Proposed law would limit what companies have to disclose about defective products - East Valley Tribune: Business

Proposed law would limit what companies have to disclose about defective products

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Posted: Tuesday, February 19, 2013 5:14 pm | Updated: 8:52 am, Thu Feb 21, 2013.

State lawmakers are moving to let Arizona businesses refuse to disclose to those who might want to sue them what the company knew about defective products.

The legislation would create a special "privilege'' for health and safety reports and audits that companies do of their own products and practices. That means these reports can be kept confidential not only from those who file suit but also from government regulators.

But proponents of HB 2485 contend the measure actually will result in safer products because it will encourage companies to take a closer look at what they make and how they make it without fear that what they discover will end up being used against them in court.

And Rep. Heather Carter, R-Cave Creek, who is sponsoring what she called "cutting-edge legislation,'' said it would make Arizona more attractive for companies.

"If this bill does pass, we would be only second to Texas for this type of privilege,'' she said. "As businesses leave California, for example, rather than take a one-stop trip to Texas they might decide to stop in Arizona and consider our state to open up their shop.''

But Janice Goldstein, executive director of the Arizona Trial Lawyers Association, said the measure actually could lead to less safety for consumers. She said it will allow companies to hide what they knew about the dangers of their products even as they continue to market them.

The concept is not totally new to Arizona.

Lawmakers have previously approved a similar shield for "environmental audits.'' In essence, a company that finds it has been polluting and then remedies the problem can shield those documents from outsiders who might otherwise use that information to sue.

Rep. Eddie Farnsworth, R-Gilbert, said he sees this new measure as promoting safety because, to gain that privilege from release, a company has to make the necessary changes.

"If they choose not to fix a problem they found in the audit, then that is no longer privileged,'' he said.

But Rep. Ruben Gallego, D-Phoenix, worried about what information might be withheld.

For example, he said a child care center, after doing an internal review, might find out that one of its employees was unqualified to be working there and then fire that person.

"Essentially, there's no harm, no foul and there is no reason for them to basically tell the parents that dropped the kids off at the center that, by the way, we messed up,'' Gallego said. "There's no process to force them to do that ... as long as they took care of the problem.''

Farnsworth said that's true -- as long as the child care center was not violating any criminal laws. But he said the legislation does contain provisions which permit government agencies to review the documents, though they cannot share them with outsiders.

He said, though, in that case the law would be doing what it was designed to do.

"That's the whole point of the privilege, to incentivize them to fix these problems,'' Farnsworth said. "So it really comes down to whether we want to create an incentive for people do internal audits and fix their problems or not.''

Goldstein said she can envision a more problematic situation if the company involved manufactures cribs.

She said a safety audit might conclude that the cribs are designed in a way to be dangerous. Under the bill, if the fix is made within six months, the result of that audit would remain confidential.

But Goldstein said that provides no help for someone who purchased a crib during that six-month period whose child was injured or died and hopes to prove in court that the company knew of the defect but failed to remove the crib from the market.

Farnsworth, however, said nothing in the legislation precludes plaintiffs and their attorneys from pursuing other company documents that may help them prove their case. He said only the audit remains off limits.

Chad Heinrich, lobbyist for the Greater Phoenix Chamber of Commerce, said the measure would address two important issues for businesses in their dealings with regulators.

"How much time are we going to invest in complying with regulations and what's our predictability in that environment,'' he said.

Gallego said he remains unconvinced that keeping documents from the public is a good idea.

"In general, transparency is a good thing,'' he said. "It's a good thing for government, it's a good thing for corporations.''

But Rep. David Livingston, R-Peoria, said he sees the measure through the lens of what it means for economic development.

"I am very pro-business and I'm proud of that,'' he said.

Rep. Justin Pierce, R-Mesa, echoed that theme.

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