Taser Settled 10 of 52 Cases It Said Were Dismissed
Aug. 2 (Bloomberg) -- Taser International Inc., the world's largest maker of stun guns, talks tough when the subject turns to people who've sued the company for injuries or deaths allegedly inflicted by electric shocks from its weapons.
``The word has gotten out: Taser doesn't settle,'' Taser General Counsel Doug Klint said in an April interview. ``Anyone who sues us is in for a fight.''
Not necessarily. The Scottsdale, Arizona-based company has settled at least 10, or about 19 percent, of the 52 product- liability cases it claims to have won through a court dismissal or judgment in its favor. Bloomberg was able to identify seven settlements through court records and interviews with plaintiffs' attorneys. Klint, under questioning, conceded three more.
When asked July 30 if the number could be higher than 10, Klint said, ``it could be,'' then added ``10 is a good number.'' Klint said he wouldn't comment on individual cases.
Lawyers for alleged Taser victims say the company overstates its legal scorecard to discourage lawsuits and boost its stock price.
``They're trying to deter other litigants while making themselves look good to investors,'' said Las Vegas attorney E. Brent Bryson, who represents plaintiffs in two cases over Taser- related deaths.
Shares of Taser gained 34 cents, or 2.3 percent, to $14.93 at 4 p.m. in Nasdaq Stock Market composite trading. The stock has climbed 57 percent in the past two years as the company issued press releases on rulings in its favor. The shares have risen an average of 2 percent, and as much as 11 percent, on the day of the announcements. Lawsuits and other allegations that the weapons were unsafe pummeled the company's shares in 2005, when they fell 78 percent.
Controversy in 2005
``There was a lot of controversy in 2005, a lot of concerns about the safety of the product, but I think after 52 consecutive wins in court, we've laid the concerns to rest,'' Chief Executive Officer Rick Smith said in a July 23 interview. Asked whether the company considers settling, he said: ``We like to litigate every one that we can.''
In the July 25 interview, Klint said he considers it a ``win'' when, for example, the company settles for $10,000 rather than pays $250,000 to litigate a case.
``The big concern with our investors is we're smart in terms of the way we handle our litigation,'' he said.
Taser doesn't identify these cases as settlements in SEC filings and instead describes individual settled cases in these reports as ``dismissed with prejudice,'' Klint said.
Court Procedures
Asked why, Klint said: ``The procedure for a case is that there is a confidential settlement and what we report are the public filings.''
When lawsuits are settled, under court procedures, they are commonly ``dismissed with prejudice,'' meaning the case is over. Klint said it wasn't misleading to describe these as dismissed rather than settled.
Revelations about Taser's actual legal record likely won't spur new lawsuits from shareholders or those allegedly injured by the company's weapons, said Lee Schultheis, chief investment officer of Chappaqua, New York-based Alternative Investment Partners, which owned 67,000 Taser shares as of March.
The company's legal record is ``certainly important to investor confidence'' and Taser would probably want to clarify it, Schultheis said in a July 25 interview.
``We're accurate in what we report,'' Klint said.
Smith, in a Dec. 14 deposition obtained by Bloomberg News, said Taser has entered into several settlements with agreements requiring confidentiality. Smith founded the company with his brother, Thomas, in 1993.
`Customer Base'
``We made the determination that it was not in our best interest to be across the courtroom from our customer base,'' Smith testified about suits the company had settled with police officers who claimed they had been injured in training accidents.
In the same deposition, given in two product-liability cases over the deaths of men Tasered by police, Smith said the company had settled ``four or five'' police training cases.
Klint said the police officer settlements total less than $500,000.
Taser's stun gun, sold mainly to police departments, fires two insulated conductive wires with barbs at the end as far as 35 feet, delivering a 50,000-volt jolt that temporarily paralyzes the target.
The company is benefiting from increased sales to the military and earlier last week began selling a less-powerful, palm-sized consumer version that comes in four colors including metallic pink and electric blue. In its July 23 earnings press release, Taser said it posted a profit of $3.7 million as sales climbed 59 percent to a record $25.9 million.
Refusal to Settle
Taser's refusal to settle personal-injury or wrongful-death claims has resulted in fewer lawsuits being filed, Klint said. While about 50 suits are still pending, Taser has seen a ``significant decline'' in the rate of new litigation, Smith said in the interview.
Some investors selling short are betting on a repeat of the 12 months ending March 2005, when shares lost about half their value three times following news of lawsuits and a U.S. Securities and Exchange Commission probe of its safety claims, orders and stock trading.
More than 24 percent of Taser's shares available for trading were sold short as of mid-July, according to data from the Nasdaq Stock Market. Short interest climbed to 13.8 million shares from 10.3 million in December as the stock price jumped 92 percent this year.
Short Sellers
Short sellers sell stock they've borrowed, betting that they'll eventually be able to repurchase the securities at a lower price before it's time to return the stock to the holder.
Two of the five analysts surveyed by Bloomberg recommend that investors buy the shares, two say ``hold'' and one rates it a ``strong sell.''
To be sure, Taser has prevailed in the majority of cases filed against it, including the two that have gone to trial.
The company includes a disclaimer in regulatory filings that it ``may settle a lawsuit in situations where a settlement can be obtained for nuisance value and for an amount that is expected to be less than the cost of defending a lawsuit.'' Such settlements would be confidential, Taser said in its May 10 SEC filing.
According to Thomas McHugh, a Mount Clemens, Michigan, attorney, Taser settled a case brought by his client, Michigan police officer Ronald Lipa, who sustained arm injuries while using a Taser in a training class.
Shares Rose
In a Jan. 9, 2006, press release, Taser said the case had been dismissed with prejudice. Taser shares rose 8.3 percent the day the release went out and 7.2 percent the following day.
``They can call it whatever they want, but we didn't lose,'' McHugh said in an interview. ``It was a secret settlement.'' He said he couldn't discuss the terms of the settlement.
``There's a big difference between a settlement and a dismissal,'' said New York securities attorney Robert Zito, who isn't involved in the litigation and doesn't represent Taser. ``A dismissal means to most people there was no merit to the lawsuit. A settlement means there may be some merit to the lawsuit.''
An Ohio case, brought by police officer Tina Stevens, was settled in June 2006, following a settlement conference, according to a court filing. Stevens said she sustained permanent shoulder injuries when she was Tasered during a training exercise.
``The parties entered into a `settlement and confidentiality agreement and general release.' This case, therefore, is ordered dismissed with prejudice,'' U.S. Magistrate Judge Norah McCann King's June 19, 2006, order read.
`Speaks for Itself'
Taser shares rose 2 percent the day the company issued a press release announcing it won the Stevens case.
``The court document speaks for itself,'' said Stevens's attorney Frederic Portman, who said he couldn't discuss the case.
One claim appears twice on Taser's win list. David Howard, a Kansas police officer who had been injured in a training accident, sued Taser in federal court in Kansas and state court in Arizona. Howard dismissed his action in Kansas in 2006, while continuing the case in Arizona.
In January, according to the Arizona court docket, Howard and Taser asked for a continued stay while conducting a private mediation. There were no adverse decisions against Howard in the lawsuit, according to the court docket. In February, the lawsuit was dismissed with prejudice.
Attorney John Dillingham, who represented Howard, said he couldn't talk about the case.
A second Arizona case, brought by police officer Eric Gallant, was dismissed in December following a notice in the docket that a settlement conference was set.
Police Officer Clients
Dillingham, who also represented Gallant, said he couldn't talk about that case either, or about those of two other police officer clients on Taser's list that were dismissed.
There were no rulings against his clients requiring dismissal in those cases, he said. Dillingham said he lost two cases against Taser for two other clients, one when it was dismissed on statute of limitations grounds and the other at trial.
Klint confirmed that the Stevens case was settled when asked about the court's order. He declined to talk about the other police cases.
``We won't tell which cases are settled,'' he said.
Taser doesn't settle lawsuits brought over injuries caused by police use of the product, Klint said. ``We never say never, but our policy is not to settle those,'' he said.
``We stand firm in our policy not to settle suspect injury or death cases,'' Smith said in a June 22 press release headlined ``51st Product Liability Lawsuit Dismissed Against Taser.''
Florida Lawsuit
Taser settled a Florida lawsuit that didn't involve a police officer injury, said attorney Earl Johnson Jr. Milton Woolfolk Jr., a Gulf War veteran, was being brought in for a psychiatric evaluation at the request of his mother when police used Tasers to subdue him. He died of heart failure, said Johnson, who represents the Woolfolk family.
Woolfolk's family and Taser filed a ``notice of settlement'' with the court Feb. 26 that the parties ``have reached an amicable resolution to the dispute,'' according to court records.
The settlement was confidential, Johnson said in an interview. ``It was a monetary settlement,'' he said.
``No, it wasn't settled,'' Klint said. ``We absolutely did not pay him any money.''
Because of this dispute, the Woolfolk case isn't included among the 10 admitted settlements.
Litigation Record
Taser's public announcements about its litigation record could cause the company problems with the SEC, said attorney Zito.
``Typically what companies do is they will settle lawsuits with confidentiality and no one knows about it: the settlements are buried in financial records,'' he said. ``If you do that, that's okay, but the problem is that they're touting these as wins. Once you speak, you have to speak fully and truthfully.''
SEC spokesman John Heine declined to comment on whether an investigation will be opened, or if one is already under way. Klint said the SEC filings are accurate because they follow the language used in court documents.
The company also doesn't announce when it loses decisions on its motions to dismiss. There have been at least 14 of these, court records show. At least 11 of these lawsuits are pending.
A California federal judge in June 2006 denied Taser's motion to dismiss a wrongful death action brought by the family of Robert Heston.
Cardiac Arrest
Heston went into cardiac arrest and died after being hit 37 times by Tasers, said his family's attorney, John Burton of Pasadena, California. The suit alleges that Taser doesn't warn officers of the dangers of multiple hits. The trial is set for Feb. 12. At least six similar suits are also set for trial next year.
``They're going to get nailed,'' said Burton. ``It's just a matter of time.''
In-custody death lawsuits are more worrisome for Taser, said Las Vegas attorney J. Randall Jones, who represents police officers in three training-injury cases including one that recently settled. The potential number of cases filed by police officers is small and dwindling and the injuries are limited, he said.
A trial loss in one of the death cases would lead to a flood of more lawsuits, Jones said.
``If they get hit with one of those,'' he said, ``that could be a very bad hit on the stock.''
To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan at 2947 or
mcfisk@bloomberg.net; Jon Steinman in Washington at
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Last Updated: August 2, 2007 16:29 EDT
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