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Corporate Ambulance Chasers:

The Charmed Life of Business Litigation

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By Ross E. Cheit, J.D., Professor of International and Public Affairs and Political Science
1991 Ross E. Cheit. All rights reserved.

Mickey Mouse has a busy lawyer.

So does Kermit the Frog and the Pillsbury Doughboy.

That these icons of American business are involved in litigation is not surprising. Businesses often complain that they are besieged by lawsuits. Ambulance-chasing lawyers, the story goes, inundate business with outrageous claims.

But business isn't always the defendant. Remember Walt Disney's reaction to the opening sequence of the 1989 Academy Awards - a song and dance routine involving Snow White? Disney considered it "unflattering" and sued.

Did the Pillsbury Doughboy turn the other cheek when the Drox character of the Sunshine Biscuit Company, created more than 20 years ago, put on a little weight? No. Pillsbury sued, claiming the pudgy character looked too much like the Doughboy.

These are examples of an obscure and, at times, unseemly breed of lawsuit. These overlooked cases, brought by and against businesses, account for an increasing proportion of the civil docket.

Businesses can be a devilish plaintiff; its legal counsel, a kind of ambulance chaser. These "corporate ambulance chasers" exaggerate claims, make outrageous demands for punitive damages and seek out convenient "deep pockets."

Consider the loony lawsuits over advertising claims. Kellogg's sued General Foods for $100 million in a dispute over ads for Post Raisin Bran. (Kellogg's argued that Post Natural Raisin Bran is not "natural," as advertised, because it is coated with coconut oil.) Uncle Ben's sued General Foods Corporation over claims that Minute Rice outperformed Uncle Ben's in the "slotted-spoon test."

Would anyone but a comedian associate an imitation low-calorie mayonnaise called "mayo7" with the Mayo Clinic? The Mayo Clinic did. It took the issue to court - and lost. Did the Italian manufacturer of Berreta guns honestly think that General Motors' Berreta would "dilute" the good family name?

Businesses are also not shy about suing for gargantuan sums. American Airlines sued Texas Air for $100 million in punitive damages in a dispute over computerized airline reservation systems. The Home Shopping Network sued GTE for $1 billion in punitive damages in a dispute over telephone service.

Some of these lawsuits are probably filed just for publicity value, as when McDonald's sought a temporary restraining order to prevent the airing of ads comparing its Big Mac unfavorably with Burger King's Whopper. Others are examples of commercial pride run amok. Some represent a more troublesome phenomenon: litigation to harass the competition and attempt to raise their costs.

Suing has practically become part of the marketing strategy for some products. The producers of Tylenol and Advil have been accusing each other of "false and misleading" advertising in what U.S. District Judge William Conner has called an "endless war." The poor judge has presided over six separate court battles involving such weighty issues as whether Tylenol is "unbeatable for headaches."

Similar litigation marks the "toothpaste wars," the "soft drink wars," the "diaper wars" and the "coffee wars."

Questionable litigation also taints the field of patent and copyright law. For example, Kenner Parker Toys, maker of Play-Doh, sued Tyco Toys, claiming that Tyco's Double Dough Doer copied the "confidential idea" of pushing two colors of Play-Doh through an extrusion machine.

Some companies actually specialize in suing for profit. Eugene Lang, renowned for offering some inner-city school kids college tuition, is most prominent. His company, Refac Technology Development Corp., develops lawsuits, not technology. Refac has made millions buying patents, filing lawsuits and settling out of court.

Critics of personal injury law often argue that lawsuits are spurred by unrealistic expectations about life's misfortunes. But just as consumers and patients apparently are more willing to sue manufacturers and doctors, businesses seem increasingly prone to sue everyone from providers of financial services to their own (former) employees.

Consider the Wedtech Corporation, focus of several successful investigations into public corruption. Wedtech sued two accounting firms for failing to discover the "pervasive fraud" by the corporation's (former) management. Lockheed sued its own insurer to recover $8 million in legal expenses after Lockheed executives admitted to bribing public officials. The complaint also asked for $10 million in punitive damages because the insurance company refused the original claim.

Finally, there is the Tylenol litigation, commenced after Johnson & Johnson was widely praised for voluntarily recalling 30 million bottles of Tylenol after seven poisoning deaths in Chicago. Less praiseworthy (and less publicized) was the $117 million lawsuit that J&J filed against its former insurers to recover the costs of the recall.

Although not ultimately successful, J&J clearly tried to saddle the insurance company with a risk it never assumed. The judge concluded, after four years of expensive legal maneuvering, that J&J "knew such coverage could be purchased, elected not to purchase it because the cost would be prohibitive, and now claims that it enjoys recall insurance anyway."

This suit is hardly unique. Following the recall of Rely tampons, Procter & Gamble pursued a dubious lawsuit to recover virtually its entire loss from insurance. Counting on the widespread dislike of insurance companies, P&G requested a jury trial. But the jury disliked P&G's "deep pockets" argument even more. It agreed with the insurance company that the P&G arguments were "a creation of its legal department."

Given all the attention heaped on personal injury law, business litigation enjoys a comparatively charmed life. Corporate ambulance chasing may not be as widespread as its better-known counterpart, but its practices deserve closer attention to ensure that the debate over reforming the civil justice is fair, thoughtful and productive.

Ross E. Cheit, professor of political science and public policy at Brown University, is a member of the California Bar.





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