[Senate Hearing 111-236]
[From the U.S. Government Publishing Office]



 
                                                        S. Hrg. 111-236

 LEVELING THE PLAYING FIELD AND PROTECTING AMERICANS: HOLDING FOREIGN 
                       MANUFACTURERS ACCOUNTABLE
=======================================================================

                                HEARING

                               before the

        SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT AND THE COURTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 19, 2009

                               __________

                          Serial No. J-111-23

                               __________

         Printed for the use of the Committee on the Judiciary




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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         JON KYL, Arizona
RICHARD J. DURBIN, Illinois          LINDSEY O. GRAHAM, South Carolina
BENJAMIN L. CARDIN, Maryland         JOHN CORNYN, Texas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
RON WYDEN, Oregon
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
            Bruce A. Cohen, Chief Counsel and Staff Director
                  Matt Miner, Republican Chief Counsel
                                 ------                                

        Subcommittee on Administrative Oversight and the Courts

               SHELDON WHITEHOUSE, Rhode Island, Chairman
DIANNE FEINSTEIN, California         JEFF SESSIONS, Alabama
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         JON KYL, Arizona
BENJAMIN L. CARDIN, Maryland         LINDSEY O. GRAHAM, South Carolina
EDWARD E. KAUFMAN, Delaware
                Sam Goodstein, Democratic Chief Counsel
                  Matt Miner, Republican Chief Counsel
                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, 
  prepared statement.............................................    33
Sessions, Hon. Jeff, a U.S. Senator from the State of Alabama....    10
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode 
  Island.........................................................     1
    prepared statement...........................................    57

                               WITNESSES

Gowen, Thomas L., Partner, Locks Law Firm, Philadelphia, 
  Pennsylvania...................................................     6
Schwartz, Victor E., Chair, Shook, Hardy & Bacon, LLP, Public 
  Policy Group on behalf of the Institute for Legal Reform, U.S. 
  Chamer of Commerce, Washington, DC.............................     8
Stefan, Chuck, Vice President, The Mitchell Company, Mobile, 
  Alabama; accompanied by Steven Nicholas, Esq...................    10
Teitz, Louise Ellen, Professor of Law, Roger Williams University 
  School of Law, Bristol, Rhode Island...........................     4

                       SUBMISSIONS FOR THE RECORD

Gowen, Thomas L., Partner, Locks Law Firm, Philadelphia, 
  Pennsylvania, statement........................................    22
Schwartz, Victor E., Chair, Shook, Hardy & Bacon, LLP, Public 
  Policy Group on behalf of the Institute for Legal Reform, U.S. 
  Chamber of Commerce, Washington, DC, statement.................    34
Stefan, Chuck, Vice President, The Mitchell Company, Mobile, 
  Alabama; accompanied by Steven Nicholas, Esq., statement.......    42
Teitz, Louise Ellen, Professor of Law, Roger Williams University 
  School of Law, Bristol, Rhode Island, statement................    45

 
 LEVELING THE PLAYING FIELD AND PROTECTING AMERICANS: HOLDING FOREIGN 
                       MANUFACTURERS ACCOUNTABLE

                              ----------                              


                         TUESDAY, MAY 19, 2009

                                       U.S. Senate,
   Subcommittee on Administrative Oversight and the Courts,
                                Committee on the Judiciary,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 10:22 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Sheldon 
Whitehouse, Chairman of the Subcommittee, presiding.
    Present: Senators Whitehouse and Sessions.

 OPENING STATEMENT OF HON. SHELDON WHITEHOUSE, A U.S. SENATOR 
                 FROM THE STATE OF RHODE ISLAND

    Chairman Whitehouse. The hearing will come to order, with 
my apologies for a delayed start. I had very much hoped that 
the votes that are about to get underway on the Senate floor 
would be done by now, but the usual last-minute wrinkles 
emerged, so it looks like it would be prudent to get started. 
We may have to interrupt in 20 minutes or so once the votes get 
close. I will go over and try to be the last Senator to vote on 
the first vote and the first Senator to vote on the second one 
and come back without too much interruption. But I very much 
appreciate everyone being here.
    Every day, Americans in all walks of life are injured by 
defective products that are manufactured outside the United 
States. These products hurt consumers--they lead to serious 
injuries, and even death--and they hurt the American businesses 
that sell these products, and that must deal with angry 
customers, product recalls, and unusable inventory.
    The list of recent examples of Americans injured by 
products made in China and other countries is shocking. Last 
year, a contaminated blood thinner caused severe medical 
reactions and contributed to numerous deaths. In 2006, a lead-
tainted charm bracelet--and by ``tainted,'' I mean 99 percent 
lead--claimed the life of a 4-year-old.
    Food products from seafood to honey have been contaminated 
with unthinkable chemicals, including veterinary drugs banned 
in domestic production, potentially harmful antibiotics, and 
unapproved food additives. Sixty million packages of pet food 
contaminated with tainted wheat gluten have been recalled in 
the last 2 years. Substandard tires have failed, leading to 
fatalities. It is a long litany.
    Most recently, defective imported drywall, imported from 
China, has been found to contain excessively high levels of 
sulfur, causing houses to smell like rotten eggs, corroding 
copper wiring, and making expensive appliances fail. Thousands 
of homes may be affected. A subcommittee of the Commerce 
Committee is holding a hearing on Thursday to consider the 
consequences of those defective products, and I commend that 
Committee for their leadership on what rapidly is emerging as a 
major problem for homeowners and businesses.
    We all know that American manufacturers must comply with 
regulations that ensure the safety of American consumers. When 
they fail to do so, they must answer to regulators and are held 
accountable through the American system of justice. 
Unfortunately, however, foreign manufacturers are not being 
held to the same standards. This puts at risk American 
consumers and businesses and puts American manufacturers at a 
competitive disadvantage.
    A major cause of this disparity is that Americans injured 
by foreign products face unnecessary and inappropriate 
procedural hurdles if they seek to hold foreign manufacturers 
accountable. First, they must identify the manufacturer of the 
product that injured them--often not as easy as it would 
sound--since many foreign products do no more than indicate 
their country of origin.
    Second, an injured American must serve process on the 
foreign manufacturer. This means the injured American has to 
deliver legal papers to the company directly or through a 
registered agent explaining that he or she is bringing a legal 
action against it. But this simple step often requires enormous 
time and expense--lawsuits even can fail over it--as the 
injured American attempts to comply with various complicated 
international treaties.
    Third, an injured American must overcome the technical 
defense that, even though a foreign manufacturer's product was 
used by an American consumer, sold to that consumer, 
nevertheless the courts of that consumer's home State do not 
have jurisdiction over that company.
    Finally, even after an injured American has overcome these 
hurdles and prevailed in court, a foreign manufacturer can 
avoid collection on the judgment--often simply cutting off 
communications or shutting up the business and reopening under 
different name.
    Americans harmed by defective foreign products need 
justice, and they do not get it when foreign manufacturers use 
technical legal defenses to avoid paying damages to the people 
they have injured.
    Today's hearing will help us learn more about these 
failures of justice and what we can do to fix them. If we do 
nothing, Americans will continue to be injured by foreign 
products and denied a meaningful remedy. American businesses 
will continue to be left on the hook for foreign defective 
products they import, use, or resell, and foreign manufacturers 
will maintain a competitive advantage over American 
manufacturers who must follow the rules and are subject to the 
American tort system.
    This hearing will consider the range of legal impediments 
standing between an injured American and an enforceable, 
collectible judgment against the foreign manufacturer. It also 
will demonstrate that these impediments result in enormous harm 
to American consumers, as well as damage to American businesses 
that transact business with the foreign entity. The assembled 
panel of experts will explain the legal hurdles facing 
Americans injured by foreign products and also put those 
injuries into real-world context by describing the harm they 
can cause to families and businesses.
    I am very grateful to all the witnesses for taking the time 
to come before the Committee today. I am especially delighted 
to have my fellow Rhode Islander Louise Ellen Teitz here to 
testify. She is a distinguished professor at Roger Williams 
University Law School in Rhode Island. Her brother is a dear 
friend of mine of many, many, many years' duration. Her 
expertise will make a great contribution to this hearing as it 
has to that wonderful law school of which she was one of the 
very first professors.
    I look forward to continuing to work with Professor Teitz 
and the other witnesses as I will soon introduce legislation 
that addresses the difficulty in serving process on foreign 
manufacturers. My legislation will require that a manufacturer 
who imports goods into the United States must designate an 
agent for service of process who will accept the legal papers 
required to initiate a lawsuit. It will require the development 
of a register of these agents so that an injured American can 
inform the manufacturer defendant of a lawsuit quickly and 
cheaply. I look forward to working with Ranking Member Sessions 
and other Senators on this legislation. Similarly, I look 
forward to hearing the witnesses' perspectives on the approach 
I have proposed.
    Protecting Americans and holding foreign manufacturers 
accountable for the injuries they cause is not a partisan 
issue. Everyone agrees that we should do what we can to keep 
Americans safe from defective products, wherever they may come 
from. So too, I think, we all agree that American companies 
should not be at a competitive disadvantage to their foreign 
counterparts, particularly not for a wrong reason. With these 
fundamental agreements, I look forward to finding legislative 
solutions that will level the competitive playing field and 
protect Americans.
    I will ask for our first witness, Professor Louise Ellen 
Teitz, as I said, a professor of law at Roger Williams 
University School of Law in Bristol, Rhode Island. Ellen has 
been teaching and writing about transnational litigation, civil 
procedure, conflicts of law, private international law, and 
comparative procedure for over 20 years, both here and abroad. 
She is the author of a treatise on transnational litigation and 
has participated as a member of the U.S. State Department 
delegation to The Hague Conference in connection with the 
Jurisdiction and Judgments Convention, the Choice of Court 
Convention, and the Conventions on Service of Process, 
Evidence, and Apostille.
    Professor Teitz is a member of numerous professional 
associations, including the American Law Institute and the 
International Association of Procedural Law. She has practiced 
law in Washington, D.C., and Dallas, Texas, in the fields of 
antitrust, competition, and trade regulation practice, and 
Federal and State litigation. She received her B.A. from Yale 
University and her J.D. from Southern Methodist University 
School of Law.
    Professor Teitz.

   STATEMENT OF LOUISE ELLEN TEITZ, PROFESSOR OF LAW, ROGER 
    WILLIAMS UNIVERSITY SCHOOL OF LAW, BRISTOL, RHODE ISLAND

    Ms. Teitz. Thank you, Chairman Whitehouse, Ranking Member 
Sessions, and members of the Subcommittee. I am honored to be 
here today to address the Committee on the difficulties of 
suing foreign parties, specifically foreign manufacturers in 
U.S. courts. I will speak briefly to three major procedural 
hurdles: obtaining personal jurisdiction; serving process or 
notice to the defendant; and enforcing U.S. judgments abroad, 
the first two of these being more easily remedied by some form 
of legislation.
    A party suing in the U.S. must first be able to find a 
court that has constitutional authority over the defendant, or 
what is called ``personal jurisdiction.'' Then after filing, 
the party must inform the defendant of the lawsuit and its 
contents--that is, serve process (of the summons and 
complaint.) At the end of the lawsuit, the party must be able 
to collect any money awarded, especially when the defendant's 
assets are outside of the U.S.--that is, be able to enforce the 
judgment abroad.
    As a result of different approaches in other legal systems, 
U.S. consumers face difficulties recovering in U.S. courts--or 
enforcing U.S. judgments abroad--in fact, more difficulty than 
many foreign consumers face in the reverse situation. In 
addition, there is a competitive impact, obviously, on U.S. 
manufacturers who are sued more easily and cheaply here in the 
U.S. and against whom judgments can be enforced throughout the 
U.S. under the Full Faith and Credit Clause.
    First, personal jurisdiction. It is important not only for 
the initial litigation, but for subsequent enforcement of the 
judgment, here or abroad. When the defendant is an alien, there 
is the additional concern with potential enforcement in foreign 
locations where the defendant has assets. Personal jurisdiction 
in the U.S., as you are all well aware, is governed by the Due 
Process Clause, generally under the 14th Amendment, both in 
State and Federal court, which requires that the defendant have 
certain minimum contacts, such as not to offend traditional 
notions of fair play and substantial justice. Even when the 
defendant is a foreign individual or entity, State boundaries 
are generally, unfortunately, the measuring unit.
    The Supreme Court's most recent case concerning a foreign 
defendant and a product in the stream of commerce is the Asahi 
case from 1987. It broke the requirements into two parts: the 
defendant's purposeful minimum contacts with the forum, and the 
fairness to the defendant in having to be subject to 
jurisdiction in the forum. The finding of no jurisdiction over 
the alien inadvertently encouraged foreign manufacturers to 
challenge the assertion of personal jurisdiction in many cases 
by providing a basis for them to argue that there was 
unfairness to the alien defendant.
    While lower courts, both State and Federal, have, in fact, 
upheld jurisdiction over foreign manufacturers since Asahi, the 
determination is ultimately very fact-specific, both as to 
whether the contacts were purposefully directed at the forum 
and whether it is fair. This fact-specific nature encourages 
litigation--litigation that is very expensive and time-
consuming for a plaintiff and costly in terms of judicial 
resources.
    A Federal statute that required consent to jurisdiction--as 
well as designation of a domestic agent for service--for 
foreign manufacturers importing certain types of products into 
the U.S. could reduce the uncertainty that plaintiffs face 
about if and where they can sue and maintain jurisdiction in 
the U.S.
    Service of process, the second procedural problem that a 
U.S. party faces once a party has filed is notifying the 
defendant of the lawsuit, as constitutionally mandated. Suing 
foreign defendants raises several additional issues that add 
delay and expense for the consumer. First, if the defendant is 
located in a country with which the United States has a 
relevant treaty or agreement, that treaty controls, both in 
Federal and State court. The Hague Convention on Service of 
Process, which currently 59 countries are party to, includes 
many of our major trading partners--Japan, Canada, and China--
and is the exclusive means of serving a defendant in a member 
country. If no treaty controls, there are several options but, 
nonetheless, these are time-consuming and, in fact, in some 
cases take 6 months to a year to execute, if at all.
    Since The Hague Convention is generally applicable to 
service of defendants from our major trading partners, I want 
to highlight briefly the implications of service under the 
treaty. There is a process with a central authority which is 
set up. It is time-consuming. All documents normally must be 
translated. At a Special Commission meeting in The Hague in 
February, many countries indicated that they have been trying 
to do this in 3 months, but countries such as China indicated 
they would have trouble meeting a 6-month deadline.
    What is crucial for triggering The Hague Service 
Convention, in Federal or State court, is that service is 
effected abroad--that is, that the document is served abroad. 
However, that determination of whether service is made abroad 
is made by reference to national law, and in the U.S., that is 
mostly state law. Thus, if service is complete under the law of 
a specific State without transmittal abroad, then the 
Convention, with its added expenses and delay, is not 
triggered.
    Thus, this is one area that, in fact, legislation that 
required a foreign manufacturer to appoint a domestic agent for 
service might reduce the cost of service abroad, especially if 
the agent would be appointed for all lawsuits throughout the 
U.S., and it would be even more effective, obviously, if in 
addition the legislation were expanded to require explicit 
consent to jurisdiction in the U.S. Consent is a traditional 
basis for personal jurisdiction, and one that thereby could 
avoid the need for lengthy litigation over the nature and 
extent of minimum contacts necessary for the court to have 
authority over the defendant.
    I see my time is up, and I will just close by saying that 
it is difficult to enforce U.S. judgments abroad. It is a trade 
imbalance. We enforce incoming judgments quite readily, but we 
are faced with difficulty in enforcing our judgments abroad. 
And so many of the manufacturers have no assets in the U.S. 
They structure their business to avoid personal jurisdiction, 
and, unfortunately, in the end a U.S. plaintiff who is choosing 
among potential defendants is obviously well advised to choose 
a domestic defendant.
    I look forward to your questions and having the opportunity 
to work with the Committee as it develops its legislation. 
Thank you.
    [The prepared statement of Ms. Teitz appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you very much, Professor Teitz. 
Once again, American manufacturers on the losing end of 
American trade policy.
    The next witness we will hear from--and we will go to 
general questions--is Thomas Gowen. He is a partner at the 
Locks Law Firm in Philadelphia, Pennsylvania. He has practiced 
law for 30 years with his primary concentration in the areas of 
complex personal injury and civil litigation. He has 
represented numerous clients in product liability, head injury, 
construction litigation, medical malpractice, and automobile 
litigation. Mr. Gowen is a member of the faculty of the 
National College of Advocacy and a past chairman of the 
Montgomery Bar Association Continuing Legal Education 
Committee. He has published legal articles in Am. Jur. Trials, 
``A Guide for Legal Assistants'' by the Practicing Law 
Institute, the Barristers, the Pennsylvania Law Journal 
Reporter, and other journals. Mr. Gowen is a graduate of 
Haverford College and Villanova University School of Law. We 
are delighted to have him with us.
    Please proceed, Mr. Gowen.

    STATEMENT OF THOMAS L. GOWEN, PARTNER, LOCKS LAW FIRM, 
                   PHILADELPHIA, PENNSYLVANIA

    Mr. Gowen. Thank you, Senator. The problem has grown in an 
exponential fashion. President Bush appointed an Interagency 
Working Group on Import Safety, chaired by Secretary Leavitt, 
which reported to the President in November of 2007 and largely 
recognized the problems and recommended numerous solutions. We 
now import $2 trillion worth of imported goods, over $200 
billion of which come from China, and that number is expected 
to triple by 2015, according to the Commission. The Commission 
recommended a structured response by the United States of 
prevention, intervention, and response, and recognizing that it 
would not be able to inspect nearly all of the products coming 
into the country.
    The response portion of the American reaction to the 
product liability issues raised by imports is a critical part 
that has roles to play for the Consumer Product Safety 
Commission and others, but the civil justice system has long 
been a potent and effective method for bringing about safety. 
The Interagency Working Group recommended using the principles 
of hazard and risk recognition or simply the practice of safety 
engineering, which are used to prove a products liability case 
in the United States.
    The problem today with bringing these cases against foreign 
manufacturers, as Professor Teitz has indicated, is that you 
have numerous civil procedural hurdles which subsume much of 
the litigation in this case. And the issues are identification, 
service of process, jurisdiction of the court, and 
collectability.
    Professor Teitz addressed the issue of service of process. 
It is no joke that identification is a major problem because 
many of the products that come into this country bear nothing 
more than a label saying made in a particular country, with no 
link the particular manufacturer. And we have seen in some 
cases that I have handled that the importer has not even been 
able to identify the manufacturer.
    I think it is important to recognize that the Supreme Court 
in the Asahi decision, in a footnote in Justice O'Connor's 
opinion, did recognize that it was not addressing the issue of 
whether Congress could legislate to allow the system of justice 
to be based upon an aggregate of national contacts. That would 
be bringing our system of justice into sync with the system of 
commerce. These companies sell into the market of the United 
States and then claim that they do not sell into a particular 
State, but you cannot sell to the American market without the 
product going to one of the 50 States. It simply is an 
impossibility. So we need to bring our system of commerce into 
sync with the system of justice, or the other way around.
    I recommend that the Congress consider legislating an 
import license which would require that there first be 
identification of a product with the manufacturer and its 
address that is posted on a U.S. Government website that is 
searchable and available to the public.
    Second, that we require the designation of an agent for the 
service of process, as your bill is recommending, and service 
of process anywhere in the United States.
    Third, that the license require consent to jurisdiction in 
the States where the product is sold or causes injury.
    And, fourth, that there be product liability insurance in 
the United States.
    The collectability issue I think raises another somewhat 
more subtle issue. It is obvious when the company cannot 
collect a judgment, but it also greatly impairs the process of 
settlement when the foreign defendant is not concerned that its 
assets may be at risk and, therefore, it fails to negotiate 
reasonable and sensible settlements, as occur in most of our 
domestic litigation.
    I think that the use of an import license and the 
interagency task force recommend a system of verification and 
essentially licensing could be done and could go a long way 
toward leveling the playing field so that foreign manufacturers 
had to come to the courts in the United States and be amenable 
to process and justice in the same way that American companies 
are.
    Thank you, Senator.
    [The prepared statement of Mr. Gowen appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you very much, Mr. Gowen.
    I understand that the Ranking Member, Senator Sessions, is 
on his way, and I know that he will be very keen to hear from 
Mr. Stefan, who hails from his home State. So what I think I 
will do is step out of order, if Professor Schwartz would not 
mind, and go directly to Victor Schwartz, and then we will go 
to Mr. Stefan afterwards so that Senator Sessions can be here.
    Victor Schwartz chairs the Public Policy Group at Shook, 
Hardy & Bacon. For over two decades, he has co-authored the 
Nation's leading torts casebook, ``Prosser, Wade & Schwartz's 
Torts,'' and also authors ``Comparative Negligence,'' the 
principal text on the subject. Mr Schwartz serves as general 
counsel to the American Tort Reform Association and co-chairs 
the American Legislative Exchange Council's Civil Justice Task 
Force. Mr. Schwartz is former dean of the University of 
Cincinnati College of Law and currently serves on its Board of 
Visitors. During his academic career, he litigated cases on 
behalf of plaintiffs and secured the first punitive damages 
award of the Midwest against the manufacturer of a defective 
product.
    Mr. Schwartz has been inducted as a life member of the 
American Law Institute and served on the Advisory Committee to 
the restatement (third) of torts, products liability, and 
apportionment of liability projects. Mr. Schwartz holds a J.D. 
from Columbia University and a B.A. from Boston University. He 
is extremely distinguished as a witness, and we are delighted 
to have him here.
    Would that be Dean Schwartz, Professor Schwartz, Counselor 
Schwartz?
    Mr. Schwartz. Just Victor.

 STATEMENT OF VICTOR E. SCHWARTZ, CHAIR, SHOOK, HARDY & BACON, 
LLP, PUBLIC POLICY GROUP, ON BEHALF OF THE INSTITUTE FOR LEGAL 
       REFORM, U.S. CHAMBER OF COMMERCE, WASHINGTON, D.C.

    Mr. Schwartz. Thank you, Mr. Chairman, and I appreciate the 
invitation. One thing you did not include in my biography is 
that I taught at UVA Law School in 1971. My whole life has been 
this way. I know that you graduated after I left, and every 
place I have been, something good has happened after I left.
    Chairman Whitehouse. Maybe something good will happen in 
this hearing today.
    Mr. Schwartz. It may, because you are leading the way, I am 
testifying today on behalf of the Institute for Legal Reform of 
the United States Chamber. I am privileged to do that. The 
views I set forth are my own. I have thought about this problem 
for a long time and see it as very serious to American 
manufacturers and large manufacturers of foreign goods overwhom 
there is jurisdiction in this country. Every manufacturer on 
its products pays what I call a ``tort tax.'' With something 
like a stepladder, many of which are imported, it is as much as 
16 percent. So having American manufacturers and foreign 
manufacturers who can be sued here pay the tort tax and having 
foreign manufacturers not pay, as you hinted in your opening 
remarks, Senator, is simply unfair competition and it is wrong. 
And this is an area where you can get agreement between a 
distinguished member of the plaintiffs bar and some of us on 
the other side to do something.
    As I said to Mr. Gowen earlier, the main problem is getting 
this issue highlighted enough so that it really can be 
addressed. The House looked at the issue last year. They had 
some legislation that overreached a bit, but I think consensus 
can be reached.
    One of the things that I have noted is that many people 
have viewed this Asahi case, which Professor Teitz referred to, 
as a barrier. If you read the case, it is not a product 
liability case. It was two foreign manufacturers who were 
trying--one of whom was trying to seek jurisdiction in the 
United States. And Justice O'Connor, who wrote the plurality 
opinion, was clear that she might have had a different point of 
view if it were a personal injury case, that jurisdiction might 
have been appropriate in that case if it had been somebody who 
was injured by a product, a Californian, where the State would 
have a greater interest than in refereeing a dispute between 
two foreign manufacturers who were not present there.
    And I mentioned this in my House testimony, and behold, two 
courts--and I will submit the opinions to you--have held that 
Asahi's rules do not apply when there is a personal injury case 
and that there is broader jurisdiction when there is a personal 
injury case and someone is hurt here in the United States by a 
foreign product. In other words, this body has more latitude to 
develop legislation on jurisdiction than some might think.
    Senator Sessions, good to see you, sir.
    I note that your focus has been on service of process, and 
we would work with you on that. But I would urge you to also 
consider legislation that addresses the jurisdictional issue. 
It is very rare in a Supreme Court opinion that a Justice 
provides a road map to Congress as to what to do. But that is 
exactly what Justice O'Connor did in the Asahi case. In a very 
pregnant footnote, she outlined how legislation could be 
formed, and that is, to have jurisdiction in Federal courts 
only, assembling contacts throughout the United States. A 
company can sell a few products in California. Under the rules, 
you cannot get jurisdiction over that company. But if it sells 
products throughout the United States and you assemble those 
contacts, you can have jurisdiction in a Federal court. And I 
think the legislation, as my testimony indicates, has to be 
very carefully drawn not to go overboard and be directed to the 
specific problem. And that was the problem with some of the 
House legislation. It got into issues such as choice of law and 
other irrelevant things. It also affected domestic 
distributors. You do not want to do that. But I think apart 
from service of process, addressing the jurisdictional issue is 
very important, and only this body can do it.
    And I have a final suggestion that should be included is 
any legislation, one that might be of interest to you. I have 
dealt and talked with many foreign manufacturers who are 
sophisticated, but a lot of them do not really fully understand 
what our tort system does. And I think if this body passes 
legislation that information should be provided that reaches 
these foreign companies about our tort system. Tell them that 
they are subject to punitive damages with no limit. Tell them 
that they can be subject to strict liability. Let them know 
about the power of folks like Mr. Gowen who can see that they 
never will exist on the face of the Earth again if they sell 
defective products in this country. And I think that will be a 
deterrent as well as any legislation you may pass.
    Thank you both.
    [The prepared statement of Mr. Schwartz appears as a 
submission for the record.]
    Chairman Whitehouse. I very much appreciate your testimony, 
Dean Schwartz, Professor Schwartz, whatever it will be.
    I would like to recognize the Ranking Member, the 
distinguished Senator from Alabama, Jeff Sessions, who has 
appeared. I do not if the Senator would care to make an opening 
statement at this point. We are through the testimony of 
Professor Teitz, Mr. Gowen, and Professor Schwartz, awaiting 
only the testimony of your fellow Alabaman, Mr. Chuck Stefan.

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

    Senator Sessions. It is great to have Chuck here. Mr. 
Stefan, we are delighted to have you here and look forward to 
your testimony. I know because of the votes we have gotten 
behind. I will not issue any long statement.
    I was on the way up here, and the Armed Services staff, 
which is meeting down the hall, grabbed me. They needed one 
more for a quorum, so we got 2,400 military promotions done 
just 2 minutes ago because I was another 5 minutes late.
    But let me just say this, Mr. Chairman. This is a good 
hearing on an important subject. I think we ought to do the 
right thing for good public policy. It should be a bipartisan 
effort. There may be some disagreements, but I do not know what 
they will be. But I believe that this is not working 
adequately. I believe clarity and rationality can be improved 
in this system. And so I am glad you are having a hearing. I 
think it is the kind of thing we ought to do more of, get into 
the nitty-gritty of a problem that makes life miserable for 
judges, lawyers, and parties when we can probably fix it.
    I look forward to hearing Chuck's testimony.
    Chairman Whitehouse. I am delighted to have you here, and I 
would like to thank you and compliment you for your and your 
staff's cooperation in putting this hearing together on a 
thoroughly cordial and highly bipartisan basis. It is really 
almost a joint hearing at this point. These are joint 
witnesses, and I could not be more delighted by the way this 
has gone.
    Now we get to hear from Chuck Stefan, who currently serves 
as the Senior Executive President for Apartment Development at 
the Mitchell Company, a home builder in Alabama, Florida, and 
Mississippi, that has been ranked among the top 100 single-
family builders in the country. Mr. Stefan has been associated 
with the Mitchell Company, Incorporated, and its predecessors 
in interest since 1973, following his tenure with the Multi-
Family Finance Section of the U.S. Department of Housing and 
Urban Development.
    Since joining the company, Mr. Stefan has been responsible 
for the site selection, acquisition, and long-term financing of 
the division's various apartment programs. Mr. Stefan was 
appointed to the Office of Senior Vice President in 1988 and is 
also a principal in the firm. Mr. Stefan received a B.A. from 
DePauw University in 1967 and an MBA from Florida State 
University in 1971, and we welcome him to the hearing. We 
believe he has the award for farthest traveled.

    STATEMENT OF CHUCK STEFAN, VICE PRESIDENT, THE MITCHELL 
 COMPANY, MOBILE, ALABAMA; ACCOMPANIED BY STEVEN NICHOLAS, ESQ.

    Mr. Stefan. Good morning, Chairman Whitehouse and Senator 
Sessions. Thank you for allowing me the opportunity to share my 
experience with you this morning. And, Senator Sessions, thank 
you for stopping at the Armed Services Committee because my 
middle son is up for lieutenant colonel in the Air Force, and 
we really needed that vote.
    [Laughter.]
    Mr. Stefan. The Mitchell Company builds homes in Alabama, 
Florida, and Mississippi. Prior to the current housing crisis, 
we were one of the top 100 builders in the country.
    My story today does not originate in Alabama, Florida, or 
Mississippi. It originates in China and Germany. You see, we 
currently have 45 houses, including homes located in Alabama 
and Florida, that have been positively identified as containing 
``Chinese Sheetrock''--the same Chinese sheetrock that has been 
so much in the news lately. This drywall emits corrosive gases 
that smell like rotten eggs and quickly damage copper both in 
the piping and wiring systems.
    We received our first complaints on this problem in late 
2008, when our homeowners complained of a ``rotten egg'' smell 
in their Mitchell homes. We also discovered that we were 
replacing the air conditioning coils in air conditioning units 
in these houses as often as once every year. Further 
investigation and a Wall Street Journal report confirmed that 
the smell and corrosion stemmed from the Chinese drywall.
    This calamity greatly impacted our business and the homes 
of our customers. Little did we realize the unnecessary and 
unfair procedural battles we faced, simply because the 
defective product had been manufactured abroad.
    First, it was difficult trying to figure out where the 
sheetrock came from. Some pieces from our Alabama homes had the 
word ``Knauf'' stamped on the back of the product, while others 
were simply stamped ``Made in China'' without any further 
identification.
    In order to identify the manufacturer of the sheetrock from 
our Florida homes, we had to pay $2,300 simply to access 
shipping data from the Customs Department. We had to navigate 
through many different search terms and descriptions of the 
possible product, ranging from sheetrock, to drywall, to 
plasterboard, to gypsum board. These searches, along with other 
information we are obtaining, will allow us to identify the 
manufacturer, but only after substantial time and expense. If 
the product had been properly marked to begin with, 
identification would have been as easy as reading the 
manufacturer's name on the product itself.
    We have had a great deal of difficulty holding Knauf 
accountable through the U.S. court system because the Hague 
Convention requires us to serve this company as an overseas 
defendant, even though Knauf has extensive operations in the 
U.S., is familiar with the U.S. language and customs, and sends 
and receives Federal Express packages daily from its Chicago 
headquarters.
    The rules vary by country, but under the Hague Convention, 
we had to translate all of the complaints into both Mandarin 
Chinese and German. The translators then have to send the 
complaints to the country involved and get an official there to 
serve them. We estimate that it will cost $2,300 for the German 
service and delay our case for an additional 12 to 16 weeks. 
Serving the two Chinese manufacturers will cost us $3,000 and 
could add as long as 6 to 8 months.
    Unfortunately, all of these delays and expenses are 
especially harmful to our clients. One home had such a severe 
drywall problem that we had to replace the refrigerator, the 
washer, and the dryer because the wiring had corroded and 
ruined these appliances.
    We have also relocated one homeowner over her concerns 
about living in an affected house. We have offered to move 
another homeowner to a different house in the same subdivision, 
but are still awaiting her answer.
    As you can see, the lack of registration and identification 
of these imported products and the difficulties involved in 
serving a foreign manufacturer have made a challenging task 
even more daunting. Foreign manufacturers should not be let off 
the hook for harming U.S. consumers and businesses like ours, 
especially if they are conducting substantial operations here 
in the U.S. If American businesses cannot hold foreign 
manufacturers accountable, it hurts our bottom line in addition 
to harming U.S. consumers and homeowners.
    I look forward to answering any questions you may have 
about my experience, and thank you again for allowing me the 
opportunity to testify today.
    [The prepared statement of Mr. Stefan appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you, Mr. Stefan. Your testimony 
I think is particularly important because it provides such a 
concrete example of the situation and the consequences of the 
situation that I think Mr. Gowen in his testimony described so 
well. Mr. Gowen said, ``. . .foreign manufacturers 
enthusiastically seek access to the American market but 
assiduously seek to avoid responsibility and accountability in 
American courts for injuries caused by their products.'' And 
that seems to be the case. They have no hesitation marketing 
the sheetrock. They have no hesitation shipping it to you. They 
have no hesitation taking the check. But when it came to 
cleaning up the damage that they caused, suddenly you have to 
translate things into Mandarin and German and chase people to 
foreign countries.
    An interesting element of your story that I would like you 
to expand on a little bit is that there seems to be a double 
whammy here for American business in the sense that from the 
very get-go an American gyp board manufacturer lost the sale of 
sheetrock to whoever manufactured the defective sheetrock, so 
there was harm to the manufacturer that lost the sale. And then 
here you are, the innocent intermediary, and now you evidently 
have to--they are your customers, and they are upset, and they 
cannot find the sheetrock manufacturer, so it sounds like that 
is all on you right now to try to keep your customers happy, 
and you are getting no support from the foreign sheetrock 
manufacturer. Is that correct?
    Mr. Stefan. That is correct, Senator, and I would also like 
to point out that the American manufacturer of the air 
conditioning equipment, Goodman, sent their representatives to 
the site, replaced their product, and continue to replace their 
product even after they know that it is not a defect in their 
manufacturing. And even though Knauf sent its attorney and a 
Ph.D. in toxicology and a lab assistant to the site, they have 
offered no assistance with finding a solution or paying any 
bills or even calling us back now that we have pestered them a 
little.
    Chairman Whitehouse. And the harm to the air conditioners 
is because the release of sulfur from the sheetrock causes an 
environment in which copper corrodes very rapidly?
    Mr. Stefan. Yes. We are not exactly sure that it is the 
sulfur or some compound that is in the sheetrock, but about 
once a year you have to change the coils. It is a very thin 
copper, and it eats right through, and the coils just have to 
be thrown away. They are not of any use.
    Chairman Whitehouse. Ordinarily, how often would you have 
to change the coils in a regular home?
    Mr. Stefan. We have plenty of apartments after 20 years 
with the same coils still operating in the air handler.
    Chairman Whitehouse. And these ones do not last a year.
    Mr. Stefan. That is correct. That problem is not solved, 
but it has been obviated by every time we replace a copper coil 
today, we change out the entire unit and use an aluminum coil 
from a different manufacturer.
    Chairman Whitehouse. Professor Teitz, would requiring 
foreign manufacturers who sell defective products in this 
country to abide by a service of process requirement and 
appoint a registered agent and perhaps even consent to 
jurisdiction, is that a trade issue that would interfere with 
our treaty obligations with respect to the WTO? Is it addressed 
in NAFTA or CAFTA or any of the trade treaties we are under?
    Ms. Teitz. I do not think those are, but service, at least 
under the Hague Convention, the question is whether the service 
is actually effected and made in the U.S. And it is left to the 
national interpretation, which, as I mentioned, in this country 
is state law, and the argument is that service is complete in 
the U.S.; therefore, it is sufficient and the Hague Convention 
is not triggered.
    Similarly, consent is generally viewed as an acceptable 
basis for jurisdiction, and I think in terms of----
    Chairman Whitehouse. And that would not be seen as a trade 
barrier being erected?
    Ms. Teitz. I do not think either one would be a trade 
barrier because consent is also available as a basis for 
jurisdiction against domestic manufacturers. And more 
specifically, certainly with the service issue, most U.S. 
corporations to get incorporated they have to designate an 
agent for service or under most State law, if you do business 
and you have not designated an agent, you are deemed to have 
designated the Secretary of State.
    So it seems to me--I am not an expert in trade law, but I 
do not see anything that would suggest a favoring of nationals, 
of one's own national.
    Chairman Whitehouse. And you mention in your testimony that 
U.S. consumers face difficulties recovering in U.S. courts or 
enforcing U.S. judgments abroad--in fact, more difficulty than 
many foreign consumers face in the reverse situation. So in 
light of that lack of reciprocality, if you will, what would 
the effect be if foreign countries retaliated and imposed 
similar rules as the service of process legislation? Would that 
be significant, or are American manufacturers already held 
accountable abroad?
    Ms. Teitz. Well, U.S. manufacturers are already held 
accountable abroad. Many of these consumers come to the U.S. 
and sue our manufacturers here because they prefer our legal 
system, they prefer the jury, they prefer large pain and 
suffering, they prefer the opportunity to be part of a class 
action. So I think it is more likely that they will come here, 
and if they do get a judgment overseas, the enforcement of 
foreign judgments incoming is a matter of State law, but as a 
practical matter, the Uniform Foreign Money Judgment 
Recognition Act and its amended version tend to enforce 
judgments as long as there was personal jurisdiction. And 
usually our notions of personal jurisdiction are sufficient to 
accept what was used there.
    Chairman Whitehouse. So this really would be a matter of 
balancing rather than creating what one might call a race to 
the bottom?
    Ms. Teitz. I would think that is the case. Certainly, one 
of the things to keep in mind, for instance, in terms of 
jurisdiction, in the European countries at the moment, normally 
a person injured can sue at the place of injury, and that is 
not always true here. A perfect example is a recent case out of 
the Third Circuit that had to do with an airplane crash. But, 
nonetheless, you could not sue at the site of injury. 
Conceivably, you may be able to sue a Swiss company that 
imports lots and lots of its planes to the U.S. in Colorado, 
but that is not clear even at this point.
    So I think that our notions of personal jurisdiction in 
certain areas are narrower because they are activity based and 
have a constitutional component and, therefore, they look at 
what the defendant does rather than where the injury occurs.
    Chairman Whitehouse. The distinguished Ranking Member.
    Senator Sessions. Thank you, Mr. Chairman.
    Mr. Stefan, first let me say how much I appreciate the 
Mitchell Company and its good work. It is one of Alabama's and 
Mobile's finest companies, and we wish you every success.
    You have contracted with an attorney. Have you yet gotten 
service of process? And how long has it been?
    Mr. Stefan. Can I let my attorney address that?
    Senator Sessions. All right.
    Mr. Nicholas. Good morning, Senator Sessions.
    Senator Sessions. You are?
    Mr. Nicholas. I am Steve Nicholas with Cunningham Bounds.
    Senator Sessions. Well, Cunningham Bounds knows how to get 
service, if anybody does.
    Mr. Stefan. They know how to get a judgment, too.
    Senator Sessions. They are one of the best plaintiff law 
firms in America, quite an honorable and effective group.
    Mr. Nicholas. Thank you, Senator. It is my understanding 
the complaints have been translated and they have been sent 
over to Germany and China, respectively, but exactly where they 
are in the process, I cannot tell you. We started that process 
probably 8 weeks ago, so while we sue local defendants, 
distributors, and, of course, we have service over them, but 
everybody is just sort of sitting there waiting for the foreign 
defendants to appear.
    Senator Sessions. Well, it is just a big problem. I guess 
you have had to spend considerable hours in research, and there 
is no one easy source to go find exactly how to get this done. 
Is that fair to say?
    Mr. Nicholas. Well, the service issues, there are companies 
out there that will do it for you--of course, for a fee. And so 
to get service over the two foreign defendants will cost the 
Mitchell Company ultimately a little over $5,000, and it is the 
delay involved, and we hope it will all work out and we will be 
able to get that service.
    Senator Sessions. All right. Now, I think I like what Mr. 
Schwartz said, because I do know that major foreign companies, 
really good companies that invest in Alabama and other places, 
want to know about the legal system. They want to know what 
they are subjected to, and if they think they are going to a 
haven for abusive torts, it makes them nervous. They are not as 
willing to invest in that area. And so these are matters that 
are very important.
    It is also unthinkable that we would allow a system to 
occur in which our American manufacturers are more liable and 
more subject to lawsuits than a foreign manufacturer. If they 
sell in the United States, seeks access to our markets, they 
should be subject to the same rules.
    And, Mr. Schwartz, I like your statement a lot, which is 
that we should be able to tell them precisely what they are 
subjected to and what kind of liability insurance they may need 
to have or what kind of behavior they need to demonstrate to 
avoid getting sued in U.S. Federal court.
    Mr. Gowen, you have filed these lawsuits, I believe. Do you 
think that is something that makes sense to you, what the 
professor said--who, by the way, is the editor of Prosser on 
Torts and one of the great legal minds in the country.
    Mr. Gowen. Absolutely, Senator, and I must say that 
although I was flattered, I was not quite sure that I or my 
colleagues have quite the draconian level of power that Mr. 
Schwartz ascribed to us in his testimony. But----
    Senator Sessions. You have been known to get companies' 
attention.
    Mr. Gowen. Well, we have, and we think that is a good thing 
because we think that that gives them some considerable 
incentive to increase the safety of their products. And when we 
apply the principles of safety engineering to prove a product 
liability case, the term ``strict liability'' is strictly a 
misnomer. You do have to prove that the product was defectively 
designed, defectively manufactured, defectively sold, which is 
essentially the same as proving that it was done negligently. 
And it is a considerable burden. It is a considerable 
litigation. But that is where the litigation should take place, 
not on the issue of civil procedure.
    In response to Senator Whitehouse's question on the issue 
of jurisdiction and the comments that Mr. Schwartz made, Mr. 
Stefan does not have any idea of what is going to happen next 
in his litigation once they come and answer because he is going 
to get a brief saying that the court in Alabama does not have 
jurisdiction.
    Senator Sessions. That is what the defendant will say.
    Mr. Gowen. And that is what the defendant will say. And 
when I testified in the same hearing that Mr. Schwartz did in 
November of 2007, the Asahi case had been cited 2,600 times. I 
checked just yesterday, and it has now been cited 5,778 times, 
which tells you how often that this defense is being raised in 
the Federal courts, and then involves substantial briefing. As 
Professor Teitz said, there was just a decision from the Third 
Circuit this week involving an airplane crash.
    So it is a considerable problem, and I think it is one that 
Congress should consider addressing through the consent to 
jurisdiction mechanism, and as Professor Schwartz said, Justice 
O'Connor did set forth an invitation to Congress to act in this 
manner.
    Senator Sessions. Briefly, how comfortable are you with 
Justice O'Connor's suggestion?
    Mr. Gowen. I am very comfortable with her suggestion. I am 
not so comfortable with the factors that she set forth in her 
opinion. I think Justice Brennan set forth in the stream of 
commerce approach to the jurisdictional issue a much more 
realistic thing, because I think our system of commerce has 
grown where these companies in the trillion dollar range are 
sending products to what they call the American market, and 
then they come and say, ``But we are not selling it to the 
State of New Jersey or the State of Alabama or the State of 
Pennsylvania.'' And it is simply impossible to sell to the 
American market without the product going to one of the States.
    Senator Sessions. Professor Teitz, what about the--are 
there any dangers to the American companies that if we do the 
wrong thing, our companies could be subjected to similar type 
circumstances where perhaps the courts are less objective in 
foreign countries? Do you see any concern there?
    Ms. Teitz. I think there is certainly always the danger 
that countries adopt reciprocal legislation, but at this point, 
I think in general, our computers are at a competitive 
disadvantage because of their being subject to suit here and 
overseas for that matter, and they are getting judgments, 
parties getting judgments in Germany and bringing them over 
here to be enforced where there are assets.
    Once upon a time, it was not quite as bad because foreign 
companies generally had assets in the U.S. so you could enforce 
a judgment you got here against one of them here. But that, of 
course, has changed. With a click of the mouse, one can move 
assets offshore and then you are stuck.
    Senator Sessions. Well, I remember one that I was involved 
in, at least for a while, involving an antique automobile, and 
involving a great ally of ours, Germany. But the person agreed, 
at least I thought, ended up spending more money, and I am not 
sure he ever got the car. The expense of litigating abroad 
really can be significant and can wipe out any gain you get 
from an ultimate victory.
    Mr. Gowen. Senator, if I might, in response to your 
question, the common practice, if one of our companies is sued 
in this country by a group or individual foreign plaintiff is 
to file a form non-convenience petition and ask the court to 
send it back to the country of origin. And that has occurred in 
pharmaceutical litigation. It has occurred in oil company 
litigation. It has occurred in numerous areas, so that the 
American companies are actually saying to the United States 
courts that they would rather be sued in England or Germany or 
wherever their product has caused harm.
    Mr. Schwartz. I think you can meet the Asahi case head on 
without having to go to dissents, because as I mentioned just 
before you came in, Senator, the Asahi case was a strange case. 
It was a case of two foreign companies seeking to use a 
California court for their dispute which arose abroad. And I 
would throw it out, and probably both of you would. It was not 
where a person was injured in California by a product sold in 
California. And Justice O'Connor in her opinion made that 
distinction clear.
    So if your jurisdiction is over cases where somebody has 
been injured or there has been property damage, and you 
assemble the contacts nationwide, as she suggested, and place 
the jurisdiction in Federal courts, first you gain a little bit 
more in terrorem effect, meaning to make those folks, who we 
are going to tell them about the tort system, worry a little 
bit that they can be sued here. Second, you address the 5,700 
cases interpreting this decision of a plurality of 21 years 
ago. So you cut down on litigation. You have clarity. You 
provide at least some in terrorem effect to foreign 
manufacturers, and I do think it is good for them to know about 
our tort system.
    The tort tax situation, which I very briefly said, is 
intriguing. One company I represent makes the best, I think, 
respirators in the world, but they pay a tort tax on each 
product. A Chinese company comes in with a cheap perversion, 
they can sell it for much less because they do not pay any 
liability. And it is blatant unfair competition that needs to 
be addressed.
    Chairman Whitehouse. Professor, just to follow up a little 
bit on Asahi, if I can be amateur lawyer for 2 seconds, the 
principle that we are talking about that comes out of the Asahi 
decision is the sort of purposefulness test that is required 
for there to be jurisdiction in any particular State. And as I 
read it, the five judges who joined in the concurring opinions, 
all in one way or another disassociated themselves from that 
part of the opinion. So you actually have a majority of the 
Supreme Court that refused to sign on to that principle, and 
yet it seems to have become--gained considerable currency. It 
is an interesting phenomenon that a minority of the Court in 
that sense through its plurality opinion has set the law when a 
majority of the Court said, you know, we are not comfortable 
with that. Do you agree with that reasoning?
    Mr. Schwartz. Absolutely. You read the case exactly right, 
and you make a map with these plurality opinions, which for 
anybody are difficult to read. You did exactly the right thing, 
and that is, map out where each Justice made his or her 
statement. So you have a majority of the Court there--I agree 
with your analysis of the case, yes, sir.
    Chairman Whitehouse. It creates a very bizarre anomaly, as 
I read it, which is that you can be a company that wants to 
sell a product in the United States, that definitely, 
assuredly, purposefully wants to sell its product in the United 
States; but because tort law tends to be a State law, State 
court matter, and because of this purposefulness requirement, 
you can intend to sell it in the United States and then not 
intend to sell it in any particular State, with the result that 
your product is everywhere physically and yet nowhere legally 
for purposes of jurisdiction.
    Mr. Schwartz. That is absolutely correct.
    Chairman Whitehouse. It is a puzzle, isn't it?
    Mr. Schwartz. Well, I think you can solve the cases cause--
with 5,700 cites, the case has caused more confusion than it is 
worth. It is unlikely that the Court is going to be addressing 
the issue again soon. You have been given an invitation by the 
court to come into this area. It is not as if the Court is 
saying we are the only body that can tell you what to do. 
Justice O'Conner provided a road map. Your reading of the case 
is exactly right. And I would encourage you to address the 
jurisdictional issue as well as the service of process issue. 
And Mr. Gowen makes a good point about identification and also 
enforcement.
    Chairman Whitehouse. Should we require consent to 
jurisdiction as part of the service of process legislation? 
Would you join the other two legal witnesses in agreeing with 
that and making the panel unanimous?
    Mr. Schwartz. Yes, if it meets the basic constitutional 
requirements, because probably you have the same constitutional 
requirements for consent that you would have for obtaining 
jurisdiction. So I would concur as long as the basic 
constitutional requirements are met.
    Chairman Whitehouse. You would still have to have minimum 
contacts, but you would not necessarily have to have 
purposefulness.
    Mr. Schwartz. Yes, Senator.
    Chairman Whitehouse. OK. I understand.
    One interesting point that was raised by the discussion 
between the Ranking Member and Mr. Stefan and his attorney is 
that there are other parties, domestic parties, American 
distributors and so forth, involved in your litigation. As I 
understand it--and this is a question for the lawyers--as a 
general proposition, if you assume that the damages that Mr. 
Stefan's clients have experienced are worth $1 million--that is 
just what it is. It is a $1 million case, and we all know that 
that is a given. And you have an array of different defendants, 
the distributors, perhaps Mitchell itself, stores that sold 
it--who knows? There could be an array of them. It does not 
make the damages any less simply because the foreign defendants 
cannot be found. Under principles of joint and several 
liability, the $1 million does not get carved up and go away. 
And so, in effect, by dodging responsibility under the American 
law, not only did they cause the American manufacturer to lose 
out, not only did they cause Mr. Stefan's company to have to 
take on a project of coping with irate consumers who, frankly, 
are not truly your problem, they are their problem; but you 
also have the other constellation of defendants who, if they 
are not found, will end up bearing their share of the costs in 
litigation out of the eventual judgment. So they are sort of 
triply loading up other American businesses in an uncompetitive 
way. Is that a fair explanation? Let me start with Mr. Gowen 
and then Professor Teitz and then Professor Schwartz.
    Mr. Gowen. Yes, I think it is very fairly stated, Senator, 
and I think all of us want to see American companies succeed. 
And this is an area where there is definite unfairness because 
the American companies can be left holding the bag because they 
cannot get them there. As you say, the damages do not go down 
or do not go away. These folks just are able to avoid their 
responsibility or, you know, sufficiently add complexity to the 
case before you can ever get them to the court, that it becomes 
extremely onerous to get them there.
    Chairman Whitehouse. And, of course, we focused a certain 
amount in this discussion on the commercial defendants and the 
business effect of this. But behind all of that is some, in 
this case, Alabaman who is out of their house.
    Mr. Gowen. That is right.
    Chairman Whitehouse. Or who cannot get the air conditioner 
up and rolling because the coils have corroded out. And I 
gather the weather can be pretty warm down there sometimes. You 
need an air conditioner. So there is a real human cost in 
addition to the business cost.
    Professor Teitz.
    Ms. Teitz. I think that as a practical matter as well, what 
happens is if you are a lawyer who is consulted about this, you 
would advise the client to go after the domestic defendants 
because there are so many procedural hurdles; and if you have a 
Chinese defendant, who you ultimately get jurisdiction over, 
the question is: Are you going to be able to enforce a 
judgment? Are there any assets in the U.S. or debtors to the 
Chinese company in the U.S.? So they may be for all purposes 
not really a viable defendant anyway. So if you already have a 
viable defendant who has joint and several liability, why 
necessarily continue on that?
    Chairman Whitehouse. Yes, I understand. Some people might 
not even take the effort that Mr. Stefan's company did to chase 
down the true miscreants if they are satisfied that they can 
collect their judgments from the American companies, and the 
injustice compounds itself.
    Professor Schwartz, did you want to comment on that?
    Mr. Schwartz. I think that you have stated this very, very 
well, because it is in terms that everybody can understand.
    Senator Sessions. I would just note for the record that the 
august professor has complimented you twice. That is----
    Chairman Whitehouse. I did not do that well in law school.
    [Laughter.]
    Mr. Schwartz. I taught at his school 10 years before he was 
there, and as I said in my beginning remarks, that is why he 
probably did well, I had already left.
    If this issue is broken down into terms that everybody can 
understand, I think it will get solved. When I hear it 
discussed, it is discussed in too complex a manner. But you put 
it well. No. 1, the rules let a foreign manufacturer take away 
business from American companies, and right now that is 
something that rings true. We are worried about jobs in this 
country. We are worried about business in this country.
    Second, the foreign company can sell it cheaper because it 
does not pay the tort tax and the American company does.
    And then, third, the irony is that under our joint and 
several liability rules, some American distributor or 
manufacturer who did not do anything wrong or marginally was 
involved pays the whole liability.
    And if you break it down into those three things and just 
talk about it over and over again, the media will pick it up, 
and you will get some wind behind the sails of some legislation 
that can address the problem.
    I think it would be addressed when you have consensus other 
than when other issues that seem more important to some people, 
take the front seat. But this is something that is affecting 
this gentleman, businesses all over America, and people who are 
left with nobody to sue in some situations.
    Chairman Whitehouse. Well, let me ask the distinguished 
Ranking Member to conclude the questioning of this panel, 
unless another Senator should turn up with a question that they 
are burning to ask. And we will then close the hearing after 
that.
    Senator Sessions. Thank you.
    Well, I do think it is something we can fix and we should 
fix. It is not impossible. And as a practical matter, Mr. 
Schwartz, what about a requirement--I do not know where it 
would be in the system, but that the products themselves, where 
practical, should have on it the original manufacturer or at 
least some requirement that if a distributor sells it in the 
United States, that they have on record information dealing 
with who actually manufactured the product?
    Mr. Schwartz. You are absolutely right, Senator. You have 
to address the identification issue, and that may be a very 
practical way to do it. If we do not know whose product it is, 
as I recall when I did plaintiffs' work, and certainly Mr. 
Gowen, you do not know where to begin. So I think a requirement 
of that type, carefully worked out, carefully crafted, is 
essential to having the portal open so these companies can be 
held responsible.
    Senator Sessions. You suggested there is some danger if we 
get too far abroad in what we write as a legislative fix that 
could create political controversies. But what about the 
question of Federal-State jurisdictions or to what extent 
should it be Federal if a product is sold in all 50 States? And 
what about venue, forum shopping, where if a product is sold in 
all 50 States, the plaintiff could then choose the one county 
that has one judge that they like and file a lawsuit there?
    Mr. Schwartz. You are so kind to ask that question. You 
know, I trademarked a term called ``judicial hellholes,'' and I 
will not address any of the States of this Committee, but yes, 
they become places where people go, and I think your solutions 
to this issue should be in Federal courts, which are neutral in 
their application, and not create pendant jurisdiction problems 
and other problems where State court jurisdiction could result 
in situations that adversely affect domestic manufacturers.
    Some of the House legislation unintentionally did that, and 
for getting a solution, we should stick to the core problem, it 
is a national problem. Sandra Day O'Connor, Justice O'Connor, 
said it was national in scope. She provided a road map, and I 
do not think it would be good to have litigation tourism going 
on by solving a problem and creating another one that we do not 
want.
    Senator Sessions. Well, thank you. I believe we have made 
some progress, and I look forward to working with you.
    Chairman Whitehouse. I thank the distinguished Ranking 
Member. I thank the witnesses. I would note just in response to 
the very interesting colloquy between the Ranking Member and 
Professor Schwartz that if there is such a thing as a judicial 
hellhole, there are probably ones on both sides of the aisle, 
and what you would also not want is to allow the foreign 
defective product manufacturer to be able to choose venues in 
which their defense was favored. So that is an issue very much 
worth working on, but I think particularly the questions of 
service of process and of consent to jurisdiction have emerged 
from this hearing as one where there appears to be both room 
for progress, unanimity, and some real practical benefit from 
going forward.
    So I am grateful to the witnesses for having framed it this 
well. I am grateful to the Ranking Member for his cooperation 
and his staff's cooperation in pulling this hearing together in 
so collegial a fashion.
    The record will remain open for another week if anybody 
wishes to supplement the record. Without objection, and with 
the Ranking Member's consent, I will add into the record a 
statement of Chairman Leahy, the Chairman of the Judiciary 
Committee, on this question. And if there is no further 
business, the hearing will stand adjourned.
    [Whereupon, at 11:33 a.m., the Subcommittee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]
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