Emerging Regulatory Issues

Regulatory Implications of Mixing Criminal Liability and Product Liability

CRE believes that Congress should not enact legislation that injects criminal liability into the current legal liability regime governing automobile safety and product liability. Legislation pending in the Congress raises very significant legal and policy issues, both for the automobile industry at which the current legislation is aimed, and as a problematic precedent that could expand to affect many other U.S. industry sectors. CRE believes Congress should not rush to judgment, because this issue needs substantial further public debate.

Potential Regulatory Precedent

The Center for Regulatory Effectiveness believes that Congress should not enact legislation that injects criminal liability into the current legal liability regime governing automobile safety and product liability. Legislation pending in the Congress raises very significant legal and policy issues, both for the automobile industry at which the current legislation is aimed, and as a problematic precedent that could expand to affect many other U.S. industry sectors.

On September 29, the Senate Committee on Commerce, Science, and Transportation, approved S. 3059, the "Motor Vehicle and Motor Vehicle Equipment Defect Notification Improvement Act". The bill contains novel provisions that would impose criminal liability on any "officer" (senior executive), "agent" (employee), and even "director" (member of the board of directors) of automobile manufacturers or manufacturers of equipment used in automobiles, if the person knew when the vehicle or equipment was introduced into interstate commerce that the vehicle or equipment violated applicable safety standards and the "condition" of the vehicle or equipment "created an imminent serious danger of death or grievous bodily harm". (See, S. 3059, § 9(b), proposed 49 U.S.C. § 30170(a).)

Current law provides substantial incentives for automotive manufacturers to provide the public with safe products and to recall products that are not safe. CRE doubts that imposing criminal liability on individuals working for the manufacturer will measurably improve product safety or otherwise protect the public from death or injury.

CRE is concerned that this legislation would establish a precedent affecting not only the automobile industry but many other U.S. industry sectors.

Potential Criminal Liability Would Deter Public Safety Communications Between Industry and Regulatory Agencies

Current law provides mechanisms for voluntary and mandatory recall of automobiles and automobile equipment found to have a safety-related defect.

The entire process for initiating a recall, whether voluntary or mandatory, absolutely depends upon the prompt and open development, exchange, and analysis of accurate, factual information between company engineers and officials and safety officials at NHTSA. The stage when the company and NHTSA are determining whether a suspected problem is a real problem necessitating a recall is particularly crucial.

CRE understands that, currently, communications between industry safety engineers and executives and safety officials at NHTSA generally are quite good.

Any law creating the potential for criminal penalties, including imprisonment of individuals, would seriously undermine the openness of communications between the automobile companies and NHTSA, particularly at crucial times such as a pre-recall investigation.

All communications will be under a pall that NHTSA might institute a criminal investigation into how long the company had been aware of whatever is the potential problem, and whether any individual at the company had failed to report the potential problem sooner -- "what did you know and when did you know it?" This will create an absolutely poisonous atmosphere, even if no formal criminal investigation is launched.

At a minimum, company officials will be very unwilling to be candid and to disclose suspected problems without first packaging all communications in writing and getting clearance from the company's criminal defense lawyers. Important technical communications will become, not engineer-to-engineer, but instead lawyer-to-lawyer.

CRE doubts that scenario will promote public safety.

Threat of Criminal Liability Will Not Aid NHTSA's Ability to Order a Recall

CRE has reviewed the legal authorities and "public suasion" power that NHTSA has to persuade, urge, or compel a manufacturer to conduct a recall.

Congress needs to consider that decisions affecting public safety cannot always be made through strict legal process such as formal administrative hearings or enforcement litigation, much less through criminal prosecution.

Perhaps the most potent weapon that NHTSA possesses is "the power of the press". NHTSA already has considerable leverage over a company when the agency believes a recall is necessary to protect public safety.

The availability of criminal penalties against individual company officials or employees will add little if any to NHTSA's ability to assure public safety and may well impede - due to the deterrent effect upon communications -- urgent investigations into possible safety defects.

Adverse Effects on Other Types of Defect-Related Legal Actions, in Wide Range of Industries

CRE believes that the creation of criminal penalties for failure to disclose alleged safety defects will have adverse effects on the settlement or resolution of both (1) administrative penalty actions brought by NHTSA or other regulatory agencies, and (2) civil liability actions brought by injured customers.

Company officials will be very reluctant to concede civil liability for a violation of any law enforced by NHTSA or other regulatory agencies or a civil product liability case unless they are assured that the settlement or admission will not be used as evidence in a subsequent criminal prosecution based on the same alleged defect.

CRE Recommends Congress Carefully Consider Precedent for Product Liability Generally

CRE is concerned that this proposed criminalization of product liability problems in the automobile industry would set a precedent that will affect numerous other sectors of U.S. industry, for example the aviation, food, or agricultural chemical industries.

The deterrent effect that would hamper communication with NHTSA safety officials in the automotive product defect context, as discussed above, could arise also in all other regulated industries where there exists the potential for serious injury or death if a product fails to perform as intended.

CRE recommends that Congress not rush to judgment on the question of whether imposing criminal penalties for automobile product liability problems, as proposed in S. 3059, constitutes appropriate national policy. This issue needs substantial further public debate.