Courting danger: The latest Latin American export to the United States: Product liability lawsuits. (Special Report).

The U.S. Supreme Court recently had before it a tobacco lawsuit. But it was no ordinary product liability case. This legal action was filed by the Guatemalan and Nicaraguan governments for smoking-related illnesses that occurred in Latin America.

A decade ago, an international lawsuit like that would never have seen the inside of a U.S. courtroom. In swelling numbers, however, Latin American governments, companies and individuals are suing U.S. multinationals on their home turf, the United States, in a bid to win fat product liability awards.

"If you're going to reap the economic advantages of selling your product abroad, you'll have to face the lawsuits, too," says Victor Diaz, one of the best-known attorneys in liability cases involving Latin America. "This kind of litigation, especially with globalization, is going to increase."

American Airlines lost a U.S. lawsuit filed by the families of victims in a 1995 crash near Cali, Colombia. A federal court in Florida is hearing the case of allegedly defective Bridgestone/Firestone tires on Ford Explorers in Venezuela. In another Florida court last year, two Ecuadoran shrimp producers were awarded US$22 million for losses they suffered from contamination by a DuPont pesticide. In a separate case, a jury in Miami ordered DuPont to pay $78 million to a pair of Costa Rican plant nurseries that claimed fungicide produced by the chemical company had ruined their ornamental plants; the cases of four other nurseries are still pending.

"Latin American cases have appeared in the last few years with Florida becoming a hotbed. It's a center for Inter-American commerce and a center for Inter-American litigation," says Diaz, at the Miami law office of Podhurst Orseck Josefsberg Eaton Meadow Olin & Perwin. Attorneys say Florida courts saw at least 15 Latin American cases last year. Additional cases have surfaced in other U.S. states and the District of Columbia.

In the past, lawsuits generally were filed where the damage occurred. But globalization has blurred the borders. What happens if a U.S.-engineered product, made in Brazil causes damage in Uruguay? What if an Argentine part, used in a U.S. carmaker's vehicle assembled in Mexico, is cited in an injury in Guatemala? What about U.S. products that spark lawsuits because of something that happens while they're in transit from one Latin American country to another? Courts in the United States are suddenly being called to sort out such complaints.

There are two big reasons why the United States is the preferred locale for litigation: deep pocket awards and laws that favor plaintiffs. "The United States imposes liability on a manufacturer or company even if the company has shown care," says Sara Schotland, a product liability lawyer in Washington, D.C. She says the country is also notorious for exorbitant damages, both pain and suffering and punitive awards. "In most states, the sky is the limit on the amount of pain and suffering that is awarded," she adds.

Not just individuals and companies are flocking to U.S. courtrooms. In an ironic twist, several Latin American governments have even bypassed their home courts to seek retribution from the U.S. justice system, enticed by the multi-billion dollar tobacco awards. In addition to the Guatemalan and Nicaraguan lawsuit against Philip Morris and other cigarette makers, Ecuador, Honduras, Belize, three Brazilian states and four Brazilian cities have sued a dozen tobacco companies in the United States. The Ecuadoran case was dismissed; the others are pending.

Going for the gold. In South America, product liability suits are heard by judges--not juries--who are barred from imposing punitive awards. "Damage cannot be used as a mechanism to enrich the victim," says Alejandro Hernandez, a lawyer with Ferrere Lamaison in Montevideo. That's to say, a consumer can be compensated for losses or damage created by the product, but there cannot be additional punitive fines against the company.

As a result, average damage awards in Argentina run about $87,000, says Herndndez, who has tracked liability actions in the region. He says the size of the awards are directly linked to the age--and earning power--of the plaintiffs. The largest awards go to plaintiffs between 30 and 39 years of age; successful litigants over age 80 generally see less than $29,000. Hernandez says awards in Brazil and Uruguay are comparable to those in Argentina. In Peru, where product liability complaints are not common and courts are generally viewed with distrust, awards as high as $85,000 have been issued in cases involving wrongful death, but the average is only $1,300.

There's another reason why Latin American litigants prefer suing in the United States: Out-of-court settlements are possible as an alternative to lengthy and expensive trials. "In Brazil, it's rare to settle a case before you go to court:' says Luiz Guilherme Migliora, a partner at the law firm Veirano & Advogados Associados in Rio de Janeiro.

Lawyers for the companies being sued generally battle to keep the legal action in Latin America, where damages are lower and burden of proof favors the defendants. But for those filing the lawsuit, the goal is usually a U.S. courtroom (and better yet if it's a state court where jury awards tend to be higher than in federal courtrooms). To get a hearing, however, the plaintiffs must show a geographic reason why the court should handle the case. Often they point to the location of corporate headquarters or where the troublesome product was designed.

U.S. courts are fussy about meeting the criteria. With already over-burdened court dockets, most judges don't like the cross-border cases because they are lengthy, complicated and expensive. Witnesses and documents must be transported to the United States. Testimony often must be given through translators. And many judges balk at hearing complaints involving foreign law.

As a result, judges often dismiss international product liability lawsuits. In the case of the Central American governments suing the tobacco companies, the governments' health ministries wanted the cigarette makers to reimburse them for the cost of treating smokers who fell ill. The U.S. courts ruled they did not have jurisdiction. Still, U.S. courts hesitate to throw out such cases when the litigants have no other remedy, and there is a growing fear that U.S. courts could become the courts of last--and only--resort.

Setting the stage. While the legal concepts behind product liability and consumer protection have been around for ages, the number of lawsuits has skyrocketed in the United States in just the last 10 to 15 years. In Latin America, the lawsuit mania is even more recent, with the legal framework for such cases still emerging.

Product liability lawsuits follow growing interest in consumer rights. The Latin American rights movement gained momentum with privatizations; consumer protection became a byproduct of the strategy for wooing opponents of the privatizations of telephone service, water and other public utilities. Lawmakers in Brazil started to take an interest in such rights in 1990; a dozen years later, South America's largest country boasts what is viewed as the region's most complete product liability protection. Uruguay, which balked at privatizations, didn't pass liability protection laws until 2000.

Furthermore, even though most countries modified their consumer protection and liability statutes in recent years, the laws differ dramatically from country to country. Mexico, for example, accepts lawsuits even if a company was acting legally when the injury occurred. Other countries in the region do not. Peru requires mandatory mediation for some lawsuits. When deciding verdicts in Argentina, the opinions of legal scholars can carry more weight than court precedents.

Latin American legal experts say there needs to be more uniformity when it comes to law, just as there is in trade practices. But the differences among nations in the Americas are daunting. A U.S. shield law keeps corporate directors from liability in many cases. In Venezuela, by comparison, individual executives face criminal prosecution if their company violates environmental regulations. In Brazil, if a product hits the market ahead of final Health Ministry approval, corporate officials can be criminally prosecuted.

"Our countries have a high opinion of their own sovereignty. They don't look to other countries to see what they're doing. Not even Uruguay looks to Argentina," says Argentine legal scholar Jorge Mosset Iturraspe. "For that reason, we have no shared agreements. The countries simply close their borders when it comes to laws."

Inconsistencies from country to country make it difficult for corporations to protect themselves from lawsuits. Some U.S. manufacturers have opened local facilities in each of the countries where they operate as a strategy for isolating other country operations from liability; failing to do that, they often seek to locate their headquarters away from U.S. states known for high jury awards. Multinationals working in partnership with Latin American companies also plan carefully to limit their liability. And when corporations settle cross-border cases in the United States, they seek agreements that preclude them from being sued again by the same plaintiffs in a Latin American court.

Belated action. Product liability lawsuits arrived before a globalized legal structure was in place to deal with them, sparking today's catch-up effort toward harmonized laws. The National Law Center for Inter-American Free Trade, set up to rectify trade practice disparities during negotiations over the North American Free Trade Agreement, is currently preparing a report on Latin America and product liability lawsuits. The aim is to develop suggestions for streamlining legal issues across borders. Boris Kozolchyk, director of the Tucson, Arizona-based law center, says uniformity in procedures--rather than in size of awards or extent of liability--is likely to be the first step.

Florida attorney Luis Perez says shifts are already evident, "Latin America may be lagging behind us a few years but what we see there mirrors what we are seeing here," says Perez, a lawyer at Shook, Hardy & Bacon in Miami. "Countries like Venezuela, like Brazil and Argentina are becoming more favorable to punitive damages."

Some of the countries are also embracing legislation that raises the hackle of legal scholars in the region. Ecuador's recently implemented Law 55, for example, bars its courts from hearing lawsuits that are first filed in foreign courts, even if foreign judges throw out the cases. That controversial law threatens to turn U.S. courts into the only recourse in some cases. It also brings to the forefront the question of how well Ecuador's legal system--at least when it comes to product liability--is protecting its own constituents.

Other Latin American legislative bodies are responding to public demand by updating laws. And corporations themselves have undoubtedly modified policy in a preemptory way, complying with U.S. laws even when they are doing business in countries with more lax standards and adopting global operating procedures. But the legal system's rejiggering, within and without, promises to be a slow and complicated process.

In the interim, the United States is dealing one-by-one with the lawsuits as they arise--and that promises to be no small task. As John Molloy, a former U.S. judge now working at the National Law Center, puts it: "We're now bringing in litigation from an entire continent."