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: