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S. 1546 (108th): Small Business Liability Reform Act of 2003


The text of the bill below is as of Jul 31, 2003 (Introduced). The bill was not enacted into law.


S 1546 IS

108th CONGRESS

1st Session

S. 1546

To provide small businesses certain protections from litigation excesses and to limit the product liability of nonmanufacturer product sellers.

IN THE SENATE OF THE UNITED STATES

July 31 (legislative day, JULY 21), 2003

Mr. MCCONNELL (for himself and Mr. LIEBERMAN) introduced the following bill; which was read twice and referred to the Committee on the Judiciary


A BILL

To provide small businesses certain protections from litigation excesses and to limit the product liability of nonmanufacturer product sellers.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) SHORT TITLE- This Act may be cited as the ‘Small Business Liability Reform Act of 2003’.

    (b) TABLE OF CONTENTS- The table of contents for this Act is as follows:

      Sec. 1. Short title; table of contents.

TITLE I--SMALL BUSINESS LAWSUIT ABUSE PROTECTION

      Sec. 101. Findings.

      Sec. 102. Definitions.

      Sec. 103. Limitation on punitive damages for small businesses.

      Sec. 104. Limitation on joint and several liability for noneconomic loss for small businesses.

      Sec. 105. Exceptions to limitations on liability.

      Sec. 106. Preemption and election of State nonapplicability.

TITLE II--PRODUCT SELLER FAIR TREATMENT

      Sec. 201. Findings; purposes.

      Sec. 202. Definitions.

      Sec. 203. Applicability; preemption.

      Sec. 204. Liability rules applicable to product sellers, renters, and lessors.

      Sec. 205. Federal cause of action precluded.

TITLE III--EFFECTIVE DATE

      Sec. 301. Effective date.

TITLE I--SMALL BUSINESS LAWSUIT ABUSE PROTECTION

SEC. 101. FINDINGS.

    Congress finds that--

      (1) the United States civil justice system is inefficient, unpredictable, unfair, costly, and impedes competitiveness in the marketplace for goods, services, business, and employees;

      (2) the defects in the United States civil justice system have a direct and undesirable effect on interstate commerce by decreasing the availability of goods and services in commerce;

      (3) there is a need to restore rationality, certainty, and fairness to the legal system;

      (4) the spiralling costs of litigation and the magnitude and unpredictability of punitive damage awards and noneconomic damage awards have continued unabated for at least the past 30 years;

      (5) the Supreme Court of the United States has recognized that a punitive damage award can be unconstitutional if the award is grossly excessive in relation to the legitimate interest of the government in the punishment and deterrence of unlawful conduct;

      (6) just as punitive damage awards can be grossly excessive, so can it be grossly excessive in some circumstances for a party to be held responsible under the doctrine of joint and several liability for damages that party did not cause;

      (7) as a result of joint and several liability, entities including small businesses are often brought into litigation despite the fact that their conduct may have little or nothing to do with the accident or transaction giving rise to the lawsuit, and may therefore face increased and unjust costs due to the possibility or result of unfair and disproportionate damage awards;

      (8) the costs imposed by the civil justice system on small businesses are particularly acute, since small businesses often lack the resources to bear those costs and to challenge unwarranted lawsuits;

      (9) due to high liability costs and unwarranted litigation costs, small businesses face higher costs in purchasing insurance through interstate insurance markets to cover their activities;

      (10) liability reform for small businesses will promote the free flow of goods and services, lessen burdens on interstate commerce, and decrease litigiousness; and

      (11) legislation to address these concerns is an appropriate exercise of the powers of Congress under clauses 3, 9, and 18 of section 8 of article I of the Constitution of the United States, and the 14th amendment to the Constitution of the United States.

SEC. 102. DEFINITIONS.

    In this title:

      (1) CRIME OF VIOLENCE- The term ‘crime of violence’ has the same meaning as in section 16 of title 18, United States Code.

      (2) DRUG- The term ‘drug’ means any controlled substance (as defined in section 102 of the Controlled Substances Act (21 U.S.C. 802)) that was not legally prescribed for use by the defendant or that was taken by the defendant other than in accordance with the terms of a lawfully issued prescription.

      (3) ECONOMIC LOSS- The term ‘economic loss’ means any pecuniary loss resulting from harm (including the loss of earnings or other benefits related to employment, medical expense loss, replacement services loss, loss due to death, burial costs, and loss of business or employment opportunities) to the extent recovery for such loss is allowed under applicable State law.

      (4) HARM- The term ‘harm’ means any physical injury, illness, disease, or death or damage to property.

      (5) HATE CRIME- The term ‘hate crime’ means a crime described under section 1(b) of the Hate Crime Statistics Act (28 U.S.C. 534 note).

      (6) INTERNATIONAL TERRORISM- The term ‘international terrorism’ has the same meaning as in section 2331 of title 18, United States Code.

      (7) NONECONOMIC LOSS- The term ‘noneconomic loss’ means loss for physical or emotional pain, suffering, inconvenience, physical impairment, mental anguish, disfigurement, loss of enjoyment of life, loss of society and companionship, loss of consortium (other than loss of domestic service), injury to reputation, or any other nonpecuniary loss of any kind or nature.

      (8) PERSON- The term ‘person’ means any individual, corporation, company, association, firm,

partnership, society, joint stock company, or any other entity (including any governmental entity).

      (9) PUNITIVE DAMAGES- The term ‘punitive damages’ means damages awarded against any person or entity to punish or deter such person, entity, or others from engaging in similar behavior in the future. Such term does not include any civil penalties, fines, or treble damages that are assessed or enforced by an agency of State or Federal government pursuant to a State or Federal statute.

      (10) SMALL BUSINESS-

        (A) IN GENERAL- The term ‘small business’ means any unincorporated business, or any partnership, corporation, association, unit of local government, or organization that has fewer than 25 full-time employees as determined on the date the civil action involving the small business is filed.

        (B) CALCULATION OF NUMBER OF EMPLOYEES- For purposes of subparagraph (A), the number of employees of a subsidiary of a wholly owned corporation includes the employees of--

          (i) a parent corporation; and

          (ii) any other subsidiary corporation of that parent corporation.

      (11) STATE- The term ‘State’ means each of the several States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, the Northern Mariana Islands, any other territory or possession of the United States, or any political subdivision of any such State, commonwealth, territory, or possession.

SEC. 103. LIMITATION ON PUNITIVE DAMAGES FOR SMALL BUSINESSES.

    (a) GENERAL RULE- Except as provided in section 105, in any civil action against a small business, punitive damages may, to the extent permitted by applicable Federal or State law, be awarded against the small business only if the claimant establishes by clear and convincing evidence that conduct carried out by that defendant with a conscious, flagrant indifference to the rights or safety of others was the proximate cause of the harm that is the subject of the action.

    (b) LIMITATION ON AMOUNT- In any civil action against a small business, punitive damages awarded against a small business shall not exceed the lesser of--

      (1) three times the total amount awarded to the claimant for economic and noneconomic losses; or

      (2) $250,000,

    except that the court may make this subsection inapplicable if the court finds that the plaintiff established by clear and convincing evidence that the defendant acted with specific intent to cause the type of harm for which the action was brought.

    (c) APPLICATION BY THE COURT- The limitation prescribed by this section shall be applied by the court and shall not be disclosed to the jury.

SEC. 104. LIMITATION ON JOINT AND SEVERAL LIABILITY FOR NONECONOMIC LOSS FOR SMALL BUSINESSES.

    (a) GENERAL RULE- Except as provided in section 105, in any civil action against a small business, the liability of each defendant that is a small business, or the agent of a small business, for noneconomic loss shall be determined in accordance with subsection (b).

    (b) AMOUNT OF LIABILITY-

      (1) IN GENERAL- In any civil action described in subsection (a)--

        (A) each defendant described in that subsection shall be liable only for the amount of noneconomic loss allocated to that defendant in direct proportion to the percentage of responsibility of that defendant (determined in accordance with paragraph (2)) for the harm to the claimant with respect to which that defendant is liable; and

        (B) the court shall render a separate judgment against each defendant described in that subsection in an amount determined under subparagraph (A).

      (2) PERCENTAGE OF RESPONSIBILITY- For purposes of determining the amount of noneconomic loss allocated to a defendant under this section, the trier of fact shall determine the percentage of responsibility of each person responsible for the harm to the claimant, regardless of whether or not the person is a party to the action.

SEC. 105. EXCEPTIONS TO LIMITATIONS ON LIABILITY.

    The limitations on liability under sections 103 and 104 do not apply--

      (1) to any defendant whose misconduct--

        (A) constitutes--

          (i) a crime of violence;

          (ii) an act of international terrorism; or

          (iii) a hate crime;

        (B) results in liability for damages relating to the injury to, destruction of, loss of, or loss of use of, natural resources described in--

          (i) section 1002(b)(2)(A) of the Oil Pollution Act of 1990 (33 U.S.C. 2702(b)(2)(A)); or

          (ii) section 107(a)(4)(C) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. 9607(a)(4)(C));

        (C) involves--

          (i) a sexual offense, as defined by applicable State law; or

          (ii) a violation of a Federal or State civil rights law; or

        (D) occurred at the time the defendant was under the influence (as determined under applicable State law) of intoxicating alcohol or a drug, and the fact that the defendant was under the influence was the cause of any harm alleged by the plaintiff in the subject action; or

      (2) to any cause of action which is brought under the provisions of title 31, United States Code, relating to false claims (31 U.S.C. 3729 through

3733) or to any other cause of action brought by

the United States relating to fraud or false statements.

SEC. 106. PREEMPTION AND ELECTION OF STATE NONAPPLICABILITY.

    (a) PREEMPTION- Subject to subsection (b), this title preempts the laws of any State to the extent that State laws are inconsistent with this title.

    (b) ELECTION OF STATE REGARDING NONAPPLICABILITY- This title does not apply to any action in a State court against a small business in which all parties are citizens of the State, if the State enacts a statute--

      (1) citing the authority of this subsection;

      (2) declaring the election of such State that this title does not apply as of a date certain to such actions in the State; and

      (3) containing no other provision.

TITLE II--PRODUCT SELLER FAIR TREATMENT

SEC. 201. FINDINGS; PURPOSES.

    (a) FINDINGS- Congress finds that--

      (1) although damage awards in product liability actions may encourage the production of safer products, they may also have a direct effect on interstate commerce and consumers of the United States by increasing the cost of, and decreasing the availability of, products;

      (2) some of the rules of law governing product liability actions are inconsistent within and among the States, resulting in differences in State laws that may be inequitable with respect to plaintiffs and defendants and may impose burdens on interstate commerce;

      (3) product liability awards may jeopardize the financial well-being of individuals and industries, particularly the small businesses of the United States;

      (4) because the product liability laws of a State may have adverse effects on consumers and businesses in many other States, it is appropriate for the Federal Government to enact national, uniform product liability laws that preempt State laws; and

      (5) under clause 3 of section 8 of article I of the United States Constitution, it is the constitutional role of the Federal Government to remove barriers to interstate commerce.

    (b) PURPOSES- The purposes of this title, based on the powers of the United States under clause 3 of section 8 of article I of the United States Constitution, are to promote the free flow of goods and services and lessen the burdens on interstate commerce, by--

      (1) establishing certain uniform legal principles of product liability that provide a fair balance among the interests of all parties in the chain of production, distribution, and use of products; and

      (2) reducing the unacceptable costs and delays in product liability actions caused by excessive litigation that harms both plaintiffs and defendants.

SEC. 202. DEFINITIONS.

    In this title:

      (1) ALCOHOL PRODUCT- The term ‘alcohol product’ includes any product that contains not less than 1/2 of 1 percent of alcohol by volume and is intended for human consumption.

      (2) CLAIMANT- The term ‘claimant’ means any person who brings an action covered by this title and any person on whose behalf such an action is brought. If such an action is brought through or on behalf of an estate, the term includes the claimant’s decedent. If such an action is brought through or on behalf of a minor or incompetent, the term includes the claimant’s legal guardian.

      (3) COMMERCIAL LOSS- The term ‘commercial loss’ means--

        (A) any loss or damage solely to a product itself;

        (B) loss relating to a dispute over the value of a product; or

        (C) consequential economic loss, the recovery of which is governed by applicable State commercial or contract laws that are similar to the Uniform Commercial Code.

      (4) COMPENSATORY DAMAGES- The term ‘compensatory damages’ means damages awarded for economic and noneconomic losses.

      (5) DRAM-SHOP- The term ‘dram-shop’ means a drinking establishment where alcoholic beverages are sold to be consumed on the premises.

      (6) ECONOMIC LOSS- The term ‘economic loss’ means any pecuniary loss resulting from harm (including the loss of earnings or other benefits related to employment, medical expense loss, replacement services loss, loss due to death, burial costs, and loss of business or employment opportunities) to the extent recovery for that loss is allowed under applicable State law.

      (7) HARM- The term ‘harm’ means any physical injury, illness, disease, or death or damage to property caused by a product. The term does not include commercial loss.

      (8) MANUFACTURER- The term ‘manufacturer’ means--

        (A) any person who--

          (i) is engaged in a business to produce, create, make, or construct any product (or component part of a product); and

          (ii)(I) designs or formulates the product (or component part of the product); or

          (II) has engaged another person to design or formulate the product (or component part of the product);

        (B) a product seller, but only with respect to those aspects of a product (or component part of a product) that are created or affected when, before placing the product in the stream of commerce, the product seller--

          (i) produces, creates, makes, constructs and designs, or formulates an aspect of the product

(or component part of the product) made by another person; or

          (ii) has engaged another person to design or formulate an aspect of the product (or component part of the product) made by another person; or

        (C) any product seller not described in subparagraph (B) that holds itself out as a manufacturer to the user of the product.

      (9) NONECONOMIC LOSS- The term ‘noneconomic loss’ means loss for physical or emotional pain, suffering, inconvenience, physical impairment, mental anguish, disfigurement, loss of enjoyment of life, loss of society and companionship, loss of consortium (other than loss of domestic service), injury to reputation, or any other nonpecuniary loss of any kind or nature.

      (10) PERSON- The term ‘person’ means any individual, corporation, company, association, firm, partnership, society, joint stock company, or any other entity (including any governmental entity).

      (11) PRODUCT-

        (A) IN GENERAL- The term ‘product’ means any object, substance, mixture, or raw material in a gaseous, liquid, or solid state that--

          (i) is capable of delivery itself or as an assembled whole, in a mixed or combined state, or as a component part or ingredient;

          (ii) is produced for introduction into trade or commerce;

          (iii) has intrinsic economic value; and

          (iv) is intended for sale or lease to persons for commercial or personal use.

        (B) EXCLUSION- The term ‘product’ does not include--

          (i) tissue, organs, blood, and blood products used for therapeutic or medical purposes, except to the extent that such tissue, organs, blood, and blood products (or the provision thereof) are subject, under applicable State law, to a standard of liability other than negligence; or

          (ii) electricity, water delivered by a utility, natural gas, or steam.

      (12) PRODUCT LIABILITY ACTION-

        (A) GENERAL RULE- Except as provided in subparagraph (B), the term ‘product liability action’ means a civil action brought on any theory for a claim for any physical injury, illness, disease, death, or damage to property that is caused by a product.

        (B) The following claims are not included in the term ‘product liability action’:

          (i) NEGLIGENT ENTRUSTMENT- A claim for negligent entrustment.

          (ii) NEGLIGENCE PER SE- A claim brought under a theory of negligence per se.

          (iii) DRAM-SHOP- A claim brought under a theory of dram-shop or third-party liability arising out of the sale or providing of an alcoholic product to an intoxicated person or minor.

      (13) PRODUCT SELLER-

        (A) IN GENERAL- The term ‘product seller’ means a person who in the course of a business conducted for that purpose--

          (i) sells, distributes, rents, leases, prepares, blends, packages, labels, or otherwise is involved in placing a product in the stream of commerce; or

          (ii) installs, repairs, refurbishes, reconditions, or maintains the harm-causing aspect of the product.

        (B) EXCLUSION- The term ‘product seller’ does not include--

          (i) a seller or lessor of real property;

          (ii) a provider of professional services in any case in which the sale or use of a product is incidental to the transaction and the essence of the transaction is the furnishing of judgment, skill, or services; or

          (iii) any person who--

            (I) acts in only a financial capacity with respect to the sale of a product; or

            (II) leases a product under a lease arrangement in which the lessor does not initially select the leased product and does not during the lease term ordinarily control the daily operations and maintenance of the product.

      (14) STATE- The term ‘State’ means each of the several States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, the Northern Mariana Islands, any other territory or possession of the United States, or any political subdivision of any such State, commonwealth, territory, or possession.

SEC. 203. APPLICABILITY; PREEMPTION.

    (a) APPLICABILITY-

      (1) IN GENERAL- Except as provided in paragraph (2), this title governs any product liability action brought in any Federal or State court.

      (2) ACTIONS FOR COMMERCIAL LOSS- A civil action brought for commercial loss shall be governed only by applicable State commercial or contract laws that are similar to the Uniform Commercial Code.

    (b) RELATIONSHIP TO STATE LAW- This title supersedes a State law only to the extent that the State law applies to an issue covered by this title. Any issue that is not governed by this title, including any standard of liability applicable to a manufacturer, shall be governed by any applicable Federal or State law.

    (c) EFFECT ON OTHER LAW- Nothing in this title shall be construed to--

      (1) waive or affect any defense of sovereign immunity asserted by any State under any State law;

      (2) supersede or alter any Federal law;

      (3) waive or affect any defense of sovereign immunity asserted by the United States;

      (4) affect the applicability of any provision of chapter 97 of title 28, United States Code;

      (5) preempt State choice-of-law rules with respect to claims brought by a foreign nation or a citizen of a foreign nation;

      (6) affect the right of any court to transfer venue or to apply the law of a foreign nation or to dismiss a claim of a foreign nation or of a citizen of a foreign nation on the ground of inconvenient forum; or

      (7) supersede or modify any statutory or common law, including any law providing for an action to abate a nuisance, that authorizes a person to institute an action for civil damages or civil penalties, cleanup costs, injunctions, restitution, cost recovery, punitive damages, or any other form of relief, for remediation of the environment (as defined in section 101(8) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. 9601(8))).

SEC. 204. LIABILITY RULES APPLICABLE TO PRODUCT SELLERS, RENTERS, AND LESSORS.

    (a) GENERAL RULE-

      (1) IN GENERAL- In any product liability action covered under this title, a product seller other than a manufacturer shall be liable to a claimant only if the claimant establishes that--

        (A)(i) the product that allegedly caused the harm that is the subject of the complaint was sold, rented, or leased by the product seller;

        (ii) the product seller failed to exercise reasonable care with respect to the product; and

        (iii) the failure to exercise reasonable care was a proximate cause of the harm to the claimant;

        (B)(i) the product seller made an express warranty applicable to the product that allegedly caused the harm that is the subject of the complaint, independent of any express warranty made by a manufacturer as to the same product;

        (ii) the product failed to conform to the warranty; and

        (iii) the failure of the product to conform to the warranty caused the harm to the claimant; or

        (C)(i) the product seller engaged in intentional wrongdoing, as determined under applicable State law; and

        (ii) the intentional wrongdoing caused the harm that is the subject of the complaint.

      (2) REASONABLE OPPORTUNITY FOR INSPECTION- For purposes of paragraph (1)(A)(ii), a product seller shall not be considered to have failed to exercise reasonable care with respect to a product based upon an alleged failure to inspect the product, if--

        (A) the failure occurred because there was no reasonable opportunity to inspect the product; or

        (B) the inspection, in the exercise of reasonable care, would not have revealed the aspect of the product that allegedly caused the claimant’s harm.

    (b) SPECIAL RULE-

      (1) IN GENERAL- A product seller shall be deemed to be liable as a manufacturer of a product for harm caused by the product, if--

        (A) the manufacturer is not subject to service of process under the laws of any State in which the action may be brought; or

        (B) the court determines that the claimant is or would be unable to enforce a judgment against the manufacturer.

      (2) STATUTE OF LIMITATIONS- For purposes of this subsection only, the statute of limitations applicable to claims asserting liability of a product seller as a manufacturer shall be tolled from the date of the filing of a complaint against the manufacturer to the date that judgment is entered against the manufacturer.

    (c) RENTED OR LEASED PRODUCTS-

      (1) DEFINITION- For purposes of paragraph (2), and for determining the applicability of this title to any person subject to that paragraph, the term ‘product liability action’ means a civil action brought on any theory for harm caused by a product or product use.

      (2) LIABILITY- Notwithstanding any other provision of law, any person engaged in the business of renting or leasing a product (other than a person excluded from the definition of product seller under section 202(13)(B)) shall be subject to liability in a product liability action under subsection (a), but any person engaged in the business of renting or leasing a product shall not be liable to a claimant for the tortious act of another solely by reason of ownership of that product.

SEC. 205. FEDERAL CAUSE OF ACTION PRECLUDED.

    The district courts of the United States shall not have jurisdiction under this title based on section 1331 or 1337 of title 28, United States Code.

TITLE III--EFFECTIVE DATE

SEC. 301. EFFECTIVE DATE.

    This Act shall take effect with respect to any civil action commenced after the date of the enactment of this Act without regard to whether the harm that is the subject of the action occurred before such date.