Foreign Manufacturer Liability Act Unlikely to Pass Soon

We have posted before about efforts to pass legislation that would impact the ability of U.S. consumers to sue foreign manufacturers.

As the end of the year approaches, it appears that the latest version, the Foreign Manufacturers Legal Accountability Act (FMLAA) of 2011, will not be approved. Senate Bill 1946 and House of Representatives Bill 3646 are among the latest attempts to impact suits against foreign product makers.  Both would require foreign manufacturers importing products into the U.S. to establish a registered agent to accept service of process. And the registration of the agent would constitute consent to the personal jurisdiction in the U.S.  

Earlier versions of the legislation gained support in the wake of issues relating to products from China and, especially, the Chinese drywall litigation. Supporters of the legislation included some domestic industries, such as textiles. They also garnered opposition from foreign governments, some U.S. manufacturer groups, and non-U.S. manufacturers in the European Union and the Confederation of Indian Industry, and others. Even supporters noted that the bills did not directly address another related issue, the enforcement of U.S. judgments overseas. 

 

Successor Liability Rejected in Aircraft Case

One of the interesting types of projects your humble blogger gets to work on from time to time concerns product liability and mass tort issues that arise from the M&A context, including due diligence going into a deal and successor liability issues coming out of a deal.  Recently a federal court held that the successor to the assets of an aircraft manufacturer was not liable for injuries arsing from the crash of an airplane built before the acquisition. See Thornton v. M7 Aerospace LP, No. 12 C 329, (N.D. Ill., 10/23/12).

The aircraft was a Fairchild Aircraft SA227-DC Metro 23, with tail number VH-TFU.  On approach to Lockhart River Airport, Australia, the aircraft crashed, resulting in the deaths of the passengers and crew. The incident was one of the worst civil aviation accidents in Australian history.  The plane was designed, manufactured, assembled, tested, and sold by Fairchild Aircraft, Inc. Fairchild went bankrupt in 2002 and as a result, Fairchild and defendant executed an Asset Purchase Agreement.  The agreement stated that the buyer/defendant assumed no ”liability for personal injury or property damage arising at any time out of or in connection with goods manufactured, produced, distributed or sold by the Sellers prior to the Closing Date, including but not limited to any Product Liability claims." 

In 2007, plaintiffs commenced this negligence and strict products liability action against numerous defendants including defendant M7. In the Second Amended Complaint, plaintiffs asserted claims against M7 in two categories: direct claims and indirect claims. First, plaintiffs’ indirect claims sought to impose vicarious liability on defendant as successor-in-interest to Fairchild. Plaintiffs alleged that defendant “is indirectly liable in strict product liability and negligence for the actions of its predecessor, Fairchild, in its defective and negligent design of the [Subject Aircraft], its failure to warn of the defects and its failure to advise operators to fit the aircraft with an "Enhanced Ground Proximity Warning System.” Second, plaintiffs’ direct claims sought to impose liability on defendant for its independent conduct in allegedly breaching of its own duty to so warn and advise.

The EGPWS claims argued M7 was negligent in failing to advise the owner and operator of the aircraft to install a new system that system was an improvement on the conventional ground proximity warning system because, among other reasons, it allegedly was capable of providing increased warning time to pilots about potential terrain conflicts by incorporating additional functions into the conventional ground proximity warning system.

Defendant moved for summary judgment.  On plaintiff’s claims of successor liability, it argued that
M& had as a matter of law “no liability as the successor corporation to Fairchild.” The Court agreed.
Under applicable Illinois law, a corporation which purchases the assets of another corporation is not generally liable for the debts and liabilities of the transferor in the absence of an agreement providing otherwise. The court explained that this traditional rule of successor corporate non-liability developed as a response to the need to protect bona fide purchasers from unassumed liability and was designed to maximize the fluidity of corporate assets. See Diguilio v. Goss Int’l Corp., 389 Ill. App. 3d 1052, 1059-60, 329 Ill. Dec. 657, 906 N.E.3d 1268 (Ill. App. Ct. 2009).

 A successor corporation can face liability, if one of the following four exceptions applies: (1) if there is an express or implied agreement of assumption; (2) if the transaction between the purchaser and the seller corporation is a consolidation or merger; (3) if the purchaser is a continuation of the seller; or (4) if the transaction is an attempt to escape liability for the seller’s obligations.  Illinois does not recognize the so-called product line exception.

Here, the undisputed evidence showed that the Bankruptcy Court approved the transfer of
Fairchild’s assets “free and clear of any and all liens, claims and encumbrances”, and to a purchaser that was not an insider, affiliate or owner of Fairchild. Plaintiffs argued that defendant ought to have successor liability because it “impliedly assumed Fairchild’s continuing duty to warn.”  But, the court noted, the question is not whether M7 impliedly assumed a duty to warn, but rather whether M7 had an implied agreement with Fairchild whereby M7 agreed to assume Fairchild’s liabilities.  And it did not.

On the direct claim, plaintiffs alleged that defendant owed – and breached – an independent duty to advise owners and operators of the accident aircraft to fit that aircraft with an Enhanced Ground Proximity Warning System. To prevail on their claims of direct (i.e. non-successor) liability, plaintiffs needed to establish that defendant owed an independent duty to warn of the alleged defects in the plane.  Illinois courts have recognized a limited cause of action against the purchaser of a
product line for failing to warn of defects in its predecessor’s products. See Kaleta v. Whittaker Corp., 221 Ill. App. 3d 705, 715, 164 Ill. Dec. 651, 583 N.E.2d 567 (1991).  The critical element required for the imposition of this duty is a continuing relationship between the successor and the
predecessor’s customers benefitting the successor. To determine the presence of a nexus or
relationship effective to create a duty to warn, the following factors are considered: (1) succession to a predecessor’s service contracts; (2) coverage of the particular machine under a service contract; (3) service of that machine by the purchaser corporation; and (4) a purchaser corporation’s knowledge of defects and of the location or owner of that machine.

Here, viewing the evidence in the light most favorable to plaintiffs, there was an insufficient nexus or relationship between defendant and the operator of the aircraft to impose an independent duty to warn upon defendant. Plaintiffs focused their argument on the relationship between defendant and the product line generally, but that is not the legal standard: Illinois law focuses on the relationship between the successor (here, defendant) and the operator of the allegedly defective unit (here, Transair).  It was undisputed that M7 did not assume any of Fairchild’s serve contracts relating
to the plane, and that M7 never serviced, maintained, or repaired the plane. There was no evidence that it worked on or had any contact with the subject aircraft.

Finally, under a voluntary undertaking theory of liability, the duty of care to be imposed upon a defendant is limited to the extent of the undertaking.” Bell v. Hutsell, 2011 IL 110724, 353 Ill. Dec. 288, 293-95, 955 N.E.2d 1099 (2011) (stating that Illinois courts look to the Restatement (Second) of Torts to define the theory). Here, defendant argued that plaintiffs’ voluntarily undertaking theory fails because even if it undertook a duty (which it disputed) regarding warnings and advice to owners and operators, plaintiffs failed to proffer sufficient evidence of reliance. Again, the Court agreed. Illinois law requires proof of reliance; that is, proof that the operator (here, Transair) relied on the defendant’s voluntary undertaking of a duty to warn. See, e.g., Chisolm v. Stephens, 47 Ill. App. 3d 999, 7 Ill. Dec. 795, 365 N.E.2d 80, 86 (Ill. App. Ct. 1977). Plaintiffs offered no such proof.

Summary judgment granted.

New Product Liability Case Book

Although my teaching days are in the past (10 years as an adjunct at the University of Pennsylvania Law School), I still like to keep one eye on the literature. Interested readers may want to check out a new case book from Carolina Academic Press.  It is entitled  Products Liability Law: Cases, Commentary, and Conundra by Tim Kaye, a professor of law at Stetson University College of Law, a British lawyer bu original training.

The publisher notes: Products liability law is often confusing because it is in a state of constant flux as it confronts a number of challenges. Some such challenges are well known, such as the battle over the comparative merits of the Second and Third Restatements of Torts. Other equally important challenges may have, however, been somewhat overlooked by other texts, such as the growing use of bankruptcy protection laws to limit the consequences of supplying defective products, "and this book sets out to rectify such omissions."

While some other books leave the reader to sink or swim in a swamp of apparently contradictory doctrine, Products Liability Law promises to lay out from the beginning the elements common to all products liability claims. It then builds on this foundation by tackling each new area of the law in a lucid and reader-friendly manner, while explaining how each doctrine relates to the politico-economic and historical context in which the law operates, promises the publisher.

It was nice to see some old nuggets I used, like Boatland of Houston, Inc. v. Valerie Bailey on state of the art, and Borel v. Fibreboard Paper Products Corp. as an introduction to toxic tort product cases, side by side with newer cases, like Conte v. Wyeth, used here on the concept of reliance.
 

Supplementing the text with numerous original flowcharts, tables, and other diagrams—as well as asking thoughtful questions along the way—this book charts a careful and comprehensible course through the often tempestuous battleground of products liability law, says the publisher.  See if you agree.

 

Product Seller (Still) Has No Duty To Protect From Criminal's Use Of Product

Country music fans among our readers may recall the Garth Brooks' song "Longneck Bottle."  That tune, from his CD "Sevens," reached No. 1 on the country charts in 1997.  In it, the singer pleads for the long neck bottle to stay clear of his hand.  Today's post might be sub-titled, "longneck bottle stay clear of my face."  In Gann v. Anheuser-Busch Inc., No. 11-00017 (Tex. App. 7/26/12), a plaintiff asserted liability against the maker of a longneck glass beer bottle for injuries allegedly suffered when she was struck in the face by a bar patron wielding the bottle as a weapon.

While celebrating a friend’s birthday "at a bar known for its violence," according to the court, Gann was assaulted by a patron wielding a Budweiser “longneck” glass beer bottle. She sued for an alleged design defect in the bottle, with the typical strict liability and negligence counts.  The trial court granted summary judgment to defendants, and plaintiff appealed.

In a strict products liability action in which a claimant alleges a design defect, a Texas claimant must prove by a preponderance of the evidence that: (1) the defect renders the product “unreasonably dangerous;” (2) the defect was a producing cause of the personal injury, property damage, or death for which the claimant seeks recovery; and (3) there was a safer alternative design. TEX.CIV.PRAC.&REM.CODE ANN. § 82.005(a)(West 2011); Timpte Indus., Inc. v. Gish, 286 S.W.3d 306, 311 (Tex. 2009). To determine whether a product was defectively designed so as to render it unreasonably dangerous, the courts apply a risk-utility analysis that requires consideration of the following factors:
(1) the utility of the product to the user and to the public as a whole weighed against the gravity and likelihood of injury from its use;
(2) the availability of a substitute product which would meet the same need and not be unsafe or unreasonably expensive;
(3) the manufacturer’s ability to eliminate the unsafe character of the product without seriously impairing its usefulness or significantly increasing its costs;
(4) the user’s anticipated awareness of the dangers inherent in the product and their avoidability because of general public knowledge of the obvious condition of the product, or of the existence of suitable warnings or instructions; and
(5) the expectations of the ordinary consumer.

Defendant made an interesting threshold, no-duty, argument, that rings true to MassTortDefense. As a matter of law, Anheuser-Busch had no legal duty to design the longneck bottle against purposeful and criminal misuse because it satisfied its one and only legal duty: to design the bottle to ensure that the bottle was safe for its intended and ordinary use – storing beer.
In support of its argument, Anheuser-Busch cited to Venezia v. Miller Brewing Co., 626 F.2d 188 (1st Cir. 1980), a case we used when teaching products liability in law school. In Venezia, the federal appeals court applied Massachusetts law to hold that the plaintiff, who was injured by the broken shards of the beer bottle he deliberately threw against a pole, could not recover from Miller Brewing under a theory of negligent design, because the deliberate misuse of the beer bottle could not be characterized as an intended or ordinary use of the beer bottle. 626 F.2d at 189, 191-92.  The Texas court of appeals felt that it need not address this issue of duty however, given the other fatal flaws in plaintiff's case.

Specifically, plaintiff argued that beer bottles are used commonly in assaults in the local community, that the longneck portion of the bottle is merely cosmetic, and that Anheuser-Busch also can use stubby glass bottles and plastic bottles as suitable containers for beer. However, contrary to her assertion, Gann failed to produce evidence raising a genuine issue of fact that the risk of injury from the longneck bottle outweighed its utility, and therefore that the bottle was defectively designed so as to render it unreasonably dangerous. Specifically, plaintiff failed to adequately address: (1) whether manufacturing a stubby glass bottle or plastic bottle is sufficiently economically feasible; (2) whether eliminating the allegedly unsafe character of a longneck bottle significantly impaired its usefulness or significantly increased its costs; and (3) what the expectations of the ordinary consumer are with regard to this kind of bottle.

Turning to the negligence count, the threshold inquiry in a negligence case is duty. Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995). Generally, no person has a legal duty to protect another from the criminal acts of a third person. Timberwalk Apartments, Partners, Inc. v. Cain, 972 S.W.2d 749, 756 (Tex. 1998). (One exception to this rule may apply when a person controls the premises where the criminal acts occur.)   Whether a duty exists is a question of law for the court to decide from the facts surrounding the occurrence at issue. (Other courts may analyze this issue as one of causation, with the criminal act of the third-party breaking the chain of causation from defendant's alleged negligence to plaintiff's alleged injury.)

Plaintiff argued that because defendants did not contest that the use of longneck bottles as weapons in bars has happened, and thus was arguably foreseeable (cue "Friends in Low Places"?), the defendants then had a legal duty to protect her from being assaulted in such a situation. Even conceding that it is reasonably foreseeable that a longneck bottle might be used as a weapon, plaintiff failed to show why the general principle that no person has a legal duty to protect another from the criminal acts of a third person was inapplicable in this case. Mere foreseeability that a legal product might be used in a crime does not create a duty that overshadows the intervening criminal act. Summary judgment affirmed. 
 

State Supreme Court Adopts Consumer Expectation Test for Alleged Food Defects

Our readers know that for nearly 50 years, an ongoing issue in product liability law has been the definition of "defect" within the strict liability context. A subtext to this ongoing discussion has been the appropriate test to apply to food products.  Earlier this month,  the “reasonable consumer expectation” test was adopted for food claims by the Maine Supreme Judicial Court in a strict liability claim involving a boneless turkey product. See Pinkham v. Cargill Inc., No. 2012 ME 85 (Me., 7/03/12).

Plaintiff allegedly consumed a hot turkey sandwich during his break.  Defendant  allegedly manufactured the boneless turkey product in the sandwich.  In the middle of or immediately after eating the sandwich, Pinkham allegedly experienced severe and sudden pain in his upper abdominal area and thought that he might be suffering from a heart attack. His doctors later determined that in their opinion he most likely had an “esophageal tear or perforation.” Plaintiff sued, alleging that this was a result of bone in the boneless turkey.

Although 50 percent of all turkey consumed in 1970 was during the holidays, today that number is around 31 percent as more people enjoy turkey year-round. In 2010, U.S. consumption of turkey was 16.4 pounds per person.  And turkey is now a $16 billion annual industry, according to the National Turkey Federation.  Readers will recall that our own Ben Franklin proposed the turkey as the national bird, at least in a letter he wrote to his daughter Sarah on January 26, 1784.

Back to the litigation. Defendant moved for summary judgment. After considering the motion, the trial court granted the motion in favor of Cargill, noting that Maine had not yet established which test to use when evaluating a strict liability claim for an allegedly defective food product pursuant to Maine’s strict liability statute, 14 M.R.S. § 221. The court recognized that, prior to the enactment of the state's strict liability statute, courts used a test similar to the “foreign-natural” doctrine when addressing an injury caused by a food product in an implied warranty of merchantability case. E.g., Kobeckis v. Budzko, 225 A.2d 418, 423 (Me. 1967). Readers will recall that the “foreign-natural” doctrine provides that in general a food producer is not liable for anything found in the food product that naturally exists in the ingredients. E.g., Newton v. Standard Candy Co., 2008 U.S. Dist. LEXIS 21886, at *6 (D. Neb. Mar. 19, 2008).  The major alternative has been the “reasonable expectation” test: which provides that regardless of whether a substance in a food product is natural to an ingredient thereof, liability will lie for injuries caused by the substance where the consumer of the
product would not reasonably have expected to find the substance in the product. E.g., Jackson v. Nestle-Beich, Inc., 589 N.E.2d 547, 548 (Ill. 1992).

The trial court proposed to evaluate the summary judgment motion under both the traditional
“foreign-natural” doctrine and the more recent  “reasonable expectation” test. The lower court concluded that, because bone is naturally found in turkey, and because the average consumer would reasonably expect to find bone fragments up to two millimeters in size in processed “boneless” turkey product (which the doctor had), the contents of the food bolus discovered in plaintiff's esophagus did not demonstrate that the product was defective, as a matter of law.

The supreme court noted that the state's strict liability approach was rooted in the Second Restatement.  It observed that the Restatement comments define “[d]efective condition” in part as a product that is “in a condition not contemplated by the ultimate consumer.” Restatement (Second) of Torts § 402A cmt. g. The comments also define “[u]nreasonably dangerous”: “The article sold must be dangerous to an extent beyond that which would be contemplated by the ordinary
consumer who purchases it, with the ordinary knowledge common to the community as to its characteristics.” Id. cmt. i.  Relying on these comments, the court moved to the reasonable expectations test.

Applying that standard, the supreme court ruled that plaintiff had provided sufficient evidence that an alleged defect in the boneless turkey product he consumed might have caused his surgery-requiring injury. There was a genuine issue of material fact as to whether the turkey product caused the injury. One doctor testified that he believed that the injury was a “perforation secondary to a foreign body.”  There was direct evidence of the presence of the smaller pieces of bone or cartilage.  While there was no direct evidence of a larger piece of bone, the court thought a jury could conclude that a larger piece of bone could have been present in the turkey product Pinkham consumed, but may have passed, undetected, from Pinkham’s throat.

Whether a consumer would reasonably expect to find a particular item in a food product is normally a question of fact that is left to a jury.  The court concluded that the trial court could not find as a matter of law that a food bolus containing one-to-two-millimeter bone fragments is not defective.  The question of whether a consumer would reasonably expect to find a turkey bone or a bone
fragment large and/or sharp enough to cause an esophageal perforation in a “boneless” turkey product "s one best left to the fact-finder" said the court.

 

Federal Court Upholds "Bare-Metal" Defense

A federal court last week became the latest to refuse to hold a defendant liable for injuries allegedly caused by asbestos-containing parts manufactured by others but used with the defendant's products. See Conner v. Alfa Laval Inc., No. MDL-875 (E.D. Pa.  2/1/12).

The issue arose in the consolidated asbestos products liability multidistrict litigation pending in the U.S. District Court for the Eastern District of Pennsylvania. Defendants moved for summary judgment on the ground that they were not liable for injuries caused by asbestos products, such as insulation, gaskets, and packing, that were incorporated into their products or used as replacement parts, but which they did not manufacture or distribute.

As the asbestos litigation has evolved, and the major manufacturing defendants have declared bankruptcy, the litigation has moved away from the manufacturers of asbestos to new types of defendants, including premises owners, and even those that manufactured so-called “bare-metal” products that contained or were later encapsulated in asbestos made by others. Litigants often refer to the defense raised in this case as the “bare-metal defense,” but it is more properly understood, as the court explained, as a challenge to a plaintiff’s prima facie case to prove duty or causation.

Here, the court considered the availability and scope of the so-called “bare-metal” defense under maritime law.

Plaintiffs alleged they developed mesothelioma as a result of exposure to defendants products while working on vessels operated by the U.S. Navy. One alleged he was exposed to asbestos products used with turbines while he served in the U.S. Navy from 1962 to 1971 aboard the U.S.S. Yorktown. (This was the 2d Yorktown;  under construction as Bon Homme Richard, this new Essex-class carrier was renamed Yorktown in honor of  the carrier sunk at the epic Battle of Midway  in June, 1942. Much of the Academy Award-winning documentary "The Fighting Lady" was filmed aboard the Yorktown.)

Another alleged he was exposed to asbestos aboard the U.S.S. Pollux and U.S.S. Delta, through products like turbines, pumps, boilers, and valves that used and, in some cases, were originally distributed with, asbestos-containing insulation, packing, gaskets, and other products.
The third alleged he was exposed to asbestos used with products while serving as a boiler tender in the U.S. Navy from 1959 to 1976 aboard various naval vessels.

Plaintiffs did not, however, proffer evidence that defendants manufactured or distributed the particular asbestos components or replacement parts to which they were allegedly exposed. Instead, they argued that defendants were liable for all the intended and foreseeable uses of asbestos parts in connection with their original products.

In determining whether defendant manufacturers were liable under maritime law for injuries caused by asbestos parts used with their products, whether in strict liability or negligence, a plaintiff must establish causation with respect to each defendant manufacturer. See Lindstrom v. A-C Prod. Liab. Trust, 424 F.3d 488, 492 (6th Cir. 2005). A plaintiff generally establishes causation under maritime law by showing (1) that the plaintiff was exposed to the defendant’s product and (2) that the product was a substantial factor in causing the plaintiff’s injury, said the court.

Plaintiffs raised two arguments to hold manufacturers liable for harm caused by asbestos products they did not manufacture or distribute. First, plaintiffs argued that under the integrated-products doctrine the “products” at issue were really defendants’ products together with the asbestos-containing components and replacement parts supplied by third parties.  Second, plaintiffs argued that defendants had a duty to warn of the hazards posed by the foreseeable uses of their products.

The court rejected both arguments. The first was not consistent with the law under the component parts doctrine. Even if the court were to accept that defendants were component-part manufacturers, a component-part manufacturer is not liable for injuries caused by the finished product into which the component is incorporated unless the component itself was defective at the time it left the manufacturer.  The defective product here was the asbestos insulation, not the pumps and valves to which it was applied after defendants’ manufacture and delivery.  Also, as a matter of law, defendants did not owe a duty to warn under maritime law of the hazards posed by products they did not manufacture or distribute.

The court cited with approval the view of other courts that the overwhelming case law does not support extending strict liability for failure to warn to those outside the chain of distribution of a product. Products liability has always been premised on harm caused by deficiencies in the defendant’s own product. Moreover, a manufacturer does not have an obligation to warn of the dangers of another manufacturer’s product.  The law does not impose a duty to warn about dangers arising entirely from another manufacturer’s product, even if it is foreseeable that the products will be used together.  Any expansion of the duty of care as urged here would impose an obligation to compensate on those whose products caused the plaintiffs no harm. To do so would exceed the boundaries established over decades of product liability law.  And it would also be unfair to require manufacturers of non-defective products to shoulder a burden of liability when they derived no economic benefit from the sale of the products that injured the plaintiff.

Having held as a matter of law that a manufacturer is not liable for harm caused by the asbestos products that it did not manufacture or distribute, the court concluded that plaintiffs failed to raise a genuine issue of material fact as to whether any of the defendants manufactured or distributed the asbestos products that caused the alleged injuries.

The decision puts the court in the company of others, like O'Neil v. Crane Co., Cal., No. S177401 (Cal. 1/12/12), which have declined to extend liability for asbestos-related injury to makers of products used with asbestos insulation, gaskets, and packing.  

State Supreme Court Reverses Dangerous Expansion of Product Liability

The California Supreme Court held last week that the law does not impose liability on manufacturers of equipment used in conjunction with asbestos-containing parts made by others.  See O'Neil v. Crane Co., Cal., No. S177401 (Cal. 1/12/12).
 
Readers may recall that we posted on this case before. The Restatement of Torts (Third): Products Liability says that in the context of a final, finished product that injures a user and which is made up of components from different manufacturers, if a given component is itself defective and the defect causes the harm, then the supplier of that component is of course liable. In addition, the supplier can be liable even if the component by itself is not defective, but only if the seller substantially participates in the integration of the component into the design of the product (and the defect causes the harm). See Restatement 3d, Section 5. In essence, the doctrine holds that an entity supplying a non-defective raw material or a non-defective component part is not strictly liable for defects in the final product over which it had no control. In this respect, the Third Restatement of Torts simply codified the doctrine of various states’ common law.
 
Nevertheless, a split had existed among the lower courts in California about whether to
extend liability for asbestos-related disease beyond the manufacturers of the asbestos insulation, gaskets, and packing to which many ship workers were exposed (and which makers are now bankrupt) to the makers of the products the asbestos was used with (to find a solvent target).  So the state supreme court confronted the limits of a manufacturer’s duty to prevent foreseeable harm related to its product: When is a product manufacturer liable for injuries caused by adjacent products or replacement parts that were made by others and used in conjunction with the defendant’s product?   It held that a product manufacturer may not be held liable in strict liability or negligence for harm caused by another manufacturer’s product unless the defendant’s own product contributed substantially to the harm, or the defendant participated substantially in creating a harmful combined use of the products.
 
Defendants made valves and pumps used in Navy warships. They were sued here for a wrongful death allegedly caused by asbestos released from external insulation and internal gaskets and packing, all of which were made by third parties and added to the pumps and valves post-sale. It is undisputed that defendants never manufactured or sold any of the asbestos-containing materials to which plaintiffs’ decedent was exposed. That is, no evidence was presented that any of the asbestos-containing dust came from a product made by defendants. Neither company manufactured or sold the external insulation or flange gaskets that the repairmen like plaintiff removed. Although the valves and pumps contained internal asbestos-containing gaskets and packing, these original components had been replaced long before plaintiff encountered them years later. There was no evidence that any of these replacement parts were made by defendants.  The Court of Appeal asserted defendants’ products were defectively designed “because they required asbestos packing and insulation.” But this factual assertion was unsupported by the record. The evidence established that the requirement for asbestos derived from military specifications, not from any inherent aspect of defendants’ pump and valve designs

Nevertheless, plaintiff claimed that defendants should be held strictly liable and found negligent because it was foreseeable that workers would be exposed to and harmed by the asbestos in replacement parts and products used in conjunction with their pumps and valves. The Court of Appeals held that the component parts defense applied only to manufacturers of “multi-use or fungible products” designed to be altered and incorporated into another product. It then concluded defendants’ products did not meet these requirements. The Court of Appeal also rejected defendants’ argument that they could not be found strictly liable because they did not manufacture or supply the asbestos-containing products that caused plaintiffs' disease. The lower court announced a broad definition of strict products liability: a manufacturer is liable in strict liability for the dangerous components of its products, and for dangerous products with which its product will necessarily be used. Even though it was replacement gaskets and packing that allegedly caused disease, the lower appeals court concluded these replacement parts were “no different” from the asbestos-containing components originally included in defendants’ products.
 

Plaintiff's claims would represent an unprecedented expansion of strict products liability, which the supreme court declined to do.  California law, like most states, has long provided that manufacturers, distributors, and retailers have a duty to see to the safety of their products, and will be held strictly liable for injuries caused by a defect in their products. Yet, the state has never held that these responsibilities extend to preventing injuries caused by other products that might foreseeably be used in conjunction with a defendant’s product. Nor has the state's high court ever held that manufacturers must warn about potential hazards in replacement parts made by others when, as here, the dangerous feature of these parts was not integral to the product’s design.  From the outset, strict products liability in California has always been premised on harm caused by deficiencies in the defendant’s own product.  The reach of strict liability is not limitless; strict liability does not extend to harm from entirely distinct products that the consumer can be expected to use with, or in, the defendant’s non-defective product. Instead, the courts require proof that the plaintiff suffered injury caused by a defect in the defendant’s own product.
 
In this case, it was undisputed that plaintiff was exposed to no asbestos from a product made by the defendants. Although he was allegedly exposed to potentially high levels of asbestos dust released from insulation the Navy had applied to the exterior of the pumps and valves, defendants did not manufacture or sell this external insulation. They did not mandate or advise that it be used with their products. It is fundamental that the imposition of liability requires a showing that the plaintiff’s injuries were caused by an act of the defendant or an instrumentality under the defendant’s control.
 
Generally speaking, manufacturers have a duty to warn consumers about the hazards inherent in their products. The requirement’s purpose is to inform consumers about a product’s hazards and faults of which they are unaware, so that they can refrain from using the product altogether or evade the danger by careful use. Typically, under California law, manufacturers are strictly liable for injuries caused by their failure to warn of dangers that were known to the scientific community at the time they manufactured and distributed their product. The supreme court has never held that a manufacturer’s duty to warn extends to hazards arising exclusively from other manufacturers’ products. Plaintiff's alleged exposure to asbestos came from replacement gaskets and packing and external insulation added to defendants’ products long after their installation; there was no dispute that these external and replacement products were made by other manufacturers.
 
So the supreme court reaffirmed that a product manufacturer generally may not be held strictly liable for harm caused by another manufacturer’s product. The only exceptions to this rule arise when the defendant bears some direct responsibility for the harm, either because the defendant’s own product contributed substantially to the harm or because the defendant participated substantially in creating a harmful combined use of the products.   Plaintiffs sought to expand these exceptions to make manufacturers strictly liable when it is foreseeable that their products will be used in conjunction with defective products or even replacement parts made or sold by someone else. However, the mere foreseeability of harm, standing alone, is not a sufficient basis for imposing strict liability on the manufacturer of a non-defective product, or one whose arguably defective product does not actually cause harm.
 
The decision was supported by common sense. A manufacturer cannot be expected to exert pressure on other manufacturers to make their products safe and is not able to share the costs of ensuring product safety with these other manufacturers. It would be unfair to require  manufacturers of non-defective products to shoulder a burden of liability when they derived no economic benefit from the sale of the products that injured the plaintiff.  And a contrary rule would require manufacturers to investigate the potential risks of all other products and replacement parts that might foreseeably be used with their own product and warn about all of these risks. Such a duty would impose an excessive and unrealistic burden on manufacturers. Such an expanded duty could also undermine consumer safety by inundating users with excessive warnings. “To warn of all potential dangers would warn of nothing.”
 
 
 
 

 

Strict Liability Does Not Apply to Medical Devices

Another court has recognized that strict liability or breach of implied warranty claims do not lie against medical device makers. Horsmon v. Zimmer Holdings Inc., No. 11-1050 (W.D. Pa., 11/10/11).

Plaintiff had a total hip replacement whereby her right hip joint was replaced with implant components designed, manufactured, and sold by defendants. Ms. Horsmon alleeged she later began to experience pain in her right hip, which eventually required further surgery. She alleged this was due to a defect in the original liner that was used during the hip replacement.  She sued, and defendants moved to dismiss.

Defendants asserted that plaintiff‟s claim for strict liability was barred by Pennsylvania law. The Supreme Court of Pennsylvania in Hahn v. Richter, 673 A.2d 888 (Pa. 1996), held that strict liability claims cannot be brought against prescription drug manufacturers. The court relied on Comment k to the Restatement (Second) of Torts § 402A, regarding unavoidably unsafe products. The Superior Court of Pennsylvania and several United States District Courts applying Pennsylvania law have extended Hahn to bar strict liability claims against medical device manufacturers. E.g., Creazzo v. Medtronic, Inc., 903 A.2d 24, 31 (Pa. Super. Ct. 2006).  This court agreed that the reasoning of Hahn extends to medical devices.

Defendants further asserted that plaintiff's breach of implied warranties claim was also barred by Pennsylvania law. In a claim for breach of implied warranty of merchantability, the essence of the warranty of merchantability is that the item sold is fit for the ordinary purposes for which such goods are used. Under Pennsylvania law, the very nature of prescription drugs precludes the imposition of a warranty of fitness for ordinary purposes, as each individual for whom they are prescribed is a unique organism who must be examined by a physician who is aware of the nature of the patient's condition as well as the medical history of the patient. Breach of implied warranty of merchantability claims, therefore, are precluded for prescription drugs. Again, several courts have extended this reasoning to preclude claims against medical device manufacturers for breach of implied warranties of merchantability and fitness for a particular purpose.  And the district court here agreed; there was no compelling reason to distinguish between prescription drugs and medical devices.

The court then turned to the express warranty claim. Under Pennsylvania law, any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.  Here, plaintiff alleged that defendants expressly warranted in written literature, advertisements and representations of representatives and agents that the systems, bone screws, liners and other related components were safe, effective, fit, and proper for the use for which they were intended. But plaintiff did not allege any particular affirmation of fact or promise, as required under federal pleading rules, that would give rise to a reasonable inference that defendants expressly warranted that its products were safe, effective, fit, and proper for the use for which they were intended. Plaintiff failed to allege that any particular affirmation of fact or promise was made in any of those sources.  Plaintiff's allegations also did not support a reasonable inference that any affirmation of fact or promise by defendants became part of the basis of the bargain in plaintiff's purchase. (Of course, plaintiff could not allege that any particular affirmation of fact or promise became “part of the basis of the bargain” without alleging any particular affirmation of fact or promise.)  Thus, plaintiff failed to state a plausible claim for breach of express warranties under Pennsylvania law. (However, the court gave Horsmon another chance to amend and replead her breach of express warranty claim.)

 

Defect Allegations Insufficient in Drug Case

We may be accustomed to talking about whether a product was "defective" and, as counsel for defendant sellers, working hard to show that the product contained no "defect."  Earlier this month came a decision reminding us that, in some contexts, a defect, even one that caused the injury, may not be all plaintiffs need to allege and prove. Mills v. Bristol-Myers Squibb Co., No. 11-00968 (D. Ariz., 10/7/11).

Plaintiff was prescribed Clopidogrel (branded as "Plavix") for the treatment of peripheral vascular disease.  Two years later, plaintiff initiated this action alleging that the drug caused excessive rectal bleeding. The court dismissed, and plaintiff eventually sought leave to file a Second Amended Complaint. Defendants argued that leave to amend should be denied as futile.  And the court agreed.

The interesting part of the opinion for our readers is the discussion of strict products  liability, premised on two theories: design defect and failure to warn. (Plaintiff also premised her negligence claim on these theories.)  For plaintiff to prevail under both theories she had to show that the product left the defendants' hands in a defective condition, the defect rendered the product unreasonably dangerous, and the defect was a proximate cause of plaintiff's injuries. Sw Pet Prods., Inc. v. Koch Indus., Inc., 273 F. Supp. 2d. 1041, 1051 (D. Ariz. 2003).

Plaintiff alleged that Plavix was allegedly defective when ingested along with aspirin by people who have peripheral vascular disease, and that the defect caused her injury.  So there you have it.   But wait... simply pleading a defect is not enough. To prevail on a design defect claim in Arizona, a plaintiff must also show that the defective product is unreasonably dangerous.  Although plaintiff's design defect claim was apparently pled pursuant to the Restatement (Second) of Torts § 402(a), the federal court concluded that Arizona would now use the Restatement (Third) of Torts, particularly its definition of an unreasonably safe prescription drug or medical device in a design defect claim.  Section 6(c) of the Third Restatement, noted the court, declares that a prescription drug or medical device is unreasonably unsafe due to defective design only if the foreseeable risks of harm posed by the drug or medical device are sufficiently great in relation to its foreseeable therapeutic benefits that reasonable health-care providers, knowing of such foreseeable risks and therapeutic benefits, would not prescribe the drug or medical device for any class of patients.

Here, although plaintiff alleged that no reasonable health-care provider would prescribe Plavix
for plaintiff knowing of the alleged risks to Caucasian patients who genetically are poor metabolizers of Plavix, and who are diagnosed with peripheral vascular disease and concomitantly ingest aspirin, nowhere did the plaintiff allege that Plavix would not be prescribed for any class of patients. (We leave for a later post the interesting and scary theory that the drug was defective because it had greater adverse effects among a narrow group with a genetic pre-disposition.)

And arguably even under a traditional risk/benefit analysis used to determine whether a product is unreasonably dangerous based on the Restatement (Second) of Torts, plaintiff's pleading did not state a plausible claim.  Although detailed factual allegations are not necessary in pleadings, "labels and conclusions" are insufficient. Bell Atlantic Corp v. Twombly, 550 U.S. 544, 555 (2007).  And that's what she offered on risk benefit elements.

As to the warning claim, plaintiff needed to allege, then show, that had a proper warning been given, the injury would not have happened. See Gosewisch v. Am. Honda Motor Co., Inc., 153 Ariz. 400, 403, 737 P.2d 376, 379 (1987) (superseded by statute on other grounds).  Here, plaintiff averred only on information and belief that her doctor would not have prescribed Plavix had he known of its true risks for patients like plaintiff.   But the court noted that plaintiff could simply have contacted her physician to determine the facts, which were not solely in the control of defendants. She did not do so, and her allegations thus fell short. This may be an important use of the clarified pleading standard, particularly in those jurisdictions in which defendants are precluded from informally contacting the plaintiff’s prescriber.  


 

ALI Annual Meeting This Week

Your humble blogger is a member of the American Law Institute, attending the annual ALI meeting in San Francisco this week.  Readers likely know that ALI is the leading independent organization in the United States producing scholarly work to clarify, modernize, and otherwise improve the law.  It publishes the Restatements and other works, including, notably for our readers, the Principles of the Law of Aggregate Litigation.

Highlights of Day 1 included an address by Steve Zack, President of the ABA.  We have been privileged to know and work with this excellent lawyer for about 15 years.  His tenure as head of the ABA has been marked by a number of important initiatives, and at ALI he spoke of assaults on the important principle of equal justice under law.  The down economy, falling tax revenues, etc. have severely impacted access to justice, including to the degree that civil jury trials are indefinitely postponed or excessively delayed in some jurisdictions. Courts are closed, judicial staff let go.  Steve closed with a moving story about his grandparents fleeing from the communists in Cuba, heartened by the freedoms and rule of law in the U.S., and noting that they would never be refugees again because if the U.S. legal system collapsed, there would really be no place else to go.

Mush of the afternoon was devoted to the final chapter of the Restatement Third of Torts. Volume 1 of the Restatement was published in 2009, and covers the most basic topics of the law of torts: liability for intentional physical harm and for negligence causing physical harm, duty, strict liability, factual cause, and scope of liability (traditionally called proximate cause).  A second volume, dealing with affirmative duties, emotional harm, landowner liability, and liability of actors who retain independent contractors, will complete this work and is expected to be published in 2011.  Yesterday's session dealt with the final chapter, the liability of actors who retain independent contractors.

Professor Pryor of SMU was the leader for this final chapter, which deals both with direct liability of those who hire, and vicarious liability for the contractor's tortious conduct.  Students of the Restatements may recall that Dean Prosser himself once said that this topic was "the worst mess of any chapter" in the Restatement.  But Prof. Pryor has done great work to improve that situation.

A number of tweaks were suggested by the membership, including by my colleague Jim Beck, who noted that an illustration regarding the asbestos context would be helpful, given the search for new defendants that is a constant feature of that mass tort, and a clarification of the Reporter's sense that the references to public nuisance in the section referred to traditionally land-based public nuisance claims, and were not expressing any opinion on the recent attempts to apply the doctrine to non-traditional settings, such as climate change.

State Supreme Court Adopts Risk Utility Test for Defect

The South Carolina Supreme Court last week vacated a $31 million verdict for a minor injured in a Ford Bronco rollover accident.  Branham v. Ford Motor Co., 2010 WL 3219499 (S.C. 8/16/10).  The case raises a number of interesting points for our readers.

This was a product liability action involving a Ford Bronco II.   Hale was driving the vehicle with several children as passengers, including her daughter seated in the front passenger seat.  No one was wearing a seat belt.  Hale admittedly took her eyes off the road and turned to the backseat to ask the children to quiet down. When she took her eyes off the road, the Bronco veered towards the shoulder of the road, and the rear right wheel left the roadway. She responded by over-correcting to the left, which allegedly led the vehicle to roll over.

Plaintiff, the parent of one of the injured passengers, sued. The case against Ford was based on two product liability claims, one a defective seat belt sleeve claim, and the other, a “handling and stability” design defect claim related to the vehicle's alleged tendency to rollover.  The jury returned a verdict of $16,000,000 in actual damages and $15,000,000 in punitive damages.

The trial court had dismissed the strict liability claim regarding the seat belt on the basis that the sleeve was not defective as a matter of law. But the negligence claim shared with the strict liability claim the element that the product be in a dangerous condition unreasonably dangerous. The trial court should thus have dismissed it too, the supreme court said.

The court also found that the closing argument of Branham's counsel was designed to and likely did inflame and prejudice the jury. The closing argument relied heavily on inadmissible evidence to pump up the punitives claim in requesting that the jury punish Ford.  This closing argument invited the jury to base its verdict on passion rather than reason, and the supreme court found that it denied Ford a fair trial.

But the more interesting part of the case related to Ford's two-fold argument that: (1) Branham failed to prove a reasonable alternative design pursuant to the risk-utility test; and (2) South Carolina law requires a risk-utility test in design defect cases to the exclusion of the consumer expectations test. 

The court found that plaintiff had produced sufficient evidence of a feasible alternative design to get to a jury.  But, while the consumer expectations test may fit well in manufacturing defect cases, the court agreed with Ford that the test is ill-suited in design defect cases. It thus held that the exclusive test in a products liability design case is the risk-utility test, with its requirement of showing a feasible alternative design.

The very nature of feasible alternative design evidence entails the manufacturer's decision to employ one design over another. This weighing of costs and benefits attendant to that decision is the essence of the risk-utility test.  The court noted that this approach is in accord with the current Restatement (Third) of Torts.  The court noted that the Third Restatement effectively moved away from the consumer expectations test for design defects, and towards a risk-utility test.  While the feasible alternative design inquiry is the core of the risk-utility balancing test in design defect cases, the court went out of its way to note that a jury question is NOT created merely because a product can be made safer. There is a longstanding principle that a product is not in a defective condition unreasonably dangerous merely because it “can be made more safe.” 

 The court sent the case back for a new trial.

Failure to Warn Claim Survives- But Why?

Sometimes, manufacturers have to wonder, what good does a warning do if the courts won't require people to read and heed the warning given?

Harley Davidson is an iconic American product manufacturer. In 1903, William S. Harley and Arthur Davidson made available to the public the first production Harley-Davidson® motorcycle. The bike was built to be a racer, with a 3-1/8 inch bore and 3-1/2 inch stroke. The factory in which they worked was a 10 x 15-foot wooden shed with the words "Harley-Davidson Motor Company" crudely scrawled on the door.

William and Arthur would likely be scratching their heads over a recent ruling denying the company's summary judgment motion on a failure-to-warn claim in a suit filed after a motorcycle crash. Steven Morris v. Harley-Davidson Motor Co., et al., No. 3:09-cv-74 (M.D. Ga.).

Plaintiff alleged that the rear tire of his motorcycle failed, resulting in a crash that killed plaintiff’s wife and left plaintiff seriously injured. Plaintiff contended that the defendants (including the tire company) failed to provide an adequate warning regarding the dangers of overloading the motorcycle. With a full tank of gas weighing 31 pounds, the plaintiff's Ultra Classic’s Gross Vehicle Weight Rating (GVWR) allowed for an additional 420 pounds of weight capacity for the rider, any passenger, cargo, and accessories. Plaintiff, who weighed 250 pounds, was with his wife, who weighed 204 pounds, riding as a rear passenger. Plaintiff was also pulling a trailer.

When plaintiff purchased the Ultra Classic, he was provided with an owner’s manual, which contained warnings and instructions regarding the Ultra Classic. Specifically, the Owner’s Manual warned against exceeding the GVWR; that exceeding these weight ratings can affect stability and handling, which could result in death or serious injury; explaining that GVWR is the sum of the weight of the motorcycle, accessories, and the maximum weight of the rider, passenger and cargo that can be safely carried.  It tells the owner that the GVWR is shown on the information plate located on the frame steering head.

The court found it significant that the weight of the trailer was not listed in the components of the GVWR, but that was because the Owner’s Manual also warned against pulling a trailer, ever: “Do not pull a trailer with a motorcycle. Pulling a trailer can cause tire overload, reduced braking efficiency and adversely affect stability and handling, which could result in death or serious injury.”  That is exactly what happened, according to plaintiff!

Plaintiff admitted he never read the Owner’s Manual. But in addition to the warnings in the Owner’s Manual, there were also warnings on the Ultra Classic. One warning was located inside the storage compartment on the back end of the Ultra Classic, over the rear wheel, and behind the passenger’s seat, and the Ultra Classic also contained an information plate on the steering head, which listed the Ultra Classic’s GVWR, recommended tire pressures, and other information.  Plaintiff testified that he did not see these warnings either.

Harley-Davidson contended that plaintiff’s failure to warn claim failed as a matter of law because he did not read the warnings in the Owner’s Manual or the warnings on the Ultra Classic.  The court construed  the claim as not relating to the substance of the warning, but the procedure, the method by which the information was communicated.  The court concluded that plaintiff contended that he never read the warnings because Harley-Davidson failed to communicate them adequately. Failure to read a warning does not bar recovery when the plaintiff is challenging the adequacy of the efforts of the manufacturer or seller to communicate the dangers of the product to the buyer or user, found the court.

Failure to communicate an adequate warning involves such procedural questions as location and presentation of the warning. The court found that it was a jury question whether or not the manufacturer was negligent in failing to place a warning in such position, color and size print or to use symbols that would adequately convey the information. Thus, based on the present record, said the court, a reasonable fact-finder could conclude that Harley-Davidson failed to place useful load information regarding the Ultra Classic where a user would likely see it.

But, even accepting the substance/procedure distinction, the only evidence the court focused on concerning the alleged inadequacy of the warnings was plaintiff's self-serving testimony. A plaintiff should not be able to create an issue of fact on the procedural aspects of the warning simply by saying, "I didn't see it, so it must have been inadequate." Where was the genuine issue of fact?  Where was the proof that the vehicle's Owner's Manual is not the right place to put a warning about safe operation of the vehicle.    Bottom line - there can be no genuine issue of fact when an admittedly adequate warning is placed in the Owner's Manual and the owner never opens the manual. Where is the genuine dispute about warnings right on the motorcycle itself? Where was the proof of where else the manufacturer was supposed to put a warning?

 

"SPILL" Act Passes House

Readers may recall that last month we posted about H.R. 5503, the “Securing Protections for the Injured from Limitations on Liability Act” (SPILL Act). This is one of many pending and promised bills addressing legal liability issues arising from the Gulf Coast oil spill, including amendments to the Death on the High Seas Act.

Specifically, H.R. 5503 would:

  • Amend the Death on the High Seas Act to permit recovery of non-pecuniary damages (e.g., pain and suffering and loss of care, comfort, and companionship) by the decedent’s family, as well as standardizing the geographic threshold for its application, and permitting surviving family members to bring suit directly rather than through a personal representative.
  • Amend the Jones Act to permit recovery of non-pecuniary damages by the families of seamen who are killed.
  • Repeal the Limitation on Liability Act to the extent it limits the liability of vessel owners to the value of the vessel and its cargo.
  • Amend bankruptcy rules to prevent corporations allegedly responsible for damages under the Oil Pollution Act from certain moves seeking to sever their assets from the legal liabilities.

The bill was supposed to be in response to the Gulf Oil Spill. However, we cautioned that some of  its provisions were not limited to the subject matter of oil spills. For example, Section 5 of the bill as introduced, proposed to amend the Class Action Fairness Act to exclude from its reach any action brought by a State or subdivision of a State on behalf of its citizens. Such a provision could have significant effect on CAFA, far beyond the oil spill litigation. For example, it might impact cases like State ex rel. McGraw v. Comcast Corp., 2010 WL 1257639 (E.D. Pa. Mar. 31, 2010).

The version passed by the House apparently does not contain this provision.  It was passed on motion to suspend the rules and pass the bill, as amended, and agreed to by voice vote.  Republicans and industry groups had expressed some concerns, and since many of the provision purport to be retroactive, wondered what the rush was.  Supporters argued that some of the prevailing laws were written in the mid-19th century to protect American merchant ship owners, and that the liability system needs to be updated.

As amended, Section 2 amends the Death on the High Seas Act (chapter 303 of title 46, United States Code), Section 3 alters recoveries under the Jones Act; Section 4 would repeal the Limitation of  Liability Act and the Oil Pollution Act; and Section 5 would provide new bankruptcy protection for tort claims arising from oil incidents.

Update on Foreign Manufacturers Liability Act

We have posted before about legislative efforts to make it easier for U.S. consumers to sue foreign product manufacturers.

Last week the the House Subcommittee on Commerce, Trade, and Consumer Protection held a legislative hearing on H.R. 4678, the “Foreign Manufacturers Legal Accountability Act.”  The House bill  was introduced last February. The Senate's version, S. 1606, was introduced in August, 2009.

Witnesses included a representative of the Consumer Product Safety Commission, the Consumers Union,  American Association of Exporters and Importers, and a Professor from American University College of Law.

The Act would require foreign manufacturers and producers of several kinds of products to establish registered agents for service of process and to consent to jurisdiction here.  It appears to have bipartisan support, but raises a number of constitutional issues, and may not address the key issue of the enforceability of judgments handed down by U.S. courts.

Supporters of the bill note that the Hague Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters – of which the United States and many of its major trading partners, including China, are parties – provides a means of serving process on foreign manufacturers in their home countries.  However, this method can be time consuming and costly, because all the legal documents must be translated into the foreign manufacturer’s native language and then provided to a governmental central authority, which in turn attempts to serve the documents on the manufacturer. It can take many months for the central authority to serve the documents on the manufacturer.   In addition, even if a plaintiff successfully serves process on a foreign manufacturer, argue the supporters, the manufacturer will likely challenge the exercise of personal jurisdiction over it by a U.S. court. Before a U.S. court can exercise personal jurisdiction over a defendant it must consider: 1) the defendant’s purposeful minimum contacts with the state in which the court sits, and 2) fairness to the defendant of being subjected to jurisdiction in that state’s courts.  Foreign manufacturers have increasingly turned to litigating this issue to avoid being hauled into U.S. courts.

The Act would require foreign manufacturers and producers that import products into the United States to designate a registered agent who is authorized to accept service of process here in the United States. The agent would have to be registered in a state with a substantial connection to the importation, distribution, or sale of products of the foreign manufacturer or producer. CPSC, the Food and Drug Administration, and the Environmental Protection Agency would each be required to determine, based on the value or quantity of goods manufactured or produced, which foreign manufacturers and producers under their respective authority would be required to designate a registered agent. Registering an agent consistent with the Act constitutes acceptance by the manufacturer of personal jurisdiction of the state and federal courts of the state in which the agent is located.

AAEI, on the other hand, is particularly concerned about the impact H.R. 4678 would have on U.S. exporters if this bill is enacted by Congress. If the United States enacts H.R. 4678 requiring foreign manufacturers to appoint a registered agent to receive service of process, they anticipate that our trading partners will enact similar measures. It will be difficult and expensive for American exporters to maintain registered agents in all the foreign markets to which it exports. Moreover, having a registered agent in foreign markets increase the likelihood that these companies will be
subject to litigation before foreign courts in countries with legal proceedings which are less
transparent than the United States, argued AAEI.

Case of Successor Liability for Asbestos Exposure Claims

New York's highest court has ruled that a buyer assumed the liability for certain asbestos-related claims under a sale contract when it bought the boiler business of plaintiff American Standard Inc. back in 1970. American Standard Inc. v. Oakfabco Inc., 2010 WL 1286394 (N.Y., 4/6/10).

The court said that the issue here was whether the buyer of a boiler business assumed the seller's liabilities for tort claims based on boilers sold before the business was acquired, even where the tort claimants were not exposed/injured until after the acquisition. In 1970, American Standard, Inc. sold its Kewanee Boiler division to OakFabco, Inc. The parties entered an asset purchase and sale agreement in which the buyer assumed certain liabilities. The boilers manufactured by Kewanee had been insulated with asbestos, and as a result many tort claims were brought in the years and decades following the purchase of the business.

Some of those claims were brought by plaintiffs who had suffered injuries after the closing of the transaction, allegedly attributable to boilers manufactured and sold before the closing. In this declaratory judgment action brought by American Standard against OakFabco, the issue was whether liabilities for such injuries were among the liabilities that OakFabco assumed.  OakFabco argued that the definition of the liabilities OakFabco assumed was limited to "existing and outstanding” liabilities as of the Closing Date. According to OakFabco, a tort claim cannot be “existing and outstanding” before the tort plaintiff has been exposed and injured, because until then it is not possible for a tort lawsuit to be brought.

The court found, however, that the overall contract language meant that the buyer would deal with any problems customers had after the closing date with boilers that had been installed previously. It would have been absurd for OakFabco, said the court, to tell a customer whose boiler failed after the closing that, since the customer's claim was not “existing and outstanding” on the closing date, it was not OakFabco's problem. By including warranty, service, repair and return claims in the definition of liabilities, the parties demonstrated that they were not reading the words “existing and outstanding” as OakFabco now did.

The court therefore concluded that the liabilities assumed by OakFabco included claims brought by tort claimants injured after the closing date by boilers installed before that date.

The case is a timely reminder that an important aspect of evaluating the possible acquisition of a target company is the potential litigation liability that may be acquired simultaneously. If a target company is involved, or could potentially become involved, in mass tort litigation, it presents both risk and opportunity to the acquirer. The threat of this type of litigation may result in the opportunity to acquire a target at a below-market valuation multiple, and the uncertainty caused by mass tort exposure can result in valuation discounts that make the attendant risk acceptable. There are potentially significant risks, however, associated with mass tort litigation exposure, such as in asbestos, and thus buyers must proceed carefully. In the private equity context, in particular, mass tort litigation exposure can adversely impact the ability to secure third-party debt financing and can have an adverse impact on investment exit. Private equity purchasers may have shorter investment time frames than strategic buyers, and mass tort litigation often takes a substantial amount of time to resolve itself.

The general rule of law, and the typical structure of an asset purchase agreement, is that an acquirer of the assets of another corporation for cash does not acquire the liability for prior injuries caused by products sold by the target company prior to closing. It is crucial that the language be clearly drafted to reflect the parties' agreement on the allocation of such liability.

Even when the parties purport to allocate such liability to the target, however, the buyer may find itself responsible for the litigation through the operation of various legal doctrines that are exceptions to the general rule. The Restatement (Third) of Product Liability Law notes that a business entity that acquires assets of a predecessor business entity is subject to liability for harm caused by a defective product sold by the predecessor if the acquisition results from a fraudulent conveyance to escape liability for the liabilities of the predecessor, or results in the successor becoming a mere continuation of the predecessor. A few states also add the so-called “product line” exception, which allows a plaintiff to recover for injuries caused by a defective product sold by the predecessor in cases in which the successor corporation has continued the predecessor’s product line.

Thus, even in the absence of an actual merger or stock acquisition, or contract language assuming liability, it may be that a buyer of corporate assets will still face exposure to product litigation liability risks. Attempting to structure the deal to try to minimize the possible application of such theories will often be the first line of defense. In an asset sale, the buyer may also want to seek a provision that the seller shall not dissolve for some set period of time, so that the mass tort plaintiffs’ other remedies seemingly are not destroyed. Special indemnification by the seller for the underlying exposure is another alternative. This indemnification should survive for a sufficient period of time, and ideally would not be subject to a special cap higher than is typical for representations made by a “clean” company. The use of a special escrow to set aside funds for the litigation indemnification may be important.
 

Product Liability Seminar Offers Topical Mass Tort Session

We have posted before about the 2010 DRI Product Liability Conference in Las Vegas in April, as an event worth checking out.

Let me add that one of the attractive feature of the conference is that, in addition to the exceptional program put together for the main stage, there are many great Specialized Litigation Group (subcommittee) programs planned, including the highly-relevant-to-readers Mass Torts & Class Actions SLG.

At the Mass Torts & Class Actions SLG breakout session on Thursday, April 8th (likely to be more daring than Criss Angel, more talented than Terry Fator, more energetic than a Blue Man Group) includes:

Legislative and Regulatory Update: Impact of New Administration and New Statutes, Rollback on Preemption and Effort to Rollback Twombley
Jeffrey A. Holmstrand, McDermott & Bonenberger PLLC, Wheeling, West Virginia
Anthony Sammons, Dinsmore & Shohl LLP, Lexington, Kentucky

Emerging Class Action Issues: Impact of the ALI Project on Aggregation and Update on Problematic Causes of Action (Public Nuisance, Consumer Fraud Act and Medical Monitoring)
Richard A. Oetheimer, Goodwin Procter LLP, Boston, Massachusetts
John Parker Sweeney, Womble Carlyle Sandridge & Rice PLLC, Baltimore, Maryland

Emerging Mass Tort Issues: Examination of Daubert/ Frye Issues, Update on Green-Product Issues and Use of Risk Assessment Concepts
Robert C. James, TERRA Inc., Tallahassee, Florida
David C. Uitti, Dechert LLP, Princeton, New Jersey

Best Practices on Managing Mass Torts: Exploring the Virtual Law Firm, Cost Controls, Alternative Fee Arrangements and Early Case Dispositions
Moderator Kip T. Bollin, Thompson Hine LLP, Cleveland, Ohio
 

You can still register.

Summary Judgment Granted on Successor Liability Claim

The issue of successor liability is a recurring one in products liability, and the specter of mass tort liability should be an important aspect of due diligence in corporate acquisitions. This point is illustrated by a recent case in which the federal court in Oregon granted summary judgment to alleged successor corporations of a company that manufactured allegedly defective pain pumpsCox v. DJO LLC, Case No. 07-1310 (D. Or. 11/16/09).

Plaintiffs underwent arthroscopic shoulder surgery in which surgeons inserted pain pump devices in their shoulder joints to deliver pain medication via catheter.  Plaintiffs alleged they subsequently developed glenohumeral chondrolysis - a condition involving the deterioration and loss of cartilage in the shoulder joint.  McKinley LLC manufactured the pain pumps devices, part of product lines known commercially as the Accufuser and beeLINE.  Plaintiffs alleged strict products liability and negligence against McKinley LLC as the manufacturer, and against Moog Inc. and Curlin Medical Inc. as successors in interest. Defendants Moog and Curlin moved for summary judgment on plaintiffs' claims that they were liable as the successor corporations, arguing that the acquisition of the Accufuser and beeLINE product lines was nothing more than a purchase of assets that cannot establish successor liability.

Under Oregon law, as is the general rule, when a corporation purchases the assets of another corporation, the purchasing corporation generally does not assume the debts and liabilities of the selling corporation. However, the purchaser may be responsible for the seller's liabilities if: 1) the purchasing corporation expressly or impliedly agrees to assume those liabilities; 2) the transaction
constitutes a consolidation or merger of the corporations; 3) the purchasing corporation is a "mere continuation" of the selling corporation; or 4) the corporations effectuated the transaction for
fraudulent purposes to escape liability.

The court reviewed the possible exceptions. First, Moog and Curlin did not expressly or impliedly agree to assume liability arising from pain pump products manufactured and sold by McKinley LLC prior to the conveyance of assets. To the contrary, the Assignment and Merger Agreement expressly and specifically identified the existing liabilities that were transferred after the merger.

Second, despite plaintiffs' repeated assertions, neither Moog nor Curlin merged or consolidated with McKinley LLC. Instead, it is undisputed that Curlin merged with McKinley Medical Corp., a separate corporation,  and acquired the Accufuser and beeLINE product lines as a result. That is, Moog and its wholly owned subsidiary, Curlin, entered into an agreement to purchase McKinley LLC's Accufuser and beeLINE product lines. Under the terms of the agreement, McKinley LLC transferred these product lines to McKinley Medical Corp., a subsidiary it created solely for purposes of the asset transfer. Curlin then merged with McKinley Medical Corp. and acquired the product lines. Plaintiffs tried to imply that this transaction constituted a de facto merger between McKinley LLC and Moog/Curlin, because it effectively continued the pain pump business of McKinley LLC. Plaintiffs emphasize that the manufacture, distribution, and sales of the Accufuser and beeLINE pain pumps continued uninterrupted. However, Oregon has explicitly rejected a "product line" exception to the general rules governing successor liability.

Third, the evidence did not support a finding that Moog or Curlin is a "mere continuation" of McKinley LLC. "A successor corporation is merely a continuation of the predecessor
corporation, despite a business transformation, if it is substantially the same as the predecessor corporation." Alicki v. Intratec USA, Inc., 769 F. Supp. 336, 340 (D. Or. 1991). Here, importantly, McKinley LLC retained assets after the Assignment and Merger Agreement and distributed the Walkmed pain pumps until 2007. McKinley LLC remains an existing, separate corporate entity and an active defendant in this cases.  Moreover, no continuity of management, directors, or
shareholders exists between McKinley LLC and Curlin or Moog.

Finally, plaintiffs presented no persuasive evidence that the corporate forms of McKinley LLC, Curlin, or Moog were improperly manipulated for purposes of fraud, or that the Assignment and
Merger Agreement left McKinley LLC insolvent or otherwise unable to answer for its debts.

State Supreme Court Clarifies Subsequent Remedial Measure Doctrine

The Iowa Supreme Court last week issued an interesting decision clarifying the subsequent remedial measure doctrine in that jurisdiction, and offering some good general notions. Scott v. Dutton-Lainson Co., 2009 WL 3415937 (Iowa 10/23/09).

A little background.  Readers of MassTort Defense know that despite the nostalgic effort of some courts to try to maintain a bright line between strict liability and negligence claims, it is pure semantics to try to confine certain product defect claims to a "strict" regime.  Specifically, failure to warn claims and design defect claims (as opposed to manufacturing defect claims) have been largely recognized as sounding, at least in part, in negligence.  In the Restatement (Third) of Torts: Products Liability, the standards for design defect and failure-to-warn claims require consideration of reasonableness and therefore incorporate negligence principles.

Beyond the articulation of the causes of action, the classification of the claims has other potential impact in a products liability claim, such as in this case. Plaintiff worked for a boat dealership and suffered an injured foot when the jack on a boat trailer collapsed.  Plaintiff offered a design defect theory, that the jack's pin should have been longer, allowing users to better see whether the pin was engaged. (A competitor allegedly made a longer pin.)  Below, plaintiff sought to introduce three bits of testimony regarding defendant's alleged subsequent changes to the pin tooling, which lengthened it and thus allowed it to reach further into the pin hole.  The first was deposition testimony from a company officer concerning changing the tooling.  Second was a deposition of a witness who reportedly heard a company official say the pin was lengthened as a result of plaintiff's accident. The third was proposed testimony that the redesign allowed the pin to move further into the hole.

As in some states, Iowa Rule of Evidence 5.407 excludes evidence of subsequent remedial measures to prove negligence or culpable conduct, but not in strict liability claims.  Plaintiff, of course, argued that the proposed testimony was for his strict liability claims.  The trial court excluded the evidence at trial, which resulted in a defense verdict.

The state supreme court held that design defect and failure-to-warn claims sound in negligence, rather than strict liability.  Thus, the lower court had been correct to exclude evidence of the subsequent measures at the trial. Evidence of subsequent remedial measures, which a party seeks to introduce in an action based on a design defect claim, a failure to warn claim, or a breach of warranty claim brought under either theory, is not categorically exempt from exclusion under rule 5.407, because these claims are not strict liability claims. Instead, trial courts must analyze the reason a party seeks to admit such evidence. According to rule 5.407, evidence of subsequent remedial measures is not admissible to show negligence or culpable conduct. Such evidence is admissible to show “ownership, control, or feasibility of precautionary measures, if controverted, or impeachment.” Iowa R. Evid. 5.407.

The court found that the exceptions in the rule adequately accommodate a plaintiff's burden to prove a reasonable alternative design.  A plaintiff has the opportunity to introduce evidence of subsequent remedial measures if the defendant disputes the feasibility of a suggested alternative design.

The court found that important policy reasons, including the need to avoid deterring individuals from making improvements or repairs after an accident, supported the exclusion. Plaintiffs, and misguided academics, often assert that manufacturers will choose to make improvements to a product even if those improvements are admissible because the producer would otherwise risk litigation and negative publicity.  But there is a substantial body of criticism of that notion, which overstates the relevance of subsequent remedial measures, appears to have an over-focus on mass product producers (when the rule applies to everyone), and invites confusion of the jury, both by diverting its attention from whether the product was defective at the relevant time to what was done later, and by facilitating, in the minds of jurors, an inappropriate equation between subsequent design modification and an admission of a prior defective design.  This plaintiff's argument premises its conclusions concerning hypothetical manufacturer conduct upon the assumption that the product at issue is in fact defective, overlooking the situation where the product is not defective but could have been, and may be later, improved.

 

Use of Company Conduct Evidence to Prove Liability or Punitive Damages

As due process considerations have taken their more appropriate place in the law of punitive damages, see BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), trial courts have struggled with the intersection of traditional product liability law and new rules on evidence necessitated by such due process concerns. 

For example, plaintiffs frequently seek to use evidence of other allegedly similar conduct and allegedly substantially similar accidents, injuries, incidents for liability related issues such as notice and defect.  In Philip Morris USA, Inc. v. Williams, 127 S.Ct. 1057 (2008), however, the Court confirmed a significant constitutional principle limiting punitive damages awards: the Due Process Clause prohibits juries from basing punitive damages awards even in part upon the desire to punish a defendant for harm to persons that are not before the court. 

Williams arose from an Oregon trial wherein a jury awarded $821,000 in compensatory damages and $79.5 million in punitive damages against cigarette manufacturer Philip Morris. At trial, the plaintiff’s attorney had urged the jury to punish Philip Morris for alleged harm to smokers other than the plaintiff by referring to the defendant’s market share and the number of smokers not only in the state of Oregon, but nationwide, who had allegedly contracted a smoking-related illness in the last 40 years. The Supreme Court held that the Due Process Clause forbids a jury from assessing punitive damages to punish a defendant for injury that it inflicts upon non-parties or “strangers” to this litigation. While a jury may consider the actual or potential harm to non-parties in the narrow context of determining “reprehensibility” of the conduct, which in turn is one of the factors relevant to an analysis whether the punitive damages award is excessive or not, it may not punish the defendant for the impact of its alleged misconduct on other people, who may bring lawsuits of their own in which other juries can resolve their claims.

The Supreme Court cautioned state courts that they must make sure that the “jury will ask the right question, not the wrong one.”  That is, evidence regarding alleged injuries of those not before the court must be used solely to judge the reprehensibility of the conduct, not to assess damages for the harm caused to those strangers. While the Court commented on the Oregon court’s refusal to give a jury instruction clarifying this distinction, it noted generally that state courts cannot authorize any procedures that create an unreasonable and necessary risk of any such confusion occurring. When evidence is introduced or argument made that risks this confusion, the state court must take steps to protect against that risk. 

Another such conflict was seen in the recent Montana case involving the trial court's exclusion of a car seat manufacturer's evidence of regulatory compliance.  Malcolm v. Evenflo Co., 2009 WL 2917799 (Mont., September 14, 2009).  The state supreme court ruled that while the evidence should have been excluded from the jury's consideration of liability for compensatory damages, the evidence should have been admitted for purposes of assessing punitive damages.  It let stand the compensatory award, but vacated the punitive damages award.

The case arose from a motor vehicle accident during which plaintiff's decedent  rode in the back of an SUV in the OMW model 207 child seat. A northbound motorist swerved into plaintiff Malcolm's lane and forced Malcolm off the road. The vehicle rolled three times, traveled down a steep incline, and stopped in a ditch.  The left belt hook of the OMW broke off during the rollover. The seat belt slipped out from the open-ended belt hook on the opposite side of the seat. The forces of the accident ejected the OMW from the vehicle, which resulted in death, according to plaintiffs.

The theory at trial was strict liability in tort, design defect theory. The Malcolms claimed that the Evenflo OMW model 207 infant child safety seat constituted a defectively designed product that failed even though they had used the seat in a reasonably anticipated manner. The Malcolms pointed to the OMW's open-ended belt hook design that might have prevented the injury. The Malcolms contended that Evenflo could have manufactured the OMW using an allegedly  feasible superior alternative design that required the vehicle's seatbelt to be routed through an enclosed seat belt tunnel even when the seat was used without the base. The Malcolms also sought punitive damages. The Malcolms alleged that Evenflo “continued selling the defective product in conscious, deliberate and intentional disregard of the danger presented.”

Evenflo contended that the OMW model 207 was not defective in any way. Evenflo argued that the severity of the forces involved in the accident were the sole cause of the death. Evenflo argued that the “tremendous forces” that occurred during the rollover forced open the rear passenger door, which was immediately adjacent to Tyler's child seat. Evenflo posited that Tyler's car seat came into direct contact with the ground as the Suburban rolled. Evenflo argued that the contact caused the seat to detach from the seat belt system and ultimately fly out the open door.

The National Highway Traffic and Safety Administration (NHTSA) requires that all child restraint systems comply with the minimum requirements of Federal Motor Vehicle Safety Standard 213. See 49 C.F.R. § 571.213 (2009). NHTSA required Evenflo to conduct internal testing of the OMW to determine if it complied with the FMVSS 213 standards, which it did. NHTSA and Transport Canada, the Canadian testing agency, conducted random audit FMVSS 213 tests in addition to Evenflo's internal testing.

The first issue was the basic products issue: Evenflo argued that the trial court erred when it excluded any evidence that the OMW model 207 complied with FMVSS 213. Evenflo contended that the fact that the OMW model 207 passed 341 tests performed under FMVSS 213 was highly relevant to the claim that the model 207 was defective and unreasonably dangerous.

Evenflo noted that the standard would be admissible in a negligence case, and  there is no reason why such highly relevant evidence should not be used in strict products liability cases. Thus, Evenflo urged the Court to adopt the Restatement (Third) of Torts: Products Liability § 4 (1998). Section 4 provides that compliance with an applicable regulation is admissible in connection with liability for defective design. Evenflo noted that a majority of jurisdictions hold that compliance with product safety regulation is relevant and admissible on the question of defectiveness, even if it is not necessarily controlling.

The four-justice majority reiterated this court's adherence to “well-settled, decades-old principles of strict liability” that consider irrelevant a manufacturer's reasonableness and level of care. The court declined to adopt the Restatement (Third) of Torts: Products Liability, §4.  Montana thus continues to be one of those few states that cling to the now-discredited "bright line" verbal distinction between cases asserting strict liability in tort and those grounded in negligence theory. (This Court had previously distinguished strict liability from negligence when it rejected the “state of the art” defense, for example, because it raises issues of reasonableness and foreseeability --concepts fundamental to negligence law.)  It still argues that any attempt to inject so-called negligence principles into strict liability law would somehow sever Montana's strict products liability law from the core principles for which it was adopted.  The focus in design defect cases must be on “the condition of the product,” rather than “the manufacturer's conduct or knowledge."  And the way to do this, apparently, is to exclude relevant, material, probative evidence that the product passed regulatory muster.

On the punitive damages issue, Evenflo argued that the trial court's decision to exclude evidence of the OMW model 207's compliance with FMVSS 213 prevented it from introducing evidence bearing on its state of mind. A defendant's state of mind is a “key element” in assessing punitive damages, and the car seat maker should have been able to present evidence of its regulatory compliance. 

The trial court had concluded that the OMW model 207's compliance with FMVSS 213 had “absolutely no bearing at all upon the reprehensibility of the conduct of Evenflo.” But the supreme court could not sustain the verdict on punitives in light of the court's decision to exclude evidence that might show why Evenflo acted as it did, or failed to act, when the jury considered whether to award punitive damages. Evidence of Evenflo's good faith effort to comply with all government regulations, including FMVSS 213, would be evidence of conduct inconsistent with the mental state requisite for punitive damages.

Interestingly, the supreme court noted that while here a new jury here could consider evidence of the OMW model 207's compliance with FMVSS 213 for the purposes of determining whether Evenflo acted with actual fraud or actual malice, generally the Montana system provides for the presentation of evidence regarding liability for compensatory damages and punitive damages to the jury in a single proceeding. Thus, bifurcation is disfavored, and the trial courts must ordinarily trust that the jury will heed the court's instructions as to how to evaluate the evidence presented.

One dissenting justice would have also reversed the compensatory damages. He differed from the majority on how the trial was conducted and saw it as improperly biased against Evenflo. Two other dissenters agreed with the majority on the compensatory damages but would have sustained the punitive award, arguing that Evenflo's inability to present evidence of its compliance with regulations did not prejudice the company.

State Supreme Court Issues Design Defect Ruling On Intrinsic Characteristics

The Wisconsin Supreme Court has affirmed a lower court's dismissal of strict liability and negligence claims against white lead carbonate pigment manufacturers, ruling that a product's characteristic ingredient cannot  constitute a design defect. See Ruben Baez Godoy v. E.I. du Pont Nemours and Co. et al., No. 2006AP2670 (Wisc. S.Ct.).

The court affirmed a circuit court's ruling that the complaint had failed to allege a design feature that rendered defective the design of white carbonate lead pigment, which can be found in white paint.
Plaintiff alleged lead poisoning from white lead carbonate pigment in the paint in his Milwaukee apartment, and sued DuPont, Armstrong Containers, Sherwin-Williams and American Cyanamid.
He asserted that despite alleged knowledge that lead is hazardous to human health, the manufacturers promoted the use of the pigment and marketed it as safe.

The lower court dismissed the design defect claims, finding  that lead is an inherent  characteristic of white lead carbonate, and thus the product cannot be designed without lead. The court of
appeals found that a product cannot be said to be defectively designed when that design is inherent in the nature of the product so that an alternative design would make the product something else.  This is the long-standing, but often misunderstood notion, that an alternative product is not an alternative design.  In those states in which a plaintiff must prove the existence of a feasible alternative design that would have avoided the injury, or in which the defendant may show the absence of any feasible alternative design, it is not enough for a plaintiff to point to a different product that might serve the same use. 

The state Supreme Court affirmed, noting that a claim for defective design cannot be maintained where the presence of lead is the alleged defect in design, and its very presence is a characteristic of the product itself.  Without lead, there can be no white lead carbonate pigment.  The court offered an analogy:  Foil for your kitchen use can be made using ingredients other than aluminum (gold, for example), but aluminum foil cannot be made without aluminum. The presence of aluminum is characteristic of aluminum foil. If the mere presence of aluminum posed a danger, a manufacturer might be liable based on the failure to adequately warn or other claims. However, the manufacturer
would not be liable based on the "design" of aluminum foil for including aluminum.

Interestingly, the court reaffirmed that Wisconsin strict products liability law does not require a
plaintiff to prove the feasibility of an alternative design.  However, the feasibility of an alternative design can be considered when evaluating a design defect claim. While plaintiff argued that it is inconsistent to reject a reasonable alternative design requirement and still maintain that characteristic ingredients of the product cannot support a claim for defective design, the court clarified that it was not requiring that a plaintiff affirmatively prove, through expert testimony, that an alternative design was commercially viable. The court was simply acknowledging that some ingredients cannot be eliminated from a design without eliminating the product itself. When the ingredient cannot be designed out of the product, the Restatement (Second) instructs that although other claims may be theoretically asserted, the proper claim is not design defect.  

That rationale would seem to apply to design defect claims in drug cases, where the characteristics of a chemical constituting an FDA-approved drug are challenged. The "design" of a typical drug cannot be changed without creating a different molecular structure, and hence  a different product, one which would require a second FDA approval.

State Supreme Court Postpones Third Restatement Issue

The Pennsylvania Supreme Court reversed field and recently dismissed the appeal of a closely watched failure-to-warn case alleging harmful asbestos exposure.  Bugosh v. I.U. North America, et al., No. 7 WAP 2008 (S.Ct. Pa. June 16, 2009).

One of the key issues presented by the case was whether Pennsylvania product liability law would change from its current unique form of somewhat extreme strict liability to the more mainstream Third Restatement approach to the issue of liability for  product sellers.

The divided ruling  by the Court involved the claim of a deceased mesothelioma patient, Edward Bugosh, whose widow had been awarded $1.4 million in damages by a jury in the trial court.  I.U.  North America was a non-manufacturer distributor named in the wrongful death suit, based solely on its predecessor’s sale of a small amount of asbestos-containing products.

Traditional products liability law in the state is based on Section 402A of the Restatement (Second) of Torts, and finds that every party in the distribution chain is strictly liable for any product defect in the product they sold. The Third Restatement treats intermediate sellers differently than manufacturers. Specifically, while under current law, liability can be imposed on manufacturers, retailers and distributors for injuries caused by products with manufacturing, design, or informational defects, regardless of whether a defendant acted reasonably in the preparation and sale of the product at issue, the appeal sought to persuade the state Supreme Court to adopt the approach of Section 2 of the new Restatement, which would require plaintiffs to prove that a defendant acted unreasonably. 

The dismissal order finds review was improvidently granted, but gives no further reason.  Speculation centers on this status of the defendant as an intermediate seller, rather than as an actual manufacturer.  The Court may have felt that this was not the best context to consider a major change in the law.

The case drew tremendous interest, with amici on the appellant’s side to include the Pennsylvania Defense Institute, the Product Liability Advisory Council, Inc., Pennsylvania Chamber of Business and Industry, Coalition for Litigation Justice, Inc., Chamber of Commerce of the United States of
America, National Association of Manufacturers, NFIB Small Business Legal Center, National Association of Wholesaler-Distributors, American Tort Reform Association, American Insurance Association, Property and Casualty Insurers Association of America, National Association of Mutual Insurance Companies, American Chemistry Council, and the Washington Legal Foundation.

This result arguably leaves Pennsylvania law very much muddled, as recently the Third Circuit predicted that Pennsylvania would adopt the Third Restatement. See Berrier v. Simplicity Manufacturing, Inc., 563 F.3d 38 (3d Cir. 2009).  In state court, the traditional Pennsylvania version (based on Azzarello v. Black Brothers Co., 391 A.2d 1020 (Pa. 1978)) of strict liability prevails, while the federal courts may be following Berrier to apply the Third Restatement in diversity cases based upon Pennsylvania law.

Plaintiff had argued that a return to a fault-based system would unfairly increase the plaintiffs’ burden of proof, and adoption of the Third Restatement would reduce the incentive to product manufacturers and suppliers to distribute safer products. 

In a sharply worded dissent to the dismissal, two justices called the current law severely
deficient, particularly when measured against developed understanding and experience, and argued that necessary adjustments are long overdue. The current distinctions that Pennsylvania law makes between negligence and strict liability have no place in any scheme purporting to recognize that manufacturers and distributors are not outright insurers for all harm involving their products.

Third Circuit Predicts Pennsylvania Would Adopt 3rd Restatement

The Third Circuit has predicted that the Pennsylvania Supreme Court would abandon Pennsylvania’s peculiar rule of strict liability and join several other states in adopting the form of product liability espoused in the Third Restatement of Torts. Berrier v. Simplicity Manufacturing, Inc., 2009 WL 1054684 (3d Cir. April 21, 2009). My colleague Jim Beck was on the amicus brief for the defense side, and a law school classmate argued for the plaintiffs. But our interest at MassTortDefense was far more than personal: Pennsylvania product liability law has been regarded as including an antiquated and somewhat unnaturally strict version of strict liability, which, in its attempt to distinguish between negligence and 402A strict liability, seemingly precludes any reference to “foreseeability” or “reasonableness” or other negligence-sounding notions. See Lewis v. Coffing Hoist Division, Duff-Norton Co., 528 A.2d 590 (Pa. 1987); Azzarello v. Black Brothers Co., 391 A.2d 1020 (Pa. 1978).


That notion impacted mass tort and products defendants adversely in a number of ways. There is typically no balancing of risks and utility of alternative designs permitted; there is no consideration of comparative fault in strict liability that would reduce a verdict where the plaintiff’s conduct is clearly relevant; only when the plaintiff’s conduct is the “sole cause” of his or her injuries does it become relevant. Similarly, evidence of industry standards was arguably inadmissible in Pennsylvania on strict liability claims as it goes to a defendant’s reasonable care. Some state courts have held that compliance with mandatory government regulations would likewise be inadmissible in strict liability. Accordingly, plaintiffs in cases where Pennsylvania law would apply were not bashful about dismissing their negligence count before trial and relying on this version of strict liability.

In Berrier, the primary issue on appeal was whether Pennsylvania’s strict products liability law extends to a child who was injured when her grandfather backed over her foot while using a riding mower that lacked “back-over” protection. The Pennsylvania Supreme Court has never expressly determined if one who is merely a bystander and not a user of a product can bring a products liability claim against a manufacturer to recover for injuries that occur while an intended user is using the manufacturer’s product. So here was a case in which the exclusion of any notion of forseeability (because it smacks of negligence) hits the plaintiff: not being a user and being a “foreseeable plaintiff” or being injured by “foreseeable misuse” shouldn’t be enough under traditional Pennsylvania strict liability law. And that’s what the district court held. Berrier v. Simplicity Corp., 413 F. Supp.2d 431, 442 (E.D. Pa. 2005).

Originally, when faced with the issue, the Third Circuit certified the Third Restatement question to the Pennsylvania Supreme Court. Berrier v. Simplicity Manufacturing, Inc., 2008 WL 538912 (3d Cir. Jan. 17, 2008). The Pennsylvania Supreme Court, however, declined to accept the certified question. Berrier v. Simplicity Manufacturing, Inc., 959 A.2d 900 (Pa. 2008).

Faced with having to decide, the Third Circuit predicted that the Pennsylvania Supreme Court would overturn the 1977 Azzarello case in which it adopted its version of strict liability, and instead adopt the negligence-based standard of the Third Restatement of Torts. If an accurate prediction (and there is a products case before the state Supreme Court at this time, Bugosh v. I.U. North America, Inc., 942 A.2d 897 (Pa. 2008) (question is whether "this Court should apply § 2 of the Restatement (Third) of Torts in place of § 402A of the Restatement (Second) of Torts.”)), this would seem to afford certain bystanders a cause of action in strict liability under the circumstances here; but it arguably would create a much more balanced version of strict liability, as well.

The Restatement (Third) of Torts: Products Liability, § 2, recognizes a design defect claim when the foreseeable risks of harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative design by the seller or other distributor, or a predecessor in the commercial chain of distribution, and the omission of the alternative design renders the product not reasonably safe. It recognizes a claim for inadequate instructions or warnings when the foreseeable risks of harm posed by the product could have been reduced or avoided by the provision of reasonable instructions or warnings by the seller or other distributor, or a predecessor in the commercial chain of distribution, and the omission of the instructions or warnings renders the product not reasonably safe.

The court recognized that the Third Restatement therefore eliminates much of the confusion that has resulted from attempting to quarantine negligence concepts and insulate them from strict liability claims. Slip opin. at 40. The Third Circuit relied heavily on the analysis of Justice Saylor in his concurring opinion in Phillips v. Cricket Lighters, 841 A.2d 1000 (Pa. 2003). “We therefore conclude, as Justice Saylor proclaimed in Phillips, that ‘the time has come for this Court . . . to expressly recognize the essential role of risk-utility balancing, a concept derived from negligence doctrine, in design defect litigation.’ 841 A.2d at 1015-16 (Saylor, J., concurring).”  And the federal court relied on the conclusion that the Third Restatement is more consistent with the modern trend of law, as well as the evolving policy considerations that led to the adoption in Pennsylvania of Section 402A in the first place.