News Column

Beyond Death and Taxes

December 26, 2002

Mark Goldstein

In today's litigious society, liability may be more inevitable to small manufacturers than death and taxes. The market environment for small manufacturers increasingly is distorted by issues of legal liability that can harm a company's profitability or products. Worse, it can put small companies out of business.

Consider some troubling statistics:
•A recent Gallup survey indicates that at least 20 percent of all small businesses decide to not expand their business or issue a particular product because they are concerned with lawsuits.
•The National Federation of Independent Business reports that more than one-third of Texas small-business owners are sued or threatened with court action seeking punitive damages.
•Data from San Diego's Superior Court reveals that punitive damages are requested in almost one-half of suits against small businesses.
•A survey by the Conference Board found that fear of product liability suits has caused nearly 50 percent of small businesses to withdraw products from the marketplace, and 39 percent of small businesses have decided not to bring a new product to market.
•The U.S. Chamber of Commerce says that some two-thirds of small companies would drop employee health coverage if exposed to increased liability.
Congress finally has begun to recognize the adverse impact that liability issues have for business, especially for small companies that lack large corporations' resources. Where Congress for years was firmly under the sway of suit-happy trial lawyers, in recent years the legislature has grown more sensitive to the impact that economic factors, from government regulation to liability, have on small companies.

Congress also has moved to limit legal liability on small businesses in environmental Superfund cases, which cover cleanup of the worst contaminated sites in the country. This law is legendary for the wide latitude given the government to go after any company identified as potentially responsible for dumping waste -- regardless of their contribution to the Superfund site or their ability to pay damages. A bill to reauthorize Superfund would eliminate liability in such cases for companies that have fewer than 75 employees or less than $3 million in revenue. While there is some controversy over the specific exemption that will be crafted for small business, it is increasingly clear that some limitation will be enacted.

Finally, several senators have introduced legislation that aims to protect small-business owners from frivolous lawsuits and the threat of being stuck with the whole tab in such cases, like Superfund, where they were minor players. The bill limits the amount of punitive damages to twice compensatory damages or $250,000, whichever is less.

It's about time.

Source: 1999 Penton Media

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