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FULL COMMITTEE HEARING ON LIABILITY

REFORM AND SMALL BUSINESS

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MAY 17, 2007

Serial Number 110-23

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

WILLIAM JEFFERSON, Louisiana 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

WILLIAM JEFFERSON, Louisiana 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

WILLIAM JEFFERSON, Louisiana 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

Braley, Hon. Bruce .................................................................................................. 3

WITNESSES 

PANEL 

Rickard, Lisa A., U.S. Chamber of Commerce ...................................................... 6

Harned, Karen R., National Federation of Independent Business Legal Foundation .................................................................................................................... 7

Kelly, Steve, National Lumber and Building Material Dealers Association ...... 9

Freedenberg, Dr. Paul, Association for Manufacturing Technology .................... 12

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 33

Chabot, Hon. Steve .................................................................................................. 35

Altmire, Hon. Jason ................................................................................................. 37

Braley, Hon. Bruce .................................................................................................. 38

Rickard, Lisa A., U.S. Chamber of Commerce ...................................................... 40

Harned, Karen R., National Federation of Independent Business Legal Foundation .................................................................................................................... 52

Kelly, Steve, National Lumber and Building Material Dealers Association ...... 65

Freedenberg, Dr. Paul, Association for Manufacturing Technology .................... 68

Statements for the Record: 

U.S. Chamber Supplements - NEERA and Harris Studies .................................. 76

American Bar Association ....................................................................................... 107

AFL-CIO Correspondence ....................................................................................... 124

American Tort Reform Association ........................................................................ 126

(V) 

(1)

FULL COMMITTEE HEARING ON 

LIABILITY REFORM 

AND SMALL BUSINESS 

THURSDAY, MAY 17, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:30 a.m., in Room 

2360 Rayburn House Office Building, Hon. Nydia Vela ́zquez 

[Chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Gonza ́lez, Grijalva, Cuellar, 

Braley, Ellsworth, Johnson, Sestak, Chabot, Akin, Musgrave, Westmoreland, Heller, Davis, Fallin, Buchanan and Jordan. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. Good morning. I call this hearing to 

order on the issue of liability reform and small businesses. 

I would like to thank Ranking Member Chabot for bringing this 

issue to the Committee and arranging for the witnesses to testify. 

The issue of civil liability is clearly something that impacts small 

businesses in a variety of ways. I think we can all agree that frivolous lawsuits harm small businesses and our economy. No one will 

ever defend that practice. 

However, in order to have a discussion about liability reform, we 

must consider whether changes in federal law could have an impact on legitimate rights of action in addition to stopping frivolous 

suits. 

For today’s hearing, the issue of liability reform must be considered in light of the many roles that small businesses play. Not only 

they are manufacturers, but small firms are oftentimes the consumers and sellers of products. Our legal system must ensure that 

the rights of entrepreneurs are protected, both as the plaintiff or 

defendants in lawsuits. 

The economy depends on the ability of companies to protect their 

contractual rights, including their relationships and transactions 

with other businesses. I do understand, however, that we will hear 

about how our current legal system has its shortcomings. If our 

tort system is not used properly, it can and does impose costs on 

businesses, many times unfairly. 

Determining the extent of these costs is difficult and figures are 

often disputed. My hope is that we can open up the debate today 

beyond litigation costs and examine the different factors that may 

be driving up overall liability insurance premiums. According to a 

2

study by the National Federation of Independent Business, small 

business owners rank liability insurance as one of their top concerns. Lawsuit abuse is near the bottom of that list. 

These findings suggest there are a number of factors contributing 

to liability costs, including insurance company practices. As such, 

I believe that any approach to addressing liability issues must be 

multi-pronged and go beyond simply limiting the ability to sue. The 

states that have successfully handled overall insurance costs have 

enacted both tort reform and insurance reform. 

A number of years ago, California addressed soaring insurance 

costs by passing Proposition 103. Proposition 103 required that insurance companies roll back rates and file an application with the 

Insurance Commissioner to increase rates. Companies were also required to hold public forums before raising premiums. Studies show 

that this was a primary driver in reducing insurance costs in the 

State. 

A similar approach is needed to help small businesses with rising 

liability insurance costs. To truly get at the major problems behind 

these prices, there must be greater transparency in insurance markets. While I know many of the witnesses have focused their testimony on litigation, I will be interested in hearing about their experience with insurance companies when it comes to overall liability 

coverage. 

While not always perfect, our nation’s justice system is the best 

in the world. There is room for improvement, but we need to keep 

in mind that lawsuits can serve to protect honest small business 

owners who are doing the right thing. A working legal system will 

ensure that the products that companies manufacture are safe, yet 

affordable to produce. A functioning system fosters competition in 

terms of safety by rewarding company for manufacturing safe products while penalizing those who cut corners. 

I look forward to today’s testimony, and I thank the witnesses for 

their participation. 

I now recognize Ranking Member, Mr. Chabot, and, yes, for the 

purpose of his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. Thank you, Madam Chairwoman, and I want to sincerely thank you for holding this important hearing in which we 

will look at how the tort system is impacting our nation’s small 

businesses. We will also review some liability reform measures that 

would allow small business owners to focus their energies on growing their businesses and creating jobs, rather than worrying so 

much about fighting frivolous lawsuits. 

I also want to thank our panel of witnesses for being here today. 

It is a very accomplished panel of experts who have been dealing 

with this issue for a long time. I am sure everyone up here will 

benefit from your testimony today, so thanks again for coming. 

Small businesses are the backbone of our nation’s economy, yet 

small businesses are bearing the brunt of the increasingly litigious 

nature of our nation. Small businesses pay 69 percent of all business tort liability costs—that comes to about $100 billion annually—but take in only 19 percent of all business revenues. Think 

about that. 

3

Small businesses are responsible for less than one-fifth of the 

business revenues but pay more than two-thirds of the liability 

costs. That is unfair. It is not good for the economy, and it is not 

good for consumers either, who have to pay more for goods and 

services as a result of frivolous litigation. 

Let me mention here a few pieces of legislation that I think that 

we are now looking into and should in the near future. Mr. Boren, 

a Democrat of Oklahoma, and I have introduced the Innocent Sellers Act. The Innocent Sellers Act would simply change the law so 

that sellers do not take on liability for a product merely by selling 

the product. 

If sellers are negligent with respect to certain specific non-sale 

activities, they would be responsible for the harm that their negligence causes, but nothing more. Another area of product liability 

reform where small businesses need some relief is in the area of 

durable goods manufacturing. Unfortunately, previous Congresses 

have failed to deliver a much needed product liability reform bill. 

During the last few sessions of Congress, I have introduced legislation, The Workplace Goods Product, Job Growth, and Competitiveness Act, that would benefit small businesses, consumers, and 

workers by creating a nationwide 12-year statute of repose for durable goods. This would simply recognize that durable goods that 

have performed capably in the workplace for 12 years or more 

work. After that point in time, manufacturers should not be held 

liable for an obsolete or modified machine tool. It is an issue of fairness, and it is an issue of common sense. 

Next week I plan to reintroduce the Small Business Liability Reform Act that NFIB, among others, has worked so diligently on. 

This bill would strengthen the evidentiary standard on claims 

made against small businesses, providing some much needed reform to our nation’s tort laws. 

Common sense liability reform is important for small businesses 

who make and sell products, as well as to consumers who end up 

paying higher prices as a result of frivolous lawsuits. 

Let us see here. I want to thank, again, the panel, and I especially want to thank you, Madam Chair, for holding this hearing 

today, and our other colleagues that will be working on this in the 

future. 

I yield back.

ChairwomanVELA ́ ZQUEZ. Thank you. And now I recognize Mr. 

Chabot for the purpose of introducing the witnesses. 

Mr.BRALEY. Excuse me, Madam Speaker, point of order, or 

Madam Chairwoman. 

ChairwomanVELA ́ ZQUEZ. Yes? 

Mr.BRALEY. Will there be other opening statements permitted at 

the hearing? 

ChairwomanVELA ́ ZQUEZ. Oh, definitely. Do you want to make an 

opening statement? The gentleman is recognized. 

OPENING STATEMENT OF MR. BRALEY 

Mr.BRALEY. Madam Speaker, for over 20 years, powerful special 

interests have attempted to restrict or rescind the constitutional 

rights of workers and consumers injured by unreasonably danVerDate 0ct 09 2002 09:00 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\34835.TXT LEANN
4

gerous and defective products, often through well financed campaigns of half-truths and misinformation. 

Today’s hearing is just another sad example of attempts to trample the Constitutional rights of American citizens under the guise 

of shifting the human cost for these dangerous and defective products from the insurers of the sellers to the injured or deceased consumer and the taxpayers of this country. 

It should come as no surprise to anyone in this room that the 

driving force behind this assault on our Constitutional rights is a 

coalition made up of the most powerful business lobbying groups in 

this country. A quick review of the top corporate spenders on lobbying from 1998 to 2006 is a veritable Who’s Who of Corporate Tort 

Reform Advocates? The U.S. Chamber of Commerce has spent $317 

million on lobbying in that period; the American Medical Association, $156 million; the Pharmaceutical Research and Manufacturers of America, $104 million; and Philip Morris, $75 million. 

At the head of the list, high above the rest of the crowd, stands 

the U.S. Chamber of Commerce. According to recent reports, the 

U.S. Chamber spent 83 percent more on lobbying in 2006 than in 

2005, spending a whopping $72.7 million on federal lobbying, up 

from $39.8 million in 2005. 

In comparison, the overall spending on lobbying activities increased by only 1.7 percent in 2006. This startling disparity should 

cause this Committee serious concern, particularly when that advocacy is part of a long and persistent effort to deprive consumers 

who have suffered catastrophic injuries or death from receiving fair 

compensation. 

According to a national journal article published on its web site, 

over the past eight years the U.S. Chamber’s Legal Institute has 

spent over $101.5 million on federal lobbying for so-called tort reform. Madam Chairwoman, it is time to look below the surface of 

the hype and the hyperbole and focus on facts. 

Here are some important facts to consider during today’s hearing. Fact: statutes of repose do nothing to reduce or eliminate frivolous lawsuits. A frivolous lawsuit is, by definition, a case without 

any merit. Statutes of repose put up an artificial barrier to cases 

with merit by cutting off valid claims arising from the sale of defective products that were unreasonably dangerous at the time they 

were manufactured. 

Fact: many manufacturers and sellers of products represent to 

consumers that their products are intended to last for many years, 

including years beyond the cutoff date for legitimate claims contained in the statute of repose. Fact: caps on damages do nothing 

to reduce or eliminate frivolous lawsuits. In fact, caps only punish 

those individuals with catastrophic injuries or death claims by depriving them of the full compensation they should be entitled to 

under the law. 

The net result of caps is to shift the burden of the injury from 

the responsible party to the injured or deceased consumer and their 

family and to U.S. taxpayers who frequently end up providing lifetime medical and disability benefits when the wrongdoer is not 

held accountable for the damages. 

Fact: the best way to protect sellers of defective and unreasonably dangerous products is to provide clear rights of indemnificaVerDate 0ct 09 2002 09:00 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\34835.TXT LEANN
5

tion from the manufacturers of those dangerous and defect products, clear and efficient means of holding the growing number of 

foreign manufacturers of defective products accountable for the 

harm they cause in this country, and to make sure that consumers 

receive adequate warnings about the risk of using the product and 

the true intended useful life of the product. 

The truth is that product liability laws have been making America safer for over 100 years. And making sure that parties responsible for introducing defective products that are unreasonably dangerous into the stream of commerce are held responsible to the people who are seriously injured or killed by those defective products. 

That is a good thing that promotes responsibility and prevents 

cost-shifting to U.S. taxpayers who always get stuck with the tab 

when the responsible party escapes liability for the full extent of 

the damages caused. 

One final word about tort reform, Madam Chairwoman. Over 100 

years ago when defective products were maiming and killing workers and consumers on a daily basis as part of the Industrial Revolution, we used the word ‘‘reform’’ to reflect changes that expanded 

the protection of individual rights and encouraged greater responsibility on the part of the wrongdoer. 

It is a sad comment on our times today that the word ‘‘reform’’ 

is associated with a well-financed movement to strip away Constitutional rights and immunize corporate wrongdoers who place 

unreasonably dangerous and defective products into the stream of 

commerce. 

I yield back the balance of my time. 

ChairwomanVELA ́ ZQUEZ. Is there any other member who wishes 

to make an opening statement? 

[No response.] 

Okay. So now I recognize Ranking Member Chabot for the purpose of introducing the witnesses. 

Mr.CHABOT. Thank you very much, Madam Chair. And I would 

just note I appreciate the gentleman’s spirited opening statement 

there, and I won’t respond to everything that he said, but I would 

just note if you want to—he started out by talking about lobbying 

dollars and campaign dollars, etcetera, being spent. I can assure 

you that the trawlers have been no slackers in that area. 

Our first witness that we have is Ms. Lisa Rickard. Am I pronouncing that right? Excellent. Nobody ever pronounces my name 

right, so I am glad I got yours—Rickard. President of the U.S. 

Chamber Institute for Legal Reform. Ms. Rickard has been at this 

post since March 2003. She spent over 25 years as a public policy 

advocate, most recently as Vice President, Federal and State Government Affairs, for the Dow Chemical Company. Previously, she 

was Senior Vice President, Federal and State Government Relations, for Rider Systems, Inc. 

Ms. Rickard was a partner in the Washington, D.C. law firm of 

Akin Gump Strauss Howard and Feld, where she represented corporate and public sector interests before Congress, the White 

House, and regulatory agencies. She has also worked in the offices 

of former Senators Frank Murkowski and Richard Stone, and we 

welcome you here this morning for your testimony. 

6

STATEMENT OF MS. LISA A. RICKARD, PRESIDENT, U.S. CHAMBER INSTITUTE FOR LEGAL REFORM, U.S. CHAMBER OF 

COMMERCE 

Ms.RICKARD. Thank you very much. Good morning. I am pleased 

to be here on behalf of the U.S. Chamber Institute for Legal Reform, and the U.S. Chamber of Commerce, which is the world’s 

largest business federation representing more than three million 

businesses and professional organizations. 

The Institute for Legal Reform, or ILR, was formed in 1998 with 

the mission of making America’s legal system simpler, fairer, and 

faster for everyone. I would request that a copy of my full testimony and the attached studies be included for the record. 

ILR released two new studies today examining the impact of lawsuits on small businesses. First, we asked the non-partisan market 

research firm of Harris Interactive to survey the owners of small 

businesses, defined as those with less than $10 million in annual 

revenues, to determine how the lawsuit system affects their business decision making. 

The results are quite startling, particularly when you consider 

that they reflect the views of 2.8 million small business owners 

with $2.3 trillion of annual output, nearly 20 percent of the nation’s GDP. Six in 10 of the qualified respondents say the threat 

of unfair lawsuits has caused them to make decisions to avoid litigation, decisions such as taking products off the market and cutting employee benefits. 

Sixty-two percent also say that they could increase revenues if 

they felt that they would be protected from lawsuit abuse, and they 

would largely reinvest these additional revenues in buying new 

equipment, increasing wages and benefits, or in hiring new employees. The second study conducted by NERA Economic Consulting 

shows that there is no sector of the economy harder hit by lawsuit 

abuse than America’s small business owners. 

Of the $143 billion U.S. businesses paid in tort costs in 2005, NERA found that small businesses paid an astounding $98 billion. 

That translates into $200,000 a year for a business with $10 million in annual revenues. What is even more astonishing is that 

many of these small businesses pay a significant share of their liability costs out of pocket, rather than through insurance coverage. 

That drains financial resources critical to their continued survival 

and growth. 

But behind the statistics are real people and real businesses suffering because of our lawsuit-happy culture. Some of these real people are here today. Dennis Harrington joins us from Springfield, Illinois, where he owns and operates a giant slide enjoyed by kids 

of all ages at local fares. He has been the subject of several lawsuits filed by individuals who have ridden the slide. 

The result: not only have his legal expenses and liability insurance increased, but he had to purchase video surveillance equipment to monitor the riders, so he could defend himself against future lawsuits. 

Also joining us today from Los Angeles is Chris Moser, owner of 

Network 54, a small Los Angeles based Internet startup with two 

employees. The company is among the few Internet startups to survive the dot-com crash. However, Chris’ company almost didn’t surVerDate 0ct 09 2002 09:00 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\34835.TXT LEANN
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vive a frivolous lawsuit. In 2005, Network 54, together we 

Deutchebank, Commerzbank, and John Hancock Insurance was 

sued for $800 million for allegedly defaming a former strawberry 

farmer who makes his living trying to collect from banks on World 

War I era German gold bonds. 

Incidentally, the plaintiff’s lawyer in this case had earned quite 

a reputation for launching creative lawsuits. He sued the U.S. National Oceanic and Atmospheric Administration for failure to predict the 2004 Indian Ocean tsunami. Network 54 was eventually 

dropped from the case, and the underlying claim was ultimately 

dismissed. Still, this wholly frivolous lawsuit cost Network 54 legal 

fees and not to mention the time and attention it took Chris away 

from operating his business. 

Unfortunately, these stories are not isolated incidents. Similar 

stories could be told by tens of thousands of small business owners 

who are victimized by lawsuit abuse each year. The simple fact is 

this: our lawsuit system is a serious problem for America’s small 

businesses, costing jobs, and dampening the spirit of entrepreneurship and innovation at the very core of America’s greatness. 

On behalf of the U.S. Chamber Institute for Legal Reform, and 

the U.S. Chamber of Commerce, I urge you and your fellow members of Congress to take action to pass vital legal reforms, reforms 

that will safe American jobs and strengthen America’s small businesses, the backbone of the nation’s economy. 

Thank you. 

[The prepared statement of Ms. Rickard may be found in the Appendix on page 51.]

ChairwomanVELA ́ ZQUEZ. Thank you. 

Now, Mr. Chabot will introduce the next witness. 

Mr.CHABOT. Thank you, Madam Chair. Our next witness is Ms. 

Karen Harned, Executive Director of the NFIB, National Federation of Independent Business Legal Foundation. Ms. Harned has 

strong experience fighting for small business. 

As an associate at Olsson, Frank and Weeda, P.C., she specialized in food and drug law and represented several small businesses 

and their trade associations before Congress and federal agencies. 

She also worked as an Assistant Press Secretary for former U.S. 

Senator Don Nichols. 

Ms. Harned received her B.A. from the University of Oklahoma 

in 1989, and her J.D. from George Washington University Law 

School in 1995. And we welcome you here this morning, Ms. 

Harned. 

STATEMENT OF MS. KAREN R. HARNED, ESQ., EXECUTIVE DIRECTOR, NATIONAL FEDERATION OF INDEPENDENT BUSINESS LEGAL FOUNDATION 

Ms.HARNED. Thank you, Madam Chairwoman, and distinguished 

Committee members. My name is Karen Harned, and I serve as 

Executive Director of the National Federation of Independent Business Legal Foundation, the legal arm of NFIB. NFIB is the nation’s 

leading small business advocacy group, and our typical member 

has five employees and gross sales of $350,000 a year. 

8

We applaud the Committee for holding this hearing on the negative effects our sue first culture is having on small business and 

the need for liability reforms. Small business ranks the costs and 

availability of liability insurance as the number two most important problem facing small business. The only problem that is 

ranked higher is the cost of health care. 

Many small businesses fear getting sued, even if a suit is not 

filed. For the small business with five employees or less, the problem is the $5- and $10,000 settlements, not the million dollar verdicts. When you consider that many small businesses gross 

$350,000 or less a year, which does not include additional expenses 

of running the business, like payroll, rent, costs of goods sold, and 

regulatory costs, $5- to $10,000 can significantly impact a small 

business owner’s bottom line. 

Recent press attention and public outrage has focused on the out- landish $65 million lawsuit filed against a District of Columbia dry 

cleaner for a missing pair of pants. Plaintiff and attorney Roy Pearson is suing a family-owned dry cleaner for a lost and found pair 

of pants. The owner has attempted to settle with Pearson. However, he refused, and instead brought a suit claiming that the shop 

was in violation of D.C. consumer protection laws. 

He alleges the cleaner’s satisfaction guaranteed and same-day 

service guarantee were not met, and, therefore, they are liable for 

$1,500 per day per violation per person, by using the owner, his 

wife, and their son, tacking on $500,000—or, I am sorry, for suing 

the owner, his wife, and their son, tacking on $500,000 for emotional damages, over $540- in legal fees, although Mr. Pearson is 

representing himself, and $15,000 for 10 years’ worth of weekend 

car rentals. 

Pearson is claiming he is owed over $65 million. As outrageous 

as the facts of the suit are, it is not outrageous that the defendant 

is a small business. Small business is the target of lawsuits, because trial lawyers understand that they are more likely than a 

large corporation to settle a case rather than litigate one. 

Small businesses do not have in-house counsel to inform them of 

their rights, write letters responding to allegations made against 

them, or provide legal advice. They do not have the resources needed to hire an attorney, nor the time to spend away from their business fighting many of these lawsuits. And often they do not have 

the power to decide whether or not to settle a case; the insurer 

makes that decision. 

I place frivolous lawsuits into four categories—you look like a 

good defendant, pay me now or I will see you in court, somebody 

has to pay and it might as well be you, and Yellow Page lawsuits. 

You look like a good defendant—a prevalent form of lawsuit 

abuse—is when plaintiffs or their attorneys are merely trolling for 

cases. 

The plaintiff or attorney will travel from business to business 

looking for violations of a particular law. In such cases, the plaintiff generally is not as concerned with correcting the problem as he 

or she is in extracting a settlement from the small business owner. 

Pay me now or I will see you in court—an increasingly popular 

tool is the demand letter. Demand letters allege the small business 

violated a federal or state statute and are replete with legal cites. 

9

At some point, the letter says that the small business has an opportunity to make the whole case go away by paying a settlement 

fee up front and provides timeframes for paying the fee. If these 

demands are not met, the letter threatens a lawsuit. 

Somebody has to pay and it might as well be you—this is where 

the plaintiff may have been harmed but is suing the wrong person. 

For example, the plaintiff sues a small business leasing a strip 

mall for a personal injury accident that occurred in the parking lot. 

Yellow Page lawsuits—in these cases, hundreds of defendants 

are named in a lawsuit, and it is their responsibility to prove they 

are not culpable. 

Legislation is sorely needed to reform our nation’s civil justice 

system. Since 1993, Rule 11 has been hamstrung by changes that 

diluted its ability to prevent frivolous lawsuits. In order to help restore fairness to the legal system, Congress should pass legal reform that makes Rule 11 sanctions mandatory for frivolous lawsuit 

filers. 

NFIB also supports legislation that would prevent frivolous food 

lawsuits, reform our nation’s product liability laws, close the loophole in the Equal Access to Justice Act, curb excessive punitive 

damages awards, and abolish joint and several liability. 

Thank you for asking us to testify today. 

[The prepared statement of Ms. Harned may be found in the Appendix on page 63.]

Mr.CHABOT. Thank you very much. We appreciate that. 

Our next witness will be Mr. Steve Kelly, Chairman of the National Lumber and Building Material Dealers Association. This 

particular association represents 8,000 lumber and building material dealers, the largest regional chains across the United States, 

20 state and regional associations, and the industry’s leading manufacturers and service providers. 

Mr. Kelly is also President and Owner of Kelly Brothers Lumber 

Company. They have three locations and are based in Covington, 

Kentucky. 

And we welcome you here this morning, Mr. Kelly. 

STATEMENT OF MR. STEVE KELLY, CHAIR, NATIONAL LUMBER 

AND BUILDING MATERIAL DEALERS ASSOCIATION, PRESIDENT, KELLY BROTHERS LUMBER, COVINGTON, KENTUCKY 

Mr.KELLY. I want to begin by thanking Madam Chairwoman, as 

well as Ranking Member Chabot, for holding this hearing today to 

examine an issue that impacts nearly every small business, namely 

the threat of lawsuits. I commend you for exercising your oversight 

duties to learn how unfounded lawsuits harm small businesses and 

depress our economy. 

As he said, I am Steve Kelly. I am Owner and President of Kelly 

Brothers Lumber in Covington, Kentucky. It is a family-owned 

business and have operated for 60 years. We employ 42 employees 

and serve homeowners and professional contractors in Kentucky, 

Ohio, and Indiana. 

As he said, I currently serve as Chairman of the National Lumber and Building Material Dealers Association. We represent 8,000 

10

lumber and building material dealers, 20 state and regional associations, and industry leading manufacturers and service providers. 

NLBMDA’s members and their 400,000 employees supply the 

majority of building products sold in the United States to professional contractors, home builders, and remodelers. Madam Chairwoman, I am here today to highlight the impact that predatory 

lawsuits have on the building supply industry. 

Most lumber yards and building suppliers are small familyowned businesses which operate in the very communities in which 

the esteemed members of this Committee sit and reside. They pay 

taxes, sponsor charitable events, and participate in community activities. Here is the problem: unfounded and unfair lawsuits are increasing, and they are having a negative affect on the ability of 

lumber dealers to operate our businesses. 

A 2005 survey of NLBMDA members found that approximately 

one in four have been the victim of a product liability lawsuit within the previous five years. And in almost every one of those cases, 

the dealer did not design, manufacture, alter, or install the product. Our current liability system holds each party in the product 

supply chain liable for any defects or harm caused by the product 

without any finding of fault. 

Liability is not assigned in a fair and consistent way. A building 

material dealer who simply sells a product should not be burdened 

with 100 percent of the liability when the product fails. Let me 

offer a few examples to illustrate how the current system punishes 

small business owners like me. 

A dealer in Ohio sold slate-style shingles to a customer. The 

shingles were shipped directly by the wholesaler to the job site. 

The dealer never saw or touched the product. The coating later 

wore off some of the shingles, resulting in a spotty appearance, and 

they dealer was forced to pay thousands of dollars in a settlement. 

Another dealer sold bricks manufactured independently of the 

dealer and delivered directly to the customer. The dealer was 

named a co-defendant in a lawsuit claiming manufacturing defects 

and encouraged by his insurance company to settle the case to 

avoid a court battle. In Texas, a lumber dealer sold a 2x10 24-foot 

board to a contractor who used it for scaffolding. 

While two people were standing on the board, the board broke. 

One of the individuals was able to catch himself, but the other one 

fell and was hurt. They are suing the lumber company for selling 

them a defective board, even though it was never suitable for scaffolding purposes. The case is still pending and has already cost the 

lumber dealer thousands of dollars to defend. 

These are just a few of the lawsuits occurring in our industry 

where innocent sellers are forced to spend time and money defending themselves for actions outside of their control. Fortunately, 

there is a solution to this problem. Ranking Member Chabot, a long 

with Representative Dan Boren, has introduced legislation to assign liability on a proportionate basis. 

Innocent Sellers Fairness Act, H.R. 989, would protect sellers 

from predatory lawsuits by removing liability if they merely supplied the product and had no part in the manufacturing, design, or 

installation. The bill would hold sellers responsible only in proporVerDate 0ct 09 2002 09:00 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\34835.TXT LEANN
11

tion to their wrongdoing, freeing them from liability when they 

have done nothing wrong. 

Innocent Sellers Fairness Act is necessary because current law 

imposes liability without wrongdoing by sellers, exposing them to 

all the damage allegedly suffered by a plaintiff, even though other 

defendants may have played a much greater role in causing the 

damages. The mistake may have been in the manufacture or design 

of the product or even in the customer’s improper use of the product, but somehow the seller is stuck with some or all of the liability. 

Often sellers choose to settle a case to avoid the uncertainty of 

trial outcome and the bad press that often follows. The current system does not do enough to protect the truly innocent. The Innocent 

Sellers Fairness Act would restore common sense to the legal system. 

Congressman Chabot, on behalf of the NLBMDA and innocent 

sellers around the country, I want to thank you for your leadership 

in fighting unfair lawsuits and championing legal reform. I look 

forward to working with this Committee to address these problems 

and ensure that America’s small businesses operate in a legal environment that is fair for everyone. 

Thank you, Madam Chairwoman, for the opportunity to be here 

today. 

[The prepared statement of Mr. Kelly may be found in the Appendix on page 48.]

Mr.CHABOT. Thank you, Mr. Kelly. And our last witness, our 

final witness this morning, is Dr. Paul Freedenberg, who is Vice 

President of Government Relations at AMT, the Association of 

Manufacturing Technology. 

Dr. Freedenberg has had a long and distinguished career in both 

the private and public sector. He began his public service in the office of former Senator Jay Bennett Johnston, before moving on to 

work for the late Senator John Heinz as well as former Senator 

Jake Garn. 

He also served as Staff Director of the Senate Banking Committee’s Subcommittee on International Finance. Dr. Freedenberg was 

then appointed by President Reagan as the first Undersecretary for 

Export Administration at the Department of Commerce. Following 

his government service, Dr. Freedenberg was an international 

trade consultant with the law firm of Baker and Botts, LLP, in 

Washington, D.C. 

He specialized in general international trade issues, as well as 

technology transfer, export licensing, export finance, export enforcement, and both foreign and domestic banking and investment 

issues. 

And, Dr. Freedenberg, we welcome you here, and you are recognized for five minutes. 

12

STATEMENT OF DR. PAUL FREEDENBERG, VICE PRESIDENT, 

GOVERNMENT RELATIONS, ASSOCIATION FOR MANUFACTURING TECHNOLOGY 

Mr.FREEDENBERG. Thank you very much. Madam Chairwoman, 

and members of the Committee, thank you for holding the hearing 

today and for giving me the opportunity to participate. 

My name is Paul Freedenberg. I am Vice President for Government Relations at AMT. AMT is a trade association whose membership represents over 400 manufacturing technology providers located throughout the United States, almost the entire universe of 

machine tool builders who operate in this country. Most of these 

companies are small. An estimated 78 percent of them have less 

than 50 employees, but their contribution is huge. 

They are the ones who build the machines that make things 

work. In fact, everything in this hearing room, except the people 

of course, was either made by a machine tool or by a machine made 

by a machine tool. 

AMT has testified many times over the years before this and 

other committees on the need for product liability reform, and that 

is what I would like to do again today. For most small American 

businesses, and specifically for our members, product liability is 

not a distant issue but one that can literally make or break our 

companies. 

Several AMT members have been forced to close their doors because of product liability lawsuits. Others are in danger of closing 

because litigation costs are strangling them. They are spending 

money not on hiring more workers or improving productivity, but 

rather on defending against lawsuits involving machines that are 

often older than anyone in this room. 

AMT estimates that the average age of machine tools has 

climbed from 10 years in 1998 to nearly 13 years in 2005. The reason is largely because when a factory decides to invest in new capital equipment, the old machinery is usually not disposed of. When 

companies can’t afford new machines, they purchase these overage 

machines, often altering them to fit their needs. 

This process is repeated as newer machines are acquired and 

older ones resold. The result is a big overhang of overage machine 

tools in the U.S. market, and this exposes the manufacturers of the 

old equipment to costly litigation. 

One reform that could significantly help to reduce those crippling 

costs, Madam Chairwoman, would be the creation of a statute of 

repose for workplace durable goods. 

In many states today, thanks to product liability law, the potential liability for my industry’s products is endless, literally forever. 

Many of these machines are built before OSHA was created, before 

Neil Armstrong walked on the moon, indeed before The Beatles 

came to America. They are still in use today. 

Although these machines were built decades ago to safety standards of their day, although they are likely to pass through several 

owners each of whom is likely to have made modifications to accommodate their needs, they are still the subject of four-fifths of 

our industry’s lawsuits. This kind of litigation is disproportionately 

expensive and unproductive. It is a drain on financial resources, 

13

not only from the adverse verdicts but from the costs of a successful defense. 

The reality is that most cases involving overage machines never 

go to trial. And if they do, a jury almost always finds for the defendant. And in those few cases they do go to trial, and where the 

jury finds for the claimant, the judgment can force a company to 

close its doors. 

I was asked for an example. Well, in 1996, a $7.5 million verdict 

involving a machine built in 1948, 50 years earlier, was—the judgment—the verdict was found against Madison Technologies, a 100-

year old Illinois machine tool builder, but it led to that company’s 

bankruptcy. 

However, when these lawsuits are won, the litigation, nevertheless, results in unnecessarily high legal and transaction costs. No 

matter how frivolous the actual facts, the claimant’s pleadings 

must be answered, the depositions taken, design experts consulted, 

historical records unearthed and evaluated. The result is a substantial expenditure of funds and additional litigation in our 

courts. 

This kind of open liability can lead to legal extortion, in which 

baseless suits are filed by entrepreneurial lawyers who are banking 

on the fact that many companies and/or their insurers will settle 

out of court. 

Madam Chairwoman, our machine tool builders, particularly our 

small ones, just can’t afford this kind of unfair liability at a time 

when they are facing serious and increased competition from foreign companies whose liability is relatively small. That is because 

many of them are—recently came to the United States. 

Enactment of the statute of repose for workplace durable goods 

would significantly level the playing field for U.S. manufacturers 

and achieve the uniformity and certainty necessary to produce the 

state of art products for which we are noted. 

Madam Chairwoman, some years ago, the Reagan administration, and then the first Bush administration, at the urging of 250 

members of Congress, provided import relief for our machine tool 

industry based on the threat to our national security and defense 

industrial base from Asian machine tools. These administrations 

did so because they recognized that a strong machine tool industry 

is vital to America’s military and economic security. 

ChairwomanVELA ́ ZQUEZ. Dr. Freedenberg? 

Mr.FREEDENBERG. Yes. 

ChairwomanVELA ́ ZQUEZ. I would like to call the attention to the 

fact that your time expired. If you can—

Mr.FREEDENBERG. Okay. Fine. I will finish in one paragraph. 

Same is true today, and enactment of meaningful reform, including a statute of repose, could significantly increase the competitiveness of U.S. companies, particularly small companies, and ensure 

that no injured worker goes uncompensated. I appreciate the Committee’s attention to this issue. 

Thank you. 

[The prepared statement of Mr. Freedenberg may be found in the 

Appendix on page 40.]

ChairwomanVELA ́ ZQUEZ. Thank you, sir. 

14

Mr. Kelly, thank you for the witness’ testimony, and now we are 

going to open up this for the members to be able to ask questions. 

My first question is addressed to Mr. Kelly. Mr. Kelly, it is important to get to the bottom of what is driving the increasing costs 

of liability insurance. While litigation may be a factor, it seems 

that there are other factors at play. In my opening statement, I 

make reference to the fact that in 1988 California passed Proposition 103. 

And Proposition 103 required insurance companies to roll back 

rates and file an application within Insurance Commission whenever they intended to raise them. My question to you is: to what 

extent could a similar federal law work to reduce rates? 

Mr.KELLY. I am not sure. I am not an insurance agent or in the 

insurance business, so I really couldn’t answer that. But we will 

get back to you with an answer, a written answer, from the association. 

ChairwomanVELA ́ ZQUEZ. Yes. If there is any other witness who—

so you don’t consider that reducing the rate of insurance cost for 

small businesses will have anything to do with this, based on the 

experience in California? 

Ms.RICKARD. I do not have experience in this, so I can’t—I am 

not steeped in insurance law. I can’t respond to that. The one thing 

I could respond to—

ChairwomanVELA ́ ZQUEZ. No, no. Okay. That is it, because I have 

only five minutes. 

Now, yes, Ms. Harned, I was listening to your testimony, but I 

don’t know if I missed this fact, and I would ask you—in your testimony you talked about the survey of small businesses that showed 

that the problem of costs and availability of liability insurance has 

been a top concern. But also, the problem of cost and frequency of 

lawsuits is near the bottom of the list. Did you mention that in 

your opening statement, since you represent NFIB? 

Ms.HARNED. No, because—I see what you are saying, but I have to tell you that, again, it is really the $5- and $10,000 settlements 

that are like a death of 1,000 cuts for small business owners, much 

like regulatory costs, in that you have to look at the overall picture 

on this. 

We hear from small business owners often on suits that they 

have—

ChairwomanVELA ́ ZQUEZ. Fine. Fine. 

Ms.HARNED. —and trial lawyers that are going after—

ChairwomanVELA ́ ZQUEZ. My question is: you come here to talk 

about small businesses. You represent NFIB, and you love to release surveys on different issues. On this issue, you conducted a 

survey that shows that costs and frequency of lawsuits is near the 

bottom of the list for small businesses. So my question is: do you 

think part of the explanation for this disconnect is that insurance 

companies are driving the increases in liability premiums as opposed to litigation costs? 

Ms.HARNED. I do think that insurance plays a role in this, but 

I also have to tell you that a survey that we did in 2005 shows that 

now 69 percent of small business owners are consulting—have consulted an attorney in the past year. They are having to use—

ChairwomanVELA ́ ZQUEZ. But those are the same—

15

Ms.HARNED. —attorneys more than ever before. 

ChairwomanVELA ́ ZQUEZ. —those are the same businesses who 

you surveyed and say that was not at the bottom of the—that that 

was at the bottom of the list. 

Ms.HARNED. Madam Chairwoman, respectfully, that was a year 

later. We do perform the problems and priorities survey every four 

years. It will be interesting to see how the next one turns out, but 

I have to say our most recent does show an increased usage of attorneys by small businesses. 

ChairwomanVELA ́ ZQUEZ. I will go to Mr. Chabot, and then I will 

come back and ask more questions, but I will allow for other members to make their questions first. Go ahead.

Mr.CHABOT. Thank you, Madam Chair. If you don’t mind, I am 

going to defer and let Mr. Buchanan ask questions at this time, if 

that is appropriate. 

Mr.BUCHANAN. I want to disclose up front I have been in business 30 years. I was also Chairman of the State Chamber of Florida. We represent 137,000 businesses. 

One thing they talked about on the—and I will say also lawyers 

have created a lot of value for me over the years, so I want to make 

sure that is up front. But I can tell you, in the State of Florida, 

that the trial bar is very organized, much more than the business 

community in terms of funding and being organized, in terms of 

Tallahassee. 

Do you have any sense, Ms. Rickard, what the trial bar spends? 

It was represented what the business community spends. Do you 

have any idea what the trial bar spends and trial lawyers and the 

Federal Government, or in terms of their lobbying activities, or various states? 

Ms.RICKARD. I don’t have specific statistics, but it is much more 

difficult to capture the spending of trial lawyers because they are 

individual contributions, Congressman. It is in the hundreds of millions of dollars. You can’t just look at the contribution from the National Trial Lawyers Association. You have to look at contributions 

from individual lawyers, which are very high, to the degree that we 

have tracked them, at the state level as well as at the federal level. 

Mr.BUCHANAN. One other thought that doesn’t get talked about 

much, but I know in our area a firm in Tampa spends $10 million 

a year in solicitation. And their ad basically says, ‘‘If you don’t get 

anything, you don’t pay anything.’’ And that is widespread with a 

lot of trial lawyers in the State. And there are a lot of good trial 

lawyers, and I believe people need their day in court, but there are 

a lot of predatorial practices. 

Has that ever been considered, what the amount trial lawyers 

spend on the back of Yellow Pages, TV ads, newspapers? It is gigantic. Just one law firm spends $10 million. That is his number—

John Morgan for the People. Has anybody looked at that? Because 

we have created a sue happy, you know, way to get rich; try the 

lottery first, second sue. 

Ms.RICKARD. What I would say is that, first of all, we do believe 

that people need to have their day in court. This is not an issue 

of not having people who have valid claims have access to the 

16

courtroom. Second of all, I do think that one of the most troubling 

problems is the use of contingency fees. 

The President just issued an Executive Order yesterday prohibiting the use of contingency fee lawyers for Federal Government 

agencies. It is a problem, and what you do see is continued advertising for plaintiffs. All you have to do is turn on the TV around 

11:00 at night, and there are a myriad number of ads out there. 

So one of the things I think that could be addressed here is dealing 

with the use of contingency fee lawyers. 

Mr.BUCHANAN. But, Ms. Harned, let me ask you—again, 90 percent of the 137,000 people in the Florida Chamber are 15, 20 employees or less. You hear the stories all the time. One lawsuit, two 

lawsuits, put a lot of these people out of business. Has that been 

your experience? 

Ms.HARNED. Yes. In the instances where small business owners 

are sued, I mean, one lawsuit can kill them, especially, as I reported, you know, our members typically only gross $350,000 a 

year. That is not much money. And, in fact, there is a gentleman 

in California that recently was put out of business—that comes to 

mind—because of a trial attorney that had made a cottage industry 

in trying to enforce one statute out there. And as a result, he just 

closed his doors. 

Mr.BUCHANAN. Mr. Kelly, you know, I have been in business, 

again, 30 years, and have been a small business person for most 

of my time through that period of time. It seems like the first 15 

years there wasn’t as much litigation. It just seems since they 

started advertising, more advertising in the last 15, 20 years, it has 

just—the proliferation of litigation of frivolous lawsuits have gone 

out of control. 

Have you found that in your industry, or what is your thoughts 

on it? 

Mr.KELLY. Yes. It has been very true in our industry. I give just 

a few examples today, but it happens constantly. The results 

showed one in four in the last five years have been sued—the lumber dealers—and that is because of the fact of this advertising. You 

know, I believe we have become a sue happy country. Makes it an 

easy way to get a dollar. If something goes wrong, it is easier to 

blame someone else than to take the blame yourself, even if you—

it was your fault. There is always someone out there who is willing 

to pay. 

Mr.BUCHANAN. I have no further questions. Thank you. 

ChairwomanVELA ́ ZQUEZ. Thank you. Now I recognize Mr. Braley.

Mr.BRALEY. Thank you, Madam Chairwoman. 

Ms. Rickard, you attended law school at American University? 

Ms.RICKARD. Correct. 

Mr.BRALEY. And did they have the typical law school curriculum 

where you studied Constitutional law? 

Ms.RICKARD. Yes, sir. 

Mr.BRALEY. And do you believe in the Constitution? 

Ms.RICKARD. Absolutely. 

Mr.BRALEY. Do you believe in the Bill of Rights? 

Ms.RICKARD. Absolutely. 

Mr.BRALEY. Believe in the First Amendment right to free speech? 

17

Ms.RICKARD. Yes, sir. 

Mr.BRALEY. Believe in the First Amendment right of freedom of 

religion? 

Ms.RICKARD. Absolutely. 

Mr.BRALEY. Believe in the Second Amendment right to bear 

arms? 

Ms.RICKARD. I do. Yes, sir. 

Mr.BRALEY. Then, why does the U.S. Chamber have such a problem with standing up for the Seventh Amendment? 

Ms.RICKARD. The right to an attorney? 

Mr.BRALEY. No. The Seventh Amendment says, ‘‘In suits at com- mon law, where the value and controversy shall exceed $20, the 

right to trial by jury shall be preserved, and no fact tried by a jury 

shall be otherwise reexamined in any court of the United States.’’ 

That is in the Bill of Rights, that juries, not legislators, get to determine questions of fact in the courtroom. 

And one of the most important issues of fact decided in a civil 

jury trial is what the appropriate damages are to compensate 

someone who has been injured due to the fault of another. You 

would agree with that. 

Ms.RICKARD. I don’t disagree with that, no. 

Mr.BRALEY. So why does the U.S. Chamber spend so much 

money trying to convince us that we know more about the value 

of someone’s injury or death than the people who elected us to Congress, who go into jury boxes all over this country, under the Seventh Amendment to the Bill of Rights? 

Ms.RICKARD. I don’t believe that we have done—said anything to 

the Congress with regard to trying to limit jury trials. I am not 

sure I am following your question. 

Mr.BRALEY. Well, when you promote an agenda that says that it 

is necessary to put caps on damages that a person who has been 

injured can receive, you take away the right of the jury to determine what is fair compensation for an injury. 

Ms.RICKARD. I don’t agree with that. 

Mr.BRALEY. Well, this is a client of mine injured by a defective 

product that was sold by a manufacturer who represented that the 

product would be good and that their products were still on the 

road and being used 25 years after they were put in service. This 

is what her face looked like after that side saddle fuel tank exploded in the pickup she was riding in, and she went through hell, 

and this is what she looked like the day before the injury occurred. 

And I just have a very difficult time when people think that we, 

in Congress, should be substituting our judgment for what people’s 

pain and suffering in cases like this should be, rather than letting 

the Constitution do its job and letting people who hear the facts 

and are there to decide what is fair. 

Now, you also indicated you believe that people need to have 

their day in court, correct? 

Ms.RICKARD. Yes. Yes, sir. 

Mr.BRALEY. Well, if you erect artificial barriers with a statute of 

repose, you deny people their day in court, don’t you? 

Ms.RICKARD. I think you can have rules about when people can 

be able to go to court. Those have been in effect for many, many 

years. So, yes, people need to have access to the courts, but you 

18

also have to have reasonable rules with regard to when that access 

takes place. 

Mr.BRALEY. Right. And one of the rules that governs the conduct 

of every attorney who files a case like this in federal court is Rule 

11, which requires them at the time they file the case to certify 

under oath that the case is well grounded in law and fact and is 

not being filed for any improper purpose, such as to harass or 

threaten someone with frivolous litigation. You were aware of that. 

Ms.RICKARD. Absolutely. But Rule 11 is not effective, sir. I—

Mr.BRALEY. Well, and why is that? 

Ms.RICKARD. —would argue with that. 

Mr.BRALEY. Isn’t it true that a better way to solve this problem 

is to put teeth into Rule 11 and give judges the incentive to penalize people who file frivolous lawsuits, since we all agree that is a 

bad thing? 

Ms.RICKARD. We would absolutely support more teeth in Rule 11. 

We have been on the record last year on legislation, on the Lawsuit 

Abuse Reduction Act, to put more teeth into Rule 11. I think it is 

an absolutely great idea, and we would be wholly supportive of it. 

And I agree with the NFIB it ought to be mandatory. 

Mr.BRALEY. Now, Ms. Harned, you indicated that we are in a sue 

first culture. Do you remember that? 

Ms.HARNED. Yes. 

Mr.BRALEY. Then, can you explain to me why statistics, in state 

court filings across this country, demonstrate that there has been 

a decline in the filing of product liability and personal injury cases 

when you and other groups continue to talk about the sue happy 

culture that we have? 

Ms.HARNED. Yes, and I can, because Mr. Kelly and I were discussing this before. Our guys don’t go to court. They don’t go to 

court. They settle out of court. I think 90 percent of the litigation 

that small business—or it is more than 90 percent that small business owners get involved in, it is settled out of court. 

If they can write a check and get rid of the problem, they are 

going to do that, because it is good for their bottom line. Going to 

court is not. They cannot afford the thousands upon thousands of 

dollars it costs to defend themselves. 

Mr.BRALEY. Well, that is completely inconsistent with my experience, which is that most small businesses, when confronted with a 

request to respond to a potential claim, immediately turn that over 

to their insurance company because they are required to, and then 

that is where the follow-up comes from, not from the individual 

small business. 

ChairwomanVELA ́ ZQUEZ. Time has expired. 

And now this Committee stands in recess, because we have a series of votes. And as soon as we are finished voting, we will come 

back to continue this hearing. 

[Recess.] 

ChairwomanVELA ́ ZQUEZ. The Committee is called back to order. 

And I recognize Chairman—Ranking Member Chabot.

Mr.CHABOT. I like the former rather than the latter, but that is 

quite all right. 

19

ChairwomanVELA ́ ZQUEZ. Sorry, but it is going to take a long time 

for that. 

[Laughter.] 

At least another year and a half. 

But in any event, we, again, appreciate the Chairwoman holding 

this hearing, and we apologize to the witnesses getting interfered 

with by votes here for kind of an extended period of time. But we 

are back. 

And, Ms. Rickard, if I could go with you first. You, I believe in 

your testimony, mentioned about the two new studies that were released today examining the impact of lawsuits on small and midsized businesses. And you indicated that one study showed that 

more than three-quarters of the small business owners in this 

country are concerned that they might be sued by what they would 

consider to be an unfair or frivolous lawsuit. 

And many have had to raise their prices or even consider reducing hiring additional personnel/workers because of that. And I believe you also indicated that 62 percent say that they could grow 

their businesses if they felt that they would be protected from lawsuit abuse. 

Could you perhaps expound upon that a little bit, why the lawsuit abuse that you have indicated in your testimony, the impact 

that it really has had on businesses, whether they hire more people, and the effect that it has had? 

Ms.RICKARD. When you are dealing in a small business, you have 

a limited number of resources, a limited number of employees. So 

if you are slapped with a lawsuit—and, you know, some lawsuits 

are valid lawsuits. We should all understand that. But there are 

many where they are frivolous or unfair. 

And so it saps resources in time and attention in an entity that 

doesn’t have a lot of resources and needs to be focused solely on 

growing their business. What happens is they get hit with a lawsuit, and then they have to make certain decisions because, you 

know, it is difficult to balance the books. Some are insured, but 

about 20 percent of the costs that we looked at were out of pocket. 

So in those circumstances, they do have to make decisions about 

growth, make decisions about products. Is it worth having a certain 

product in the market? Is it worth going into a certain area to expand your business? Those types of things are everyday issues that 

they have to deal with, and so I think the relevance of the study 

is how it changes—how a lawsuit impacts decision making by 

someone in a small business, which is a much different thing than 

with a larger business. 

Mr.CHABOT. Thank you. 

And, Ms. Harned, if I could go to you next, you are the representative of the National Federation of Independent Business, which 

tends to be the smaller businesses in this country, is that right? 

Ms.HARNED. Correct. 

Mr.CHABOT. And in your testimony you indicated that sometimes you have settlements in the, say, $5- to $10,000 range. Now, one 

might argue that, well, that is the reason that businesses carry insurance, and they ought to be fully protected, so they shouldn’t 

worry about these relatively small lawsuits. But, in fact, as you indicated in your testimony, those can mean a great deal, especially 

20

if you have a number of these things, if you’re targeted with these 

what I would term ‘‘frivolous lawsuits’’ in many cases. 

Could you, again, tell us how that does affect a small business, 

even the relatively small to some businesses or small to some people, how this affects—could affect a business? 

Ms.HARNED. Yes, thank you, Congressman Chabot. For the small 

business, that is time away from their business that they are going 

to have to take, even if they do have insurance coverage, dealing 

with the litigation problem. And I would just point up in response 

to earlier questioning, too, that for small business owners, you 

know, they are trying to meet payroll every day. 

So maybe in actual lawsuit abuse, going back to our survey, is 

not going to be high on their priority list of things that they are 

dealing with, but the cost and availability of liability insurance 

definitely is, and that is because of the claims that are—they are 

having to file and others are filing because of the lawsuits or the 

threatened legal action that they are engaged in, which, as we have 

mentioned before, often results in settlements as opposed to actually the small business owner being able to afford to go to court to 

set the record straight if you will in those cases where they were 

improperly targeted. But, yes, the $5- to $10,000 settlements, it is much like the regulatory cost that small business owners are asked to bear. It is the 

death of 1,000 cuts. Enough of those are really going to cripple a 

small business, and, of course, a lawsuit will put them out of business in many instances. 

Mr.CHABOT. Thank you. 

Madam Chair, am I still okay on the time? Okay. 

Mr. Kelly, if I could go to you next. You mentioned the act that 

a Democratic member, Mr. Boren, and myself have introduced, the 

Innocent Sellers Act. Would you tell us again how that would be 

helpful to those that don’t actually manufacture a product, so you 

actually haven’t done something, all you have done is essentially 

sell it in the condition you got it to the ultimate consumer without 

changing it? What would this do for folks like yourself? 

Mr.KELLY. Well, if we didn’t manufacture it, alter it, install it, 

or design it, all we did was sell the product, we didn’t do anything 

wrong. So the hope would be that we would no longer have that 

liability, that we would have to face these $5- and $10,000 settlements that you spoke about, or face legal battle or litigation. This 

would relieve us from that. 

But if we did do something wrong, we would only be liable for 

the proportion of what our wrongdoing was. So that is a great help 

that we are no longer on the hook for 100 percent of the loss on 

a product that all we did was sell it. We did nothing with manufacturing, designing, or altering, or installing. 

Mr.CHABOT. Right. Thank you. In other words, it does away with 

something that we referred to as joint and several liability. But 

thank you. 

And then, finally, Mr. Freedenberg, or Dr. Freedenberg, has the 

burdening litigation trend contributed to the decline of the manufacturing sector in your opinion? And does it—is that burgeoning 

lawsuit, has that affected U.S. companies’ ability to effectively compete with foreign manufacturers? 

21

Mr.FREEDENBERG. The answer is yes. If you add it into other regulatory costs, I think there was a recent study by Manufacturers 

Alliance that shows about a 22 percent extra burden for U.S. manufacturers versus, say, the European competitors. But the other 

thing it does, which is important and it is important for jobs in the 

United States, is it affects decisions on where to invest. 

That is, if you have a high—this is part of the overall overhead 

cost, you have that high cost, you decide that you are going to—

the next investment you are going to make is perhaps in China or 

somewhere offshore rather than in the United States, then that is 

a loss for U.S. workers. 

Mr.CHABOT. Thank you. And in the 12-year statute of repose that 

you referred to in your testimony, which is the bill we are talking 

about—

Mr.FREEDENBERG. Right. 

Mr.CHABOT. —that would also arguably make us more competitive with the Asian countries. 

Mr.FREEDENBERG. Yes, it would. It would, both in the United 

States—well, it would lower costs to us, because it would reduce 

both insurance and litigation costs, and it would help us vis-a-vis 

the very strong competition we have coming into the United States, 

because part of it is the overhang that we have of older machines. 

Mr.CHABOT. Thank you. And if I could just conclude, Madam 

Chair, by just saying that legislation also—the worker, if injured 

by one of those products, is protected, because there would only be 

coverage if your—the manufacturer would only be covered if the 

employee that was injured is covered by worker’s compensation. So 

you would never have—

Mr.FREEDENBERG. Right. 

Mr.CHABOT. —a worker that wasn’t compensated. And I yield 

back. 

ChairwomanVELA ́ ZQUEZ. Mr. Gonza ́lez.

Mr.GONZA ́LEZ. Thank you very much, Madam Chairwoman, and 

I want to express my sincere thanks to the witnesses for your patience and your testimony. I am not sure that I am going to agree 

with you, but let us have an honest disagreement and let us have 

an honest debate. 

No one is for frivolous lawsuits, and I am sure there have been 

some studies conducted since what I am about to cite, but let me 

go over a couple of things, so that—the background for my questions. 

This is from a memo, and it says, ‘‘Conflicting evidence on tort 

cases. The United States General Accounting Office, the GAO,’’ 

which is the gold standard by members of Congress, ‘‘did a comprehensive study in 1988 on the extent of product liability litigation growth and concluded that these data seem inconsistent with 

the contention that there is a rapidly-accelerating growth in federal 

product liability filings across a wide range of products.’’ That was 

1988, and I am sure we have something more recent. I am not sure 

that the result would be any different. 

Let us go to 2006. A 2006 survey by the Federal Judicial Center, 

the research and education agency of the federal court system, 

shows more federal judges do not view frivolous lawsuits as a probVerDate 0ct 09 2002 09:00 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\34835.TXT LEANN
22

lem. Seventy percent of the 278 federal court judges who responded 

to the survey declared that groundless litigation is either a small 

problem or a very small problem, and 15 percent said it was no 

problem at all. 

That means 85 percent of the federal judges that responded, 

nearly 300, said that it was a small problem, very small problem, 

or no problem at all. And I think that is where the reality probably 

lies. 

I also want to look at this as public policy, and we all have our 

roles—the business community, the legislators, the lawyers, everyone. The bottom line is: how is the public best protected from dangerous products? That should all be our concern, whether you are 

the individual selling or manufacturing the product or you are the 

legislators legislating the regulatory scheme. 

So you would say, well, government has a responsibility. Why 

don’t you set up a governmental agency or department, and we do. 

We have the Consumer Product Safety Commission that has jurisdiction over thousands of products, not all of them. Some that you 

discussed may not come under their umbrella. I am going to tell 

you about a very interesting hearing that Energy and Commerce 

just had recently, one of the subcommittees, that I was able to participate—in which I was able to participate. 

And this is some of the information that was provided us. The 

Chicago Tribune summed up what many consumer groups have 

charged is wrong with our nation’s consumer product safety system. ‘‘A captive of industry, the Consumer Product Safety Commission lacks the authority and manpower to get dangerous products 

off the store shelves.’’

So don’t count on government doing it. Don’t count on a formal, 

recognized, regulatory commission or agency of the Federal Government, or the state government, to do it, because they are not going 

to do it. And this is what we found out—non-rigorous safety standards, that most standards are voluntary, that the manufacturers of 

these products volunteer to abide by those standards, number one, 

but they also set the standards. They are voluntary standards. 

Limited testing of products, no real live type testing is really 

going on appreciably. Recall ineffectiveness—I love this—the CPSC 

has limited power to mount effective recall campaigns. First, because of limitations in the law on the agency’s ability to make negative statements about specific products, the agency must negotiate 

with the manufacturer on the wording of a press release announcing a recall. 

Now, you are saying, well, we need to improve on that. Well, I 

say we do, too. At the beginning of the Reagan administration, the 

CPSC was cut by a third, from 1,000 employees in 1981 to 600 employees two years later. Where are we today? Four hundred employees. 

The President’s budget request for the agency for fiscal year 2008 

calls for 401 employees. Government is not going to do it, so let us 

go and shift over the big plan that we have out there to serve society’s best interest. What would it be? What would be our second 

choice? 

I would say it is the civil justice system, and that is all that people have. And I think that is why Mr. Braley is a little upset about 

23

some things. And we can trade, one for one, abuses on both sides 

of the fence. You know that, and the lawyers that are up there 

know exactly what I am talking about. 

Now, we know government is not going to do it, so what do you 

think of doing with the civil justice system? Why do we have 

shared liability? This is shared liability, because it promotes shared 

responsibility that businesses both small and large owe to society 

in its entirety. The real fear I think that small businesses face and 

have is being sued by big businesses—big businesses that can hire 

the Akin Gumps and the Baker Botts of this world, because I saw 

it every day for 25 years, how this game is played out in the courtroom. 

It wasn’t products liability. It wasn’t tort. It wasn’t personal injury, because I think everyone in this room really knows what is 

going on out there. No one likes to be sued. I never had a client 

that said, ‘‘I deserve to be sued, please.’’ No one believes they 

should be sued. 

So if we think in terms of what we are trying to do here, as I 

understand, there may be an abuse or two, but we can go over 

there and try something that wholesale destroys a true system, and 

I know that you pointed out some abuses. You say, ‘‘Why a contingency fee?’’ Because not everyone out there can afford an hourly fee 

that an Akin Gump or a Baker Botts charges. It just doesn’t work 

that way. We know that, and I wish we would get away from that. 

I feel for the small businessmen, and they are good people, that 

may have that slide. And kids may be injured, and it may be because of misuse. And they still have to incur the cost of defending. 

But who would be the first person to receive notice that a product may be defective or cause an injury or subject to misuse? It is 

going to be the individual that usually sells it and supervises its 

use. Unfortunately, that is the small businessman, and we hope 

that you go back up that chain and get to that manufacturer. 

Mr. Kelly, I am going to make an assumption that you know 

much more about the product that you sell than the consumer, and 

I think that you owe the consumer some duty and responsibility to 

know something about the inherent characteristics of that particular product. I know you share that with me. 

So if you are talking about a law that would totally relieve you 

of any responsibility and duty to know more about the product that 

you are selling, we have got serious problems, and especially with 

as much product that is being imported. And I know I—

ChairwomanVELA ́ ZQUEZ. Time has expired. 

Mr.GONZA ́LEZ. Thank you. 

Mr.CHABOT. Could I ask unanimous consent that Mr. Gonza ́lez 

be given an additional minute, and ask if he would yield to me for 

a minute? 

Mr.GONZA ́LEZ. Now, that is amazing, when someone is asking 

something in your behalf and then they take it. 

[Laughter.] 

I will tell you, my colleague, my dear, dear colleague, I will yield 

in a minute if you don’t—and since we are—you have been so patient, and we do need to have this particular discussion, but we 

have to figure out who is—and I will yield in a particular—in a 

minute here. 

24

If you want to look at self-regulation, which doesn’t work—and 

human nature being what it is, and we are all human, whether you 

are a businessman or not out there, do you really believe it was the 

manufacturer, the distributor of the Pinto automobile that took 

care of that gas tank? Do you really believe that the tobacco industry that lied for all these years about the inherent characteristics 

of their product would have turned themselves in? 

As a matter of fact, most of these individuals new about the inherent dangers of the product, kept them secret, and even lied in 

legal proceedings. We can go into lawnmowers, we can go into 

kitchen ranges, we can go into baby cribs. How about fire retardant 

materials? When I started my practice, we had Boy Scouts that 

burned in tents, and it was the legal profession that set those 

standards. 

We had infants who were terribly disfigured because there 

weren’t any fire retardant standards. Did the manufacturers know 

that danger? Did the distributor and seller? Of course they did. No 

one moved forward. It was the civil justice system, and it does have 

an appropriate role. And I could go on and on. 

ChairwomanVELA ́ ZQUEZ. Is the gentleman going to yield? 

Mr.GONZA ́LEZ. I am going to yield to my dear friend Mr. Chabot. 

Mr.CHABOT. I will tell you what, Madam Chair, what I will do 

is, if he would like to yield back, I will just take our side—I will 

only take—I am not going to take five minutes, but I am—

ChairwomanVELA ́ ZQUEZ. Go ahead. 

Mr.CHABOT. —being recognized on my own time. Thank you. 

I will never try that again, Charlie. That didn’t work so well. 

[Laughter.] 

That is quite all right. You were on a roll there. 

Just a comment. I don’t want to comment on everything that the 

gentleman from Texas said, but he did talk about a survey done 

by federal judges saying that they didn’t consider these types of 

lawsuits to be a problem. I would just note a couple of things. 

Number one, they are not the ones being sued. You know, it is 

the small business folks that are being sued. And their employees, 

as we have said, their very jobs are at risk, and growing the businesses and hiring more and more people. 

And, secondly, the number one thing that is probably on their 

list is they want more pay. As you know, we have both been up 

here a while, Charlie, I mean, that is the main thing that they 

seem to be concerned about. You know, they don’t think they are 

being paid high enough. 

And, thirdly, the judges, all of them at the federal level, were all 

lawyers before they became judges, many of those trial lawyers. 

And, finally, I would just note that most of the lawsuits are actually not in the federal courts, they are of courts and the state 

courts, and there may well be surveys of the state court judges that 

say similar things. I am not aware of that one way or the other, 

but I wouldn’t necessarily put a whole lot of stock in what the federal judges are saying in this respect. 

And I yield back the balance of my time. 

ChairwomanVELA ́ ZQUEZ. I recognize Mr. Johnson.

25

Mr.JOHNSON. Thank you, Mr. Chabot. Yes, judges certainly do 

deserve a higher rate of pay. But I think that most judges try to 

be conscientious about the pronouncements that they make, and 

most judges—many judges were trial lawyers, but it seems to me 

most of them were either prosecutors or civil defense lawyers from 

large firms before they became judges. Most judges are not plaintiff’s lawyers, and they were not public defenders or criminal defense lawyers. 

But before I proceed on, I must disclose the fact that I have practiced law for 27 years, primarily criminal defense, but I did do a 

fair amount of plaintiff’s injury litigation and some business tort 

litigation as well. And so I do have an abundant respect for my 

brethren and sistern who practice law and represent injured people, and also people who have been accused of crime. 

And I believe in the jury system of this country. I believe in judicial discretion. And I also believe firmly that big-pocket defendants 

will do everything that they can do to immunize themselves from 

people who would complain about their actions which led to the aggrieved person being injured. 

So that having been said, I want to ask some questions. Ms. 

Harned, you previously practiced law at Olsson, Frank and Weeda, 

P.C. 

Ms.HARNED. Correct, yes. 

Mr.JOHNSON. Was that a defense firm or a plaintiff’s firm? 

Ms.HARNED. We did mostly regulatory work and worked—helped 

clients navigate through Food and Drug Administration and USDA 

and some lobbying as well. 

Mr.JOHNSON. Pretty much large corporate interests that you represented, is that correct? 

Ms.HARNED. We had several big clients, but I have to say I personally worked a lot with some really small clients like I do now 

that, you know, have, you know, 25 people or less, some even five 

or less employees. 

Mr.JOHNSON. And you stated—was it you that stated that 69 

percent of small businesses consulted an attorney during the last 

year? 

Ms.HARNED. Yes, that was according to a use of lawyers poll that 

we put out, the NFIB Research Foundation put out in 2005, at the 

end of 2005. 

Mr.JOHNSON. And that wasn’t just for purposes of defending 

against lawsuits or potential lawsuits, was it? 

Ms.HARNED. That is correct, but I will say—

Mr.JOHNSON. That included consultations for business-related 

matters and that kind of thing. So you don’t mean to lead us astray 

with respect to the 69 percent of small business owners consulting 

an attorney about defending themselves from a litigation claim. 

Ms.HARNED. No, and thank you for that. But it does show how 

much our culture has changed, that this has become integral for 

small businesses. 

Mr.JOHNSON. And, of course, we are not here to talk about putting limits on the amount that an hourly firm, a firm charging an 

hourly fee, could put on attorney’s fees that they charge to small 

businesses. We are not here for that purpose. We—

26

Ms.HARNED. Well, and we wouldn’t advocate that either, I don’t 

think. 

Mr.JOHNSON. And certainly no one would want to keep a large 

corporate law firm from charging, you know, $400 or $500 an hour, 

but you do see some legitimacy in the claim that we should limit 

contingent fees to plaintiff’s lawyers. Is that correct? 

Ms.HARNED. Correct, yes. 

Mr.JOHNSON. You would limit a person’s ability to hire an attorney on a contingent fee basis. 

Ms.HARNED. Oh, no. I am sorry. I misunderstood you. I do not 

have—as far as I know, NFIB does not have a position on contingency fees at the federal level. 

Mr.JOHNSON. Well, I would let you know that lawyers who represent injured people generally work on a contingent fee basis, and 

to take a third of a $5,000 settlement or a $10,000 settlement, 

there is really no money in that for the average lawyer. It has been 

my experience that most lawyers take cases that would result in 

a higher basis from which they could recover a contingent fee. So 

I am going to—for some reason, I just don’t trust your assertion 

that $5- and $10,000 settlements are killing—are just killing small 

businesses. 

But, Ms. Rickard, you talked about frivolous and unfair lawsuits. 

And I don’t know what you mean by unfair. Maybe unfair means 

by the mere fact that someone would have the gaul to bring a lawsuit against a large corporate interest for a product liability or any 

other claim. And it seems to me that you have been more—you are 

fighting more for overall limits on people being able to bring lawsuits as opposed to just statute of repose on tort—excuse me, on 

product liability issues, just from listening to you today. 

But you worked as a Vice President for the Dow Chemical Corporation, and you all have been the targets of a number of class 

action litigations throughout the years. Is that correct? 

Ms.RICKARD. During my time there, yes, they—

Mr.JOHNSON. And these had to do with—

Ms.RICKARD. —mass actions and—

Mr.JOHNSON. Yes, but they had to do—

Ms.RICKARD. —more mass actions than class actions. 

Mr.JOHNSON. Do you see that there is any social utility in the 

ability of those kinds of lawsuits to go forward? Do they have a 

positive impact on public policy, in your opinion? 

Ms.RICKARD. There absolutely is a benefit to having class action 

and mass action capabilities. The issues really become—and, again, 

this hearing is about small business. But if you want to talk about 

larger business, I am happy to do that. 

Mr.JOHNSON. Well, yes, and the reason why I talk about the 

larger business, because it seems like they are parading around or 

parading behind the issue of small business. But, really, these 

changes in the law that you are suggesting and advocating for 

would actually help the larger businesses as well. 

Ms.RICKARD. The issue here is across the board, issues pertaining to lawsuit abuse across the board, whether you are a large 

business or a small business. 

Mr.JOHNSON. Well, tell me—

27

Ms.RICKARD. At the U.S. Chamber, 95 percent of our membership are small businesses. 

Mr.JOHNSON. Well, you talk about lawsuit abuse. Do you think 

it is an abuse for a person who has been injured to be able to find 

a lawyer who is willing to take a case because they think they can 

make some money out of it, because it is a legitimate case? Do you 

think it is wrong for that person to be able to bring a case to court? 

Ms.RICKARD. Absolutely not. But I do think—

Mr.JOHNSON. Well, how do you determine whether or not a case 

is—

Ms.RICKARD. I believe—

Mr.JOHNSON. How do you determine whether or not a case is actually frivolous or not? 

Ms.RICKARD. Well, if you look—the people I brought to this hearing—

Mr.JOHNSON. Can you do that? 

Ms.RICKARD. —today—yes, Chris Moser, who has an Internet 

company with two employees, got socked—he got brought into an 

$800 million lawsuit on the basis of—

Mr.JOHNSON. And an $800 million lawsuit is a frivolous litigation 

claim? 

Ms.RICKARD. Yes. When the person bringing the claim is trying 

to collect on gold bonds against banks during—you know, to collect 

money from these banks. 

Mr.JOHNSON. Well, now, ma’am, you have been an attorney for 

how long? 

Ms.RICKARD. Over 25 years. 

Mr.JOHNSON. And you think an attorney would get involved in an $800 million lawsuit that is frivolous? 

Ms.RICKARD. Absolutely. 

Mr.JOHNSON. And spend—

Ms.RICKARD. We see it every day, sir. 

ChairwomanVELA ́ ZQUEZ. Time has expired. 

Ms.RICKARD. Every day. 

Mr.JOHNSON. I am going to disagree with you on that. 

ChairwomanVELA ́ ZQUEZ. I now recognize Mr. Westmoreland.

Mr.WESTMORELAND. Thank you, Madam Chairman. 

Let me help Ms. Rickard a little bit, not that she needs my help, 

but unfounded, unnecessary lawsuits—you know, could that be considered if somebody like this Internet company was actually a 

fourth or fifth party to whatever the problem was? Does it come 

into throwing a large net out just to see whoever they can catch 

and let everything kind of filter through that net? And are these 

lawsuits that would include people that don’t even know the parties involved in it? 

Ms.RICKARD. Yes. There are—in this instance, in this Internet 

case, they did not know the parties. They were hosting a site for 

discussion about banking issues, and gets pulled in, probably for 

venue purposes, into litigation and has to spend time and attention 

away from that, hire a lawyer, have legal fees. 

You know, the problem here is we get—I think we need to all acknowledge there are valid lawsuits, and there are frivolous and unfair lawsuits. And you have to have a system that weeds out the 

28

frivolous claims and discourages attorneys from filing them merely 

to collect legal fees. And there has to be a distinction there that 

we all need to acknowledge. 

This isn’t one side or the other is completely right here. We certainly are not espousing that people who are injured should not 

have access to the court system. They most certainly should. 

Mr.WESTMORELAND. Well, I am glad Mr. Braley is coming back 

into the room, the learned trial attorney he is, and he certainly did 

a great job questioning the panel. 

But, you know, it is interesting that he brought the pictures of 

this young lady, but he didn’t bring his billing sheet where he may 

have gotten as much as 30 or 40 percent, but this unfortunate 

lady—and nobody wants any of us to go through the unfortunate 

situation that this lady went through, and it is very unfortunate 

what she did go through, but I don’t think anybody meant for her 

to go through that. I don’t think this was done on purpose by anybody that would cause her or her family to go through this tragedy 

that it did. 

But, you know, if attorneys want to make this thing fair, then 

what we need to do is go to a loser pay situation. That way, if the 

case is reversed, and that defendant wins, then the plaintiff needs 

to pay all of those legal expenses, because this is kind of a winwin for these attorneys, because, you know, they have got defense 

attorneys and plaintiff’s attorneys, and so, you know, they are all 

getting part of the action whether they win or lose. 

The trial attorneys probably try a little bit harder, because theirs 

is based on people’s unfortunate situations, and a lot of times they, 

you know, wheel them into the courtroom or bring them in these 

tragic situations that they are in to get the jury to see them, and 

to understand the tragedy that they have gone through, and then, 

you know, who is to say the insurance company probably doesn’t 

have a face there, or whoever this defendant is. 

So I understand what you are saying on the contingencies. And 

my other colleague, Mr. Johnson, talked about these $5- and 

$10,000 settlements. That is basically just blood money, just something not to have to go to court. You know, at some point in time, 

you have to make a business decision. And when your attorney 

tells you it is going to cost $20,000 to go to court, or you can pay 

them off for $10,000, that is easy money for some of these attorneys. He talked like they wouldn’t get involved for that. I think 

they would get involved for $1.99, if you want to know the truth. 

So I have made more of a statement than I have anything else, 

but I would like to ask each and every one of you a question. Ms. 

Rickard, you are not trying to limit anybody’s ability to go to court 

for any legitimate reason, are you? 

Ms.RICKARD. No, we are not trying to limit anybody’s ability to 

go to court for any reason. People who are injured or aggrieved 

should be able to have full access to court and to a jury trial. 

Mr.WESTMORELAND. And, Ms. Harned, you are not trying to keep 

anybody from having a legitimate reason to go to court and to have 

their cause heard, are you? 

Ms.HARNED. Absolutely not. 

29

Mr.WESTMORELAND. And, Mr. Kelly, you are not saying that you 

don’t want anybody to go to court that has a legitimate complaint, 

do you? 

Ms.HARNED. No, sir. 

Mr.WESTMORELAND. And Dr. Freedenberg? 

Mr.FREEDENBERG. No. 

Mr.WESTMORELAND. Thank you, Madam Chair. 

ChairwomanVELA ́ ZQUEZ. Time has expired. 

Is there any other member who wishes to make questions? Mr. 

Braley?

Mr.BRALEY. Thank you, Madam Chairwoman. I would certainly 

like the opportunity to correct the state of the record on the case 

that I identified. This case was against what at the time was the 

largest corporation in the world, and I can assure you that they 

had an army of attorneys who have been defending these cases for 

a long time. 

I represented a woman from Benton County, Iowa, who didn’t 

have anybody to speak up for her. I took that case on a contingency 

fee basis, which meant if I didn’t get a recovery for her, I wouldn’t 

get paid a dime. I worked for three and a half years on this case, 

and it wasn’t until I knew that I had a legitimate claim after extensive research that I even contacted the manufacturer to talk 

about the merits of the case. 

Mr. Freedenberg, I wanted to ask you a question about the disclosure in your written statement, because I think it points out one 

of the problems that nobody is talking about, that from the standpoint of consumers there is a huge issue. You noted that the association you represent had received $225,000 from the Commerce 

Department’s Market Cooperator Development Program for a technical center in China. Is that correct? 

Mr.FREEDENBERG. That is correct. 

Mr.BRALEY. One of the main problems that we see in a lot of 

these products cases is that, as our trade imbalance with China 

skyrockets, and more and more Chinese products flood U.S. markets, the sellers of those products who provide them to consumers, 

then are the only direct person with a business located in the 

United States when these claims arise. 

I have pursued claims against Chinese manufacturers. And if 

you are dealing with getting jurisdiction over a Chinese manufacturer in Communist China, it is a long and arduous process to even 

bring them to the table. And then, if you are successful in getting 

a judgment, it is just a piece of paper that means nothing, because 

you still, then, have to levy on that judgment in a foreign country 

with many obstacles built in. 

So my question for you is: given this trade imbalance, and given 

the fact that many of the small businesses are selling products 

manufactured in China, what remedy is there if we want to try to 

figure out how to pass on the burden of that risk to the responsible 

party, the Chinese manufacturer, who puts that defective, unreasonably dangerous product, into the stream of commerce in the 

United States? How are we going to hold those Chinese corporations responsible when something like this happens? 

30

Mr.FREEDENBERG. Well, just to be clear, we were—we are selling 

a product for manufacturers in China, not to sell back—we are not 

selling a finished product in China. But, anyway, the main thing 

is, having been a trade official, you need to negotiate good trade 

agreements with provisions in them that allow for access to Chinese manufacturers. 

You need to negotiate what we are doing when we have trade 

agreements, if they are signed correctly, is that you get some access 

to them, you get some ability to go after them at the appropriate 

time. 

Mr.BRALEY. Have you ever had any experience trying to do that 

in practical terms? 

Mr.FREEDENBERG. Well, in practical terms, we have great difficulty, and I recognize we are having difficulty right now getting 

the Chinese to live up to the agreements they make. But that 

doesn’t mean—that really calls for a better set of—better next 

round of negotiations on the national level, so that—or the international level, so that you can have the individual capability to go 

after them. It is, I agree, very much difficult to go after that. 

Mr.BRALEY. You also made the statement that several AMT 

members have been forced to close their doors because of product 

liability lawsuits. Do you remember that? 

Mr.FREEDENBERG. Yes. 

Mr.BRALEY. Who are they? 

Mr.FREEDENBERG. Well, I cited one in my testimony, which is 

Madison. I could get you for the record—I didn’t bring along the 

list with me, but I can get you for the record others who have been 

forced to close their doors for—because of the lawsuits. 

Mr.BRALEY. Could you agree to provide those names to the Committee? 

Mr.FREEDENBERG. I would be happy to. 

Mr.BRALEY. And the dates when they went out of business? 

Mr.FREEDENBERG. Definitely. 

Mr.BRALEY. And you mentioned this Madison verdict of $7.5 million that led to a bankruptcy filing. 

Mr.FREEDENBERG. Right. 

Mr.BRALEY. Do you know whether the judgment that was entered in that case was ever paid? 

Mr.FREEDENBERG. I don’t have the information right now, but I—

Mr.BRALEY. Do you know whether the company filed a Chapter 

7 or a Chapter 13 bankruptcy? 

Mr.FREEDENBERG. No, I don’t know. 

Mr.BRALEY. And that would be a big difference, wouldn’t it, into 

whether that claim was ever paid? Because if it was a Chapter 7 

liquidation, in all likelihood it would mean that the person who 

had that judgment would get very little, if anything. 

Mr.FREEDENBERG. Right. 

Mr.BRALEY. Mr. Kelly, I wanted to follow up on your presentation, because one of the things that I do have experience with is 

working with people in your industry who buy machines manufactured overseas and then have problems in the workplace that injure their workers and add to their worker’s compensation liability. 

Specifically, I worked with a company called Birch Manufacturing in Waterloo, Iowa, which has a huge business that processes 

31

wood products into cabinetry for use in bathrooms and kitchens. 

And they had purchased a double-edged sander manufactured by 

an Italian corporation, put it in place in their factory, and the very 

first day that it was started up a drawer that was being sent 

through the sander shot through, knocked one employee unconscious, ricocheted off and hit another employee, and fractured the 

orbit of his eye. 

It was later determined that the product had been defectively designed, which the company in Italy acknowledged, but there was 

another huge problem of getting jurisdiction over a foreign manufacturer, and, in fact, worked closely with Birch Cabinet because 

they knew if the manufacturer ultimately held responsible then 

they would get back money that they had paid for worker’s compensation benefits as an offset. 

Have you heard from any of your members about that type of dynamic and their need to be able to hold manufacturers of defective 

products accountable? 

Mr.KELLY. No, not to my recollection, but I don’t remember any 

of those type of situations. Now, we will research that and be 

happy to get back to the Committee with some written examples, 

if we have some, where this has been true. 

Mr.BRALEY. Do you know, as a general proposition, whether people who are part of your association use machines in their businesses that are manufactured overseas? 

Mr.KELLY. Not normally. Our business—most of our members 

are lumber dealers, so we are buying already manufactured products that we aren’t manufacturing ourselves. So we don’t do any 

manufacturing unless we do run truss plants, and those type of 

things, and those people would be using some of those machines, 

or if they do run door assembly plants they may have some of 

those. 

Mr.BRALEY. So you are more involved in the chain of distribution 

of finished products. 

Mr.KELLY. Exactly. 

Mr.BRALEY. All right. Thank you very much for your time. 

And thank you, Madam Chairman, and Ranking Member 

Chabot. 

ChairwomanVELA ́ ZQUEZ. Thank you. Do you wish to makeMr.WESTMORELAND. Can I ask a few follow-up questions? 

ChairwomanVELA ́ ZQUEZ. Sure. 

Mr.WESTMORELAND. This question to anybody on the panel—does 

anybody consider General Motors a small business? Ms. Rickard? 

Ms.RICKARD. Do I consider General Motors a small business? No, 

but they give a lot of business to small—to—

Mr.WESTMORELAND. But they are not a small business. 

Ms.RICKARD. No, absolutely not. 

Mr.WESTMORELAND. Does anybody on the panel think that our 

small business manufacturers should be used as fodder for trade 

agreements? These are two different areas that need to be addressed. And I agree with the gentlemen—we need to make sure 

that in our trade agreements we have a way to get to those foreign 

companies that make these defective things. But I think it 

stretches a little bit too far that we are going to use our small businessmen to get to these foreign countries. 

32

Thank you, ma’am. That is all I have. I yield back. 

ChairwomanVELA ́ ZQUEZ. Mr. Chabot, do you have any other 

questions? 

Mr.CHABOT. I don’t. I would just like, again, to thank the witnesses for their testimony, and thank the Chairwoman for holding 

this hearing. 

ChairwomanVELA ́ ZQUEZ. I ask unanimous consent that members 

have five days to enter statements and supporting materials into 

the record. 

And this hearing is adjourned. 

[Whereupon, at 1:41 p.m., the Committee was adjourned.]

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