[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2366 Engrossed in House (EH)]


  2d Session

                               H. R. 2366

_______________________________________________________________________

                                 AN ACT

    To provide small businesses certain protections from litigation 
excesses and to limit the product liability of nonmanufacturer product 
                                sellers.
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
106th CONGRESS
  2d Session
                                H. R. 2366

_______________________________________________________________________

                                 AN ACT


 
    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 2000''.
    (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 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;
            (2) there is a need to restore rationality, certainty, and 
        fairness to the legal system;
            (3) 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;
            (4) 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;
            (5) 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;
            (6) 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;
            (7) 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;
            (8) 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;
            (9) liability reform for small businesses will promote the 
        free flow of goods and services, lessen burdens on interstate 
        commerce, and decrease litigiousness; and
            (10) 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 in 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;
                    (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. 3729-3733) 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 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.

            Passed the House of Representatives February 16, 2000.

            Attest:

                                                                 Clerk.