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TASER Gets Tagged

Tag, TASER (Nasdaq: TASR  ) . You're it. Finally.

On Saturday, the stun-gun maker issued a press release in which it said a jury in Arizona had assigned to it a portion of the blame for the death of Robert Heston in a 2005 police action. The penalty: $6.22 million in compensatory and punitive damages.

Investors aren't happy; shares of TASER are down more than 10% as I write.

That's understandable. Too many underperforming companies have been subject to huge settlements over the past 12 months, including American Express (NYSE: AXP  ) , National City (NYSE: NCC  ) , and Alcatel-Lucent (NYSE: ALU  ) .

But TASER didn't settle. It lost and could win on appeal. Thus I'm forced to ask: Is this sell-off really fair? We've long known a trial loss was possible, and with the volume of filings against TASER -- more than 40 product-liability cases are in process, per the latest quarterly report -- a setback was virtually guaranteed. That's why, to this day, TASER carries litigation insurance.

TASER says it does plan to appeal. But you can bet that, with this victory and the intriguing nature of the judgment -- that TASER was 15% responsible for the death -- more cases will be filed, and legal costs will rise. Dramatically.

Let's look back to look forward. When everyone thought TASER was vulnerable and competitors such as Stinger and Law Enforcement Associates were piling on, general and administrative costs spiked to $26.5 million in 2005 from $13.9 million the year prior. Since then, TASER has won most of the cases against it and settled others for what the company calls "nuisance value."

This idea of proportional blame could reverse the trend. I've always thought TASER was playing a zero-sum game. Winner take all; loser gets nothing. Whoops.

But is this ruling really as bad as it seems? Foolish colleague Rich Smith, a lawyer when he isn't penning articles for us, explained the idea to me in email over the weekend:

Turns out the concept is actually called "comparative negligence." Unlike "contributory negligence," where if you're partially at fault for an injury, you may not be entitled to compensation, in a State using the increasingly popular comparative negligence standard, you may still be able to cash in even if you're partially at fault." ... Example: I run a red light. Somebody with a green light runs into me. Maybe I'm 85% responsible for the damage to my car. Say the other guy is 15% responsible because he was driving too fast. If I sue for $10,000, under this form of comparative negligence, I get $1,500 in damages.

Sounds logical. The danger is that TASER could have to prove that it never, ever is a contributor -- even a minor one -- in wrongful-death cases in states where "comparative negligence" is a potential outcome. Call it a zero-sum game that investors would probably prefer that TASER didn't have to play.

A stunning array of related Foolishness awaits:

TASER is a two-time Rule Breakers recommendation. Try this market-beating service free for 30 days. There's no obligation to subscribe.

Fool contributor Tim Beyers, who also writes for Rule Breakers, didn't own any of the stocks mentioned in this article at the time of publication. See Tim's portfolio and his latest blog entry. American Express is an Inside Value pick. The Motley Fool's disclosure policy is a stunner.

Read/Post Comments (4) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 10, 2008, at 4:02 PM, BartSimpson888 wrote:

    Dont gun manufactures have this same problem???

  • Report this Comment On June 10, 2008, at 5:21 PM, VAContrarian wrote:

    As a lawyer, Rich Smith should also know how ridiculous this verdict is because the theory of liability was supposedly a "failure to warn." Warn who? The user, of course -- even if there were some liability. The plaintiff was not a user of the device; therefore, there can be no duty to warn him. The only theoretical duty to warn would be to the police. Let's say that multiple shocks are more dangerous (despite no actual proof from studies that the Taser stun has any effect on the heart), then that would mean the police should be warned about the possible harm from multiple uses and make sure the force is justified. What kind of warning was the Plaintiff due from Taser in this case? -- Make sure you don't get yourself stunned multiple times from a Taser - especially if you have ingested a lethal dose of methamphetamines!? You've got to be kidding me!

    Also, if the police were to have used bullets instead, does that mean gun manufacturers have to warn them (the police) that it might be more dangerous (to the suspect) if they shoot him 3 times instead of once? Duh? And according to this jury's theory, gun manufacturers should have to warn criminals that they might have a higher risk of death if they are shot more than one time? Double duh?

    This verdict is even more absurd than the hot coffee liabiltiy to klutz's who spill it on themselves. I guarantee it will be fully overturned. I wuold be very surprised if the trial judge didn't set aside the verdict and/or order a new trial. As an attorney, I also don't see how punitive damages can ever be upheld (even in a legitimate comparative negligence case) when the victim was found to be more than 5 times as responsible as the defendant.

  • Report this Comment On June 11, 2008, at 1:18 PM, DiversifyFool wrote:

    Please read carefully before wasting everyone's time with flaming replies. I am both a retired cop and a long-time TASR shareholder. I am not "bashing" the officers. (I have done well trading around my position, particularly buying from uninformed panic sellers).

    I would say that there is a near 100% chance that this verdict will be overturned -- completely -- for a few reasons, including:

    1. The law, as described by the previous poster, VAContrarian.

    2. A good private investigator likely will find juror misconduct -- considering facts not in evidence. The hysterical and 99% incacurate reports that tasers have caused many deaths permeated the media before and during the trial. The media continually reports this, despite the fact that ALL medical studies, including when a Scum was zapped my multiple tasers.

    3. If anyone has any contributing negligence, it is the officers' employers. Never does Taser (or common sense) say that if a Taser is ineffective, that you should pull out more Tasers and keep zapping for an extended period of time. Training must have been defective.

    I will be looking in to this further, but it makes no sense that the City was not found liable.

    Anyone who wants to know the facts about TASR should check out the Motley Fool bulletin board. I, and others, have posted some good stuff, tearing apart both anecdotal and imperial reports about Taser use. Facts have been reported, you decide.

    Y'all might want to check out Taser's new products, another fact being completely ignored by the markets. Taser's brand name alone is worth twice its current market cap. (And a deep pocket acquirer would not be affected, and could put an end to the nuisance lawsuits).

  • Report this Comment On June 11, 2008, at 6:42 PM, PrudentSelection wrote:

    I disagree with the comment above from Diversify. A deep pocketed acquirer wants nothing to do with a liability trap. That just means deeper pockets for the plaintiffs' bar to go after. Many a giant company (Owens Corning, WR Grace, National Gypsum) went into bankruptcy because they acquired a small subsidiary that produced asbestos. Look at the big pharma companies - their size doesn't deter plaintiffs, it emboldens them. Look, lawyers will be taking shots at TASR now but the big hitters (the tobacco, asbestos, pharma crowd) won't get interested unless they are looking at a 9 figure payout. You're not getting that from TASR, but you could from a larger defense company or conglomerate. And that's when the gloves come off. Don't buy this on the theory that it would have additional value to a larger acquirer because such acquirer could deter lawsuits.

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