II
Calendar No. 476
106TH CONGRESS
2D SESSION
H. R. 2366
IN THE SENATE OF THE UNITED STATES
FEBRUARY 22, 2000
Received
MARCH 27, 2000
Read the first time
MARCH 28, 2000
Read the second time and placed on the calendar
AN ACT
To provide small businesses certain protections from litiga-
tion excesses and to limit the product liability of non-
manufacturer product sellers.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
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SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Small Business Liability Reform Act of 2000’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—SMALL BUSINESS LAWSUIT ABUSE PROTECTION
Sec. 101. Findings.
Sec. 102. Definitions.
Sec. 103. Limitation on punitive damages for small businesses.
Sec. 104. Limitation on joint and several liability for noneconomic loss for
small businesses.
Sec. 105. Exceptions to limitations on liability.
Sec. 106. Preemption and election of State nonapplicability.
TITLE II—PRODUCT SELLER FAIR TREATMENT
Sec. 201. Findings; purposes.
Sec. 202. Definitions.
Sec. 203. Applicability; preemption.
Sec. 204. Liability rules applicable to product sellers, renters, and lessors.
Sec. 205. Federal cause of action precluded.
TITLE III—EFFECTIVE DATE
Sec. 301. Effective date.
TITLE I—SMALL BUSINESS
LAWSUIT ABUSE PROTECTION
SEC. 101. FINDINGS.
Congress finds that—
(1) the defects in the United States civil justice
system have a direct and undesirable effect on inter-
state commerce by decreasing the availability of
goods and services in commerce;
(2) there is a need to restore rationality, cer-
tainty, and fairness to the legal system;
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(3) the spiralling costs of litigation and the
magnitude and unpredictability of punitive damage
awards and noneconomic damage awards have con-
tinued unabated for at least the past 30 years;
(4) the Supreme Court of the United States has
recognized that a punitive damage award can be un-
constitutional if the award is grossly excessive in re-
lation to the legitimate interest of the government in
the punishment and deterrence of unlawful conduct;
(5) just as punitive damage awards can be
grossly excessive, so can it be grossly excessive in
some circumstances for a party to be held respon-
sible under the doctrine of joint and several liability
for damages that party did not cause;
(6) as a result of joint and several liability, en-
tities including small businesses are often brought
into litigation despite the fact that their conduct
may have little or nothing to do with the accident
or transaction giving rise to the lawsuit, and may
therefore face increased and unjust costs due to the
possibility or result of unfair and disproportionate
damage awards;
(7) the costs imposed by the civil justice system
on small businesses are particularly acute, since
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small businesses often lack the resources to bear
those costs and to challenge unwarranted lawsuits;
(8) due to high liability costs and unwarranted
litigation costs, small businesses face higher costs in
purchasing insurance through interstate insurance
markets to cover their activities;
(9) liability reform for small businesses will pro-
mote the free flow of goods and services, lessen bur-
dens on interstate commerce, and decrease litigious-
ness; and
(10) legislation to address these concerns is an
appropriate exercise of the powers of Congress under
clauses 3, 9, and 18 of section 8 of article I of the
Constitution of the United States, and the 14th
amendment to the Constitution of the United States.
SEC. 102. DEFINITIONS.
In this title:
(1) CRIME OF VIOLENCE.—The term ‘‘crime of
violence’’ has the same meaning as in section 16 of
title 18, United States Code.
(2) DRUG.—The term ‘‘drug’’ means any con-
trolled substance (as defined in section 102 of the
Controlled Substances Act (21 U.S.C. 802)) that
was not legally prescribed for use by the defendant
or that was taken by the defendant other than in
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accordance with the terms of a lawfully issued pre-
scription.
(3) ECONOMIC
LOSS.—The term ‘‘economic
loss’’ means any pecuniary loss resulting from harm
(including the loss of earnings or other benefits re-
lated to employment, medical expense loss, replace-
ment services loss, loss due to death, burial costs,
and loss of business or employment opportunities) to
the extent recovery for such loss is allowed under ap-
plicable State law.
(4) HARM.—The term ‘‘harm’’ means any phys-
ical injury, illness, disease, or death or damage to
property.
(5) HATE
CRIME.—The term ‘‘hate crime’’
means a crime described in section 1(b) of the Hate
Crime Statistics Act (28 U.S.C. 534 note).
(6) INTERNATIONAL
TERRORISM.—The term
‘‘international terrorism’’ has the same meaning as
in section 2331 of title 18, United States Code.
(7) NONECONOMIC
LOSS.—The term ‘‘non-
economic loss’’ means loss for physical or emotional
pain, suffering, inconvenience, physical impairment,
mental anguish, disfigurement, loss of enjoyment of
life, loss of society and companionship, loss of con-
sortium (other than loss of domestic service), injury
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to reputation, or any other nonpecuniary loss of any
kind or nature.
(8) PERSON.—The term ‘‘person’’ means any
individual, corporation, company, association, firm,
partnership, society, joint stock company, or any
other entity (including any governmental entity).
(9) PUNITIVE DAMAGES.—The term ‘‘punitive
damages’’ means damages awarded against any per-
son or entity to punish or deter such person, entity,
or others from engaging in similar behavior in the
future. Such term does not include any civil pen-
alties, fines, or treble damages that are assessed or
enforced by an agency of State or Federal govern-
ment pursuant to a State or Federal statute.
(10) SMALL BUSINESS.—
(A) IN GENERAL.—The term ‘‘small busi-
ness’’ means any unincorporated business, or
any partnership, corporation, association, unit
of local government, or organization that has
fewer than 25 full-time employees as deter-
mined on the date the civil action involving the
small business is filed.
(B) CALCULATION
OF
NUMBER
OF
EM-
PLOYEES.—For purposes of subparagraph (A),
the number of employees of a subsidiary of a
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wholly owned corporation includes the employ-
ees of—
(i) a parent corporation; and
(ii) any other subsidiary corporation
of that parent corporation.
(11) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands,
Guam, American Samoa, the Northern Mariana Is-
lands, any other territory or possession of the
United States, or any political subdivision of any
such State, commonwealth, territory, or possession.
SEC. 103. LIMITATION ON PUNITIVE DAMAGES FOR SMALL
BUSINESSES.
(a) GENERAL RULE.—Except as provided in section
105, in any civil action against a small business, punitive
damages may, to the extent permitted by applicable Fed-
eral or State law, be awarded against the small business
only if the claimant establishes by clear and convincing
evidence that conduct carried out by that defendant with
a conscious, flagrant indifference to the rights or safety
of others was the proximate cause of the harm that is the
subject of the action.
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(b) LIMITATION ON AMOUNT.—In any civil action
against a small business, punitive damages awarded
against a small business shall not exceed the lesser of—
(1) three times the total amount awarded to the
claimant for economic and noneconomic losses; or
(2) $250,000,
except that the court may make this subsection inappli-
cable if the court finds that the plaintiff established by
clear and convincing evidence that the defendant acted
with specific intent to cause the type of harm for which
the action was brought.
(c) APPLICATION BY THE COURT.—The limitation
prescribed by this section shall be applied by the court
and shall not be disclosed to the jury.
SEC. 104. LIMITATION ON JOINT AND SEVERAL LIABILITY
FOR NONECONOMIC LOSS FOR SMALL BUSI-
NESSES.
(a) GENERAL RULE.—Except as provided in section
105, in any civil action against a small business, the liabil-
ity of each defendant that is a small business, or the agent
of a small business, for noneconomic loss shall be deter-
mined in accordance with subsection (b).
(b) AMOUNT OF LIABILITY.—
(1) IN GENERAL.—In any civil action described
in subsection (a)—
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(A) each defendant described in that sub-
section shall be liable only for the amount of
noneconomic loss allocated to that defendant in
direct proportion to the percentage of responsi-
bility of that defendant (determined in accord-
ance with paragraph (2)) for the harm to the
claimant with respect to which that defendant
is liable; and
(B) the court shall render a separate judg-
ment against each defendant described in that
subsection in an amount determined under sub-
paragraph (A).
(2) PERCENTAGE
OF
RESPONSIBILITY.—For
purposes of determining the amount of noneconomic
loss allocated to a defendant under this section, the
trier of fact shall determine the percentage of re-
sponsibility of each person responsible for the harm
to the claimant, regardless of whether or not the
person is a party to the action.
SEC. 105. EXCEPTIONS TO LIMITATIONS ON LIABILITY.
The limitations on liability under sections 103 and
104 do not apply—
(1) to any defendant whose misconduct—
(A) constitutes—
(i) a crime of violence;
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(ii) an act of international terrorism;
or
(iii) a hate crime;
(B) results in liability for damages relating
to the injury to, destruction of, loss of, or loss
of use of, natural resources described in—
(i) section 1002(b)(2)(A) of the Oil
Pollution 
Act 
of 
1990 
(33 
U.S.C.
2702(b)(2)(A)); or
(ii) section 107(a)(4)(C) of the Com-
prehensive Environmental Response, Com-
pensation, and Liability Act of 1980 (42
U.S.C. 9607(a)(4)(C));
(C) involves—
(i) a sexual offense, as defined by ap-
plicable State law; or
(ii) a violation of a Federal or State
civil rights law;
(D) occurred at the time the defendant
was under the influence (as determined under
applicable State law) of intoxicating alcohol or
a drug, and the fact that the defendant was
under the influence was the cause of any harm
alleged by the plaintiff in the subject action; or
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(2) to any cause of action which is brought
under the provisions of title 31, United States Code,
relating to false claims (31 U.S.C. 3729–3733) or to
any other cause of action brought by the United
States relating to fraud or false statements.
SEC. 106. PREEMPTION AND ELECTION OF STATE NON-
APPLICABILITY.
(a) PREEMPTION.—Subject to subsection (b), this
title preempts the laws of any State to the extent that
State laws are inconsistent with this title.
(b) ELECTION OF STATE REGARDING NONAPPLICA-
BILITY.—This title does not apply to any action in a State
court against a small business in which all parties are citi-
zens of the State, if the State enacts a statute—
(1) citing the authority of this subsection;
(2) declaring the election of such State that this
title does not apply as of a date certain to such ac-
tions in the State; and
(3) containing no other provision.
TITLE II—PRODUCT SELLER
FAIR TREATMENT
SEC. 201. FINDINGS; PURPOSES.
(a) FINDINGS.—Congress finds that—
(1) although damage awards in product liability
actions may encourage the production of safer prod-
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8 of article I of the United States Constitution, are to
promote the free flow of goods and services and lessen the
burdens on interstate commerce, by—
(1) establishing certain uniform legal principles
of product liability that provide a fair balance among
the interests of all parties in the chain of production,
distribution, and use of products; and
(2) reducing the unacceptable costs and delays
in product liability actions caused by excessive litiga-
tion that harms both plaintiffs and defendants.
SEC. 202. DEFINITIONS.
In this title:
(1) ALCOHOL
PRODUCT.—The term ‘‘alcohol
product’’ includes any product that contains not less
than 1⁄2 of 1 percent of alcohol by volume and is in-
tended for human consumption.
(2) CLAIMANT.—The term ‘‘claimant’’ means
any person who brings an action covered by this title
and any person on whose behalf such an action is
brought. If such an action is brought through or on
behalf of an estate, the term includes the claimant’s
decedent. If such an action is brought through or on
behalf of a minor or incompetent, the term includes
the claimant’s legal guardian.
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(3) COMMERCIAL LOSS.—The term ‘‘commercial
loss’’ means—
(A) any loss or damage solely to a product
itself;
(B) loss relating to a dispute over the
value of a product; or
(C) consequential economic loss, the recov-
ery of which is governed by applicable State
commercial or contract laws that are similar to
the Uniform Commercial Code.
(4) 
COMPENSATORY
DAMAGES.—The 
term
‘‘compensatory damages’’ means damages awarded
for economic and noneconomic losses.
(5) 
DRAM-SHOP.—The 
term 
‘‘dram-shop’’
means a drinking establishment where alcoholic bev-
erages are sold to be consumed on the premises.
(6) ECONOMIC
LOSS.—The term ‘‘economic
loss’’ means any pecuniary loss resulting from harm
(including the loss of earnings or other benefits re-
lated to employment, medical expense loss, replace-
ment services loss, loss due to death, burial costs,
and loss of business or employment opportunities)
to the extent recovery for that loss is allowed under
applicable State law.
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(7) HARM.—The term ‘‘harm’’ means any phys-
ical injury, illness, disease, or death or damage to
property caused by a product. The term does not in-
clude commercial loss.
(8) MANUFACTURER.—The term ‘‘manufac-
turer’’ means—
(A) any person who—
(i) is engaged in a business to
produce, create, make, or construct any
product (or component part of a product);
and
(ii)(I) designs or formulates the prod-
uct (or component part of the product); or
(II) has engaged another person to
design or formulate the product (or compo-
nent part of the product);
(B) a product seller, but only with respect
to those aspects of a product (or component
part of a product) that are created or affected
when, before placing the product in the stream
of commerce, the product seller—
(i) produces, creates, makes, con-
structs and designs, or formulates an as-
pect of the product (or component part of
the product) made by another person; or
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(ii) has engaged another person to de-
sign or formulate an aspect of the product
(or component part of the product) made
by another person; or
(C) any product seller not described in
subparagraph (B) that holds itself out as a
manufacturer to the user of the product.
(9) NONECONOMIC
LOSS.—The term ‘‘non-
economic loss’’ means loss for physical or emotional
pain, suffering, inconvenience, physical impairment,
mental anguish, disfigurement, loss of enjoyment of
life, loss of society and companionship, loss of con-
sortium (other than loss of domestic service), injury
to reputation, or any other nonpecuniary loss of any
kind or nature.
(10) PERSON.—The term ‘‘person’’ means any
individual, corporation, company, association, firm,
partnership, society, joint stock company, or any
other entity (including any governmental entity).
(11) PRODUCT.—
(A) IN
GENERAL.—The term ‘‘product’’
means any object, substance, mixture, or raw
material in a gaseous, liquid, or solid state
that—
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(i) is capable of delivery itself or as an
assembled whole, in a mixed or combined
state, or as a component part or ingre-
dient;
(ii) is produced for introduction into
trade or commerce;
(iii) has intrinsic economic value; and
(iv) is intended for sale or lease to
persons for commercial or personal use.
(B) EXCLUSION.—The term ‘‘product’’
does not include—
(i) tissue, organs, blood, and blood
products used for therapeutic or medical
purposes, except to the extent that such
tissue, organs, blood, and blood products
(or the provision thereof) are subject,
under applicable State law, to a standard
of liability other than negligence; or
(ii) electricity, water delivered by a
utility, natural gas, or steam.
(12) PRODUCT LIABILITY ACTION.—
(A) GENERAL RULE.—Except as provided
in subparagraph (B), the term ‘‘product liabil-
ity action’’ means a civil action brought on any
theory for a claim for any physical injury, ill-
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ness, disease, death, or damage to property that
is caused by a product.
(B) The following claims are not included
in the term ‘‘product liability action’’:
(i) NEGLIGENT
ENTRUSTMENT.—A
claim for negligent entrustment.
(ii) NEGLIGENCE
PER
SE.—A claim
brought under a theory of negligence per
se.
(iii) DRAM-SHOP.—A claim brought
under a theory of dram-shop or third-party
liability arising out of the sale or providing
of an alcoholic product to an intoxicated
person or minor.
(13) PRODUCT SELLER.—
(A) IN GENERAL.—The term ‘‘product sell-
er’’ means a person who in the course of a busi-
ness conducted for that purpose—
(i) sells, distributes, rents, leases, pre-
pares, blends, packages, labels, or other-
wise is involved in placing a product in the
stream of commerce; or
(ii) installs, repairs, refurbishes, re-
conditions, or maintains the harm-causing
aspect of the product.
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(B) EXCLUSION.—The term ‘‘product sell-
er’’ does not include—
(i) a seller or lessor of real property;
(ii) a provider of professional services
in any case in which the sale or use of a
product is incidental to the transaction and
the essence of the transaction is the fur-
nishing of judgment, skill, or services; or
(iii) any person who—
(I) acts in only a financial capac-
ity with respect to the sale of a prod-
uct; or
(II) leases a product under a
lease arrangement in which the lessor
does not initially select the leased
product and does not during the lease
term ordinarily control the daily oper-
ations and maintenance of the prod-
uct.
(14) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands,
Guam, American Samoa, the Northern Mariana Is-
lands, any other territory or possession of the
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United States, or any political subdivision of any
such State, commonwealth, territory, or possession.
SEC. 203. APPLICABILITY; PREEMPTION.
(a) APPLICABILITY.—
(1) IN GENERAL.—Except as provided in para-
graph (2), this title governs any product liability ac-
tion brought in any Federal or State court.
(2) ACTIONS FOR COMMERCIAL LOSS.—A civil
action brought for commercial loss shall be governed
only by applicable State commercial or contract laws
that are similar to the Uniform Commercial Code.
(b) RELATIONSHIP TO STATE LAW.—This title su-
persedes a State law only to the extent that the State law
applies to an issue covered by this title. Any issue that
is not governed by this title, including any standard of
liability applicable to a manufacturer, shall be governed
by any applicable Federal or State law.
(c) EFFECT ON OTHER LAW.—Nothing in this title
shall be construed to—
(1) waive or affect any defense of sovereign im-
munity asserted by any State under any State law;
(2) supersede or alter any Federal law;
(3) waive or affect any defense of sovereign im-
munity asserted by the United States;
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(4) affect the applicability of any provision of
chapter 97 of title 28, United States Code;
(5) preempt State choice-of-law rules with re-
spect to claims brought by a foreign nation or a cit-
izen of a foreign nation;
(6) affect the right of any court to transfer
venue or to apply the law of a foreign nation or to
dismiss a claim of a foreign nation or of a citizen
of a foreign nation on the ground of inconvenient
forum; or
(7) supersede or modify any statutory or com-
mon law, including any law providing for an action
to abate a nuisance, that authorizes a person to in-
stitute an action for civil damages or civil penalties,
cleanup costs, injunctions, restitution, cost recovery,
punitive damages, or any other form of relief, for re-
mediation of the environment (as defined in section
101(8) of the Comprehensive Environmental Re-
sponse, Compensation, and Liability Act of 1980 (42
U.S.C. 9601(8))).
SEC. 204. LIABILITY RULES APPLICABLE TO PRODUCT
SELLERS, RENTERS, AND LESSORS.
(a) GENERAL RULE.—
(1) IN GENERAL.—In any product liability ac-
tion covered under this title, a product seller other
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than a manufacturer shall be liable to a claimant
only if the claimant establishes that—
(A)(i) the product that allegedly caused the
harm that is the subject of the complaint was
sold, rented, or leased by the product seller;
(ii) the product seller failed to exercise rea-
sonable care with respect to the product; and
(iii) the failure to exercise reasonable care
was a proximate cause of the harm to the
claimant;
(B)(i) the product seller made an express
warranty applicable to the product that alleg-
edly caused the harm that is the subject of the
complaint, independent of any express warranty
made by a manufacturer as to the same prod-
uct;
(ii) the product failed to conform to the
warranty; and
(iii) the failure of the product to conform
to the warranty caused the harm to the claim-
ant; or
(C)(i) the product seller engaged in inten-
tional wrongdoing, as determined under applica-
ble State law; and
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(ii) the intentional wrongdoing caused the
harm that is the subject of the complaint.
(2) REASONABLE
OPPORTUNITY
FOR
INSPEC-
TION.—For purposes of paragraph (1)(A)(ii), a
product seller shall not be considered to have failed
to exercise reasonable care with respect to a product
based upon an alleged failure to inspect the product,
if—
(A) the failure occurred because there was
no reasonable opportunity to inspect the prod-
uct; or
(B) the inspection, in the exercise of rea-
sonable care, would not have revealed the as-
pect of the product that allegedly caused the
claimant’s harm.
(b) SPECIAL RULE.—
(1) IN
GENERAL.—A product seller shall be
deemed to be liable as a manufacturer of a product
for harm caused by the product, if—
(A) the manufacturer is not subject to
service of process under the laws of any State
in which the action may be brought; or
(B) the court determines that the claimant
is or would be unable to enforce a judgment
against the manufacturer.
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(2) STATUTE OF LIMITATIONS.—For purposes
of this subsection only, the statute of limitations ap-
plicable to claims asserting liability of a product sell-
er as a manufacturer shall be tolled from the date
of the filing of a complaint against the manufacturer
to the date that judgment is entered against the
manufacturer.
(c) RENTED OR LEASED PRODUCTS.—
(1) DEFINITION.—For purposes of paragraph
(2), and for determining the applicability of this title
to any person subject to that paragraph, the term
‘‘product liability action’’ means a civil action
brought on any theory for harm caused by a product
or product use.
(2) LIABILITY.—Notwithstanding any other
provision of law, any person engaged in the business
of renting or leasing a product (other than a person
excluded from the definition of product seller under
section 202(13)(B)) shall be subject to liability in a
product liability action under subsection (a), but any
person engaged in the business of renting or leasing
a product shall not be liable to a claimant for the
tortious act of another solely by reason of ownership
of that product.