Monkey See, Monkey SueLinda Himelstein
When Bic Corp. paid $3.25 million to Cynthia Littlejohn in 1986, the company thought it was closing the book on a sad story. Littlejohn was badly burned when a Bic lighter exploded in her jacket pocket. But soon after, the Milford (Conn.)-based manufacturer realized its problems were just beginning.
Following the highly publicized settlement, Bic was inundated by suits from individuals who claimed that they, too, had been injured by defective Bic lighters. Nearly eight years later, the suits are still pouring in. But what happened recently surprised even Bic's seasoned legal department. Over the past 18 months, the company has been sued by four inmates from a prison in West Virginia. They all claimed that they were injured by faulty Bic lighters. Then another suit rolled in from a prisoner in another state. It turned out he had served time with the convicts at the first prison. "We've learned that any commodity sold in prison becomes a target for lawsuits," reflects Bic's Corporate Counsel Thomas M. Kelleher.
"NOT EFFICIENT." Unfortunately for companies, the practice isn't confined to jailhouse lawyers. Fueled by a well-organized plaintiffs' bar and widespread press coverage of jury verdicts, executive shakeups, injuries, or disasters, industries coast-to-coast are falling prey to bandwagon litigation. "Once anybody sees blood, there is a tremendous increase in litigation," says Richard A. Daynard, a professor at Northeastern University Law School.
The small world of football-helmet manufacturers, for instance, has seen its ranks shrink from 18 to just 2, in part because multiple product-liability suits forced most companies out of the business. On Dec. 3, Keene Corp., a former manufacturer of insulation products, became the 18th company in its industry to declare bankruptcy after failing to resolve massive asbestos claims.
And after $105 million was awarded last year to the family of a teenager killed in a General Motors Corp. pickup truck that ignited when its gas tank was struck, GM immediately began hearing from other truck owners. In all, GM was hit with 38 class actions. GM settled the cases in December. "It's not efficient for a defendant to defend the same suit in multiple forums around the country," says Michael J. Basford, the manager of GM's general litigation.
To most legal experts, the reason bandwagon litigation is so problematic is because it is virtually unavoidable. It pits the most coveted aspects of the American legal system, which rightly provide individuals with an opportunity to get even when they are wronged, against companies' desire to compensate deserving plaintiffs without suffering financial harm. "A company doesn't want to throw a lot of money at a problem unless it can be done with it," says Andrew T. Berry, a defense lawyer at McCarter & English in Newark, N.J. "To the extent that the legal system doesn't allow that to happen, you have real tension."
NETWORKING. Such tension has sparked interest in trying to mirror the British legal system, which requires a case's loser to pay the winner's expenses, thus sharply curtailing meritless actions. The debate, however, has remained largely theoretical since many repetitive suits are justifiable actions brought by innocent victims of corporate wrongdoing. Instead, plaintiff lawyers have banded together, sometimes through companion suits, to snuff out incriminating evidence and force companies to admit liability.
The Association of Trial Lawyers of America assists its members by maintaining a data base on more than 6,500 kinds of cases. ATLA members can also network through classified advertising carried in association publications. Ads in the December issue of ATLA Advocate seek information on everything from problems associated with individuals inhaling Glade air freshener to kids burned by the Big Bird Sparklin' Smile Battery-Operated Toothbrush.
Traditionally, the product-liability field has been the most fertile for multiple cases. But these days, much of the piling on comes from shareholder suits. A review of cases conducted by Securities Class Action Alert, a newsletter based in Cresskill, N.J., found that shareholder class actions filed in federal court have increased by 57% in the past four years, while the number of companies sued has risen only 4.6%. "It's a typical scenario for four, five, or more class actions to be filed simultaneously, all concerning the same stock-price drop," suggests Jonathan C. Dickey, a defense lawyer in Palo Alto, Calif.
That has certainly been the experience of companies such as Exabyte Corp., a maker of high-capacity 8mm computer cartridges based in Boulder, Colo. Exabyte received the first of eight class actions within 48 hours of disclosing lower-than-expected earnings--a notice that led to a sharp drop in its stock. The suits were so similar that some of them even shared the same typographical and spelling errors. Although the cases were dismissed last May, the company is still smarting from the fallout. "When an average person reads that eight suits have been filed against Exabyte, it sounds a lot more severe than reading that one lawyer somewhere filed a suit," says Peter D. Behrendt, Exabyte's CEO. "People think you must have done something really horrendous."
JUMBOS. Most executives and defense lawyers blame the increased popularity of shareholder litigation on its high rate of return. A National Economic Research Associates study in October shows that from July, 1991, to June, 1993, 253 of 300 securities class actions were settled. "Are you going to put the time and money into defending a suit," says Thomas R. Lavelle, corporate group counsel at Intel Corp., "or are you going to focus on getting your business turned around?"
Why then, plaintiff lawyers ask, are so many companies agreeing to so many jumbo settlements? William S. Lerach, one of the most successful shareholder class-action lawyers, says companies such as L.A. Gear Inc., which paid $53 million to settle a series of class actions, or Washington Public Power Supply System, which paid $757 million, are paying more than nuisance values to settle. Lerach contends that: "These are amounts of money so far beyond the cost of defense that [the companies] are obviously" worried about more than hefty payouts.
Still, some companies are taking the offensive to avert a bandwagon problem. Bic, for example, has adopted a "don't settle" policy. Kelleher says it's working, noting that cases against Bic have dropped 57% in the past five years. At Intel, which isn't shy about using the courts to protect its patents, executives are now more conservative when commenting on the company. They want to steer clear of liability should those comments later prove inaccurate.
Other efforts are under way to stem the endless flow of litigation. After years of haggling, Congress is expected to pass some version of product-liability reform later this year. Legislative proposals to make it more difficult for shareholders to bring class actions are being considered on Capitol Hill. Yet such initiatives are not likely to halt bandwagon litigation. Doing that would require a radical overhaul of the American legal system--a move that isn't likely to garner much support from either plaintiffs or defendants.