Product Liability
Jun. 1, 2001
When Secrets Kill
SACRAMENTO - Folks around the Capitol often talk about how term limits have made institutional memory - the recollection of previous bills and disputes - a rarity among lawmakers and their staff.
But it doesn't take long for them to recall such buzz words as "Ford Pintos," "Dalkon Shield," "asbestos," "tobacco" and "Fen-Phen," all words referring to products that have killed and injured people. The latest of these is defective Firestone/Bridgestone tires
But they all have another thing in common: in each of the cases, the dangerous nature of the products was hidden in confidential agreements and documents.
Now trial lawyers are using shredding tires as the impetus for a pair of bills that would outlaw the sealing of out-of-court documents and agreements if they hide information that could hurt the public. The attorneys believe exposing defective products, environmental hazards and fraudulent practices would cause manufacturers to quickly recall the products and stop putting the public at risk of bodily injury or financial harm.
The bills by Sen. Martha Escutia, D-Whittier, and Assemblyman Darrell Steinberg, D-Sacramento, are co-sponsored by Attorney General Bill Lockyer and recently cleared policy committees. They are awaiting votes on the floors of the Senate and Assembly. Of these, the tougher battle is anticipated in the Assembly.
Defense counsel and the business community, especially biotechnology firms, are fighting vigorously against the legislation. TechNet, a national network of technology executives, sent a letter Tuesday signed by more than 200 members to Assembly Speaker Robert Hertzberg, D-Sherman Oaks, opposing the bills. Rick White, president and CEO of TechNet, said the group believes it has persuaded enough lawmakers to defeat the measures.
Opponents say the legislation isn't needed, applies to "mere allegations" of harm, will deter settlements, clog the courts, reward lawyers bringing frivolous suits, cost jobs and drive business out of the state. They say it's not fair to punish all companies for a few bad firms' behavior.
"Malarky," respond trial lawyers. At least 20 other states have laws barring dangerous, secret deals - most forcefully Florida and Texas, the lawyers say. They also present evidence showing tort filings and dispositions have declined in Florida since its law was passed in 1990.
Tort reformers complain that California's measures are unreasonable and would go far beyond the Florida and Texas laws and rules, but an examination of them by the Daily Journal indicates the reverse is true.
The California bills - identical twins AB36 and SB11 carried by the chairmen of the Senate and Assembly Judiciary Committees - would require disclosure in four areas: product defects, financial fraud, unfair insurance claims practices and environmental hazards.
They would provide exceptions to the "sunshine" requirements. Any documents containing trade secrets would be exempt along with material that is privileged. Moreover, a court could determine there is an overriding interest that overcomes the public's right to access to the information.
The state Judicial Council adopted rules that took effect in January that require all documents filed in court be open to the public unless there is an overriding interest, the sealing is narrowly tailored and there is no less restrictive alternative.
The rules were based on a California Supreme Court decision, NBC Subsidiary (KNBC-TV) Inc. v. Superior Court, 20 Cal.4th 1178 (1999), in which the high court said the judge erred when he barred the news media and public from a trial involving actor Clint Eastwood and his former lover Sondra Locke.
The plaintiffs bar group Consumer Attorneys of California, sponsor of AB36 and SB11, wants legislation that would extend the Judicial Council rules to out-of-court documents and agreements in the four areas delineated. The CAOC contends manufacturers often hide the dangerous nature of their products in these confidential agreements by persuading plaintiffs to keep quiet about them in exchange for bigger settlements.
The trial lawyers lobbied the Judicial Council to extend the rules, but it declined, stating it was not within its jurisdiction and was better left to the Legislature, said Patrick O'Donnell, council staff attorney.
The drafters of the California bills looked at the laws in Florida and Texas in writing the text of the measures. Proponents have said nine states limit or disallow confidentiality agreements in lawsuits that affect public safety: Florida, Arkansas, Louisiana, Kentucky, Nevada, North Carolina, Oregon, Virginia and Washington. Other states that have adopted court rules addressing secrecy are Delaware, George, Idaho, Michigan, New York and Texas.
But tort reformers have repeatedly said the California measures would go far beyond what any other state has done in restricting secret agreements.
"It's abundantly clear that other states have not enacted legislation like this," said John Sullivan, president of the Civil Justice Association of California.
However, both Florida and Texas have laws or rules that prohibit agreements or settlements that conceal public hazards both in and outside of court and neither state limits their bans to a few areas such as California's measures propose to do.
Florida's "Sunshine in Litigation Act," Statute 69.081, states: "Any portion of an agreement or contract which has the purpose or effect of concealing a public hazard, any information concerning a public hazard, or any information which may be useful to members of the public in protecting themselves from injury which may result from the public hazard, is void, contrary to public policy, and may not be enforced."
Moreover, a third party has standing to contest an order or agreement that violates the statute.
Florida's statute, unlike California's proposed bills, contains no exemption for trade secrets. If a contract or agreement contains trade secrets and refers to a public hazard, it cannot be concealed from the public.
Florida's courts do not receive many requests for protective orders so the potential for that burden on the courts does not exist.
Texas's Rule 76a "Sealing Court Records" in its Rules of Civil Procedure was adopted in 1990, the same year Florida passed its statute. It also prohibits sealing records unless "a specific, serious and substantial interest" clearly outweighs the presumption of openness and any adverse effect sealing would have on public health or safety. It also contains a clause that requires no less restrictive alternatives to exist.
Court records, as defined in the Texas rule, include "settlement agreements not filed of record" and "discovery, not filed of record."
Florida's statute has been amended only twice since enacted, and included additional language applying the ban on agreements to governments and public agencies.
The Florida statute was used in 1994 to uncover tobacco company documents that showed the companies knew of the addictive and harmful effects of tobacco and had targeted minors in advertising campaigns but had kept the information hidden in prior cases around the country.
The statute has attracted few appellate challenges and is used infrequently because Florida's common law requires open records and procedures, said Pat Gleason, general counsel for the Florida Attorney General.
"No one uses that act," said David Bralow, in-house counsel for the Tribune Co. in Orlando, Fla. "We have used it, but the problem with that act is that our own Public Records Act is so good."
Since the statute in Florida was enacted, statistics from the Florida Office of the State Courts Administrator show it has not hindered settlements or sparked more litigation, said Bruce Broillet, president of the Consumer Attorneys of California, and partner in Greene, Broillet, Taylor, Wheeler & Panish, of Santa Monica
"If the opponents' arguments about an explosion [of litigation] are true, one would expect to see a spike in case filings after Florida's "Sunshine Act" took effect," Broillet said. "Yet, Florida's per capita case filings actually decreased. If anything, this [proposed] law will tend to reduce the number of lawsuits filed."
If Firestone/Bridgestone had acted quickly to recall their defective tires, instead of concealing the number of complaints alleging injuries from them, there would have been fewer suits filed and "some of the misery of the last four years wouldn't have happened," he said.
Bridgestone/Firestone has recalled 6.5 million tires with defective treads that killed 150 people and injured more than 500 others. Over the previous 10 years, more than 200 cases of injury or death involving the tires were settled secretly.
"Let's assume Firestone did that [knowingly sold dangerous tires to the public and concealed that fact], it's not clear yet," said Amor Esteban, an attorney with Haight, Brown & Bonesteel in San Francisco, which specializes in representing pharmaceutical, medical devices and biotech industries.
"I dare say very, very few companies in corporate America would do that," he said. "The [California] bills are an attempt to punish all the good companies for one or two companies' bad conduct."
Esteban complained the legislation would saddle the courts with requests to seal documents.
"It will completely inundate the courts," he said. "Now, if there's trade secret, or intellectual property right you work it out with the plaintiff and there's an agreement that the information won't be exchanged outside of litigation. With these bills it will become public and if the defendant believes it should be protected, he has to run into court."
Author Escutia disagreed, saying only a "very small part" of discovery materials representing "information that is evidence of the product defect" would be subject to public access.
"This means that personal information, business information and every other piece of information that is protected now by protective order will continue to be protected by protective orders, except when that information is evidence of a defective product, environmental hazard, etc.," she said. "Even then trade secrets as well as other privileged information under the law will remain protected. And further, the affected party will still be able to argue against disclosure by showing an overriding interest against it."
The biotechnology industry, which thrives on keeping its proprietary information secret from competitors, opposes the bills. Documents containing proprietary information such as operating statements, market analyses, budgets and competitive analyses don't come under the definition of trade secrets and would be open to the public under the proposed legislation, said Mike Morris, general counsel for Sun Microsystems.
"You'll get settlements before documents are exchanged so the public will never find out about this stuff [public hazards]," he said.
"There's potential here for lawsuits being filed for the sole purpose of getting confidential information," Esteban said. "A lot of businesses will end up settling cases because don't want to risk the chance it will end up in the public domain."
"That's just malarky," responds Broillet. "The object of this is to prevent using secrecy as a settlement chip. They flick frivolous cases off their backs with their fingers, but it's the meritorious ones that they are really concerned about."
Until this year, judges had to find "good cause" to keep documents from the public eye, but loose interpretations of the standard led to the sealing of hundreds of cases and trials. The language in the proposed law "is more specific and will be more meaningful to the judges," Broillet said.
The business community has defeated previous legislative attempts to restrict confidential agreements. Last year, a bill would have allowed third parties such as consumer groups to challenge court orders sealing documents.
Trying to limit opposition, sponsors dropped that clause from this year's bills. Opponents also complained of language in this year's bills that refers to "information relating to defective products," so the authors have amended the bills to say "information that is evidence of defective products."
The insurance, health care and high tech industries, however, have not dropped their opposition to the measures.
"I believe the corporate interests simply want to keep this information secret," Broillet said. "That's why they don't like the language. They will object to language that prevents them from sweeping their conduct that is harmful to consumers under the rug."
Linda Rapattoni
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