innocent Americans injured by defective products. Under the statute of repose provision, for example, injured consumers could recover no compensation (not even for health costs or lost wages) from the manufacturers of defective products that are more than 15 years old. According to the Machine Tool Builders Association, one of the major lobbies behind this bill, this would encompass more than half the claims filed against the manufacturers of machine tools. It would also cover products built to last much longer than 15 years, like elevators, home appliances, playground equipment, farm equipment and industrial machinery. This provision would be particularly discriminatory against low-income Americans, who often need to keep older products because they cannot afford to buy new ones.
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  This provision would have tragic and unjust consequences. Take the case of Steven Sharp. who was a 17-year-old teenager in 1992, when a J.I. Case diesel tractor hay baler from which he was clearing hay self-started without warning. The hay baler pulled him in and cut off both his arms. This was a defective hay baler, 20 years old at the time of the accident. At least two previous known tragedies, including a decapitation, resulted from this same design defect. J.I. Case could have made the tractor hay baler safe if a 70-cent part had been included in the original manufacture of each machine. Sharp was awarded $6.5 million in compensatory damages (subsequently reduced to $4.3 million) and $2 million in punitive damages by a Wisconsin jury. Steven Sharp would have had no remedy at all had this federal bill been in effect.
  The bill also would cap punitive damages, or would link them to the compensatory damages of the injured party. This effectively would punish wrongdoing based on the harm done to the victim, not the culpability of the conduct. This would mean that cruel and unconscionable harm to low-wage earners, such as non-working women and elderly individuals, would be punished less than for doctors or lawyers. Punitive damages are imposed by judges and juries to punish egregious misconduct and to hold corporations accountable for their most reckless or deliberately harmful acts. The size of the punitive award, under long-held standards, should be based on the egregiousness of the actions, the extent to which the company acted with malice and awareness of the harm that would result, and the financial size of the company.
  Perhaps most important, punitive damages are designed to deter future negligence, to make sure it doesn't happen again. Congressionally-imposed caps on punitive damages would be applied regardless of the facts in an individual case, and regardless of what a judge or jury, who hears the evidence in a particular case, may decide is necessary to punish and deter a wrongdoer. Not only would such a sweeping provision undercut the traditional authority of state courts, it would severely erode the deterrent value of the tort system. It would also benefit the largest companies. It is well recognized that the prospect of punitive damages causes manufacturers to build safer products. Many dangerous and defective products--including the Ford Pinto, asbestos, and the Dalkon Shield--were removed from the market in part because of punitive damages. With caps in place, reckless or malicious defendants would find it more cost effective to continue their dangerous behavior and risk paying relatively small or predictable punitive damages awards.
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  Proposed restrictions on joint and several liability would greatly burden the most seriously injured consumers. Joint and several liability is a damages allocation rule, applied when more than one defendant is found substantially responsible for causing an indivisible injury and at least one of them is insolvent or cannot pay compensation. The rule was developed over many years by courts recognizing that it is fairer to allow an innocent victim to fully and promptly recover for injuries suffered, and let the wrongdoers decide among themselves, after the victim is compensated, how to apportion liability.

  Joint and several liability is rarely used. But it is critical in cases such as those involving the anti-miscarriage drug DES, where it was not be possible for a victim to establish which of many manufacturers produced the drug that caused cancer. In one DES case, a court held manufacturers jointly liable for an entire injury, on the basis of ''actual analytic cooperation'' and ''information pooling'' by a number of manufacturers, and later ''conscious parallel activity'' in seeking FDA approval of the use of the drug.

  The conference report restricts joint and several liability for non-economic damages. These damages arise from intangible losses like infertility, loss of a loved one, permanent disfigurement, or loss of a limb. As President Clinton noted in his veto message, any limit on a victim's ability to recover non-economic damages would have a disproportionate impact on women, children, the elderly and the poor, who tend to receive a greater percentage of their compensation in the form of non-economic damages.

  Such restrictions would have had tragic consequences for Janey Fair, who lost her 14-year-old daughter, Shannon, in May 1988 when a school bus burst into flames after a collision with a drunk driver in Kentucky. The passengers suffered only minor injuries from the impact of the crash. But the fire that resulted from an unprotected fuel tank engulfed the bus--killing 24 children including Shannon Fair. At trial, it was revealed that the bus had a dangerous fuel-tank design--a defect known by Ford, the manufacturer. Since a child has no earnings history, the Fair family's damages were virtually all non-economic. It was the reckless act of two wrongdoers--the drunken driver and Ford--that combined to cause Shannon's death. The drunken driver had minimal assets. If Ford had not been required to make up the drunken driver's inability to pay, the victims would have been left without adequate compensation.
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  This bill contains many hidden grenades. For example, the limitation on suits against sellers could result in a huge increase in product liability cases being transferred to federal courts. This is because defendants could establish diversity jurisdiction when sellers, who usually reside in the same states as plaintiffs, are not a party to the suit. Additionally, the statute of limitations is rigged against victims. Although proponents claim it expands on the laws of some states, in fact, for many cases, it would narrow the opportunity to sue.
  The conference report also immunizes suppliers of raw materials and component parts for all medical implants--from heart valves to tooth fillings. We are certainly concerned that consumers have access to essential medical devices, but also that biomaterial suppliers have an incentive to sell the safest materials. Immunity would remove an important financial incentive for suppliers to properly research and test their products, as well as to warn manufacturers or the public if they suspect that their components are being used in an unsafe manner.
  Moreover, there is no need for such an extraordinary measure. First, biomaterial suppliers are rarely sued. Second, Public Citizen's survey of the 1997 Medical Device Register, published by Medical Economics, which lists every medical device registered with the FDA, casts serious doubt on claims by the Health Industry Manufacturers Association (HIMA) that there is an imminent shortage of life-saving medical devices due to product liability claims. We found that there are several, and often numerous manufacturers of almost every permanent implant HIMA claims to be threatened. I have included a copy of this survey for the hearing record. The conference report also contains a ''loser pays'' provision in biomaterial supplier suits, allowing a court to impose costs and attorneys' fees against any victim who loses. Even victims with very strong cases against suppliers would fear pursuing a legitimate claim on the chance that they could lose and be economically devastated by having to pay considerable legal costs on top of substantial medical bills.
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  As in the past, the proponents of federal product liability legislation continue to rely on myths and unrepresentative anecdotes about product liability litigation and its impact on U.S. competitiveness to support disrupting state authority and protecting corporate wrongdoers. The facts are these. First, although tens of millions are injured each year in the workplace and marketplace, survivors of product injuries rarely sue. According to the Rand Institute for Civil Justice, funded in part by insurance companies, only ten percent of the people injured by dangerous and defective products actually sue for compensation. These suits are rare because it is extremely difficult and expensive for injured consumers to sue and win against major companies, often with limitless resources and expertise.
  Further, products liability is a small and declining area of litigation. In 1995, the National Center for State Courts and the Bureau of Justice Statistics of the United States Department of Justice released the findings of a collaborative 30-month study of state court civil jury trials. Their report found that in 1992, product liability cases represented only about 3% of all civil jury trials--a tiny fraction of all civil cases actually filed. In the area of product liability, there is simply no evidence that injured consumers are bringing frivolous lawsuits. Because the defendants are formidable, the costs can run into hundreds of thousands of dollars, and the plaintiff's attorneys get paid only if they win.
  Product liability awards are consistent, conservative and declining. According to a 1996 study by Jury Verdict Research, a legal research firm based in Ohio, the median compensatory damage award in product liability cases in 1995 dropped to $260,000 from the 1994 median figure of $379,685. An extensive 1989 U.S. General Accounting Office study of product liability verdicts concluded that the size of damage awards generally correlated to the severity of the injury suffered and the amount of actual economic loss.

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  The arguments for limitations on punitive damage awards also are not supported by jury verdict data and appellate court records. According to research conducted by Professor Michael Rustad of the Suffolk University School of Law and published in the Iowa Law Review, in the 25-year period between 1965 and 1990, only 355 punitive damages were awarded in state and federal product liability lawsuits nationwide--an average of 14 per year. Of these awards, only 35 were larger than $10 million. All but one of these $10 million-plus awards were reduced; eleven of the 35 were reduced to zero. A recent updating of this study, prepared at the request of Sen. Ernest F. Hollings by Jonathan S. Massey, found that there were only 379 punitive damage awards in state and federal product liability lawsuits between 1965 and 1994--an average of 13 per year.
  Steven Daniels and Joanne Martin of the American Bar Foundation analyzed the entire civil justice system and concluded that there is no ''empirical evidence of a system run amok with skyrocketing awards.'' The authors' examination of product liability verdicts and punitive damage awards revealed ''a picture of reality quite different than the one portrayed in the reform rhetoric.'' I am submitting copies of the relevant sections of all of these previously mentioned studies for the record.
  In addition to demonstrating that punitive damage awards are rare, these studies underscore that the fairest and most effective method of overseeing jury awards is to allow judges to review and reduce punitive damages awards that may initially be excessive, as occurs under present law. Allowing judges to reduce punitive damage awards is superior to a statutory cap because judges hear, see and evaluate all the evidence and arguments and can make case-specific determinations about any claims of excessiveness of a particular punitive damage award. As these studies indicate, the appellate system in our courts works.
  Moreover, there is no empirical evidence that the United States is at a competitive disadvantage just because we have a justice system in state courts. State law governs all product liability cases, brought in both state and federal courts (except for the Federal Tort Claims Act). The development of precedents and appellate review over the years has brought clarity to product liability law. Under this legislation, which adds federal law standards on top of parts of state laws, there will be years of litigation before the rules are clear.
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  Moreover, state authority in this area has served this country well for over 200 years. State common law, guided by the Restatement of Torts which sets basic tort law standards throughout the country, ensures that injured consumers receive compensation based on the facts of each case. Standards for justice should not be treated like brake or tire standards. They must provide for individual justice in individual cases, and treat injured consumers not as chattel, but as respected and dignified human beings. The rules of justice under state law, in fact, were more similar before the same lobbyists promoting this legislation started their attacks on the civil justice system ten years ago.
  Moreover, if laws of justice are hurting American competitiveness, why is every business in the world dying to get into the U.S.? Members of Congress should not be fooled by the dubious anecdotes and junk statistics the corporate lobbies are peddling to support their views. The facts are these: According to data collected by the National Association of Insurance Commissioners, product liability insurance costs 26 cents per $100 of a retail product. Between 1987 and 1993 product liability insurance premiums dropped by 47%, from $4 billion to $2.6 billion. And a recent industry survey published in the Wall Street Journal found that liability insurance costs for America's largest companies has dropped to only $7.70 per $1,000 of revenue, and that smaller employers are also spending less.
  Think of it another way. Total product liability verdicts and settlements for insured and uninsured manufacturers cost $4.1 billion in 1993, in a total economy of $6 trillion. By comparison, General Motors' profits in 1995 were $6.5 billion.
  In its 1990 study on U.S. manufacturing competitiveness, Congress' Office of Technology Assessment found that the four factors most influencing U.S. competitiveness were: capital costs, the quality of human resources, technology transfer and technology difficulties. Product liability laws were not even mentioned as playing a role in having an impact on U.S. competitiveness. Similarly, in 1987, the industry-funded Conference Board confirmed that ''product liability and insurance availability have left a relatively minor dent on the economics and organization of individual firms, or on big business as a whole.''
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  Federal restrictions on state judges' and juries' ability to provide compensation not only undermines the cherished principle of individual justice, it harms our society by undermining the corresponding deterrence of corporate misconduct. Untold numbers of products have been made safer as a result of product liability lawsuits: chain saws, now equipped with guards; rear-seat three point safety belts, replacing lap-belts in passenger vehicles; the Chevy Corvette gas tank, now lined with a rupture resistant plastic bladder; farm tractors, now equipped with roll bars; toxic household chemicals, now labeled with warnings; fabrics used in children's sleepwear, now flame-retardant. Other products, beyond repair, redesign and redemption, have been removed entirely from the marketplace: the Dalkon Shield, causing sterility; the Suzuki Samurai, prone to rollover; three-wheeled ATVs, prone to rollover; the Bjork-Shiley heart valve, prone to fracture without warning; asbestos, causally linked with cancer. Millions of Americans are less likely to be injured because of the impact of lawsuits brought by prior victims.

  If this Committee wants to address litigation concerns, we believe there are much more important problems that need attention.

  Two-Way Preemption. It is grossly unfair for a federal bill dealing with liability laws to tie the hands of state judges and juries only to the advantage of wrongdoers, while preventing states from protecting their own citizens with stronger, consumer-oriented liability laws. If Congress wants to preempt state laws, then two-way preemption is the only fair approach.

  Foreign Manufacturers. U.S. manufacturers argue that foreign manufacturers have an unfair competitive advantage due to their exemption from some product liability laws. If this is so, they should have no objection to a provision, sponsored last year by Representatives Conyers and Dingell, to ensure that foreign manufacturers who sell products in the United States play by the same legal rules that govern the conduct of American companies.
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  Business to Business Litigation. There is no evidence that consumers are bringing frivolous lawsuits, and indeed, there is nothing in the conference report that addresses the issue of frivolous suits. It simply increases the obstacles sick and injured consumers must face in bringing legitimate actions against corporate wrongdoers. If obstacles to litigation should be increased in any area, it should be for business to business litigation. At a minimum restrictions contained in this bill should be applied equally to all commercial litigation.

  Secrecy. The degree to which protective orders are issued, allowing critical factual data about defective products to be kept secret, is truly a scandal. Such gag orders should not be allowed particularly when the material in question conceals a product defect or public hazard, or concerns information useful to the public in protecting themselves. Moreover, gag orders should be prohibited from limiting disclosure of such information to federal or state government agencies.
  Record Retention. Often after a case is over, defendants will destroy, or require the plaintiffs to destroy, discovery materials so that plaintiffs in similar cases, particularly against common defendants, lose access to this information. In cases involving product defects or public hazards, discovery materials should be required to be kept for at least 10 years, or longer if the product life is for a longer period. Moreover, information should be required to be shared in such cases.
  Discovery Abuse. Federal court rules regarding the discovery obligations of the parties and their lawyers should be strengthened, so that courts are encouraged to punish parties in all lawsuits that withhold discovery materials, that destroy documents as in the Texaco case and that lie about the existence of documents or witnesses.

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   Pre-judgment interest. In all product liability cases, plaintiffs should be allowed to recover prejudgment interest from the time of injury until the time of judgment. This should be considered restitution for use of the money involuntarily ''borrowed'' by the wrongdoer from the injured consumer during trial.
  Insurance Data Disclosure. The insurance industry should be forced to disclose to the FTC or the Federal Insurance Administrator, information on payouts, losses, income and reserves, so policy makers can determine the true condition of the insurance industry and how products victims are faring. At a minimum, insurance companies should disclose premiums and payouts; how much they pay out for different kinds of damages, including settlements and verdicts; and how much they pay in cases involving multiple defendants (where joint and several may be an issue). This will also allow oversight over claims by industry that limiting consumers' rights will reduce liability insurance rates. For example, on March 4, 1997, before the Senate Commerce Committee, general aviation manufacturers admitted that despite promising Congress that their insurance premiums would drop following enactment three years ago of a statute of repose for noncommercial aircraft, their rates have not dropped at all.

  Our society exposes many people to avoidable injury and disease. When the rights of injured consumers are vindicated in court, our society benefits in countless ways. For about the same amount of money that is spent on dog food, product liability litigation compensates injured people and shattered families for unspeakable losses. It deters manufacturers from marketing defective products. It educates the public to unnecessary and unacceptable risks associated with some products through disclosure of facts discovered during trial. And it reflects and develops community values concerning the rights of all citizens to not be harmed by consumer products.

  The corporate lobbyists behind federal product liability legislation want to abandon this country's history of individualized justice, and replace it with a system that values commerce and trade over the quality of individual human life. During the 104th Congress, approximately two hundred citizens groups with long and uncompromised histories of defending citizens' rights, opposed federal product liability legislation, among them Public Citizen, Citizen Action, AARP, MADD, the American Cancer Society, the American Heart Association, Handgun Control, Consumer Federation of America, U.S. PIRG and Consumers Union. We hope that this Committee stands with citizen groups and the interests of injured consumers, and against the special corporate interests that have spent tens of millions of dollars to push this legislation year after year. For all these reasons, we urge the Committee to reject a federal product liability bill. It is time, once and for all, for Congress to stop proceeding down this misguided path.
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  Mr. HYDE. Mr. Felde. Thank you.

STATEMENT OF JON R. FELDE, GENERAL COUNSEL, NATIONAL CONFERENCE OF STATE LEGISLATURES


  Mr. FELDE. Thank you, Mr. Chairman and distinguished members of the committee. Thank you for inviting us, and I appreciate your courtesy in allowing me to testify on behalf of National Conference of State Legislatures instead of Representative Mike Box, who I think is voting on welfare reform in Alabama today.

  As the staff of the Law and Justice Committee, I've seen the committee report NCSL's policy opposing product liability every time it has come up for renewal. NCSL is a bipartisan organization whose leadership rotates between Republicans and Democrats each year. Its committees are also bipartisan and the policies we pass require either supermajority or unanimous approval of the States present and voting.

  This policy has received the support from both Republican and Democrat legislators, because its purpose is to preserve a principle cherished by our Founders that the National Government should be a government with limited powers. Yet this is a principle that apparently has a dwindling support group in Congress.

  The Constitution does give Congress the power to regulate interstate and foreign commerce. The question then is, how shall Congress exercise its supreme powers with wisdom and discretion? How shall it reconcile the supremacy clause and the commerce clause with the other fundamental principle of dividing power between levels of government in order to preserve individual liberties?
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  We believe that the right to regulate commerce among the States can be balanced with a responsibility to maintain a limited National Government and meaningful State government by setting a high standard for preemption of State law. Remember that every preemption extinguishes other expressions of self-government.

  In the recent Congress, the Unfunded Mandate Reform Act recognized preemption as a twin issue of unfunded mandates. The law states in section 423(e) that committees reporting preemptive legislation offer in the committee report, ''an explicit statement of the extent to which the bill or joint resolution is intended to preempt any State law, local or tribal law, and if so, an explanation of the effects of such preemption.''

  That's explanation, not speculation, of the effects.

  During negotiations over the language of the report, NCSL expressed reservations about leaving a description of the extent of preemption to persons drafting report language, but, nevertheless, this effort to inform the debate on preemption is an important one.

  In the event this committee reports a preemptive bill, we believe that it would be important in describing the effects of such preemption to list State laws that would in fact be preempted. This would further assist in debating the appropriateness of preemption and help ensure that fewer disputes over the extent of preemption occur down the road.

  In our written statement we reference Justice Brandeis' commentary on the States as laboratories of democracy. The importance of this statement is not, however, about how busy State legislatures and Governors are at meeting social and economic needs of their States. It is about the risk taken by the National Government when it reaches into a new area of law traditionally within the province of the States.
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  To highlight the question of risk of driving into the unknown on a national scale, I would like to mention one section of H.R. 10, a bill which passed this committee in the last Congress. The section on applicability and preemption, section 103, uses this language: ''This section supersedes State law only to the extent that State law applies to an issue covered in this section.''

  I will make a prediction that this seemingly simple language will be one of the most litigated portions of the bill. What exactly does it mean for a State law to apply to an issue covered by this section?

  For analogy, in ERISA preemption the lawyers and courts have had a field day working over the words, ''related to.''

  To ''apply to'' probably means to be pertinent to or relevant to, as used in the statute. Who decides what is relevant to the issue? Do we follow congressional rules that are used for germaneness in the context of determining what amendments may be offered?

  In the recent Supreme Court decision, California Division of Labor Standards Enforcement v. Dillingham, decided in February, the Supreme Court struck down a claim that a State law governing apprenticeships was preempted by ERISA. Justice Scalia's concurring opinion noted that the majority opinion of the court spoke of ERISA's ''broad scope'' or ''expansive sweep.'' But applying ''relate to'' provision, according to his terms, ''was a project doomed to failure,'' wrote Justice Scalia, ''since as many a curbstone philosopher has observed, everything is related to everything else.'' His effort to narrow the expansive interpretation of ''relate to'' was not accepted by the Court.
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  May I continue for a paragraph?

  Mr. HYDE. You may continue. Do you have much more? Go ahead.

  Mr. FELDE. Just one page--a paragraph or two.

  Mr. HYDE. Surely.

  Mr. FELDE. Thank you.

  I raise this only to suggest that the legislation being proposed does entail risks of confusion in new fields of litigation. If we follow Justice Brandeis' admonition, we will think more carefully before embarking on such risky passage. Several scholars have noted the limited information on which this tort reform is being proposed.

  NCSL asks this committee to contemplate the gravity of its action and to consider the risks of expanding this authority into an area that is traditionally and sensibly left to the States. It is not an argument, federalism is not an argument to be raised merely when one disagrees with particular provisions of a bill. We trust that the members of this committee and the whole House view federalism this way.

  Thank you very much.

  Mr. HYDE. Thank you, Mr. Felde.
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  [The prepared statement of Mr. Felde follows:]

PREPARED STATEMENT OF JON R. FELDE, GENERAL COUNSEL, NATIONAL CONFERENCE OF SATE LEGISLATURES

  Mr. Chairman and distinguished members of the Committee: the National Conference of State Legislatures (NCSL) serves all of the nation's legislatures and represents their interests in state-federal policy matters. Since 1983, NCSL has consistently defended states' authority to reform their civil justice systems without interference from the national government. At our 1995 Annual Meeting, we reaffirmed our strong opposition to preemption of state tort law that would mandate national standards for product liability lawsuits.
  Many of those who appear before you on this issue will argue for or against the desirability of imposing a particular legal standard on the states. They will debate whether or not the language of the latest draft gives too much of an advantage to one group of litigants over another. We urge you to evaluate this legislation by a different, and we believe, higher standard--the proper distribution of the responsibilities of government in our federal system.
  The proponents of this legislation want Washington to dictate the legal standards and evidentiary rules which fifty state court systems use to adjudicate disputes over allegedly defective products. There is no precedent for such a congressional imposition of federal rules by which state courts will be forced to decide civil disputes. This legislative proposal is an example of the ''Washington knows best--one size fits all'' mentality. It stands in stark opposition to the expressed intention of many congressional leaders to return governmental responsibility to the states.
PERSISTENT PREEMPTION
  The accelerating pace of preemption over the past two decades has undermined substantially state sovereignty and our system of federalism. By definition, every preemptive law diminishes another expression of self-government. More than half of all preemptive national laws in our two centuries have been passed since 1970, according to a study of the U.S. Advisory Commission on Intergovernmental Relations.
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  Among the excesses and abuses of the Federal Government highlighted by Republican Governors' in the Williamsburg Resolves in 1994 were that ''The Congress and Executive Branch, regardless of the party in control, have imposed ever-growing numbers of mandates, regulations and restrictions upon State and local governments, removing power and flexibility from units of government closest to the people and increasing central control in Washington.'' and ''Federal mandates and preemptive measures deprive State and local governments of the ability to set priorities, thereby diminishing their ability to allocate resources and tailor programs in the way best suited to meet local needs.''
CONSEQUENCES OF FEDERAL CHOICES
  Proposals to alter the rules in product liability cases shift burdens from one group to another. The law in each state reflects the values in that community and is adapted to its unique social and economic conditions. The citizens of one state may prefer more consumer protection and may be willing to place obligations on businesses in order to achieve it. The citizens of another state may prefer to absorb the social and economic costs of product-related injuries through that state's health and welfare programs in order to encourage or even subsidize business activity. Congress should not deny communities across America the opportunity to express their local values in state legislation.
  The national government should avoid engaging in unnecessarily sweeping economic and social experimentation. The Founders intended the role of the federal government to be limited. Congress simply does not have the institutional capacity to address the complex local issues related to product liability any more than it has the capacity to address the complex local issues related to education, zoning or crime policy. State legislatures can respond to local interests in tort law.
  State legislative action does not place the country at risk of a failure on a nationwide scale, in the event a policy is unsuccessful. As Justice Brandeis wrote, ''It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.'' New State Ice Co. v. Liebmann, 285 US 262,311(1932), (Brandeis, J., dissenting).
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  Congress is less well-prepared institutionally than state legislatures to deal with periodic adjustments to tort law. Just as new theories of liability were introduced by states to respond to new uncertainties in the marketplace, so now adaptations to market changes are most appropriately developed at the state level. State legislatures have been very actively reforming their tort laws over the past fifteen years. And, since 1994 the pace of tort reform has increased rapidly. National legislation would freeze the fluid development of state law. This Congress cannot assume that once the federal government preempts civil liability law it will always pursue free market and pro-business policies. History tells us that through the course of American history, state legislatures have often been more responsive than Congress to the needs of the business community.
WEAK RATIONALES FOR PREEMPTION
  Proponents of product liability preemption have not satisfied their burden to justify the intrusion on state sovereignty. Each time a product liability preemption bill appears in Congress there seems to be a new untested rationale. Claims of an insurance crisis, competitiveness, technological innovation and common sense have all been used. Now, some proponents would suggest that state courts and not state legislatures are the weak link. Each may be considered on its merits, yet the shifts suggest an inadequate rationale for preemption.
  Proponents argue that since products produced in one state travel into another state where they are purchased and used, it would seem logical that a national law would better address the issues related to products. However, basing national law merely on the prospect of interstate movement would unfortunately unravel the federal system. Virtually every aspect of our lives can produce examples where an element of interstate movement is likely. When pressed by the Supreme Court in his arguments in United States v. Lopez (1995) to name one area where the federal Congress would not have authority to act under the Commerce Clause, the Solicitor General was hard pressed to come up with an answer. Yet in Lopez, the Court reaffirmed the importance of federalism and cautioned Congress about expanding its authority into traditional state policy matters. Significantly, the Supreme Court has not stricken down state tort laws under the Dormant Commerce Clause. The recent decision curbing state punitive judgment awards in BMW of North America v. Gore, 116 S.Ct. 1589 (1996), was based upon an expanded interpretation of the Due Process Clause and not the Commerce Clause.
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  Proponents have argued that American manufacturers trying to make sense out of different state product liability laws lose out to foreign competitors who capture American markets. This argument is specious. It cannot be seriously suggested that foreign competitors understand our state laws better than our own domestic manufacturers. Breaking down state borders would arguably be more beneficial to our overseas competitors than to American businesses that know the laws. Foreign manufacturers are subject to suit for product defects in state courts just as American manufacturers are.
DIVERSITY OF FEDERALISM
  Professor William Van Alstyne of the Duke Law School reminds us that it is ''the likelihood of continuing differences ... that is expected to characterize custom, actual practice and substantive law from state to state, all without recourse to Congress on most matters. Diversity and pluralism are, in short, the suppositions (one may say 'the very essence') of federalism. They are its nature, not its aberration, i.e., not a condition which, when it appears, enables Congress to take over the field.'' Van Alstyne, ''Federalism, Congress, the States and the Tenth Amendment: Adrift in the Cellophane Sea,'' 1987 Duke Law Journal, 769, 775 (November 1987).
  It would be satisfying if arguments extolling the principles, virtues and traditions of federalism would frame your consideration of this broadly preemptive legislation. However, perhaps more persuasive are practical reasons for allowing states to continue to act on behalf of our shared constituencies. States continue to press ahead with various tort reform proposals in order to meet the needs of business, without jeopardizing the rights of plaintiffs. The record of accomplishment is substantial.
  The differences that exist among states, combined with the free mobility of our citizens, serve to make federalism work. As we legislate in the states, we are responsive to the experience of neighboring states that may have more attractive policies. Thus competition in the federal system acts as a check upon state action and ensures that state legislatures pay close attention to the effect of state policy on the business climate. The competition among states for business investment is a powerful a check on state legislation that unfairly restricts profits or competitiveness.
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THE CHIMERA OF UNIFORMITY
  One purported rationale for preemption is the alleged need for uniformity and predictability in the law. The question this committee must ask itself is whether ''uniformity'' is more valuable than self-government by states. Also, more likely than ''predictability'' is the prospect that this proposed nationalization of civil law will cause years of uncertainty, unpredictability and an increasing flow of litigation to the Supreme Court. It is time to set aside old assumptions about the wisdom of Congress and the Supreme Court dictating domestic policy in the states. Federalism offers accountability, innovation and responsiveness in the formulation of public policy.
  The General Accounting Office has concluded that ''differences would most likely remain'' in state laws after the adoption of a national product liability law. The study suggested that variation would be reduced, but the quest for uniformity would once again prove illusory. General Accounting Office, Product Liability: Verdicts and Resolutions in Five States, p. 52 (September 1989). The report calls into question the need for certain tort reforms, but perhaps more importantly, its failure to make any recommendations and its measured tone suggests that a crisis of national proportions requiring broad preemption, such as envisioned by federal legislation, does not exist.
  Federal product liability legislation does not transfer product liability cases from state to federal jurisdiction. Rather, it leaves them in state courts but superimposes on the laws of each jurisdiction a new set of federal rules. That is totally unworkable. For example, the proposed legislation tampers with the doctrine of joint and several liability which is nearly universally applied by the states in tort cases. Changing the rule for product liability cases will create endless confusion in multi-party litigation involving both defective products counts and other claims. Consider how state and federal rules would conflict in a case against both the driver of an automobile for negligent operation and the manufacturer for a vehicle defect, or a case against both a doctor for medical malpractice and a medical equipment company for marketing a defective surgical instrument. If this legislation is enacted, the driver and the doctor will be subject to greater liability than the manufacturers, even if it was the product defects which caused the more serious injuries.
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  No such federal statute can produce the uniformity which its proponents seek. The new federal laws will still have to be integrated with the existing legal procedures and standards in fifty states. That process will give rise to an endless parade of legal appeals as the parties attempt to define the parameters of the new statutory provisions. These issues will be adjudicated before fifty state supreme courts. It would be unrealistic to assume that those courts will all issue consistent rulings. The proposed legislation invites increased litigation while seeking to reduce it. It will generate new uncertainty while purporting to bring clarity.
CONCLUSION
  NCSL asks you not to move forward with preemptive product liability legislation. The civil liability system should remain in the province of the states. Preemption in product liability would cause confusion and uncertainty in the application of state law and would offer no serious aid to competitiveness. Before voting to preempt your state's laws based upon speculation and vague promises, you should examine the laws that have evolved in response to community needs in each of your states through the courts and legislature. By rejecting preemption you preserve important prerogatives of state legislatures, and by doing so, you help preserve local selfgovernment and the values of community.
  To the men and women of this nation's state legislatures, federalism is much more than an argument to be raised when one does not like the particular provisions of a bill. It is the way that people from communities with very different cultures and economies can live under laws that reflect their traditional values. It is a principle which transcends the momentary desire of one economic group or another in our society for a quick fix to its perceived problems. We trust that the members of this committee and the entire House view federalism the same way. Thank you.
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FEDERALISM
  Our American federalism creatively unites states with unique cultural, political, and social diversity into a strong nation. The Tenth Amendment is the cornerstone of constitutional federalism and reserves broad powers to the states and to the people. Federalism protects liberty, enhances accountability and fosters innovation with less risk to the nation. NCSL strongly urges federal lawmakers to maintain a federalism that respects diversity without causing division and that fosters unity without enshrining uniformity.
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  Individual liberties can be protected by dividing power between levels of government. ''The Constitution does not protect the sovereignty of states for the benefit of the States or state governments as abstract political entities, or even for the benefit of public officials governing the States. To the contrary, the Constitution divides authority between federal and state governments for the protection of individuals.'' New York v. United States, (1992). When one level becomes deficient or engages in excesses, the other level of government serves as a channel for renewed expressions of self-government. This careful balance enhances the express protections of civil liberties within the Constitution.
  By retaining power to govern, states can more confidently innovate in response to changing social needs. As Justice Brandeis wrote: ''It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.'' New State Ice Co. v. Liebmann, (1932). It is a suitable role for the federal government to encourage innovation by states. The federal officials should recognize that failure is a risk associated with experimentation and permit states room to act and evaluate without judging prematurely the value of innovative programs. States are inherently capable of moving more quickly than the federal Congress to correct errors observed in policy and can be more sensitive to public needs.
  The Supreme Court has sent a strong message to Congress that its powers under the Commerce Clause have boundaries. In United States v. Lopez, (1995), the Court properly strengthened the hand of states in negotiating the balance of powers. Congress should heed the wisdom of Lopez and not exercise its commerce powers without a compelling need to do so. Similarly, the Supreme Court should add to the ability of states to respond to pressing social and economic problems by interpreting the dormant Commerce Clause in a restrained manner sensitive to the powers of states in the federal system.
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  Responsiveness to constituencies within state boundaries is diminished as the power of the federal government grows disproportionately. Disturbingly, federal constraints upon state action grow even as states are increasingly acknowledged as innovators in public policy. To revitalize federalism, the three branches of the national government should carefully examine and refrain from enacting proposals that would limit the ability of state legislatures to exercise discretion over basic and traditional functions of state government.
  NCSL dedicates itself to restoring balance to federalism through changes in the poetical process and through thoughtful consideration and broad national debate of proposals to amend the Constitution or to clarify federal law that are specifically intended to redress the erosion of state powers under the Constitution. NCSL does not by this policy endorse any specific proposal for or against constitutional change or call for a constitutional convention.
PREEMPTION
  Congress must allow states flexibility to shape public policy. Creative solutions to public problems can be achieved more readily when state laws are accorded due respect. State legislators believe that state laws should never be preempted without substantial justification. Inordinate reliance upon the central government is not the solution to the nation's problems. Uniformity for uniformity's sake does not justify preemption. A federal system contemplates diversity among states. Our federalism anticipates diversity; our unity does not anticipate uniformity. By definition, every preemptive law diminishes other expressions of self-government and should be approved only where compelling need and broad consensus exist. While proponents of preemption may claim expected benefits, these must be balanced against the potential loss of accountability, innovation and responsiveness.
  Preemption may be warranted in specific instances when it is clearly based upon provisions of the U.S. Constitution authorizing such preemption and only when it is clearly shown (1) that the exercise of authority in a particular area by individual states has resulted in widespread and serious conflicts imposing a severe burden on national economic activity or other national goals; (2) that solving the problem is not merely desirable, but necessary to achieve a compelling national objective; and (3) that preemption of state laws is the only reasonable means of correcting the problem.
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  The authority of Congress under the Supremacy Clause to preempt state legislation is exercised by the federal government assuming responsibility for regulating under federal law. In addition, the Supremacy Clause allows the federal government to offer states the option of regulating pursuant to federal standards. The power of Congress to thus preempt state authority must not be expanded to permit the federal government to commandeer states to administer federal programs.
  Congress should provide reasonable notice to state legislative leaders and governors of any congressional intent to preempt and should provide them with opportunity for formal and informal comment prior to enactment. To ensure that the national legislature knows the effect of its decisions on other levels of government, members of Congress should investigate which of their state's laws would be preempted by federal legislation before they vote on the preemptive legislation. Congress should develop processes to understand better the impact of proposed bills on federalism. Congress should refer bills that affect state powers and administration to intergovernmental subcommittees.
  States should not be undercut through the regulatory process. It is not acceptable for unselected federal agency officials to exercise legislative authority in the guise of regulation and to preempt the decisions of the elected legislatures of the sovereign states. Any agency intending to preempt state laws and rules should have explicit and specific authorization from Congress. The Executive Order on Federalism (E.O. 12612) provides guidance for agency examination of intergovernmental impact and should be codified and enforced. Circumvention of rule-making procedures through interim final rule-making and the like, should be prohibited. An appropriate congressional committee should review agency regulations to identify unjustified intrusions into state sovereignty.
GRANT CONDITIONS AND MANDATES
  When national policy-makers ignore the fiscal impact of proposals that are to be implemented at the state level, citizens have difficulty discerning which level of government to hold accountable for making critical choices between increasing taxes or eliminating other state programs in order to implement a mandated national agenda. Such distortion can frustrate voters and decrease citizen participation. Reform is needed in order to hold the federal government accountable for making policy decisions that ultimately affect the level of services provided by the states or the level at which states are compelled to tax their citizens. States must retain the predominant role in shaping policies for which they will allocate the predominant share of resources.
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  Among the distortions caused by the excessive power of the national government is the separation of decisions to tax from decisions to spend. The intractable federal debt makes federal spending decisions more difficult and increases reliance on mandates or grant conditions to accomplish goals set by Congress. The federal temptation to mandate should be tempered by requiring full federal appropriations before application of penalties to states contained in authorized programs. Where statutes are not clear, regulatory guidance must be established before states become subject to penalties. Federal resources should be adequate to offer meaningful encouragement to state efforts and, at a minimum, to provide technical assistance and oversight.
  The power of the national government to spend for the general welfare is not an unlimited right to regulate state action. In New York v. United States, the Court relied upon the Tenth Amendment to void a mandate upon the states. To the Court, a vital federalism was essential to accountable government. ''Accountability is thus diminished when, due to federal coercion, elected state officials cannot regulate in accordance with the views of the local electorate in matters not preempted by federal regulation.''
  In New York v. United States, the Supreme Court outlined guidelines appropriate for limiting regulation under the Spending Clause. Conditions should be unambiguous and should be reasonably related to the purpose of the expenditure. Because the test of ''reasonable relation'' may not serve as an adequate brake on Congress, the law should prohibit conditions on grants made to the states beyond such conditions that are necessary to specify the purpose of the expenditure, except where the conditions, such as those relating to civil and individual rights, may fulfill powers expressly delegated to Congress by the Constitution. Existing grants should not automatically become subject to new conditions.
  Federal grants to states can achieve national goals without disrupting state laws and procedures. Therefore, federal legislation should respect the role of the legislature and not create an unnecessary preference for state executive decision-making. Any funds received by a state under provisions of federal law should be subject to appropriation by the state legislature, consistent with the terms and conditions required under such federal law. Legislatures should also retain authority to designate implementing agencies and to review state plans and applications for assistance. State court systems should not be commandeered to implement federal policies; in the event federal actions will result in an increased burden on state courts, then the federal government should also provide funds to implement action by the courts.
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  Congress should not place responsibility for administrative oversight of grant conditions in the federal courts by relying on beneficiaries to enforce federal grant requirements through lawsuits. In the event the courts are to be relied upon for enforcement, then the federal government should waive its sovereign immunity and become subject to suit for failures in administration of programs. This policy does not relate to access to federal courts for enforcement of constitutional rights.
SOVEREIGN IMMUNITY
  In Seminole Tribe of Florida v. Florida, (1996), the Supreme Court confirmed that the Eleventh Amendment to the Constitution is a protection of state sovereignty that is purposeful in our federal design. The Court recognized that Congress does not have power under the Commerce Clause or the Indian Commerce Clause to abrogate state sovereign immunity. Congress may abrogate state sovereign immunity only under powers granted to it under the Constitution, specifically, Section 5 of the 14th Amendment. If Congress intends to abrogate state sovereign immunity it must state its intent in unmistakably clear language, and the federal government should waive its own immunity in order to enhance legislative consideration of the risks. Normally, equitable and injunctive remedies are sufficient safeguards for ensuring compliance with the law.
CRIMINAL JURISDICTION
  Federal expansion of criminal jurisdiction, while not specifically preempting state laws, diminishes the role of state legislatures by permitting federal and state prosecutors to circumvent state law. The choice to prosecute in federal court based upon federal penalties entails a choice to by-pass state legislative responsibility. Federalizing state criminal offenses should be avoided because federalism is weakened and because the role of federal courts as courts of limited jurisdiction is thereby undermined. Specific crimes may be appropriate for federal action if a systemic failure makes state action impossible or ineffective; such crimes may include those that have complex international or interstate implications, that relate to the protection of civil rights, or where conflicts prevent effective state or local prosecution. Inadequacy of state resources is not sufficient reason for federal takeover of criminal jurisdiction.
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COURTS
  In the process of selecting nominees to the federal courts, the President and the Senate should--among other considerations--be mindful of the vital role federalism plays within our constitutional framework.
CONCLUSION
  NCSL endorses periodic examination by Congress of the state of American federalism. Members of Congress should expand formal and informal communications with their state legislatures in order to defend federal legislation that diminishes state powers and to explore less intrusive means of achieving national goals. In exploring the dimensions of federalism, Congress should consider the need for statutory and constitutional remedies to restore balance. Together, we should revive appreciation for the principle that sharing power between levels of government enhances America's ability to develop responsive policy in a changing world.
  As passed by the Assembly on Federal Issues, December 1996.

  Mr. HYDE. Thank you, Mr. Felde.

  And now Mr. Martin.

STATEMENT OF JAMES L. MARTIN, DIRECTOR, STATE-FEDERAL RELATIONS, NATIONAL GOVERNORS' ASSOCIATION


  Mr. MARTIN. Thank you, Mr. Chairman for allowing me to be here today to represent and give you the views of the Nation's Governors.

  You, as one of the leaders in the U.S. Congress for States rights, understand when Governors say they want some preemptions, though they support you in this issue--in this one particular issue of preemption--and stand with you on all other issues of States rights, probably, that we're talking about.
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  I want to also commend Mr. Conyers, who was chairman of the Committee on Government Operations, 3 years ago when all of the organizations of elected officials--Governors, mayors and legislators--fought hard to pass the Unfunded Mandate Reform Act. Mr. Conyers has led that effort in the House; we appreciate him. He specifically included language in that act that says that anytime Congress preempts State authority, there must be an explicit statement made as to explicitly where they're preempting State law, so that the courts will not be confused as to how much and how it's being preempted.

  So, it's not lightly that Governors propose a Federal preemption of State law, but they've been doing this for 10 years; it's not been recently that they just started this; it has been recently that they unanimously reaffirmed this position 2 months ago. Our policies are reaffirmed every two years; that's with a Democratic chairman, Republican chairman, majority Democratic Governors, majority Republican Governors. The Governors have come to the conclusion that it's time for some uniform Federal law in this particular area. So, why? Why governors are different on this and other areas of preemption?

  First of all, they represent consumers and businessmen just like you do. Elected officials across this Nation represent everybody; there's not one corner of the consumer market that's represented by one and not--especially elected officials. So, they're very concerned about consumers. There are 9,000 lawyers that work for State attorneys general that primarily protect the interest of consumers every day, and they're doing a very good job of it.

  The Governors believe that it's time because of the interstate nature that 70 percent of all products crossing State lines for the sake of equity and justice--there are other values besides economic efficiency.
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  There's a very important--Brookings Institution did a study of product liability and their words are that the litigation taxes--not the damages awarded--but the litigation taxes built into the current product liability laws of the 50 States is equivalent to $100 billion a year of litigation taxes. Another study said it was $130 billion; there's a big difference between what they're saying and what others have been saying about the cost of this legislation.

  They also support it because of the global nature of business today and trade; Governors are the leaders for GATT, NAFTA, trade agreements, because they have to face it on the front lines.

  Why would legislators oppose this and Governors support it? I think there's a different nature of their responsibilities. Legislators are responsible for the basic law and for the nature in which it's going to be, the definitions, and Governors are responsible for carrying it out, making it work, making things happen every day, and they face every day the consumers and taxpayers that they have to live with.

  They feel that the current legislation is time-consuming--on behalf of consumers; on behalf of small business, the current laws of the 50 States--too time-consuming, too costly, too unpredictable, counterproductive, and maybe all four.

  They think that the issues are going to be base issues of federalism; federalism issues are very important. There are issues that are more important than economic efficiency and trade, and those issues are federalism. There are issues that are more important than federalism; that's fair, quick, and timely justice.
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  This country and this Congress has not been slow to enact national preemption of State laws beginning with constitutional civil rights. Totally--and the Americans With Disabilities Act, it was the Governors' Association that insisted from the very beginning that ADA be exempted from the Unfunded Mandate Relief Act, and all constitutional and civil rights laws be applied, preempted in every State.

  The State and local elected officials did not fight Congress last year when you extended a nationwide preemption on minimum wages; we sat back and watched--they sat back and watched as a $1 billion expenditure on State and local government and $15 billion new expenditure on government--but we didn't fight that; they aren't fighting national preemption of nursing home standards. This week the Governors' Association will send a letter supporting the National seatbelt laws for this country; they've always been there. We wrote the bill for Safe Drinking Water Act last year, and the Safe Drinking Water Act sets minimum standards across the Nation for environmental laws, and you know, they've preempted State law in 60 new Federal death penalties recently.

  So, for this particular area of law, the Governors believe that it's time for some national Federal law and the Federal Government that they believe will protect the consumers, will not override consumers, will have their interest in law at hand as much as the governors have, and will continue to have.

  Thank you, Mr. Chairman.

  [The prepared statement of Mr. Martin follows:]
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PREPARED STATEMENT OF JAMES L. MARTIN, DIRECTOR, STATE-FEDERAL RELATIONS, NATIONAL GOVERNORS' ASSOCIATION

  Mr. Chairman and members of the Committee, I appreciate the opportunity to present the views of the nation's Governors on product liability legislation. Product liability is an issue that affects us all. A 1995 Brookings Institution study found that American consumers pay $100 billion each year in hidden ''litigation taxes'' built into the price of products--a 1994 study by Tillinghast puts the price closer to $130 billion. Enactment of a uniform federal product liability law is important to Governors because of the implications for job creation, economic growth, and new product development and trade innovations. It has now become necessary to put an end to the current patchwork of U.S. liability laws that put a choke hold on business and do little to ensure the safety of our citizens.
  Through the National Governors' Association, Governors have dealt with this issue for thirteen years, consistently seeking relief from the high cost of product liability litigation and complicated means of seeking redress. At their recent meeting on February 4, 1997, the Governors once again voted to support a uniform national product liability law. Copies of NGA policy and correspondence are attached for the hearing record.
  This is a bipartisan issue whose time for action has arrived. Governors support federal preemption of state product liability laws for a number of reasons.

Variant litigation and insurance settlements are time-consuming, costly, unpredictable, and counterproductive. Consumers need prompt payments, fair settlements, and new jobs generated by new products.

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Lengthy legal complications cause unnecessary price increases for consumers and slow development of new technology.

Global competition requires costs to be competitive.
  There are many excellent examples of federal uniform laws with state flexibility, in the national highway system, truck and bus drivers' licenses, highway and bridge standards, food and safety regulations, environmental protection under the Clean Water Act and the Safe Drinking Water Act, and now in health care reform, such as portability and prior conditions.
  The United States needs a single, predictable set of product liability rules. The adoption of a federal uniform product liability law would eliminate unnecessary cost, delay, and confusion in resolving product liability cases. The current system is a patchwork. That is not fair, efficient, or cost-effective to those who have been injured.
  Manufacturers of many products, such as football helmets, vaccines, and medical devices are facing rising product liability costs. Manufacturers are not always without fault, but that is no excuse for the current inefficiencies in product liability cases. Differences in state liability laws also have made it difficult for manufacturers to assess their own risks. Higher liability costs have been cited as a reason for discontinuing some necessary product lines, such as raw materials used to make medical devices. These increased costs and the general uncertainty about the nature of risk inhibit product development and may lead to inflated prices for some consumer goods.
  A uniform product liability law will boost our nation's global competitiveness. The General Agreement on Tariffs and Trade and the North American Free Trade Agreement--both strongly supported by Governors of both parties--require that U.S. industry be as efficient as possible. Product liability fairness helps everyone: consumers, workers, and businesses--particularly small businesses. American workers lose jobs because the current system of product liability litigation dampens innovation in the United States and hurts our ability to compete worldwide.
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  Recent NGA policy makes three major points about product liability: the Governors urge Congress to adopt a uniform liability law; ask Congress to assess--and if necessary to enhance--federal consumer protection and product safety standards; and call for more effective oversight of the insurance industry in the coordination of federal-state-local practices.
  NGA traditionally has opposed federal preemption, unless there are highly compelling reasons to justify federal actions that require changes in policies adopted by state officials. In the area of product liability, the Governors believe that such conditions exist.
  In the past, concerns have been expressed that a single set of standards may offer fewer incentives for companies to implement safety measures and produce sound products. The Governors believe uniform product liability will better enable companies to develop new and better technology to protect consumers and produce quality products. Efforts to alleviate the problems faced by American companies should never lead to a deterioration of public safety and the ability of victims to seek redress of serious and legitimate injuries. Thus, NGA policy calls upon Congress to study the impact of legislation on federal safety and consumer protection and to adopt standards deemed appropriate, such as an ''800'' one-call phone system.
  In addition to the provisions on product liability, NGA policy further calls upon federal, state, and local governments and the private sector to coordinate their efforts in response to liability insurance problems. States continue to seek effective solutions to the complicated problem of insurance availability and affordability.
  Liability is a complex and difficult issue that affects us all. By working together to formulate solutions, we can protect American consumers and boost our nation's economic performance. The Governors and the states stand ready to work with Congress and the private sector to address problems of mutual concern.

  Thank you again for your consideration of the Governors' policy on the issue of a uniform product liability code.
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INSERT OFFSET RING FOLIOS 1 TO 5 HERE

  Mr. HYDE. Thank you, Mr. Martin.

  The gentleman from Massachusetts, Mr. Delahunt.

  Mr. DELAHUNT. Yes, thank you, Mr. Chairman.

  Ms. Claybrook, I was genuinely and honestly surprised by the statistics that you just proffered, and I was particularly surprised by the fact that the representatives of NFIB and NAM did not have those statistics available. And I really believe that before we can act in good faith in terms of sound public policy, those kind of data should and ought to be made available; I think it really risks injustice to pass legislation without having those questions answered. And I thank you for giving us those statistics, and I'm sure they'll be challenged, but I would like to hear what those who disagree with your position might have in terms of data.

  Having said that, one other item; maybe you have this answer. How many bankruptcies have been caused by large awards in terms of product liability cases if you have them--if you should know?

  Ms. CLAYBROOK. Excuse me. I don't have any statistics, Mr. Delahunt, but I do know that some companies have used this as a tactic. A.H. Robins, for example, did use that as a tactic in order to protect itself against liability in the Dalkon Shield case, and of course that was a case where punitive damages were awarded against the company for knowingly and willfully selling a defective product that harmed many women who could no longer have children--they couldn't have children after that. But I will certainly see if we can find out; I don't think that there's a lot of data available for that.
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  I'd be happy, by the way, to have any comments at all from any of the witnesses on the statistics that I mentioned; they come from the National Association of Insurance Commissioners data, and they were assembled by Robert Hunter, the former insurance commissioner of Texas and the former Federal Administrator of Insurance for the Federal Government.

  I would also like to send them to Mr. Martin, because he's using very wrong statistics----

  Mr. DELAHUNT. I have a question for Mr. Martin myself.

  Ms. CLAYBROOK [continuing]. $100 billion figure has nothing to do with product liability and the $130 billion figure doesn't either. The $130 billion figure comes from the Tillinghast study of several years ago which includes the whole administrative cost of running insurance companies. So, I hope that the Governors will take a minute to reconsider their position.

  Mr. DELAHUNT. Well, I'd like to give Mr. Martin an opportunity to respond to your question, which is really my question also: you use the term $100—$130 billion. Can you give this committee a breakdown in terms of those hidden costs or taxation?

  Mr. MARTIN. Congressman, that's a Brookings Institution study; I didn't mention the Tillinghast study, but that's a Brookings Institution study. I've confirmed that with them before I came here again. We thought it was $100 million; they insist it's $100 billion. If you have other witnesses, I suggest you bring Brookings up here and have them explain their numbers.
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  Mr. DELAHUNT. But you, yourself, are unaware of how they break it down in terms of----

  Mr. MARTIN. No, I'm not.

  Mr. DELAHUNT. You're not. Thank you.

  Mr. MARTIN. They did say it was litigation costs related to product liability.

  Mr. DELAHUNT. Can you--you're here obviously representing the National Governors' Association. Was this position voted on within the association?

  Mr. MARTIN. Yes, sir, and a copy is there, and I think at the back of my testimony I have a whole series of letters that would----

  Mr. DELAHUNT. Can you just tell me how the vote broke out?

  Mr. MARTIN. The vote's been majority ever since--we have a two-thirds minimum vote to pass any policy in the National Governors' Association which guarantees bipartisanship.

  Mr. DELAHUNT. So it would have been a two-thirds vote?

  Mr. MARTIN. It's been a unanimous voice vote ever since its happened. It was a unanimous voice vote this past February the fourth.

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  Mr. DELAHUNT. If you know--and you alluded to the fact that the attorneys general in this Nation are doing a pretty good job, and it was, I think, reflected here this morning by the testimony of Mr. Miller. If you're aware, have the National Attorneys General--and I should have asked this question earlier, but it didn't come to my mind--but do you know if the National Attorneys General Association has formulated a policy position on this matter?

  Mr. MARTIN. I don't know, and I don't think they have. Otherwise, I would know about it if they have, because we're in the same building; we see each other all the time.

  Mr. HYDE. The gentleman's time has expired. The gentleman from Tennessee, Mr. Bryant.

  Mr. BRYANT. Thank you, Mr. Chairman. If I might just comment in terms of--and I ran out of questioning time for the attorney general from Iowa; I don't see him out there, and I hate to talk about him while he's gone----

  Mr. HYDE. Oh, go ahead. [Laughter.]

  Mr. BRYANT. But I would refer to a press release that was jointly issued, it appears, by his office as well as the governor of Iowa, so I guess I can bring the Governor of Iowa in this too, who I believe is a Republican--that indicates, in this particular litigation that they have filed against tobacco companies in Iowa, that they are basically being fronted the money and expenses for this litigation by five plaintiffs' law firms, one of which appears to be from South Carolina. I can only imagine the interest South Carolina has in Iowa, but apparently they have some interest in going forward and doing this, which points out, I think, that one group that's strongly opposed to any type of reform to this tort system is the American Trial Lawyers' Association, and I think that was the chairman's point--the group that the chairman referenced earlier. Clearly, they have been a consistent opponent of any type of reform in this area over the years, and certainly we saw their presence last year, and I would assume their presence is also in the room today.
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  But, in reality, there are some reasonable modifications I think that can be made to the system, and I think what Congressman Campbell has testified to this--and I do take his study seriously, and I do think it is very relevant to the issue that's before the committee today.

  I would like to follow up with him. I think he adequately explained the reason that we ought to federalize this issue, but I would like to, ask him to expand on that issue as well as the issue of competitiveness. I guess the real issue of competitiveness would be American manufacturers v. foreign manufacturers and how the changes that are reflected in last year's bill, and perhaps this bill that we propose this year, would affect America's competitiveness with foreign manufacturers, and so forth.

  Mr. CAMPBELL. Thank you, Mr. Bryant. Let me begin by saying the numbers; I didn't in my opening testimony and I really should.

  What we're talking about from our measurements is an increase in productivity per reform in the ballpark of 7 percent, per the industry studied, and then it topped out after it had a cumulative effect around a 20-percent increase in productivity in any given industry as you accumulated the litigation reforms.

  And with respect to my friend, and in all good recognition that there are differences of opinion, this study could not be more apt for today's debate, because it didn't play out in manufacturing. It played out in the industries that were localized. The States can't do this. It's a whole federalism issue; the States can't get the benefits of these productivity increases in those industries that go across State lines.
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  So, an answer to your question, ''Is there a competitiveness effect,'' you bet there is. And the order of magnitude is the increment in productivity per reform in the order of 7 percent with--generally speaking, by industry getting up to the 20-percent level upon the accumulation of three or more reforms.
  Lastly, do I make the case that this is the most important thing that possibly needs to be done or that this is the hugest cost to doing business? No, I don't. I make the case based upon research that I believe is quite fair; that we could get a very significant improvement in productivity if we adopted this bill. And that I think that the States cannot, acting alone.

  Mr. BRYANT. Mr. Chairman I think my time is about up and I would yield back.

  Mr. HYDE. Yes, it has, and I thank you. And Mr. Conyers.

  Mr. CONYERS. Thank you. Well, I'm always happy to see Tom Campbell of happy demeanor and great intellect with us, and we always appreciate your visits, Tom.

  Mr. CAMPBELL. Thank you.

  Mr. CONYERS. I am happy to see all the other witnesses, but today Ms. Claybrook attracts my attention in many respects.

  Imagine with me, Attorney Claybrook, that we were going to actually federalize product liability law. If this sorry event were to occur, there would have to be some balance; I mean at least we would want to be rational, Tom; I mean if we were going to do this, we'd have to be fair. There's certain glaring inequities that really beg the question.
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  Now last February the Judiciary Committee tripped down this trail and, you know, we've been through this dozens of times on the floor; the Commerce Committee has had it in other years; the Senate has handled it; we've been in conference; the White House is in on it. We're almost teaching the American people a very important law in some respects, but there's no assurance that we're going to get it any more right than we did the last time. The only little bit of hope is that we don't have a bill in front of us which means that we're saying, ''Let's see if we can come together and resolve it.''

  And so, Ms. Claybrook, my question is, what could we do to get something like this at least in a repairable form that you could present with a straight face, even though we wouldn't want to take away the rights of so many people?

  What kind of pro-consumer items would you enumerate?

  Ms. CLAYBROOK. Well, the first issue, of course, which we've mentioned on every occasion, is that there's one-way preemption in this legislation, and we believe that it should be a two-way street; it should be evenhanded on both sides.

  For example, the bill places a cap on punitive damages, but there are some States that don't have any punitive damages at all. So, why not----

  Mr. CONYERS. Now, Tom, you can't argue against that.

  Mr. CAMPBELL. If you give me a chance I will. [Laughter.]
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  Mr. CONYERS. You would? All right.
  Mr. CAMPBELL. Do you want to give me the chance?

  Mr. CONYERS. I will give you the chance when my dear chairman gives me the time to give you the chance.

  But I mean I was thinking that--you know, I elevated you to great intellectual heights just a few minutes ago. [Laughter.]

  Mr. CAMPBELL. You did, and I was humbled by your kindness.

  Mr. CONYERS. Yes. Oh, well.

  Mr. CAMPBELL. Let me just take a second and say of course you've got a good point, and I reflect, by the way, on the joy of having been with you on this committee; it was an honor. Of course you have a point.

  Probably the best way to go about this is to nail down those few reforms that are common to the most common among all the States and federalize those. I think that would be a reasonable middle ground.

  Mr. CONYERS. Well,----

  Ms. CLAYBROOK. Well, continuing on Mr. Conyers, to answer your question, there have been some complaints that foreign manufacturers are treated differently, and I know you had an amendment last year that I thought was a very important one to have foreign manufacturers play by the same rules. Since we have so many foreign products in this country, we believe that that's a very important issue.
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  Third, we think that businesses who have product liability claims ought to be subject to the same limitations under this bill as consumers are, and this bill exempts all commercial activity of that sort.

  Fourth, we believe that the likelihood that occurs in almost every lawsuit with protective orders--we call them gag rules--particularly where health and safety defects are involved, that that information should not be subject to a protective order as long as it doesn't cover a trade secret. We think the public should be entitled to know what's going on when there's a defective product.

  We believe that companies should be required to retain records; there has been enormous activity in the last 15 years by manufacturers to destroy records, so that they won't be subject to discovery in product liability suits, and that, of course, makes it more expensive and more difficult for consumers.

  There are a number of examples of discovery abuse which I'd be happy to submit for the record where companies destroy documents.

  [The information follows:]

INSERT OFFSET RING FOLIOS 6 TO 40 HERE

  Ms. CLAYBROOK. Texaco is only the most recent example that's been highly publicized where the company with impunity decided that they were going to destroy records, very important records. This happens in product liability cases as well. We believe that there ought to be severe penalties for that; some judges impose them, some don't. We believe prejudgment interest should be available, because often these cases drag on.
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  Mr. CONYERS. Prejudgment interest?

  Ms. CLAYBROOK. Prejudgment interest. There should be interest paid to the plaintiff on the award where the case drags on for some time; the longer it drags on, the more advantageous it is to the company, not only because the product itself sometimes goes off the market. You know, products wear out. Or if there's a recall or requirement to fix the product, those products that are the subject of litigation aren't removed or fixed, but the interest should be paid.

  And finally, to help Mr. Delahunt and ourselves and all Americans better understand what's going on in this marketplace, we think there ought to be some clear insurance data disclosure requirements, so that we really do know what's going on, and maybe it'll help Mr. Campbell do a more effective study in the future.

  Mr. CONYERS. Well, anything that you can provide us with for our staff's information and to go into the record, we would be grateful for it.

  The chairman has granted me a couple of extra minutes, and what I'd like to do is just ask you to see if you discern any benefit for the tobacco companies who are now beginning to change their tune in connection with this proposed legislation or the bill from last year, since we don't really have a bill before us?

  Ms. CLAYBROOK. Well, the conference report sent the President--the bill that he vetoed had a cap on punitive damages that's very low, and I think that every large company in America is a beneficiary of that cap on damages. It's already been mentioned that the joint----
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  Mr. CONYERS. Just a minute. Now, Tom, you wouldn't--now, we could join together with Joan on that one, couldn't we?

  Mr. CAMPBELL. That there ought to be a cap on punitive damages?

  Mr. CONYERS. The low--the excessively low cap on punitive damages that was in the conference report. Wouldn't you support raising it?

  Mr. CAMPBELL. If you'd give me just a moment, I'd say an important point is to make it uniform; the level is far less important. If that was a tradeoff we could get, if I was on the committee working with you on this, you bet I'd make that trade, but uniformity is what would confirm; that would be the most important.

  Mr. CONYERS. In other words, it doesn't matter to you that the people that may be most impacted by low punitive damages, that need it most, would be--I mean, what's so heavenly about uniformity?

  Mr. CAMPBELL. So that you don't have the migration of business dependent upon a difference in legal rule, and so that for manufacturing, and this is really key, you don't have to check out 50 different States in order to know----

  Mr. CONYERS. All right. I've got to give you the 101 product liability test. What percentage of tort cases are product liability cases?

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  Mr. CAMPBELL. I don't know, Mr. Conyers.

  Mr. CONYERS. OK. Are you in summer school then--you come back here----

  Mr. CAMPBELL. Wash the blackboard?

  Mr. CONYERS [continuing]. To the Judiciary Committee, and in the back room we're going to take you through it.

  Mr. HYDE. Would the gentleman yield?

  Mr. CONYERS. I have to.

  Mr. HYDE. Is the gentleman talking about claims or lawsuits? Because claims you would have a very difficult time finding how many claims were filed and how many were settled in anticipation of litigation, and that's a very relevant datum which we don't hear because we don't have it.

  Mr. CONYERS. Do you want to use that one, Tom?

  Mr. CAMPBELL. No. I'm going to give you my answer, untutored and unschooled as I am--that the answer ought to be, what had an effect on productivity, and if companies' productivity showed a marked improvement because of a change in liability law, the proof is in the pudding, right? If you tell me it's 3 percent of all their cases or if you tell me it's 30 percent of all their cases, I'm telling you that State by State, industry by industry, I can improve productivity between 7 and 22 percent depending upon how many reforms they adopt.
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  Mr. NADLER. Would the gentleman yield?

  Mr. CAMPBELL. So, my answer, as best I can, is I confess I do not know the percentage of liability lawsuits, but I do know the effect on productivity of changing the legal system.

  Mr. NADLER. Will the gentleman yield?

  Mr. CONYERS. Yes, to Mr. Delahunt and then to my friend Jerry Nadler.

  Mr. DELAHUNT. I just have one question, Tom. I mean I'm not questioning the validity of your study, but you're not involving social implications. I mean you're basing everything on productivity.

  You were here earlier today, and you heard the testimony from that woman whose life has been radically altered and radically changed, and I daresay, even given your study and giving it the respect I'm sure that it deserves, I mean we're not designing social policy simply based on productivity.

  Mr. CAMPBELL. Yes, you're absolutely right. And that's really the point that needs to be stressed in the difference between my job as a legislator and my job as a professor. As a professor, I hope to help our job as a legislator to say, ''Here is the economics of it.'' But you're absolutely right.

  For example, how much does it cost to repave the freeways of California more frequently? It'll save lives. Well, we make a tradeoff, and my hope to offer to the debate today is to say there's some significant benefits here, but you're absolutely right; there are other factors as well.
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  Mr. DELAHUNT. Thank you.

  Mr. NADLER. Would the gentleman yield? Thank you.

  I almost said, ''professor.'' Congressman Campbell, Tom, I just read some of what you say in the study, some of the conclusions, and frankly, I'm surprised to hear you saying what you're saying here.

  What your conclusion says is the results are consistent with three other alternative hypotheses which you then lead. In other words, you can't say anything conclusive about the effect that product liability laws on productivity without--obviously, you can never say anything conclusive about the effect of anything on anything else without controlling for independent variables.

  You've got your other variables here; there are several different alternative hypotheses that could explain your findings. All you can really conclude is that product liability law may be doing this; may have an effect on productivity; may have a large effect on productivity; may have a small effect on productivity; may have no effect on productivity. All you really can conclude is that, if you do a number of different things, among which are product liability reform, you get better productivity. But without controlling for those variables, you can't say that it's this and not that.

  Mr. CAMPBELL. Not quite, though I appreciate the chance to respond. In my opening remarks--I don't think you were here for them--I tried to address just that point. The way we did this was to hold constant every possible alternative explanation. At the end of the day in social science econometric research, you're right, you can never hold everything constant, but there is a way of measuring how much of the variation that you've got; that's the ''r squared''; it's the correlation coefficient. And if you've got a statistically-significant coefficient----
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  Mr. NADLER. But you were able in the ''r squared'' equation, in the regression analysis, were you able to eliminate all the other variables so that the coefficient is only on that point?

  Mr. CAMPBELL. Well, yes. That's exactly what I'm saying. To the best of our ability to obtain information--because I wanted to do a good study. I didn't have a goal in mind with this study, like I explained--again, you were not here--I had left politics; I was back at Stanford. At the end of the day, you put your study forward in the academic literature and you take criticism or commentary, and that's how you try to draw----

  Mr. NADLER. I don't have any problems with----

  Mr. HYDE. The Chair is going to intervene and, with great regret, adjourn the hearing. We've been here since 10 o'clock and the panel--there's been no lunch break; there are other meetings to attend, and so with the apologies to Mr. Scott and Mr. Nadler and Mr. Jenkins and Mr. Pease and Mr. Coble, we'll give this panel a break and thank them very much for your----

  Mr. NADLER. Mr. Chairman.

  Mr. HYDE. Yes, Mr. Nadler.

  Mr. NADLER. I ask unanimous consent for all members, since some members are not having a chance to question the witnesses, I ask unanimous consent for all members of the committee to have a week to submit additional questions and ask written replies to the committee from the witnesses.
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  Mr. HYDE. That's a good suggestion, and I certainly don't object, and so it is so ordered.

  [See appendix.]

  Mr. SCOTT. Mr. Chairman.

  Mr. HYDE. Mr. Scott.

  Mr. SCOTT. Did I understand your opening remarks to indicate that there would be a series of hearings on this issue?

  Mr. HYDE. Yes, we're going to have additional hearings.

  Mr. SCOTT. Could I suggest that we focus the additional hearings, if there are going to be several, on one issue at a time rather than having--like have a hearing on joint and severable; have one on punitive damages, so we can focus on each issue?

  Mr. HYDE. We will certainly bear in mind that very rational suggestion but not bind ourselves to any plan. I plan to write Ms. Claybrook and ask her if she will support, along with prejudgment interest, loser pays, kind of a tradeoff.

  Ms. CLAYBROOK. You won't get a positive response to that, Mr. Chairman.

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  Mr. HYDE. I won't?

  Ms. CLAYBROOK. No, you won't.

  Mr. HYDE. Oh, darn. [Laughter.]

  Comes as a shock to me.

  Anyway, with the apologies to the committee and gratitude to this fine panel, the committee stands adjourned.

  [Whereupon, at 1:07 p.m., the committee adjourned.]
A P P E N D I X

Material Submitted for the Hearing

PREPARED STATEMENT OF HON. ED BRYANT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE

  Thank you Mr. Chairman, I have mixed feelings with regard to today's hearing. In one respect, I am glad to see that this Congress will continue with its fight to instill some much needed reform into our product liability system, and I am grateful to you for holding these hearings. I am disappointed, however, by the need for such hearings. As you know, a common sense product liability reform bill which garnered bipartisan support in both Houses of Congress was sent to the President last year. And had the President not bowed to the influence of the well paid and well financed trial lawyers, this hearing would not be necessary.
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  Since the realities of the presidential election year have forced us to reconsider this issue, I want to take just a moment to highlight a few of the reasons this nation needs tort reform.
  One of the issues addressed in last year's bill and which I expect will be included in legislation considered in the 105th Congress is the issue of limiting punitive damages awards. It is important to remember that punitive damages were not conceived of as a means to further compensate a plaintiff or their lawyer. Rather, punitive damages were designed to act much like a criminal fine, namely, to punish current willful or grossly negligent activity and to deter future impropriety.
  There is no crime in America, whether it is larceny, arson, or even murder, where the sentence for commission of that crime is not defined in current American law. Punitive damages are the only penalty not prescribed in advance of the act, but exist as an ambiguous and unlimited ''pie in the sky'' that is applied without restraint. This open-ended element of damages unfairly affects defendants and society as well.
  Many federal criminal fines, even for particularly egregious crimes, do not exceed $250,000, and a comparison of these fines with jury awarded punitive damages clearly illustrates the need for tort reform.
  For example:
Tampering with consumer products, $100,000, if death results--faulty paint on a BMW $2 million in punitive damages.
Assault on the President, $10,000--misleading an Alabama couple about their insurance policy $25 million in punitive damage even though their alleged loss was perhaps as much as $30,000.
Sexual exploitation of children $100,000 for an individual, $200,000 for an organization—Spilling a cup of McDonald's coffee $2.9 million in punitive damages.
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  And for those who defend these awards in the name of the injured and under served, I would remind them that 50 to 70 of every dollar a jury awards to an injured person can go to lawyers and court costs and, on average, the legal system takes an unbelievable 21 1/2 to 4 years for an injured person to recover damages.

  While there are many aspects of our liability system that I would like to mention in my statement, my time is limited and I do want to touch on one of the President's major concerns. In his veto message to Congress, President Clinton stated that ''the Administration supports the enactment of limited but meaningful product liability reform at the Federal level. As a general matter, tort law, including product liability law, is the responsibility and prerogative of the States, rather than of Congress.''

  Mr. Chairman, as you know, governors don't cede issues to the federal government lightly. In fact, they have a strict rule against federal preemption except in extreme circumstances. In a letter dated March 21, 1997, to the Chairman and Ranking Member of this Committee, the National Governors Association stated that ''We have traditionally opposed federal preemption unless there are 'highly compelling reasons to justify federal actions that require changes in policies adopted by state of finials.' In the area of product liability, the Governors believe such conditions exist.''

  Mr. Chairman, I intend to support meaningful reform, and I would encourage my colleagues on both sides of the isle, as well as the President to do the same, and I thank the chair.
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MR. JOYCE'S ANSWERS TO ADDITIONAL COMMITTEE QUESTIONS
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  Q. 1. Are your companies (or any organizations you are members of) members of the Civil Justice Reform Group or the Product Liability Alliance? If so, could we please have a list of each of these organizations' members accompanied by the amount that each member (including any ultimate corporate entities if the member is an umbrella organization) has contributed towards the organization each year over the past five years?

  A. Neither the NAM nor the Bilco Company belongs to the Civil Justice Reform Group or the Product Liability Alliance.

  Q. 2. Can you tell us the approximate dollar amount your companies have paid for (1) product liability insurance and (2) product liability judgments per year, over the past five years?

  A. The NAM, as an association, does not make a ''product'' for which product liability insurance would be applicable. We do not have information about the product liability premiums paid by our members and the NAM does not collect data on liability judgments or settlements.

  Premiums for the Bilco Company's product liability insurance have increased by 67 percent over the past five years. Specifically, year-by-year premiums are----

Table 1


  No product liability judgments have been imposed over the past five years since our products have never been found to be responsible for an accident or injury. The stream of lawsuits has been steady, however, and the legal costs of defense have totaled nearly $500,000 for our small company in the past five years. This amount does not include the countless hours of management attention required to resolve these suits.
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  Q. 3. Have your companies ever been assessed with punitive damages in a product liability suit? If so, please describe the circumstances and the amount.
  A. Because of its status as an association, the NAM has never been the subject of a product liability suit or punitive damages. It is our understanding that some NAM member companies have been assessed with punitive damages. The NAM does not have the private litigation information raised in your question.
  The Bilco Company has never been assessed with punitive damages in any lawsuit.
  Q. 4. Can you tell us the percentage of product liability cases (as compared to all civil cases) that have been filed per year over the past five years?
  A. At the hearing held by the House Committee on the Judiciary on April 10, 1997, it was indicated that the answer to this question is only 2 percent.

  Nevertheless, according to Deborah Hensler, director of the RAND Institute, individual state courts do not keep track of product liability cases and segregate them out from all other cases. A few states do, and the federal courts do.
  Any estimate of percentages, thus, nationwide in all state courts, to the best of our knowledge, is a guess.
  Even if the information were available--which it is not--it would not include cases that are settled before claims are filed. It is our understanding that approximately 95 percent of cases are settled. Therefore, merely looking at case filings does not give you the full picture of the number of product liability cases that affect our members.
  Most importantly, your question suggests that the percentage of product liability cases--if it could be accurately gauged--is a measure of whether Congress should enact federal product liability reform. We respectfully disagree.
  Our trial lawyer opponents in this effort, along with Ralph Nader, have consistently focused on numbers and percentages. We base our case on fairness.
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  More than 800,000 businesses have worked for almost two decades to secure federal product liability reform; they would not do so if product liability were a ''nonproblem.'' Part of the real problem is the impact unfair product liability laws have. Good and useful products may not be manufactured, and helpful products, such as BendectinTM--the only pharmaceutical that relieves morning sickness--has been withdrawn from the market. Testimony before the House Committee on Commerce in April showed children and adults may not be able to obtain needed medical devices because raw material suppliers cannot afford to participate in the device market under our current legal system. This is happening even though courts are not finding suppliers liable.
  The product liability problem also is caused by the vagueness and uncertainty in our product liability laws. As a result, cases without merit are settled, because the cost of defending such cases is greater than the cost of offering a settlement. Settlements in cases without merit create unnecessary costs for consumers.
  It is our understanding that the federal courts do segregate product liability cases and that their data are good. We will submit this information to you as soon as we obtain it.
  Again, we are not seeking reform based on ''percentages,'' but on a quest for basic fairness in the product liability system. Data and percentages are not indicated for this type of problem. For example, automobile accidents appear to represent a very substantial portion of case filings. Automobile-insurance-choice legislation is currently pending in the Senate on that topic. We will be surprised if our trial lawyer opponents suggest that legislation should move forward because of such percentages.
  Q. 5. Can you provide any empirical studies that indicate that there has been a ''product liability explosion'' in this country recently? What has been the trend concerning the filing of new product liability cases over the past five years?
  A. The Economic Strategy Institute issued a study in 1995 (copy attached) that concluded, among other findings, that ''[t]he number of new disputes is increasing. More than half the respondents ... reported an increase during the past five years. Less than 20 percent reported a decrease.'' (Page 2.)
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  We have not argued that federal product liability law should be enacted because there is a product liability ''case law explosion.'' That is how our trial lawyer opponents have characterized our position. We have sought reform because the current product liability system does not separate out good products from the bad, and uncertainties in product liability law generate unnecessary legal costs.
  In this regard, if there were a sudden increase of 1,000,000 product liability claims in the past year and all of them were based on merit we would not, and should not be here, suggesting there is a ''product liability problem.'' But if cases have come into the system that do not distinguish the good products from the bad, that have vague laws on punishment, that hold a person responsible for harm at a higher percentage than a jury, (i.e., a jury finds a defendant 20-percent responsible and the law imposes 100-percent responsibility, leaving the 80-percent responsible person, as a practical matter, ''off the hook,'') there is a problem. That is our current system and that is why we seek enactment of reasonable product liability reform.
  Q. 6. Do you believe that any proposed product liability bill should provide for only one-way pre-emption of state laws (such as Sec. 108(b)(3)(D) of last year's conference report on H.R. 956)? If so, why?
  A. It is a complete myth that the current principal product liability bill, S. 648, provides for ''one-way pre-emption.'' The product seller provision creates ''two-way preemption'' (Sec. 103). The statute of repose provides for ''two-way pre-emption'' and would extend the time for people to sue in every state that has a statute of repose (see Section 106), including Michigan. The statute of limitations provides for two-way pre-emption and would open up courthouse doors for injured people who, currently, may lose their claims before they know that they have been hurt, or the cause of the hurt (also Sec. 106).
  S. 648 also contains ''two-way pre-emption'' with respect to causes of action that occur after death. The current rule in those states limits someone's right to sue a certain number of years after the death of a close relative. Under S. 648, such claims would be preserved until the wrongful-death claimant knew, or should have known, the cause of that injury. This would change the result in a case that happened in Michigan where parents lost a wrongful-death claim based on the death of their child, which was allegedly caused by a defective heart monitor. The parents did not discover the cause of their child's death until eight years after the fact. By that time, the statute of limitations for wrongful death in Michigan had expired. See Koepnick v. Aequitron Medical, Inc., No. 921—1975 (6th Cir. Aug. 3, 1993).
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  S. 648 also contains ''two-way pre-emption'' with respect to joint liability. It creates a uniform standard with respect to joint liability for non-economic damages, but leaves the choice to the states about whether joint liability should be applied to economic damages.
  S. 648 also contains ''two-way pre-emption'' with respect to standards of liability for punitive damages and bifurcation of punitive damages trials in states that recognize punitive damages. S. 648 does not contain a so-called ''fixed cap'' on the amount of punitive damages for larger businesses. For that reason, it respects state choice if a state legislature believes a fixed cap is appropriate. That decision was taken in light of the fact that no state legislature has ever repealed a fixed cap on punitive damages, and the problems that trial lawyer opponents of the bill have suggested about ''fixed caps'' simply have not surfaced.

  Finally, Title II of S. 648, addressing Biomaterials Access Assurance, also contains ''two-way pre-emption.''

  In sum, in many ways S. 648 contains ''two-way pre-emption.'' It also creates a balance of federal and state laws that has been developed over two decades. The result is fair and just.
  Q. 7. Do you believe that any proposed product liability bill should provide for a commercial loss exception (such as Sec. 102(a)(2) of last year's conference report on H.R. 956)? If so, why?
  A. As the new Restatement (Third) of the Law on Torts: Products Liability (Proposed Final Draft, April 1, 1997) makes crystal clear, product liability law----

Applies only to harm to persons or property, commonly referred to as personal injury and property damage.
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  The myth that the rules in federal product liability reform legislation, such as S. 648, apply only to persons and not to businesses, is untrue. For example, if a business suffered property damages because a defective boiler exploded, S. 648 would apply to that case, just as it would apply if a person suffered property damage.
  When proponents of reform have attempted to expand product liability reform to include commercial losses (reflected in the bill that passed the House in the 104th Congress), opponents of liability reform law defeated such expansion in vote after vote on the Senate floor. There is absolutely no showing that there are sufficient votes in the Senate to expand reform legislation beyond the core of product liability.
  Q. 8. Do you believe that any proposed product liability legislation should mandate non-binding mediation or arbitration in all product liability cases? If no, why not?
  A. No. When prior product liability bills included provisions that mandated non-binding mediation or arbitration, opponents (including Senator Ernest F. Hollings [D—SC]) criticized such initiatives as violating an individual's Seventh Amendment right to a jury trial. Senator Hollings and other tort reform opponents argued that even if mandated arbitration were not binding, it would still chill a person's right to seek a jury trial. Since this proposal was not sought by proponents and was attacked by opponents, it was eliminated from the Senate bill in the 104th Congress. On the merits, mandated non-binding arbitration may be wasteful. Some cases are appropriate for arbitration and others are not.
  Q. 9. Do you believe that any proposed product liability legislation should require that foreign manufacturers abide by the same product liability laws as American companies in teens of jurisdiction, discovery and service of process? If not, why not?
  A. If a foreign corporation does business and has assets in the United States, it is already subject to the jurisdiction of courts in the United States. But, to subject a foreign corporation that does not purposefully avail itself of the U.S. market to the jurisdiction of courts in the United States would be a violation of the Due Process Clause of the U.S. Constitution. Asahi Metal Indus. Co. v. Superior Ct. of Cal., Solano Cty., 480 U.S. 102 (1987). Moreover, it is our understanding that current treaties would prohibit the type of mandate suggested in your question.
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  The general goals, as a practical matter, can be achieved in large part through the current section in S. 648 and prior bills, regarding liability of product sellers. See Sec. 103. In a nutshell, that proposal says that a retailer or wholesaler can avoid being saddled with vicarious liability for a manufacturer's conduct if a manufacturer is available for suit and is solvent. This encourages every retailer and wholesaler in the United States to deal with responsible American manufacturers or foreign manufacturers with a place of business and assets in the U.S. If a retailer or wholesaler fails to do so, it must step up to the plate and bear manufacturer liability.
  Thus, Sec. 103 accomplishes the goals set forth in your question without violating the Constitution or existing treaties.

INSERT OFFSET RING FOLIOS 41 TO 79 HERE

MR. FELDE'S ANSWERS TO ADDITIONAL COMMITTEE QUESTIONS

  1. Can you tell us the percentage of product liability cases (as compared to all civil cases) that have been filed per year over the last five years?
  2. Can you provide any empirical studies that indicate that there has been a ''product liability explosion'' in this country recently? What has been the trend concerning the filing of new product liability cases over the last five years?
  3. Do you believe that any proposed product liability legislation should provide for only one-way preemption of state laws (such as Sec. 108(b)(3)(D) of last year's conference report on H.R. 956)? If so, why?

  4. Do you believe that any proposed product liability bill should provide for a commercial loss exception (such as Sec. 102(a)(2) of last year's conference report on H.R. 956)? If so, why?
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  5. Do you believe that any proposed product liability legislation should mandate non-binding mediation or arbitration in all product liability cases? If not, why not?

  6. Do you believe that any proposed product liability legislation should require that foreign manufacturers abide by the same product liability laws as American companies in terms of jurisdiction, discovery and service of process? If not, why not?

National Conference of State Legislatures,
Washington, DC, May 21, 1997.
Hon. HENRY J. HYDE,
Chairman, Committee on the Judiciary,
House of Representatives,
Washington, DC.

  DEAR CHAIRMAN HYDE: Thank you for offering the National Conference of State Legislatures (NCSL) the opportunity to testify at the April 10, 1997 hearing on product liability reform. This letter is our response to questions that you forwarded to me on May 6. Members of NCSL hold strong opinions both for and against tort reform at the state level however, many who support reforms within their own states take exception to the national government's intrusion into state affairs. NCSL's policies thus reflect a strong consensus against preemption.
  On questions one and two relating to empirical studies on the number of product liability cases, NCSL has not compiled independent information. In my oral testimony I stated that scholars have decried the lack of information upon which to base judgments about reforming civil justice. See, for example, Debra Hensler, ''Reading the Tort Litigation Tea Leaves,'' Rand (1993) ant Marc Galanter ''Real World Torts: An Antidote to Anecdote,'' 55 Maryland Law Review, 1093 (1996).
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  We would also like to call the Committee's attention to the work of the American Law Institute, which is in the process of creating a new draft of the ''Restatement of the Law of Torts: Apportionment of Liability.'' The thorough work of the ALI which is based upon state law, would be jeopardized by untimely preemption by Congress.
  Question three is of great importance to NCSL. We oppose preemption of state law because preemption chokes off the ability of the states to respond to the demands of their citizens. This means that we oppose preemption of state laws regardless of the parties affected by the outcome of the federal legislation. To place floors and caps on state product liability efforts may give the appearance of ''fairness,'' but it effectively doubles the preemption.
  On questions four through six, NCSL toes not have specific policy positions. In areas such as arbitration and mediation, states are also expanding reforms. To adopt a particular approach at the federal level could unsettle processes that states have already begun to implement.
  Remember that when the federal government preempts the states, it is not only the big changes that cause states difficulty. Requiring even modest modifications in state laws can upset an equilibrium that has been arrived at through years of negotiation and compromise in state legislatures. We therefore urge the Committee to consider preemption only as a last resort.
  We appreciate the opportunity to bring these matters to the attention of the Judiciary Committee
Sincerely,
JON R. FELDE,
General Counsel,

INSERT OFFSET RING FOLIOS 80 TO 132 HERE

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MR. HICKOK'S ANSWERS TO ADDITIONAL COMMITTEE QUESTIONS
QUESTIONS
  1. We understand that the organization that you represent, the National Federation of Independent Business, is a member of the American Tort Reform Association. Could we please have a list of the Association's members accompanied by the amount that each member (including any ultimate corporate entities if the member is an umbrella organization) has contributed towards the Association each year over the last five years?
  2. Are your companies (or any organizations you are members of) members of the Civil Justice Reform Group or the Product Liability Alliance? If so, could we please have a list of each of these organizations' members accompanied by the amount that each member (including any ultimate corporate entities if the member is an umbrella organization) has contributed towards the organization each year over the last five years?
  3. Can you tell us the approximate dollar amount your companies have paid for (1) product liability insurance and (2) product liability judgments per year, over the last five years?
  4. Have your companies ever been assessed with punitive damages in a product liability suit? If so, please describe the circumstances and the amount.
  5. Can you tell us the percentage of product liability cases (as compared to all civil cases) that have been filed per year over the last five years?
  6. Can you provide any empirical studies that indicate that there has been a ''product liability explosion'' in this country recently? What has been the trend concerning the filing of new product liability cases over the last five years?
  7. Do you believe that any proposed product liability legislation should provide for only one-way preemption of state laws (such as Sec. 108(b)(3)(D) of last years conference report on H.R. 956)? If so, why?
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  8. Do you believe that any proposed product liability bill should provide for a commercial loss exception (such as Sec. 102(a)(2) of last year's conference report on H.R. 956)? If so, why?
  9. Do you believe that any proposed product liability legislation should mandate non-binding mediation or arbitration in all product liability cases? If not, why not?
  10. Do you believe that any proposed product liability legislation should require that foreign manufacturers abide by the same product liability laws as American companies in terms of jurisdiction, discovery and service of process? If not, why not?
ANSWERS

  1. The National Federation of Independent Business (NFIB) sits on the board of the American Tort Reform Association and is a dues paying member. Please see page 255.

  2. Neither myself, my company or the NFIB are members of the Civil Justice Reform Group or the Product Liability Alliance.

  3. Hickok Manufacturing has paid an average of $33,000 for liability insurance since 1991.

  4. No, I have not paid any punitive damages because my insurance company settles the vast majority of cases filed against Hickok.

  5. Although I do not have nationwide information pertaining to the percentage of product liability cases filed, a recent NFIB survey in Ohio found that one in three small businesses has been sued in the last five years.
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  6. I do not have empirical data pointing to a litigation explosion; however, NFIB regularly polls its members and that polling data has shown an increase in concern regarding product liability suits.
  7. It is my understanding that the current bill being discussed provides for ''two-way preemption'' for product seller provisions, statute of repose, statute of limitations, joint liability, biomaterials and others.
  8. I have no opinion on this matter; however, it is doubtful that any expansion of last year's conference report could pass the Senate.
  9. I support mediation and arbitration in conjunction with other product liability reforms such as joint and several liability reform and placing reasonable limits on punitive damages. Without serious reform to product liability laws, arbitration and mediation alone are not the solution to making the present system more fair and balanced.
  10. I think this is a good idea for products imported into the U.S.
------

MR. MARTIN'S ANSWERS TO ADDITIONAL COMMITTEE QUESTIONS
  Q. 1. Can you tell us the percentage of product liability cases (as compared to all civil cases) that have been filed per year over the last five years?
  A. 1992--4% of tort filings; tort filings were 9% of civil filings. Senate Commerce Committee Hearing 104—435, April 3—4, 1995; pp. 51—52--''Product Liability Fairness Act of 1995.''
  Q. 2. Can you provide any empirical studies that indicate that there has been a ''product liability explosion'' in this country recently? What has been the trend concerning the filing of new product liability cases over the last five years?
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  A. No.
  Q. 3. Do you believe that any proposed product liability legislation should provide for only one-way preemption of state laws (such as Sec. 108(b)(3)(D) of last year's conference report on H.R. 956)? If so, why?
  A. Fairness would be two-way.
  Q. 4. Do you believe that any proposed product liability bill should provide for a commercial loss exception (such as Sec. 102(a)(2) of last year's conference report on H.R. 956)? If so, why?
  A. [No answer was provided.]
  Q. 5. Do you believe that any proposed product liability legislation should mandate non-binding mediation or arbitration in all product liability cases? If not, why not?
  A. No mandate, but preferred option and first course of action.
  Q. 6. Do you believe that any proposed product liability legislation should require that foreign manufacturers abide by the same product liability laws as American companies in terms of jurisdiction, discovery and service of process? If not, why not?
  A. Yes.
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MS. CLAYBROOK'S ANSWERS TO ADDITIONAL COMMITTEE QUESTIONS

  Q. 1. Can you tell us the percentage of product liability cases (as compared to all civil cases) that have been filed per year over the last five years?
  A. The National Center for State Courts (Williamsburg, Virginia) publishes the most accurate data on state court caseload filings. Their recent data evaluates 1992 filings. According to this data, about 9 percent of the approximately 10 million new civil filings in State general jurisdiction courts were tort cases (see Attachment 1). Only about 4 percent of the new tort filings that were evaluated were products liability cases (see Attachment 2). In other words, according to the most recent data available, products liability suits comprise about .0036 (.36%) of all civil case filings in state courts. We understand that the National Center for State Courts is updating their data in this area.
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  In addition, a 1995 profile of 1992 tort cases filed in large counties, conducted by the U.S. Department of Justice Bureau of Justice Statistics after a 30-month study, revealed that product liability claims made up 3 percent of all tort cases disposed of in 1992 (see Attachment 3).

  Q. 2. Can you provide any empirical studies that indicate that there has been a ''product liability explosion'' in this country recently? What has been the trend concerning the filing of new product liability cases over the last five years?

  A. There is no credible data to indicate that there has been a ''product liability explosion'' in this country recently. According to professor Marc Galanter in his recent article, ''Real World Tort: An Antidote to Anecdote'' 55 Maryland Law Review 1093 (1996), the total number of tort cases (including product liability) filed in state courts, where most such cases are filed, has remained relatively steady since 1984. The pattern of federal court filings for most kinds of tort claims resembles that in the state courts. To the extent there are fluctuations and minor surges in federal product liability filings, they are caused by ''a relatively small number of products and industries, increasingly pursued through the class action device'' which represent ''only one or two percent of the national total of tort cases.'' In the 1970s and 1980s, a modest increase in federal products liability cases was driven by asbestos cases.
  There is no evidence that injured consumers are bringing frivolous products liability lawsuits. According to the Rand Institute for Civil Justice, funded in part by insurance companies, only ten percent of the people injured by dangerous and defective products actually sue for compensation. Hensler, Deborah R., M. Susan Marquis, Alan F. Abrahamse, Sandra H. Berry, Patricia A. Ebener, Elizabeth G. Lewis, E. Allan Lind, Robert J. MacCoun, Willard G. Manning, Jeanette A. Rogowski, Mary E. Vaiana, ''Compensation for Accidental Injuries in the United States,'' Rand Institute for Civil Justice, 1991. These suits are rare because it is extremely difficult and expensive for injured consumers to sue and win against major companies, often with limitless resources and expertise. In addition, defendants are generally large companies, very knowledgeable about litigation. Plaintiffs' attorneys, who only get paid if they win, are unlikely to sue them without any basis.
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  In addition, products liability awards are consistent and conservative, not out of control. According to a 1996 study by Jury Verdict Research, a legal research firm based in Ohio, the median compensatory damage award in products liability cases in 1995 dropped to $260,000 from the 1994 median figure of $379,685. An extensive U.S. General Accounting Office study of products liability verdicts concluded that the size of damage awards generally correlated to the severity of the injury suffered and the amount of actual economic loss. Current Award Trends in Personal Injury, 1996 Edition, Jury Verdict Research, LRP Publications, Products Liability: Verdicts and Case Resolution in Five States, GAO/HRD—89—99 (1989).
  Moreover, if there were an ''explosion'' in products liability litigation, product liability insurance rates would not be dropping as they are. According to a study by actuary J. Robert Hunter (former Texas Insurance Commissioner, Federal Insurance Administrator and Director of Insurance for the Consumer Federation of America), product liability premiums dropped 45% between 1987 and 1994 (see Attachment 4). Similarly, a 1995 industry survey conducted by the Risk & Insurance Management Society found that liability insurance costs for America's largest companies has dropped to only $7.70 per $ 1,000 of revenue--from $8.24 a year earlier--and that smaller employers are also spending less. To put it another way, total products liability verdicts and settlements for insured and uninsured manufacturers cost $4.1 billion in 1993, in a total economy of over $6 trillion. This is about the same amount of money we spend each year on dog food. By comparison, General Motors' profits in 1995 were $6.5 billion.
  Q. 3. Do you believe that any proposed product liability legislation should provide for only one-way preemption of state laws (such as Sec. 108(b)(3)(D) of last year's conference report on H.R. 956)? If so, why?
  A. We strongly disagree with the bill's ''one-way preemption'' not only as an inappropriate and unprecedented intrusion on state authority, tying the hands of state judges and juries, but also because it gives advantage to wrongdoers by preventing states from protecting their own citizens with stronger, consumer oriented liability laws. Proponents of this legislation say the bill would standardize laws across 50 states. However, the one-way preemption provisions make clear that the intent of this legislation is not to make products liability laws uniform in the 50 states. Rather, it is a carefully crafted bill to provide relief and protections for major industries lobbying for it. For example, the section referred to above permits punitive damages only to the extent permitted by applicable State law, preserving more restrictive punitive damage state caps, as well as prohibitions on punitive damages. In other words, if a state currently allows punitive damages, this bill would override state law with a new standard for awarding such damages, as well as impose a cap (e.g., $250,000 or two times the amount of compensatory damages as currently defined in S. 648, recently passed by the Senate Commerce Committee). On the other hand, if a state currently has no punitive damages, this bill would not override state law to allow such damages. What could be more punitive to consumers and favorable to industry?
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  Q. 4. Do you believe that any proposed product liability bill should provide for a commercial loss exception (such as Sec. 102(a)(2) of last year's conference report on H.R. 956)? If so, why?
  A. No. Under the section referred to above, corporations would not face the same limitations as victims if they suffer commercial loss from defective products. It is incredibly unfair to limit victims' ability to recover damages, while leaving corporations completely out of the bill's restrictions. Further, the bill does not touch corporate actions under contract or property law. Corporations would have unfettered access to the civil justice system. Yet businesses file 10 times as many lawsuits as consumers, according to a study by Citizen Action (see Attachment 5). Also attached is our recent study demonstrating the amount of anti-competitive, costly lawsuits flooding the courts each year by businesses suing each other, a number of which could be classified as frivolous (see Attachment 6).

  Q. 5. Do you believe that any proposed product liability legislation should mandate nonbinding mediation or arbitration in all product liability cases? If not, why not?
  A. We oppose any form of mandatory mediation or arbitration. It is nearly always true that in products liability cases, the disputing parties are ill-matched. Victims who are in need of medical care, who are disabled or perhaps in pain or who can not work, are in a substantially weaker position than their opposing party--often a large corporation with extensive knowledge of the product defect. The judicial system, through its procedural and substantive rights and protections, helps neutralize these imbalances. These protections include the right to know and rebut evidence through discovery, cross-examination and argument, civil rules of procedure, and the presence of an impartial judge who is guided by the substantive law. But in mediation or arbitration systems, these protections and rules are relaxed or not applied at all. This can lead to extremely unjust results.
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  In her study of informal complaint resolution of consumer and citizen complaints, Professor Laura Nader of the Anthropology Department at the University of California at Berkeley, found a ''pervasive pattern of unsatisfied complaints and inadequate relief.'' She determined that parties must have roughly equal bargaining power for an informal dispute resolution process to work. (See, Nader, Shugart, ''Old Solutions for Old Problems,'' No Access to Law (1980); Nader, ''Disputing Without the Force of Law,'' 88 Yale L.J. 998 (1979).
  Professor Owen Fiss of Yale University noted that disparities in resources can disadvantage the poorer party in three ways: First, the poorer party may be less able to amass and analyze the information needed to predict the outcome of the litigation. Second, the poorer party may be injured and may need compensation immediately, and thus be induced to settle quickly for less than a court judgment would bring. Third, the poorer party might be forced to settle because he or she does not have the resources to finance further litigation. Fiss, ''Against Settlement,'' 93 Yale L.J.1073.
  Moreover, according to Nader, where there are power and resource disparities between the parties, mediation can be particularly dangerous. Mediation can make the dispute appear as a conflict between equals that should be worked out on amicable terms for both, inducing the feeling on the poorer party that he or she should compromise, regardless of the justice of his or her claim.
  Even where the arbitration or mediation is non-binding, the delay resulting from a mandatory requirement to exhaust arbitration or mediation procedures might cause the poorer victim to settle for unfair compromises. Nader wrote that making consumers wend their way through a bothersome maze before getting to adjudication is likely to tax their persistence and encourage them to settle for an unjust compromise. In fact, rather than providing easy access to swift relief, arbitration or mediation can actually obstruct the victim's path with complex and time-consuming procedures that put the burden on the victim at each successive step, making it so difficult for the victim to persist that they are likely to drop their complaint altogether.
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  Additionally, the informal procedures of arbitration and mediation allow pertinent information about defective products to be kept secret from the public, unlike the requirement of public disclosure in the courtroom.
  Finally, as recently reported in the New York Times, ''one widely mentioned benefit of arbitration--that it is more efficient than litigation--also is now being questioned in light of information turned up in a recent lawsuit in California against Kaiser Permanente.'' Specifically, it took Kaiser's HMO arbitration system 9 to 13 months longer to resolve a case than it took to litigate a case during the same period in Oakland, California, where Kaiser is headquartered. Meier, ''In Fine Print, Customers Lose Ability to Sue,'' New York Times (March 10, 1997).

  Q. 6. Do you believe that any proposed liability legislation should require that foreign manufacturers abide by the same product liability laws as American companies in terms of jurisdiction, discovery and service of process? If not, why not?
  A. Yes. A principal justification for the need for product liability reform offered by U.S. businesses is that foreign manufacturers have an unfair competitive advantage due to their exemption from some product liability laws. If this is so, they should have no objection to ensuring that foreign manufacturers who sell products in the United States play by the same legal rules that govern the conduct of American companies.

INSERT OFFSET RING FOLIOS 133 TO 155 HERE

ATTACHMENT 6

PUBLIC CITIZEN--CITIZEN ACTION, NEWS RELEASE, APRIL 30, 1997
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NATIONAL ASSOC. OF MANUFACTURERS ACCUSED OF GROSS HYPOCRISY; CONSUMER GROUPS DEMAND THAT NAM CEASE SUPPORT OF PRODUCT LIABILITY BILL
New Report Documents Examples of Corporations Which Want to Take Away Consumers' Legal Rights But Use the Courts to Pursue Their Own Legal Rights

  (Washington D.C.) Public Citizen and Citizen Action, two of the nation's leading consumer groups, today called on the National Association of Manufacturers (NAM) and its members to ''abandon at once your misleading anti-consumer, anti-worker campaign to undercut citizens' access to the courts.'' NAM is lobbying furiously for the Senate to pass an anti-consumer product liability bill, which is scheduled for a markup on Thursday, May 1, in the Senate Commerce Committee.
  In a letter to NAM Chairman Warren L. Batts, the groups also stated that ''[i]f NAM members were truly burdened by the cost of punitive damages you should focus on curbing business-to-business litigation rather than limiting the rights of injured consumers to hold corporate wrongdoers accountable for their negligence, misdeeds, and other wrongful acts. Furthermore, manufacturers also have it within their control to limit or prevent punitive damages by not acting with 'wreckless disregard' for consumer safety in the design and sale of their products, the very high standard required to prove that punitive damages are warranted.''
  The letter to Mr. Batts was accompanied by a new report prepared by the two groups titled ''The National Association of Manufacturers: A Study in Hypocrisy.'' The report documents case examples showing the blatant hypocrisy of the business groups pushing anti-consumer product liability legislation, revealing that the same companies lobbying to restrict the legal rights of people injured or killed by defective products have unfettered access to our nation's courts as their own private playground.
  This report focuses on a sampling of cases in which NAM members have been plaintiffs and defendants. The cases reveal that American businesses often file frivolous and anti-competitive lawsuits designed to intimidate or harass. In contrast, the cases in which they are defendants demonstrate a cavalier or reckless attitude toward the health and safety of American consumers.
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  Examples of such hypocrisy include:
Procter & Gamble (P&G) sued Amway Corporation distributors accusing them of spreading rumors that P&G and its executives were involved in Satanism and devil worship. The suit was dismissed. P&G had earlier been sued for manufacturing Rely tampons, which caused toxic shock syndrome that resulted in the death of a 25-year old woman. P&G was found liable for her death and it was revealed at trial that the company knew of a link between toxic shock syndrome and tampons yet kept the product on the market.
In 1995, Exxon threatened to file suit against a minor league baseball team in Georgia, accusing the ''Columbus RedStixx'' of violating the company's trademark by using a double ''x'' in its logo. Though confident they had done no wrong, RedStixx officials decided to alter the logo in 1996 in order to avoid the possibility of having to face the world's largest oil company in court. Exxon earlier had been found liable for the 1989 Exxon Valdez spill, which dumped 11 million gallons of crude oil into Prince William Sound, and ranks as one of the worst environmental disasters in history. Exxon was ordered to pay fishermen and others whose livelihoods were affected by the spill $287 million in compensatory damages and $5 billion in punitive damages for recklessly allowing the Valdez to run aground.
Brown & Williamson (B&W), along with other cigarette makers, recently asked a Florida judge to rule that documents released as part of the Liggett Group tobacco settlement with states' attorneys general could not be used in Florida's lawsuit against the cigarette makers. The judge rejected their request, ruling that most of the documents showed evidence of fraud by the tobacco companies. Meanwhile, in August 1996, a Florida jury found B&W responsible for an individual's lung cancer and awarded his family $750,000 in damages. The jury also found B&W negligent for not telling consumers they were dealing with a deadly product.
Report's Analysis of SEC Filings Further Document Corporate Hypocrisy
  Included in the report is information from corporate annual reports filed with the Securities and Exchange Commission (SEC) that further reveals the hypocrisy of these large companies. If expenses related to product liability litigation brought by people injured or killed by defective products are truly a financial burden on corporations, the corporations are misleading shareholders by not revealing this in their annual reports. However, if litigation is not a significant expense, as is stated in their SEC filings, then the corporations are deceiving Congress and the public with their claims.
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  Joan Claybrook, President of Public Citizen, noted, ''For the past 20 years some of the richest corporations in America have waged a well-funded campaign to prevent citizens injured or killed by defective products from bringing lawsuits against corporate wrongdoers. At the same time, NAM members are flooding the courts with their own litigation against competitors. This is hypocrisy of the worst kind.''
  ''NAM wants unimpeded access to the courts even when one of their members objects to the color a competitor is using in his ads, but at the same time wants to impose incredible obstacles and arbitrary limits on consumers when they file lawsuits to protect their health and safety,'' said Richard Vuernick, Citizen Action Legal Policy Director.
------
PUBLIC CITIZEN--CITIZEN ACTION,
Washington, DC, April 30, 1997.
Mr. WARREN L. BATTS,
Chairman of the Board,
National Association of Manufacturers,
Chairman and CEO, Tupperware Corporation,
Chairman, Premark International, Inc.,
Deerfield, IL,
  DEAR MR. BATTS: We write to you in your capacity as chairman of the National Association of Manufacturers (NAM). For decades, NAM and its member companies have spent hundreds of millions of dollars lobbying at the state and federal level to limit the legal and financial responsibility of corporations which recklessly manufacture products that injure, maim and kill innocent Americans.

  The principal justification for your advocacy of anti-consumer product liability legislation has been to reduce the number of consumer and worker lawsuits, which you claim are sapping industry's ability to compete. Your position is the height of hypocrisy.
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  Business-to-business lawsuits pose a much greater ''burden'' on your member companies than do product liability suits. For instance, almost half of all federal court cases are businesses suing each other, according to the Wall Street Journal. And 47% of all punitive damage awards are in business-to-business suits, whereas only 4.4% of such awards are assessed in product liability cases. A primary reason given by NAM of the need for federal product liability legislation is to curb such ''excessive'' punitive damage awards won by consumers.

  As you know, the federal product liability legislation you now are lobbying for would allow your member companies unfettered access to the courts. Thousands of these business-to-business lawsuits, many of which are anti-competitive and/or of questionable merit, would not be restricted in any way by the product liability legislation you advocate. Yet, you seek to take away legal rights of consumers to hold your members fully accountable for manufacturing defective products that injure, maim and kill.
  NAM's ''do as I say, not as I sue'' approach to litigation is a blatant double standard that is clearly exposed in the repeated examples reviewed in the attached report released today by our organizations.
  If NAM members were truly burdened by the cost of punitive damages they should focus on curbing business-to-business litigation rather than limiting the rights of injured consumers to hold corporate wrongdoers accountable for their negligence, misdeeds, and other wrongful acts. Furthermore, manufacturers also have it within their control to limit or prevent punitive damages by not acting with ''reckless disregard'' for consumer safety in the design and sale of their products, the very high standard required to prove that punitive damages are warranted.
  For these reasons, our organizations call upon NAM and its members to abandon at once your misleading anti-consumer, anti-worker campaign to undercut citizens' access to the courts. Not doing so makes a mockery of our judicial system, and treats the peoples' courts as a private corporate playground.
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Sincerely,
JOAN CLAYBROOK,
President, Public Citizen.

RICHARD VUERNICK,
Legal Policy Director, Citizen Action.

------

THE NATIONAL ASSOCIATION OF MANUFACTURERS: A STUDY IN HYPOCRISY
HOW NAM MEMBERS USE AMERICA'S COURTS AS THERE OWN PERSONAL PLAYGROUND

  The legal ''reforms'' being pushed in Congress by business groups such as the National Association of Manufacturers (NAM) affect only the rights of consumers injured or killed by faulty products. They do nothing to stop the ridiculously high number of anticompetitive, costly lawsuits filed each year by businesses against each other.
  Businesses suing each other comprised nearly half of all federal court cases filed between 1985 and 1991, according to The Wall Street Journal. And a recent study by the RAND Institute for Civil Justice revealed that business cases account for 47 percent of all punitive damage awards. In contrast, only 5 percent of punitive damage awards are assessed in product liability cases.

  The duplicity of these companies is further revealed in their annual reports filed with the Securities and Exchange Commission (SEC). If litigation truly is a major burden on operations, then these businesses are misleading shareholders by omitting this fact on their reports. However, if their filings are to be believed and litigation is not a significant expense, then corporations are deceiving Congress and the public with their claims.
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  The following are just a few examples of NAM members' hypocrisy:

John Deere & Company
John Deere as Plaintiff
  In 1979, John Deere sued Farmhand Inc. for allegedly using the same color green on its front-end loaders as Deere used on its tractors. Deere sought through its lawsuit to make ''John Deere green'' its exclusive color so that consumers would not be ''confused.'' A federal judge found in favor of Farmhand and dismissed Deere's claim. Deere v. Farmhand Inc., 560 F. Supp. 85 (S.D. Iowa 1982).

John Deere as Defendant

  Shelley Wingad, 37, was operating a John Deere tractor on a construction site when the machine violently tipped and ejected him, causing severe and permanent damage that rendered him unable to work. In 1993, a jury found Deere liable for this accident and awarded Wingad $652,000 in damages, $350,000 of which was for his future loss of earning capacity. The award was upheld on appeal. Wingad v. John Deere & Co., 523 N.W.2d 274 (Wis. Ct. App. 1994).

John Deere's SEC Filings
  ''The Company is subject to various unresolved legal actions which arise in the normal course of its business.... Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes these unresolved legal actions will not have a material effect on its financial or results of operations.'' (1/15/97).
Caterpillar
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Caterpillar as Plaintiff
  In 1985, Caterpillar threatened to file suit against Michael Zinman, a seller of Caterpillar equipment in upstate New York, after he created the ''Caterpillar Tractor Co.'' (consisting of two pet store rats) as a spoof on the company's name. For more than a year, Caterpillar sent intimidating letters to Zinman, which forced him to hire a lawyer. Caterpillar's harassment ended only after Zinman agreed to sell Caterpillar his ''company.'' AP, Apr. 20, 1985.
Caterpillar as Defendant
  Garry Hoffman was killed in 1981 while using a 1977 Caterpillar pipelayer machine at a Colorado ski area. When the machine began rolling down a hill after being shutoff, Huffman tried to apply the brakes, but to no avail. He was crushed while trying to escape. Testimony revealed that Caterpillar subsequently altered the braking system on this model to include an emergency brake that would automatically and immediately stop the machine when the engine is shut off. The jury found Caterpillar liable for Huffman's death and awarded his family $475,000 in damages. Huffman v. Caterpillar Tractor Co., 908 F.2d 1470 (10th Cir. 1990).

Caterpillar's SEC Filings
  ''The Company is involved in litigation matters and claims which are normal in the course of its operations. The results of these matters cannot be predicted with certainty; however, management believes, based on the advice of legal counsel, the final outcome will not have a materially adverse effect on the Company's consolidated financial position.'' (3t26197).

Eli Lilly
Eli Lilly as Plaintiff
  In 1995, Eli Lilly filed suit against manufacturers Zenith, American Cyanamid and Biocraft, seeking an injunction that would prohibit these companies from importing and selling a generic version of Eli Lilly's Ceclor drug. A federal judge rejected Eli Lilly's motion for an injunction. Mealey's Litigation Reports, Sept. 18,
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1995.

Eli Lilly as Defendant
  Lola Jones, 81, died from a fatal kidney-liver ailment in June 1982 after taking the arthritis pain-relief drug Oraflex for two months. Testimony revealed that Eli Lilly knew of the serious liver and kidney problems associated with the drug and went so far as to not disclose to the FDA its knowledge of 32 Oraflex-related deaths in other countries when it sought approval in the United States. The jury returned a $6 million verdict--all punitive damages--against Eli Lilly for its reckless behavior. The parties subsequently settled out of court for an undisclosed amount. Washington Post, Nov. 22, 1983, at A1; UPI, May 16, 1984.
Eli Lilly's SEC Filings
  ''The Company is also a defendant in other [in addition to DES and price-fixing cases] litigation, including product liability and patent suits, of a character regarded as normal to its business.''
  ''While it is not possible to predict or determine the outcome of the legal actions pending against the Company, in the opinion of the Company the costs associated with all such actions will not have a material adverse effect on its consolidated financial position or liquidity but could possibly be material to the consolidated results of operations in any one accounting periods (3125196).

Pfizer
Plizer as Plaintiff
  Pfizer sued rival Miles Pharmaceutical in 1993, claiming Miles was engaged in false advertising and a misleading information program for its cardiovascular drug Adalat CC (a competitor to Pfizer's Procardia XL drug). Miles responded by filing a counterclaim against Pfizer, accusing it of making false statements about Adalat CC. In 1994, a judge found Pfizer guilty of lying about Miles and Adalat CC, and ordered the company to certify within six weeks that it had made its sales force aware of the court's findings. Pittsburgh Post-Gazette, Aug. 25, 1994, at D12.
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Pfizer as Defendant

  Just days after being given the antidepressant drug Sinequan by her gynecologist, Laura Hermes developed ''hunting jaw,'' a condition marked by pain, lack of control of the jaw and tongue muscles, slurred speech and drooling. Evidence revealed that Pfizer knew of adverse reactions involving Sinequan going back for more than a decade before this incident, yet never warned doctors or patients of this danger. In 1987, a Mississippi jury found Pfizer liable for Hermes' injuries and awarded her $800,000 in damages. Hermes v. Pfizer, 848 F.2d 66 (5th Cir. 1988).

Pfizer's SEC Filings
  ''The Company is involved in a number of claims and litigations, including product liability claims and litigations considered normal in the nature of its businesses.''
  ''Generally, the plaintiffs in all of the pending head valve litigations discussed above seek money damages. Based on the experience of the Company in defending these claims to date, including available insurance and reserves, the Company is of the opinion that these actions should not have a material/adverse effect on the financial position or the results of operations of the Company.'' (3128197).

Riddell, Inc. and Schutt Sports Group (Sporting Goods Manufacturers Association Members)
Schutt as Plaintiff
  In 1981, Schutt sued Riddell, complaining that the face masks on Riddell's helmets looked too much like Schutt's mask ''style'' and that Riddell copied its sizing designations. The trial court dismissed Schutt's claims, noting ''seldom have we seen a lawsuit as unwarranted and frivolous as this one.'' Schuff v. Riddell, 673 F.2d 202 (7th Cir. 1982).
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  Schutt again sued Riddell in 1989 after Riddell signed a licensing agreement with the NFL that would allow it to provide 90 percent of the league's helmets. Schutt was upset that this contract would give Riddell ''unfair'' exposure during televised games. The trial court sided with Riddell, finding Schutt's complaints to be ''without merit.'' Schutt v. Riddell, 727 F. Supp. 1220 (N.D. III. 1989).

Riddell as Defendant
  In 1988, James Arnold was rendered a quadriplegic and respirator-dependent after a junior high football collision caused his spine to fracture. The jury found that the Riddell helmet he was wearing was defective and that the company's decision to not add extra padding to the helmet--padding it included in other models--was the cause of his injury. The jury awarded Arnold $8 million in damages. The case was
subsequently settled out of court for an undisclosed amount. Amold v. Riddell, 882 F. Supp. 979 (D. Kan. 1995); PR Newswire, Dec. 5, 1995.

Schutt's and Riddell's SEC Filings
  No filing for ''Schutt'' or ''Riddell'' available from the SEC online service.

Gillette
Gillette as Plaintiff

  In 1996, Gillette sued competitor Norelco, claiming that Norelco's ads for a new electric razor were ''false and deceptive'' because they depicted non-electric razors as ''ferocious creatures.'' The judge rejected Gillette's request for a ban on these ads, noting that a Gillette subsidiary had used similar tactics in another ad campaign. Boston Herald, Dec. 3, 1996.
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Gillette as Defendant
  After nine years of legal feuding, Gillette and 53 other companies and municipalities that dumped toxic waste into a Tyngsborough, Massachusetts, landfill now on the federal Superfund environmental clean-up list finally agreed in 1992 to pay $35.5 million to clean up the site and replace contaminated drinking water. Boston Globe, Dec. 24, 1992, at 48.
Gillette's SEC Filings
  ''There is no action, suit, investigation or proceeding pending against, or to the knowledge of the Company threatened against or affecting, the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, operations or financial condition of the Company and its Consolidated Subsidiaries, taken as a whole, or which in any manner draws into question the validity of this Agreement or the Notes.''

  ''The Company is subject to legal proceedings and claims arising out of its business.... Management, after review and consultation with counsel considers that any liability from an of these legal proceedings and claims would not materially affect the consolidated financial position, results of operations or liquidity of the Company.'' (3/22/96).

Procter & Gamble
Procter & Gamble as Plaintiff
  In 1995, Procter & Gamble sued Randy Haugen and five other Amway Corporation distributors, accusing them of spreading rumors that Procter & Gamble and its executives were involved in satanism and devil worship. The company specifically demanded ''damages'' for having to cope with this gossip. A federal court in Utah dismissed Procter & Gamble's lawsuit, calling a number of its claims and allegations ''insufficient.'' Procter & Gamble v. Haugen, 947 F. Supp. 1551 (D. Utah 1996).
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Procter & Gamble as Defendant
  Patricia Ann Kehm, 25, died in 1980 of toxic shock syndrome after using Procter & Gamble's Rely tampons for just four days. Testimony revealed that the company knew of a link between toxic shock syndrome and tampons, including a Centers for Disease Control study, yet kept this product on the market. A jury awarded Kehm's husband and two young daughters $300,000 in damages. AP, Dec. 2, 1983.

Procter & Gamble's SEC Filings
  ''The Company is subject to various lawsuits and claims with respect to matters such as governmental regulations, income taxes, and other actions arising out of the normal course of business.''
  ''While the effect on future results of these items is not subject to reasonable estimation because considerable uncertainty exists, in the opinion of management and Company counsel, the ultimate liabilities resulting from such claims will not materially affect the consolidated financial position, results of operations or cash flows of the Company.'' (9/11/96).

Exxon
Exxon as Plaintiff
  In 1995, Exxon threatened to file suit against a minor league baseball team in Georgia, accusing the ''Columbus RedStixx'' of violating the company's trademark by using a double ''x'' in its logo. Though confident they had done no wrong, RedStixx officials decided to alter the logo in 1996 in order to avoid the possibility of having to face the world's largest oil company in court. News & Record (Greensboro, NC), June 11,1995, at C12; News & Record (Greensboro, NC), Sept. 1, 1996.
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Exxon as Defendant
  The 1989 Exxon Valdez spill that dumped 11 million gallons of crude oil into Prince William Sound ranks as one of the worst environmental disasters in history. An Alaska jury found Exxon liable for this accident and ordered the company to pay fishermen and others whose livelihoods were affected by the spill $287 million in compensatory damages. It also assessed $5 billion in punitive damages against Exxon for recklessly allowing the Valdez to run aground. In re the Exxon Valdez, No. A89—0095—CV (HRH), 1995 U.S. Dist. LEXIS 12952 (D. Alaska Jan. 27, 1995); AP Online, Feb. 14, 1997.

Exxon's SEC Filings
  ''The ultimate cost to the corporation from the lawsuits arising from the Exxon Valdez grounding is not possible to predict and may not be resolved for a number of years.''
  ''Claims for substantial amounts have been made against Exxon and certain of its consolidated subsidiaries in other pending lawsuits, the outcome of which is not expected to have a materially adverse effect upon the corporation's operations or financial condition.'' (3/8/96).

Syntex Pharmaceuticals
Syntex as Plaintiff
  In 1993, Syntex sued Apotex Inc., a Canada-based pharmaceutical company, for marketing a generic version of its arthritis drug Naprosyn. The drugs made by Apotex are approved for sale in Canada. Apotex noted that Syntex has unsuccessfully sued Apotex several times in Canada and called Syntex's U.S. action an attempt to accomplish in that country what it failed to do in Canada. A federal judge granted Syntex a limited injunction, but did not completely enjoin Apotex from exporting its product to the U.S. Montrea/Gazette, June 20, 1993, at A5; Syntex v. Interpharm, Civil Action 1: 92—CV—03—HTW, 1993 U.S. Dist. LEXIS 10716 IN.D. Ga. 1993).
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Syntex as Defendant
  Two infants who were fed the soy-derived Neo-Mull-Soy baby formula produced by Syntex sustained brain damage, including permanent impairment of language and motor coordination. It was revealed at trial that Syntex's decision to not add salt to its formula, an essential nutrient for brain development, was prompted solely by economic considerations. A jury awarded $27 million, including $22 million in punitive damages. Duddleston v. Syntex Laboratories, Inc., Cook County Circuit Court, No. 80—1—57726 (Feb. 28, 1985).

Syntex's SEC Filings
  Acquired by Roche Holding Corp. in 1994; no annual report available from the SEC online service for Roche Holding (incorporated in Switzerland).

Scott Paper
Scott Paper as Plaintiff
  Scott Paper's Canadian division sued Procter & Gamble in 1995, alleging that Procter & Gamble had misled consumers about the absorptive power of Bounty paper towels by advertising it as the ''quicker-picker-upper.'' Scott Paper specifically demanded $723,000 in special, punitive and exemplary damages. The two parties subsequently reached an out-of-court settlement, terms of which were not disclosed. Cincinnati Enquirer, Nov. 7, 1995, at B6; Baltimore Sun, Dec. 19, 1995, at 4C.

Scott Paper as Defendant
  In 1992, James Woodson of Philadelphia sued Scott Paper after he was terminated as part of what Scott said was a systematic reduction. He was with the company for 22 years. Woodson, an African-American, sued Scott Paper, contending that he was dismissed in retaliation for having filed discrimination charges after being repeatedly passed over for promotions. The jury agreed, awarding Woodson $1.5 million in damages and back pay. Fresno Bee, Feb. 16, 1995.
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Scott Paper's SEC Filings

  [With regard to breast implant litigation:] ''Although the final results of these claims cannot be predicted with certainty, it is the present opinion of the Company, after consulting with counsel, that they will not have a material adverse effect on the Company's financial condition.''
  ''In addition, the Company is involved in lawsuits and state and Federal administrative proceedings under the environmental, antitrust and equal employment opportunity laws, among others.''
  ''Although the final results in these suits and proceedings cannot be predicted with certainty, it is the present opinion of the Company, after consulting with course, that they will not have a material adverse effect on the Company's financial condition.'' (3/30/95).

Upjohn
Upjohn as Plaintiff
  Upjohn, the maker of the baldness remedy Rogaine, sued the small Patron I Corp. in 1988 over advertisements for its Helsinki Formula hair treatment. Upjohn complained that Patron misrepresented the effectiveness of its product in stopping hair loss and promoting hair growth. A federal judge in Nevada dismissed Upjohn's claim in 1989. Reuters Financial Service, Nov. 17, 1988; Business Wire, Feb. 21, 1989.

Upjohn as Defendant
  Visiting an ophthalmologist for treatment of an eye disease, Meyer Proctor went blind in his left eye minutes after receiving an injection of Upjohn's antiinflammation drug Depo-Medrol. The eye shriveled up and had to be removed five months later. Upjohn allegedly had promoted the injection of Depo-Medrol near the eyes despite the fact that the FDA never approved the drug for this use. There was also evidence that Upjohn knew of 23 other incidents of adverse reactions to Depo-Medrol, including three instances of blindness. The jury awarded the Proctor family $3 million in compensatory damages and $125 million in punitive damages, which the judge reduced to $35 million. Crain's Chicago Business, Nov. 4, 1991, at 1.
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Upjohn's SEC Filings
  ''Various suits and claims arising in the ordinary course of business, primarily for personal injury and property damage alleged to have been caused by the use of the Company's products, are pending against the Company and its subsidiaries. ''
  ''Based on information currently available and the Company's experience with lawsuits of the nature of those currently filed or anticipated to be filed which have resulted from business activities to date, the amounts accrued for product and environmental liabilities arising from the litigation and proceedings referred to above are considered to be adequate. Although the Company cannot predict the outcome of individual lawsuits, the ultimate liability should not have a material effect on consolidated financial position; and unless there is a significant deviation from the historical pattern of resolution of such issues, the ultimate liability should not have a material adverse effect on the Company's results of operations or liquidity.'' (3/30/95).

Hormel Foods
Hormel as Plaintiff
  In 1995, Hormel Foods, the maker of the luncheon meat SPAM, sued Jim Henson Productions to stop the creator of the Muppets from calling a humorous wild boar in a new movie ''Spa'am.'' Hormel was worried that sales of SPAM would drop off if it was linked with such ''evil in porcine form.'' A federal court judge rejected Hormel's claims. Hormel appealed, but also lost. Connecticut Law Tribune, Feb. 5, 1996.

Hormel as Defendant
  In 1996, the city of Davenport, Iowa, filed a lawsuit against a local Hormel Foods factory for destroying its major sewer line. For years the company negligently dumped industrial waste water into the sewer system, resulting in the corrosion of the line and eventually two collapses, the second of which dumped raw sewage. The city estimated the repair costs at $3.3 million. Quad City Times, Apr. 2, 1996, at A1.
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Hormel's SEC Filings
  ''The Company knows of no pending material legal proceedings.'' (1/24/97).

Clorox
Clorox as Plaintiff
  Clorox sued Dowbrands Inc. in 1995, complaining that Dowbrands' ''Smart Scrub'' liquid cleanser was too similar in name to its own ''Soft Scrub'' product and that this might lead to customer ''confusion.'' Clorox also was upset that Dowbrands allegedly ran a commercial that ''copied'' one of its own ads that featured an animated, talking bathtub. According to a deputy clerk of court in the U.S. District Court in San Francisco, the parties later stipulated the dismissal of the case. The Recorder (American Lawyer Media), June 28, 1995, at 2; telephone conversation on April 29, 1997.

Clorox as Defendant
  Two-year-old Susan Renee Bowen sustained severe burns to her esophagus that necessitated 240 surgical procedures after she ingested Clorox's ''Liquid Plumr.'' Testimony revealed that this product, which could dissolve flesh in a fraction of a second, had no antidote. The container also lacked a child-guard cap, though such a safety device was readily available at the time of the injury. The parties agreed on a settlement worth $4.8 million. Bowen v. Jiffee Clorox Corp., U.S. Dist. Ct., D. Kan., No. 82—2183 (Oct. 19, 1984).
Clorox's SEC Filings

  ''Item 3. Legal Proceedings'' ''None.'' (9/26/96).

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Amway as Plaintiff
Amway Corporation
  In 1982, Amway threatened to file a $500 million lawsuit against the Detroit Free Press, claiming that the newspaper libeled it in a story about the company's plan to misrepresent the price of products imported from Canada to avoid paying full tariffs on those items. The Free Press stood by its story, and Amway dropped its threat a few months later. UPI, Aug. 23, 1982.
Amway as Defendant
  Three-year-old Heather Ferman of St. Louis suffered severe injuries in 1981 when she drank a lye-based drain cleaner negligently left in a foam cup by an Amway distributor after a demonstration. She underwent 27 operations to repair her esophagus and stomach. Heather now has a 10 percent higher risk of developing cancer. The parties agreed on a structured settlement in 1983 for Heather's care that could be worth up to $3 million over her lifetime. UP, Apr. 21, 1983.

Amway's SEC Filings
  No filing for ''Amway'' available from the SEC online service.

Dow Chemical
Dow Chemical as Plaintiff
  In 1990, Dow Chemical subsidiary FilmTec filed a patent infringement lawsuit against Hydranautics that effectively kept the company from selling its water filtration membranes until 1992, when an appellate court ruled FilmTec's patent was not valid and lifted the injunction against Hydranautics. Hydranautics has since filed suit against FilmTec, claiming FilmTec ''maliciously'' pursued this
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false infringement claim against it in order to monopolize the market. This case is now before the Ninth Circuit. Intellectual Property Litigation Reporter, Nov. 13, 1996, at 14.
Dow Chemical as Defendant
  Richard and Gloria Perez were awarded $2.37 million in damages in 1983 after Richard became permanently sterile after being exposed to the pesticide DBCP. Richard worked at the Dow Chemical plant that made DBCP. The jury found that Dow Chemical knew of the dangers of DBCP for years, yet did not adequately warn workers or consumers of its potential harm. DBCP was removed from the market after Richard Perez and other workers brought their injuries to light. Perez v. Dow Chemical, Cal., San Francisco County Superior Court, N. 729 596 (1983).
Dow Chemical's SEC Filings

  [With regard to Dow Corning breast implant litigation:] ''It is impossible to predict the outcome of each of the above described legal actions.'' However, it is the opinion of the Company's management that the possibility that these actions will have a material adverse impact on the Company's consolidated financial statements is remote, except as described below.
  ''The Company's maximum exposure for breast implant product liability claims against Dow Corning is limited to its investment in Dow Corning which, after the second quarter charge noted above, is zero. As a result, any future charges by Dow Corning related to such claims or as a result of the Chapter 11 proceeding would not have an adverse impact on the Company's consolidates financial statements.''

  ''Management believes that the possibility is remote that a resolution of plaintiffs' direct participation claims, including the vigorous defense against those claims, will have a material adverse impact on the Company's financial position or cash flows.'' (3/25/97).
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3M
3M as Plaintiff
  In early 1997, 3M sued Microsoft, claiming that the computer company's new software program that allows users to create computer representations of yellow notes that can be repositioned on the screen is too similar to 3M's adhesive ''Post-it'' notes, and that consumers will ''confuse'' the two. This complaint is now before a federal court in Minnesota. Atlanta Journal Constitution, Jan. 10, 1997, at 1F.

3M as Defendant
  A newborn infant suffered ruptures of both lungs and cardiac arrest resulting in massive brain damage after the ''Baby Bird'' respirator he was hooked up to malfunctioned, forcing air into his lungs without permitting the lungs to exhale. The pop-off valve that was supposed to protect the user from excessive pressurization and to sound an alarm if this occurred failed. The respirator was made by Bird Corp., a division of 3M. The parties agreed on a structured settlement, in which the family and child will receive monthly and lump-sum payments totalling $1 million. Kennedy v. Bird Corp., Utah, Salt Lake City District Court, No. C—79—1148 (June 23, 1983).

3M's SEC Filings
  [With respect to breast implant litigation:] ''The company cannot determine the impact of these potential developments on the current estimate of probable liabilities (including associated expenses) and the probable amount of insurance recoveries.... As new developments occur, the estimates may be revised.... While such revisions or additional future charges could have a material adverse impact on the company's net income in the quarterly period in which they are recorded, the company believes that such revisions or additional charges, if any, will not have a material adverse effect on the consolidated financial position or annual results of operations of the company.''
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  ''There can be no certainty that the company may not ultimately incur charges ... in excess of presently established accruals. While such future charges could have a material adverse impact on the company's net income in the quarterly period in which they are recorded, the company believes that such additional charges, if any, will not have a material adverse effect on the consolidated financial position or annual results of operations of the company.'' (3/11/96).

Nabisco
Nabisco as Plaintiff
  Nabisco sued competitor Keebler in 1991 over its advertising campaign that claimed Keebler chocolate chip cookies contained 25 percent more chips than Nabisco's. The two parties subsequently reached an out-of-court settlement, terms of which were not disclosed. Nabisco Brands, Inc. v. Keebler Co., 1991 WL 194973 (D. III. May 3, 1991); Bakery Newsletter, May 27, 1991, at 1.
Nabisco as Defendant
  In 1995, more than 50 female employees of a Nabisco Foods plant in California slapped the company with a sex-discrimination lawsuit, accusing the food maker of so restricting their restroom privileges that some workers were forced to wear diapers on the job. A number of women suffered bladder infections. Those who violated this rule were suspended, disciplined and sent home without pay. The parties reached a confidential out-of-court settlement in 1996. L.A. Times, Mar. 30, 1995, at B1; L.A. Times, Apr. 15, 1996, at B1.

Nabisco's SEC Filings
  ''Nabisco is a defendant in various lawsuits arising in the ordinary course of business. In the opinion of management, the resolution of these matters is not expected to have a material adverse effect on Nabisco's financial condition or results of operations.'' (3/10/97) .
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Brown & Williamson

Brown & Williamson as Plaintiff
  Soon after the Liggett Group reached a settlement on March 20, 1997, with 22 states that would aid these states' lawsuits against the biggest cigarette manufacturers, Brown & Williamson--along with Philip Morris, R.J. Reynolds and Lorillard--asked a Florida judge to rule that documents released by Liggett could not be used in that state's lawsuit against manufacturers. These documents possibly could reveal an industry-wide conspiracy to mislead the public about smoking's health effects. The judge rejected this request, ruling that eight of the 13 documents in question showed evidence of fraud by the tobacco industry and therefore could be used as evidence by the state. Wall Street Journal, Apr. 22, 1997 at B11.

Brown & Williamson as Defendant
  In a landmark decision, a Florida jury in August 1996 found Brown & Williamson responsible for Grady Carter's lung cancer, and awarded Carter and his wife $750,000 in damages. The jury found that Carter, a 66-year-old former air traffic controller, became addicted to nicotine from smoking Brown & Williamson's unfiltered Lucky Strikes brand. It also found Brown & Williamson negligent for not telling consumers they were dealing with a deadly product, even though the tobacco industry had evidence of its product's danger since the 1950s. Mealey's Litigation Reports, Aug. 16, 1996.

Brown & Williamson's SEC Filings
  No filing for ''Brown & Williamson'' available from the SEC online service.
Schering-Plough
Schering-Plough as Plaintiff
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  In 1978, Wesley-Jessen, a vision care subsidiary of Schering-Plough, sued Industrial Bio-Test Labs for $5.3 million in damages because the lab's test results allegedly cost Wesley-Jessen FDA approval for its new soft-contact lens. The suit sought $1.75 million in general damages and $3.5 million in punitive damages. IBT and Wesley-Jessen settled this lawsuit in 1983 for an undisclosed amount. Chemical Week, May 17, 1978, at 17; Chemical Week, Feb. 9, 1983, at 11.

Schering-Plough as Defendant
  In 1988, 3-year-old Harkim Boyd of Manhattan suffered severe brain damage when he was given the asthma drug theophylline. Schering-Plough, the manufacturer, failed to warn of the danger of administering this drug when the patient also showed signs of a fever or viral illness. The case, which was against Schering-Plough and St. Vincent's Hospital, settled in November 1995 for $4.6 million. New York Law Journal, Nov. 28, 1995.

Schering-Plough's SEC Filings
  ''Subsidiaries of the Company are defendants in 149 lawsuits involving approximately 600 plaintiffs arising out of the use of synthetic estrogens by the mothers of the plaintiffs. In virtually all of these lawsuits, one being an alleged class action, many other pharmaceutical companies are also named defendants.... The total amount claimed against all defendants in all the suits amounts to more than $2 billion. While it is not possible to precisely predict the outcome of these proceedings, it is management's opinion that it is remote that any material liability in excess of the amount accrued will be incurred.'' (3/3/97).
Pennzoil
Pennzoil as Plaintiff
  In 1984, Pennzoil launched a legal battle against Texaco over the right to purchase a majority share of Getty Oil stock. The Texas jury returned a verdict in favor of Pennzoil, awarding the company $7.53 billion in compensatory damages and $3 billion in punitive damages, plus $600 million in interest. This legal saga, which saw Texaco forced to declare bankruptcy, did not come to an end until 1987, when both parties agreed to a final settlement plan. Washington Post, Dec. 20, 1987, at A1.
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Pennzoil as Defendant
  Two 14-year-old Texas girls were fatally overcome by odorless methane gas while playing near a pipeline leak. Pennzoil and United Gas had contracted with nearby landowners to produce natural gas from their property, and the two companies had agreed to install and maintain on the pipeline the malodorizer the homeowners bought so that the gas would be odorized in the event of a leak. The jury found that the companies' failure to maintain the malodorizer led to the
girls' deaths, and awarded the families $360,000 in damages. Blair v. Pennzoil, Tex., Panola County District Court, No. A—7766, Feb. 12, 1981.

Pennzoil's SEC Filings

  [Regarding restraint of trade class action proceedings:] ''Pennzoil believes that the final outcome of these matters will not have a material adverse effect on its consolidated financial condition or results of operations.''
  [Regarding employment discrimination litigation:] ''Pennzoil believes that the final outcome of the case will not have a material effect on its consolidated financial condition or results of operations.''
  ''Pennzoil and its subsidiaries are involved in various other claims, lawsuits and other proceedings relating to a wide variety of matters. While uncertainties are inherent in the final outcome of such matters and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on Pennzoil's consolidated financial condition or results of operations.'' (3/4/97).

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General Electric
General Electric as Plaintiff
  The National Broadcasting Co. (NBC), a division of General Electric, sued the Later Today Television Newsgroup in 1996, alleging that its ''Later Today'' news show violated NBC's ''exclusive right'' to the word ''Today.'' Newsgroup's president Glenn Barbour wondered why his company was being sued; ''Did [NBC] sue Gannett when they had USA Today or CNN Today? Why are they picking on a minority company? .... 'Today' is part of the American language.'' NBC ultimately won an injunction to keep the ''Today'' name for itself. Reuters Financial Service, Jan. 17, 1996.

General Electric as Defendant
  Richard and Virginia Klein's Missouri home was set ablaze on Christmas eve in 1980 after their General Electric Brew Starter coffee maker malfunctioned. The jury found defects in both the coffee maker's design and construction, and awarded the family $600,000. Klein v. General Electric Co., 714 S.W.2d 896 (Mo. Ct. App. 1986).

General Electric's SEC Filings
  General Electric's annual report does not make any statement regarding the effect of pending legal proceedings on its financial position.
------

MR. CAMPBELL'S ANSWERS TO ADDITIONAL COMMITTEE QUESTIONS

  Q. 1. In arguing that liability reforms increase productivity, how do you account for the significant variables such as lower taxes, tax breaks/incentives, favorable labor laws, lessened regulation, loans, labor skills, education, etc. that may influence productivity, employment and growth in the states?
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  A. Twenty years' study, across 50 states, standardizing for every macro-economic variable we could, we found statistically significant effects from liability reforms. It would be highly improbable that these were really masking a significant effect of some other variable that just happened to be present whenever a liability reform was present. We also used the ''instrumental variables'' technique to take out the political factor--e.g. more conservative legislatures were more likely to pass liability reforms.

  Q. 2. Can you tell us the percentage of product liability cases (as compared to all civil cases) that have been filed per year over the last five years?
  A. No, I can't, but the Center for Study of State Courts could, (please check with Professor Kessler at Stanford Business School: Professor Daniel Kessler, Stanford University Graduate School of Business, Stanford, CA 94305.
  Q. 3. Can you provide any empirical studies that indicate that there has been a ''product liability explosion'' in this country recently? What has been the trend concerning the filing of new product liability cases over the last five years?
  A. I don't know. UCLA Law Review had a study several years ago showing no explosion once asbestos cases were taken out (Marc Galanter was the author). However, I never claimed there was an explosion I only claimed employment and productivity improved when a state passed litigation reform.
  Q. 4. Do you believe that any proposed product liability legislation should provide for only one-way preemption of state laws (such as Sec. 108(b)(3)(D) of last year's conference report on H.R. 956)? If so, why?
  A. No. It would be fairer to pass a uniform federal law to pre-empt state laws, both ways.

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  Q. 5: Do you believe that any proposed product liability bill should provide for a commercial loss exception (such as Sec. 102(a)(2) of last year's conference report on H.R. 956)? If so, why?
  A. This is not a big point for me either way. I would likely favor language without the exception, however, since the differing state rules on expecting damages could also hurt the interstate flow of goods.

  Q. 6. Do you believe that any proposed product liability legislation should mandate non-binding mediation or arbitration in all product liability cases? If not, why not?
  A. Yes, with an attorneys fee-shifting provision upon the party ''appealing'' the recommended settlement if she or he fails to do as well--like Fed. Rule 89 which encourages settlement and lower costs.
  Q. 7. Do you believe that any proposed product liability legislation should require that foreign manufacturers abide by the same product liability laws as American companies in terms of jurisdiction, discovery and service of process? If not, why not?

  A. Yes. Though, please note that the U.S. Supreme Court has already so interpreted Federal Rules of Civil Procedure.
  Q. 8. You conducted a valuable empirical study correlating liability reforms with employment and productivity. Reforms that reduce liability generally were associated with higher productivity and employment--in contrast to the lower productivity and employment associated with reforms that increase liability. Although your study focused on reforms at the State level, would you anticipate similar correlations between liability reforms that Congress might enact and levels of productivity and employment?
  A. Yes, because the industry that consistently failed to show these effects from state law changes was manufacturing where no one state can control the rule of law that would be applied should an accident occur. Our strongest findings were in industries that did not cross state lines (e.g. services)--so one state could effect behavior in a ''closed system.''
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  Q. 9. When you focused on manufacturing, you found that ''[i]n contrast to strong effects in other industries, decrease reforms' impact on manufacturing output was insignificant.'' [Page 19 of Working Paper] In other words, reforms that decrease liability have an insignificant impact on manufacturing output.

  (a) Does this provide evidence of the need for product liability reform at the Federal level?
  A. Yes! (Please see answer to question 8).
  (b) Presumably, the fact that most manufactured goods are purchased from out-of-state manufacturers would suggest that no individual state can be expected to make much headway in addressing the adverse economic consequences of an unfair legal environment for products cases. Would you agree?

  A. Yes! This is the whole point! While Federalism is a very important virtue, I'm a strong states person on federalist issues. This problem, however, requires a national solution.

  Q. 10. Some people argue that tort law traditionally has been a subject of state concern and for that reason it is inappropriate for Congress to legislate on matters involving product liability. Do you agree that the development of national and international markets is very relevant to the federalism debate and lends strong support to the appropriateness of Federal legislation?

  A. (Please see answer to question 9(b)).

  Q. 11. What consequences would you anticipate Federal product liability legislation would have on U.S. competitiveness with other countries?
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  A. It depends on the degree to which foreign countries are subjugated to lawsuit in the U.S. and U.S. companies overseas. Specifically, this is really a trade issue--if a German product explodes in Massachusetts the German firm is no better off than an American firm would be.
  Q. 12. We hear the argument that reforms reducing potential liability exposure are inadvisable because we will be undermining important incentives to produce safe products. We also hear, however, that innovation--which can lead to safer products--is stifled by the current litigation environment. Do you see any incompatibility between tort reform that reduces potential liability exposure and the maintenance of safety standards?

  A. There is an optimal level of suits, and it isn't zero, for precisely the reason of safety. I strongly believe the present level in the U.S. is greater than optimal because we have no fee-shifting--hence, no disincentive to bring frivolous lawsuits. Enacting a modified English rule would bring us close to optimal--loser pays attorneys fees of winner, but only up to amount loser was prepared to pay her or his own attorney, (or, in case of contingent fee, the number of hours the plaintiff's attorney worked multiplied by the hourly rate in the area).

  Q. 13. Are you concerned that the current litigation environment encourages American businesses to move operations overseas?
  A. Regarding manufacturing liability, only if states do not have workers compensation (or a workers compensation system much more expensive than overseas). With regards to consumer liability, please see question 11.

  Q. 14. Attorney General Miller of Iowa, testified that product liability reform would negatively impact the ability of states to pursue claims against tobacco companies for reimbursement of money spent by the states to treat tobacco-related disease. Would you agree with this conclusion?
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  A. It depends on what reform: For proportionate fault I would respond no (since it would only affect the amount recovered). With regards to contributory negligence or assumed risk, I would respond yes, (but no one is proposing that).
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AMERICAN TORT REFORM ASSOCIATION, BOARD OF DIRECTORS

  Robert J. Muth, ASARCO; W. Ben Blackett, M.D., American Association of Neurological Surgeons; Mark A. Casso, American Consulting Engineers Council; Paul Geoghan, American Institute of Certified Public Accountants; Martin J. Hatlie, American Medical Association; Sherman Joyce, American Tort Reform Association; Jim MacPherson, America's Blood Centers; Mary Heaton, Chemical Manufacturers Association; Joe Petito, Coopers & Lybrand; Victor E. Schwartz, Crowell & Moring; William J. Kemp, General Motors Corporation; Kenneth R. McClure, Idaho Liability Reform Coalition; Ed Murnane, Illinois Civil Justice League; Dennis R. Connolly, Johnson & Higgins; Wayne A. Sinclair, MMI Companies, Inc., Thomas B. Considine, Metropolitan Life Insurance Company; Francis J. Stokes, Monsanto Company, Bob Montgomery, Montgomery, Smith-Vaniz & McGraw; Dirk Van Dongen, National Association of Wholesaler Distributors, Steve P. Woods, National Federation of Independent Business; August W. Steinhilber, National School Boards Association; Marjorie E. Powell, Pharmaceutical Research & Manufacturers of America, Bradford Oelman, Owens Corning; Lawrence E. Smarr, Physician Insurers Association of America; Geoffrey R.W. Smith, Attorney at Law; Howard S. Ende, Princeton University; Kim Brunner, State Farm Insurance Companies; Martin F. Connor, Stateside Associates; The Honorable Ralph Wayne, Texas Civil Justice League; Kevin P. McMahon, TRW, Inc., Judyth Pendell, Hartford, Connecticut; and George Frazza, Johnson & Johnson.

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42—154CC

1997
PRODUCT LIABILITY REFORM

HEARING

BEFORE THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

APRIL 10, 1997

Serial No. 10



Printed for the use of the Committee on the Judiciary

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

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COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
STEVEN SCHIFF, New Mexico
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
SONNY BONO, California
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRISTOPHER B. CANNON, Utah

JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
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HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey

THOMAS E. MOONEY, Chief of Staff-General Counsel
JULIAN EPSTEIN, Minority Staff Director

C O N T E N T S

HEARING DATE
  April 10, 1997
OPENING STATEMENT
  Hyde, Hon. Henry J., a Representative in Congress from the State of Illinois, and chairman, Committee on the Judiciary

WITNESSES
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  Campbell, Hon. Tom, a Representative in Congress from the State of California
  Claybrook, Joan, president, Public Citizen
  Felde, Jon R., general counsel, National Conference of State Legislatures
  Hickok, Peter H., owner, the W.O. Hickok Manufacturing Co., Inc., Harrisburg, PA, on behalf of the National Federation of Independent Business
  Joyce, Roger F., vice president, engineering, the Bilco Co., on behalf of the National Association of Manufacturers
  Kanarek, Stephanie T., New York, NY
  Martin, James L., director, State-Federal relations, National Governors' Association
  Miller, Thomas J., attorney general, State of Iowa

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
  Campbell, Hon. Tom, a Representative in Congress from the State of California: Prepared statement
Claybrook, Joan, president, Public Citizen:
Prepared statement
Publication by Ralph Nader and Wesley J. Smith entitled ''No Contest: Corporate Lawyers and the Perversion of Justice in America''
Felde, Jon R., general counsel, National Conference of State Legislatures:
Article entitled ''The Financial Health of Medical Device Companies: Believe What They Tell Shareholders, Not Congress''
Prepared statement
  Hickok, Peter H., owner, the W.O. Hickok Manufacturing Co., Inc., Harrisburg, PA, on behalf of the National Federation of Independent Business: Prepared statement
  Jackson Lee, Hon. Sheila, a Representative in Congress from the State of Texas: Prepared statement
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  Joyce, Roger F., vice president, engineering, the Bilco Co., on behalf of the National Association of Manufacturers: Prepared statement
  Kanarek, Stephanie T., New York, NY: Prepared statement
  Martin, James L., director, State-Federal relations, National Governors' Association: Prepared statement
  Miller, Thomas J., attorney general, State of Iowa: Prepared statement
APPENDIX
  Material submitted for the hearing