[Congressional Record Volume 143, Number 76 (Thursday, June 5, 1997)]
[Senate]
[Pages S5346-S5350]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ABRAHAM (for himself, Mr. McConnell, Mr. Coverdell, Mr. 
        Santorum, Mr. McCain and Mr. Ashcroft):
  S. 836. A bill to offer small businesses certain protections from 
litigation excesses; to the Committee on the Judiciary.


        The Small Business Lawsuit Abuse Protection Act of 1997

  Mr. ABRAHAM. Mr. President, I rise today to introduce the Small 
Business Lawsuit Abuse Protection Act of 1997. This bill will provide 
targeted relief from litigation excesses to small businesses.
  Small businesses in Michigan and across the Nation have faced 
increasingly burdensome litigation and desperately need relief from 
unwarranted and costly lawsuits. While other sectors of our society and 
our economy also need relief from litigation excesses, small businesses 
by their very nature are particularly vulnerable to lawsuit abuses and 
especially unable to bear the high costs of unjustified and unfair 
litigation against them.
  As this week is Small Business Week, it provides a fine opportunity 
for us to focus on relieving the burdens faced by small businesses. 
Small businesses represent the engine of our growing economy and 
provide countless benefits to communities across America. The Research 
Institute for Small and Emerging Business, for example, has estimated 
that there are over 20 million small businesses in America and that 
small businesses generate 50 percent of the country's private sector 
output.
  When I was in Michigan last week over the Memorial Day recess, I 
heard story after story from small businesses about the constraints, 
limitations, and

[[Page S5347]]

fear imposed on them by the threat of abusive and unwarranted 
litigation. I also heard about the high costs that they must pay for 
liability insurance. Those represent costs that could be going to 
expand small businesses, to provide more jobs, or to offer more 
benefits. According to a recent Gallup survey, one out of every five 
small businesses decides not to hire more employees, expand its 
business, introduce a new product, or improve an existing one out of 
fear of lawsuits.
  Before the Memorial Day recess, Congress passed the Volunteer 
Protection Act, which--if signed by the President--will provide 
specific protections from abusive litigation to volunteers. The Senate 
passed that legislation by an overwhelming margin of 99 to 1. That 
legislation provides a model for further targeted reforms for sectors 
that are particularly hard hit and in need of immediate relief.
  Small businesses have carried an often unbearable load from 
unwarranted and unjustified lawsuits. Data from San Diego's superior 
court published by the Washington Legal Foundation revealed that 
punitive damages were requested in 41 percent of suits against small 
businesses. It is unfathomable that such a large proportion of our 
small businesses are engaging in the sort of egregious misconduct that 
would warrant a claim of punitive damages. Unfortunately, those sort of 
findings are not unusual. The National Federation of Independent 
Business has reported that 34 percent of Texas small business owners 
have been sued or threatened with court action seeking punitive 
damages. Those figures are outrageously high and simply cannot have 
anything to do with actual wrongdoing.
  We know of far too many examples of expensive and ridiculous legal 
threats faced by our small businesses that they must defend every day. 
In a case reported by the American Consulting Engineers Council, a 
drunk driver had an accident after speeding and bypassing detour signs. 
Eight hours after the crash, the driver had a blood alcohol level of 
0.09. The driver sued the engineering firm that designed the road, the 
contractor, the subcontractor, and the State highway department. Five 
years later, and after expending exorbitant amounts on legal fees, the 
defendants settled the case for $35,000. The engineering firm--a small 
15 person firm--was swamped with over $200,000 in legal costs. That 
represents an intolerable amount for a small business to have to pay in 
defending a questionable and unwarranted lawsuit.
  There are more examples. In an Ann Landers column from October 1995, 
a case was reported that involved a minister and his wife who sued a 
guide dog school for $160,000 after a blind man who was learning to use 
a seeing-eye dog stepped on the woman's toes in a shopping mall. The 
guide dog school, Southeastern Guide Dogs, Inc., which provided the 
instructor supervising the man, was the only school of its kind in the 
Southeast. It trains seeing-eye dogs at no cost to the visually 
impaired. The couple filed their lawsuit 13 months after the so-called 
accident, in which witnesses reported that the woman did not move out 
of the blind man's way because she wanted to see if the dog would walk 
around her.
  The experiences of a small business in Michigan, the Michigan Furnace 
Co., is likewise alarming. The plawsuit in the history of her company 
has been a nuisance lawsuit. She indicates that if the money the 
company spends on liability insurance and legal fees was distributed 
among the employees, it would amount to a $10,000 annual raise per 
employee.
  These costs are stifling our small businesses and the people who work 
there. The straightforward provisions of the Small Business Lawsuit 
Abuse Protection Act will provide small businesses with relief by 
discouraging abusive litigation. The bill contains essentially two 
principal reforms.
  First, the bill limits punitive damages that may be awarded against a 
small business. In most civil lawsuits against small businesses, 
punitive damages would be available against the small business only if 
the claimant proves by clear and convincing evidence that the harm was 
caused by the small business through at least a conscious, flagrant 
indifference to the rights and safety of the claimant. Punitive damages 
would also be limited in amount. Punitive damages would be limited to 
the lesser of $250,000 or two times the compensatory damages awarded 
for the harm. That formulation is exactly the same formulation that 
appears in the small business protection provision that was included in 
the product liability conference report that passed in the 104th 
Congress.
  Second, joint and several liability reforms for small businesses are 
included under the exact same formulation that was used both in the 
Volunteer Protection Act passed this Congress and in the product 
liability conference report passed last Congress. Joint and several 
liability would be limited so that a small business would be liable for 
noneconomic damages only in proportion to the small business's 
responsibility for causing the harm. If a small business is responsible 
for 100% of an accident, then it will be liable for 100% of noneconomic 
damages. But if it is only 70%, 25%, 10%, or any other amount 
responsible, then the small business will be liable only for that same 
percent of noneconomic damages.

  Of course, small businesses would still be jointly and severally 
liable for economic damages, and any other defendants in the action 
that were not small businesses could be held jointly and severally 
liable for all damages. This should provide some protection to small 
businesses so that they will not be sought out as ``deep pocket'' 
defendants by trial lawyers who would otherwise try to get them on the 
hook for harms that they have not caused. The fact is that many small 
businesses simply do not have deep pockets, and they frequently need 
all of their resources just to stay in business, take care of their 
employees, and make ends meet.
  The other provisions in the bill specify the situations in which 
those reforms apply. The bill defines small business as any business 
having fewer than 25 employees. That is the same definition of small 
business that was included in the Product Liability Conference Report. 
Like the Volunteer Protection Act, this bill covers all civil lawsuits 
with the exception of suits involving certain types of egregious 
conduct. The limitations on liability included in the bill would not 
apply to any misconduct that constitutes a crime of violence, act of 
international terrorism, hate crime, sexual offense, or civil rights 
law violation, or which occurred while the defendant was under the 
influence of intoxicating alcohol or any drug.
  Also like the Volunteer Protection Act, the bill includes a State 
opt-out. A State would be able to opt out of the provisions of the bill 
provided the State enacts a law indicating its election to do so and 
containing no other provisions. I do not expect that any State will 
opt-out of these provisions, but I feel it is important to include one 
out of respect for principles of federalism.
  I am pleased to have Senators McConnell, Coverdell, Santorum and 
McCain as original cosponsors of the legislation and very much 
appreciate their support for our small businesses and for meaningful 
litigation reforms. The bill is also supported by the National 
Federation of Independent Business and by the National Restaurant 
Association. I ask unanimous consent that letters from those two 
organizations be inserted in the Record.
  Finally, I ask unanimous consent that a section-by-section analysis 
of the bill be printed in the Record, as well as the full text of the 
bill, and I encourage my colleagues to support this simple and much-
needed legislation.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 836

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Small Business Lawsuit Abuse 
     Protection Act of 1997''.

     SEC. 2. FINDINGS.

       Congress finds that--
       (1) the United States civil justice system is inefficient, 
     unpredictable, unfair, costly, and impedes competitiveness in 
     the marketplace for goods, services, business, and employees;
       (2) the defects in the civil justice system have a direct 
     and undesirable effect on interstate commerce by decreasing 
     the availability of goods and services in commerce;
       (3) there is a need to restore rationality, certainty, and 
     fairness to the legal system;
       (4) the spiralling costs of litigation and the magnitude 
     and unpredictability of punitive

[[Page S5348]]

     damage awards and noneconomic damage awards have continued 
     unabated for at least the past 30 years;
       (5) the Supreme Court of the United States has recognized 
     that a punitive damage award can be unconstitutional if the 
     award is grossly excessive in relation to the legitimate 
     interest of the government in the punishment and deterrence 
     of unlawful conduct;
       (6) just as punitive damage awards can be grossly 
     excessive, so can it be grossly excessive in some 
     circumstances for a party to be held responsible under the 
     doctrine of joint and several liability for damages that 
     party did not cause;
       (7) as a result of joint and several liability, entities 
     including small businesses are often brought into litigation 
     despite the fact that their conduct may have little or 
     nothing to do with the accident or transaction giving rise to 
     the lawsuit, and may therefore face increased and unjust 
     costs due to the possibility or result of unfair and 
     disproportionate damage awards;
       (8) the costs imposed by the civil justice system on small 
     businesses are particularly acute, since small businesses 
     often lack the resources to bear those costs and to challenge 
     unwarranted lawsuits;
       (9) due to high liability costs and unwarranted litigation 
     costs, small businesses face higher costs in purchasing 
     insurance through interstate insurance markets to cover their 
     activities;
       (10) liability reform for small businesses will promote the 
     free flow of goods and services, lessen burdens on interstate 
     commerce, and decrease litigiousness; and
       (11) legislation to address these concerns is an 
     appropriate exercise of Congress powers under Article I, 
     section 8, clauses 3, 9, and 18 of the Constitution, and the 
     fourteenth amendment to the Constitution.

     SEC. 3. DEFINITIONS.

       In this Act:
       (1) Act of international terrorism.--The term ``act of 
     international terrorism'' has the same meaning as in section 
     2331 of title 18, United States Code).
       (2) Crime of violence.--The term ``crime of violence'' has 
     the same meaning as in section 16 of title 18, United States 
     Code.
       (3) Drug.--The term ``drug'' means any controlled substance 
     (as that term is defined in section 102 of the Controlled 
     Substances Act (21 U.S.C. 802(b)) that was not legally 
     prescribed for use by the defendant or that was taken by the 
     defendant other than in accordance with the terms of a 
     lawfully issued prescription.
       (4) Economic loss.--The term ``economic loss'' means any 
     pecuniary loss resulting from harm (including the loss of 
     earnings or other benefits related to employment, medical 
     expense loss, replacement services loss, loss due to death, 
     burial costs, and loss of business or employment 
     opportunities) to the extent recovery for such loss is 
     allowed under applicable State law.
       (5) Harm.--The term ``harm'' includes physical, 
     nonphysical, economic, and noneconomic losses.
       (6) Hate crime.--The term ``hate crime'' means a crime 
     described in section 1(b) of the Hate Crime Statistics Act 
     (28 U.S.C. 534 note)).
       (7) Noneconomic losses.--The term ``noneconomic losses'' 
     means losses for physical and emotional pain, suffering, 
     inconvenience, physical impairment, mental anguish, 
     disfigurement, loss of enjoyment of life, loss of society and 
     companionship, loss of consortium (other than loss of 
     domestic service), injury to reputation, and all other 
     nonpecuniary losses of any kind or nature.
       (8) Small business.--
       (A) In general.--The term ``small business'' means any 
     unincorporated business, or any partnership, corporation, 
     association, unit of local government, or organization that 
     has less than 25 full-time employees.
       (B) Calculation of number of employees.--For purposes of 
     subparagraph (A), the number of employees of a subsidiary of 
     a wholly-owned corporation includes the employees of--
       (i) a parent corporation; and
       (ii) any other subsidiary corporation of that parent 
     corporation.
       (10) State.--The term ``State'' means each of the several 
     States, the District of Columbia, the Commonwealth of Puerto 
     Rico, the Virgin Islands, Guam, American Samoa, the Northern 
     Mariana Islands, any other territory or possession of the 
     United States, or any political subdivision of any such 
     State, territory, or possession.

     SEC. 4. LIMITATION ON PUNITIVE DAMAGES FOR SMALL BUSINESSES.

       (a) General Rule.--Except as provided in section 6, in any 
     civil action against a small business, punitive damages may, 
     to the extent permitted by applicable State law, be awarded 
     against the small business only if the claimant establishes 
     by clear and convincing evidence that conduct carried out by 
     that defendant through willful misconduct or with a 
     conscious, flagrant indifference to the rights or safety of 
     others was the proximate cause of the harm that is the 
     subject of the action.
       (b) Limitation on Amount.--In any civil action against a 
     small business, punitive damages shall not exceed the lesser 
     of--
       (1) two times the total amount awarded to the claimant for 
     economic and noneconomic losses; or
       (2) $250,000.
       (c) Application by Court.--This section shall be applied by 
     the court and shall not be disclosed to the jury.

     SEC. 5. LIMITATION ON SEVERAL LIABILITY FOR NONECONOMIC LOSS 
                   FOR SMALL BUSINESSES.

       (a) General Rule.--Except as provided in section 6, in any 
     civil action against a small business, the liability of each 
     defendant that is a small business, or the agent of a small 
     business, for noneconomic loss shall be determined in 
     accordance with subsection (b).
       (b) Amount of Liability.--
       (1) In General.--In any civil action described in 
     subsection (a)--
       (A) each defendant described in that subsection shall be 
     liable only for the amount of noneconomic loss allocated to 
     that defendant in direct proportion to the percentage of 
     responsibility of that defendant (determined in accordance 
     with paragraph (2)) for the harm to the claimant with respect 
     to which the defendant is liable; and
       (B) the court shall render a separate judgment against each 
     defendant described in that subsection in an amount 
     determined pursuant to subparagraph (A).
       (2) Percentage of responsibility.--For purposes of 
     determining the amount of noneconomic loss allocated to a 
     defendant under this section, the trier of fact shall 
     determine the percentage of responsibility of each person 
     responsible for the harm to the claimant, regardless of 
     whether or not the person is a party to the action.

     SEC. 6. EXCEPTIONS TO LIMITATIONS ON LIABILITY.

       The limitations on liability under sections 4 and 5 do not 
     apply to any misconduct of a defendant--
       (1) that constitutes--
       (A) a crime of violence;
       (B) an act of international terrorism; or
       (C) a hate crime;
       (2) that involves--
       (A) a sexual offense, as defined by applicable State law; 
     or
       (B) a violation of a Federal or State civil rights law; or
       (3) if the defendant was under the influence (as determined 
     pursuant to applicable State law) of intoxicating alcohol or 
     a drug at the time of the misconduct, and the fact that the 
     defendant was under the influence was the cause of any harm 
     alleged by the plaintiff in the subject action.

     SEC. 7. PREEMPTION AND ELECTION OF STATE NONAPPLICABILITY.

       (a) Preemption.--Subject to subsection (b), this Act 
     preempts the laws of any State to the extent that State laws 
     are inconsistent with this Act, except that this Act shall 
     not preempt any State law that provides additional 
     protections from liability for small businesses.
       (b) Election of State Regarding Nonapplicability.--This Act 
     does not apply to any action in a State court against a small 
     business in which all parties are citizens of the State, if 
     the State enacts a statute--
       (1) citing the authority of this subsection;
       (2) declaring the election of such State that this Act does 
     not apply as of a date certain to such actions in the State; 
     and
       (3) containing no other provision.

     SEC. 8. EFFECTIVE DATE.

       (a) In General.--This Act shall take effect 90 days after 
     the date of enactment of this Act.
       (b) Application.--This Act applies to any claim for harm 
     caused by an act or omission of a small business, if the 
     claim is filed on or after the effective date of this Act, 
     without regard to whether the harm that is the subject of the 
     claim or the conduct that caused the harm occurred before 
     such effective date.
                                  ____


     Section-by-Section Analysis--The Small Business Lawsuit Abuse 
                         Protection Act of 1997


                         section 1. short title

       This section provides that the act may be cited as the 
     ``Small Business Lawsuit Abuse Protection Act of 1997.''


                          section 2. findings

       This section sets out congressional findings concerning the 
     litigation excesses facing small businesses, and the need for 
     litigation reforms to provide certain protections to small 
     businesses from abusive litigation.


                         section 3. definitions

       Various terms used in the bill are defined in the section. 
     Significantly, for purposes of the legislation, a small 
     business is defined as any business or organization with 
     fewer than 25 full time employees.


     section 4. limitation on punitive damages for small businesses

       The bill provides that punitive damages may, to the extent 
     permitted by applicable State law, be awarded against a 
     defendant that is a small business only if the claimant 
     establishes by clear and convincing evidence that conduct 
     carried out by that defendant with a conscious, flagrant 
     indifference to the rights or safety of others was the 
     proximate cause of the harm that is the subject of the 
     action.
       The bill also limits the amount of punitive damages that 
     may be awarded against a small business. In any civil action 
     against a small business, punitive damages may not exceed the 
     lesser of two times the amount awarded to the claimant for 
     economic and noneconomic losses, or $250,000.


  section 5. limitation on several liability for noneconomic loss for 
                            small businesses

       This section provides that, in any civil action against a 
     small business, for each defendant that is a small business, 
     the liability of that defendant for noneconomic loss will be 
     in proportion to that defendant's responsibility for causing 
     the harm. Those defendants would continue, however, to be 
     held

[[Page S5349]]

     jointly and severally liable for economic loss. In addition, 
     any other defendants in the action that are not small 
     businesses would continue to be held jointly and severally 
     liable for both economic and noneconomic loss.


      section 6. preemption and election of state nonapplicability

       The bill preempts State laws to the extent that any such 
     laws are inconsistent with it, but it does not preempt any 
     State law that provides additional protections from liability 
     to small businesses. The bill also includes an opt-out 
     provision for the States. A State may opt out of the 
     provisions of the bill for any action in State court against 
     a small business in which all parties are citizens of the 
     State. In order to opt out, the State would have to enact a 
     statute citing the authority in this section, declaring the 
     election of the State to opt out, and containing no other 
     provisions.


           section 7. exceptions to limitations on liability

       The limitations on liability included in the bill would not 
     apply to any misconduct that constitutes a crime of violence, 
     act of international terrorism, hate crime, sexual offense, 
     or civil rights law violation, or which occurred while the 
     defendant was under the influence of intoxicating alcohol or 
     any drug.


                       section 8. effective date

       The bill would take effect 90 days after the date of 
     enactment, and would apply to claims filed on or after the 
     effective date.
                                  ____

                                            National Federation of


                                         Independent Business,

                                     Washington, DC, June 4, 1997.
     Hon. Spencer Abraham,
     U.S. Senate,
     Washington, DC
       Dear Senator Abraham: On behalf of the 600,000 small 
     business owners of the National Federation of Independent 
     Business (NFIB), I am writing to commend you for your efforts 
     to put an end to abusive litigation and restore common sense 
     to our civil justice system.
       Legal reform is a small business issue and was listed as to 
     top priority at the 1995 White House Conference on Small 
     Business. The frequency and cost of litigation have been 
     exploding at an alarming rate. Our civil justice system is 
     becoming increasingly inaccessible, unaffordable and 
     intimidating, not to mention unfair. It is now so strained 
     that it threatens not only the fair judicial process but also 
     has become a huge disincentive to business start-ups. The 
     cost and availability of liability insurance was listed as a 
     top concern to small business owners in a survey conducted 
     recently by the NFIB Education Foundation.
       Small business owners now see the legal system as a ``no 
     win'' situation. If sued--even if completely innocent--it 
     means either a costly, protracted trial or being forced into 
     an expensive settlement to avoid a trial. Thousands of small 
     business owners across the country are having their business, 
     their employees, and their future put at risk by a legal 
     system that is out of control.
       Small business owners support any measures that inject more 
     fairness into our civil justice system and allow for the 
     affordable pursuit--or defense--of legitimate cases. Your 
     legislation, the Small Business Lawsuit Abuse Protection Act 
     of 1997, is an important vehicle for those goals. With our 
     courts facing an extraordinary backlog with delays up to 
     several years in some jurisdictions, your bill will 
     discourage frivolous or malicious cases, and help streamline 
     and balance the system.
       Thank you for your continued support of small business.
           Sincerely,

                                                   Dan Danner,

                                           Vice President, Federal
     Governmental Relations.
                                  ____



                              National Restaurant Association,

                                     Washington, DC, June 4, 1997.
     Hon. Spence Abraham,
     U.S. Senate,
     Washington, DC.
       Dear Senator Abraham: The National Restaurant Association--
     the leading representative for the nation's restaurant 
     industry which employs more than nine million Americans--
     strongly applauds your effort to protect small businesses 
     from Litigation excesses.
       Many small businesses, particularly restaurants, have 
     become vulnerable to excessive litigation in recent years. 
     Indeed, our members are all too familiar with the rising 
     costs of liability insurance and with the reality that a 
     single frivolous lawsuit can be enough to drive a restaurant 
     out of business. We strongly support the Small Business 
     Lawsuit Abuse Protection Act of 1997 and believe it will go a 
     long way toward curbing lawsuit abuse.
       Because of the fear of unlimited punitive damages when 
     faced with a claim, many small business owners settle out of 
     court for significant award amounts, even if the plaintiff's 
     claim is frivolous and unwarranted. Plaintiffs' attorneys 
     take advantage of a small business owner's fear, pursuing 
     claims against businesses that they know will have 
     ``settlement value.'' The Small Business Lawsuit Abuse 
     Protection Act limits the amount of punitive damages that may 
     be awarded against a small business. In any civil action 
     against a small business, punitive damages may not exceed the 
     lesser of two times the amount awarded to the claimant for 
     economic and noneconomic losses, or $250,000. Putting a cap 
     on the amount of punitive damages would help to reduce 
     frivolous suits and would enable businesses to obtain more 
     equitable settlements and avoid costly and unnecessary legal 
     fees.
       In addition to limiting punitive damages, we are pleased 
     that your legislation includes a provision to limit several 
     liability for noneconomic damages. Under joint and several 
     liability, small business owners are often dragged into 
     lawsuits with which they had little, or nothing, to do. The 
     Abraham Small Business Lawsuit Abuse Protection Act takes an 
     important first step by limiting the liability for 
     noneconomic loss to the proportion of the small business' 
     responsibility. The limitation on several liability would 
     apply in any civil action against a small business.
       Senator Abraham, we appreciate your continued commitment to 
     small business and to legal reform. We look forward to 
     working with you to pass the Small Business Lawsuit Abuse 
     Protection Act.
       Sincerely,
     Elaine Z. Graham,
       Senior Vice President, Government Relations and Membership.
     Christina M. Howard,
       Senior Legislative Representative.

  Mr. McCONNELL. Mr. President, I rise today to join my esteemed 
colleague from Michigan in the introduction of the Small Business 
Lawsuit Abuse Protection Act of 1997.
  Over the past 30 years, the American civil justice system has become 
inefficient, unpredictable, and costly. Consequently, I have spent a 
great deal of my time in the U.S. Senate working to reform the legal 
system. I was particularly pleased to help lead in the efforts to pass 
the Volunteer Protection Act, which offers much-needed litigation 
protection for our country's battalion of volunteers. America's 
litigation crisis, however, goes well beyond our volunteers.
  Lawsuits and the mere threat of lawsuits impede our country's 
invention, innovation, and the competitive position our Nation has 
enjoyed in the world marketplace. The litigation craze has several 
perverse effects. For example, it discourages the production of more 
and better products, while encouraging the production of more and more 
attorneys. In the 1950's, there was one lawyer for every 695 Americans. 
Today, in contrast, there is one lawyer for every 290 people. In fact, 
we have more lawyers per capita than any other western democracy.
  Mr. President, don't get me wrong--there is nothing inherently wrong 
with being a lawyer. I am proud to be a graduate of the University of 
Kentucky College of Law. My point, however, is simple: government and 
society should promote a world where it is more desirable to create 
goods and services than it is to create lawsuits.
  The chilling effects of our country's litigation epidemic are felt 
throughout our national economy--especially by our small businesses. We 
must act to remove the litigation harness from the backs of our small 
businesses.
  The Small Business Lawsuit Abuse Protection Act is a narrowly crafted 
bill which seeks to restore some rationality, certainty, and civility 
to the legal system. Specifically, this bill would offer limited relief 
to businesses or organizations that have fewer than 25 full-time 
employees.
  First, the bill seeks to provide some reasonable limits on punitive 
damages, which typically serve as a windfall to plaintiffs. The bill 
provides that punitive damages may be awarded against a small business 
only if the claimant establishes by clear and convincing evidence that 
the business engaged in wanton or willful conduct. The bill would also 
limit the amount of punitive damages that may be awarded against a 
small business to, the lesser of: First, $250,000, or second, two times 
the amount awarded to the claimant for economic and noneconomic losses. 
Third, the bill provides that a business' responsibility for 
noneconomic losses would be in proportion to the business' 
responsibility for causing the harm. Any other defendants in the action 
who are not small businesses would continue to be held jointly and 
severally liable.
  Now, let me explain what this bill does not do. It does not close the 
courthouse door to plaintiffs who sue small businesses. For example, 
this bill does not limit a plaintiff's ability to sue a small business 
for an act of negligence, or any other act, for that matter. The

[[Page S5350]]

bill also does not abolish joint and several liability for economic 
losses.
  Mr. President, this is a sensible, narrowly tailored piece of 
legislation that is greatly needed to free up the enterprising spirit 
of our small businesses. I look forward to Senate's consideration of 
this important legislation.
  Mr. COVERDELL. Mr. President, I rise today to join my good friend, 
Senator Abraham, in introducing the Small Business Lawsuit Abuse 
Protection Act. As a member of the Senate's Small Business Committee, I 
have focused on helping small businesses succeed in an increasingly 
competitive environment.
  Small businesses are vulnerable to abusive lawsuits. Take for example 
the case of Dixie Flag Manufacturing, a small business in Texas that 
manufactures American flags. The company was named in an injury lawsuit 
claiming it manufactured an unreasonably dangerous product--a flag--
that failed to carry proper instructions or warning labels. Ironically, 
Dixie Flag Manufacturing did not even make the flag involved in the 
injury prompting the lawsuit. In fact, its only connection to the 
incident was that it happened to be in the business of manufacturing 
American flags. Nevertheless, this mall family-owned business was 
forced to settle out of court in order to avoid large legal fees.
  The cost of obtaining product liability insurance has skyrocketed 
over the last 20 years, and small businesses have been 
disproportionately affected. A recent Gallup survey found that the fear 
of lawsuits drove 20 percent of small businesses not to hire more 
employees, expand the business, introduce a new product, or improve an 
existing one.
  I recently authored the Volunteer Protection Act to shield volunteers 
from unreasonable and costly lawsuits, and it received overwhelming 
support in Congress because it takes real action to promote 
voluntarism. Frivolous and absurd lawsuits are having a chilling effect 
on the volunteer community. Consequently, the Volunteer Protection Act 
deserves the President's unqualified support.
  The Gallup study demonstrates that the threat of frivolous lawsuits 
is having a similar chilling effect on small business. Simply put, the 
Small Business Lawsuit Abuse Protection Act, which has been modeled 
after the Volunteer Protection Act, would provide needed protections 
for small businesses from abusive and frivolous lawsuits.
  Let me take this opportunity to briefly describe how the Small 
Business Lawsuit Abuse Protection Act would protect small businesses, 
specifically those with fewer than 25 full-time employees.
  First, it would require that clear and convincing evidence of gross 
negligence must be present before punitive damages could be awarded 
against a small business. Second, it would place sensible limits on 
punitive damages, which could potentially bankrupt a small business. 
Third, it would provide for proportionate liability for small business.
  It is important to note that this legislation would give States the 
flexibility to impose conditions and to make exceptions to the granting 
of liability protection. In addition, it would allow States to opt for 
cases where all parties are citizens of that State.
  Finally, it is important to note that the bill clearly states which 
actions would not entitle a small business to protection. Any 
misconduct constituting a crime of violence, an act of international 
terrorism, a hate crime, a sexual offense, or a civil rights violation 
or misconduct occurring while under the influence of alcohol or drugs 
would not be covered.
  Mr. President, this is Small Business Week. Accordingly, all citizens 
should take a moment during this year's Small Business Week to 
recognize our economy's dependence on small business and realize the 
importance of nurturing their development. For Georgia, as is the case 
for the whole Nation, small businesses are the jobs provider and the 
backbone of our economy. The Small Business Administration reports that 
nearly 98 percent of the firms in Georgia that provide employment are 
small businesses. Moreover, it is estimated there are an additional 
213,000 self-employed entrepreneurs in my State.
  What better time to highlight the importance of providing small 
business much-needed relief from abusive lawsuits than during Small 
Business Week? I urge my colleagues to join us in supporting the Small 
Businesses Lawsuit Abuse Protection Act and in protecting small 
businesses from abusive litigation.
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