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Chapter Twelve Product and Service Liability Law

When consumers enter a store to purchase a product, they assume that the product will do the job the manufacturer claims it will do without injuring anyone, and the consumer may not be aware that each year more than 33.4 million injuries and around 28,200 deaths result from the use of products purchased in the United States. 1  Deaths, injuries, and property damage from consumer products incidents cost the nation more than $700 billion annually. 2  Estimates of the number of resultant product liability cases range as high as 1 million a year. Also, the verdicts for defective-product or product liability cases are increasing from year to year. The total of the five largest awards for product defect cases in 2009 was 52 percent larger than the total in 2008. In fact, the largest award from a 2009 product defect case amounted to around $300 million, from the Philip Morris tobacco case. Also, in 2008, only 1 of the 50 largest awards were the result of a verdict in a product defect case, but in 2009, 5 of the 50 largest judgments were awarded in product defect cases. 3

1  U.S. Department of Safety, http://www.yourlegalguide.com/defective-product-deaths/.

2  U.S. Consumer Product Safety Commission, www.cpsc.gov/about/about.html (accessed July 27, 2007).

3  John Cord, Product Liability Statistics & Trends, 2010. http://www.drugrecalllawyerblog.com /2010/01/product_liability_statistics_t.html.

Consequently, today’s businessperson is likely to become involved in some aspect of product liability litigation. This chapter discusses the most significant aspects of this area of law, known as product liability, to help the student function as a prudent consumer and businessperson.

Product liability law developed out of tort law, discussed in  Chapter 10 . This chapter begins by introducing the three primary theories of recovery in product liability cases and the defenses raised in such cases. These sections are followed by an introduction to enterprise liability, a concept that has slightly broadened the potential reach of product liability cases. Closely related to product liability is service liability, discussed in the next-to-last section. The final section discusses global implications of product liability law.

Critical Thinking About The Law

Manufacturers owe a certain responsibility to consumers. Consumers should be able to reasonably use a product without its causing harm to them or others. After you read the following scenario, answer the critical thinking questions that will enhance your thinking about product liability law.

Katherine purchased a can of hair spray from her local drugstore. When she removed the cap from the hair spray can, the can exploded in her hands. She suffered third-degree burns on her hands and face and was unable to work for three months.

Katherine sued the hair spray manufacturer after she discovered that another woman had suffered an identical accident when using the same brand of hair spray. The jury awarded Katherine $750,000 in compensatory damages.

1. Katherine’s lawyer described a previous case in which an individual was injured because a product exploded. Two years earlier, a woman walking down a row of hair care products in a supermarket had been injured when three cans of hair spray spontaneously exploded. She lost her sight because of the explosion, and a jury awarded her $2.2 million in damages. Katherine’s lawyer argued that because the previous woman had been compensated, Katherine should be awarded $2 million in damages for her injuries. Do you think the earlier case is similar enough to Katherine’s case for Katherine to recover damages? Why?

Clue: How are the cases similar and different? How does the fact that Katherine purchased the product affect your thinking about the earlier case?

2. The manufacturer argued that because it places a warning on the hair spray cans, it is free from responsibility for injury. The can states, “Warning: Flammable. Contents under pressure.” The jury, however, ruled in favor of Katherine. What ethical norm seems to have shaped the jury’s thought?

Clue: Study the list of ethical norms in  Chapter 1 . The manufacturer argued that it should not have to assume responsibility because the can has a warning. What ethical norm is consistent with offering greater protection for the consumer?

3. What additional information about this case would make you more willing to state your own opinion about the situation?

Clue: What information about the product would change your thinking about the responsibility of the manufacturer? For example, suppose that Katherine discovered that an identical accident had occurred with the same brand of hair spray. How might knowing the date that the similar accident occurred influence your thinking about Katherine’s case?

Theories of Recovery in Product Liability Cases

Product liability law developed out of tort law. A glance at the three primary theories of recovery in product liability cases—negligence, breach of warranty, and strict product liability—reveals a relationship between product liability and tort law. A plaintiff usually brings an action alleging as many of these three grounds as possible.

Negligence

Plaintiffs in product liability cases have traditionally used theories of negligence. To be successful, the plaintiff must prove the elements of negligence explained in  Chapter 11 : (1) that the defendant manufacturer owed a duty of care to the plaintiff, (2) that the defendant breached that duty of care, (3) that this breach of duty caused the plaintiff’s injury, and (4) that the plaintiff suffered actual, compensable injury.

The Privity Limitation

 An early problem with using negligence to recover for an injury caused by a defective product was establishing duty. Originally, a plaintiff who was not the purchaser of the defective product could not establish a duty of care and, thus, could not recover. This limitation was based on the concept of privity, which means that one is a party to a contract. In the earliest known product liability case, Winterbottom v. Wright, 4  the British court in 1842 established the rule that to recover for an injury caused by a defective product, the plaintiff must establish privity. In other words, before a manufacturer or seller of a defective good could owe a duty to the plaintiff, the plaintiff must have purchased that good directly from the defendant who manufactured it. Because plaintiffs rarely purchase goods from the manufacturer, few such suits were initially brought.

4  152 Eng. Rep. 402 (1842).

Gradually, especially in cases of defective food, courts began to eliminate the privity requirement, essentially abolishing it in the 1916 case of MacPherson v. Buick Motor Co. 5  In MacPherson, the court held the remote manufacturer of an automobile with a defective wheel liable to the plaintiff when the wheel broke and the plaintiff was injured. Judge Cardozo stated that the presence of a sale does not control the duty; if the elements of a product are such that it is harmful to individuals if negligently made, and if the manufacturer knows that the product will be used by someone other than the purchaser, then “irrespective of contract, the manufacturer of this thing is under a duty to make it carefully.” The holding in the MacPherson case, which was quickly followed by similar holdings in other states, eliminated the privity requirement, thereby allowing a negligent manufacturer to be held responsible for a defective product that caused injuries to someone with whom the defendant manufacturer had no contract.

5  217 N.Y. 382, 111 N.E. 1050 (1916).

Eradication of the privity requirement and the subsequent increase in the liability of producers and sellers reflected a shift in social policy toward placing responsibility for injuries on those who market a product that could foreseeably cause harm if proper care were not taken in its design, manufacture, and labeling. Increasingly, the courts indicated that defendants should be responsible for their affirmative acts when they knew that such actions could cause harm to others. Also, because the manufacturer and seller derive economic benefits from the sale and use of the product, it seemed fair to impose liability on them if they earned profits from a defectively made product.

Thus, abolition of the privity limitation opened the door for negligence as a theory of liability when people were injured because of a product manufacturer’s or seller’s lack of care. A number of negligent acts or omissions typically give rise to negligence-based product liability actions; these are listed in  Exhibit 12-1 . We will discuss the most common ones: negligent failure to warn and negligent design.

Negligent Failure to Warn

 Most of the negligence-based product liability actions result from a failure to warn or inadequate warning. To bring a successful negligence case for failure to warn, the plaintiff must demonstrate that the defendant knew or should have known that, without a warning, the product would be dangerous in its ordinary use or in any reasonably foreseeable use. In determining whether a reasonable manufacturer would have given a warning in a particular situation, the courts frequently consider the likelihood of the injury, the seriousness of the injury, and the ease of warning.

Exhibit 12-1 Common Negligent Actions Leading To Product Liability Cases

There is generally no duty to warn of dangers arising from unforeseeable misuses of a product or from obvious dangers. A producer, for example, need not give a warning that a sharp knife could cut someone. Similarly, some plaintiffs have argued that fast-food restaurants, like McDonald’s, are liable to consumers for consumers’ obesity-related health problems, because the restaurants failed to warn customers of the unhealthful attributes of fast food. In Pelman v. McDonald’s, the plaintiff alleged that McDonald’s failed to warn customers of the “ingredients, quantity, qualities and levels of cholesterol, fat, salt and sugar content and other ingredients in those products, and that a diet high in fat, salt, sugar and cholesterol could lead to obesity and health problems.” 6  In his decision dismissing the plaintiff’s claims against McDonald’s, Judge Sweet specifically stated that “this opinion is guided by the principle that legal consequences should not attach to the consumption of hamburgers and other fast food fare unless consumers are unaware of the dangers of eating such food.” *  Because consumers know, or reasonably should know, the potential negative health effects of eating fast food, the plaintiff’s claim was dismissed. But if future plaintiffs can allege that McDonald’s food is dangerous in a manner not known to consumers, their claims may survive.

6  237 F. Supp. 2d 512 (S.D.N.Y. 2003).

A defendant may give a warning in a manner not clearly calculated to reach those whom the defendant should expect to use the product. If the product is to be used by someone other than the original purchaser, the manufacturer is generally required to put some sort of warning on the product itself, not just in a manual that comes with the product. If children or those who are illiterate are likely to come into contact with the product and risk harm from its use, picture warnings may be required.

Products designed for intimate bodily use, especially drugs and cosmetics, often give rise to actions based on negligent failure to warn because the use of these products frequently causes adverse reactions. When a toxic or allergic reaction causes harm to the user of a cosmetic or an over-the-counter drug, many courts find that there is no duty to warn unless the plaintiff proves that (1) the product contained an ingredient to which an appreciable number of people would have an adverse reaction; (2) the defendant knew or should have known, in the exercise of ordinary care, that this was so; and (3) the plaintiff’s reaction was due to his or her membership in this abnormal group. 7

7  W. Page et al., Prosser and Keeton on Torts (5th ed.) (St. Paul, MN: West, 1984), 687.

Other courts, however, determine negligence by looking at the particular circumstances of the case and by weighing the amount of danger to be avoided against the ease of warning. For example, in a 1995 case against McNeil Consumer Products Company, a jury awarded more than $8.8 million to a man who suffered permanent liver damage as a result of drinking a glass of wine with a Tylenol capsule. Although the corporation had known for years that combining a normal dose of Tylenol with a small amount of wine could cause massive liver damage in some people, the company failed to put a warning to that effect on the label. The jury did not accept the company’s argument that the reaction was so rare that no warning was necessary. 8

8  Benedict v. McNeil Consumer Products Co., 1992 WL 729052 (L.R.P. Jury).

Marketing of prescription drugs is unique because the manufacturer almost never communicates directly with the user; instead, it communicates with the physician who prescribes the drug. In these cases, the courts generally hold that drug manufacturers have a duty to provide adequate warnings to physicians to enable them to decide whether to prescribe the drug or disclose the risk to the patient. The manufacturer must warn the physician of any chance of a serious adverse reaction, no matter how small. Prescription drugs are frequently the subject of product liability cases, as described in  Exhibit 12-2 .

Product	Case Status and Legal Claims
Avandia (prescription drug used to control blood sugar in Type II diabetics)	In May 2007, the New England Journal of Medicine released a study linking Avandia to a greatly increased risk of heart attack or heart-related death. The Food and Drug Administration (FDA) put out a safety alert and more research is being done on the safety of Avandia. The first law-suit as a result of this new information was filed in June 2007 and experts expect more to follow. As of May 2010, Avandia manufacturers made a $60 million settlement to end approximately 700 lawsuits; however,this was only the first settlement Avandia manufacturers are expected to make in regard to the drug's side effects.
Baycol (prescription drug to lower cholesterol)	Plaintiffs reportedly experienced rhabdomyolysis, a kidney disorder in which toxic muscle cells are released into the bloodstream. Patients can then develop fatal organ failure. Plaintiffs frequently bring claims of failure to warn or for a defectively designed drug. The manufacturer voluntarily removed Baycol from the market because of the legal claims it had spawned. As of January 2007, the court status update estimated that there were approximately 1,200 active cases. The status update also indicated that the manufacturer, Bayer, has settled 3,000-plus cases for more than $1.1 billion.
Fen-Phen (Redux) (drug to treat obesity)	Some patients experienced heart-valve disease after using Fen-Phen to lose weight. In January 2004, a $3.75 billion trust was created as a settlement between patients and the drug manufacturer, American Home Products, to compensate patients injured by Fen-Phen use. Under the settlement agreement,eligible patients may be entitled to compensation, diet drug prescription refunds, and echocardiography screenings.
Paxil (antidepressant) (similar claims have been brought regarding Zoloft, another antidepressant)	Patients taking Paxil reportedly had withdrawal reactions and problems: anxiety, agitation, confusion, dizziness, fatigue, headache, insomnia, irritability, nausea, palpitations, sweating, sleep disturbances, sensory disturbances, tremor, and vision distortion. As of April 2004, there were about 1,500 Paxil withdrawal plaintiffs in more than 30 states. These cases were consolidated into multidistrict litigation. Plaintiffs frequently bring the following claims: intentional misrepresentation, fraud, negligence, strict liability, and breach of warranty. Paxil has also been linked to increased suicide risk in teens and has faced many lawsuits on that front.
Prempro (prescription drug to relieve menopausal symptoms)	Researchers determined that women taking Prempro were more likely to suffer breast cancer, stroke, heart disease, blood clots, and dementia. After this research, the FDA approved new labels emphasizing these increased risks; however, Prempro still remains on the market. Approximately 6 million women had been taking Prempro before the researchers announced the increased health risks associated with Prempro use. The first of the lawsuits against the manufacturer was heard in August 2006 and several suits have been found for the plaintiffs since then, with millions in damages awarded. In one court case in 2010, a woman was awarded $9.54 million; another case in 2007 yielded the astounding verdict of $134 million. As of 2010, many cases are ongoing.
Vioxx (NSAID, COX-2 inhibitor)	Vioxx is a painkiller marketed to treat pain from osteoarthritis. Vioxx has been linked to increased risk of heart attacks and strokes among users. In 2004, the manufacturer pulled Vioxx from the market in response to results of an FDA study. As of July 2007, the manufacturer still faced more than 27,000 lawsuits. A $4.85 billion fund was created by Merck, the manufacturer, to cover those suits. Specifically, a $4 billion fund was created to cover those who had suffered heart attacks after using the drug, and another $850 million fund for those who suffered strokes as a result of using the drug. As of 2010, many lawsuits are still pending.
Zicam (over-the-counter nasal gel to remedy the common cold)	Plaintiffs contend that after using Zicam, they lost their sense of smell and taste. Plaintiffs argue that the Zicam manufacturer knew or should have known about the potential dangers associated with the use of nasal medications containing zinc. Use of zinc can cause nerve damage. Furthermore, plaintiffs argue that the manufacturer failed to provide sufficient warnings to the users of the products even though the side effects of zinc compounds have been documented. In January 2006, the manufacturer settled with 340 plaintiffs for $12 million.
Accutane (drug intended to treat severe acne)	Accutane is an acne medication that was used by millions of people to treat severe acne. In 2009, it was linked to the emergence of inflammatory bowel disease in users of the acne drug who had had no prior health problems related to the disease. On June 29, 2009, Hoffmann-La Roche announced a nationwide Accutane recall. Since the June 2009 Accutane recall, six court decisions have resulted in about $56 million in damages being paid to users who contracted inflammatory bowel disease from using Accutane by Roche.
Fosamax (anti-osteoporosis drug)	The Journal of Oral and Maxillofacial Surgeons released a report in 2004 that linked Fosamax to osteonecrosis of the jaw (ONJ). The FDA swiftly issued warnings about the drug, distributed by Merck. ONJ causes the decay and subsequent death of the bone matter associated with the jaw. As a result of this health defect, the drug lost its patent protection in 2008 and is no longer one of Merck's most financially successful drugs. Furthermore, Merck has set aside millions of dollars to battle dozens of lawsuits over the drug. The suits have resulted in mistrials, and both successes and defeats for Merck.
Zyprexa (drug to treat schizophrenia) Seroquel (antipsychotic drug from AstraZeneca)	In 2005, it was determined that Zyprexa and Seroquel led to severe weight gain in those who took the drugs. The pronounced effects of the drugs associated with patients' weight put patients in danger of contracting diabetes, among other health issues related to weight gain. Lawmakers claim that manufacturers refused to release prior knowledge of the weight-gain side effect and thus improperly marketed the drug. In 2005, the drug manufacturer Eli Lilly settled around 8,000 lawsuits, paying around $700 million to those patients affected by Zyprexa. AstraZeneca agreed to a $520 million settlement.
Ortho Evra (birth-control patch)	In 2006, clinical trial results that were released linked Ortho Evra to blood clots that could result in strokes. The drug, manufactured and distributed by Johnson & Johnson, comes in the form of a birth-control patch. Lawmakers claim that Johnson and Johnson had prior knowledge of this side effect yet did not release the information to the public and left it out of the drug's advertising. Johnson & Johnson settled in court for $1.25 million in 2007.
Yaz (birth control)	At least 40 lawsuits popped up in 2009 against Bayer Pharmaceuticals because of its Yaz birth-control drug. The lawsuits claimed that inadequate information about serious side effects was released to the public through the marketing of the product. These side effects include, but are not limited to, heart attacks, stroke, gallbladder disease, and sudden death. In fact, Yaz is the only birth control that contains both ethinyl estradiol and drospirenone, with the latter allegedly making the drug very dangerous. As of 2010, many of the lawsuits had been consolidated into large class action lawsuits and are pending in state courts from Florida to Ohio to New Jersey.

Exhibit 12-2 Prescription Drugs That Have Led To Product Liability Claims

Initially, almost all successful product liability actions based on negligence were for breach of the duty to warn. The range of successful actions was so limited because people believed that competition and an open market provided the best means for ensuring that products will have optimal safety features. Believers in the sanctity of the market feel that the manufacturer’s job is to see that the purchaser is an informed purchaser and is not deceived about the safety of a product. 9

9  R. Coase, “The Problem of Social Cost,” Law and Economics 3: 1 (1960).

Negligent Design

The foregoing attitude generally prevailed until approximately 1960, when the courts began, in a limited number of cases, to impose liability based on negligence in the sale of defectively designed products. Such liability is imposed only when a reasonable person would conclude that despite any warnings given with the product, the risk of harm outweighed the utility of the product as designed. Courts have found a wide variety of products to be negligently designed, including weed killers, gas stations, BB guns, airplanes, and traffic signs. One example of negligent design can be found in a 2010 case against Boston Scientific Corp.’s Guidant unit. The corporation was sued because it did not warn medical professionals and the United States Food and Drug Administration that some of the implantable heart defibrillators it was producing would short-circuit. The short-circuiting defects resulted in the deaths of many patients who had the medical device implanted. Furthermore, company officials had been aware of the defects for at least three years but refused to disclose the information. The corporation pled guilty and agreed to a settlement of $296 million. Thus, the design of the product was considered faulty, as the resulting deaths could have been prevented through the disclosure of the defects and spending resources on modifications and further testing.

In bringing an action for negligence in design, a plaintiff must generally prove that the product design (1) is inherently dangerous, (2) contains insufficient safety devices, or (3) consists of materials that do not satisfy standards acceptable in the trade.

Usually an action for product liability based on negligence is accompanied by a strict liability claim, which is easier to prove. With the growing use of strict liability and the broad range of defenses to negligence, negligence has become less important as a theory of liability.

Negligence per se

 As stated in  Chapter 11 , violation of a statutory duty is considered negligence per se. This concept is used in negligence-based product liability cases.

When a statute establishes product standards, the manufacturer has a duty to meet those standards. A manufacturer that does not meet those standards has breached its duty of care. As long as the plaintiff can establish that the breach of the statutory duty caused injury, the plaintiff can recover under a theory of negligence per se.

Statutes that might be violated and lead to negligence per se actions include the Flammable Fabrics Act of 1953; the Food, Drug, and Cosmetics Act of 1938; and the Hazardous Substances Labeling Act of 1960.

Applying the Law to the Facts . . .

Let’s say that Rachel bought a sweater made of wool along with a mix of other materials. Rachel went to a bonfire with her friends and a small spark from the fire landed on her sweater, immediately causing it to burst into flames. If the manufacturer of Rachel’s sweater did not comply with the duties laid out in the Flammable Fabrics Act, what action could Rachel take against the sweater manufacturer? What would she need to prove to win her case?

Defenses to a Negligence-Based Product Liability Action

 All of the defenses discussed in the negligence section of  Chapter 11  are available in product liability cases based on negligence. Remember that the plaintiff’s own failure to act reasonably can provide a defense. Depending on the state in which the action is brought, the plaintiff’s negligence will allow the defendant to raise the defense of contributory, modified comparative, or pure comparative negligence. If contributory negligence is proved, the plaintiff is barred from recovery. In a state where the defense of pure comparative negligence is allowed, the plaintiff can recover for only that portion of the harm attributable to the defendant’s negligence. In a state that follows modified contributory negligence, the plaintiff can recover the percentage of harm caused by the defendant as long as the jury finds that the plaintiff’s negligence was responsible for less than 50 percent of the harm. So, if a jury finds the defendant to be responsible for 60 percent of the plaintiff’s harm, the plaintiff could recover nothing in a contributory negligence state, but could recover damages for 60 percent of his or her injuries in a modified or pure comparative negligence state. If the defendant were only 40 percent responsible, however, the plaintiff would be able to recover 40 percent of his or her injuries only in the pure comparative negligence state and nothing in the other two.

Another defense available in product liability cases based on negligence is assumption of the risk. A plaintiff is said to assume the risk when he or she voluntarily and unreasonably encounters a known danger. If the consumer knows that a defect exists but still proceeds unreasonably to make use of the product, he or she is said to have voluntarily assumed the risk of injury from the defect and cannot recover.

In deciding whether the plaintiff did indeed assume the risk, the trier of fact may consider such factors as the plaintiff’s age, experience, knowledge, and understanding. The obviousness of the defect and the danger it poses are also relevant factors. If a plaintiff knows of a danger but does not fully appreciate the magnitude of the risk, the applicability of the defense is a question for the jury. In most cases, an employee using an unsafe machine at work is not presumed to have assumed the risk, because most courts recognize that the concept of voluntariness is an illusion in the workplace. Earlier, however, employees attempting to sue manufacturers of defective machines for injuries at work were defeated by this defense.

In many states, misuse of the product is raised as a defense in negligence- based product liability cases. To constitute a valid defense, such misuse must be unreasonable or unforeseeable. A defendant raising the defense of product misuse is really arguing that the harm was caused not by the defendant’s negligence but by the plaintiff’s failure to use the product in the manner in which it was designed and intended to be used.

Statutory defenses are also available to defendants. To ensure that there will be sufficient evidence from which a trier of fact can make a decision, states have  statutes of limitations  that limit the time within which all types of civil actions may be brought. In most states, the statute of limitations for tort actions, and thus for negligence-based product liability cases, is two to four years from the date of injury. Maine, however, has a six-year statutes of limitations. Kentucky, Louisiana, and Tennessee are the only states with one-year statutes of limitations. If the injured party is a minor, the statute of limitations does not start running until the injured party reaches age 18.

statute of limitations

A statute that bars actions arising more than a specified number of years after the cause of the action arises.

States also have  statutes of repose , which bar actions arising more than a specified number of years after the product was purchased. Statutes of repose are usually much longer than statutes of limitations; they are often at least 10 years, and frequently are 25 or 50 years. Statutes of repose may seem unduly harsh on consumers who may be injured as a result of a latent defect in a product. In contrast, to make the manufacturer liable in perpetuity may be unduly harsh on manufacturers and sellers, because of the resulting uncertainty about possible liability. Those who worry about the seller’s liability, however, should remember that the older the product is, the more difficult it will be for the plaintiff to prove negligence on the part of the defendant.

statute of repose

A statute that bars actions arising more than a specified number of years after the product was purchased.

A defendant may use the  state-of-the-art defense  to demonstrate that the alleged negligent behavior was reasonable, given the available scientific knowledge existing at the time the product was sold or produced. In a case based on the defendant’s negligent defective design of a product, the state-of-the-art defense refers to the technological feasibility of producing a safer product at the time the product was manufactured. In cases of negligent failure to warn, the state-of-the-art defense refers to the scientific knowability of a risk associated with a product at the time of its production. This defense is valid in a negligence case because the focus is on the reasonableness of the defendant’s conduct. Nevertheless, demonstrating that, given the state of scientific knowledge, there was no feasible way to make a safer product does not always preclude liability. The court may find that the defendant’s conduct was still unreasonable because even in the product’s technologically safest form, the risks posed by the defect in the design so outweighed the benefits of the product that the reasonable person would not have produced a product of that design.

state-of-the-art defense

A product liability defense based on adherence to existing technologically feasible standards at the time the product was manufactured.

An earlier section showed that failure to comply with a safety standard may lead to the imposition of liability. An interesting question is whether the converse is true: Does compliance with safety regulations constitute a defense? There is no clear answer to that question. Sometimes, however, compliance with federal laws may undergird a defense that use of state tort law is preempted by a federal statute designed to ensure the safety of a particular class of products. The following case illustrates one situation in which the Supreme Court had to determine whether a corporation could be found guilty of product liability after the company had complied with federal regulations, or whether the federal regulations preempted state product liability law.

 Case 12-1 Mutual Pharmaceutical Company, Inc. v. Bartlett

United States Supreme Court 133 S. Ct. 2466 (2013)

In 1978, the federal Food and Drug Administration (FDA), approved the nonsteroidal anti-inflammatory pain reliever sulindac, sold under the brand name Clinoril. The FDA also approved its labeling, which included warnings of potential side effects. When the company’s patent expired, other companies, including Mutual Pharmaceutical Company, produced generic versions of the drug. As required by federal law, the companies selling the generic drugs used the exact same labels as approved for the original drug, without any modifications.

Karen Bartlett was prescribed Clinoril for shoulder pain, and the pharmacy filled the prescription with the generic form of the drug manufactured by Mutual Pharmaceutical. Shortly after starting to use the pain reliever, she developed an acute case of toxic epidermal necrolysis. As a consequence, she became severely disfigured and nearly blind. The label had not warned of the potential for toxic epidermal necrolysis, although subsequently, however, the FDA recommended changing all NSAID labeling to contain a more explicit toxic epidermal necrolysis warning.

Bartlett sued Mutual Pharmaceutical Company under the New Hampshire state design-defect law. A jury found in her favor and awarded her over $21 million in damages. The First Circuit Court of Appeals affirmed the decision, finding that neither the FDCA nor the FDA’s regulations preempted respondent’s design-defect claim. It distinguished PLIVA, Inc. v. Mensing, a previous Supreme Court case holding that failure-to-warn claims against generic manufacturers are preempted by the FDCA’s prohibition on changes to generic drug labels, by stating that generic manufacturers facing design-defect claims could comply with both federal and state law simply by choosing not to make the drug at all.

Mutual Pharmaceuticals appealed to the U.S. Supreme Court.

Justice Alito

We must decide whether federal law preempts the New Hampshire design-defect claim under which respondent Karen Bartlett recovered damages from petitioner Mutual Pharmaceutical, the manufacturer of sulindac, a generic nonsteroidal anti-inflammatory drug (NSAID). New Hampshire law imposes a duty on manufacturers to ensure that the drugs they market are not unreasonably unsafe, and a drug’s safety is evaluated by reference to both its chemical properties and the adequacy of its warnings.

Because Mutual was unable to change sulindac’s composition as a matter of both federal law and basic chemistry, New Hampshire’s design-defect cause of action effectively required Mutual to change sulindac’s labeling to provide stronger warnings. But, as this Court recognized just two Terms ago in PLIVA, Inc. v. Mensing, 564 U.S. ___ (2011), federal law prohibits generic drug manufacturers from independently changing their drugs’ labels. Accordingly, state law imposed a duty on Mutual not to comply with federal law. Under the Supremacy Clause, state laws that require a private party to violate federal law are preempted and, thus, are “without effect.”. . .

Accordingly, we hold that state-law design-defect claims that turn on the adequacy of a drug’s warnings are preempted by federal law under PLIVA. *

Reversed, in favor of Appellant, Mutual Pharmaceutical Company.

Each preemption case requires careful scrutiny of the purpose of the statute. Automobile manufacturers have attempted to use the preemption defense, but have met with limited success. For example, in 2000, a passenger who was wearing a seat belt was injured in an automobile accident, and sued Honda under state tort law, arguing that had the car had a driver’s-side air bag in addition to the seat belt, she would not have been so seriously injured. The U.S. Supreme Court agreed that the state action was preempted by Honda’s compliance with the Federal Motor Vehicle Safety Standard Act, which required auto manufacturers to equip some, but not all, of their vehicles with passive restraints.

Oil companies have had mixed results in cases in which they have argued that the Clean Air Act preempts their liability for methyl tertiary butyl ether (MTBE) water contamination. In an attempt to reduce air pollution in certain areas, Congress mandated that gasoline contain an oxygenate, which allows gasoline to burn more cleanly. Congress, however, did not require that a particular oxygenate be used. Most oil companies added the oxygenate MTBE to gasoline. Unfortunately, even very small amounts of MTBE can contaminate drinking water: It affects the smell and taste of water and may cause health problems. Public water utilities and private individuals, faced with millions of dollars in cleanup costs, began suing oil companies for damages to resolve the water contamination. In response, oil companies, raising the preemption defense, argue that because the government required them to add an oxygenate to gasoline, oil companies should not be responsible for the water contamination. Plaintiffs argue that oil companies chose to use MTBE; other oxygenates, such as ethanol, were available. Several courts have concluded that the Clean Air Act preempts oil companies’ liability, but other courts have reached the opposite conclusion, emphasizing the fact that oil companies had a choice. Furthermore, these courts hold that the purpose of the Clean Air Act was to address air pollution, and the MTBE water contamination is a problem too far removed from the purposes of the Clean Air Act to preempt product liability claims associated with MTBE.

Strict Liability in Contract for Breach of Warranty

The Uniform Commercial Code (UCC) provides the basis for recovery against a manufacturer or seller on the basis of breach of warranty. A  warranty  is a guarantee or a binding promise. Warranties may be either  express  (clearly stated by the seller or manufacturer) or  implied  (automatically arising out of a transaction). Either type may give rise to liability (see  Exhibit 12-3 ). Two types of implied warranties may provide the basis for a product liability action: warranty of merchantability and warranty of fitness for a particular purpose.

Exhibit 12-3 Warranties That May Give Rise To Liability

warranty

A guarantee or binding promise that goods (products) meet certain standards of performance.

express warranty

A warranty that is clearly stated by the seller or manufacturer.

implied warranty

A warranty that automatically arises out of a transaction.

Implied Warranty of Merchantability

 The  implied warranty of merchantability  is a warranty or guarantee that the goods are reasonably fit for ordinary use. This warranty arises out of every sale, unless it is expressly and clearly excluded. According to the UCC, to meet the standard of merchantability, the goods

implied warranty of merchantability

A warranty that a good is reasonably fit for ordinary use.

1. must pass without objection in the trade under the contract description;

2. must be of fair or average quality within the description;

3. must be fit for the ordinary purpose for which the goods are used;

4. must run, with variations permitted by agreement, of even kind, quality, and quantity within each unit and among all units involved;

5. must be adequately contained, packaged, and labeled as the agreement may require; and

6. must conform to any affirmations or promises made on the label or the container. 10

10  Uniform Commercial Code, UCC § 2-314.

If the product does not conform to those standards and, as a result of this nonconformity, the purchaser or his or her property is injured, the purchaser may recover for breach of implied warranty of merchantability. For example, some health care workers are using this theory to try to recover damages because they have developed latex protein toxic syndrome. When HIV rates began climbing, health workers uniformly used latex gloves to prevent transmission of the disease. Some health workers, however, started to develop an allergy to the proteins in the rubber latex. For some people, the allergy became so severe that they could not tolerate being in a room with a single latex balloon; consequently, they could no longer work in a profession that required them to wear latex gloves. These plaintiffs argue that glove manufacturers knew of the dangers of latex allergies but did not attempt to minimize the amount of protein in the gloves.

The UCC expressly provides that an injury to a person or property proximately caused by a breach of warranty is a recoverable type of consequential damage. The use of this warranty is limited, however, in two respects: (1) It is made only by one regularly engaged in the sale of that type of good, and (2) the seller may sometimes avoid liability by expressly disclaiming liability or by limiting liability to replacement of the defective goods. The UCC, however, has restricted applicability of the latter limitation by a provision declaring that a limitation of consequential damages for injury to a person in the case of consumer goods is prima facie “unconscionable.” Unconscionability is a concept meaning gross unfairness. Under the UCC, unconscionable contract clauses are unenforceable. Thus, if a disclaimer is unconscionable, it will not be enforced.

Privity is not a problem in an action based on breach of warranty, because of UCC Section 2-318. This section allows states to adopt one of three alternatives to allow nonpurchasers to recover for breach of warranty. The most liberal alternative allows any person injured by the defective product to sue. One issue that frequently arises in product liability cases involving breach of the warranty

Comparative Law Corner Warranties and Guarantees in the United Kingdom

Product liability laws in the United Kingdom are similar to many laws in the United States. There is a difference, however, in some of the language used to describe those laws. A consumer may sue under breach of implied or express warranty in the United States. In the United Kingdom, a warranty is a legally binding assurance that any manufacturing defects that appear in a product during a certain time period will be addressed. The consumer buys the warranty and it serves as an insurance policy for the product.

A guarantee in the United Kingdom is similar to an express warranty in the United States. A guarantee is a free promise made to the consumer by the producer to repair any manufacturing problems found within a certain amount of time. Guarantees are also legally binding.

A consumer who would sue under breach of implied warranty in the United States would sue under breach of contract under the Sale of Goods Act in the United Kingdom. If a product is not fit for its purpose or not of satisfactory quality, problems covered by implied warranties in the United States, the Sale of Goods Act would apply in the United Kingdom. These legal distinctions are important to know before doing business or purchasing goods in the United Kingdom.

of merchantability is whether this warranty is breached when the alleged breach arises from a naturally occurring characteristic of the product. This problem typically arises in cases involving food. Is it a breach of the warranty of merchantability when there is a bone in a fish fillet or a pit in an olive jar labeled “pitted olives?” The following case sets forth the two tests that are used in various jurisdictions.

 Case 12-2 Williams v. Braum Ice Cream Stores, Inc.

Oklahoma Court of Appeals 534 P.2d 700 (1974)

Plaintiff Williams purchased a cherry pecan ice cream cone from the defendant’s shop. While eating the ice cream, she broke her tooth on a cherry pit that was in the ice cream. She sued defendant Braum Ice Cream Stores, Inc., for breach of implied warranty of merchantability. The trial court ruled in favor of the defendant, and the plaintiff appealed.

Judge Reynolds

There is a division of authority as to the test to be applied where injury is suffered from an object in food or drink sold to be consumed on or off the premises. Some courts hold there is no breach of implied warranty on the part of a restaurant if the object in the food was “natural” to the food served. These jurisdictions recognize that the vendor is held to impliedly warrant the fitness of food, or that he may be liable in negligence in failing to use ordinary care in its preparation, but deny recovery as a matter of law when the substance found in the food is natural to the ingredients of the type of food served. This rule, labeled the “foreign-natural test” by many jurists, is predicated on the view that the practical difficulties of separation of ingredients in the course of food preparation (bones from meat or fish, seeds from fruit, and nutshell from the nut meat) is a matter of common knowledge. Under this natural theory, there may be a recovery only if the object is “foreign” to the food served. How far can the “foreign-natural test” be expanded? How many bones from meat or fish, seeds from fruit, nutshells from the nut meat or other natural indigestible substances are unacceptable under the “foreign-natural test”?

The other line of authorities hold[s] that the test to be applied is what should “reasonably be expected” by a customer in the food sold to him.

[State law] provides in pertinent part as follows:

1. . . . a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section, the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.

2. Goods to be merchantable must be at least such as

a. are fit for the ordinary purposes for which such goods are used; . . . In Zabner v. Howard Johnson’s Inc. . . . the Court held:

The “foreign-natural” test as applied as a matter of law by the trial court does not recommend itself to us as being logical or desirable. The reasoning applied in this test is fallacious because it assumes that all substances which are natural to the food in one stage or another of preparation are, in fact, anticipated by the average consumer in the final product served. . . .

Categorizing a substance as foreign or natural may have some importance in determining the degree of negligence of the processor of food, but it is not determinative of what is unfit or harmful in fact for human consumption. A nutshell natural to nut meat can cause as much harm as a foreign substance, such as a pebble, piece of wire, or glass. All are indigestible and likely to cause injury. Naturalness of the substance to any ingredients in the food served is important only in determining whether the consumer may reasonably expect to find such substance in the particular type of dish or style of food served.

The “reasonable expectation” test as applied to an action for breach of implied warranty is keyed to what is “reasonably” fit. If it is found that the pit of a cherry should be anticipated in cherry-pecan ice cream and guarded against by the consumer, then the ice cream was reasonably fit under the implied warranty.

In some instances, objects which are “natural” to the type of food but which are generally not found in the style of the food as prepared, are held to be the equivalent of a foreign substance.

We hold that the better legal theory to be applied in such cases is the “reasonable expectation” theory, rather than the “naturalness” theory as applied by the trial court. What should be reasonably expected by the consumer is a jury question, and the question of whether plaintiff acted in a reasonable manner in eating the ice cream cone is also a fact question to be decided by the jury. *

Reversed and remanded in favor of Plaintiff, Williams.

Critical Thinking About The Law

The criteria selected are important in determining the outcome of a case. Put simply, depending on the court’s selection from many possible criteria, it can reach multiple conclusions. Judging a case according to criteria X, Y, and Z can yield a vastly different decision than if the same case were judged according to criteria A, B, and C.

Case 12-2 illustrates the foregoing assertion. The trial court had made a legal decision based on criterion X, namely, the “foreign-natural” test. The appeals court, however, held that the trial court must redecide the case, this time on the basis of criterion Y, or the “reasonable expectation” test.

The critical thinking questions enable you to examine carefully the key differences between the two tests, including the possible implications. The larger project of the questions is to increase your awareness of the extent to which a legal decision is dependent upon the criteria chosen to reach that decision.

1. What is the fundamental difference between the natures of the two tests discussed by the court in Case 12-2?

Clue: Reread the discussion of the two tests to formulate your answer.

2. Which of the two tests is more likely to yield ambiguous reasoning when applied?

Clue: Refer to your answer in question 1.

Implied Warranty of Fitness for a Particular Purpose

 A second implied warranty that may be the basis for a product liability case is the  implied warranty of fitness for a particular purpose , which arises when a seller knows that the purchaser wants to purchase a good for a particular use. The seller tells the consumer that the good can be used for that purpose, and the buyer reasonably relies on the seller’s expertise and purchases the product. If the good cannot be used for that purpose, and, as a result of the purchaser’s attempt to use the good for that purpose, the consumer is injured, a product liability action for breach of warranty of fitness for a particular purpose is justified. For example, if a farmer needed oil for his irrigation engine and he went to a store and told the seller exactly what model irrigation engine he needed oil for, the seller would be creating an implied warranty of fitness for a particular purpose by picking up a can of oil, handing it to the farmer, and saying, “This is the product you need.” If the farmer purchases the recommended oil, uses it in the engine, and the engine explodes because the oil was not heavy enough, the seller would have breached the warranty of fitness for a particular purpose. If the farmer were injured by the explosion, he would be able to recover on the basis of breach of warranty.

implied warranty of fitness for a particular purpose

A warranty that arises when the seller tells the consumer a good is fit for a specific use.

Express Warranties

 The seller or the manufacturer may also be held liable for breach of an express warranty, which is created by a seller in one of three ways: by describing the goods, by making a promise or affirmation of fact about the goods, or by providing a model or sample of the good. If the goods fail to meet the description, fail to do what the seller claimed they would do, or fail to be the same as the model or sample, the seller has breached an express warranty. For example, if a 200-pound man asks a seller whether a ladder will hold a 200-pound man without breaking, the seller who says that it will is affirming a fact and is thus expressly warranting that the ladder will hold a 200-pound man without breaking. If the purchaser takes the ladder home, climbs up on it, and it breaks under his weight, causing him to fall to the ground, he may bring a product liability action against the seller on the basis of breach of an express warranty.

A memorable example of an express warranty is the claim many companies made that their software was “Y2K compliant.” When the nation was in fear of a possible chaotic result of the date change to the year 2000, many computer companies came out with “Year 2000–compliant” software. This claim, however, was usually written outside of the contract and, therefore, was an express warranty. Because businesses had the potential to lose a lot of money after Y2K, they felt that they needed someone to help reimburse what they might lose. Many decided that the easiest targets would be these “Y2K-safe” software companies, because the businesses could sue on the basis of breach of an express warranty. 11

11  J. L. Dam, “Can Business Sue for Cost of Fixing the ‘Year 2000’ Problem?” Lawyers Weekly USA, www.lawyersweekly.com.

Defenses to Breach-of-Warranty Actions

 Two common defenses used in cases based on breach of warranty arise from the UCC; they make sense in a commercial setting when a transaction is between two businesspeople, but they make little—if any—sense in the context of a consumer injury. Therefore, the courts have found ways to limit the use of these defenses in product liability cases in most states.

The first such defense is that the purchaser failed to give the seller notice within a reasonable time after he or she knew or should have known of the breach of warranty, as required by the UCC. Obviously, most consumers would not be aware of this rule and, as a result, many early breach-of-warranty cases were lost. Most courts today avoid this requirement by holding (1) that a long delay is reasonable under the particular circumstances, (2) that the section imposing the notice requirement was not intended to apply to personal injury situations, or (3) that the requirement is inapplicable between parties who have not dealt with each other, as when a consumer is suing a manufacturer.

The second defense is the existence of a  disclaimer . A seller or manufacturer may relieve itself of liability for breach of warranty in advance through the use of disclaimers. The disclaimer may say (1) that no warranties are made (as is), (2) that the manufacturer or seller warrants only against certain consequences or defects, or (3) that liability is limited to repair, replacement, or return of the product price.

disclaimer

Disavowal of liability for breach of warranty by the manufacturer or seller of a good in advance of the sale of the good.

Again, these disclaimers make sense in a commercial context, but seem somewhat harsh in the case of consumer transactions. Thus, the courts do not look with favor on disclaimers. First, the disclaimer must be clear; in many cases, courts have rejected the defendant’s use of a disclaimer as a defense on the ground that the retail purchaser either did not see the disclaimer or did not understand it. Thus, a businessperson using disclaimers to limit liability must be sure that the disclaimers are very plainly stated on an integral part of the product or package that will not be removed before retail purchase by the consumer. In some cases, however, despite clear disclaimers, courts have held disclaimers to consumers invalid, stating either that these disclaimers are unenforceable adhesion contracts resulting from gross inequities of bargaining power and are, therefore, unenforceable; or that they are unconscionable and contrary to the policy of the law. The UCC, in fact, now contains a provision stating that a limitation of consequential damages for injury to a person in the case of consumer goods is prima facie unconscionable.

The statute of limitations may also be used defensively in a case based on strict liability for breach of warranty. Under the UCC, the statute of limitations runs four years from the date on which the cause of action arises. In an action based on breach of warranty, the cause of action, according to the UCC, arises at the time of the sale. This rule would severely limit actions for breach of warranty, as defects often do not cause harm immediately. Section 2-725(2) of the UCC, however, changes the time that the cause of action arises to the date when the breach of warranty is or should have been discovered when a warranty “explicitly extends to the future performance of the goods, and the discovery of the breach must await the time of performance.” This section, when applicable, makes the statute of limitations less of a potential problem for the plaintiff. In a few states, courts have simply decided to apply the tort statute of limitations, as running from the date of injury or the date when the defect was or should have been discovered, to all product liability cases grounded in breach of warranty.

Strict Liability in Tort

The third and most prevalent theory of product liability used during the past three decades is strict liability in tort, established in the 1963 case of Greenman v. Yuba Power Products Co. 12  and incorporated in Section 402A of the Restatement (Second) of Torts. This section reads as follows:

12  59 Cal.2d 57 (1962).

1. One who sells any product in a defective condition, unreasonably dangerous to the user or consumer or his family is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if

a. the seller is engaged in the business of selling such a product; and

b. it is expected to and does reach the consumer or user without substantial change in the condition in which it was sold.

2. The rule stated in Subsection (1) applies although

a. the seller has exercised all possible care in the preparation and sale of his product; and

b. the user or consumer has not bought the product from or entered into any contractual relation with the seller. *

Under this theory, the manufacturer, distributor, or retailer may be held liable to any reasonably foreseeable injured party. Unlike causes of action based on negligence or, to a lesser degree, breach of warranty, product liability actions based on strict liability in tort focus on the product, not on the producer or seller. The degree of care exercised by the defendant is not an issue in these cases. The issue in such cases is whether the product was in a “defective condition, unreasonably dangerous” when sold. To succeed in a strict liability action, the plaintiff must prove that

1. the product was defective when sold;

2. the defective condition rendered the product unreasonably dangerous; and

3. the product was the cause of the plaintiff’s injury.

Applying the Law to the Facts . . .

Let’s say that Amy buys slippers from a slipper manufacturer named Slip-On. A year later she falls down the stairs in her home while wearing the slippers. Subsequently she brings a strict liability action against Slip-On. She proves that she fell down the stairs because her slippers were missing a grip on the sole that would allow for stable traction on all hard surfaces, thus rendering her slippers in their current state unsafe for walking on wood floors, tile, etc. Amy has proved two of the three prongs she needs to be successful against Slip-On. What prong is Amy missing?

The defect is usually the most difficult part of the case for the plaintiff to establish. A product may be defective because of (1) some flaw or abnormality in its construction or marketing that led to its being more dangerous than it otherwise would have been, (2) a failure by the manufacturer or seller to adequately warn of a risk or hazard associated with the product, or (3) a design that is defective. For example, in 1966, Mr. Dolinski purchased a bottle of Squirt from a vending machine and drank most of the contents. He soon felt ill and discovered a decomposed mouse and mouse feces at the bottom of the bottle. He suffered physical and mental distress and avoided soft drinks after this experience. Under strict liability in tort, he sued that bottle manufacturer and distributor, Shoshone Coca-Cola Bottling Company, and a jury awarded him $2,500. Moreover, this was the first case in which the Nevada state courts recognized the doctrine of strict liability. 13

13  Dolinski v. Shoshone Coca-Cola, 82 Nev. 439, 420 P.2d 855 (1966).

A defect in manufacture or marketing generally involves a specific product that does not meet the manufacturer’s specifications. Proof of such a defect is generally provided in one or both of two ways: (1) experts testify as to the type of flaw that could have caused the accident that led to the plaintiff’s injury; (2) evidence of the circumstances surrounding the accident led the jury to infer that the accident must have been caused by a defect in the product. Notice in the following case how the court makes an analogy to res ipsa loquitur when finding the existence of a defect caused by the defendant.

 Case 12-3 Welge v. Planters Lifesavers Co.

Court of Appeals for the Seventh Circuit 17 F.3d 209 (1994)

Richard Welge loved to sprinkle peanuts on his ice cream sundaes. Karen Godfrey, with whom Welge boarded, bought a 24-ounce vacuum-sealed plastic- capped jar of Planters peanuts for him at a Kmart. To obtain a $2 rebate from the maker of Alka-Seltzer, Godfrey needed proof of her purchase of the jar of peanuts. So, using an X-Acto knife, she removed the part of the label that contained the bar code. She then placed the jar on top of the refrigerator for Welge. About a week later, Welge removed the plastic seal from the jar, uncapped it, took some peanuts, replaced the cap, and returned the jar to the top of the refrigerator. A week after that, he took down the jar, removed the plastic cap, spilled some peanuts into his left hand to put on his sundae, and replaced the cap with his right hand—but as he pushed the cap down on the open jar, the jar shattered. His hand, continuing in its downward motion, was severely cut and, he claimed, became permanently impaired.

Welge filed product liability actions against Kmart, which sold the jar of peanuts to Godfrey; Planters, which manufactured the product (filled the glass jar with peanuts and sealed and capped it); and Brockway, which manufactured the glass jar and sold it to Planters. After pretrial discovery, the defendants moved for summary judgment. The district judge granted the motion on the ground that the plaintiff had failed to exclude possible causes of the accident other than a defect introduced during the manufacturing process. The plaintiff appealed.

Justice Posner

No doubt there are men strong enough to shatter a thick glass jar with one blow. But Welge’s testimony stands uncontradicted that he used no more than the normal force that one exerts in snapping a plastic lid onto a jar. So the jar must have been defective. No expert testimony and no fancy doctrine are required for such a conclusion. A nondefective jar does not shatter when normal force is used to clamp its plastic lid on. The question is when the defect was introduced. It could have been at any time from the manufacture of the glass jar by Brockway (for no one suggests that the defect might have been caused by something in the raw materials out of which the jar was made) to moments before the accident. But testimony by Welge and Godfrey . . . excludes all reasonable possibility that the defect was introduced into the jar after Godfrey plucked it from a shelf in the KMart store. From the shelf she put it in her shopping cart. The checker at the check-out counter scanned the bar code without banging the jar. She then placed the jar in a plastic bag. Godfrey carried the bag to her car and put it on the floor. She drove directly home, without incident. After the bar-code portion of the label was removed, the jar sat on top of the refrigerator except for the two times Welge removed it to take peanuts out of it. Throughout this process it was not, so far as anyone knows, jostled, dropped, bumped, or otherwise subjected to stress beyond what is to be expected in the ordinary use of the product. Chicago is not Los Angeles; there were no earthquakes. Chicago is not Amityville either; no supernatural interventions are alleged. So the defect must have been introduced earlier, when the jar was in the hands of the defendants.

But, they argue, this overlooks two things. One is that Karen Godfrey took a knife to the jar. And no doubt one can weaken a glass jar with a knife. But nothing is more common or, we should have thought, more harmless than to use a knife or a razor blade to remove a label from a jar or bottle. People do this all the time with the price labels on bottles of wine. Even though mishandling or misuse, by the consumer or by anyone else (other than the defendant itself), is a defense . . . to a products liability suit . . . and even if, as we greatly doubt, such normal mutilation as occurred in this case could be thought a species of mishandling or misuse, a defendant cannot defend against a products liability suit on the basis of a misuse that he invited. The Alka-Seltzer promotion to which Karen Godfrey was responding when she removed a portion of the label of the jar of Planters peanuts was in the KMart store. It was there, obviously, with KMart’s permission. By the promotion KMart invited its peanut customers to remove a part of the label on each peanut jar bought, in order to be able to furnish the maker of Alka-Seltzer with proof of purchase. If one just wants to efface a label one can usually do that by scraping it off with a fingernail, but to remove the label intact requires the use of a knife or a razor blade. Invited misuse is no defense to a products liability claim. Invited misuse is not misuse. . . .

Even so, the defendants point out, it is always possible that the jar was damaged while it was sitting unattended on the top of the refrigerator, in which event they are not responsible. Only if it had been securely under lock and key when not being used could the plaintiff and Karen Godfrey be certain that nothing happened to damage it after she brought it home. That is true—there are no metaphysical certainties—but it leads nowhere. Elves may have played ninepins with the jar of peanuts while Welge and Godfrey were sleeping; but elves could remove a jar of peanuts from a locked cupboard. The plaintiff in a products liability suit is not required to exclude every possibility, however fantastic or remote, that the defect which led to the accident was caused by someone other than one of the defendants. The doctrine of res ipsa loquitur teaches that an accident that is unlikely to occur unless the defendant was negligent is itself circumstantial evidence that the defendant was negligent. The doctrine is not strictly applicable to a products liability case because[,] unlike an ordinary accident case[,] the defendant in a products case has parted with possession and control of the harmful object before the accident occurs. . . . But the doctrine merely instantiates the broader principle, which is as applicable to a products case as to any other tort case, that an accident can itself be evidence of liability. . . . If it is the kind of accident that would not have occurred but for a defect in the product, and if it is reasonably plain that the defect was not introduced after the product was sold, the accident is evidence that the product was defective when sold. The second condition (as well as the first) has been established here, at least to a probability sufficient to defeat a motion for summary judgment. Normal people do not lock up their jars and cans lest something happen to damage these containers while no one is looking. The probability of such damage is too remote. It is not only too remote to make a rational person take measures to prevent it; it is too remote to defeat a products liability suit should a container prove dangerously defective.

Of course, unlikely as it may seem that the defect was introduced into the jar after Karen Godfrey bought it if the plaintiff’s testimony is believed, other evidence might make their testimony unworthy of belief—might even show, contrary to all the probabilities, that the knife or some mysterious night visitor caused the defect after all. The fragments of glass into which the jar shattered were preserved and were examined by experts for both sides. The experts agreed that the jar must have contained a defect but they could not find the fracture that had precipitated the shattering of the jar and they could not figure out when the defect that caused the fracture that caused the collapse of the jar had come into being. The defendants’ experts could neither rule out, nor rule in, the possibility that the defect had been introduced at some stage of the manufacturing process. The plaintiff’s expert noticed what he thought was a preexisting crack in one of the fragments, and he speculated that a similar crack might have caused the fracture that shattered the jar. This, the district judge ruled, was not enough.

But if the probability that the defect that caused the accident arose after Karen Godfrey bought the jar of Planters peanuts is very small—and on the present state of the record we are required to assume that it is—then the probability that the defect was introduced by one of the defendants is very high.

. . . The strict-liability element in modern products liability law comes precisely from the fact that a seller subject to that law is liable for defects in his product even if those defects were introduced, without the slightest fault of his own for failing to discover them, at some anterior stage of production. . . . So the fact that KMart sold a defective jar of peanuts to Karen Godfrey would be conclusive of KMart’s liability, and since it is a large and solvent firm there would be no need for the plaintiff to look further for a tortfeasor. This point seems to have been more or less conceded by the defendants in the district court—the thrust of their defense was that the plaintiff had failed to show that the defect had been caused by any of them—though this leaves us mystified as to why the plaintiff bothered to name additional defendants.

. . . Evidence of KMart’s care in handling peanut jars would be relevant only to whether the defect was introduced after sale; if it was introduced at any time before sale—if the jar was defective when KMart sold it—the source of the defect would be irrelevant to KMart’s liability. In exactly the same way, Planters’ liability would be unaffected by the fact, if it is a fact, that the defect was due to Brockway rather than to itself. To repeat an earlier and fundamental point, a seller who is subject to strict products liability is responsible for the consequences of selling a defective product even if the defect was introduced without any fault on his part by his supplier or by his supplier’s supplier.

. . . Here we know to a virtual certainty (always assuming that the plaintiff’s evidence is believed, which is a matter for the jury) that the accident was not due to mishandling after purchase but to a defect that had been introduced earlier. *

Reversed and remanded in favor of Plaintiff, Welge.

When a plaintiff is seeking recovery based on a design defect, he or she is not impugning just one item, but an entire product line. If a product is held to be defectively designed in one case, a manufacturer or seller may recognize that this particular case may stimulate a huge number of additional lawsuits. Thus, defendants are very concerned about the outcome of these cases. Therefore, the availability of this type of action has a greater impact on encouraging manufacturers to produce safe products than does the availability of any other type of product liability action.

For example, hundreds of claims, ranging from property damage to personal injury and wrongful death, have been brought in federal and state courts against Firestone and Ford for Firestone’s ATX, ATX II, and Wilderness AT tires. Plaintiffs argue that the tires have a design defect that causes the treads to prematurely separate, leading to tire blowouts. Firestone issued a recall for these tires in August 2000, but plaintiffs argue that the recall was not sufficient to warn customers about the tire defects. Furthermore, plaintiffs allege that Firestone had knowledge of the defects earlier but failed to disclose this knowledge. In an attempt to encourage efficiency, the federal cases have been consolidated to the Southern District Court in Indiana, at least for the purposes of discovery.

Although all the states agree that manufacturers may not market defectively designed products, there is no uniform definition of a defective design. Two tests have evolved to determine whether a product is so defective as to be unreasonably dangerous. The first test, set out in the Restatement (Second) of Torts, is the consumer-expectations test. This test asks the question: Did the product meet the standards that would be expected by a reasonable consumer? Such a test relies on the experiences and expectations of the ordinary consumer and, thus, is not answered by the use of expert testimony about the merits of the design.

The second is the feasible alternatives test, sometimes referred to as the risk- utility test. Courts applying this test typically look at the following seven factors:

1. The usefulness and desirability of the product—its utility to the user and to the public as a whole.

2. The safety aspects of the product—the likelihood that it will cause injury, and the probable seriousness of the injury.

3. The availability of a substitute product which would meet the same need and not be as unsafe.

4. The manufacturer’s ability to eliminate the unsafe character of the product without impairing its usefulness or making it too expensive to maintain its utility.

5. The user’s ability to avoid danger by the exercise of care in the use of the product.

6. 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.

7. The feasibility, on the part of the manufacturer, of spreading the loss by setting the price of the product or carrying liability insurance.

Impact of the Restatement (Third) of Torts

 Even though elements of Section 402A of the Restatement (Second) of Torts have come to be adopted in all states, and it is generally considered to be the foundation of modern product liability law, a lot of dissatisfaction has centered on this provision. That dissatisfaction resulted in what may be the biggest change in product liability law since the passage of Section 402A: the adoption, on May 20, 1997, of the American Law Institute’s Restatement (Third) of Torts: Product Liability, which is intended to replace Section 402A. Under the Restatement (Third), “one engaged in the business of selling or otherwise distributing products who sells or distributes a defective product is subject to liability for harm to persons or property caused by the defect.” The seller’s liability, however, is determined by a different standard, depending on which type of defect is involved: (1) a manufacturing defect, (2) a design defect, or (3) a defective warning.

When the defect is one in the manufacture, liability is strict. A manufacturing defect is said to exist when “the product departs from its intended design.” The new rule imposes liability in such a case regardless of the care taken by the manufacturer.

The Restatement (Third) adopts a reasonableness standard for design defects. It states that a product is defective in design when the foreseeable risks of the harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative design by the seller and the omission of the alternative design renders the product not reasonably safe. *

402A

Under the Restatement (Third), anyone who sells or distributes a defective product can be held liable for damage to persons or property caused by the defect, but the extent of liability of the seller depends upon the type of defect that caused the harm.

When the defect is one in the manufacture, meaning that the product was not made the way it was designed to be made, liability is strict. The new rule imposes liability in such a case regardless of the care taken by the manufacturer.

The Restatement (Third) adopts a reasonableness standard for design defects. It states that a product is defective in design when the foreseeable risks of the harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative design by the seller and the omission of the alternative design renders the product not reasonably safe. Basically, the courts are to apply a risk-utility test, determining whether the value of the product outweighs the risks imposed by it.

If the product is defective because it does not contain an appropriate warning, the same reasonableness standard is imposed on the seller. If foreseeable risks could have been reduced by reasonable warnings or instructions by the seller, the failure to provide such information means that the seller can be liable because the product is unreasonably dangerous.

Defenses to a Strict Product Liability Action

 Product misuse, discussed as a defense to a negligence-based action, is also available in a strict product liability case. Assumption of the risk is likewise sometimes raised as a defense in a strict liability action.

Controversy, however, has arisen over whether the state-of-the-art defense should be allowed in cases in which the cause of action is based on strict liability. In most strict liability cases, courts have rejected the use of this defense, stating that the issue is not what the producers knew at the time the product was produced, but whether the product was defectively dangerous. In the 1984 case of Elmore v. Owens Illinois, Inc., a claim arose from the plaintiff’s contracting asbestosis. The plaintiff’s job required him to handle a product manufactured by the defendant that contained 15 percent asbestos. The Supreme Court of Missouri ruled that the state of the art of a product has no bearing on the outcome of a strict liability claim, because the issue is the defective condition of the product, not the manufacturer’s knowledge, negligence, or fault.

The refusal of most courts to allow the state-of-the-art defense in strict liability cases makes sense if we consider the social policy reasons for imposing strict liability. One of the reasons for imposing strict liability is that the manufacturers or producers are best able to spread the cost of the risk; this risk-spreading function does not change with the availability of scientific knowledge.

The argument against this position, however, is equally compelling to some. If the manufacturer has indeed done everything as safely and carefully as available technology allows, it seems unfair to impose liability on the defendant. After all, how else could it have manufactured the product?

Liability to Bystanders

Sometimes the person injured by the defective product is not a purchaser, nor even an owner, of the product. The question arises as to whether strict product liability can be used by someone other than the owner or user of the product. On the grounds that the bystander is in even greater need of protection from defective products that are dangerous, and because he or she can do less to protect himself or herself from them, many courts have extended liability to foreseeable bystanders.

Market Share Liability

The focus of this chapter has been on product liability cases in which the plaintiff knows who produced the defective product. But when injuries from a product show up 10 or 20 years after exposure to the product, even if the injury can be traced to the defective product, the plaintiffs cannot always trace the product to any particular manufacturer. If a number of manufacturers produced the same product, the plaintiff may have no idea whose product was used, and may even have used more than one manufacturer’s product.

In this situation, the courts have to balance the interests of the plaintiffs in recovering for injuries caused by defective products against the manufacturers’ interests in not being held liable for injuries caused by a product they did not produce. The primary means used to resolve this dilemma today is the  market share theory , created in 1980 by the California Supreme Court in the case of Sindell v. Abbott Laboratories. 14

14  607 P.2d 924 (Cal. 1980).

market share theory

A theory of recovery in liability cases according to which damages are apportioned among all the manufacturers of a product based on their market share at the time the plaintiff’s cause of action arose.

In Sindell, the plaintiffs’ mothers had all taken a drug known as diethylstilbestrol (DES) during pregnancies that had occurred before the drug was banned. Because the drug had been produced 20 years before the plaintiffs suffered any effects from the drug their mothers had taken, it was impossible to trace the defective drug back to each manufacturer that had produced the drug that caused each individual’s problems. To balance the competing interests of the victims, who had suffered injury from the drug, and the defendants, who did not want to be held liable for a drug they did not produce, the court allowed the plaintiffs to sue all of the manufacturers who had produced the drug at the time the plaintiffs’ mothers used the drug. The judge then apportioned liability among the defendant-manufacturers on the basis of the share of the market they had held at the time the drug was produced.

Since Sindell, a number of other courts have applied and refined the market share theory, primarily in drug cases. One trial court judge in a Pennsylvania DES case laid out the factors that are generally necessary for applying market share liability: (1) all defendants are tortfeasors; (2) the allegedly harmful products are identical and share the same defective qualities; (3) plaintiff is unable, through no fault of his or her own, to identify which defendant caused his or her injury; and (4) the manufacturers of substantially all of the defective products in the relevant area and during the relevant time are named as defendants. 15

15  Erlich v. Abbott Laboratories, 5 Phila. 249 (1981).

Other courts have modified the market share approach of Sindell. Attempts to extend the theory to products other than drugs have not met with much success. For example, in 2003, the court refused to allow the city of Gary to rely on market share theory to prove damages in a negligence action against handgun manufacturers, wholesalers, and dealers, because of the wide mix of lawful and unlawful conditions and the many potentially intervening acts by nonparties. 16

16  City of Gary ex rel. King v. Smith & Wesson Corp., 801 N.E.2d 1222, Prod.Liab.Rep. (CCH) ¶ 16,862 (Ind. 2003).

Service Liability

Along with the growth in lawsuits for defective products, there has also been an increase in the number of lawsuits brought for defective services. These actions are generally brought when someone or someone’s property is harmed as a result of an inadequately performed service.

Unlike in the product liability area, strict liability has rarely been applied to services. The few cases in which a strict liability standard has been applied involved defendants that provided both a good and a service, such as a restaurant owner’s serving spoiled food.

Most service liability cases involve services provided by professionals, such as doctors, lawyers, engineers, real estate appraisers, and accountants. Actions against these professionals are generally referred to as  malpractice suits  and are usually based on a theory of negligence, breach of contract, or fraud. Malpractice actions against professionals are increasing at an extremely rapid rate. For example, by the early 1970s, only about 700 legal malpractice decisions had been reported; today, that many legal malpractice cases are brought each year.

malpractice suits

Service liability suits brought against professionals, usually based on a theory of negligence, breach of contract, or fraud.

The businessperson, however, is most likely to become involved in a malpractice action involving accountant malpractice. The next section, therefore, explores the liability of accountants.

Accountants’ Liability

One group that has seen increasing liability is accountants. Much of their potential liability has come from the securities laws. Accountants’ liability under these laws is discussed in  Chapter 23 .

Accountants’ liability for malpractice generally arises in actions for negligence, fraud, or breach of contract. In a malpractice action based on negligence, the plaintiff must prove the same elements discussed in previous sections on negligence: duty, breach of duty, causation, and damages.

The accountant’s duty is said to be that of using the degree of care, skill, judgment, and knowledge that can reasonably be expected of a member of the accounting profession. Two sets of standards have been developed by the American Institute of Certified Public Accountants, the professional accountants’ association, that help determine reasonable care. A reasonable accountant should, at minimum, follow the Generally Accepted Accounting Principles (GAAP) and the Generally Accepted Auditing Standards (GAAS). These two codes provide standards against which to measure an accountant’s practices.

A major issue in accounting malpractice is the question of to whom the accountant’s duty is owed. States are not in agreement about to whom an accountant can be held liable. Of course, the accountant is always liable to his or her clients. Third parties who have relied on the accountant’s work, however, present a problem.

States use three alternative rules to define the parameters of the accountant’s liability to third parties. The first, and oldest, rule is often referred to as the  Ultramares Doctrine . Under this rule, the accountant is liable only to those in a privity-of-contract relationship. In other words, only the party who contracted for the accountant’s work may sue. For example, if a client contacted an accountant to prepare a statement that the accountant knew was going to be used to secure a loan from the First Founding Bank, First Founding could not sue the accountant for malpractice in a state that followed the Ultramares Doctrine, because there was no contractual relationship between First Founding and the accountant.

Ultramares Doctrine

Rule making accountants liable only to those in a privity-of-contract relationship with the accountant.

A somewhat more liberal rule is found in Section 552 of the Restatement (Second) of Torts. This rule holds that accountants will be liable to a limited class of intended users of the information. Thus, the accountant owes a duty to the client and any class of persons the accountant knows is going to be receiving a copy of his or her work. Under this rule, First Founding could recover in the preceding example.

The broadest rule applies in an extremely limited number of states. The smallest minority of states holds the accountant liable to any reasonably foreseeable user of the statement the accountant prepares.  Exhibit 12-4  illustrates the states that adhere to each rule.

The reasonably foreseeable user rule, which was adopted for accountants in the Florida State Supreme Court case of First Florida Bank v. Max Mitchell & Co., 17  has been used to extend liability to third parties adversely affected by the performance of other professionals. For example, it was cited to justify allowing a condominium association to sue an engineer who had been retained to inspect buildings and to make structural reports before an apartment building was converted into a condominium; it was also cited to allow a real estate appraiser to be sued by a bank that relied on an inaccurate appraisal of the property.

17  588 So.2d (Fla. 1990).

Global Dimensions of Product Liability Law

Businesspersons are concerned with the transnational aspects of product liability law primarily in two situations: (1) when they sell an imported product that causes injury to a consumer in the United States, and (2) when they manufacture

Exhibit 12-4 Liability of Accountants To Third Parties

and export a product that causes harm to a consumer in a foreign country. In both instances, the U.S. corporation may be subject to liability for the injury.

Liability for a defective product that injures a consumer may be imposed on everyone in the chain of distribution of the product, from the retailer to the manufacturer. In about 80 percent of the cases, it is the manufacturer on whom plaintiffs tend to concentrate, because the manufacturer is usually responsible for the defect and has the greatest assets. If the manufacturer of a defective product is a company located in another country, a U.S. importer, wholesaler, distributor, or retailer may find itself liable for the injuries caused by a defective imported product. When a manufacturer is located in a foreign country, the plaintiff often simply sues only the retailer and the wholesaler. Because they do business in the state where the consumer lives, the court can easily assert personal jurisdiction over them. The foreign corporation may sometimes argue successfully that the corporation does not have enough minimum contacts with the state to allow the assertion of jurisdiction over the foreign manufacturer under the state’s long-arm statute.

Even if the long-arm statute is satisfied, a potential problem arises in conjunction with service. Although the means of service acceptable in the United States are acceptable for serving corporations in most countries, the Hague Convention on the Service of Judicial and Extrajudicial Documents in Civil and Commercial Matters (adhered to by 28 countries, including most of the major trading partners of the United States) requires that the foreign defendant receive actual notice of the suit. This requirement is sometimes difficult to satisfy.

Still another consideration for the plaintiff is the collectability of the judgment. If the foreign defendant has no assets in the United States and refuses to pay, the plaintiff will be forced to ask the courts in the country where the manufacturer is located to execute a judgment against the defendant’s assets there. With all of these potential problems resulting from an action against a foreign manufacturer, a plaintiff is very likely simply to sue those U.S. businesses in the chain of distribution. The prudent businessperson who sells foreign goods should be aware of this potential liability problem.

In the case of U.S. products sold abroad, U.S. manufacturers may be brought before the foreign courts. Since the late 1970s, European and other foreign countries have been adopting increasingly strict product liability rules, holding manufacturers, distributors, and retailers liable for injuries caused by defective products on theories similar to those used in the United States, such as breach of warranty, negligence, and strict liability.

Each country has its own set of rules, so the prudent businessperson will become familiar with the rules of the country to which he or she is exporting a product. New Zealand’s Accident Compensation Act, for example, provides for almost automatic payment of compensation for pecuniary damages, such as medical expenses and lost wages, although it excludes most claims for pain and suffering. 18

18  G. Palmer, “Compensation for Personal Injury: A Requiem for the Common Law in New Zealand,” Journal of Compensation Law 21: 1 (1972).

*  McFat Litigation I–Pelman v. McDonald’sCorp.,237 F. Supp. 2d 512 (S.D.N.Y. 2003).

*  Mutual Pharmaceutical Company, Inc. v. Barlett United States Supreme Court, 133 S. Ct. 2466 (2013).

*  Williams v. Braum Ice Cream Store, Inc., Oklahoma Court of Appeals 534 P.2d 700 (1974).

*  From Restatement (Second) of Torts Section 402A.

*  Welge v. Planters Lifesavers Co., Court of Appeals for the Seventh Circuit 17 F.3d 209 (1994).

*  Restatement (Third) of Torts: Product Liability.

Foreign importers, retailers, and wholesalers of goods manufactured in the United States are not at all reluctant to join U.S. manufacturers in lawsuits so as to distribute the cost of the judgment. Moreover, once a plaintiff has obtained a judgment over a U.S. corporation in a foreign state, the U.S. courts will generally enforce the judgment rendered by a foreign court as long as the principles used to obtain jurisdiction over the person were reasonably similar to those accepted in the United States and the substantive law reasonably conforms to our sense of justice. Thus, it is extremely important that businesspersons remember that selling a product overseas does not mean freedom from product liability considerations. Product standards for goods sold overseas should be just as high as for goods sold domestically. In fact, extra precautions may have to be taken. For example, warning labels and instructions should always be printed in the languages spoken in the countries where the goods will be sold.

Summary

Product liability law grew out of tort law and relies on basic tort theories. A product liability action can be based on negligence, breach of warranty, or strict product liability. The easiest of these to prove is strict product liability.

A product liability action may be brought by any party who is injured by a defective product, even if he or she did not purchase the product. An action based on strict product liability may even be brought by a bystander.

The defendant may be a retailer, distributor, or manufacturer. Sometimes, when the producer of the product cannot be clearly identified, as in the case of a drug, the theory of enterprise liability (market share theory) may be used to bring an action against all manufacturers of that product.

Service liability is analogous to product liability but is for defective services. Another difference between the two is that negligence is generally the only theory of liability available in a service liability case. Most service liability cases involve professional malpractice, such as accountant or medical malpractice.

Just because a U.S. corporation intends goods for sale overseas, the goods should not be less safe than those produced for American consumption. The manufacturer of a shoddy exported product may find itself defending an action brought in a foreign court. Conversely, an importer in the United States should be especially careful about inspecting the imported goods, because a U.S. plaintiff may not want to sue the foreign producer, leaving the U.S. importer as the primary defendant.

Review Questions

1. 12-1 Explain what privity is and what impact it had on the development of product liability law.

2. 12-2 Explain the elements one would have to prove to bring a successful product liability case based on negligence.

3. 12-3 Explain the defenses one can raise in a product liability case based on negligence.

4. 12-4 Explain the various types of warranties that provide the basis for product liability cases based on breach of warranty.

5. 12-5 Explain the difference between the foreign- natural and consumer-expectations tests.

6. 12-6 Explain the defenses available in a breach-of-warranty case.

Review Problems

1. 12-7  Jack Clark was eating a chicken enchilada at Mexicali Rose restaurant when he swallowed a chicken bone. The bone lodged in his throat and had to be removed in the emergency room of a local hospital. What is the primary factor that will determine whether Mr. Clark’s product liability lawsuit is successful?

2. 12-8  Five people died of carbon monoxide poisoning from a gas heater that had been improperly installed in a cabin by the owner, who had not extended the vent pipe far enough above the roofline. The instruction manual stated that the pipe had to be vented outside, but did not specify how far outside the vent pipe should extend, other than having a drawing that showed it extending beyond the roofline. The manual also said, “Warning: To ensure compliance with local codes, have installed by a gas or utility inspector.” Do the decedents’ estates have a product liability action for failure to warn? Why or why not?

3. 12-9  The plaintiff was injured when a fire extinguisher failed to work when it was needed to put out a fire. Could the defendant manufacturer of the fire extinguisher raise the defense of contributory negligence against the plaintiff if the plaintiff’s negligence started the fire? Why or why not?

4. 12-10  Mattie was injured when she lost control of the car she was driving because of a tire blowout. The tire was guaranteed by the manufacturer “against failure from blowouts.” The guarantee also limited the manufacturer’s liability to repair or replacement of any defective tire. Can Mattie sue under strict liability breach of warranty and recover damages for her injury? Why or why not?

5. 12-11  Bob was waiting at the crosswalk for the light to turn green. As he stood there, a car that was stopped in the road next to him suddenly exploded, and Bob was injured by the blast. A defect in the engine caused the explosion. Will Bob be able to bring a strict product liability action against the manufacturer of the engine?

6. 12-12  National Bank was deciding whether to loan money to Pateo Corporation. It asked Pateo to provide a copy of the company’s most recent audit. While doing the audit, the auditors, Hamble & Humphries, failed to follow up on evidence indicating that one of the firm’s managing partners might be siphoning money out of the corporation’s funds. Relying on the audit, the bank made the loan. Six months later Pateo went into bankruptcy, primarily because one partner had stolen funds from the corporation and had then fled the country. Can the bank bring an action against Hamble & Humphries? Why is your answer dependent on the state in which the case arose?

Case Problems

1. 12-13  Thomas Woeste ordered raw oysters at Washington Platform Saloon and Restaurant. After eating the oysters, Woeste died as a result of contracting the bacterium Vibrio vulnificus. Vibrio vulnificus is a naturally occurring bacterium that grows in oysters harvested in warm water. It has minimal effects on healthy people, but can be dangerous to people with compromised immune systems. Woeste suffered from hepatitis C and cirrhosis of the liver, which made him susceptible to Vibrio. Woeste’s estate claimed that Washington Platform was both negligent and strictly liable for not providing adequate warning about the dangers of raw oysters. Washington Platform made a motion for summary judgment on the ground that it did provide a warning against eating raw seafood on its menu and that Woeste did not read the warning before ordering oysters. The motion for summary judgment was granted for Washington Platform and Woeste appealed. Discuss the outcome of Woeste’s appeal. Woeste v. Washington Platform Saloon & Restaurant, 836 N.E.2d 52 (Ohio Ct. App. 2005).

2. 12-14  The plaintiff was partially paralyzed from a carotid artery tear that resulted from his being tackled during a high school football scrimmage. While he was on the field, his coaches removed his helmet, which was then lost. The plaintiff’s mother filed suit against the helmet manufacturers, alleging that the helmet’s liner and foam padding were defectively designed. The district court granted summary judgment to the defendants because the plaintiff could not produce the specific helmet at issue and thus could not prove the helmet was defective. The plaintiff appealed, arguing that the fact that she could not produce the specific helmet was irrelevant as she was arguing that all of the helmets were defective due to their design. Do you think the appellate court agreed that the specific helmet need not be produced? A.K.W. v. Easton-Bell Sports, Inc. et al., No. 11-60293, 2011 U.S. App. LEXIS 21108 (5th Cir. 2011).

3. 12-15  When the tire tread separated on a rear wheel of his truck, a driver lost control of his truck, which rolled over. The two passengers in the truck were killed, and the estate of one of the passengers brought suit against Cooper Tire, the manufacturer of the tire. The plaintiff argued that the tire was defective in design and had a manufacturing defect. During the discovery portion of the case, the plaintiff sought information regarding all tires manufactured by the defendant. He was trying to find information to show that Cooper Tire had notice of a tread separation problem in its other tires. Cooper Tire refused to produce that information, arguing that information regarding other tires that it manufactured but were not at issue in the case was irrelevant. What arguments, if any, could the plaintiff use to establish that the information regarding other tires is relevant? Mario Alvarez v. Cooper Tire & Rubber Co., 75 So.3d 789 (Fla. Dist. Ct. App., 4th Dist. 2011).

4. 12-16  The defendant company, Genetech, Inc., designed, manufactured, and sold a psoriasis medication called Raptiva. The psoriasis medication worked by suppressing T-cells to prevent their migration and contribution to psoriasis. Unfortunately, because T-cells also serve the purpose of fighting infections, the medication had the potential to cause life-threatening side effects. Following several reports of these life-threatening side effects, including one consumer who contracted a rare brain infection, Genetech voluntarily removed the product from the market in 2009. The plaintiff consumers claimed that the psoriasis medication caused several subsequent injuries, and as such, brought a product liability suit against Genetech. The district court granted Genetech’s motion to dismiss, holding that Genetech was entitled to immunity under the Michigan Products Liability Act, and that the plaintiffs’ claims that immunity did not apply to the defendant was preempted by federal law. The plaintiffs appealed. Do you think the court of appeals agreed that Genetech was immune to the product liability claims? Why or why not? Marsh v. Genetech, Inc., 693 F.3d 546, U.S. App. LEXIS 18703 (2012).

5. 12-17  Eighteen-year-old Brandon Patch was pitching in an American Legion baseball game when he was struck in the head by a batted ball hit by a batter using a model CB-13 aluminum bat made by Hillerich and Bradsby. Balls hit by aluminum bats travel at a much higher velocity than balls hit using a traditional wooden bat, thereby increasing the necessary reaction time of the infielders.

Brandon died from the injury he received when hit by the ball, so his parents sued the Hillerich and Bradsby Company for failure to warn Brandon of the alleged defect in the bat (the increased speed of balls hit by it). The company argued that there was no defect and that the company had no duty to warn a non-user of the bat.

The jury found a failure to warn on the part of the company and awarded the plaintiffs $850,000. Defendant appealed. How do you think the appellate court ruled, and why? Patch v. Hillerich & Bradsby Co., 257 P.3d 214 (2011).

6. 12-18  Danell Gomez had a surgical catheterization in 1999. A device known as an “Angio-Seal” was used to close the hole in Gomez’s artery. The Angio-Seal is regulated by the FDA under the Federal Medical Device Amendments. The Angio-Seal uses a plug of collagen to seal the hole, and uses an anchor to prevent the collagen from entering the artery. Gomez alleges that the anchor failed to prevent the collagen from entering Gomez’s artery and it formed a blockage in her femoral artery in her leg. Gomez underwent nine surgeries as a result of the blockage to her artery. She sued the manufacturer under Louisiana product liability law on several counts, but the defendant’s motion for summary judgment on the ground of federal preemption was granted.

Gomez appealed; the Fifth Circuit Court of Appeals affirmed most of the preemption claims, but reversed and remanded the summary judgment for Gomez’s claim of manufacturing defect. Gomez claimed that the Angio-Seal had been manufactured improperly and that the defect had caused the anchor to fail. Why would this claim not be preempted by the Federal Medical Device Amendments? Gomez v. St. Jude Medical Daig Division, Inc., 442 F.3d 919 (5th Cir. 2006).

Thinking Critically about Relevant Legal Issues Government Protection against Unsafe Products

The recent scares caused by toxic products imported from China should be of concern to all retailers. The problematic products have varied from toy trains to toothpaste to tires. In 2006, the United States imported almost $290 billion worth of goods from China. Because such a huge number of our products are made in China, these incidents are a major concern for both consumers and retailers. Under product liability laws, consumers can sue retailers for selling them a defective or dangerous product.

The ability of consumers to sue the retailers for a product that was defectively made in another country is very harmful to the retailers. The retailers either must perform many expensive checks on their merchandise, which is increasingly coming from other countries, such as China, or they just have to trust that the merchandise is being made responsibly. This dilemma is very dangerous for businesses and could mean major expenses either from increased merchandise testing or from product liability lawsuits. For example, Foreign Tire Sales, Inc. (FTS), is being held responsible for the recall of defectively made tires, which it says it cannot afford without going into bankruptcy. Even though FTS did not make the tires, and the designs that it provided to the manufacturer were safe, FTS is being punished because it sold the tires.

Rather than making businesses responsible, the government should institute more inspections of foreign merchandise to ensure that the public is being protected. In response to the poisonous toothpaste from China, the Food and Drug Administration (FDA) is checking all shipments of toothpaste for toxins. Rather than waiting until the problem emerges, the FDA and other government agencies should check foreign goods as a preventative measure. Although the government obviously cannot increase regulations or inspections in Chinese factories, it can perform more inspections and require more extensive documentation when the products come into our country.

More inspections and regulation by the government will help protect business owners from product liability lawsuits, because it will remove the defective products before they reach consumers. The government should be responsible for inspecting these products because it is better able to inspect all of the foreign products; it has the money, the manpower, and the systems already in place. If the government can afford to check every shipment of toothpaste now, it should be able to increase checks before the toxic product reaches consumers.

The government should take the responsibility of protecting its citizens and its businesses. The government should protect its citizens from purchasing unsafe merchandise and protect its businesses from lawsuits over unsafe foreign merchandise.

1. How would you frame the issue and conclusion of this essay?

2. What evidence is used to support the author’s opinion?

3. What information is missing from this essay?

4. Write an essay on this topic from a point of view different from that of the essay author.

Clue: How could the inclusion of any missing information change the conclusion of the essay?

Assignment On The Internet

At the Legacy Tobacco Documents Library, library .ucsf.edu, you can find internal documents from the files of top tobacco companies. Within this site, you can find a summary chart of tobacco lawsuits by state. Click on “Search & Find” at the top of the page, then on “Archives & Online Collections.” Once here, click on the heading “Manuscript Collections,” then on “Tobacco Control Archives.” Select one of the states to view the complaints filed in the case. Read the complaint to find out what claims (i.e., negligence, strict liability, breach of warranty) the plaintiff is bringing. Find out what type of relief the plaintiff is seeking (i.e., damages, injunction, etc.).

Earlier in this chapter, we discussed failure-to-warn claims against the fast-food industry, and we noted that Congress is considering banning all obesity-related claims against fast-food restaurants. Write a paper in which you compare the fast-food litigation to the tobacco litigation.

 On The Internet

· www.cpsc.gov This site is the home of the U.S. Consumer Product Safety Commission.

· www.law.cornell.edu This site contains a brief overview of product liability and provides several links to liability law as well as recent product liability court cases. To access, click on “Wex legal encyclopedia” under the heading “Legal Resources.” Then search for the term “products liability.”

· www.lawyersandsettlements.com A website with news on class action suits. Most class action suits are product liability cases.

· www.lawprofessors.typepad.com This site is a blog written by law professors. Perform a search for “products liability” in the search bar and click on the first result of the search. This will take you to blogs written about product liability cases.

For Future Reading

· Beck, Hugh C. “The Substantive Limits of Liability for Inaccurate Predictions.” American Business Law Journal 44 (2007): 161.

· Dorfman, Howard L., Vivian M. Quinn, and Elizabeth A. Brophy. “Presumption of Innocence: FDA’s Authority to Regulate the Specifics of Prescription Drug Labeling and the Preemption Debate.” Food and Drug Law Journal 61 (2006): 585.

· Geistfield, Mark A. Principles of Product Liability. New York: Foundation Press, 2006.

· Owen, David G., and Jerry J. Phillips. Products Liability in a Nutshell. St. Paul, MN: ThomsonWest, 2008.

· Ramseyer, J. Mark. “Liability for Defective Products: Comparative Hypotheses and Evidence from Japan.” American Journal of Comparative Law 61 (Summer 2013): 617.

· Rushin, Stephen. “Warning Labels and FCC Regulations: The New Legal and Business Frontier for Cell Phone Manufacturers.” Berkeley Business Law Journal 7 (2010): 150.

· Wagner, Wendy. 2006. “When All Else Fails: Regulating Risky Products through Tort Litigation.” Georgetown Law Journal 65 (2006): 693.