I
105TH CONGRESS
2D SESSION
H. R. 3382
To offer small businesses certain protections from litigation excesses.
IN THE HOUSE OF REPRESENTATIVES
MARCH 5, 1998
Mr. INGLIS of South Carolina (for himself and Mr. CONDIT, Mrs. MYRICK,
Mr. SMITH of New Jersey, Mr. SHAYS, Mr. GOODE, Mr. SENSEN-
BRENNER, Mr. BARR of Georgia, Mr. BURR of North Carolina, Mr.
MCHUGH, Mr. GALLEGLY, and Mr. NORWOOD) introduced the following
bill; which was referred to the Committee on the Judiciary
A BILL
To offer small businesses certain protections from litigation
excesses.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
This Act may be cited as the ‘‘Small Business Law-
suit Abuse Protection Act of 1998’’.
SEC. 2. FINDINGS.
Congress finds that—
(1) the United States civil justice system is in-
efficient, unpredictable, unfair, costly, and impedes
competitiveness in the marketplace for goods, serv-
ices, business, and employees;
(2) the defects in the civil justice system have
a direct and undesirable effect on interstate com-
merce by decreasing the availability of goods and
services in commerce;
(3) there is a need to restore rationality, cer-
tainty, and fairness to the legal system;
(4) 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;
(5) 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;
(6) just as punitive damage awards can be
grossly excessive, so can it be grossly excessive in
some circumstances for a party to be held respon-
sible under the doctrine of joint and several liability
for damages that party did not cause;
(7) 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;
(8) the costs imposed by the civil justice system
on small businesses are particularly acute, since
small businesses often lack the resources to bear
those costs and to challenge unwarranted lawsuits;
(9) due to high liability costs and unwarranted
litigation costs, small businesses face higher costs in
purchasing insurance through interstate insurance
markets to cover their activities; and
(10) liability reform for small businesses will
promote the free flow of goods and services, lessen
burdens on interstate commerce, and decrease liti-
giousness.
SEC. 3. CONSTITUTIONAL AUTHORITY.
The provisions of this Act are an appropriate
exercise of Congress’ powers under Article I, section
8, clauses 3, 9, and 18 of the Constitution, and the
fourteenth amendment to the Constitution.
SEC. 4. LIMITATION ON PUNITIVE DAMAGES FOR SMALL
BUSINESSES.
(a) GENERAL RULE.—Except as provided in section
6, in any civil action against a small business, punitive
damages may, to the extent permitted by applicable State
law, be awarded against the small business only if the
claimant establishes by clear and convincing evidence that
conduct carried out by that defendant through willful mis-
conduct or with a conscious, flagrant indifference to the
rights or safety of others was the proximate cause of the
harm that is the subject of the action.
(b) LIMITATION ON AMOUNT.—In any civil action
against a small business, punitive damages shall not ex-
ceed the lesser of—
(1) two times the total amount awarded to the
claimant for economic and noneconomic losses; or
(2) $250,000.
(c) APPLICATION BY COURT.—This section shall be
applied by the court and shall not be disclosed to the jury.
SEC. 5. SEVERAL LIABILITY FOR NONECONOMIC LOSS FOR
SMALL BUSINESSES.
(a) GENERAL RULE.—Except as provided in section
6, in any civil action against a small business, the liability
of each defendant that is a small business, or the agent
of a small business, for noneconomic loss shall be deter-
mined in accordance with subsection (b).
(b) AMOUNT OF LIABILITY.—
(1) IN GENERAL.—In any civil action described
in subsection (a)—
(A) each defendant described in that sub-
section shall be liable only for the amount of
noneconomic loss allocated to that defendant in
direct proportion to the percentage of respon-
sibility of that defendant (determined in accord-
ance with paragraph (2)) for the harm to the
claimant with respect to which the defendant is
liable; and
(B) the court shall render a separate judg-
ment against each defendant described in that
subsection in an amount determined pursuant
to subparagraph (A).
(2) PERCENTAGE
OF
RESPONSIBILITY.—For
purposes of determining the amount of noneconomic
loss allocated to a defendant under this section, the
trier of fact shall determine the percentage of 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. 6. EXCEPTIONS TO LIMITATIONS ON LIABILITY.
The limitations on liability under sections 4 and 5
do not apply to any misconduct of a defendant—
(1) that constitutes—
(A) a crime of violence;
(B) an act of international terrorism; or
(C) a hate crime;
(2) that involves—
(A) a sexual offense, as defined by applica-
ble State law; or
(B) a violation of a Federal or State civil
rights law; or
(3) if the defendant was under the influence (as
determined pursuant to applicable State law) of in-
toxicating alcohol or a drug at the time of the mis-
conduct, and the fact that the defendant was under
the influence was the cause of any harm alleged by
the plaintiff in the subject action.
SEC. 7. PREEMPTION AND ELECTION OF STATE NON-
APPLICABILITY.
(a) PREEMPTION.—Subject to subsection (b), this
Act preempts the laws of any State to the extent that
State laws are inconsistent with this Act, except that this
Act shall not preempt any State law that provides addi-
tional protections from liability for small businesses.
(b) 
ELECTION
OF
STATE
REGARDING
NON-
APPLICABILITY.—This Act does not apply to any action
in a State court against a small business in which all par-
ties are citizens of the State, if the State enacts a stat-
ute—
(1) citing the authority of this subsection;
(2) declaring the election of such State that this
Act does not apply as of a date certain to such ac-
tions in the State; and
(3) containing no other provision.
SEC. 8. DEFINITIONS.
For purposes of this Act:
(1) ACT OF INTERNATIONAL TERRORISM.—The
term ‘‘act of international terrorism’’ has the same
meaning as in section 2331 of title 18, United
States Code.
(2) CRIME OF VIOLENCE.—The term ‘‘crime of
violence’’ has the same meaning as in section 16 of
title 18, United States Code.
(3) DRUG.—The term ‘‘drug’’ means any con-
trolled substance as that term is defined in section
102 of the Controlled Substances Act (21 U.S.C.
802(b)) that was not legally prescribed for use by
the defendant or that was taken by the defendant
other than in accordance with the terms of a law-
fully issued prescription.
(4) 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.
(5) HARM.—The term ‘‘harm’’ includes phys-
ical, nonphysical, economic, and noneconomic losses.
(6) HATE
CRIME.—The term ‘‘hate crime’’
means a crime described in section 1(b) of the Hate
Crime Statistics Act (28 U.S.C. 534 note).
(7) NONECONOMIC LOSSES.—The term ‘‘non-
economic losses’’ means losses for physical and emo-
tional pain, suffering, inconvenience, physical im-
pairment, mental anguish, disfigurement, loss of en-
joyment of life, loss of society and companionship,
loss of consortium (other than loss of domestic serv-
ice), injury to reputation, and all other nonpecuniary
losses of any kind or nature.
(8) 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
less than 50 full-time employees.
(B) CALCULATION
OF
NUMBER
OF
EM-
PLOYEES.—For purposes of subparagraph (A),
the number of employees of a subsidiary of a
wholly-owned corporation includes the employ-
ees of—
(i) a parent corporation; and
(ii) any other subsidiary corporation
of that parent corporation.
(9) 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, territory, or possession.
SEC. 9. EFFECTIVE DATE.
(a) IN GENERAL.—This Act shall take effect 90 days
after the date of enactment of this Act.
(b) APPLICATION.—This Act applies to any claim for
harm caused by an act or omission of a small business,
if the claim is filed on or after the effective date of this
Act, without regard to whether the harm that is the sub-
ject of the claim or the conduct that caused the harm oc-
curred before such effective date.
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