Chapter 20 – Product Liability


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  • Photo is of Henry Ford.
  • Lesson: any seller—professional or not—may make an express warranty. When such a warranty has been breached (because the goods were not as warranted), the plaintiff who demonstrates resulting losses is entitled to compensatory Damages.
  • Vertical privity between a consumer and manufacturer is no longer required as a condition to a claim by the consumer against the manufacturer for breach of the manufacturer’s implied warranty of merchantability. See Hyundai Motor America, Inc. v. Goodin.
  • In this case, all repairs covered by warranties (original express warranty plus purchased extended warranty) and many repairs justified due to wear and tear. Court found the couple had unreasonable expectations for a used car.
  • Standard Candy Co., a Tennessee firm, produces candy bars, including one known as the “Goo Goo Cluster.” The Goo Goo Cluster candy bar contains peanuts provided to Standard Candy by an outside supplier. When Nebraska resident James Newton II purchased a Goo Goo Cluster and bit into it, he encountered what he claimed to be an undeveloped peanut. Newton maintained that biting the undeveloped peanut caused him to experience a damaged tooth as well as recurring jaw-locking and hearing loss problems. Relying on diversity of citizenship jurisdiction, Newton filed a breach of implied warranty of merchantability lawsuit against Standard Candy in the U.S. District Court for the District of Nebraska. Standard Candy moved for summary judgment in its favor. Court: “The “foreign-natural” doctrine provides there is no liability if the food product is natural to the ingredients, whereas liability exists [for resulting injuries] if the substance is foreign to the ingredients…. Standard Candy argues that if Nebraska follows this doctrine, it is clearly not liable. Newton’s injuries were a result of a peanut, which is part of the ingredients found in a Goo Goo Cluster. Likewise, under the “reasonable expectation of the consumer” doctrine, Standard Candy argues that Newton cannot assert liability…. Standard Candy argues that under this test, Newton would [have been] reasonably aware of peanuts in a Goo Goo Cluster candy bar…. The court concludes that the motion for summary judgment must be denied. There are significant factual disputes that must be decided by the jury. The court also finds that Newton does not necessarily need an expert [on undeveloped peanuts] to prove his case. The testimony of Standard Candy’s employees, Sherry and Shraybman, [is] sufficient to establish the existence of both burnt and undeveloped peanuts. Mr. Sherry will be able to testify as to his knowledge regarding undeveloped peanuts based on his work observations. In addition, he might very well qualify as an expert in this regard. Additionally, Ms. Shraybman . . . will be permitted to testify . . . based on [her] experience working for Standard Candy.”
  • Court opinion regarding implied warranty of merchantability: “Batesville contends that the ordinary purpose of a wooden casket is to house the remains of the departed until interment…. [T]he record does not indicate that the plaintiffs ever stated a specified period of time that they, as reasonable customers, would have reasonably expected the wooden casket to last…. [Under the circumstances, the] trial court [appropriately] found that the ordinary purpose for which the casket was designed ceased once the pallbearers bore the casket from the hearse to the grave site for burial. [In any event,] [a]s previously stated, the record also fails to demonstrate that the remains were damaged in any way from the alleged cracks and separation when the casket and body were exhumed.” Court opinion regarding warranty of fitness for a particular purpose: “Here, the evidence did not justify the submission of this case to a jury on the [implied] warranty of fitness for a particular purpose [claim]. Nothing in the record provides that the plaintiffs identified any particular purpose to the defendants when the casket was selected. Furthermore, assuming arguendo that the plaintiffs sought to preserve their mother’s remains for some unspecified, indefinite period of time in the wooden casket, the record is completely devoid of any proof that the body had been damaged in any way by the alleged problems with the casket.”
  • William Croskey was seriously injured in July 2000 when his girlfriend’s 1992 BMW automobile overheated and he opened the hood to add fluid. Because the plastic neck on the car’s radiator failed, scalding radiator fluid spewed out and came in contact with Croskey, severely burning him. Relying on diversity of citizenship jurisdiction, Croskey filed suit in the U.S. District Court for the Eastern District of Michigan against the car’s manufacturer, Bayerische Motoren Werk Aktiengesellschaft (BMW AG), and the North American distributor of BMW vehicles, BMW of North America, Inc. (BMW NA). Croskey pleaded two alternative claims: (1) negligent design on the part of BMW AG; and (2) negligent failure to warn on the part of BMW AG and BMW NA. Deciding an evidentiary question prior to trial, the district court ruled that Croskey could use evidence of substantially similar incidents of plastic neck failure if those incidents came to the attention of the defendants and if the incidents occurred between 1991 and the date Croskey was injured. However, the court allowed this evidence to be used only in regard to the negligent failure to warn claim, and prohibited its use in regard to the negligent design claim. The court also ruled that concerning the negligent failure to warn claim, the defendants could introduce evidence of the number of BMWs sold with plastic-necked radiators between 1994 (when the defendants first learned of a neck failure) and the date of the Croskey incident. The purpose of such evidence was to show the likelihood—or lack of likelihood—of a neck failure. The case proceeded to trial. Rejecting Croskey’s negligent design and negligent failure to warn claims, the jury returned a verdict in favor of the defendants. Croskey appealed to the U.S. Court of Appeals for the Sixth Circuit.
  • Court: “A negligence claim in a product liability action looks to the [defendant’s] conduct and not the mere existence of a product’s defect to determine whether the [defendant’s] conduct was reasonable under the circumstances. [The plaintiff, Croskey,] claims that the defendants were negligent because they knew that the plastic used on the radiator “neck” could become brittle and break over time (the “defect”),…[and] that even if the defendants did not know the product was defective when it left [their] possession, [they] became aware later of the defect and were under a duty to warn consumers.” “ The primary issue in this appeal [centers around] the plaintiff ’s efforts to prove negligence under a theory of design defect. To prove a design defect under Michigan law, a plaintiff must show that the product was not reasonably safe for its foreseeable uses and that a risk-utility analysis favored a safer design. Under this approach, a plaintiff must show that (1) the product was not reasonably safe when it left the control of the manufacturer; and (2) a “feasible alternative production practice was available that would have prevented the harm without significantly impairing the usefulness or desirability of the product to users.” [Citations of authority omitted.] Plaintiffs may use both direct and circumstantial evidence to prove a design defect claim. A risk-utility balancing test [must be used]. …we hold it was error for the district court to make a blanket exclusion of all “other incidents” evidence by plaintiff to prove a negligence claim involving a design defect. …On retrial, the plaintiff will also be allowed to put on similar incidents evidence to prove his design defect claim.”
  • In 1998, the American Law Institute published its Restatement (Third) of Torts: Product Liability. Although many courts now discuss the new Restatement, it has not supplanted negligence and section 402A in most states as we write in 2005. The Restatement (Third), however, may signal the likely evolution of product liability law in the coming years.
  • Simo v Mitsubishi Motors North America, Inc .: Simo was a passenger in a 2000 Mitsubishi P45 Montero Sport, a sport-utility vehicle (SUV), The vehicle was designed, manufactured, and sold by Mitsubishi Motors Corp. and Mitsubishi Motors North America, Inc. Simo suffered severe injuries when the Montero Sport rolled over on an interstate highway in South Carolina, after the driver suddenly steered left to avoid another vehicle and then attempted to correct his course by quickly turning back to the right. While the vehicle was on its side, it was struck by a Federal Express truck. Simo filed a strict liability lawsuit in the U.S. District Court for the District of South Carolina against Mitsubishi Motors and Mitsubishi Motors North America, (collectively referred to here as “Mitsubishi”). Simo contended in his complaint that the Montero Sport was unreasonably dangerous because its center of gravity was too high, causing it to roll over in certain circumstances on flat, dry pavement (to roll over “untripped”). Mitsubishi moved for a directed verdict at the close of all of the evidence, but the district court denied the motion and allowed Simo’s strict liability claim to go to the jury. The jury returned a verdict in favor of Simo and awarded him $7 million in compensatory damages, an amount the district judge reduced to just over $6 million after giving Mitsubishi credit for amounts Simo received in settlement of claims against other parties. Mitsubishi appealed to the U.S. Court of Appeals for the Fourth Circuit. Appellate court: “a plaintiff must show [the following in order to win a strict liability claim]: (1) he was injured by the product; (2) the injury occurred because the product was in a defective condition, unreasonably dangerous to the user; and (3) the product at the time of the accident was in essentially the same condition as when it left the hands of the defendant. Proving the existence of an alternative feasible design is a crucial aspect of this required showing…. the district court correctly denied Mitsubishi’s motion [insofar as it was premised on a supposed failure of Simo to identify a reasonable alternative design]….. District court’s judgment in favor of Simo affirmed.” Wright v. Brooke Group Ltd.: Robert and DeAnn Wright sued various cigarette manufacturers in federal district court in an effort to obtain damages for harms allegedly resulting from Robert’s cigarette smoking. The plaintiffs made various claims, including negligence, strict liability, breach of implied warranty, breach of express warranty, fraudulent misrepresentation and nondisclosure, and civil conspiracy. The defendants’ motion to dismiss was largely overruled by the federal court. Thereafter, the defendants asked the federal court to certify questions of law to the Iowa Supreme Court, in accordance with Iowa Code § 684A.1 Concluding that the case presented potentially determinative state law questions as to which there was either no controlling precedent or ambiguous precedent, the federal court certified various questions to the Iowa Supreme Court. Two of the certified questions dealt with strict liability. They read as follows: “In a design defect products liability case, what test applies under Iowa law to determine whether cigarettes are unreasonably dangerous? What requirements must be met under the applicable test?” The Iowa Supreme Court issued an opinion answering the various questions certified by the federal court. The opinion concluded: “Iowa will follow the Restatement (Third) ’s rule rather than previously applied rules of strict liability and negligence.”
  • UCC section 2–316(2) makes it relatively easy for sellers to disclaim the implied warranties of merchantability and fitness for a particular purpose. Doctrine of unconscionability established by UCC section 2–302 may apply to limit disclaimers Magnuson- Moss Act also limits a seller’s ability to disclaim implied warranties.
  • Hyperlink is to the Supreme Court decision. The Medical Device Amendments of 1976 (MDA) created federal safety oversight scheme for medical devices and pushed back state oversight schemes. The most extensive oversight is reserved for Class III devices that undergo the premarket approval process. Class III devices may enter the market only if the FDA reviews their design, labeling, and manufacturing specifications and determines that the specifications provide a reasonable assurance of safety and effectiveness. Charles Riegel and his wife, petitioner Donna Riegel, brought suit against respondent Medtronic after a Medtronic catheter (a Class III device) ruptured in Charles Riegel’s coronary artery during heart surgery. The Riegels alleged that the device was designed, labeled, and manufactured in manner that violated New York state law. The District Court held that the MDA pre-empted the Riegels’ various claims, including strict liability, breach of implied warranty, and negligence. The trial court held in favor of Medtronic on the basis that the state law claims were preempted by the federal MDA. The Second Circuit affirmed in favor of Medtronic and the Supreme Court affirmed. A non-profit organization, Public Citizen, represented the plaintiffs on appeal and before the Supreme Court. The Food and Drug Administration (FDA) has the mandate to conduct the pre-market approval for devices under the MDA, but has no independent research capability. Consequently, the FDA sends the research results provided by the manufacturer to a panel of experts who advise the FDA in making its decision. In granting pre-market approval, the FDA does not make a finding that the device is factually safe and effective for its intended use, but only concludes that there is “reasonable assurance” that it is safe and effective.
  • False. Implied warranties are created by operation of law rather than seller’s express statements True. True.
  • True. True. False. Magnuson-Moss Warranty Act provides that i f warranty is written, it must be full or limited: Full warranty promises to (1) remedy any defects in the product and (2) replace product or refund purchase price if, after reasonable number of attempts, it cannot be repaired Seller who gives a limited warranty is bound to whatever promises it actually makes
  • The correct answer is (d).
  • The correct answer is (d).
  • Opportunity to discuss myths about torts and product liability, especially urban legends (see about lawsuits.
  • Again, these statistics have remained relatively stable for decades. Opportunity to discuss why these statistics reflect a commercial world more litigious than the media portrays.
  • If students claim they wouldn’t file suit, ask if they’d file suit if their child or parent was seriously injured. Opportunity to discuss the chapter opening case, Ernst v. Merck & Co., Inc. On August 19, 2005, a Texas jury found Merck & Co., Inc. liable for the death of Robert C. Ernst, who had taken the company's pain relief drug, Vioxx. The jury awarded Ernst's widow damages totaling $253.5 million, $24.5 million of which covered economic losses and mental anguish. Jurors arrived at a $229 million figure for punitive damages because that was how much money company executives estimated they would save by delaying a change in Vioxx's warning label. Under Texas state law, the punitive damages award was automatically reduced to $1.6 million. Interestingly, accordingly to Merck’s records, Merck made approximately $1.6 million in worldwide sales from Vioxx every 6 hours and 40 minutes the drug was on the market. Juror comments from the Ernst case are illustrative: “‘ Merck did not let us know the full problems of the drug,’ juror Rhonda Wade said. ‘I was shocked.’” [The Dallas Morning News, 8/20/05] Juror Stacy Smith: “The issue, to me, was, did Merck know before they put the drug on the market, and when they did, why didn't they do something about it immediately?” [World News Tonight, ABC News Transcripts, 8/19/05] A press release on Merck’s website after the Ernst v. Merck verdict is also illustrative: “WHITEHOUSE STATION, N.J., Aug. 20, 2005 - Friday’s verdict in Texas was a disappointment to all of us at Merck because we know we acted responsibly. Merck is driven by science and our commitment to acting in the best interest of patients.” Compare that press release to one almost one year earlier: “WHITEHOUSE STATION, N.J., Sept. 30, 2004 Merck & Co., Inc. today announced a voluntary worldwide withdrawal of VIOXX® (rofecoxib), its arthritis and acute pain medication. The company’s decision, which is effective immediately, is based on new, three-year data…’We are taking this action because we believe it best serves the interests of patients,’ said Raymond V. Gilmartin, chairman, president and chief executive officer of Merck.”
  • Chapter 20 – Product Liability

    1. 1. Formation and Terms of Sales Contracts Product Liability Performance of Sales ContractsRemedies for Breach of Sales Contracts © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
    2. 2. Product LiabilityA manufacturer is not through with hiscustomer when a sale is completed. He hasthen only started with his customer. Henry Ford, founder of Ford Motor Company, in My Life and Work(cowritten with Samuel Crowther, 1922) © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
    3. 3. Learning Objectives Evolution of product liability law Theories of product liability recovery:  Express warranty, implied warranties, negligence, strict liability Other theories of recovery Time limitations, disclaimers, defenses Damages20 - 3
    4. 4. Development of Product Liability Law Product liability law refers to the body of legal rules governing civil lawsuits for losses and harms resulting from a defendant’s furnishing of defective goods Rule was caveat emptor (buyer beware), but has shifted over the past century to caveat venditor (let the seller beware) since sellers are better able than consumers to bear the costs of defective products20 - 4
    5. 5. Product Liability Theories Product liability law is partly grounded in contract law and partly grounded in tort law Contract theories are based on an express or implied warranty Tort theories are based on arguments of negligence or strict liability20 - 5
    6. 6. Express Warranty UCC 2–313(1): express warranty may be created in any of three ways:  If affirmation of fact or promise about goods becomes part of the basis of the bargain  Statements of value or opinion and sales puffery do not constitute a warranty  Advertisements may contain statements of warranty as well as sales puffery20 - 6
    7. 7. Example of Express Warranty Felley v. Singleton: Felley bought a used car from the Singletons based on statement of “good mechanical condition” Car actually was in poor condition Court: “In the context of a used car sale, representations by the seller such as the car is ‘in good mechanical condition’ are presumed to be affirmations of fact that become part of the basis of the bargain20 - 7
    8. 8. Express Warranty Two other express warranties:  A description of the goods that becomes part of the bargain creates an express warranty that the goods will conform to description  A sample or model of goods to be sold creates an express warranty that goods will conform to sample20 - 8
    9. 9. Implied Warranties Implied warranties are created by operation of law rather than seller’s express statements  Warranty of merchantability [UCC 2-314(1)]  Seller must be a merchant in the goods of the kind sold  Warranty of fitness for a particular purpose [UCC section 2–315]  Seller must know the goods are to be used for20 - 9 special purpose
    10. 10. Implied Warranty of Merchantability In implied warranty cases, plaintiff argues that seller breached warranty by selling unmerchantable goods and plaintiff should recover damages  Privity of contract between consumer and manufacturer is not required Merchantability, essentially, is that goods must be fit for the ordinary purposes for which such goods are used20 - 10
    11. 11. Meaning of Merchantability Crowe v. CarMax Auto Superstores, Inc.:  Couple bought car from CarMax with express warranties. Car required many repairs, all covered by warranties, but couple sued CarMax claiming unmerchantability  Court found for CarMax: goods need not be perfect to be fit for their ordinary purposes, but must only meet reasonable expectations of average consumer  Couple had unreasonable expectations20 - 11
    12. 12. Meaning of Merchantability Newton v. Standard Candy Co.:  Demonstrates disagreement over standard for food products alleged to be unmerchantable because they contain harmful objects or substances  Under foreign–natural test, defendant is liable if object or substance is “foreign” to the product, but not liable if it is “natural” to the product  But reasonable expectations test increasing in use20 - 12
    13. 13. Implied Warranty of Fitness for a Particular Purpose Warranty of fitness for a particular purpose implied if: (1) seller has reason to know a particular purpose for which buyer requires the goods; (2) seller has reason to know that buyer is relying on seller’s skill or judgment for the selection of suitable goods; and (3) buyer actually relies on seller’s skill or judgment in purchasing the goods  See Moss v. Batesville Casket Co.20 - 13
    14. 14. Negligence Theory Product liability suits based on negligence allege that seller or manufacturer breached a duty to plaintiff by failing to eliminate a reasonably foreseeable risk of harm:  (1) negligent manufacture of the goods (including improper materials and packaging)  (2) negligent inspection  (3) negligent failure to provide adequate warnings  (4) negligent design20 - 14
    15. 15. Croskey v. BMW of North America, Inc. Facts and Procedural History:  Croskey severely burned when plastic neck on car radiator failed and spewed scalding radiator fluid  Croskey pleaded two theories: negligent design and negligent failure to warn  Evidence of similar incidents existed, but court excluded for negligent design claim  Jury returned verdict in favor of defendants20 - 15
    16. 16. Croskey v. BMW of North America, Inc. Appellate Court:  Primary issue is design defect, which requires plaintiff to show that the product was not reasonably safe for its foreseeable uses and a risk-utility analysis favored a safer design  Trial court wrongly excluded evidence of similar incidents  Reversed and remanded20 - 16
    17. 17. Strict Liability Theory American Law Institute published section 402A of Restatement (Second) of Torts (1965)  Most important reason is socialization-of-risk strategy: strict liability makes it easier for plaintiffs to prove breach of duty and sellers pass on costs in higher prices  Another reason: stimulates manufacturers to design and build safer products20 - 17
    18. 18. Restatement (Third) of Torts Published in 1998, basic rule is: “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.” Three kinds of product defects: manufacturing defects, inadequate warnings or instructions, design defects20 - 18
    19. 19. Strict Liability Cases Simo v. Mitsubishi Motors North America, Inc.  Court court examined the legal requirements that govern a strict liability case involving a claim of defective design of an SUV, including proof of reasonable alternative design Wright v. Brooke Group Limited  Iowa Supreme Court announced that in design defect cases, Iowa will follow the Restatement (Third)’s rule rather than previously applied rules of strict liability and negligence20 - 19
    20. 20. Other Product Liability Theories Federal Magnuson-Moss Warranty Act applies to sales of consumer products > $10 per item:  If written warranty, it must be full or limited  Full warranty promises to (1) remedy any defects in the product and (2) replace product or refund purchase price if, after reasonable number of attempts, it cannot be repaired  Seller who gives a limited warranty is bound to whatever promises it actually makes20 - 20
    21. 21. Other Product Liability Theories A seller’s misrepresentation about a material fact about the product — a fact that would matter to a reasonable buyer – may invoke liability to a buyer Industrywide liability: plaintiffs bypass problems of causation that exist where several firms within an industry manufactured a harmful standardized product, and plaintiff cannot prove which firm produced the injurious product20 - 21
    22. 22. Damages Consequential damages: personal injury, property damage, indirect economic loss (e.g., lost profits or lost business reputation), and noneconomic loss, such as pain and suffering, physical impairment, mental distress, loss of enjoyment of life, loss of companionship or consortium, inconvenience, and disfigurement20 - 22
    23. 23. Damages Basis-of-the-bargain damages:  Buyers of defective goods loss of full value for the goods’ purchase price is a direct economic loss (value of goods as promised under the contract minus value of goods as received) Punitive damages:  Intended to punish defendants who have acted in an especially outrageous fashion, and to deter them and others from so acting in the future20 - 23
    24. 24. Disclaimers Product liability disclaimer is a clause in the sales contract whereby the seller attempts to eliminate liability it might otherwise have under the theories of recovery described earlier in the chapter20 - 24
    25. 25. Disclaimers & Limitations Remedy limitation is a clause attempting to block recovery of certain damages  Example of time limitation: “30 day warranty”20 - 25
    26. 26. Defenses Three main defenses in a product liability suit are the overlapping trio of product misuse, assumption of risk, and contributory negligence  What could happen on a construction site? What defenses would exist?20 - 26
    27. 27. Preemption and Regulatory CompliancePreemption defense rests on a federal supremacy premise, that federal law overrides state law when the two conflict  Riegel v. Medtronic, Inc.: state claims by plaintiffs preempted by federal statute dealing with medical devicesCourts mixed whether to treat regulatory compliance as full defense or mere factor in determining defendant’s liability20 - 27
    28. 28. Test Your Knowledge True=A, False = B  Implied warranties are created by seller’s conduct rather than express statements  Merchantability, essentially, is that goods must be fit for the ordinary purposes for which such goods are used  A disclaimer is a clause in the sales contract in which seller attempts to eliminate liability seller might otherwise have under law20 - 28
    29. 29. Test Your Knowledge True=A, False = B  Under foreign–natural test, defendant is liable if object or substance is “foreign” to product, but not liable if it is “natural” to the product  Under the Restatement of Torts (Third), three kinds of product defects exist: manufacturing defects, inadequate warnings, design defects  The Magnuson-Moss Warranty Act requires every written warranty to be a full warranty20 - 29
    30. 30. Test Your Knowledge Multiple Choice  Express warranty may be created by ________ that becomes part of the basis of the bargain for the agreement: (a) a statement of fact or promise about goods (b) a description of the goods indicating goods will conform to the description (c) a sample or model of goods to be sold indicating goods will conform to the sample (d) all of the above (e) both A and B, but not C20 - 30
    31. 31. Test Your Knowledge Multiple Choice  Drew was injured when his car rolled over after the tires delaminated and caused him to lose control. Drew could sue, claiming: (a) negligence (design or manufacture) (b) strict liability (c) breach of warranty (d) all of the above20 - 31
    32. 32. Product Liability Statistics Tort claims account for only 5% of the 19.7 million civil claims filed in state courts (Nat’l Center for State Courts, 1992) Products liability cases account for 4% of all tort cases in state courts (Nat’l Center for State Courts, 1992) The number of lawsuits filed per capita has remained relatively steady over the past several decades20 - 32
    33. 33. Product Liability Statistics Business cases (financial damages) account for 47% of all punitive damage awards (Rand Institute for Civil Justice, 1996) In contrast, only 4.4% and 2% of punitive damage awards are due to product liability and medical malpractice cases respectively (Rand Institute for Civil Justice, 1996)20 - 33
    34. 34. Thought Question What is your opinion of product liability lawsuits? If you were injured because of a defect in a product, would you file a lawsuit against the manufacturer?20 - 34