Illegal Status Can Kill Legal Product
by Mike Martin
National Law Journal April 17, 2000

An onslaught of product liability suits can make the manufacture and
distribution of a legal product "effectively" illegal. And effective
illegality, as in the cases of asbestos, breast implants, the Dalkon
shield, or Primatene asthma pills, can bring about the end of a
product.

Whereas actual illegality is conferred upon an activity by a
legislature or an appellate court, acting to pass statutes or create
case law, effective illegality is conferred by individuals filing large numbers of single
or class action lawsuits against manufacturers or distributors of legal products.

The idea of effective illegality is novel. We confer legal status
upon an activity by constitutional legislative, or appellate court
processes. Enforcement of the law or statute involves due process:
investigation, indictment, trial by jury, and, if the offending party
is found guilty, penalty. In the manufacture and sale of an illegal
product, such a penalty can include a fine, imprisonment, or both.

One might term this sort of illegality--that defined by a body of
lawmakers--"actual" illegality.

Effective illegality is not conferred by lawmakers. Legislatures,
appellate courts, and executive orders can confer only actual legal or
illegal status. Individuals and their attorneys confer effective
illegality by repeatedly filing either single, or more potently, class
action lawsuits.

For example, the production and sale of controlled substances is actually illegal: a body
of law clearly prohibits the manufacture and sale of methamphetamine or cocaine. The production
and sale of automobiles is actually legal: no body of law exists restricting this activity, only regulating it.

The production and sale of tobacco and firearms, however, straddles
the netherworld between the legal and the illegal. Such products
have become effectively illegal because their manufacture and
distribution involves penalties nearly as severe as those for criminal
acts: extensive, exhausting class litigation; out-of-court
settlements (under the threat of mushrooming legal fees); the high
legal fees themselves; and large judgments. These penalties are as
potent as large fines and can force the end of the activity, or
product, on trial.

Class action lawsuits can make a product effectively
illegal. Statutes or case law can make a product actually illegal.
They can both end a product's life, but the similarity
ends there. Violation of statute, for instance, involves a trial
before penalty phase.

No trial may precede the penalty phase of a class action tort, if a pre-trial settlement for sums that often
exceed the largest of fines, results. The aggrieved body in a violation of statute is usually the state, and the state, through the levied fine, receives recompense while the guilty defendant is punished. The aggrieved body in a class action lawsuit is the class itself, which may receive little compensation on a per individual basis, from a defendant that may or may not have been judged either guilty or innocent.

A third party, the attorneys filing suit, frequently receive the lion's share of the settlement, a circumstance
almost never seen in violations of criminal law.

Effective illegality is more precarious for a defendant than actual
illegality. No due process body may ever hear or decide the case
prior to the penalty phase of settlement and legal fee payment. The process itself also
penalizes the defendant: vast discovery efforts; stressful and
exhausting depositions; pre-trial sanctions, motions, and hearings.

One lawsuit can metastasize into thousands, and soon a large corporation can find itself shackled like
Gulliver by bonds that can actually seem like imprisonment: forced discovery; asset seizure (in the case of civil racketeering litigation); asset impoundment; and mandatory attendance for long
periods of time in depositions or in court.

Effectively illegal status can ultimately kill a legal product.
Asbestos, silicone breast implants, and the one lawsuit filed in the case of a
cheerleader who suffered heart failure after ingesting a Primatene
tablet, are recent examples. Business executives making products
that are effectively illegal should realize that a product so
stigmatized faces tremendous odds against its continued existence.

The recognition that not one, but two forms of illegality exist in
contemporary American law--actual and effective--should answer the
critical question: under what legal circumstances can a company
engage in any particular activity. Certainly not when that activity
is actually illegal; and just as certainly, not when that activity is
effectively illegal.