VICTOR E. SCHWARTZ: GENERAL COUNSEL DISCUSSES THE PAST AND FUTURE OF PRODUCT LIABILITY REFORM

The words "product liability reform" and the name Victor E. Schwartz are almost synonymous.

Mr. Schwartz, general counsel of the Product Liability Coordinating Committee, has been advocating reform since his days as chairman of the U.S. Commerce Department's Task Force on Product Liability and Accident Compensation during the Carter administration.

He also is a former law professor at the University of Cincinnati and currently a partner in the Washington law firm Crowell & Moring.

Mr. Schwartz, 57, recently discussed the past, present and future of the product liability reform effort with Washington Editor Mark A. Hofmann.

Are we any closer to the enactment of reform legislation than we were when the reform movement began nearly 20 years ago?

I think we're closer for several basic reasons. First, President Clinton has indicated that he would sign reasonable reform.

Maybe more importantly this time is that the Congress has taken a cooperative view, and it's striking. Last time, a bill was introduced in the House and people who wanted more reforms wanted a stronger bill and moved the bill to make it stronger and better, but it was moving it away from where a Democratic president was and (away from) his constituency. This time, a bill was introduced in the Senate. When it was marked up, a number of changes were made to accommodate the president's veto. The members read the veto message and made changes.

The business community, which is never going to be one -- it can't be, (business interests) vary like the colors of the rainbow -- is more in harmony with itself than it was in the last Congress. Among the things the trial lawyers do to kill bills, one that the business community is directly responsible for, is divide and conquer. The fact that the business community is closer together helps.

In sum, you have the president say, "Yes, I will sign a reasonable bill." I accept that he's speaking in good faith; he did sign the General Aviation Recovery Act of 1994. This may be another reason. The fact is that GARA bill of 1994 was successful. And President Clinton, and all politicians, like success.

Here you have a laboratory animal, so to speak, in the crucible of federal product liability law -- and it worked.

All that will make this a little bit different year. I'm not suggesting here it is, we finally are there. I am hopeful we are there.

Why has reform failed so many times?

The stars have not been aligned right. When you had Reagan and Bush, you had Republican presidents who would sign the bill and Democratic Congresses where the leadership would not let the bill fly.

I think all of us in the business community are fooled, just the way sometimes Charlie Brown is fooled again and again when Lucy picks up the football at the last minute, by the trial lawyers' No. 1 weapon, which is delay is denial. If somebody simply says we want you to delay something, it's easy to resist that. But delay often comes in very attractive clothing. One year we got bogged down for two months because we were told the consumer groups wanted to make a deal.

The consumer groups then met with Rep. (Henry) Waxman, D-Calif. He told them it was a mistake to have an agreement, and the whole thing fell apart. Whether that was planned from the beginning, I don't know. But this I do know -- delay is denial.

Even now, I am hopeful that the White House initiative is real. Rep. John Dingell, D-Mich., and Sen. John D. Rockefeller IV, D-W.Va., helped place this in motion. My fear is this is another delay-is-denial thing, so that we spin our wheels, we get into 1998 and things plummet.

Finally, when you have legislation that has as much change as this legislation does, it is naive to think it will be done in a year or even five years.

From the time we had a republic, tort law -- product liability being part of it -- was made up by judges. The power to make tort law was delegated by the state legislatures to the courts. The state legislatures retrieved lawmaking in virtually every other area. But the law of torts stayed with the courts.

All of the sudden, in 1981, we come along and say there should be a federal product liability law.

So your argument is why should any legislature -- state or federal -- get into this area? So you have to make the argument as to why a legislature should do this. I believe one reason is when there are things that affect what we eat, what medicines we take, how much we pay for stuff, it's a public policy issue as much as taxes.

That's Step A. Step B is why should the federal government get involved? The last time before enacting the General Aviation Act in 1994 that Congress got involved in making tort law in any significant way was with the Federal Employers Liability Act of 1909. So you then have to justify, if a legislature is to do it all, why the federal government is to do it. Then, and only then, you get to the issue that's discussed in the press, which is content.

In this 20 years, we've had three mountains to climb. Should a legislature do it at all? Should it be the federal legislature? And only then, content. Most federal legislation only has one mountain -- content.

Why has the trial bar been so successful in blocking reform? Can businesses learn anything from the trial bar?

I think they can. I think the trial bar has been absolutely unified even though (its members) have differences. On a public front, they've shown absolute unanimity.

Second, when the clarion call goes out, they act like they're 2 million people. There's only 58,000 members of ATLA. I've been told back in July that there were bushels of letters in the White House, telling the president to oppose this bill.

Do you ever see Congress passing product liability legislation? What changes have reform proponents made in their positions over the past 20 years? Is watering down the proposal acceptable?

I don't think watering down is acceptable. I think what is acceptable is to have whatever's in the bill to improve things for the public at large.

It's interesting what we took out and what we put in. When this effort began, the emphasis was on standards of liability for manufacturers: Liability for design, failure to warn or mismanufactured products. In 1990, those things were taken out of the bill because the courts, I think, heard the message from the federal government. A lot of legal literature was produced by this effort. The core of the early Kasten bills (product liability reforms introduced annually since 1981 by Sen. Robert Kasten, R-Wis.) in a sense became law by courts.

Two areas that were added and changed were, first, addressing joint liability. Joint liability was not in the bills until about seven or eight years ago. Politically, it does concern people to have somebody whom a jury thinks is 2%at fault or 10%at fault or 20%at fault bear everything.

Second, to try to put some limits on the amount of punitive damages. That was not in the bill until the last Congress.

Was there a moment when product liability legislation could have been enacted but the opportunity was squandered?

There has been more than one moment. I think that when the Republicans controlled the Senate in 1986 and you had a Republican president, the bill should have become law. But there was delay and delay and delay, people hoping more could be put in the bill.

1986 was the most important golden moment that I know about. If the bill had come out of the Senate, we could have mustered a majority in the House, we probably could have pulled the bill out of the Judiciary Committee. We would have had the momentum because you had the president of the United States and the Senate with a message. But delay squandered the opportunity.

The other opportunity was the one I spoke about earlier, when there was agreement between the business community and the consumer community, but I don't know if there is anything we could have done about it because Rep. Waxman and the consumer groups decided to reverse positions.

Which president was most sympathetic to the cause of federal product liability reform?

George Herbert Walker Bush. George Bush actually had an interest in the topic. When he would go out on the campaign trail he would throw that in and he would always get good applause.

The second most sympathetic administration is going to surprise you, in terms of importance, and it was Jimmy Carter. We wouldn't be here if it wasn't for President Carter -- absolutely not. President Carter first allowed the federal product liability task force, which begun under Ford, to continue its work. President Carter approved of the Uniform Product Liability Act, which was model legislation for the states. But when it was put out, the Carter administration said: We'll try to do this at the state level, but if it can't be done at the state level -- which was shown to be correct, because each state went its own way and treated UPLA like some shopping list -- President Carter and his consumer people and his secretaries of commerce were the ones who were instrumental in seeing this was a public policy issue.

Has there been any change in the makeup of the pro-reform forces over the past 20 years?

In the beginning, you had just a few groups. It was trade association-oriented.

Now you have a very major entry by small business. In the past two years, the National Federation of Independent Business has gotten much more interested in this bill. The addition of NFIB and its 600,000 members is the most important thing politically on our side.

Secondly, you had a new group evolve called the Civil Justice Reform Group. These are larger businesses, and they've taken an interest in it.

Finally, I think the creation of the Product Liability Coordinating Committee is very important because it brought under one roof a lot of people who were separate. There's still pantheism in the world of product liability. But you went closer to monotheism with the development of the PLCC.

If a uniform product liability code is enacted, what is the next legal area businesses should tackle?

I think trying to find some standards across the board for punitive damages. I do think the punitive damage system desperately needs reform, way beyond the products area. Many of the awards are in areas other than in product liability and I do think it has an impact on all of us.

You need punitive damages. I don't think you have to destroy them -- they have their place. But right now they don't separate the dolphins from the tuna.

One of the most egregious things is multiple imposition of punitive damages for the same conduct. Punishing somebody again and again and again for the same wrong, driving a company out of business before people have compensatory damages.

Do you think it is a mistake that juries and not judges decide product liability cases?

Absolutely not -- I believe in the jury system. The problem has been that jurors have not received good guidelines. Jurors can only be as good as the instructions they are given.

It probably isn't well known that the genesis of the Risk Retention Act was a report you produced in the late 1970s recommending that buyers have a new alternative -- risk retention groups -- to the commercial insurance market. Today, only about 70 RRGs are doing business. Why are there so few? Does the small number indicate that the Risk Retention Act is a failure?

I don't think the Risk Retention Act was a failure. I think the Risk Retention Act accomplished what it was supposed to, and that was to make the commercial market competitive. Our idea was to have the industry be competitive.

Let's go back to 1978 when we drafted it. Ralph Nader and some of the consumer groups urged me to have federal regulation of insurance. I thought that was not a good idea. I thought it was politically impossible. Some in the insurance industry said to me, "It's all the tort system; you should know that. How can we set rates when no one knows what the rules are?"

But rates had been set without a database. So I thought, and people I worked with at the Department of Commerce thought, putting another competitive facilitator in the system would result in fair pricing.

The success of the Risk Retention Act has been that the commercial insurers have been fairer and used more market reality in their pricing.

I'll tell you one thing that surprised me, where I thought there would be more use of the risk retention groups and I was wrong. There's a second part of the Risk Retention Act that does not involve small businesses having to put capital in risk retention groups. It's called the purchasing group section, and that allows businesses to group together just like they would for health care insurance and buy liability insurance.

Where do you see yourself in 10 years?

In 10 years, I probably see myself in Florida some of the time. I want to always continue to work to the extent that God enables me to do so on public policy in the area of torts. The No. 1 thing I'm working on today is not federal product liability as public policy. It is to deal with the issue of legislatures vs. courts at the state level. I think there has been an invasion of the balance of powers between state courts and state legislatures.

As long as I'm alive, I'd like to work on issues that have a public policy benefit and help formulate reasonable public policy in this area.