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SPREADING THE BLAME; BONO BILL WOULD HELP SHIELD TRADE GROUPS FROM LIABILITY SUITS

Aug 4, 1997

Broward Daily Business Review (Broward County, Fla.) (Also appeared in the Miami Daily Business Review [same day]) The Fulton County Daily Report (Aug. 1)

Spreading the blame; Bono bill would help shield trade groups from liability suits; Trade groups, increasingly the targets of personal injury suits, back legislation that would relieve them of liability claims

By T.R. Goldman Legal Times

In the fall of 1987, Kenneth Halpern dove into his backyard swimming pool in Mobile, Ala., broke his neck on the pool bottom, and set off a chain of litigation that would send shock waves through the trade association community for years.

Halpern was paralyzed in the dive and died less than a year later. The suit seeking restitution for his death named the pool's builder as a defendant. But Halpern's suit went one step further, also naming as a defendant the pool builders' trade group, the National Spa and Pool Institute.

Unfortunately for the trade group, the Alabama Supreme Court in 1990 bought Halpern's argument, at least in part. By disseminating standards for pool construction to its members, the court reasoned, the trade group opened itself to potential liability for injuries caused in a pool.

While the Spa and Pool Institute was not ultimately found liable for Halpern's death, the group spent hundreds of thousands of dollars proving that its standards were in fact sufficient to prevent injury. And the case left behind a menacing state precedent for trade groups of all stripes, leaving them vulnerable to all manner of liability suits.

Earlier this year, with the Alabama pool case and others like it in mind, the trade association world called on Capitol Hill for a legislative fix.

Their savior, they hope, will be Rep. Sonny Bono, the Palm Springs, Calif., Republican who in May introduced the Trade and Professional Association Free Flow of Information Act.

Bono's bill would set a national standard shielding associations from lawsuits when providing information and technical advice to their members. It would also allow associations to refuse to respond to subpoenas unless the information is available only from the trade group and nowhere else.

The bill would also set up a type of privilege between a trade association and its members so that the confidentiality of documents flowing between the two would be assured.

That's vitally important, explains general counsel Daniel Durden of the

National Association of Home Builders, because the fear of litigation has a chilling effect on the industry wide mediation efforts trade associations are often ideally situated to oversee.

Take, for example, a widget installed in homes across the country. Five years later, the widget fails, due to a design flaw. "The manufacturer of the widget gets sued, and the people who put them in their homes, our members, get sued," Durden says. "And if it's a widespread problem, our members will call us and say, 'What can you do for us?'

"We can play a role in negotiating among the builders, manufacturers and, potentially, the insurance companies in coming up with a stopgap measure, so the consumer of the widget doesn't file suit," adds Durden, whose group is actively supporting the Bono bill.

But if the association gets involved in trying to find a settlement, any information shared with it may no longer be privileged, Durden says. And that, in turn, can dissuade members from sharing information.

"The idea is that by acting in a fashion that forwards a resolution, an association shouldn't get slammed," he says.

Trial lawyers, of course, are deeply offended by the notion that certain potential defendants should be off-limits, and are vigorously opposed to the Bono bill.

"No association, corporation or individual should be immunized for responsibility for the injuries they cause," Howard Twiggs, outgoing

president of the Association of Trial Lawyers of America, said through a spokesman. "No citizen should be denied the opportunity to hold wrongdoers responsible for their actions."

Traditionally, courts have held that a trade group was obligated only to its members, not to the general public, for the accuracy and quality of the standards it promulgates for its members. After all, the groups argued, they could not properly be held responsible if a builder failed to follow their guidelines.

But the Alabama Supreme Court ruling changed all that, by holding in King v. National Spa and Pool Institute that the trade association did in fact have a "duty" to the public regardless of whether it had control over its members' behavior. (The named plaintiff is Barbara King, the administrator of Halpern's estate.)

"What this case says is that if you put out standards and somebody uses

them, then you can be hauled into court and made to show you used due care in producing them," complains David Karmol, general counsel and chief lobbyist of the Alexandria, Va.-based Spa and Pool Institute.

"We did use due process. We got comments from outsiders, from the Consumer Product Safety Commission," says Karmol, adding that his group has been disseminating pool standards for 40 years. "The point is, we did all the right things. But if you have to prove that in court that you did all the right things, you've already lost. We spent half a million dollars winning. I don't know how many associations can afford to win many half-million dollar cases on a regular basis."

No shortage of groups have been called upon to try.

According to Gerald Jacobs, a co-managing partner in the Washington office of Chicago's Jenner & Block, trade associations are increasingly being hauled into court as defendants. "I can tell you that Jenner & Block has a dozen such cases," says Jacobs. "Higher than it's ever been."

Adds James Clarke, chief lobbyist at the American Society of Association Executives, which is actively supporting Bono's legislation: "Groups are more and more fearful that litigation will tie them up like pretzels."

Back pain

Among the hardest hit have been four trade associations that deal with spinal surgery and are implicated in hundreds of tort claims against the so-called "pedicle screw," an orthopedic device officially approved by the Food and Drug Administration only for use in arm and leg bone operations, though it is widely used in the pedicles of the vertebrae during back surgery as well.

According to hundreds of suits filed in recent years, the Illinois-based North American Spine Society allegedly conspired with pedicle screw manufacturers to help them illegally promote their products for uses not approved by the FDA.

"Because we accepted money from exhibitors for exhibit space, charged them with a registration fee, and got some research funding from them and then turned around and let certain doctors whom [trial lawyers] call product promoters give talks at our annual meeting we allegedly defrauded our own members into thinking these things were safe," complains Eric Muehlbauer, executive director of the Spine Society.

"That's ludicrous," he argues. "Why would we defraud our own members? We were a forum provider, that's all."

Muehlbauer says more than 500 individuals have sued the trade group for promoting the use of an "unreasonably dangerous" product. "Plaintiffs

attorneys are giving each other seminars on how to promote these lawsuits," he says, adding that complaints have also been filed against the American Academy of Orthopedic Surgeons, the American Association of Neurological Surgeons, and the Scoliosis Research Society.

But, counters plaintiffs attorney Arnold Levin, by accepting money from pedicle screw vendors, the Spine Society becomes a legitimate defendant. "By hosting the manufacturers, by giving comfort to them, aiding and assisting them, they became part of the selling arm, they became part of the manufacturer," says Levin, a partner in Philadelphia's Levin, Fishbein, Sedran & Berman, which is litigating the issue.

"And they were trading in a product that hadn't been approved for that use by the FDA," he adds.

Standard procedure

In Alabama, which has a reputation as one of the most favorable places in America for the plaintiffs' bar, trial lawyer Richard Cunningham, of Mobile's Cunningham, Bounds, Yance, Crowder & Brown, says trade associations are not always the neutral, consumer-friendly forces they often claim to be.

Earlier this month, Cunningham won a potentially multibillion-dollar class action in a Mobile County, Ala., circuit court against the Masonite Corp. for installing faulty hardboard siding in more than 4 million homes. He says many trade associations are not at all interested in consumers, and have nothing more than their members' interests at heart.

"The real problem is when you have a trade association controlled by an industry and they intentionally promulgate minimal standards which do not impose any burden on the industry and do not create a safe product," he says.

"The state of the art standard for the industry could be much higher than the minimal standards set, but it will cost them much more money to meet that higher standard," Cunningham continues. "But the industry can use the minimal standards to say, 'We were not negligent, we met the existing standard of care.' In fact, there may have been a collusive effort between industry on the whole and the trade association to establish ineffective standards."

That wasn't necessarily the case in the Masonite decision, which includes a minimum of $ 47.5 million in legal fees for the dozen or so law firms that took part in the class action. But during the course of litigation, a subpoena was issued to the Palatine, Ill.-based American Hardboard Association for information about the testing of certain hardboard products.

"It is the practice of trial lawyers to go fishing at trade association folks to see if there's anything negative in the files, or whether the association ever warned about this or that happening," says Karmol of the Spa and Pool Institute, making the case for a legislative remedy.

"There's an argument to be made that if associations are to advance the public interest, and allow members to talk about things to avoid similar situations in the future, there ought to be some kind of protection."

In fact, Karmol concedes, the frequency with which the institute has been named in a lawsuit has not increased over time. "But I attribute that to our aggressive defense. Most trial lawyers are looking for defendants who will role over and kick in $ 100,000 to a settlement," he says.

While it appears that nothing short of legislation will stop associations from being drawn into court, those who have represented such groups in these cases say there are ways to avoid worsening their plight once there, including maintaining a judicious level of discretion.

If you don't want the court to construe that you have a duty to the public, and hence can be targeted in a lawsuit, don't brag to them about the information you disseminate, says Jacobs, the Jenner & Block partner. And make sure your standards are more than sufficient.

"Do your due diligence," counsels Jacobs. "And don't crow to consumers about the value of your program if it is designed to assist members. It's much more difficult [to defend yourself] when you make pronouncements at large."

Meanwhile, although the Bono legislation will undoubtedly face stiff opposition in Congress, the trial lawyers group remains a formidable foe supporters are cheered that at least the issue is now getting some attention.

"It's in its infancy," acknowledges the ASAE's Clarke, referring to the proposed legislation. "But there will be lots of work and lots of efforts in this area. We don't want it to be seen as open season on associations."

T.R. Goldman is a senior reporter at Legal Times, a Washington, D.C., newspaper affiliated with the Daily Business Review.

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