    [Senate Hearing 109-421]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 109-421

         DEFECTIVE PRODUCTS: WILL CRIMINAL PENALTIES ENSURE CORPORATE
                                ACCOUNTABILITY?

    =======================================================================

                                    HEARING

                                   before the

                           COMMITTEE ON THE JUDICIARY
                              UNITED STATES SENATE

                           ONE HUNDRED NINTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 10, 2006

                                   __________

                              Serial No. J-109-63

                                   __________

             Printed for the use of the Committee on the Judiciary

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    27-707 PDF                 WASHINGTON : 2006
    ______________________________________________________________________________
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                           COMMITTEE ON THE JUDICIARY

                     ARLEN SPECTER, Pennsylvania, Chairman
    ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont
    CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
    JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
    MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
    JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
    LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
    JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
    SAM BROWNBACK, Kansas                RICHARD J. DURBIN, Illinois
    TOM COBURN, Oklahoma
               Michael O'Neill, Chief Counsel and Staff Director
          Bruce A. Cohen, Democratic Chief Counsel and Staff Director

                                C O N T E N T S

                                  ----------

                        STATEMENTS OF COMMITTEE MEMBERS

                                                                       Page

    Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin...     2
    Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont,
      prepared statement.............................................   130
    Sessions, Hon. Jeff, a U.S. Senator from the State of Alabama....    20
    Specter, Hon. Arlen, a U.S. Senator from the State of
      Pennsylvania...................................................     1

                                   WITNESSES

    Engler, John, Former Governor of Michigan, and President,
      National Association of Manufacturers, Washington, D.C.........     9
    Maron, Barry J., M.D., Director, Hypertrophic Cardiomyopathy
      Center, Mineapolis Heart Institute Foundation, Minneapolis,
      Minnesota......................................................     4
    Mays, Donald L., Senior Director, Product Safety and Consumer
      Sciences, Consumers Union, Yonkers, New York...................    15
    Panish, Brian J., Panish, Shea and Boyle, LLP, Los Angeles,
      California.....................................................     7
    Schwartz, Victor E., Shook, Hardy and Bacon, LLP, Washington,
      D.C............................................................    13
    Steinbuch, Rob, Professor, University of Arkansas at Little Rock,
      William H. Bowen School of Law, Little Roxk, Arkansas..........    12
    Vandall, Frank, Professor, Emory School of Law, Atlanta, Georgia.    11

                             QUESTIONS AND ANSWERS

    Responses of John Engler to questions submitted by Senator
      Specter........................................................    32
    Responses of Barry J. Maron to questions submitted by Senator
      Specter........................................................    39
    Responses of Donald L. Mays to questions submitted by Senators
      Specter and Leahy..............................................    44
    Responses of Brian J. Panish to questions submitted by Senators
      Specter and Leahy..............................................    53
    Responses of Victor E. Schwartz to questions submitted by
      Senators Specter and Leahy.....................................    61
    Responses of Rob Steinbuch to questions submitted by Senators
      Specter and Leahy..............................................    76
    Responses of Frank Vandall to questions submitted by Senators
      Specter and Leahy..............................................    81

                           SUBMISSIONS FOR THE RECORD

    Center for Corporate Policy, Charlie Cray, Director, Washington,
      D.C, prepared statement........................................    89
    Claybrook, Joan, President, Public Citizen, Laura MacCleery,
      Deputy Director, Auto Safety Group, Public Citizen, and Rachel
      Weintraub, Director of Product Safety & Senior Counsel,
      Consumer Federation of America, Washington, D.C., joint
      prepared statement.............................................   102
    Engler, John, former Governor of Michigan, and President,
      National Association of Manufacturers, Washington, D.C.,
      prepared statement.............................................   114
    Hester, Theordore M., King & Spalding, LLP, Washington, D.C., on
      behalf of Guidant Corporation, letter..........................   128
    Maron, Barry J., M.D., Director, Hypertrophic Cardiomyopathy
      Center, Mineapolis Heart Institute Foundation, Minneapolis,
      Minnesota, prepared statement..................................   132
    Mays, Donald L., Senior Director, Product Safety and Consumer
      Sciences, Consumers Union, Yonkers, New York, prepared
      statement and oral testimony...................................   137
    New York Times, Stephen Labaton, March 10, 2006, article.........   149
    Panish, Brian J., Panish, Shea and Boyle, LLP, Los Angeles,
      California, prepared statement.................................   152
    Schwartz, Victor E., Shook, Hardy and Bacon, LLP, Washington,
      D.C., prepared statement and attachment........................   179
    Steinbuch, Rob, Professor, University of Arkansas at Little Rock,
      William H. Bowen School of Law, Little Roxk, Arkansas, prepared
      statement......................................................   202
    Terwilliger, George J., III, White & Case LLP, Washington, D.C.,
      prepared statement and attachment..............................   213
    Vandall, Frank, Professor, Emory School of Law, Atlanta, Georgia,
      prepared statement and attachement.............................   246

         DEFECTIVE PRODUCTS: WILL CRIMINAL PENALTIES ENSURE CORPORATE
                                ACCOUNTABILITY?

                                  ----------

                             FRIDAY, MARCH 10, 2006

                                  United States Senate,
                                    Committee on the Judiciary,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 9:30 a.m., in
    room SD-226, Dirksen Senate Office Building, Hon. Arlen
    Specter, Chairman of the Committee, presiding.
        Present: Senators Specter, Sessions and Kohl.

     OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM
                       THE STATE OF PENNSYLVANIA

        Chairman Specter. Good morning, ladies and gentlemen. The
    Senate Judiciary Committee will now proceed with our hearing on
    the subject of defective products, with a focus on whether the
    imposition in certain extraordinary circumstances of criminal
    penalties would promote individual and corporate
    accountability.
        The essential issue is that when an individual knowingly,
    maliciously, intentionally engages in reckless conduct which
    results in the death of another person, such conduct
    constitutes malice at common law and supports prosecution for
    murder in the second degree. The issue which the Committee will
    be exploring is whether that would be, as a matter of public
    policy, appropriate for legislation at the Federal level.
        I would have preferred to have held this hearing last
    Tuesday when it was originally scheduled, but the Judiciary
    Committee has had a very, very heavy workload and we were
    occupied with the immigration reform legislation, so we had to
    put it off. And the question was whether we put it off for
    several weeks or try to move ahead, and many witnesses were
    lined up and we thought we would do it on Friday, since we had
    an open date.
        Friday is not a very good day to hold hearings from the
    point of view of having Senators present, but it is a good day
    to hold hearings from the point of view of being uninterrupted
    because the Senate is not in session today, so there will not
    be votes, which frequently occur which delay the hearings.
        Senators characteristically return to their home States as
    soon as the Senate is not in session to take care of business
    in their home States. As a matter of fact, later today I will
    be back in Pennsylvania myself. We have heard that at least one
    other Senator plans to attend, and we will see what develops
    and there may be others who come in.
        The issue at hand came into very sharp focus many years ago
    with the Pinto case, where there were corporate documents which
    showed that the gas tank was placed in a dangerous position
    because it was cheaper to put the gas tank in that locale and
    to pay damages for injuries and deaths, that it would be a
    matter of corporate profitability.
        That case made a fair size impact on me personally. I was
    district attorney of Philadelphia at the time. There ultimately
    was a prosecution in that case by a local prosecutor in
    Indiana, I believe, and there was an acquittal. From all
    indications, the case was not handled as well as it might have
    been, certainly not as well as a Federal prosecution would be.
        Welcome, Senator Kohl.
        The problems continue at the present time with story just
    last week in the New York Times concerning the Guidant
    Corporation, where there was knowledge for 3 years that its
    heart defibrillator might short-circuit and fail after being
    implanted. The publication in the New York Times suggested that
    a number of patients might have died there, and the problem is
    as current as the Guidant case and we will hear some testimony
    on that today.
        In selecting the matters to be presented in the hearing, we
    necessarily have gone to some cases which are old cases, and
    they have been selected because they make the point. To the
    extent that this conduct continues at the present time is
    something which we will endeavor to determine.
        It is not our intent to create any further problems for any
    companies which are having tough times in a tough market. I
    think it not inappropriate to note that foreign manufacturers
    illustratively of automobiles would have liability. Even though
    the cars were manufactured out of the United States, where they
    are sold in the United States and injuries occur in the United
    States, that would be within the jurisdiction of Federal
    legislation. So as a competitive matter, it would balance out.
        Let me yield at this time to my distinguished colleague,
    Senator Kohl, of Wisconsin.

     STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE STATE OF
                               WISCONSIN

        Senator Kohl. Thank you very much, Senator Specter. I
    appreciate very much your calling this hearing today. It is an
    unfortunate truth that from time to time consumers are injured
    by products they purchase. Your bill tries to minimize the
    frequency of these injuries by punishing anyone who would
    knowingly sell unsafe items. That is an admirable and a serious
    approach to the issue, but not the only one.
        Another way to protect consumers is to let them know when
    the products they buy have done harm to others. This is the
    goal of a bill that I have supported for many years called the
    Sunshine in Litigation Act. This bill would curb the ongoing
    abuse of secret settlement agreements in Federal courts. The
    result of this abuse is to keep important health and safety
    information from the public.
        The problem is not hard to understand. Typically, an
    individual sues a manufacturer for an injury resulting from a
    product defect. The injured person has limited resources and
    faces a corporation that can spend an unlimited amount of money
    to delay and defend the case. Facing a formidable opponent,
    plaintiffs often seek to settle the litigation. In exchange for
    the award that they sought, the victim agrees to keep secret
    information disclosed during the litigation. While the
    plaintiff gets a respectable settlement, the defendant keeps
    secret the information about the defective product. Others
    eventually pay the price, as the public remains unaware of
    critical public health and safety information that could
    potentially save lives.
        The most famous case of abuse involved Bridgestone-
    Firestone tires. From 1992 to 2000, tread separations of
    various tires were causing accidents across the country, many
    resulting in serious injuries and even fatalities. Instead of
    acting responsibly, Bridgestone-Firestone quietly settled
    dozens of lawsuits, most of which included secrecy agreements.
    It wasn't until 1999 when a Houston public television station
    broke the story that the company acknowledged its wrongdoing
    and recalled 6.5 million tries. But by then, it was too late to
    prevent many unnecessary injuries and deaths which occurred.
        The case of General Motors fuel tanks also demonstrates the
    problem. An internal memo showed that GM was aware of the risks
    from crashes of trucks with side-saddle fuel tanks which
    eventually led to an estimated 750 fatalities. When victims
    sued, GM disclosed documents only under protective orders and
    settled these cases on the condition that the information
    remain secret. GM used this type of fuel tank for 15 years
    before it was discontinued.
        There are no records kept of the number of confidentiality
    orders accepted by the State or Federal courts. However,
    anecdotal evidence suggests that court secrecy and confidential
    settlements are prevalent. Beyond General Motors and
    Bridgestone-Firestone, secrecy agreements had real-life
    consequences by allowing Dalkon Shield, Bork-Shiley heart
    valves, Con Edison cable covers and numerous other dangerous
    products to remain on the market.
        The Sunshine in Litigation Act is a modest proposal that
    would require Federal judges to perform a simple balancing test
    to compare the defendant's interest in secrecy against the
    public's interest in health and safety information.
    Specifically, prior to making any portion of a case
    confidential or sealed, a judge would have to determine by
    making a particularized finding of fact that doing so would not
    restrict the disclosure of information relevant to public
    health and safety.
        Moreover, all courts, both Federal and State, would be
    prohibited from issuing protective orders that prevent
    disclosure to relevant regulatory agencies. Of course,
    important trade secret information could still be kept private.
    This legislation does not prohibit secrecy agreements across
    the board. It does not place an undue burden on judges or our
    courts. It simply states that where the public interest in
    disclosure outweighs legitimate interests in secrecy, then
    courts should not shield important health and safety
    information from the public.
        Mr. Chairman, letting sunshine in on these secret
    settlements would complement your legislation on defective
    products, and I hope that we can work together on this issue to
    protect consumers.
        Thank you, Mr. Chairman.
        Chairman Specter. Thank you very much, Senator Kohl.
        Senator Leahy, the Ranking Member of this Committee, could
    not be here today. When the hearing was rescheduled, he could
    not make it. He had other business in his State to attend to.
    But without objection, we will make his statement a part of the
    record. The first paragraph I think it appropriate to read
    briefly.
        Senator Leahy in his statement writes, quote, ``Today, we
    convene to discuss the merits of legislation that would provide
    Federal criminal penalties for the introduction of dangerously
    defective products into the stream of interstate commerce. This
    is important legislation that could protect millions of
    Americans and its potential is something we should carefully
    explore. Today's hearing is a good start, and I commend
    Chairman Specter for his efforts here.''
        Our first witness this morning is Dr. Barry Maron, Director
    of the Hypertrophic Cardiomyopathy Center at Minneapolis Heart
    Institution Foundation, and was active in disclosures on the
    Guidant defibrillator case. Dr. Maron received his
    undergraduate degree from Occidental College, in Los Angeles,
    and his M.D. from Tulane University in New Orleans.
        By way of brief additional introduction, the New York Times
    just yesterday published a story accounting for certain events
    in this matter, and one worth noting specifically was a
    memorandum submitted by a consultant, Dr. Richard Fogus, who
    told the company that their decision to withhold data about
    device defects was a breach of ethical duty and has subjected
    patients to the risk of serious bodily harm or, beyond that,
    fatalities.
        Dr. Maron, thank you for joining us. The rule of our
    Committee is that there be 5-minute opening statements, and
    before you testify I would like to have all the witnesses stand
    and have the oath administered, which is the Committee's
    practice.
        Do each of you solemnly swear that the testimony you will
    give this Senate Judiciary Committee will be the truth, the
    whole truth and nothing but the truth, so help you God?
        May the record show that all have answered in the
    affirmative.
        Dr. Maron, the floor is yours.

       STATEMENT OF BARRY J. MARON, M.D., DIRECTOR, HYPERTROPHIC
    CARDIOMYOPATHY CENTER, MINNEAPOLIS HEART INSTITUTE FOUNDATION,
                         MINNEAPOLIS, MINNESOTA

        Dr. Maron. Thank you, Chairman Specter, Senator Kohl. As
    you mentioned, my name is Dr. Barry Maron. I am a cardiologist,
    in Minneapolis, at the Minneapolis Heart Institute.
        Hypertrophic cardiomyopathy, also known as HCM, is a
    genetic form of heart disease and the most common cause of
    sudden cardiac death in young people, including athletes. Since
    2000, I have promoted the implantable defibrillator as a
    preventive therapy for sudden death in hypertrophic
    cardiomyopathy, and with good reason, for we have demonstrated
    repeatedly that the defibrillator is life-saving by virtue of
    recognizing and automatically terminating lethal disturbances
    of heart rhythm.
        In 1999, I and my colleague, Robert Hauser, treated a 21-
    year-old student, Joshua Oukrop. He had a severe form of this
    disease and was at high risk for sudden and unpredictable
    death. We recommended that a defibrillator be implanted as a
    prophylactic measure in late 2001. The model is Guidant Prizm
    2DR 1861.
        Three-and-a-half years after receiving his defibrillator,
    Joshua Oukrop died unexpectedly while on vacation in Utah.
    Analysis of the defibrillator by Guidant found that a short-
    circuiting defect caused the device to become electrically
    inoperative and to fail. When the defibrillator tried to issue
    a life-saving shock, electrical energy short-circuited and
    dissipated, and therefore did not enter Joshua's heart as it
    should have and he was unprotected and he died.
        Shortly thereafter, in a meeting with four Guidant
    executives, I learned that this precise problem had been known
    by the company for over 3 years, but only to Guidant and to any
    physicians or patients. It was obvious that Guidant believed
    that it was correct, and even prudent, to conceal all
    information related to such defibrillator defects. I was asked
    for my opinion on this strategy and I said I think this is
    going to be the biggest mistake you will ever make. They said
    they did not agree.
        Mr. Oukrop's reaction, the father: ``I told Joshua that the
    defibrillator was his best chance, that it would allow him to
    survive and live his life, and you are telling me that they
    knew all along?'' In fact, at that time Guidant did know. They
    had already documented 25 other similar short-circuited
    defibrillators and had already made adjustments in 2002 to
    newly manufactured defibrillators to correct the problem.
    Still, Guidant had not informed physicians, patients or the
    Government. Furthermore, and perhaps most disturbing, the
    company continued to sell old defibrillators known to be
    defective.
        Therefore, this death was not due to an unforeseen, random
    component failure, as the company once suggested, but, in fact,
    was a systematic, repetitive, and to some extent predictable
    problem that cannot be anticipated or monitored. In effect,
    Guidant had taken over the primary medical management of
    thousands of high-risk defibrillator patients without their
    permission. It was the executives who were practicing medicine
    in this situation and not the physicians.
        Only because the facts of this unfortunate situation were
    documented in a series of New York Times articles by Barry
    Meier have these problems in the defibrillator industry become
    evident to all. In fact, these circumstances ultimately led to
    the largest recall of defibrillators and pacemakers in the 25-
    year history of this industry.
        The Guidant affair is about patients and their physicians,
    and the overwhelming importance of informed consent and full
    disclosure to patients through their physicians. Patients have
    the right to know any information that could potentially impact
    their risk for injury or death. It simply is not ethical to
    withhold such information. Patients must have this autonomy,
    the opportunity to make important medical decisions in
    conjunction with their fully informed physicians.
        It is also important to establish what the Guidant affair
    is not. It is not a statistical issue. It is not about
    percentages and probabilities, because patients are not
    numbers. They are individuals with a reasonable expectation
    that industry will communicate openly and accurately with their
    physician. I think most observers agree that that did not
    happen here. One of our patients told a Guidant executive,
    quote, ``It is just not your call to make,'' unquote. Most of
    the cardiovascular community, I think, would agree with that.
        It is time for greater oversight, greater transparency and
    communication between industry and the physician community in
    order to restore the trust of patients in powerful medical
    devices such as the implantable defibrillator. To make it
    criminal to knowingly sell defective defibrillators would, I
    think, have the desired effect on the willingness of companies
    to make full disclosure. However, such a bill would have to be
    drawn narrowly enough to avoid a potentially chilling effect on
    law-abiding companies whose products could, in fact, have
    occasional random defects.
        Thank you for the opportunity to tell this story to the
    Committee.
        Chairman Specter. Thank you, Dr. Maron.
        We had extended an invitation to Guidant to come in and
    participate in the hearing so that they would have an
    opportunity to respond to what Dr. Maron has testified to.
    Ordinarily, we await the conclusion of the entire panel before
    Senators question and we will follow that as a generalization
    here today, but in an effort to get Guidant's point on the
    record contemporaneously with your testimony, Dr. Maron, I note
    that your statement says that Guidant executives believed that
    it was correct, and even prudent, to conceal all information
    related to such defibrillator defects.
        To state their position to the extent you can, when you say
    that they believed it was correct and even prudent, what
    factors would lead Guidant to that conclusion?
        Dr. Maron. Yes. That argument includes the idea that they
    did not want to frighten the general public, and part of that
    would have been that--and this is their position, obviously,
    not mine--patients would have their devices removed, these
    potentially defective devices, and replaced with other devices,
    and that would place these patients at undue risk.
        The risk I think they are talking about there is the small
    risk of infection which is treatable. It is less than 1
    percent, and every patient who has a defibrillator must have
    their device removed and replaced every 5 years, on the
    average, anyway. So the argument is a little bit weak in the
    sense that they are suggesting a danger by replacing
    defibrillators that would have to be replaced anyway as a
    course of the standard management of their disease and the
    defibrillator.
        Chairman Specter. Thank you, Dr. Maron.
        [The prepared statement of Dr. Maron appears as a
    submission for the record.]
        Chairman Specter. Our next witness is Mr. Brian Panish,
    lead plaintiff's counsel in the products liability case against
    General Motors involving a defective 1979 Chevrolet Malibu fuel
    tank that caused serious bodily injury to several people. Mr.
    Panish received his undergraduate degree from California State
    University and his law degree from Southwestern University Law
    School.
        Mr. Panish, you are going to be testifying about a case
    which is admittedly an old case, and I think that ought to be
    plain on the record so that those who are listening to it
    understand that these events happened a long while ago and do
    not necessarily mean that General Motors is engaging in the
    same conduct at the present time. But the case did receive
    considerable public attention because of the underlying facts
    and it was decided that this is a case which had value for a
    public understanding of the nature of the problem.
        Thank you for joining us and we look forward to your
    testimony.

    STATEMENT OF BRIAN J. PANISH, PANISH, SHEA AND BOYLE, LLP, LOS
                          ANGELES, CALIFORNIA

        Mr. Panish. Well, thank you. Good morning, and I thank the
    members of the Committee for inviting me to speak here today.
    This issue is an issue extremely important to the health and
    safety of all Americans, and I am pleased that the Senate
    Judiciary Committee is taking the time to examine it in detail.
        I am also encouraged by your willingness, Senator Specter,
    to consider additional legislative steps that would complement
    the civil justice system in helping to deter corporations from
    selling products that they know are dangerous. I look forward
    to working with the Committee on this issue.
        I have seen firsthand the devastating impacts that
    corporate deceit can have on a family. I represented Patricia
    Anderson and her four children in a case against General Motors
    that went to trial in 1999.
        Chairman Specter. That went to trial in 1999?
        Mr. Panish. Was the trial, yes, sir.
        Patricia and her children suffered horrendous and
    disfiguring burn injuries by General Motors because General
    Motors put a car on the market, the Malibu, that it knew
    contained dangerous defects related to the placement of the
    fuel system. If the tank had been designed differently, the
    vehicle would not have exploded when it was rear-ended and the
    children would have suffered only minor injuries and walked
    away.
        On Christmas Eve, Patricia and her children were returning
    from church in their 1979 Malibu. As they approached an
    intersection, their vehicle was rear-ended and the gas tank,
    due to its close location to the bumper, was punctured,
    resulting in leakage of fuel and a huge explosion. Patricia saw
    smoke and flames and heard her children asking Jesus to help
    them. Her 8-year-old daughter Kiontra tried to shield her
    younger brother and sister from the flames with her body. As a
    result, she received horrific burn injuries.
        Several witnesses immediately rushed to the vehicle trying
    to free the passengers, but the door knobs were too hot to open
    the doors. So they used a shopping cart to smash the window to
    remove the passengers. As a result of the fire, Patricia and
    her children suffered third-degree burns over large portions of
    their bodies and underwent numerous skin-grafting surgeries
    which involved taking healthy skin from other parts of their
    bodies and grafting it to the unhealthy skin that had been
    burned. The burns resulted in loss of limb, severe scarring and
    significant deformities. The scarring resulted in serious pain
    to the children as they grew, causing future surgeries, loss of
    range of motion and serious psychological damage.
        General Motors knew what was going to happen. What makes
    this horrible story more outrageous is that the injuries were
    preventable. Before General Motors sold the gas tank in the
    Malibu, they knew that the placement was dangerous. The
    evidence revealed that they knew a safer location of the fuel
    tank existed, that they had performed cost/benefit analysis
    comparing the cost of human life in a dollar amount versus the
    cost of redesigning the fuel system. They knew that its testing
    was woefully inadequate and they made a conscious decision to
    sell a product they knew was dangerous and could cause death or
    serious injury.
        At trial, we established and the evidence proved that
    General Motors knew for several decades that a safer design
    existed. As far back as 1961, Ed Cole, a design engineer who
    later became president of General Motors, had patented an over-
    the-axle tank that had been proposed that GM had designed
    prototype vehicles for and had tested. GM again had engineers
    perform cost/benefit analysis evaluating the location of the
    fuel system, and in this case less than 11 inches from the rear
    bumper, in a memo which later became known as the Ivey memo,
    and I have provided copies.
        Mr. Ivey determined that about 500 deaths per year were
    caused by fuel-fed fires and they, General Motors, would spend
    an average of $200,000 per fatality. Mr. Ivey further concluded
    that based on the number of vehicles on the roadway, General
    Motors would spend approximately $2.40 per vehicle to prevent
    fuel system-fed fires. The amount to redesign and place the gas
    tank in the alternative location cost $8.59. At trial, the
    chief design engineer of fuel systems testified that performing
    cost/benefit analysis of human life was despicable. Finally, in
    1983, this memo came to light and Mr. Ivey was interviewed by
    General Motors lawyers and admitted that, in fact, he had
    performed this memo for his superiors, that he was directed to
    perform it, and the jury was able to hear the cold, calculated
    decisions that General Motors made.
        Patricia Anderson and her children's lives will never be
    the same. Perhaps your attention to this issue will avoid
    similar outcomes for other families. This case illustrates the
    vital role the civil justice system plays in both revealing
    facts that are important to the public's health and safety and
    attaining some measure of justice for those families injured or
    killed due to the deliberate actions of others.
        Sadly, this is not the only example of corporate executives
    choosing to risk the lives and futures of families like the
    Andersons for a few extra dollars of profit. Not too long ago,
    we faced the Ford-Firestone crisis. I encourage any additional
    steps this Committee can take to see that only safe products
    are put on the market and that if a product well on the market
    is determined unsafe that the manufacturers do the right thing
    and remove it from the market. The threat of criminal sanctions
    could help corporate execs make better and safer choices.
        I thank you for your time and welcome any questions you may
    have. Thank you.
        [The prepared statement of Mr. Panish appears as a
    submission for the record.]
        Chairman Specter. Thank you very much, Mr. Panish.
        Our next witness is the former Governor of the State of
    Michigan, Mr. John Engler, now the President of the National
    Association of Manufacturers--three-term Governor, actually,
    from Michigan, with extensive experience as majority leader of
    the Michigan State Senate before that. He has his undergraduate
    degree from Michigan State and his law degree from Thomas
    Cooley Law School.
        We welcome you back to the Judiciary Committee, Governor
    Engler. You were here to testify about the asbestos crisis,
    which has caused serious injuries to tens of thousands of
    people and resulted in 77 bankruptcies and an enormous drain on
    the economy. I mention that because it is relevant as to your
    contribution and help to the Senate, and also to say that we
    are still working on asbestos. So you may be recalled at a
    later time.
        But today you are here representing the National
    Association of Manufacturers and we welcome you to give another
    perspective on this issue.

      STATEMENT OF JOHN ENGLER, FORMER GOVERNOR OF MICHIGAN, AND
     PRESIDENT, NATIONAL ASSOCIATION OF MANUFACTURERS, WASHINGTON,
                                  D.C.

        Governor Engler. Thank you very much, Mr. Chairman. I am
    delighted to be back, and I also want to compliment you on the
    work that you have been doing this week on immigration, also a
    very important topic. We are grateful for you and the
    Committee.
        Mr. Chairman, the National Association of Manufacturers is
    the Nation's largest industrial trade association, representing
    small and large manufacturers in every industrial sector in all
    50 States, including Senator Kohl's State of Wisconsin. Through
    our direct membership and our affiliated organizations, the
    Council of Manufacturing Associations, the Employer Association
    Group and State Associations Group, we represent more than
    100,000 manufacturers. We are grateful for the invitation and
    the opportunity to testify on this very important question:
    Would it be wise to make the act of knowingly allowing a
    defective to be introduced into the stream of interstate
    commerce a criminal offense?
        While this proposal may be well-intentioned, the NAM
    believes it is fraught with many unforeseen and potentially
    counterproductive consequences. The National Association of
    Manufacturers does not defend any manufacturing employee who
    would intentionally introduce a defective product into the
    marketplace. However, we are here today because of our concern
    about the real-world and practical difficulties of
    criminalizing what often are subjective judgments.
        There already are criminal statutes at the disposal of a
    U.S. Attorney to address this kind of behavior. This relatively
    new idea of criminalizing product liability has been explored
    by Congress at least twice in the recent past, in 2000--this
    has been mentioned already--when the Transportation Recall
    Enhancement, Accountability and Documentation Act was passed.
    That was the Firestone-Ford matter.
        More recently, a criminal penalties provision for maritime
    products actually showed up in the Senate-passed Coast Guard
    Authorization Act of 2004. That language didn't have the chance
    to come before this Committee, was not publicly debated, ended
    up being modified in conference and ultimately tied to
    objective criteria.
        In both cases, the NAM felt that the committees with
    jurisdiction over criminal penalties--and that would be the
    respective Judiciary Committees of the Senate and House--needed
    to explore the issue more carefully. Here is why. Thousands of
    decisions are made in a manufacturing company everyday by the R
    and D staff, by the engineers, product and quality personnel,
    assembly line and factory floor workers.
        Defining ``product defect'' is one of the most complex and
    varied aspects of product liability, as evidenced by the
    numerous variations of product defect standards among the
    States. At the same time, the legal concept of what constitutes
    a criminal act is sort of being whittled away by the courts.
        Imagine the dilemma faced by a manufacturer who keeps very
    precise records about products that are returned. What if one
    or more proved to be defective? Even if the defect rate is
    extremely low, would the manufacturer knowingly be placing a
    defective product into the stream of interstate commerce simply
    because the product line is not one hundred-percent defect-
    free? Are we seeking to hold a manufacturer criminally liable
    for the one-in-a-million problem? By the same token, would
    criminal intent be established if there was a warning label and
    that warning label was not clear enough for every single
    consumer user of the product to understand?
        Every product can cause injury under some circumstances.
    Justice Breyer wrote, ``Using this vivid example, over the next
    13 years we could expect more than a dozen deaths from ingested
    toothpicks,'' end quote. If product liability violations were
    criminalized, actual victims also might find themselves forced
    to wait out the criminal justice system.
        Mr. Panish's example of a trial that took place in 1999--
    that would be a long wait, almost as long as some of those
    asbestos cases, Senator. But no judge presiding over civil
    litigation is certainly going to force an individual involved
    to forswear his or her right to Fifth Amendment protections.
    The criminalization of product liability law could impede
    safety, as companies delay improving products for fear it will
    be seen as an admission that their products are dangerous.
        Poorly conceived legislation could end up forestalling
    fact-finding, including how and why the problem occurred. It
    could also worsen the U.S.'s comparative advantage, or in this
    case disadvantage, in legal costs which, expressed in GDP
    terms, are twice as high as in other industrial nations that we
    compete everyday with.
        As you consider this matter, I hope that this Committee
    will remember the genesis of punitive damages in the common law
    is that they were to serve as a substitute punishment and
    deterrent for acts that would be difficult to criminalize. We
    are pleased that the Judiciary Committee is studying the issue.
    We hope the Committee will carefully weigh the arguments and
    conclude that the proposal to criminalize product liability as
    prepared today is not a good idea.
        We are happy to answer questions, Mr. Chairman.
        [The prepared statement of Governor Engler appears as a
    submission for the record.]
        Chairman Specter. Thank you very much, Governor Engler.
        Our next witness is Professor Frank Vandall, a professor at
    the Emory School of Law. He has written extensively on torts,
    product liability and design defects of consumer products. He
    received his undergraduate degree from Washington and Jefferson
    College, near Pittsburgh, and his law degree from Vanderbilt
    University.
        Thank you for coming to Washington today, Professor
    Vandall, and we look forward to your testimony.

      STATEMENT OF FRANK VANDALL, PROFESSOR, EMORY SCHOOL OF LAW,
                            ATLANTA, GEORGIA

        Mr. Vandall. Mr. Chairman, Senator Sessions, it is my
    pleasure to be here. I would like to discuss with you two
    concepts--preemption and non-enforcement of the law.
        Preemption is a recent development and holds that Federal
    statutes or regulations may preempt a State statute, regulation
    or the common law. Preemption emanates from the Supremacy
    Clause of the Constitution, Article VI, section 2. My reading
    of the key cases--Cipollone v. Liggett, Geir v. American Honda
    and Medtronics v. Lohr--is that the Federal courts can decide
    to preempt State law at will. The goal in a preemption case is
    to discern the intent of Congress. Therefore, it is on a case-
    by-case basis and there is no black letter law of preemption.
    The bill as drafted leaves open the risk that it may be
    interpreted to preempt State products liability law.
        Non-enforcement refers to the issue of whether or not a
    particular written law will be enforced. Because of
    insufficient funds and a shortage of personnel in the
    investigative and prosecutorial levels, there is a real risk
    that the Act will not be enforced. People respond to the level
    of enforcement, not the written law. This can be shown by
    driving on the interstate in Atlanta, Georgia. The speed limit
    is 70 miles an hour. The people travel at 80 miles an hour,
    until they see a police car. Then they slow down to 70 or 65.
        My concern is the interplay between preemption and non-
    enforcement. Once the bill is passed, it is likely that the
    courts will hold that it preempts State products liability law
    because it occupies the field. This would be a tragedy because
    civil products liability law is the cheap and effective method
    of deterring defective products.
        Further, because of the high cost of prosecuting corporate
    executives and social realities--that is that the judges and
    the CEOs come from the same class, have similar educations and
    perhaps are golfing buddies--the Act will not likely be
    enforced. The reality is that corporate executives and
    employees will not likely be prosecuted. The result will be
    that although the Act will not be enforced, it will be
    interpreted to preempt State products liability law. The
    solution is easy, and that is that the bill should clearly
    state that Congress does not intend to preempt State statutes,
    regulations or the common law with this Act.
        In conclusion, I am in favor of the bill if the phrase
    ``Congress does not intend to preempt State law'' is inserted.
    I am opposed to the bill if it could be interpreted to preempt
    State products liability law. I am concerned that the Act will
    not be fully enforced. In my opinion, a better solution than
    the bill would be to shore up and support the civil products
    liability system. The product system police, the litigation
    attorneys, are trained and ready.
        Thank you.
        [The prepared statement of Mr. Vandall appears as a
    submission for the record.]
        Chairman Specter. Thank you very much, Professor Vandall.
        We now turn to Professor Robert Steinbuch, from the
    University of Arkansas School of Law, formerly counsel to
    Senator Michael DeWine, a distinguished member of this
    Committee, and Professor Steinbuch was special counsel to the
    Justice Department at one time. He received his undergraduate
    and master's degrees from the University of Pennsylvania, and a
    law degree from Columbia.
        The floor is yours, Professor.

     STATEMENT OF ROB STEINBUCH, PROFESSOR, UNIVERSITY OF ARKANSAS
     AT LITTLE ROCK, WILLIAM H. BOWEN SCHOOL OF LAW, LITTLE ROCK,
                                ARKANSAS

        Mr. Steinbuch. Thank you, Mr. Chairman, Senator Sessions.
    It is an honor to be back before this Committee.
        Currently, only corporations are exposed to civil liability
    for risky corporate behavior. Corporate executives do not face
    a comparable liability. Corporate actors, however, receive the
    benefits of risk-taking by corporations. These corporate actors
    externalize the costs of risky behavior, but internalize those
    benefits. The result is excessively dangerous behavior and
    unsafe outcomes.
        Your legislation, Senator, will correct this. Your
    legislation will correct the incentive asymmetry that is
    created by this dual system of liability. It places non-
    transferrable costs directly on corporate actors. Your
    legislation will create appropriate incentives for data
    collection and investigation, and appropriate incentives for
    disclosure. A core premise underlying the efficient market
    theory is that adequate information is disseminated to the
    public. Your legislation will pursue this goal.
        Senator, if Sarbanes-Oxley can impose criminal penalties on
    corporate actors for financial wrongs, surely we can have the
    same standard for acts that kill. There have been several
    criticisms levied against your legislation. First is that it is
    hard to define a defect or an excessively dangerous product.
    Let's be clear about what we are talking.
        There are many products on the market today that are
    dangerous, but not excessively dangerous. There are many
    products on the market today that are dangerous, but have no
    defects. More Americans die in car accidents over 2 years than
    died in the whole Vietnam war, but cars are not inherently
    defective. They have an inherent danger. That is acceptable.
        A defect is defined in several ways; as Mr. Panish
    described, one refers to the introduction of a risk that is
    beyond what is already in the marketplace. That is
    unacceptable. There are several examples of this, some
    discussed already here. You mentioned the Ford Pinto case, a
    well-known case; the Dalkon Shield case, where the company
    allowed women to be subjected to defective products that injure
    or kill for years before it was disclosed.
        Also, Senator, I am involved with the Chest Pain Society,
    and through this work I have come to learn a little bit about
    heart attacks. If you are having a heart attack, you go to a
    hospital. You go because you want an angioplasty. You want that
    blocked blood vessel to be opened. Well, there are many
    hospitals that don't have this capability, but they want your
    business, and so they advertise the ability to treat chest pain
    patients.
        Mather Memorial Hospital in New York is one such hospital.
    They put out this flyer which is entitled ``Community News.''
    It looks like a news report. It contains articles looking like
    news reports. It is not a news report. It is an advertisement.
    In that advertisement, they say patients are seen and evaluated
    within moments of their arrival for chest pain and appropriate
    treatment is begun immediately.
        The problem with this advertising, Senator, is that they
    can't do angioplasty. What is the appropriate treatment? The
    American Heart Association and the American College of
    Cardiology says it is angioplasty, but this hospital advertises
    for your business. That is misleading. That causes death.
        Another concern raised about your bill, Senator, is that
    there may be rogue prosecutors and law enforcement pursuing
    these cases for their own personal interest. Well, I guess that
    is a possibility. I do know, Senator, that you as well as
    Senator Sessions were both prosecutors, and I trust in the
    public service of people like you to do the right thing.
        There is also the suggestion that criminal prosecution
    would delay civil recovery. That is simply wrong. Civil cases
    run parallel to criminal cases. Indeed, any plaintiff's
    attorney worth his salt wants the criminal case; it helps his
    case.
        Senator, I thank you for listening to my remarks and I am
    open to any questions.
        [The prepared statement of Mr. Steinbuch appears as a
    submission for the record.]
        Chairman Specter. Thank you very much, Professor Steinbuch.
        We now turn to Mr. Victor Schwartz, who chairs the Public
    Policy Group at Shook, Hardy and Bacon, and has been co-author
    of the most widely used tort case book in the United States. He
    has an undergraduate degree from Boston and a law degree from
    Columbia. Mr. Schwartz has appeared before Congressional
    committees with some frequency over the past couple of decades,
    to my knowledge, and he is very, very experienced in this
    field.
        We welcome you back, Mr. Schwartz.

     STATEMENT OF VICTOR E. SCHWARTZ, SHOOK, HARDY AND BACON, LLP,
                            WASHINGTON, D.C.

        Mr. Schwartz. Thank you, Senator, and good morning to you,
    Senator, and to Senator Sessions. I have been pleased to be
    invited here today. The U.S. Chamber Institute for Legal
    Reform, thousands of members, and the American Tort Reform
    Association asked me to be here on their behalf. But they have
    heard me before, so they said they are not responsible for
    anything I say.
        I do want to address something in this proposed bill
    because it it relates to a topic that I have learned from the
    people who taught me law, Bill Prosser, and for 30 years Dean
    Wade, my coauthor. They first attempted to define ``defect'' in
    Restatement of Torts (Second), where they said a defective
    product was unreasonably dangerous to the user or consumer.
    That is what they said.
        This definition of defect spawned more case law than any
    other words in the history of torts, conflicting all over the
    place. What is a design defect? What is a warning defect? Case
    books, law books, thousands of pages. Can such a word be used
    to describe a crime? You can know something, and a knowing
    standard is a very important standard, but if what you know is
    a non-descriptive word, it really isn't fair to somebody
    because they have no notice of what the crime is.
        Senator Sessions, you pointed that out in the TREAD Act
    when that was going through and helped modify it so there
    wasn't a non-descriptive word used for a crime like ``defect.''
        From 1992 to 1998, I worked with the brightest law
    professors in America. I learned then what I saw today: you can
    have two law professors and four opinions. But I also learned
    that the trouble of defining ``defect'' persists. We tried to
    define ``defect.'' It is in Restatement of Torts (Third). We
    did a better job, I think, because of the 30 years of
    experience that we had, but it is still an opaque concept.
        Just take the recent Vioxx cases. In the first case, Vioxx
    manufacturers lost a $253 million judgment under ``defect.'' In
    the second case, in Atlantic City, a jurisdiction that is
    friendly to plaintiffs, Merck won. In the third case, which was
    in Texas, there was a hung jury. In the next case, which was
    the same case moved over to Louisiana, there was a defense
    verdict. I don't think we want the criminal law to depend on
    standards like that, a roulette wheel of that type.
        The bill also tries to talk about comparative safety, and
    that is an important concept, but any product that is made
    today has a degree of safety and you usually can find a product
    that is safer and less safe. The bill suggests that the one on
    the bottom of the food chain is going to be criminally viable.
    But if they are, then you go up one more. How many safety
    features are on a product may depend on the price of the
    product. If you buy a toaster oven for $100, it is going to
    have more features than one for $20. But this would, apart from
    searching for something that I think is very hard to find, and
    that is a defective product, cause manufacturers to shun less
    expensive products that do the job, but really are not
    dangerous at the level that deserves punishment. And let me
    mention punishment.
        We have punitive damages. If anything, there is over-
    heating in the system now. Just as Sandra Day O'Connor said,
    punitive damages have run wild in this country and people don't
    know when they are going to be punished or how they are going
    to be punished or where. It is over-heated at this point, and
    that is why constitutional constraints have been put on
    punitive damages. It is really not a wise thing right now to
    add yet another vague alternative and make it criminal.
        I did want to add to the record an article by Professor
    Wheeler, who tried the Pinto criminal law case. I didn't append
    it to my testimony because I didn't want a lot of paper sent up
    here, but I think you would find it informative.
        In a nutshell, this is an idea that really does sound good.
    We don't want manufacturers to be killing people, but to put a
    crime based on the topic of defect is putting a crime based on
    a fog. And we don't want our Department of Justice to be there
    where instead of doing their job, you have good friends, like
    one who testified earlier, kind of waiting outside to see if
    there is going to be an indictment, because even if there was
    the slightest hint of an indictment, I assure you there would
    be a product liability pinata lawsuit following that that no
    one has ever seen before.
        I thank you for your time. I look forward to your
    questions.
        [The prepared statement of Mr. Schwartz appears as a
    submission for the record.]
        Chairman Specter. Thank you very much, Mr. Schwartz.
        Our final witness is Mr. Donald Mays, Senior Director for
    Product Safety and Consumer Services at Consumer Reports. He
    received his undergraduate and master's degrees from Manhattan
    College.
        Thank you for joining us today, Mr. Mays, and we look
    forward to your testimony.

     STATEMENT OF DONALD L. MAYS, SENIOR DIRECTOR, PRODUCT SAFETY
       AND CONSUMER SCIENCES, CONSUMERS UNION, YONKERS, NEW YORK

        Mr. Mays. Good morning, Chairman Specter and Senator
    Sessions. I am Donald Mays, Senior Director of Product Safety
    and Consumer Sciences for Consumers Union, publisher of
    ``Consumer Reports.'' Thank you for providing me the
    opportunity to come before you today to discuss ways to improve
    the quality and safety of the consumer marketplace and support
    all efforts to achieve this important goal.
        The ultimate question before the Committee today is whether
    or not criminal penalties will ensure corporate accountability.
    Will the threat of jail time serve as an effective deterrent in
    preventing dangerous products from reaching the hands of
    consumers? Will it force manufacturers to think twice? Would
    such legislation have prevented Ford-Firestone?
        Before we answer those questions, I believe that it is
    critical to look at why legislation targeting marketplace
    accountability is necessary for the consumer interest, which,
    based on my experience, I believe to be very much the case.
        My career has focused on product safety and performance
    testing for manufacturers and retailers, as well as for
    consumers. I believe I bring to the floor a unique perspective
    of someone who understands the competitive pressures of getting
    new products to the marketplace as quickly and as economically
    as possible. And from a consumer perspective, I understand the
    need to trust that all the products in the marketplace are
    produced with a high degree of integrity and safety.
        My breadth of experience includes work in laboratories and
    factories both here and abroad. It has exposed me to countless
    examples of suppliers that failed to diligently build safety
    into their products. What is more disturbing are cases that I
    have seen where manufacturers and retailers have continued to
    sell unsafe products, despite the emergence of a clear hazard
    pattern that results in serious injury.
        My product safety work and expertise have led me to six
    overall conclusions that I would like to share with the
    Committee. No. 1, many injuries are avoidable if adequate pre-
    market safety testing is conducted. Two, manufacturers do not
    always react responsibly when informed that their products
    could potentially cause a repeated pattern of death or injury.
        Three, due to changes in the global marketplace, consumers
    face increased risk from defective products. Four, there is a
    lack of compliance with voluntary safety standards. Five, there
    is inadequate enforcement authority, resources and activity by
    Federal agencies. And, six, civil penalties may not be an
    effective deterrent in preventing unsafe products from being in
    the marketplace. An example: a $750,000 civil penalty levied
    against Wal-Mart in 2003 for failing to report safety hazards
    with fitness machines cost the company an equivalent of their
    sales rung up in only 1 minute and 33 seconds.
        So, clearly, Consumers Union strongly believes that the
    consumer marketplace does, in fact, need greater
    accountability. Consumers Union supports the introduction of
    legislation clearly designed to deter company employees with
    decisionmaking authority from knowingly jeopardizing consumer
    safety. And on this point, please let me be clear. We
    understand that any company can make a mistake, but it is what
    companies do after they have taken the time to do their due
    diligence and establish that they have a defect that could
    likely cause bodily injury or death that should be the focus of
    this bill. If companies don't go public and they continue to
    sell their defective products, then the individuals responsible
    should be punished to the fullest extent possible.
        We believe the language of any legislation should be
    targeted so that responsibility cannot be avoided by company
    representatives who have the power to ensure that unsafe
    products are not marketed. In addition, knowledgeable employees
    who fail to pass along this information to appropriate
    government agencies should be held criminally responsible.
    Without this important information, government watchdog
    agencies are ineffective.
        Furthermore, we believe the scope of any bill should be
    broad enough to underlie the entire marketplace and include not
    only traditionally manufactured products, but also vehicles,
    foods and drugs. A company representative that knowingly allows
    the introduction of tainted meats or hazardous pharmaceuticals
    to the market should be just as culpable as manufacturers that
    produce unsafe vehicles. We believe that the triggers for
    determining when a product is defective must be clearly defined
    and that an appropriate definition of ``defective'' is when a
    product could potentially cause a repeated serious injury or
    death.
        Finally, this legislation should be expanded and address
    head-on how a company whose employees are prosecuted under the
    law must deal with removing their defective product from the
    marketplace. While it sends a strong message to make corporate
    officials responsible for their misdeeds, it is also important
    to take timely and effective measures to inform and assist
    consumers who still have the unreasonably dangerous product in
    their home. To prevent future death and injury, the product
    itself should also be placed behind bars so that it cannot
    cause anymore harm.
        Therefore, we urge you to consider expanding corporate
    duties to include an intensive effort on the part of the
    manufacturer to get the defective products off the market.
    Companies should at least be required to spend advertising
    dollars to inform consumers about their defective products with
    as much splash and sophistication as they spend on marketing it
    in the first place. Effective legislation to ensure responsible
    corporate behavior must focus on appropriate liability in a
    court of law and accountability in the court of public
    expectations.
        I thank the Chairman and other members of the Committee for
    the opportunity to testify and I look forward to answering
    questions. Thank you.
        [The prepared statement of Mr. Mays appears as a submission
    for the record.]
        Chairman Specter. Thank you very much, Mr. Mays.
        We will now proceed with 10-minute rounds of questions by
    the Senators on the panel, Senator Sessions and myself.
        Beginning with you, Mr. Mays, you made reference to a case
    involving Wal-Mart. What are the facts of that case?
        Mr. Mays. Wal-Mart continued to sell some exercise devices
    in their stores even after they knew that they were causing
    injury to customers who were actually trying the equipment out
    in their stores. Their failure to report that information to
    the Consumer Products Safety Commission, as required by Section
    15(b), resulted in a civil penalty of only $750,000.
        Chairman Specter. Are there many similar matters called to
    the attention of the Commission?
        Mr. Mays. There are many similar matters. Failure to report
    incident data to the Commission is probably the most common
    cause of civil penalties.
        Chairman Specter. Mr. Schwartz, do you think that the
    possibility of a criminal sanction would have any effect at all
    on judgments of corporate officials in evaluating safety
    precautions which are expensive, contrasted with the evaluation
    of what their damages would be if the safety precautions are
    not undertaken?
        Mr. Schwartz. That is a good question and it does call for
    speculation, but I don't think so. I think that right now they
    can lose their jobs and they can lose their market share
    completely on a product once it is branded in the product
    liability system as being bad. It takes some time, and that
    threat, potentially millions and billions of dollars, is
    sufficient.
        I think if there are additional penalties in the CPSC, that
    may be needed. That is a different question as to whether you
    introduce something that is very vague, very hard to
    understand, and illusory to kind of grab onto. So I don't think
    it will. Specific penalties, sir, that would be very clear and
    easy to understand might be needed in some areas, and they may
    help proper decisionmaking.
        Chairman Specter. In what areas?
        Mr. Schwartz. Well, let's take the CPSC. If there isn't
    proper reporting of defective products to the CPSC, current
    penalties may be insufficient. People have a reason to know
    when they are supposed to report to the CPSC.
        Chairman Specter. Those penalties go against the company,
    not the individuals.
        Mr. Schwartz. That is right. The separation of individuals
    and the companies is nothing that I have seen in my practice in
    30 years. They are the company.
        Chairman Specter. You think there would be no difference
    between an impact of a decisionmaker, say a chief executive
    officer, if he or she faced criminal sanctions, contrasted with
    the punitive damages in a civil case which would be awarded
    against the company and a cost really to the shareholders?
        Mr. Schwartz. As the appendix to my testimony shows, there
    are criminal sanctions for very serious acts by individual
    executives, and State attorneys general have power, which you
    would know, to go after people personally if they have the
    evidence that they have done something criminally wrong.
        Chairman Specter. On defects in products?
        Mr. Schwartz. Well, not on defects in the products, and
    that is, I guess, the core of my testimony. ``Defect'' is one
    of those words that we think we know what it means, but not
    when it gets down to actually defining it, it is hard enough to
    define it in tort law. It is one of those words that we think,
    ah, I know what that means, like we may think we know what a
    reasonable person is in tort law.
        Chairman Specter. I take it your answer is no.
        Mr. Schwartz. Well, I began with ``no,'' but then you
    wanted to get me to ``yes,'' so I went back to ``no.''
        Chairman Specter. I didn't hear a ``no.'' If I had heard a
    ``no,'' I would have moved on to the next question. The
    question isn't whether there are some penalties scattered
    through the State law books. The question is whether there is
    any real program which deals with defects. And I will use that
    word; I think we can define it. I think there are many terms
    that are difficult to define. You started to move on to the
    definition of ``reasonable.'' There are tens of thousands,
    hundreds of thousands of cases written on it, but on individual
    cases we deal with it.
        That is why, Mr. Schwartz, I come back to the question as
    to whether the existing laws which you refer to involve
    products, and your answer to that was no.
        Mr. Schwartz. Well, the product liability laws are
    amazingly strong, over-strong, in my view, and this separation
    of somehow an executive, because he may not feel personally
    that he is going to go to jail, needs additional deterrence I
    have answered. I think when people are working in the
    companies--I work with them every single day of my life--they
    are thinking carefully about what decisions they are making,
    what warnings are to be on products. I have spent hundreds of
    hours on this and I don't see the need for any additional
    criminal deterrence to get to the right decision. That is just
    based on my experience.
        Chairman Specter. Well, summarize for us again what are
    existing criminal deterrents.
        Mr. Schwartz. Well, there are existing criminal laws on
    manslaughter, negligent homicide and other provisions, and they
    are spelled out more carefully in the appendix to my statement.
    But I think that the power of----
        Chairman Specter. But those don't refer specifically to
    products.
        Mr. Schwartz. No, they don't, but they can capture somebody
    who has knowingly and willfully tried to intentionally kill
    another person. I mean, those words we understand. We know what
    those words mean. We have always been kind to one another and
    we just happen to differ here, but the tort law classes--I was
    thinking of Fleming James, who may have been your teacher back
    at Yale.
        Chairman Specter. He was.
        Mr. Schwartz. In tort law classes, they will say, ``Well,
    what about this? What about that? '' It is all vague. You step
    over into the criminal law and then there are very precise
    rules that govern conduct, and I think the two worlds shouldn't
    be put together.
        Chairman Specter. When you describe the sequence of events,
    including manslaughter, those are not available to the Federal
    prosecutor.
        Mr. Schwartz. Well, there are State prosecutors and State
    tort laws. I don't see a need for Federal intervention and the
    Department of Justice getting into the area of defective
    products.
        Chairman Specter. I take it your answer then to my question
    is they do not apply for Federal prosecutions.
        Mr. Schwartz. That is right.
        Chairman Specter. OK, we got there.
        Dr. Maron, tell us a little bit about the defibrillator.
    How does it work? What is its structure? What are the
    functions?
        Dr. Maron. Well, it is a sophisticated device that has been
    in the marketplace for 25 years that is intended to----
        Chairman Specter. And what happened to your patient?
        Dr. Maron. Well, what happened was the device short-
    circuited, literally, and therefore the electrical energy that
    was intended to go into the heart to defibrillate, to restore
    normal rhythm, did not. It was dissipated. As a consequence, it
    was a non-functioning device at the precise moment that it was
    intended to function and was implanted for that reason.
        Chairman Specter. And did Guidant, the manufacturer, know
    about that kind of a defect?
        Dr. Maron. Yes. At the time of the death, they had 25 other
    examples, including 4 near-deaths, with precisely the same
    defect, the short-circuiting.
        Chairman Specter. How do you know that Guidant knew that?
        Dr. Maron. They told us. It is a matter of record. There is
    no dispute.
        Chairman Specter. Professor Steinbuch, you mentioned the
    Dalkon Shield case. In passing, could you amplify what the
    facts were in the Dalkon Shield matter?
        Mr. Steinbuch. Senator, I am not an expert on that case,
    but I can tell you that the company put out a product for women
    to use, an IUD, that turned out to be severely flawed. It made
    women much more prone to infection, and then the company
    discovered this defect and did not disclose it to the public.
    And many women were injured, and I believe some women died as a
    result of this product.
        Chairman Specter. And what were the facts, as you
    understand them, with respect to the knowledge on the part of
    the A.H. Robins Company which manufactured the Dalkon Shield
    IUD?
        Mr. Steinbuch. Well, I think it is the same issue that Dr.
    Maron just spoke about, and this is the same issue that
    pervades product defect cases. Companies discover that there is
    a defect. They have complaints and the complaints are processed
    and they are analyzed and they are evaluated. And they don't
    share this information with the public. They don't allow the
    public to make these choices. Today, we live in a complex world
    where a strict application of the concept of caveat emptor is
    no longer appropriate.
        Chairman Specter. My time is almost up, so I want to come
    to a core question. Do you think the response from corporate
    executives would be different in notifying in the public, as
    you put it, if a potential criminal sanction was present?
        Mr. Steinbuch. Absolutely, Senator. Corporate tenure has
    been on the decline. People move from company to company, and
    the response of civil liability often comes after corporate
    actors leave individual corporations. Putting the
    responsibility on them criminally will carry along with them
    wherever they are and their actions will reflect that.
        Chairman Specter. Thank you very much, Professor, and I
    will turn now to my distinguished colleague, Senator Sessions.
    By way of a brief introduction, you might be interested to know
    that yesterday at this time we had the tables arranged
    differently and we had a dozen Senators in this room going over
    a 300-page statute on immigration reform. And one of our most
    active participants was Senator Sessions, who had an array of
    amendments, and we went through them one by one.
        We did our best to focus on an issue and, when we had a
    Committee consensus, to move on so that we could have some
    prospect at some time of finishing that bill. One of the most
    interesting moments that Senator Sessions and I were both
    involved in was a complex amendment offered by Senator Feingold
    which no one understood. I won't say Senator Feingold didn't.
    You would have to examine the transcript.
        But the way we function is we have papers and we have
    assistants behind us and when we come to a question that we
    don't know the answer to--and I know this will be hard for you
    to believe that there are some questions we don't know the
    answers to--we turn to our assistants. And the communication is
    not very good on these complex questions, and we had gone
    around for about 30 minutes on an issue and we were getting
    nowhere. And as Chairman, I set the question aside until we
    could find out what we were talking about. We were analogizing
    it to Charlie McCarthy and Edgar Bergen, with the staff
    assistants trying to tell us what was happening here. But it
    just wasn't working, so we moved on. That is what you call a 1-
    minute digression.
        Senator Sessions.

    STATEMENT OF HON. JEFF SESSIONS, A U.S. SENATOR FROM THE STATE
                               OF ALABAMA

        Senator Sessions. Thank you, Mr. Chairman, and you have
    done a good job with immigration. It is a very difficult,
    difficult issue and people have some various views about it and
    it is important. You have also moved the asbestos bill, which
    is also hugely important. Some of these witnesses are aware of
    that or have even testified with regard to that.
        We have had the PATRIOT Act, a Supreme Court Justice, and
    what else this year?
        Chairman Specter. Class action.
        Senator Sessions. Class action.
        Chairman Specter. Bankruptcy.
        Senator Sessions. Bankruptcy.
        Chairman Specter. Chief Justice Roberts, Justice Alito. I
    could go on and on.
        Senator Sessions. I don't think there has been a Committee
    that has been this busy--and then he had the gall to tell us
    yesterday that if we didn't want to show up at the hearing, we
    ought not to be on the Committee. I was glad I was there, so I
    knew you weren't talking about me.
        Chairman Specter. Well, that kind of talk is very seldom
    engaged in in the Senate. But you can't transact business--you
    need a quorum--unless Senators are present. It is a high-
    visibility Committee, a very popular Committee, and as Chairman
    I want the members present if they want to be on the Committee.
        Senator Sessions. Well, it was a correct comment.
        Mr. Chairman, I would just----
        Chairman Specter. Would you begin Senator Sessions's time
    again at 10 minutes? Thank you.
        Senator Sessions. I would just note that as a person who
    spent the better part of my political or governmental career as
    a prosecutor, almost all of that as a Federal prosecutor, and 2
    years as attorney general, I have become somewhat uneasy about
    the vague criminal laws that we are passing. I think that is a
    legitimate criticism of what Congress and State legislatures
    are doing.
        You remember the old burglary statute, you know, breaking
    and entering. You had to break in the door, then you enter with
    intent to commit a felony therein. Robbery was the taking by
    force and violence of a thing of value from a person. These
    were the elements, and you knew what the elements were and you
    knew what you had to prove. And this is where you are talking
    about a person's liberty, where you are going to put them in
    the slammer and send them off to the big house.
        Now, we have not been quite so scrupulous about taking
    people's money, you know. You need less proof to take people's
    money, and Mr. Panish has probably done that more than once. I
    have tried to a few times, but probably haven't been as
    successful as he has been in suing people for money. It is a
    different deal, so I just want to point that out.
        I would note that the bill itself uses the words ``knowing
    and reckless introduction of a defective product.'' My
    understanding of current law in most States--and I missed most
    of the colloquy you had over manslaughter or other type
    things--most States do have laws that deal with reckless
    misconduct. But if you read the legislation that has been
    introduced, ``reckless'' is in the description of the bill, but
    not in the words of the statute. In fact, it just says any
    person who introduces into commerce a product known by that
    person to be defective and capable of causing death shall be
    fined. So it is getting pretty scary here a little bit.
        And you mentioned corporate executives come and go. You
    come in and you are president of a corporation and somebody
    sends you a memo, and then the next thing you know, you have
    been indicted by a Federal prosecutor under this new law. So I
    do think we have a responsibility to draw the statute clearly
    before we put somebody in jail, particularly in light of the
    fact that they can be sued for punitive damages today.
        Mr. Vandall, I think you raised a very valid point about
    the likelihood or the ability to prosecute. I think we can have
    a very, very uneven, aberrational type of prosecution depending
    on the mood of their prosecutor or their predilection almost
    entirely. It is hard to have a basic standard, it seems to me,
    with regard to these cases.
        I got a note from George Terwilliger that you had invited
    him, former Deputy Attorney General of the United States and a
    longtime prosecutor, who was going to be a witness on this
    panel and couldn't come for personal reasons. I got his
    statement during the hearing, so I haven't read it, but I think
    he expressed some of those same concerns, in general.
        With regard to a civil case, Mr. Panish, what do you have
    to have before you can file that complaint and ethically
    maintain a cause of action? What are your standards there?
        Mr. Panish. Well, Senator, you need to have some evidence
    that support the various elements. As you mentioned in your
    criminal example, you need to have evidence that supports your
    elements that you need to prove for your case.
        Senator Sessions. You are not totally free to sue somebody.
        Mr. Panish. No, sir.
        Senator Sessions. I mean, you, as a lawyer, can be sued if
    you over-reach. What is the basic standard for a plaintiff
    lawyer in a defective suit, preponderance of the evidence?
        Mr. Panish. In a court of law, depending on the various
    elements, preponderance is one standard. In California, the
    standard----
        Senator Sessions. You can file a suit for less than
    preponderance of the evidence, can't you?
        Mr. Panish. Anyone can file any lawsuit they want, but in a
    product liability case, when you are a lawyer taking on a case
    like that against the manufacturer, you better have your ducks
    lined up if you think you are going to be successful for your
    client. The manufacturers are not going to roll over. It is
    going to be a----
        Senator Sessions. Well, I know that, but I guess I would
    just make the obvious point that you can file and commence an
    action, a civil action, easier than a prosecutor can commence a
    criminal action, assuming there is a responsible prosecutor.
        Second, with regard to obtaining information, when you file
    a suit, Professor Schwartz, you can take the deposition of the
    person and compel them to testify and provide evidence, can you
    not?
        Mr. Schwartz. Yes, you can, extensively.
        Senator Sessions. And in a criminal case, of course, you
    can't. If the defendant is a target of the grand jury, they are
    able to refuse to answer and refuse to produce any documents in
    their personal control. But if you are suing someone civilly,
    you can obtain all kinds of documents from them in an easier
    fashion, isn't that correct?
        Mr. Schwartz. Sure, warehouses full.
        Senator Sessions. Warehouses full. And it is out of this
    that good plaintiff lawyers have found the Ivey memo, have
    found the memo in asbestos that proved that asbestos companies
    knew that this was a dangerous product and people shouldn't be
    exposed to it. Yet, they took no action. This was 50 years ago.
    I think you have a lot less of it today than you used to have.
    But 50 years ago, they had this information and they didn't
    tell people and people died as a result of it. So we kind of
    know how that all plays out.
        But it is a much easier thing to pursue a civil suit and we
    have set it up that way. When it goes to the jury, the question
    is do you believe by a preponderance of the evidence that they
    violated the standards of care that are called for, and
    therefore how much damages do you want to give them, an award.
    That is how it works.
        In a criminal case, you have got to take a case before a
    grand jury. You can't get as much evidence and you have to
    prove the case beyond a reasonable doubt, and the leeway for a
    prosecutor to try a case at trial is much more difficult. So I
    say that, as a practical matter, if you are going to take out
    after a corporation who you may have some reason to believe
    through the Vioxx deal is doing something wrong, you are
    committing yourself to a very long period of time with many
    more roadblocks than a good civil lawyer would have in pursuing
    the same case. So I don't think you are going to have a whole
    lot of them.
        Now, Professor Schwartz, you are the author of the most
    widely used torts textbook in America today. Is the descendent
    of Prosser on Torts that I had, I guess. You may have been on
    the book then, I think--perhaps you were--when I was in school.
        So I guess I would ask you about your Vioxx example. That
    was curious to me that you had such aberrational verdicts. It
    is one thing to have aberrational verdicts when a person might
    have to pay some money out of his pocket. It is another to have
    aberrational verdicts when it comes down to putting somebody in
    jail for 15 years.
        Would you agree?
        Mr. Schwartz. Absolutely. That is at the core of my
    testimony. You don't want to import the tort casino over to
    criminal law. The risks of being wrong are too great. Somebody
    is going to prison, or even an indictment where there is no
    real good basis for it.
        I mean, Mr. Panish knows, and we all know who practice that
    if there were an indictment against a particular product, that
    company would probably not be around very long because it would
    be followed by product liability suits because of the publicity
    that would be on television. People watch, oh, ``x'' company is
    being indicted for selling a product. I wouldn't want to have
    to defend a case, frankly, on behalf of a company after that
    flashed over all three networks.
        So it is not even the conviction. It is the weapon, and the
    weapon has many effects. And as you have said--I am restating--
    tort law in a way has a right to be wrong. The Vioxx cases
    still are playing out, but that is not unusual to have a case
    won, a case lost, a case won, a case lost. And sometimes they
    go away and sometimes they don't, but it takes years to sort
    out whether or not the product really was defective. And in
    part that is because people at a higher level than I am--Bill
    Prosser thought he knew what ``defect'' was. Dean Wade thought
    that it was less likely that he knew, and as the low person on
    the totem pole I find it even vaguer than they did.
        Senator Sessions. Well, that would be a concern to me, Mr.
    Chairman, whether we would be carrying over into the criminal
    justice system an area that is awfully disputable about whether
    an indictment should ever be brought, whether a verdict should
    be rendered, whether a person should be sent to jail. The more
    you get into these complex areas, the more potential for abuse
    I think we can see.
        Thank you.
        Chairman Specter. Thank you very much, Senator Sessions.
    Your introductory comments about being as precise as we can on
    tightening the language, I think, is very, very valid. That is
    something that at markup we really work that over, and we have
    a lot of experienced people. Senator Sessions was a U.S.
    Attorney and an attorney general, and Senator Leahy was a
    district attorney in Vermont and I was district attorney in
    Philadelphia.
        One of the grave, difficult problems in evaluating this
    issue is to what extent this is a prevalent problem, to what
    extent it exists, how much of it there is. I am going to ask
    Governor Engler and Mr. Panish and others on the panel, but I
    will start with Governor Engler and Mr. Panish on this issue as
    to whether cases we have examined are anecdotal, just random
    occurrences, or whether there is really a prevalent problem in
    the commercial world.
        There have been a number of references made to the
    Firestone-Ford situation. There were some 271 deaths and more
    than 700 injuries on the defective tires that were put on the
    Ford from Firestone, and concealed. Finally, we legislated on
    it and it was my amendment which imposed criminal liability
    there, so that we do have precedent for criminal liability
    where there are defects which were known to both the
    manufacturer and the automobile company which put the tires on
    the cars.
        We have a situation with Zylon bullet-proof vests where the
    company knew as early as 1997 that the material had failed to
    comply with quality tests and deteriorated. And the company
    made a decision, and these are documented in internal
    memoranda, that they would continue to operate as though
    nothing was wrong until one of their customers was killed or
    some agency disclosed the defect publicly, but the company
    decided not to. Then in June of 2003, a police officer was shot
    to death wearing one of these so-called bullet-proof vests
    which had, in fact, deteriorated.
        There are the famous cases involving Oraflex anti-arthritis
    drug where Eli Lilly failed to tell the FDA that it knew of
    over 25 deaths in different countries that were linked to the
    drug. Then there were the Playtex and Tambrands cases where
    there was a substance known as polyacrylate which caused toxic
    shock syndrome. And here again it was well-known to the company
    and more than one hundred women died from the exposure there.
        Then we had the Ford Mustang case, where again it was a
    design defect and it was a cost/benefit analysis. And it wasn't
    really brought to light or it wasn't emphasized until there was
    a taped conversation between President Nixon and the president
    of Ford which disclosed that Ford had saved almost $20 million
    over 3 years by delaying the safety modifications to the
    Mustang.
        Governor Engler, you are the head of the National
    Association of Manufacturers, and I would say a very effective
    president in articulating the views, and it is a judgment call.
    You don't know what goes on in all the corporate board rooms,
    all the research and development, so it is a matter of an
    evaluation.
        Are we dealing here with an issue which comes up now and
    then, or do we have a problem which really is serious enough to
    call for Congressional action?
        Governor Engler. Mr. Chairman, I think it is a very good
    question. You know, being here under oath, the obvious answer
    is I don't know. The speculation is a little bit like with
    Sarbanes-Oxley. I mean, we had a few companies that through
    their behavior resulted in a sweeping law being passed which
    many would say, particularly the smaller and medium-sized
    manufacturers, has been overkill.
        When it comes to defective products or allegations of
    defects in products, you have got the collision of innovation
    trying to bring especially in the pharmaceutical example some
    of the supplies that we would like to see into commerce. I
    mean, I think you push the envelope to try to bring those out,
    and you try to understand what it takes to make them better.
        The examples you use, I think, are small in number, but any
    time there is a single death that one can point to, one can
    say, well, was that avoidable? It is impossible, I think, to
    de-risk our society. There are in all of these cases, I think,
    pretty heavy penalties that have been paid by these companies.
    Some of these companies that were involved have changed
    dramatically. In some cases, management has lost their jobs and
    their careers. In other cases, the publicity has led to
    dramatic reforms.
        But, again, the question here is, you know, given all of
    what may have happened in the past, do we have a cure? Would
    anything be different in the future? I think there is some
    question about is this the solution. I think that we probably
    as a Nation spend more on safety and more on prevention and
    trying to get it right than anyplace in the world. I think we
    do a pretty good job of that.
        Would this bill in some way help us do a better job? Would
    it focus the attention of an executive, or in this case all the
    way down the line, because I assume a middle management
    employee touching a product who is part of that production
    might herself or himself have to ask do I let this go forward?
        So the ambiguity is very difficult to deal with. There are
    certainly challenges, and you will hear a different perspective
    in just a moment, but I think that by and large the record of
    safety is commendable in this country and that what is a focus
    on every company's mind today is how do we make the products we
    make better and can we afford to take new ideas to the market
    with whatever risk that might present to consumers.
        Chairman Specter. Well, thank you for that answer. What we
    are looking toward is the situation where there is solid proof
    and the kinds of cases we have cited here where there are
    internal documents which show a cost analysis that it would
    cost $8 to make a change in the location of the gas tank, as
    opposed to $2.40, where they calculate the payment on tort
    claims.
        A criminal penalty requires proof beyond a reasonable
    doubt, so there would have to be very specific proof that the
    corporate executive knew what was going on and had made the
    decision, participated in the decision, to reach that standard.
        I think you are right. There are enormous efforts at
    product safety, but we do have these cases come up where they
    have known about it for a long time, documented, and not
    disclosed in the interest of corporate profits, and many
    injuries and many deaths.
        Mr. Panish, how would you evaluate the question as to
    whether this is anecdotal, happens from time to time, or a
    real, major problem in our stream of commerce?
        Mr. Panish. Well, Mr. Chairman, once again I would say that
    the problem does exist. It is the civil justice system that
    allows the attorneys that are able to uncover these memos and
    documents and knowledge of the corporate executives.
        Chairman Specter. Well, is that sufficient, a lot of able
    lawyers like you who are doing the job? You are motivated.
    Sometimes, you even get a good fee.
        Mr. Panish. Well, we are motivated about helping our
    clients, No. 1, and our clients have been seriously injured by
    these defective products.
        Chairman Specter. I am not suggesting that it was a
    mercenary motive. It is a part of your work.
        Mr. Panish. I understand, but the problem does exist.
    Safety is paramount in this country and all manufacturers know
    that. These situations of putting profits over safety do occur.
    It is not an isolated incident. You have just brought up five
    or more examples of specifics, from your bullet-proof vests to
    the Ford Pinto, all the way down the line.
        And in a way, personal accountability and having somebody
    on the line knowing that when they are making these decisions
    that they could be held personally accountable--they are going
    to think twice before they try to up the bottom line. That can
    act in and of itself as a deterrent. Both yourself and Senator
    Sessions being prosecutors know if you are prosecuting a case
    like this, you are not going to be filing every case. You are
    going to want to have a solid evidentiary case, you are going
    to want to have witnesses, and you are going to know the higher
    standard of proof that you have to meet to convict somebody in
    a criminal case.
        I don't think the courts are going to be flooded with cases
    like this, but it is important for personal accountability for
    people to know that if they make the wrong choice, not to try
    to put out a more creative product or innovative product, but
    if they know that there is a problem and they do put profits
    over safety that they can be personally held accountable. I
    believe that that would act as a deterrent effect to corporate
    executives who, as the professor said, move from company to
    company and by the time this surfaces they are no longer with
    the company.
        It also penalizes the companies that are doing the right
    thing, that are spending the extra money for safety. And to
    allow these other companies that aren't doing that to profit by
    that would be unfair to the companies that are actually doing
    the right thing.
        Chairman Specter. Senator Sessions.
        Senator Sessions. Well, you are correct about the challenge
    and responsibility of corporations to make their products safe,
    and there is no doubt about that.
        We are willing to take some risk in civil actions to get
    justice based on a preponderance of the evidence. I am thinking
    of the example of brakes, Professor Schwartz. Let's say
    somewhere in the development of a new form of brakes for a
    vehicle an engineer does a memo that under certain
    circumstances there might be a problem and he sends that
    through the system. And the brakes go fine for 5 years, and
    they are even maybe better than other brakes in most instances.
    But this very thing occurs and something happens and somebody
    gets killed. Then this document appears. Ah-hah, you knew this
    could happen; you go to jail 15 years.
        How does that strike you? You have been studying these
    cases and all the complexities of proof and defect that are so
    critical to American tort law. How would you evaluate it?
        Mr. Schwartz. Well, your question goes to the two sides of
    the coin here. If that executive knew that he might be subject
    to a criminal penalty, he might not have written the memo and
    we wouldn't have it. That is why this is not an easy area.
        In the TREAD Act which the Chairman referred to, in the
    beginning for a while there was a provision about defective
    products and there was debate about that. But ultimately when
    the bill passed, they eliminated that and they went to making
    false or misleading statements. Well, I can understand what
    that is, but as you go into this area one little change is like
    a child's kaleidoscope. It may change the picture, but I don't
    think anybody on the panel under oath can swear to what that
    new picture would be.
        And again we take that employee who has now the courage to
    write the memo, but if he says, boy, if I write something like
    this I could get in trouble--or he could write more memos if he
    knew about it. It is just not that easy in the context of the
    real world, it isn't.
        Senator Sessions. On the question of recklessness, which is
    not in the statute but is only in the preamble or the heading,
    I do believe that most States have a standard for reckless
    disregard. The classic case is driving through a neighborhood
    where children are playing at high rates of speed in reckless
    disregard of the consequences. A person can be held criminally
    liable for that. I don't see any prosecutors at the table here.
        Could not a person who introduces a product into the
    highway of life not be held to that reckless disregard
    standard? Would that standard not be available in criminal
    court for products liability cases? Does anybody want to
    comment on that?
        I mean, what normally happens is that they are sued and if
    they are actually in reckless disregard, then you are entitled
    to punitive damages, aren't you, Mr. Panish?
        Mr. Panish. In our State, California, there is a higher
    burden of proof for punitive damages. California requires a
    clear and convincing standard to be proved. It is conscious
    disregard for the rights and safety of others, and it is pretty
    narrowly drawn.
        Senator Sessions. Clear and convincing evidence, but it is
    a conscious disregard?
        Mr. Panish. A conscious disregard for the rights and safety
    of others. And there are other provisions; there are three
    different prongs under which it can be awarded.
        Senator Sessions. So I guess my concern would be, or my
    point would be that there are ways now to prosecute criminally
    under the reckless disregard standard that we have classically
    had in criminal law for really egregious actions that were
    knowingly and deliberately done or done with reckless
    disregard.
        If you knowingly and deliberately drive into a crowd of
    people, then you are going to be held liable for first-degree
    murder, whether you actually intended anybody to be murdered or
    not. If you do it with reckless disregard, it may be second-
    degree murder, depending on the State law. But there are ways
    to do that under current law.
        I am concerned about the standards here and that we create
    now a Federal criminal action based on more vague standards
    that look more like civil lawsuit standards.
        Mr. Schwartz. It does look like civil standards. That is
    the line between tort and crime, and law schools package this
    stuff separately. You know, you go to torts class and then you
    go over to criminal class, and they never have the two people
    together. I used to try. I used to bring the criminal law
    professor in and we would discuss the very things that are
    being discussed in this Committee today about the difference
    between tort and crime, the difference between standards.
        And there are criminal standards, just like what happened
    ultimately with the TREAD Act where a criminal standard which
    was easy to understand was incorporated. And there are criminal
    statutes about reckless disregard for life. Whether that is
    going to be used in the context of product liability, I don't
    know. If the Chairman would ask me has it ever been used, I do
    think that they tried in Indiana, as the Chairman averted to,
    in the Pinto case, but the case fell apart. The article I
    submitted tells why. But there is a difference in drawing lines
    and how you express things in criminal law versus tort law, and
    there are good reasons for the differences.
        Senator Sessions. Professor Steinbuch, on your
    advertisement there, I am concerned about these advertisements.
    Some of them look like newspaper articles, No. 1. I don't like
    that. No. 2, they make statements that I know are not true. So
    you could do that through giving some regulatory agency
    administrative authority to gain an injunction to shut down the
    advertisement, which I think we have done pretty aggressively,
    sue for damages, and/or you could put the person in jail. I am
    not against either one. I mean, I think all three are
    appropriate, depending on the clarity of the proof and the
    clarity of the standard.
        Would you agree that in a product production thing, whether
    the head man at Merck--did they do Vioxx, did you say,
    Professor?
        Mr. Schwartz. Yes.
        Senator Sessions. Merck knew everything there was in every
    report that ever existed about--he might have been hired
    because of his financial expertise, and whoever gets held
    liable for something is in a more uncertain area.
        Mr. Steinbuch. Well, I think, Senator, you raise an
    interesting point and a good point, and that is that on
    criminal law we must be confident of who we are prosecuting.
    But I think we may be paying too much attention to the marginal
    cases and are less concerned about the clear cases that you
    have heard about on this panel.
        It reminds me of a parable that my father once taught me,
    which was we can tell the difference between night and day
    easily even though the exact point that one changes to other is
    often not clear. Everybody knows that 11 p.m., is night.
    Everybody knows that 11 a.m. is daytime. 5:48 a.m.--I don't
    know if that is day or night; I don't know exactly. But, we can
    still easily tell the difference between night and day.
        And so, yes, there will be marginal cases, but with limited
    resources and good prosecutors such as yourself and such as
    Chairman Specter, I am confident that a properly tailored
    statute would achieve the goals that the Chairman has sought.
        Senator Sessions. Professor Vandall?
        Mr. Vandall. Yes. I would like to try to put some of the
    questions and comments into context, if I could, and responding
    back to the Chairman's question of anecdotal and Professor
    Schwartz's comment in regard to the Pinto prosecution.
        The Pinto prosecution failed because it was underfunded.
    This was a county D.A. He had $20,000 for the whole year. He
    spent $20,000 of his own money, so $40,000 total. When you read
    the book, and it is an excellent book on the Pinto case, it
    shows that Ford just blew him out of the water.
        Mr. Schwartz commented that the product liability system is
    over-heated. I think that is short of the problem. If it was
    over-heated, we wouldn't be here today. If it was over-heated,
    we wouldn't have Guidant having the interest, the ability to do
    and say what they did. Punitive damages are thrown around
    here----
        Chairman Specter. You can be tougher than ``interest'' and
    ``ability,'' Professor Vandall, when you talk about Guidant. It
    is pretty blatant and it is pretty current.
        Mr. Vandall. Exactly.
        Chairman Specter. No, wait a minute. You haven't been tough
    enough.
        Senator Sessions. Do you want to advise him of the libel
    rules of the Senate?
        Chairman Specter. Don't lead the witness, Senator Sessions.
        Go ahead, Professor Vandall.
        Senator Sessions. No. I mean in the sense that we can say
    it and not be sued. I don't know about you. I was going to ask
    the Chairman.
        Chairman Specter. I didn't want to interrupt you unduly,
    but when you talk about Guidant, you can be a little tougher
    than ``interest.''
        Mr. Vandall. Thank you. I will keep that in mind.
        In regard to punitives, the word has been thrown around.
    Professor Schwartz implies that we have a lively system of
    punitive damages. And as you all know, there have been several
    recent Supreme Court cases that have gutted the concept of
    punitive damages, and it is entirely unclear where punitive
    damages are going to go for personal injury.
        If these cases were superseded by the Senate, I don't think
    we would be having the discussion today; that is, the
    corporations are all about profit, are all about making money,
    which is what they should be. I am not challenging that, but we
    know how to get their attention and that is with substantial,
    aggressive and appropriate punitive damages.
        Just to get back to Professor Schwartz's comment and
    something that we have been talking about all day, and that is
    corporations deal with risk in everything they do. They deal
    with it in terms of marketing, they deal with it in regard to
    products. Products have a degree of risk for just about every
    product. Let's talk about motorcycles at one end of the
    spectrum and white flour at the other end. We know motorcycles
    are dangerous. We all know someone who has been killed on a
    motorcycle. That doesn't make them defective. Let's put cars
    and drugs in the middle of the spectrum. Those are tough cases.
        So what are corporations about? They are about figuring out
    what the niche is, figuring out the cost of the product. The
    reason the Pinto was poorly designed was because it had to come
    in at $2,000. Honda had just introduced its wonderful car, the
    Civic. The Vega, the worst car ever designed by GM, was there
    at about $2,300. So Ford said we have got to make it priced in
    the showroom at not a penny over $2,000. That is why it was a
    cheap car.
        Now, we are talking about Federal prosecution. Let's
    remember who the father of the Pinto was. The father of the
    Pinto was Lee Iacocca. How do you feel about going after him
    and locking him up? I think the Governor from Michigan might
    have something to say about that because Lee Iacocca single-
    handedly became president of Chrysler and appealed to Congress
    and brought Chrysler out of the depths that they were in with
    their unfortunate automobile line. So I do not think we want to
    talk about Lee Iacocca as the kind of person that we should be
    thinking about locking up. He was responsible; he signed off on
    the Pinto.
        Thank you.
        Chairman Specter. Professor Vandall, we impeach presidents
    of larger entities than motor companies. No one is immune, no
    one is exempt.
        Senator Sessions. I agree with that. In the course of these
    things, there oftentimes have to be many documents and
    statements filed. That is what we did on Sarbanes-Oxley, I
    guess, was say when you file a document, you have got to take
    some effort to make sure it is correct. You can't just say,
    well, I didn't have time to look at it.
        There are some legitimate problems out here. I thank the
    Chairman for raising them and I just think we need to be
    cautious and not over-reach.
        Mr. Schwartz. I do find intriguing something that Professor
    Vandall said. Thank you for mentioning my name a few times;
    that is always good--but you suggested that the application of
    the Constitution of the United States gutted punitive damages.
    The application of the Constitution to criminal law occurred in
    Miranda. Did that gut criminal law? In punitive damages, they
    applied the Due Process Clause. It was more than a majority.
    The mixture of the Justices, Mr. Chairman, were not your usual
    conservative versus liberal. There was overkill in the punitive
    system under the Constitution of the United States, and the
    application of punitive damages has continued to ferret out
    wrongdoers.
        Mr. Vandall. Could I respond to that?
        Chairman Specter. Of course, Professor Vandall.
        Mr. Vandall. Justice Scalia wrote a dissent in that case
    and he said there is no constitutional issue. So I think it is
    a debatable question as to whether the restricting of punitive
    damages rests on constitutional principles.
        Chairman Specter. Well, that is a complex issue which we
    won't be able to really explore here today.
        We are going to leave the record open for 1 week, which is
    our custom, and we very much appreciate your coming in. We have
    had a fair amount of response. One caller representing a big
    company said we have caught the attention of the American
    corporate community.
        Are you nodding in the affirmative, Mr. Schwartz?
        Mr. Schwartz. Yes. You did catch their attention.
        Chairman Specter. I have caught their attention.
        The final question I have, but we are running a little late
    as it is, would be whether having a hearing, whether
    introducing a bill--the readership of the Congressional Record
    is not too heavy. Not too many people read the Congressional
    Record, so you put a bill in. There is a question whether
    anybody notices it. You have a hearing and you get a little
    more attention. I don't know that anybody watches C-SPAN except
    for me when I get home. Our Judiciary Committee hearings have a
    favorite spot at about 3 a.m. We have a tremendous following
    among insomniacs in America.
        Do you think a hearing like this helps to catch attention
    and might have some deterrent effect, Mr. Schwartz? Last
    question, yes or no.
        Mr. Schwartz. Yes, I do.
        Chairman Specter. Thank you all very much.
        [Whereupon, at 11:21 a.m., the Committee was adjourned.]
        [Questions and answers and submissions for the record
    follow.]
        [Additional material is be retained in the Committee
    files.]
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