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