Union Calendar No. 278
106TH CONGRESS
2D SESSION
H. R. 2366
[Report No. 106–494, Part I]
A BILL
To provide small businesses certain protections
from litigation excesses and to limit the product
liability of nonmanufacturer product sellers.
FEBRUARY 14, 2000
Committee on Commerce discharged; committed to the
Committee of the Whole House on the State of the
Union and ordered to be printed
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FEBRUARY 14, 2000
Committee on Commerce discharged; committed to the Committee of the
Whole House on the State of the Union and ordered to be printed
[For text of introduced bill, see copy of bill as introduced on June 25, 1999]
A BILL
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,
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.
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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;
(3) the spiralling costs of litigation and the mag-
nitude 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 gross-
ly excessive, so can it be grossly excessive in some cir-
cumstances for a party to be held responsible under
the doctrine of joint and several liability for damages
that party did not cause;
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(6) as a result of joint and several liability, enti-
ties 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 trans-
action 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 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 burdens
on interstate commerce, and decrease litigiousness;
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.
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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 accordance
with the terms of a lawfully issued prescription.
(3) ECONOMIC LOSS.—The term ‘‘economic loss’’
means any pecuniary loss resulting from harm (in-
cluding the loss of earnings or other benefits related
to employment, medical expense loss, replacement
services loss, loss due to death, burial costs, and loss
of business or employment opportunities) to the extent
recovery for such loss is allowed under applicable
State law.
(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).
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(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 consor-
tium (other than loss of domestic service), injury to
reputation, or any other nonpecuniary loss of any
kind or nature.
(8) PERSON.—The term ‘‘person’’ means any in-
dividual, corporation, company, association, firm,
partnership, society, joint stock company, or any
other entity (including any governmental entity).
(9) 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 determined
on the date the civil action involving the small
business is filed.
(B) CALCULATION OF NUMBER OF EMPLOY-
EES.—For purposes of subparagraph (A), the
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number of employees of a subsidiary of a wholly
owned corporation includes the employees of—
(i) a parent corporation; and
(ii) any other subsidiary corporation
of that parent corporation.
(10) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, the Com-
monwealth of Puerto Rico, the Virgin Islands, Guam,
American Samoa, the Northern Mariana Islands, any
other territory or possession of the United States, or
any political subdivision of any such State, common-
wealth, 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 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.
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(b) LIMITATION ON AMOUNT.—In any civil action
against a small business, punitive damages shall not exceed
the lesser of—
(1) 3 times the total amount awarded to the
claimant for economic and noneconomic losses; or
(2) $250,000.
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)—
(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
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(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 pur-
poses of determining the amount of noneconomic loss
allocated to a defendant under this section, the trier
of fact shall determine the percentage of responsibility
of each person responsible for the harm to the claim-
ant, 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;
(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—
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(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 appli-
cable 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
(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.
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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-
ucts, they may also have a direct effect on interstate
commerce and consumers of the United States by in-
creasing the cost of, and decreasing the availability
of, products;
(2) some of the rules of law governing product li-
ability actions are inconsistent within and among the
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States, resulting in differences in State laws that may
be inequitable with respect to plaintiffs and defend-
ants and may impose burdens on interstate com-
merce;
(3) product liability awards may jeopardize the
financial well-being of individuals and industries,
particularly the small businesses of the United States;
(4) because the product liability laws of a State
may have adverse effects on consumers and businesses
in many other States, it is appropriate for the Fed-
eral Government to enact national, uniform product
liability laws that preempt State laws; and
(5) under clause 3 of section 8 of article I of the
United States Constitution, it is the constitutional
role of the Federal Government to remove barriers to
interstate commerce.
(b) PURPOSES.—The purposes of this title, based on
the powers of the United States under clause 3 of section
8 of article I of the United States Constitution, are to pro-
mote the free flow of goods and services and lessen the bur-
dens 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
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(2) reducing the unacceptable costs and delays in
product liability actions caused by excessive litigation
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.
(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 recovery
of which is governed by applicable State com-
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mercial or contract laws that are similar to the
Uniform Commercial Code.
(4) COMPENSATORY DAMAGES.—The term ‘‘com-
pensatory damages’’ means damages awarded for eco-
nomic and noneconomic losses.
(5) DRAM-SHOP.—The term ‘‘dram-shop’’ means
a drinking establishment where alcoholic beverages
are sold to be consumed on the premises.
(6) ECONOMIC LOSS.—The term ‘‘economic loss’’
means any pecuniary loss resulting from harm (in-
cluding the loss of earnings or other benefits related
to employment, medical expense loss, replacement
services loss, loss due to death, burial costs, and loss
of business or employment opportunities) to the extent
recovery for that loss is allowed under applicable
State law.
(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 ‘‘manufacturer’’
means—
(A) any person who—
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(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 de-
sign or formulate the product (or component
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 com-
merce, the product seller—
(i) produces, creates, makes, constructs
and designs, or formulates an aspect of the
product (or component part of the product)
made by another person; or
(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 sub-
paragraph (B) that holds itself out as a manu-
facturer to the user of the product.
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(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 consor-
tium (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—
(i) is capable of delivery itself or as an
assembled whole, in a mixed or combined
state, or as a component part or ingredient;
(ii) is produced for introduction into
trade or commerce;
(iii) has intrinsic economic value; and
(iv) is intended for sale or lease to per-
sons for commercial or personal use.
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(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 tis-
sue, organs, blood, and blood products (or
the provision thereof) are subject, under ap-
plicable 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 liability
action’’ means a civil action brought on any the-
ory for a claim for any physical injury, illness,
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.
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(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 otherwise
is involved in placing a product in the
stream of commerce; or
(ii) installs, repairs, refurbishes, recon-
ditions, or maintains the harm-causing as-
pect of the product.
(B) EXCLUSION.—The term ‘‘product seller’’
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—
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(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 or-
dinarily control the daily operations
and maintenance of the product.
(14) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, the Com-
monwealth of Puerto Rico, the Virgin Islands, Guam,
American Samoa, the Northern Mariana Islands, any
other territory or possession of the United States, or
any political subdivision of any such State, common-
wealth, 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.
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tute 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 SELL-
ERS, RENTERS, AND LESSORS.
(a) GENERAL RULE.—
(1) IN GENERAL.—In any product liability ac-
tion covered under this title, a product seller other
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 claim-
ant;
(B)(i) the product seller made an express
warranty applicable to the product that allegedly
caused the harm that is the subject of the com-
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plaint, independent of any express warranty
made by a manufacturer as to the same product;
(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 claimant;
or
(C)(i) the product seller engaged in inten-
tional wrongdoing, as determined under applica-
ble State law; and
(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 prod-
uct seller shall not be considered to have failed to ex-
ercise 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 product;
or
(B) the inspection, in the exercise of reason-
able care, would not have revealed the aspect of
the product that allegedly caused the claimant’s
harm.
(b) SPECIAL RULE.—
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(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 serv-
ice 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.
(2) STATUTE OF LIMITATIONS.—For purposes of
this subsection only, the statute of limitations appli-
cable to claims asserting liability of a product seller
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 manufac-
turer.
(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 pro-
vision of law, any person engaged in the business of
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renting or leasing a product (other than a person ex-
cluded from the definition of product seller under sec-
tion 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.
SEC. 205. FEDERAL CAUSE OF ACTION PRECLUDED.
The district courts of the United States shall not have
jurisdiction under this title based on section 1331 or 1337
of title 28, United States Code.
TITLE III—EFFECTIVE DATE
SEC. 301. EFFECTIVE DATE.
This Act shall take effect with respect to any civil ac-
tion commenced after the date of enactment of this Act with-
out regard to whether the harm that is the subject of the
action occurred before such date.