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By Ralph Nader Legal Times
U.S. corporations have been duplicitous in their aggressive drive to duck responsibility for dangerous products. The same profitable companies that have told Congress and the media that the product liability "explosion" is driving their business out of business have reported something quite different to investors and the Securities and Exchange Commission. Time after time, the same companies report in their SEC filings that liability exposure poses no material threat to their bottom line.
Executives of the following corporations, for example, have publicly protested the prohibitive cost of product liability, even though the financial reports that their companies file tell another story.
Dow Chemical Co. and Corning Inc.: "Perhaps my biggest frustration is the area of product liability and tort reform," said Frank Popoff, chair and CEO of Dow Chemical, in 1992. "Our uniquely American legal system imposes an annual tax, if I may call it that, of $150 billion to $200 billion on all our industries because of the problem. I think it's a killer for our global competitiveness." (Chemical Business, September 1992.)
Apart from the absence of any substantiation for this outlandish estimate, the company's 10-K report to investors for the calendar year 1994 also fails to support its CEO's contention. Liability claims against Dow Chemical for such products as the drug Seldane (produced by subsidiary Marion Merrell Dow Inc.) and silicone breast implants are not seen as significant, according to the SEC filing. "It is the opinion of the company's management that the possibility that litigation of these claims would materially impact the company's consolidated financial statements is remote."
Dow Chemical and Corning are each 50-percent shareholders in the Dow Corning Corp., a leading defendant in the widespread silicone breast implant litigation. Like Dow Chemical, Corning tells investors not to be put off by this and other litigation. "There are no pending legal proceedings to which Corning or any of its subsidiaries is a party or of which any of their property is the subject which are material in relation to the annual consolidated financial statements," says its 10-K filed March 21, 1995.
Monsanto Co.: Out-of-control product liability litigation "clogs our courts, curtails American innovation and creativity, drives up the costs of consumer products, and prevents some valuable products and services from ever coming to market," David S.J. Brown, Monsanto vice president for government affairs, said in a news release. (PR Newswire, Feb. 23, 1995.) "The numbers are in the stratosphere," griped Monsanto CEO Richard Mahoney, referring to jury awards in product liability cases. (Business Week, Jan. 9, 1995.)
But if Monsanto's product liability costs are in the "stratosphere," its profits are much further out in orbit. "Because of the size and nature of its business, Monsanto is a party to numerous legal proceedings," the company's 10-K for the period ending Dec. 31, 1993, says. "While the results of litigation cannot be predicted with certainty, Monsanto does not believe these matters or their ultimate disposition will have a material adverse effect on Monsanto's financial position."
Cessna Aircraft Co. and Textron Inc.: Russell Meyer Jr., chair and CEO of Cessna Aircraft, testified before a Senate subcommittee in May 1994 that the general aviation aircraft industry "has been essentially destroyed by the unlimited cost of product liability."
But Cessna's parent company, Textron, reports clear skies ahead for the company in its 10-K filed for the year ending Jan. 1, 1994. "On the basis of information presently available," the report says, "Textron believes that any liability for the suits and proceedings mentioned above, or the impact of the application of relevant government regulations, would not have a material effect on Textron's net income or financial condition."
Pfizer Inc.: Pfizer retained Philip Lacovara of the New York law firm Hughes Hubbard & Reed to draft legislation that could dramatically reduce Pfizer's liability exposure. "If you assume an American company and a German company are making a similar product that is sold in France, only the U.S. company has to factor in the high cost of liability litigation," Lacovara told Legal Times in 1988. ("Lacovara's Risky Cure for Pfizer's Heartburn," April 4, 1988, Page 1.) "As a result, the American firm is at a competitive disadvantage in the foreign market."
Apparently, Lacovara was not reading his client's SEC submissions. As Legal Times observed, Pfizer's SEC filing at the time undercut this argument. "International sales were significantly higher than the year before, whereas U.S. sales remained flat," the article said.
The company's 10-K covering the period ending Dec. 31, 1994, informs investors, "The Company is involved in a number of claims and litigations, including product liability claims." But the reassuring report says that this is "considered normal in the nature of its businesses." The 10-K concludes: "The Company is of the opinion that these actions should not have a material adverse effect on the financial position or the results of operations of the Company."
TRW Inc.: "The current U.S. product liability tort system . . . has imposed a significant burden on manufacturers' ability to design, produce, and market products," said Edsel Dunford, then executive vice president and chief operating officer of TRW. (Aviation Week and Space Technology, Aug. 24, 1992.) TRW's annual report covering the calendar year 1994, however, makes no mention of any product liability suits facing the company and assures investors that no litigation against TRW will have an adverse material effect on the company's performance.
Upjohn Co.: Though applauding the United States as "the last bastion of free-market pharmaceutical pricing," Ley Smith, then vice chair and now chair and chief operating officer of Upjohn, said that the United States suffers from "enormous product liability awards." (Chemical Week, March 3, 1993.)
None of these awards, however, seemed to interfere with his company's ability to turn a profit. Although the company cannot predict the outcome of individual lawsuits, Upjohn's most recent 10-K, covering the period ending Dec. 31, 1994, says, "[T]he ultimate liability should not have a material effect on [the company's] consolidated financial position; and unless there is a significant deviation from the historical pattern of resolution of such issues, the ultimate liability should not have a material adverse effect on the company's results of operations or liquidity."
Coleman Co.: The failure to ease U.S. product liability laws "places American companies at a substantial disadvantage," said Larry Sanford, executive vice president of the Coleman Co. unit of MacAndrews & Forbes Holdings Inc. (Business Week, Jan. 9, 1995.)
If Sanford was basing his view on his own company's experience, he may possibly have been referring to some very recent development, since Coleman's 10-K for the period ending Dec. 31, 1993, says, "The Company does not believe that the ultimate conclusion of the various pending product liability claims and lawsuits covered under these insurance policies will have a material adverse effect on the financial position or results of operations of the Company."
Cooper Industries Inc.: Alan Riedel, then senior vice president for administration of Cooper Industries, derided what he called "a tort system gone berserk." (Institutional Investor, August 1988.) And Riedel's company has done its part to bend this tort system to its will. Cooper Industries, which produces heavy equipment and tools, runs a foundation that donated $50,000 to the pro-business Manhattan Institute to make a video promoting industry's anti-tort law agenda. A businessman who recounts his liability horror story on the video runs a Cooper subsidiary, a detail that the video fails to disclose. (The Washington Post, Sept. 14, 1992.)
Despite working under a tort system that has "gone berserk," however, Cooper Industries assured investors in its 10-K filed for the 1994 calendar year that "management is of the opinion" that any pending product liability legislation "should not have a material adverse effect on the Company's financial position."
Many of the biggest U.S. corporations work through trade groups, such as the Product Liability Coordinating Committee, to advance their goal of depriving victims of any legal recourse against dangerous products. The PLCC is chaired by David S.J. Brown, the vice president of government affairs at Monsanto.
Another trade group leading the charge to roll back product liability is the Pharmaceutical Research and Manufacturers of America. To hear its spokesperson, Steve Berchem, tell it, there may not be a pharmaceutical industry in the United States soon: "It gets to be so expensive to defend yourself," Berchem said, "that you say, 'Forget it. We'll just get out of the business.' " (Newsday, Feb. 26, 1995.)
Despite this bluster, few major players in the pharmaceutical industry are seriously considering abandoning their lucrative business. The industry enjoyed profits of $12.3 billion in 1994, a rise of 29 percent above its high profits of 1993.
These companies and their trade associations grossly exaggerate product liability costs in their presentations to Congress and to the public in order to advance their agenda of rolling back liability for and records disclosure of their dangerous products. Yet their official financial statements filed with the SEC and distributed to investors disclaim any adverse material effects of product liability on the bottom line.
Also disclosed at the SEC and in other reports are data that provide another framework of comparison. The CEO of the giant AIG Inc. insurance company, for example, made $250,000 a week in 1994, while lobbyists for his industry are pushing for a cap of $250,000 for a lifetime of pain and suffering by a victim of major medical malpractice.
What is going on in industry and on Capitol Hill invites serious contemplation. Elected officials have a duty to see through these transparent deceptions and to vote against weakening product liability standards. Experience has shown that this is the best way to minimize the size of the next generation of victims of dangerous and faulty products.
--Ralph Nader is a consumer advocate in Washington, D.C.
(Legal Times is an affiliate publication of Court TV.) Copyright 1995, American Lawyer Media.
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