the payment of many of its benefits secondary to a tort award. The only exception would seem to be where federal law

specifically provides to the contrary. While it is not entirely clear how the courts would implement this provision, it is likely that where the United States is prohibited from making payment of its benefits secondary to a tort award, it also would be prohibited from seeking restitution through a subrogated claim against the tortfeasor.

Section 102 (b) (4) appears to be plainly inconsistent with the "payor of last resort" policy the Administration has been attempting to establish and strengthen under many federal benefit programs such as Medicare and Medicaid. For example, such an alteration of the order of payment could cause a significant diminution in reimbursement to the Medicare trust fund and increased costs under the Medicaid program to both federal and State treasuries.

It should be noted in this regard that numerous provisions of the Social Security Act are directed towards assuring that the liability of public assistance programs remains secondary to that of responsible third parties. While we interpret Section 102(b)(4) as leaving these provisions in place, because there is considerable ambiguity in the way in which the Section is drafted, the precise relationship of benefits under the Social Security Act to settlement payments under Title II of S. 2760 would be the subject of extensive litigation and judicial construction. For example, Sections 102(a)(3) and 102(a)(11) can be read to require the reduction of Title II settlements by collateral government benefits, even where the government is legally the payor of last resort. If such in fact is the case, were the government to eliminate or reduce the benefits as a result of the settlement, the claimant would not only receive a lower settlement, but also would lose all or part of the government benefits which were used to justify the lower settlement. Since such a result would be unjust, it is highly likely that the courts would interpret the bill in such a way as to avoid both a lower settlement and a reduction of government benefits. Under certain situations this could jeopardize the current practice of the government obtaining restitution either directly from the beneficiary or through a subrogated claim.

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right any other person has or is entitled to assert for recoupment through subrogation, trust agreement, lien or otherwise) by any claimant harmed by a product or by any other person as reimbursement of loss because of harm to person or property payable or required to be paid to claimant, under (A) any Federal law . . .

Finally, it should be noted that this provision would

require the American taxpayer rather than the tort feasor (except where the contrary is specifically provided by law) to compensate plaintiffs for certain elements of the damages caused in whole or in part by the tortfeasor.

This is in marked contrast to the Administration's product liability reform bill, which specifically exempts from the reduction of product liability awards any collateral benefits that are "the subject of a reasonably founded claim of subrogation, reimbursement or lien. Thus, the Administration bill only prohibits double recovery by the plaintiff. It does not require that the government instead of the tortfeasor pay such compensation.

We, accordingly, urge that Section 102 be amended so that it not include as a covered collateral source, or deduct from a claimant's economic loss, any payment or benefit provided under a federally funded program where that payment or benefit is (or by law is required to be) the subject of a reasonably founded claim of subrogation, reimbursement or lien.

b. Section 205 ("Payment of Net Economic Loss")

Section 205 provides that a settlement entered into under Title II of the bill "may be modified upon a finding that a material and substantial change of circumstances has occurred.-9 By depriving Title II settlements of finality, this provision will substantially increase both the amount of product liability litigation, as well as the transaction costs associated with such litigation.

Under Section 205, a settlement involving economic damages would never be final; it could always perhaps for decades be reopened for further litigation. The result in many instances would be never ending litigation as the parties attempt to reopen settlements to increase or decrease payments of economic damages to reflect changing circumstances.10

8 Section 9 of the.Product Liability Reform Act of 1986. See also Section 9 of S. 2441.

See also Section 202 (a) (court retains jurisdiction to resolve disputes concerning economic damages).

10 While it is not entirely clear, we construe Section 205 to permit both the plaintiff and the defendant to seek modification of the settlement.

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For good reasons, it has been longstanding practice throughout the Nation that tort settlements and judgments constitute the final resolution of each party's claims and defenses. While this necessarily involves some degree of speculation as to future damages, it serves the important purpose of putting an end to litigation. In the absence of such finality, litigation would be more protracted, expensive and burdensome.

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This provision is inconsistent with the reasoning of the Commerce Committee that excessive transaction costs are a primary justification for the expedited settlement procedure established by Title II of the bill, because the provision, by its very nature, can only further increase transaction costs. Accordingly, the provisions eliminating finality of Title II settlements should be deleted. To the extent that the Senate wishes to develop an alternative approach to periodic payments that protects finality, we refer the Senate to Section 8 of the Product Liability Reform Act of 1986.12 Indeed, subsection (c) specifically provides that such periodic payments may not be reopened at any time to contest, amend, or modify the schedule or amount of the payments in the absence of fraud.”

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c. Section 206 ("Reimbursement")

Section 206 of S. 2760 provides that a defendant who enters into a settlement under Title II may file a contribution action against any other "responsible" party who has refused to join in the settlement. If such a contribution suit is successful, the party seeking contribution obtains an additional 50% recovery on top of the contribution payment as well as its attorneys' fees and litigation expenses.

This provision is almost certain to spawn a flood of contribution litigation. The 50% sanction and attorneys' fees provision will lead many parties to sue for contribution who under normal circumstances would not file a contribution action. In addition, the provision will make it difficult to settle contribution disputes since the party seeking contribution will have every incentive to force its contribution claim to trial.

Because contribution actions generally involve resolution of the parties' relative fault, and frequently raise complex issues of causation, such actions often necessitate the

11 There, of course, are some bases for reopening a settlement or judgment. See Federal Rule of Civil Procedure 60.

litigation of the plaintiff's underlying tort claim, even though the plaintiff may have fully settled his claim. Accordingly, contribution actions defeat the goal of settlement inducement provisions to resolve disputes quickly and inexpensively.

Section 206 thus may have the unfortunate and ironic result of transforming product liability litigation from direct actions by plaintiffs against one or more defendants into contribution actions among several defendants. If, as it seems likely, Section 206 has this effect, the transaction cost savings which presumably would be achieved through the Title II settlement process would be largely illusory. Accordingly, we urge that the 50% contribution bonus and attorneys' fee award be deleted from Section 206.

d. Section 303 ("Uniform Standards for Awards of Punitive Damages")

Section 303 of the bill provides that punitive damages may be awarded in a product liability action where the plaintiff can demonstrate by clear and convincing evidence that the defendant's conduct manifested a "conscious, flagrant indifference" to the safety of others. We believe that the "conscious, flagrant indifference" standard is less exacting than the standard currently in force in many States particularly in those States that require a showing of malice and will result

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in punitive damage awards where such awards would otherwise be unavailable. Consequently, the provision also may cause an increase in the number of punitive damages claims.13

Punitive damages are a serious problem of product liability law which any federal product liability reform legislation should address. The Administration, in the Product Liability Reform Act of 1986, recommended a fixed monetary limit on such awards. Other approaches may also be merited. But there simply is no justification for federal legislation which would make it easier for punitive damages to be awarded in many States. Such legislation does not "reform" product liability law, but only exacerbates the problems that underlie the current liability

and insurance crisis.

13 We do not believe, however, that Section 303 would establish a right to punitive damages in those States that do not currently recognize such damages in product liability actions.

14. In this regard, we also note that Section 305, which applies sanctions to frivolous claims, specifically exempts punitive damages claims as long as such claims are withdrawn at (continued...)

Accordingly, Section 303 should be amended to provide that punitive damages may only be awarded where plaintiff can demonstrate "conscious, flagrant indifference” in addition to the applicable State law standard.

Section 306 ("Record Retention")

Section 306 provides that a person "who has notice that he or she may be made a party to such an action, shall retain all material, documents and other data within such person's possession, custody or control that are relevant or may lead to the discovery of evidence relevant to the claim or action.”

This section could require the retention of millions of documents of questionable relevancy to a claim which is never ultimately filed. The provision would be extraordinarily burdensome, particularly to small businesses that may not have the facilities or resources to store for an indefinite period all documents which relate to a particular product. Moreover, since it is often difficult if not impossible to predict what material, documents and other data may eventually prove relevant in the course of protracted and extensive discovery, the provision is at best unrealistic in its underlying assumption that putative defendants will be able to identify on the basis of a possibly vague notice what may ultimately prove relevant. Because the sanctions for both the willful and non-willful disposal of a document eventually deemed to be relevant are quite severe, persons subject to this provision will be forced to retain virtually everything for years.

It also should be noted that this provision may seriously prejudice the interests of the United States in litigation under the Federal Tort Claims Act. While Section 306 would create an often unmanageable burden for many parties, the Section would place particularly unrealistic requirements on the United States as a defendant. The United States generates tens of billions of documents every year, many of which must in the interests of economy and efficiency be disposed of promptly. 15 Moreover, were the courts to apply this requirement government

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least 30 days prior to commencement of trial. Exemption of frivolous punitive damage claims from such sanctions appears to run contrary to the policy underlying Federal Rule of Civil Procedure 11, which applies to the entire pleading.

law.

15 Indeed, for many documents timely disposal is mandated by