From the September 1999 issue of Entrepreneur

Is there anything more infuriating than a greedy lawyer dragging some innocent small business into court? Take the case in Long Island, New York, where a drunk driver hit a drunk jaywalker on her way to another watering hole. The pedestrian suffered a brain injury and sued the car rental company, a small business, which settled for $8.5 million.

That's one example offered by Sen. Spencer Abraham (R-MI) in support of his Small Business Liability Reform Act (S.1185), co-sponsored by Sen. Joseph Lieberman (D-CT). "Small businesses are particularly vulnerable to lawsuit abuse and find it difficult to bear the cost of defending themselves against unfair litigation," says Abraham, who is a member of the Senate Judiciary Committee, where the bill has been referred.

So far, Lieberman is the only Democratic sponsor of S.1185. A House companion bill has not been introduced because no Democratic co-sponsor has been found on that side of the Capitol.

The bill, which is divided into two sections, covers companies with fewer than 25 employees. A plaintiff could collect punitive damages from these companies only if he or she could show harm due to the small business's "conscious, flagrant indifference to the rights and safety of the claimant," says Abraham. If that is proved, the small business's liability would be limited to $250,000 or two times the compensatory damages, whichever was less. This provision would not apply to violent crimes, hate crimes, sexual offenses, natural resource damage, civil rights violations or damages that occurred while the defendant was under the influence of drugs or alcohol.

The second part of the bill prohibits lawsuits, period, in both federal and state court, unless the plaintiff can prove the company that sold the product was responsible for the harm that came to the buyer. This is meant to stop lawsuits against auto rental companies, to name one sector, such as the one cited by Abraham. If the small business were to some extent culpable, its share of the noneconomic damages would have to be proportionate to its responsibility for causing the harm. In other words, a plaintiff couldn't sue a minimally responsible small company for maximum noneconomic damages such as back wages and medical care.

No one wants to see the honest, careful owner of, say, a dry-cleaning business or restaurant taken to the cleaners by a profiteering lawyer. If the Abraham bill passes, only companies with dirty laundry will get hung out to dry.


Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.