BIZWATCH

By KATHLEEN ADAMS, BERNARD BAUMOHL, JOHN GREENWALD, JERRY HANNIFIN, STACY PERMAN AND JANE VAN TASSE

NEXT TIME TRY CANING

No issue divides consumers and executives more than jury awards of gazillions of dollars in punitive damages against companies for making faintly faulty products. Business was thus overjoyed last week when the Supreme Court for the first time struck down a punitive award as "excessive" and thus a violation of the constitutional requirement of due process of law. In a 5-to-4 ruling, the high court threw out a $2 million damage award to an Alabama man who bought a new $40,000 BMW 535i without knowing that it had a slightly spruced-up paint job. BMW said it spent $601.37 to retouch the 1990 sedan after it had been damaged in shipping. But an Alabama jury awarded the plaintiff $4,000 in the 1992 case for loss of value and tacked on an additional $4 million in punitive damages, which the state supreme court later cut in half.

Last week's decision had political overtones because President Clinton, with the support of trial lawyers, recently vetoed a bill that would have put limits on punitive damages. Republicans have vowed to raise the issue in this year's elections.

MILLIONAIRES' CLUB

Top product-liability jury awards of the 1990s

$350 million (1995) Estate of Barnett v. Turbomeca, S.A.; Turbomeca Engine Corp.; Rocky Mountain Helicopter

$127 million (1991) Proctor v. Upjohn Co., et al (reduced twice, reversed, now on appeal)

$105 million (1993) Moseley v. General Motors Corp. (reversed and settled for unknown amount)

$90 million (1995) Rodriguez v. Suzuki Motor Co.

$21.55 million (1991) Strothkamp v. Cheeseborough-Pond's Inc. (thrown out in posttrial motions)

Source: Margaret Cronin Fisk, The National Law Journal

FILL 'ER UP, SADDAM

They danced in the streets in Baghdad and broke out the high test in the U.S. last week when the United Nations agreed to let Iraq resume selling oil for the first time since its 1990 invasion of Kuwait. But oil prices promptly surged in futures trading, dashing hopes for quick relief from gasoline prices that have climbed nearly 20' per gal. in the U.S. since February.

The topsy-turvy response reflects the fact that Iraq won't begin exporting oil until July, when gas-guzzling American vacationers galore will be hitting the road. Nor will the 700,000 bbl. a day that Baghdad will be allowed to sell to raise hard currency for food and medicine amount to more than a 1% boost in worldwide oil production. Nonetheless, experts say Iraqi oil should help lower U.S. pump prices by midsummer. Daniel Yergin, president of Cambridge Energy Research Associates, estimates that gas prices could fall as much as 10' per gal. before the end of the driving season.

MONOPOLISTS "R" US?

In its ads, Toys "R" Us claims to have the best selection in town. No wonder, says the Federal Trade Commission, which last week charged the world's largest toy retailer with illegally using its 20% share of the $19 billion U.S. toy industry to pressure manufacturers into withholding their hottest products from warehouse discounters. In denying that Toys "R" Us had done anything wrong, CEO Michael Goldstein declared that the company had an "unquestionable right to refuse to carry the same items as warehouse clubs." Goldstein said he was "astounded" that the FTC would bring such a complaint against what amounted to a common retailing practice. Toy watchers were startled as well, because the Feds also say those Barbies, G.I. Joes and Buzz Lightyears that your kids are clamoring for could be overpriced. Yet the company, with sales of $9.4 billion last year, has been struggling to improve the bottom line in a cutthroat environment. "It's hard to make the case that there is a lack of competition in the toy industry," says Sean McGowan of Gerard Klauer Mattison. "Price competition is brutal and getting worse every year." McGowan notes that big retailers often warn manufacturers, "'If you sell to XYZ, I'm not going to buy from you.' That happens in every industry."

FEAR OF NO-FRILLS FLYING

Tiny Nations Air has never had an accident or a safety-related operating incident in its 15 months as a scheduled airline between Boston, Philadelphia and Pittsburgh. Nor will it. Last week Nations Air became a charter airline, having become the first business casualty of the May 11 crash of ValuJet Flight 592 in the Florida Everglades. Skittish consumers canceled 40% of the airline's reservations, leaving CEO Mark McDonald with little choice but to fly for hire.

The plight of Nations Air showed the public's concern about the safety of low-cost airlines as investigators dredged the swampy ValuJet crash site for clues to the cause of the accident. Such fear of budget flying could result in higher U.S. airfares if no-frills carriers halt or cut back service. ValuJet, which suspended 50% of its 320 daily flights after the accident, said last week it doesn't intend to return to full service before the fourth quarter.

The airline also disclosed that Timothy Flynn, one of its four founders, dumped 1.5 million of his 6 million ValuJet shares last week to pay off loans he had used to make investments. That hardly discouraged bargain hunters from descending on shares of the profitable carrier. The stock, which fell from 17 7/8 the day before the crash to a low of 11 1/4, closed at 13 1/8 last week.