LAW
AND
MARKETS
Stephen Ong, BSc(Hons) Econs (LSE),
MBA International Business(Bradford)
Visiting Fellow, Birmingham City ...
• Discussion: CEO Hubris1
• Law of Torts, Property &
Product Liability2
• Case Discussion: Obesity
and McLawsuits3
Today’s...
1. Open Discussion
• Petit, Vale´rie and Bollaert, Helen (2012)
Flying Too Close to the Sun? Hubris Among
CEOs and How to ...
2. THE LAW
Overview
• Introduction
• The common law
• Property
• Intellectual property
• Contracts
• Torts
• The product safety probl...
Introduction
• Markets are the cornerstone of a
free enterprise system
• The law plays a principal role in:
–Reducing unce...
Common Law
• Used in the United Kingdom, the United
States, and most of the other former
English colonies
• Common law cou...
Property
•The set of rights to control a
tangible or intangible thing
Intellectual Property
• The basic trade-off in the protection of
intellectual property is between:
– Benefits to society f...
Information and Incentives
Intellectual Property
• The appropriability of the returns
from a discovery depends on two
principal factors:
–How easy it...
Appropriability of Returns
Example : Appropriability of Returns
and Peer-to-Peer Systems
Intellectual Property Protection
• Patents
• Copyright
• Trademarks and trade secrets
Contracts
• Governed by:
–Common law
–Statutes pertaining to particular
types of contracts and
transactions
14-15
Enforceability
• Central issues in contracts are:
–Which contracts are
enforceable
–When can they be breached
–What damage...
Breach
• Breaches are allowed
because:
–Under some circumstances it is
economically efficient not to
fulfill the condition...
Remedies
• Courts use two basic types of
remedies in the event of
breach:
–Damages
–Specific performance
Torts
• Civil wrongs - Wrongs done by
one person to another
The Product Safety Problem
Social Costs of Injuries Prevented
14-21
Entitlements and Their Protection
• Rules for protecting
entitlements
–Property rule
–Liability rule
The Assignment of Social Costs
and the Choice Between Liability
and Regulation
• There are five principles for the
assignm...
1. Products Liability
• A branch of the common law of
torts
14-24
2. Allowable Defenses under Strict
Liability
• Some defenses are allowed
under strict liability but:
–They vary among the ...
3. Preemption
• Some federal legislation
preempts states from adding
requirements beyond those
stated in the federal law
–...
4. Damages
• Principal form of damages
awarded in liability cases is
compensatory
–Compensation for the loss
incurred
The Politics of Products Liability
• Strong incentives to take liability
issues into the legislative arena
are provided by...
Imperfections In the Liability System
• Liability system has been
criticized on:
–Equity grounds
–Distributive grounds
–Ef...
CASE DISCUSSION :
OBESITY AND
MCLAWSUITS
Case - Nonmarket Environment of
McDonald’s
• Obesity - Economists studied the
increase in the body mass index and
conclude...
Case - Nonmarket Environment of
McDonald’s
• Meal and Menu Nutrition Information - Public
attention to the obesity issue l...
Case - Nonmarket Environment of
McDonald’s
• Children’s Advertising
– McDonald’s promoted its trademark golden
arches on B...
Case - Obesity and McLawsuits
• To deal with the McLawsuits, McDonald’s and other
restaurants could continue to defend the...
Core Readings
• Baron, David P.(2013) Business and its environment,
7th Edition, Pearson, Ch.14
• Cheeseman, Henry R.(2013...
Next Week’s Ideas for Discussion
• Gabaix, Xavier, Landier, Augustin and
Sauvagnat, Julien (2013) CEO pay and firm
size: a...
QUESTIONS?
APPENDIX I :
TORTS
Introduction to Intentional Torts and
Negligence
• Injured party brings civil lawsuit to seek
compensation for a wrong don...
Intentional Torts
• Assault
–Threat of immediate harm or
offensive contact
–Any action that arouses reasonable
apprehensio...
Intentional Torts
• Battery
–Unauthorized and harmful or
offensive physical contact with
another person
–Direct physical c...
Intentional Torts
• Doctrine of transferred intent
–Party A intends to harm Party B,
but actually injures Party C
–Law tra...
Intentional Torts
• False imprisonment
–Intentional confinement or restraint of
another person without authority or
justif...
Intentional Torts
• Shoplifting and merchant protection
statutes
–Merchants may stop, detain, and
investigate suspected sh...
Case 1: False Imprisonment
• Case
– Walmart Stores, Inc. v. Cockrell
– 61 S.W.3d 774, Web 2001 Tex. App. Lexis 7992
– Cour...
Intentional Torts
• Misappropriation of the right to publicity
–Attempt by another person to appropriate a
living person’s...
Intentional Torts
• Invasion of the right to privacy
–Violation of a person’s right to live
his or her life without being
...
Intentional Torts
• Defamation of character
–Types
• Slander
• Libel
–Plaintiff must prove that:
• Defendant made an untru...
Intentional Torts
• Disparagement
– Untrue statement made about products, services,
property, or reputation of a business
...
Intentional Torts
• Intentional infliction of emotional distress
– Extreme and outrageous conduct that
intentionally or re...
Unintentional Torts (Negligence)
• Unintentional Tort: A doctrine that says a person is
liable for harm that is the forese...
Unintentional Torts (Negligence)
• Elements of a Negligence Lawsuit
– The defendant owed a duty of care to the plaintiff
–...
Unintentional Torts (Negligence)
• Duty of care: Obligation not to cause any
unreasonable harm or risk of harm
– Tests use...
Unintentional Torts (Negligence)
• Injury to plaintiff
– Personal injury or damage to the plaintiff’s
property
– Damages c...
Case 2: Damages for Negligence
• Case
–Clancy v. Goad
–858 N.E.2d 653, Web 2006 Ind. App. Lexis
2576 (2006)
–Court of Appe...
Unintentional Torts (Negligence)
• Causation
– Causation in fact (actual cause): A person who
commits a negligent act is n...
Case 3: Duty of Care
• Case
–James v. Meow Media, Inc.
–300 F.3d 683, Web 2002 U.S. App.
Lexis 16185 (2002)
–United States...
Case 3: Duty of Care
• Issue
–Are the video and
movie producers
liable to the
plaintiffs for selling
and licensing
violent...
Special Negligence Doctrines
• Professional malpractice
– The liability of a professional who breaches his or
her duty of ...
Special Negligence Doctrines
• Negligence per se
–Violation of a statute that proximately
causes an injury
• Res ipsa loqu...
Special Negligence Doctrines
• Good Samaritan laws
–Protects medical professionals who
stop and render emergency first aid...
Defenses Against Negligence
• Superseding or intervening event
–An event for which defendant is not
responsible
• Assumpti...
Case 4: Assumption of the Risk
• Case
– Lilya v. The Greater Gulf State Fair, Inc.
– 855 So.2d 1049, Web 2003 Ala. Lexis 5...
Defenses Against Negligence
• Contributory negligence
–Plaintiff who is partly at fault for his
or her own injuries cannot...
Strict Liability
• Strict liability is liability without
fault
• A participant in a covered activity
will be held liable f...
APPENDIX II :
PRODUCT LIABILITY
Introduction to Product and Strict Liability
• Product Liability: Liability of
manufacturers, sellers, lessors, and
others...
Product Liability: Negligence
• Negligence
–Requires the defendant to be at fault
for causing the plaintiff’s injuries
–Th...
Product Liability: Negligence
• Failure to exercise duty of care includes:
–Failing to assemble a product carefully
–Negli...
Product Liability: Misrepresentation
• Misrepresentation
–Occurs when a seller or lesser
either:
• Fraudulently misreprese...
Product Liability: Strict Liability
• Doctrine of strict liability in tort
–Strict liability is liability without fault
–M...
Product Liability: Strict Liability
• Liability without fault
–Does not require the injured person to
prove that the defen...
Product Liability: Strict Liability
• Chain of distribution
–Comprises of:
• Manufacturers
• Distributors
• Wholesalers an...
Product Liability: Strict Liability
• Parties who can recover for strict liability
– Any injured party
– Privity of contra...
Product Liability: Strict Liability
• Damages recoverable for strict liability
– Damages recoverable vary by jurisdiction
...
Product Defects
• To recover for strict liability, the injured party
must first show that the product that caused
the inju...
Product Defects
• Defect in manufacturing
• Defect in design
• Defective packaging
• Failure to warn
• Inadequate instruct...
Case 6.1: Defect in Manufacture
• Case
– Shoshone Coca-Cola Bottling Company v.
Dolinski
– 82 Nev. 439, 420 P.2d 855, Web ...
Case 1: Defect in Manufacture
• Issue
– Should the state of Nevada judicially adopt the
doctrine of strict liability? If s...
Defect in Design
• Defect that occurs when a product is improperly
designed
• Evaluation of adequacy of a product’s design...
Case 2: Design Defect
• Case
– Domingue v. Cameco Industries, Inc.
– 936 So.2d 282, Web 2006 La. App. Lexis 1593
(2006)
– ...
Defect in Design
• Crashworthiness doctrine:
– Automobile manufacturers have duty to design
automobiles taking into accoun...
Failure to Warn
• Defect that occurs when a manufacturer does not
place a warning on the packaging of products that
could ...
Defect in Packaging
• Manufacturers owe a duty to design and provide safe
packages for their products
• Containers should ...
Other Product Defects
• Failure to provide adequate instructions
• Inadequate testing of products
• Inadequate selection o...
Defenses to Product Liability
• Generally known dangers
–Certain products are inherently
dangerous
–These products are kno...
Defenses to Product Liability
• Government contractor defense
–Contractors that manufacture products
to government specifi...
Defenses to Product Liability
• Supervening event
–The manufacturer or seller is not liable
if:
• A product is materially ...
Defenses to Product Liability
• Assumption of risk
• Defendant must prove that the
plaintiff:
»Knew and appreciated the ri...
Defenses to Product Liability
• Statute of limitations
–Plaintiff must bring action within a
certain number of years from ...
Defenses to Product Liability
• Statute of repose
–Limits the seller’s liability to a
certain number of years from the
dat...
Defenses to Product Liability
• Plaintiff partially at fault
–Types
•Contributory negligence
•Comparative negligence
6-27
Defenses to Product Liability
• Contributory negligence
–Plaintiff who contributed to own
injuries cannot recover from the...
Defenses to Product Liability
• Comparative negligence
– Applies when a plaintiff is partially responsible
for causing his...
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  • The role of the common law is to help people accomplish what they want to accomplish. The advantage of the common law is that it can adjust to changing circumstances without having to wait for new statutes to be enacted by legislation. The common law evolves through lawsuits filed by people in response to the problems they need addressed.
  • The economic efficiency rationale for property is twofold.Property rules facilitate bargaining, allowing economic transactions to be made and gains from trade to be realized.Property rules provide incentives to create assets, as in the case of intellectual property.Bargaining - Property allows persons to reach mutually beneficial agreements.Incentives and appropriability - A role of property is to provide incentives to create assets.
  • The characteristics of intellectual assets and the difficulty in excluding others from their use implies that those assets can be undersupplied in markets.
  • The longer the duration of the monopoly the lower are the benefits to society, since the holder of the patent restricts use so as to appropriate the monopoly returns.
  • The high cost of enforcement means that protection is loose rather than tight, and technological change reduces the cost of replication.
  • PatentsA patent establishes a property right that allows the holder to exclude others from using the invention; that is, a patent grants a monopoly to the inventor.CopyrightWorks of original expression may receive a copyright allowing the recipient to restrict use, reproduction, and distribution of the work. A copyright can be claimed even without a filing with the government.Trademarks and trade secretsA trademark provides social and private value.A trade secret is almost anything that is unique and of value or potential value to a company. Includes process information, operating methods, programs, and business plans.
  • In a contract both parties seek assurances.Contracts are also entered into to induce reliance, which refers to a change in behavior by a party.A contract is an agreement over which parties are to have bargained.
  • A contract may be voided if an individual, such as a minor, does not have the authority to enter into it. A contract to sell one’s vote in an election is voidable because the right to vote is inalienable; that is, it is not transferable.A contract is generally not enforceable if it is illegal or unconscionable and is voidable under certain conditions such as fraud or a mistake.Another situation that can make a contract unenforceable is frustration of purpose.
  • For example, if a change in the market makes a necessary input to the production process prohibitively expensive, it may be better to breach a purchase contract and allow the buyer to contract for a product made with different inputs.
  • DamagesDamages can be compensatory for the harm caused or punitive. Compensation for foreseeable damages depends on the baseline used by the courts.Expectations damagesConsequential damagesReliance damagesLiquidated damagesSpecific performanceIn cases in which it is difficult to determine the actual damages incurred as a consequence of a breach, the courts may provide relief in the form of specific performance.Involves an order directing the promisor to take the action called for in the contract.
  • The law of torts is common law that evolves through decisions made by judges in cases brought by private plaintiffs.The basic elements of a tort case:An injuryAn action that caused the injuryThe breach of a duty owed to the injured party
  • Social efficiency requires balancing the costs of injuries and the costs of care. This is illustrated in the figure, which graphs costs as a function of injuries prevented.The social cost of injuries decreases as more injuries are prevented.
  • The property rule prohibits other parties from infringing the entitlement without the consent of the party holding it.The liability rule protects an entitlement in quite a different manner.When an entitlement is protected by a liability rule, a person may infringe the entitlement but must compensate its holder for the objectively assessed harm resulting from that infringement.
  • The assignment of entitlements should favor knowledgeable choices between social benefits and the social costs of obtaining them.When it is unclear whether the social benefits exceed the social costs, “the cost should be put on the party that is best located to make such a cost-benefit analysis.”When there are alternative means of achieving social benefits, the costs of achieving them should be assigned to the party that can do so at the lowest cost.When it is not clear who that party is, “the costs should be put on the party or activity which can with the lowest transactions costs act in the market to correct an error in entitlements by inducing the party who can avoid social costs most cheaply to do so.”Given principles one through four, protect the assignment with a liability rule or government regulation, depending on which is more likely to lead to social efficiency.
  • The common law of products liability has evolved considerably since the 1950s, with legal standards originating in the law of contracts evolving into a standard of strict liability under which a producer may be held fully responsible even if it was not at fault and could not have prevented the injury.Implied warranties are not made by producers but are held by the courts to be associated with a product put on the market. Products are held to have an implied warranty of merchantability.At the turn of the twentieth century, state laws generally required privity of contract in which a party incurring a loss of property associated with the use of a product could sue only the party from whom the product had been purchased.
  • The only absolute defense is that the product was not associated with the injury or was not the proximate cause of the injury.Other defenses are not absolute.One is based on the assumption of risk by the consumer.The correction of a defect may also provide a degree of protection in some instances.In some jurisdictions a defense of contributory negligence on the part of the plaintiff is allowed.A producer may be able to use disclaimers to limit liability, but the courts have held some disclaimers to be invalid.In most jurisdictions, products liability cases are covered by a statute of limitations, which is often 4 years.For capital equipment, a statute of repose serves the same function as a statute of limitations, but the time allowed is much longer.
  • In cases in which both the producer and the consumer are responsible for the injury, some courts assess comparative damages.In most jurisdictions punitive damages can be assessed.The legal standard for imposing punitive damages is higher than that for compensatory damages and generally requires a finding of negligence and fault.
  • Liability costs not only affect safety decisions, but they also affect the prices of products and in some cases whether products are produced.
  • The equity arguments express a belief that cases should be decided on the basis of fault and negligence. In particular, firms consider it inequitable to be assessed damages when there was nothing they could have done to prevent the injury.The distributive objection is that the awards in many cases are too large and seem to provide a prize, as in a lottery, rather than providing compensation for actual losses.The deep pockets of producers are seen by some jurors as a means of helping those who were unfortunate enough to have been injured.As the Coase theorem indicates, the distributive consequences of a legal standard can be independent of their efficiency consequences.However, liability awards can force firms into bankruptcy or dissuade them from producing certain desirable products.
  • The Cheeseburger Bill - The bill provided protection from obesity and weight-based lawsuits unless the weight gain was due to the violation of a state or federal law
  • Mba1034 cg law ethics week 9 law & markets 2013

    1. 1. LAW AND MARKETS Stephen Ong, BSc(Hons) Econs (LSE), MBA International Business(Bradford) Visiting Fellow, Birmingham City University Visiting Professor, Shenzhen University MBA1034 GOVERNANCE, LAW & ETHICS
    2. 2. • Discussion: CEO Hubris1 • Law of Torts, Property & Product Liability2 • Case Discussion: Obesity and McLawsuits3 Today’s Overview
    3. 3. 1. Open Discussion • Petit, Vale´rie and Bollaert, Helen (2012) Flying Too Close to the Sun? Hubris Among CEOs and How to Prevent it, Journal of Business Ethics, 2012: 108: pp.265–283
    4. 4. 2. THE LAW
    5. 5. Overview • Introduction • The common law • Property • Intellectual property • Contracts • Torts • The product safety problem and social efficiency • Entitlements, liability, and social efficiency • Products liability • Imperfections in the liability system
    6. 6. Introduction • Markets are the cornerstone of a free enterprise system • The law plays a principal role in: –Reducing uncertainties –Supporting exchange in markets
    7. 7. Common Law • Used in the United Kingdom, the United States, and most of the other former English colonies • Common law countries typically have an adversarial system of litigation in which: –Each party advocates its side of the dispute –Judges and juries render decisions based on the evidence, the arguments provided, and precedents
    8. 8. Property •The set of rights to control a tangible or intangible thing
    9. 9. Intellectual Property • The basic trade-off in the protection of intellectual property is between: – Benefits to society from the use of ideas and inventions and the incentives for their creation
    10. 10. Information and Incentives
    11. 11. Intellectual Property • The appropriability of the returns from a discovery depends on two principal factors: –How easy it is for others to replicate the discovery –Strength of the public protection for the discovery
    12. 12. Appropriability of Returns
    13. 13. Example : Appropriability of Returns and Peer-to-Peer Systems
    14. 14. Intellectual Property Protection • Patents • Copyright • Trademarks and trade secrets
    15. 15. Contracts • Governed by: –Common law –Statutes pertaining to particular types of contracts and transactions 14-15
    16. 16. Enforceability • Central issues in contracts are: –Which contracts are enforceable –When can they be breached –What damages are due in the event of a breach
    17. 17. Breach • Breaches are allowed because: –Under some circumstances it is economically efficient not to fulfill the conditions of the contract
    18. 18. Remedies • Courts use two basic types of remedies in the event of breach: –Damages –Specific performance
    19. 19. Torts • Civil wrongs - Wrongs done by one person to another
    20. 20. The Product Safety Problem
    21. 21. Social Costs of Injuries Prevented 14-21
    22. 22. Entitlements and Their Protection • Rules for protecting entitlements –Property rule –Liability rule
    23. 23. The Assignment of Social Costs and the Choice Between Liability and Regulation • There are five principles for the assignment of costs and the choice between the institutions of liability and regulation
    24. 24. 1. Products Liability • A branch of the common law of torts 14-24
    25. 25. 2. Allowable Defenses under Strict Liability • Some defenses are allowed under strict liability but: –They vary among the states • In all of these defenses, the burden of proof is on the defendant
    26. 26. 3. Preemption • Some federal legislation preempts states from adding requirements beyond those stated in the federal law –Could be explicit or implicit in the law
    27. 27. 4. Damages • Principal form of damages awarded in liability cases is compensatory –Compensation for the loss incurred
    28. 28. The Politics of Products Liability • Strong incentives to take liability issues into the legislative arena are provided by: –The costs and consequences of liability cases –The proportion of awards that go to trial lawyers
    29. 29. Imperfections In the Liability System • Liability system has been criticized on: –Equity grounds –Distributive grounds –Efficiency grounds
    30. 30. CASE DISCUSSION : OBESITY AND MCLAWSUITS
    31. 31. Case - Nonmarket Environment of McDonald’s • Obesity - Economists studied the increase in the body mass index and concluded that it was due to several factors: – Increase in calorie intake – Decrease in strenuousness of work – Decrease in cost of food due to technological change leading people to eat more 1-31
    32. 32. Case - Nonmarket Environment of McDonald’s • Meal and Menu Nutrition Information - Public attention to the obesity issue led to the introduction of the Menu Education and Labeling Act (MEAL) in the House and the Senate • Healthy Lifestyles - As a result of the concern about obesity, McDonald’s suspended its promotion of supersize meals 1-32
    33. 33. Case - Nonmarket Environment of McDonald’s • Children’s Advertising – McDonald’s promoted its trademark golden arches on Barbie dolls and backpacks – Some schools had McDonald’s days for lunch – Used plastic toys for promotion 1-33
    34. 34. Case - Obesity and McLawsuits • To deal with the McLawsuits, McDonald’s and other restaurants could continue to defend themselves in court on a case-by- case basis • McDonald’s could also seek legislation to shield restaurants and food processors from liability • The public attention to the obesity issue led to the introduction of the Menu Education and Labeling Act (MEAL) • The fast-food industry also faced the possibility that state attorneys would file lawsuits seeking reimbursement for Medicare costs of obese people
    35. 35. Core Readings • Baron, David P.(2013) Business and its environment, 7th Edition, Pearson, Ch.14 • Cheeseman, Henry R.(2013) Business law, 8th Edition, Prentice Hall. Ch.5-6.
    36. 36. Next Week’s Ideas for Discussion • Gabaix, Xavier, Landier, Augustin and Sauvagnat, Julien (2013) CEO pay and firm size: an update after the crisis,NBER working paper 19078, May 2013
    37. 37. QUESTIONS?
    38. 38. APPENDIX I : TORTS
    39. 39. Introduction to Intentional Torts and Negligence • Injured party brings civil lawsuit to seek compensation for a wrong done to the party • Damages available –Tort damages –Punitive damages • If the victim of a tort dies, beneficiaries can bring a wrongful death action against defendant 5-2
    40. 40. Intentional Torts • Assault –Threat of immediate harm or offensive contact –Any action that arouses reasonable apprehension of imminent harm –Actual physical contact is unnecessary 5-3
    41. 41. Intentional Torts • Battery –Unauthorized and harmful or offensive physical contact with another person –Direct physical contact between victim and perpetrator unnecessary –May accompany assault 5-4
    42. 42. Intentional Torts • Doctrine of transferred intent –Party A intends to harm Party B, but actually injures Party C –Law transfers perpetrator’s intent from target to actual victim –Party C can sue the perpetrator 5-5
    43. 43. Intentional Torts • False imprisonment –Intentional confinement or restraint of another person without authority or justification and without that person’s consent • Physical force • Barriers • Threats of physical violence • False arrest 5-6
    44. 44. Intentional Torts • Shoplifting and merchant protection statutes –Merchants may stop, detain, and investigate suspected shoplifters if: • There are reasonable grounds for suspicion • Suspects are detained for only reasonable time • Investigations are conducted in reasonable manner 5-7
    45. 45. Case 1: False Imprisonment • Case – Walmart Stores, Inc. v. Cockrell – 61 S.W.3d 774, Web 2001 Tex. App. Lexis 7992 – Court of Appeals of Texas • Issue – Does the shopkeeper’s privilege protect Walmart from liability under the circumstances of the case? 5-8
    46. 46. Intentional Torts • Misappropriation of the right to publicity –Attempt by another person to appropriate a living person’s name or identity for commercial purposes –Tort of appropriation –Plaintiff’s recourse: • Recover the unauthorized profits made by the offender • Obtain an injunction preventing further unauthorized use of his or her identity 5-9
    47. 47. Intentional Torts • Invasion of the right to privacy –Violation of a person’s right to live his or her life without being subjected to unwanted and undesired publicity –Placing person in a “false light” 5-10
    48. 48. Intentional Torts • Defamation of character –Types • Slander • Libel –Plaintiff must prove that: • Defendant made an untrue statement of fact about plaintiff • Statement was intentionally or accidentally published to a third party 5-11
    49. 49. Intentional Torts • Disparagement – Untrue statement made about products, services, property, or reputation of a business • Intentional misrepresentation (Fraud) – Wrongdoer deceives another person out of money, property, or something of value 5-12
    50. 50. Intentional Torts • Intentional infliction of emotional distress – Extreme and outrageous conduct that intentionally or recklessly causes severe emotional distress to another person – Also known as tort of outrage • Malicious prosecution – Frivolous lawsuit maliciously brought – Prevailing defendant sues original plaintiff to recover damages for injuries 5-13
    51. 51. Unintentional Torts (Negligence) • Unintentional Tort: A doctrine that says a person is liable for harm that is the foreseeable consequence of his or her actions • Negligence: Omission to do something which a reasonable person would do, or doing something which a prudent and reasonable person would not do 5-14
    52. 52. Unintentional Torts (Negligence) • Elements of a Negligence Lawsuit – The defendant owed a duty of care to the plaintiff – The defendant breached the duty of care – The plaintiff suffered injury – The defendant’s negligent act caused the plaintiff’s injury – The defendant’s negligent act was the proximate cause of the plaintiff’s injuries 5-15
    53. 53. Unintentional Torts (Negligence) • Duty of care: Obligation not to cause any unreasonable harm or risk of harm – Tests used to determine whether a duty of care was owed: • Reasonable person standard • Reasonable professional standard • Breach of duty of care: Failure to exercise care or to act as a reasonable person would act 5-16
    54. 54. Unintentional Torts (Negligence) • Injury to plaintiff – Personal injury or damage to the plaintiff’s property – Damages cannot be recovered if the plaintiff suffered no injury – Damages recoverable depend on the effect of the injury on the plaintiff’s life or profession 5-17
    55. 55. Case 2: Damages for Negligence • Case –Clancy v. Goad –858 N.E.2d 653, Web 2006 Ind. App. Lexis 2576 (2006) –Court of Appeals of Indiana • Issue –Were the damages awarded to Dianna Goad excessive? 5-18
    56. 56. Unintentional Torts (Negligence) • Causation – Causation in fact (actual cause): A person who commits a negligent act is not liable unless actual cause can be proven – Proximate cause (legal cause): A point along a chain of events caused by a negligent party after which this party is no longer legally responsible for the consequences of his or her actions 5-19
    57. 57. Case 3: Duty of Care • Case –James v. Meow Media, Inc. –300 F.3d 683, Web 2002 U.S. App. Lexis 16185 (2002) –United States Court of Appeals for the Sixth Circuit 5-20
    58. 58. Case 3: Duty of Care • Issue –Are the video and movie producers liable to the plaintiffs for selling and licensing violent video games and movies to Carneal, who killed the plaintiffs’ three children? 5-21
    59. 59. Special Negligence Doctrines • Professional malpractice – The liability of a professional who breaches his or her duty of ordinary care – Breach of reasonable professional standard • Negligent infliction of emotional distress – Permits a person to recover for emotional distress caused by the defendant’s negligent conduct 5-22
    60. 60. Special Negligence Doctrines • Negligence per se –Violation of a statute that proximately causes an injury • Res ipsa loquitur • Defendant had exclusive control of the situation that caused the plaintiff’s injury • Injury would not have ordinarily occurred but for someone’s negligence 5-23
    61. 61. Special Negligence Doctrines • Good Samaritan laws –Protects medical professionals who stop and render emergency first aid • Relieves them from liability for ordinary negligence • No relief for gross negligence or intentional or reckless conduct –Laypersons not trained in CPR not covered 5-24
    62. 62. Defenses Against Negligence • Superseding or intervening event –An event for which defendant is not responsible • Assumption of risk –Plaintiff knowingly and voluntarily participates in a risky activity that results in injury 5-25
    63. 63. Case 4: Assumption of the Risk • Case – Lilya v. The Greater Gulf State Fair, Inc. – 855 So.2d 1049, Web 2003 Ala. Lexis 57 – Supreme Court of Alabama • Issue – Was riding a mechanical bull an open and obvious danger for which Lilya had voluntarily assumed the risk when he rode the mechanical bull? 5-26
    64. 64. Defenses Against Negligence • Contributory negligence –Plaintiff who is partly at fault for his or her own injuries cannot recover against negligent defendant • Comparative negligence –Damages apportioned according to fault – Pure comparative negligence – Partial comparative negligence (50% rule) 5-27
    65. 65. Strict Liability • Strict liability is liability without fault • A participant in a covered activity will be held liable for any injuries caused by the activity, whether or not he or she was negligent • Abnormally dangerous activities 5-28
    66. 66. APPENDIX II : PRODUCT LIABILITY
    67. 67. Introduction to Product and Strict Liability • Product Liability: Liability of manufacturers, sellers, lessors, and others for injuries caused by defective products • Strict Liability: A plaintiff may recover punitive damages if the defendant’s conduct has been reckless or intentional 6-2
    68. 68. Product Liability: Negligence • Negligence –Requires the defendant to be at fault for causing the plaintiff’s injuries –The plaintiff must prove that: • The defendant breached a duty of due care to the plaintiff • This breach caused the plaintiff’s injuries –Only a party who was actually negligent is liable to the plaintiff 6-3
    69. 69. Product Liability: Negligence • Failure to exercise duty of care includes: –Failing to assemble a product carefully –Negligent product design –Negligent inspection or testing of a product –Negligent packaging –Failure to warn of the dangerous propensities of a product 6-4
    70. 70. Product Liability: Misrepresentation • Misrepresentation –Occurs when a seller or lesser either: • Fraudulently misrepresents the quality of a product • Conceals a defect in it –Recovery is limited to persons who relied on the misrepresentation 6-5
    71. 71. Product Liability: Strict Liability • Doctrine of strict liability in tort –Strict liability is liability without fault –Makes manufacturers, distributors, wholesalers, retailers, and others in the chain of distribution of a defective product liable for the damages caused by the defect, irrespective of fault 6-6
    72. 72. Product Liability: Strict Liability • Liability without fault –Does not require the injured person to prove that the defendant breached a duty of care –Casual sales and transactions by nonmerchants are not covered –Applies only to products, not services 6-7
    73. 73. Product Liability: Strict Liability • Chain of distribution –Comprises of: • Manufacturers • Distributors • Wholesalers and retailers • Lessors • Subcomponent manufacturers –All parties in the chain of distribution of a defective product are strictly liable for the injuries it causes 6-8
    74. 74. Product Liability: Strict Liability • Parties who can recover for strict liability – Any injured party – Privity of contract not required – Recovery possible even if the injured party had no contractual relations with the defendant – Bystanders and non-users are entitled to the same protection as users 6-9
    75. 75. Product Liability: Strict Liability • Damages recoverable for strict liability – Damages recoverable vary by jurisdiction – Property damage recoverable in most jurisdictions – Economic loss in few jurisdictions – Some jurisdictions limit the dollar amount of the award – Punitive damages generally allowed if defendant recklessly or intentionally injured the plaintiff 6-10
    76. 76. Product Defects • To recover for strict liability, the injured party must first show that the product that caused the injury was somehow defective • The injured party does not have to prove who caused the product to become defective • Plaintiff can allege multiple product defects in one lawsuit 6-11
    77. 77. Product Defects • Defect in manufacturing • Defect in design • Defective packaging • Failure to warn • Inadequate instructions 6-12
    78. 78. Case 6.1: Defect in Manufacture • Case – Shoshone Coca-Cola Bottling Company v. Dolinski – 82 Nev. 439, 420 P.2d 855, Web 1966 Nev. Lexis 260 – Supreme Court of Nevada 6-13
    79. 79. Case 1: Defect in Manufacture • Issue – Should the state of Nevada judicially adopt the doctrine of strict liability? If so, was there a defect in the manufacture of the Squirt bottle that caused the plaintiff’s injuries? 6-14
    80. 80. Defect in Design • Defect that occurs when a product is improperly designed • Evaluation of adequacy of a product’s design: – Risk-utility analysis – Consumer expectation test 6-15
    81. 81. Case 2: Design Defect • Case – Domingue v. Cameco Industries, Inc. – 936 So.2d 282, Web 2006 La. App. Lexis 1593 (2006) – Court of Appeal of Louisiana • Issue – Is the forward blind spot on Cameco’s 405-B dump truck a design defect? 6-16
    82. 82. Defect in Design • Crashworthiness doctrine: – Automobile manufacturers have duty to design automobiles taking into account the possibility of a second collision – They should take into account the possibility of harm from a person’s body striking something inside the automobile in the case of a car accident 6-17
    83. 83. Failure to Warn • Defect that occurs when a manufacturer does not place a warning on the packaging of products that could cause injury if the danger is unknown • Proper and conspicuous warning insulates all in chain of distribution • Failure to warn is a defect that will support a strict liability action 6-18
    84. 84. Defect in Packaging • Manufacturers owe a duty to design and provide safe packages for their products • Containers should be: – Tamperproof – Clearly indicate tampering • Defective packaging subjects the chain of distribution to strict liability 6-19
    85. 85. Other Product Defects • Failure to provide adequate instructions • Inadequate testing of products • Inadequate selection of component parts or materials • Improper certification of the safety of a product 6-20
    86. 86. Defenses to Product Liability • Generally known dangers –Certain products are inherently dangerous –These products are known to the general population to be inherently dangerous –Sellers are not strictly liable for failing to warn of generally known dangers 6-21
    87. 87. Defenses to Product Liability • Government contractor defense –Contractors that manufacture products to government specifications are not usually liable if such a product causes injury • Abnormal misuse of the product –Relieves the seller of product liability if the user abnormally misused the product 6-22
    88. 88. Defenses to Product Liability • Supervening event –The manufacturer or seller is not liable if: • A product is materially altered or modified after it leaves the seller’s possession • The alteration or modification causes an injury 6-23
    89. 89. Defenses to Product Liability • Assumption of risk • Defendant must prove that the plaintiff: »Knew and appreciated the risk »Voluntarily assumed the risk 6-24
    90. 90. Defenses to Product Liability • Statute of limitations –Plaintiff must bring action within a certain number of years from the time that he or she was injured by the defective product –Limitation period set by each state –Defendant is relieved of liability if action is not brought within limitation period 6-25
    91. 91. Defenses to Product Liability • Statute of repose –Limits the seller’s liability to a certain number of years from the date when the product was first sold –Varies from state to state 6-26
    92. 92. Defenses to Product Liability • Plaintiff partially at fault –Types •Contributory negligence •Comparative negligence 6-27
    93. 93. Defenses to Product Liability • Contributory negligence –Plaintiff who contributed to own injuries cannot recover from the defendant in negligence –Contributing plaintiff cannot recover damages even if the product was defective 6-28
    94. 94. Defenses to Product Liability • Comparative negligence – Applies when a plaintiff is partially responsible for causing his own injuries – Liability is assessed proportionately to the degree of fault of each party – Damages are apportioned proportionally between the plaintiff and the defendant 6-29

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