Practice Tip: Product Liability Litigation

Why is there such a difference in the volume of litigation found in the United States, as compared with Canada and the UK? The answer lies in part with the incentives and disincentives that exist to file a lawsuit in each of these respective countries, and in part with the discovery rules designed to encourage or dissuade such litigation. In order to determine whether there is something the United States can learn from our northern neighbors and friends across the pond, this article takes a brief look at some of the disincentives and rules employed in the UK and Canada to dissuade litigation and forge compromise.

The Incentive to Sue

In some ways the United States judicial system has become like high-stakes gambling. The only difference is that in this system you can make a minimal bet and recover unlimited sums of money. In 1999 the average award for a product liability action in the United States was $3,045,908. Reimann, at 807. Between 1993 and 1999, the maximum award rose from $19 million to $285 million and the mean grew from $1.4 million to $3.0 million. Id. These awards are composed largely of non-pecuniary damages, which include damages for the loss of enjoyment of life and pain and suffering. Sonia L. Bjorkquist, Products Liability in Canada: Principles and Practice North of the Border, 27 Wm. Mitchell L. Rev. 177, 204 (2000) (citing Interagency Task Force on Product Liability, Final Report (1977), P. VII-64).

In contrast, it is rare for a country other than the United States to award a plaintiff more than $300,000 for non-pecuniary damages. Reimann, at 809. Probably the most significant difference between the United States and Canada is the cap the Canadian Supreme Court has placed on non-pecuniary damages. In Andrews v. Grand & Toy Alberta Ltd., a case involving a 21-year-old man who was rendered a quadriplegic as a result of a traffic accident, the Supreme Court of Canada created a cap on non-pecuniary damages of Can. $100,000. Andrews v. Grand & Toy Alta. Ltd., [1978] 2 S.C.R. 229 at 262, 263 and 265. The cap, which is adjusted annually according to the consumer price index, was approximately Can. $324,000 in 2010 (U.S. $341,447). Global Legal Group, The International Comparative Legal Guide to: Product Liability 2010, Chapter 17, Pg. 117. The Canadian Supreme Court's rationale for limiting Mr. Andrews's non-pecuniary award to $100,000 is as follows:

[I]f damages for non-pecuniary loss are viewed from a functional perspective, it is reasonable that large amounts should not be awarded once a person is properly provided for in terms of future care for his injuries and disabilities ' The amounts of such awards should not vary greatly from one part of the country to another. Everyone in Canada, wherever he may reside, is entitled to a more or less equal measure of compensation for similar non-pecuniary loss. Id.

The benefits of such a cap to a product manufacturer can be appreciated when comparing and contrasting like matters in the United States and Canada. Consider a 1995 case where a Nevada jury awarded a plaintiff approximately $4 million plus $10 million in punitive damages for injuries sustained from leaking breast implants. Bjorkquist at 205 (See Dow Chem. Co v. Mahlum, 970 P.2d 98 (Nev. 1998), (although the punitive damage award was vacated on appeal)). That same year, in a case dealing with similar injuries, the Canadian Supreme Court affirmed a plaintiff's award of $100,000. Id. (See Dow Corning, [1995] 4 S.C.R. 634 at 635).

In addition to having a liberal view of non-pecuniary damages, the United States also has a much more expansive view of punitive damages than our foreign counterparts. In the UK, “punitive damages are rarely, if ever, awarded.” Global Legal Group, “The International Comparative Legal Guide to: Product Liability 2010″ Chapter 21, Pg. 148.

Rookes v. Barnard

, a 1963 decision of the House of Lords, limited the availability of 'exemplary' damages in the UK to three types of cases: first, cases in which the government or a government agent has acted in an 'oppressive, arbitrary, or unconstitutional' manner; second, cases in which it appears that 'the defendant has calculated that the profit to be made from a course of conduct is likely to exceed any compensation payable to the plaintiff'; and third, cases in which exemplary damages were already (prior to 1964) permitted by statute. Walpin at 660.

This approach may strike a good balance between the United States' presently broad view of punitive damages and the need to have some mechanism in place that punishes unethical and dangerous behavior.

Finally, in both Canada and the UK, juries are the exception when it comes to product liability cases. In Canada, an attorney may request a jury, but it is not a guarantee. Even when such a request is granted, the court may, at its discretion, dismiss the jury based upon the complexity of the issues. Bruce A. Thomas & Lawrence G. Theall, Products Liability and Innovation: A Canadian Perspective, 21 Can.-U.S. L.J. 313, 314 (1995). This is also the case in the UK, where the right to a jury in civil cases has been narrowed tremendously. Global Legal Group, “The International Comparative Legal Guide to: Product Liability 2010″ Chapter 21, Pg. 144. The United States has nearly the exact opposite rule. In the United States, litigants in product liability cases are practically guaranteed a trial by jury, despite the complexity of the subject matter. It can be argued that having lay jurors decide complicated product liability cases may, in large part, account for the excessive jury awards rendered in the United States. Presser, at 7.

The Fishing Expedition

The discovery rules in the United States make it easy to file a lawsuit and then go searching for the facts to support a claim. In fact, the United States has the most extensive discovery rights in the world. Reimann, at 817. Parties are liberally allowed to engage in depositions of parties and non-parties, written discovery, and the acquisition of often tangential and even irrelevant documents. The delay and cost associated with the rules of discovery in the United States are immense.

On the other hand, in the UK, which does not allow for pre-trial depositions, parties in litigation rely almost exclusively on a tailored exchange of documents. In 1999 “discovery” in the UK was renamed “disclosure” and the scope was substantially reduced. Gavin Foggo, Brett Harrison, Victor Jose Rodriquez-Barrera, Comparing E-Discovery in the United States, Canada, the UK, and Mexico, Committee on Commercial & Business Law Litigation, Section of Litigation, American Bar Association (newsletter, vol. 8, no. 4, Summer 2007).

Gone was the need to produce volumes of neutral background documents, as was the need to produce documents which did not themselves affect the issues in the case (but which could lead to a “train of enquiry” to potentially relevant documents). Instead, the disclosing party is now usually required only to undertake “standard disclosure” and produce the non-privileged documents: 1) on which it intends to rely; 2) which adversely affect its case or another party's case, or support another party's case; and 3) those required by a relevant practice direction. Id at 5.

This disclosure process is clearly much narrower than the discovery process in the United States, where a party must produce that which appears “reasonably calculated to lead to the discovery of admissible evidence.” Federal Rule of Civil Procedure 26(b)(1).

Likewise, Canada has a much narrower oral discovery regime than the United States. In Canada a corporate party is normally only obligated to produce a single knowledgeable representative for oral examination for discovery by an adverse party. Multiple depositions of different employees are not allowed. Sells Berkley, Litigation: Some Key Differences between Civil Litigation in Canada and the United States ' Part 2, Inside Counsel, April 28, 2011. Rules such as these could help curtail fishing expeditions here in the U.S., often pursued by overly eager plaintiff's attorneys searching for large contingency fees.

The contingency fee is another concept somewhat unique to the U.S. The UK does not allow for attorneys to be paid via a contingent fee agreement. Rather, the UK utilizes “conditional fees.” These are different from contingency fees, in that a “conditional fee” or “success fee” is one charged as a percentage of the lawyer's legal fees that have accrued throughout the course of the lawsuit. If the lawyer is successful and the plaintiff wins, then the lawyer will receive an agreed upon percentage of his or her normal legal fees as a type of bonus. If the claim is unsuccessful, the attorney will forego payment of his legal fees. To distinguish the conditional fee from the contingent fee, one should note that while a contingency arrangement gives an attorney a share in the client's damages ' a larger award yields a larger fee ' a conditional fee arrangement is a fixed uplift that is not affected by the degree to which a claim succeeds, only by the condition of success itself. Charles E. Hyde, Conditional Versus Contingent Fees: Litigation Expenditure Incentives. 26 Int'l Rev. L. & Econ. 180, 181 (2006).

Sue and Then Think? Or Think and Then Sue?

In the United States, there is little reason for a plaintiff not to pursue a questionable claim because the system allows for parties to sue now and ask questions later. There is little downside because even if a plaintiff is unable to develop facts to support a claim, he may still be able to negotiate a nuisance-value settlement or more. This is less likely to occur in the UK and Canada, where the losing party has to pay some of the winner's legal fees. This can be an expensive result, particularly without an award out of which to pay. Susan H. Easton, The Path for Japan?: An Examination of Product Liability Laws in The United States, The UK, and Japan, 23 B.C. Int't & Comp. L. Rev. 311, 329 (2000). Such an approach discourages the filing of non-meritorious claims and encourages early compromise, as litigation gets increasingly more risky the longer it ensues. Theresa M. Hottenroth, Lessons From Canada: A Prescription for Medical Liability Reform, 13 Wis. Int'l L.J. 285, 296 (1994).

Conclusion

Unlike many other areas of law, product liability litigation has implications beyond our borders and our court rooms. Globalization has leveled the playing field and created what Thomas Friedman refers to as a flat world. Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-First Century, 102 (Faraus, Straus and Giroux 2005). Business is global and unless the United States fosters a judicial system that promotes compromise and discourages litigation, United States manufacturers will be competing at a disadvantage relative to their Canadian and British counterparts, not to mention China, India and the rest of the world. There is no question that we in the United States have much to learn from Canada and the UK regarding how those jurisdictions administer justice in the product liability context. If anything, the world is shrinking, and with the onset of the global marketplace, product liability law is becoming internationalized. Accordingly, it is inevitable that the United States, UK and Canada, which already have a strong cultural connection, will impact and influence each other's legal systems.

Chris DePhillips, a member of this newsletter's Board of Editors, is a Principal of Porzio, Bromberg & Newman, and a Member of the Complex Tort Practice Group and the Governmental Affairs Group. Todd C. Richheimer is an associate at the firm, a member of its Litigation Practice Group.

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Abraham Lincoln once wrote, “Discourage litigation. Persuade your neighbors to compromise whenever you can '” Sage advice from one of our most esteemed leaders. Honest Abe talks about persuading one's neighbors to compromise, but what he fails to mention is how much we can actually learn from our neighbors when it comes to discouraging litigation and forging compromise. This is especially true in the world of product liability.

Product liability litigation in the United States exploded between 1975 and 1997. “In less than a quarter century, the annual number of [product liability] cases filed in federal courts alone rose from 2,393 to 32,856.” Mathias Reimann, Liability for Defective Products at the Beginning of the Twenty-First Century: Emergence of a Worldwide Standard, 51 Am. J. Comp. L. 751, 803 (2003). In the wake of this drastic increase, our legislative bodies and courts implemented varying degrees of tort reform. In 2003, probably in part due to this reform, the number of product liability cases filed in federal court had fallen to approximately 15,000 cases per year. Id. Approximately another 15,000 cases were filed in state court, making the total number of product liability cases filed in 2003 nearly 30,000. Id. This is approximately one product liability case for every 9,000 US inhabitants. Id.

Although recent statistics are difficult to obtain, it is clear that the amount of product liability litigation filed in the United States is unparalleled around the world. For example, as of 1995 there was approximately a 45-1 disparity in the number of product liability cases filed in the United States versus Canada. Bruce A. Thomas & Lawrence G. Theall, Products Liability and Innovation: A Canadian Perspective, 21 Can.-U.S. L.J. 313 (1995). Likewise, few lawyers in the UK can make a living from product liability law and only a few ever come across product liability cases. Reimann, at 805. In the United States, there were approximately 700 personal injury verdicts in excess of a $1 million in 1991. Gerald Walpin, America's Failing Civil Justice System: Can We Learn From Other Countries? 41 NYLSLR 647, 660 (1997). In the UK, there were approximately 40. Id. In 1996, Dow Chemical Corporation spent $1 on litigation for every $160 in sales in the United States. In Europe ' where there is no appreciable difference with regard to the types of products sold ' Dow spent one dollar on litigation for every $40,000 in sales. Stephen B. Presser, How Should the Law of Products Liability be Harmonized? What Americans Can Learn from Europeans, Global Liability Issues, FN 8, Vol. 2, February 2002.

Why is there such a difference in the volume of litigation found in the United States, as compared with Canada and the UK? The answer lies in part with the incentives and disincentives that exist to file a lawsuit in each of these respective countries, and in part with the discovery rules designed to encourage or dissuade such litigation. In order to determine whether there is something the United States can learn from our northern neighbors and friends across the pond, this article takes a brief look at some of the disincentives and rules employed in the UK and Canada to dissuade litigation and forge compromise.

The Incentive to Sue

In some ways the United States judicial system has become like high-stakes gambling. The only difference is that in this system you can make a minimal bet and recover unlimited sums of money. In 1999 the average award for a product liability action in the United States was $3,045,908. Reimann, at 807. Between 1993 and 1999, the maximum award rose from $19 million to $285 million and the mean grew from $1.4 million to $3.0 million. Id. These awards are composed largely of non-pecuniary damages, which include damages for the loss of enjoyment of life and pain and suffering. Sonia L. Bjorkquist, Products Liability in Canada: Principles and Practice North of the Border, 27 Wm. Mitchell L. Rev. 177, 204 (2000) (citing Interagency Task Force on Product Liability, Final Report (1977), P. VII-64).

In contrast, it is rare for a country other than the United States to award a plaintiff more than $300,000 for non-pecuniary damages. Reimann, at 809. Probably the most significant difference between the United States and Canada is the cap the Canadian Supreme Court has placed on non-pecuniary damages. In Andrews v. Grand & Toy Alberta Ltd., a case involving a 21-year-old man who was rendered a quadriplegic as a result of a traffic accident, the Supreme Court of Canada created a cap on non-pecuniary damages of Can. $100,000. Andrews v. Grand & Toy Alta. Ltd., [1978] 2 S.C.R. 229 at 262, 263 and 265. The cap, which is adjusted annually according to the consumer price index, was approximately Can. $324,000 in 2010 (U.S. $341,447). Global Legal Group, The International Comparative Legal Guide to: Product Liability 2010, Chapter 17, Pg. 117. The Canadian Supreme Court's rationale for limiting Mr. Andrews's non-pecuniary award to $100,000 is as follows:

[I]f damages for non-pecuniary loss are viewed from a functional perspective, it is reasonable that large amounts should not be awarded once a person is properly provided for in terms of future care for his injuries and disabilities ' The amounts of such awards should not vary greatly from one part of the country to another. Everyone in Canada, wherever he may reside, is entitled to a more or less equal measure of compensation for similar non-pecuniary loss. Id.

The benefits of such a cap to a product manufacturer can be appreciated when comparing and contrasting like matters in the United States and Canada. Consider a 1995 case where a Nevada jury awarded a plaintiff approximately $4 million plus $10 million in punitive damages for injuries sustained from leaking breast implants. Bjorkquist at 205 ( See Dow Chem. Co v. Mahlum , 970 P.2d 98 (Nev. 1998), (although the punitive damage award was vacated on appeal)). That same year, in a case dealing with similar injuries, the Canadian Supreme Court affirmed a plaintiff's award of $100,000. Id. (See Dow Corning, [1995] 4 S.C.R. 634 at 635).

In addition to having a liberal view of non-pecuniary damages, the United States also has a much more expansive view of punitive damages than our foreign counterparts. In the UK, “punitive damages are rarely, if ever, awarded.” Global Legal Group, “The International Comparative Legal Guide to: Product Liability 2010″ Chapter 21, Pg. 148.

Rookes v. Barnard

, a 1963 decision of the House of Lords, limited the availability of 'exemplary' damages in the UK to three types of cases: first, cases in which the government or a government agent has acted in an 'oppressive, arbitrary, or unconstitutional' manner; second, cases in which it appears that 'the defendant has calculated that the profit to be made from a course of conduct is likely to exceed any compensation payable to the plaintiff'; and third, cases in which exemplary damages were already (prior to 1964) permitted by statute. Walpin at 660.

This approach may strike a good balance between the United States' presently broad view of punitive damages and the need to have some mechanism in place that punishes unethical and dangerous behavior.

Finally, in both Canada and the UK, juries are the exception when it comes to product liability cases. In Canada, an attorney may request a jury, but it is not a guarantee. Even when such a request is granted, the court may, at its discretion, dismiss the jury based upon the complexity of the issues. Bruce A. Thomas & Lawrence G. Theall, Products Liability and Innovation: A Canadian Perspective, 21 Can.-U.S. L.J. 313, 314 (1995). This is also the case in the UK, where the right to a jury in civil cases has been narrowed tremendously. Global Legal Group, “The International Comparative Legal Guide to: Product Liability 2010″ Chapter 21, Pg. 144. The United States has nearly the exact opposite rule. In the United States, litigants in product liability cases are practically guaranteed a trial by jury, despite the complexity of the subject matter. It can be argued that having lay jurors decide complicated product liability cases may, in large part, account for the excessive jury awards rendered in the United States. Presser, at 7.

The Fishing Expedition

The discovery rules in the United States make it easy to file a lawsuit and then go searching for the facts to support a claim. In fact, the United States has the most extensive discovery rights in the world. Reimann, at 817. Parties are liberally allowed to engage in depositions of parties and non-parties, written discovery, and the acquisition of often tangential and even irrelevant documents. The delay and cost associated with the rules of discovery in the United States are immense.

On the other hand, in the UK, which does not allow for pre-trial depositions, parties in litigation rely almost exclusively on a tailored exchange of documents. In 1999 “discovery” in the UK was renamed “disclosure” and the scope was substantially reduced. Gavin Foggo, Brett Harrison, Victor Jose Rodriquez-Barrera, Comparing E-Discovery in the United States, Canada, the UK, and Mexico, Committee on Commercial & Business Law Litigation, Section of Litigation, American Bar Association (newsletter, vol. 8, no. 4, Summer 2007).

Gone was the need to produce volumes of neutral background documents, as was the need to produce documents which did not themselves affect the issues in the case (but which could lead to a “train of enquiry” to potentially relevant documents). Instead, the disclosing party is now usually required only to undertake “standard disclosure” and produce the non-privileged documents: 1) on which it intends to rely; 2) which adversely affect its case or another party's case, or support another party's case; and 3) those required by a relevant practice direction. Id at 5.

This disclosure process is clearly much narrower than the discovery process in the United States, where a party must produce that which appears “reasonably calculated to lead to the discovery of admissible evidence.” Federal Rule of Civil Procedure 26(b)(1).

Likewise, Canada has a much narrower oral discovery regime than the United States. In Canada a corporate party is normally only obligated to produce a single knowledgeable representative for oral examination for discovery by an adverse party. Multiple depositions of different employees are not allowed. Sells Berkley, Litigation: Some Key Differences between Civil Litigation in Canada and the United States ' Part 2, Inside Counsel, April 28, 2011. Rules such as these could help curtail fishing expeditions here in the U.S., often pursued by overly eager plaintiff's attorneys searching for large contingency fees.

The contingency fee is another concept somewhat unique to the U.S. The UK does not allow for attorneys to be paid via a contingent fee agreement. Rather, the UK utilizes “conditional fees.” These are different from contingency fees, in that a “conditional fee” or “success fee” is one charged as a percentage of the lawyer's legal fees that have accrued throughout the course of the lawsuit. If the lawyer is successful and the plaintiff wins, then the lawyer will receive an agreed upon percentage of his or her normal legal fees as a type of bonus. If the claim is unsuccessful, the attorney will forego payment of his legal fees. To distinguish the conditional fee from the contingent fee, one should note that while a contingency arrangement gives an attorney a share in the client's damages ' a larger award yields a larger fee ' a conditional fee arrangement is a fixed uplift that is not affected by the degree to which a claim succeeds, only by the condition of success itself. Charles E. Hyde, Conditional Versus Contingent Fees: Litigation Expenditure Incentives. 26 Int'l Rev. L. & Econ. 180, 181 (2006).

Sue and Then Think? Or Think and Then Sue?

In the United States, there is little reason for a plaintiff not to pursue a questionable claim because the system allows for parties to sue now and ask questions later. There is little downside because even if a plaintiff is unable to develop facts to support a claim, he may still be able to negotiate a nuisance-value settlement or more. This is less likely to occur in the UK and Canada, where the losing party has to pay some of the winner's legal fees. This can be an expensive result, particularly without an award out of which to pay. Susan H. Easton, The Path for Japan?: An Examination of Product Liability Laws in The United States, The UK, and Japan, 23 B.C. Int't & Comp. L. Rev. 311, 329 (2000). Such an approach discourages the filing of non-meritorious claims and encourages early compromise, as litigation gets increasingly more risky the longer it ensues. Theresa M. Hottenroth, Lessons From Canada: A Prescription for Medical Liability Reform, 13 Wis. Int'l L.J. 285, 296 (1994).

Conclusion

Unlike many other areas of law, product liability litigation has implications beyond our borders and our court rooms. Globalization has leveled the playing field and created what Thomas Friedman refers to as a flat world. Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-First Century, 102 (Faraus, Straus and Giroux 2005). Business is global and unless the United States fosters a judicial system that promotes compromise and discourages litigation, United States manufacturers will be competing at a disadvantage relative to their Canadian and British counterparts, not to mention China, India and the rest of the world. There is no question that we in the United States have much to learn from Canada and the UK regarding how those jurisdictions administer justice in the product liability context. If anything, the world is shrinking, and with the onset of the global marketplace, product liability law is becoming internationalized. Accordingly, it is inevitable that the United States, UK and Canada, which already have a strong cultural connection, will impact and influence each other's legal systems.

Chris DePhillips, a member of this newsletter's Board of Editors, is a Principal of Porzio, Bromberg & Newman, and a Member of the Complex Tort Practice Group and the Governmental Affairs Group. Todd C. Richheimer is an associate at the firm, a member of its Litigation Practice Group.

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