Managers And The Legal Environment Strategies For The 21st Century

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Provided Word document provides (2) Case Studies from the course. Each Case Study lists questions, and then the best possible answers from the course discussion.

Assuming you are a new CEO/CFO for a fortune 500 company, describe the lessons learned and how you may implement them to effectively lead your new company, as related to the two case studies.

I have also included the Chapters from the book that correspond with the case studies that are listed.


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Assuming you are a new CEO/CFO for a fortune 500 company, describe the lessons that you have learned and how you may implement them to effectively lead your new company, as related to your choice of two of the case studies that we discussed in the course. Case Study #1 • You were recently appointed commissioner of the NFL. • How would you handle the issue of players kneeling during the National Anthem and why? • Take into account all the audience including players, owners, fans, federal government, etc. Please do some research to support your judgement and provide your conclusion in your initial post. Francis Scott Key wrote the Star Spangled Banner after personally witnessing Fort McHenry being bombed and demolished by the British during the war of 1812. While the sky lit up from bombs and rockets' red glare, Key was able to see a U.S. flag standing tall. Through this, Key was inspired to write a poem that was later put to music that later became our National Anthem. President Wilson declared that this song shall be played at all official events. This song has represented for almost 200 years the men and women that fought and sacrificed themselves for their country and for the freedom that we still hold today. As the NFL Commissioner, I would personally not allow someone to kneel in protest any political or social issues. I look at this like I am the boss and the players are my employees. When you put on the pads and uniforms you are working on my time. When you are in the office, are you getting paid to do your task at hand or are you getting paid to go by your own agenda. As Commissioner I would ban all protesting game-day activity and violations will be subject for suspensions and fines. I would also look at this from a business standpoint. Last year NFL ratings dipped almost 10%, many believing there is a connection to the kneeling. Fans cancelling their tv packages and drops in apparel purchases hurt the profits of the NFL and as a commissioner, I want to prevent that from happening. I absolutely feel you have the right to protest when you have been served injustice. I just think during your 1 day of work per week is the wrong time. To show that I believe that players should stand for what they believe, I would scheduled a media day once a moth for players to come in and speak up for what they are fighting for. The NFL does not need political controversy to cause fans or stakeholders to stop supporting or sponsoring us due to outside issues. Lets keep our focus on football and the love of the game. Case Study #2 • What is the midnight journal entry refer to in the case study? • Was the decision made by Dooley to reverse the Asian benefits accrual ethical? • Should Okumoto drop the matter or continue to act on his concerns (at the point where the case ends? The midnight journal entry refers to Sept. 12, 2002 when executives from Electro Scientific Industries unethically doctored the accounting records to cover $977k in accrued liability. Instead of properly reporting the liability, they removed it so the books would show a gain. The decision made by Dooley was entirely unethical. He is obligated to follow the rules of the country in which the company operates. By adjusting the benefits on the employees without the consultation of anyone was illegal and unethical. Okumoto should certainly act on his concerns because he owes it to the company to act in a manner that he would if it were his personal affairs. If this malpractice affected him, he would do whatever it took to resolve the issue and see that proper punishment was delivered. As a man of strong ethics, he should continue to act. 10 CHAPTER PRODUCT LIABILITY INTRODUCTION DEFINITION OF PRODUCT LIABILITY Product liability is the legal liability manufacturers and sellers have for defective products that cause injury to purchasers, users, or bystanders, or their property. Liability extends to anyone in the chain of distribution: manufacturers, distributors, wholesalers, and retailers. Today, the majority of states have adopted strict product liability, whereby an injured person may recover damages without having to show the defendant was negligent or otherwise at fault. No contractual relationship between the defendant and the injured person is necessary. The injured person merely needs to show that the defendant sold the product in a defective or dangerous condition and that the defect caused his or her injury. CH APTER OV ERVIEW This chapter discusses the evolution of the strict liability doctrine, beginning with its origin in warranty and negligence theories. It then focuses on the bases for strict liability, including manufacturing defect, design defect, and failure to warn. The chapter examines who may be held liable for defective products and the allocation of liability among multiple defendants. It discusses defenses to product liability claims, including the courts’ increasing acceptance of the preemption defense to preclude state-law product liability claims and legislative reforms designed to correct perceived abuses in the system. The chapter concludes with a description of the law of product liability in the European Union. 101 THEORIES OF RECOVERY The primary theories on which a product liability claim can be brought are breach of warranty, negligence, and strict liability. 10-1a Breach of Warranty In a warranty action, the reasonableness of the manufacturer’s actions is not at issue. Rather, the question is whether the quality, characteristics, and safety of the product were consistent with the implied or express representations made by the seller. A buyer may bring a warranty action whenever the product fails to meet the standards the seller represented to the buyer at the time of purchase. Common Law Warranties and Privity of Contract A common law breach of warranty action is based on principles of contract law. To recover, an injured person must be in a contractual relationship with the seller, a requirement known as privity of contract. It necessarily precludes recovery by those persons, such as bystanders, who have no contractual relationship with the seller. UCC Warranties As explained in Chapter 8, a warranty under the Uniform Commercial Code (UCC) may be either express or implied. An express warranty is an affirmation made by the seller relating to the quality of the goods sold. An implied warranty is created by law and guarantees the merchantability of the goods sold and, in some circumstances, their fitness for a particular purpose. The UCC includes alternative provisions regarding the need for privity, from which adopting states may choose. These range from (1) provisions limiting liability to those in privity with the seller (as well as members of the seller’s household and guests who may reasonably be expected to use, consume, or be affected by the goods and are personally injured by breach of the warranty) to (2) provisions extending liability not only to those in privity but also to “any person who may reasonably be expected to use, consume or be affected by the goods and who is injured by breach of the warranty.”1 1. U.C.C. § 2-318. Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 254 UNIT II THE LEGAL ENVIRONMENT 10-1b Negligence In the following landmark case, the New York Court of Appeals found the defendant manufacturer liable for negligence even though there was no contractual relationship between the manufacturer and the plaintiff. Although liability in MacPherson was still based on the negligence principles of reasonableness and due care, the New York Court of Appeals abandoned the privity requirement in this case, making it an important forerunner to the doctrine of strict product liability. A CASE IN POINT SUMMARY MacPherson v. Buick Motor Co. Facts!MacPherson purchased a new Buick car with wooden wheels from a Buick Motor Court of Appeals of New York 111 N.E. 1050 (N.Y. 1916). CASE 10.1 Company dealer who had previously purchased the car from its manufacturer, Buick Motor Company. MacPherson was injured when the car ran into a ditch after one of the car’s wheels collapsed due to defective wood used for the spokes. The wheel had been made by a manufacturer other than Buick. MacPherson sued Buick Motor Company directly. He proved that Buick could have discovered the defect by reasonable inspection and that such an inspection had not been conducted. No claim was made that the manufacturer knew of the defect and willfully concealed it. After the trial court found in favor of MacPherson, Buick appealed. Issue Presented!May a consumer who purchases a product from a retailer sue the manufacturer directly for negligent manufacture of the product even though there is no contract between the consumer and the manufacturer? Summary of Opinion!The New York Court of Appeals held that Buick could be held liable for negligence. As a manufacturer, it owed a duty to any person who could foreseeably be injured as a result of a defect in an automobile it manufactured. The court stated that a manufacturer’s duty to inspect varies with the nature of the thing to be inspected. The more probable the danger, the greater the need for caution. Because the action was one in tort for negligence, no contract between the plaintiff and the defendant was required. To prove negligence in a products case, the injured party must show that the defendant did not use reasonable care in designing or manufacturing its product or in providing adequate warnings. A manufacturer can be found negligent even if the product met all regulatory requirements because, under some circumstances, a reasonably prudent manufacturer would have taken additional precautions.2 As discussed later in this chapter, the only exception is when a federally mandated standard is deemed to have preempted state product liability law.3 It can be difficult to prove negligence. Moreover, injured persons have often been negligent themselves in their use or misuse of the product. This precludes recovery in a contributory negligence state and reduces recovery in a comparative negligence state. Courts will not permit a plaintiff to prove negligence by introducing evidence of subsequent remedial measures taken by a defendant after an injury to improve a product. 2. See, e.g., Brooks v. Beech Aircraft Corp., 902 P.2d 54 (N.M. 1995). 3. See, e.g., Horn v. Thoratec Corp., 376 F.3d 163 (3d Cir. 2004). Result!New York’s highest court affirmed the lower court’s finding that the manufacturer, Buick Motor Company, was liable for the injuries sustained by the plaintiff. Buick was found negligent for not inspecting the wheels and was responsible for the finished product sold by its dealer. Comments!This case established the rule, still applicable today, that a manufacturer can be liable for failure to exercise reasonable care in the manufacture of a product when such failure involves an unreasonable risk of bodily harm to users of the product. This rule is designed to encourage companies to continually strive to improve the safety of their products. If subsequent safety measures could be used to establish negligence, companies would be deterred from improving their products. 10-1c Strict Liability in Tort Strict liability in tort allows a person injured by an unreasonably dangerous product to recover damages from the manufacturer or seller of the product even in the absence of a contract or negligent conduct on the part of the manufacturer or seller. Because the defect in the product is the basis for liability, the injured person may recover damages even if the seller exercised all possible care in the manufacture and sale of the product. In 1963, in Greenman v. Yuba Power Products, Inc.,4 the California Supreme Court became the first state supreme 4. 377 P.2d 897 (Cal. 1963). Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CHAPTER 10 court in the United States to adopt strict product liability. The case involved a consumer who was injured while using a Shopsmith combination power tool that could be used as a saw, drill, and wood lathe. Claiming that the tool was defective and not suitable to perform the work for which it was intended, Greenman sued the manufacturer and the retailer who had sold the power tool to his wife for breach of express and implied warranties and for negligent construction of the tool. The California Supreme Court ruled that a manufacturer is strictly liable in tort when it places an article on the market, knowing that the product is to be used without inspection for defects, and it proves to have a defect that causes injury to a human being.5 Rationale The legal principle of strict product liability is grounded in considerations of public policy. The rationale has four basic parts: 1. The law should protect consumers against unsafe products. Consumers are often unable to insure against all risks. In addition, consumers should be able to rely on the marketing of manufacturers. 2. The cost of injury should be borne by the parties best able to prevent, detect, eliminate, and insure against product defects: manufacturers and others in the chain of distribution. Because the manufacturers and sellers of products can insure against the losses caused by their products and pass these costs on to all consumers in the form of higher prices, they are in the best position to bear and spread the costs of product liability. 3. Imposing strict liability encourages manufacturers to go the extra mile to produce safer products and to improve existing products by investing in careful product design, manufacture, testing, and quality control. Manufacturers should not escape liability simply because they typically do not sign a formal contract with the end user of their product (or with nonusers who might be injured by their product). Negligence liability alone does not provide sufficient incentives to induce manufacturers to make safe products. 4. The law should give sellers an incentive to deal with reputable manufacturers. In short, the goal of strict product liability is to force companies to internalize the costs of the injuries caused by their products. Elements of a Strict Liability Claim For a defendant to be held strictly liable, the plaintiff must prove that (1) the plaintiff, or the plaintiff’s property, was harmed by the product; (2) the injury was caused by a defect in the product; and (3) the defect existed at the time the product left the defendant and did not substantially change along the way. Most states have followed the 5. Id. at 901. PRODUCT LIABILITY 255 formulation of section 402A of the Restatement (Second) of Torts (1965), which states: 1. One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property 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 user or consumer without substantial change in the condition in which it is 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. In some cases, the plaintiffs may base their suit on the anticipation of becoming ill or suffering physical injury as a result of being exposed to a toxic product, such as asbestos. In 2003, the U.S. Supreme Court ruled that asymptomatic plaintiffs exposed to asbestos could sue if they had a reasonable fear of developing cancer and had at least some physical injury.6 In Petito v. A.H. Robins Co.,7 the Florida Court of Appeal required manufacturers and sellers of the weight-loss drugs Fenfluramine and Phentermine to pay for a court-supervised program of medical testing, monitoring, and study of a class of asymptomatic patients. The American Law Institute (ALI) promulgated the Restatement (Third) of Torts: Products Liability in 1998. Like the Restatement (Second) of Torts, the Restatement (Third) imposes strict liability for manufacturing defects. In the case of design defects and defects based on inadequate instructions or warnings, however, it imposes a standard predicated on negligence. Because a majority of states still follow the Restatement (Second), the discussion that follows is based on that restatement, except as otherwise noted. 102 LITIGATION STRATEGY AND THE AVAILABILITY OF PUNITIVE DAMAGES Although negligence and breach of warranty are alleged in most product liability cases, they play a secondary role compared with strict liability. Under strict liability, the injured person does not have the burden of proving negligence and does not have to be in privity with the seller. Thus, strict liability is easier to prove than either negligence or breach of warranty. 6. Norfolk & Western Ry. Co. v. Ayers, 538 U.S. 135 (2003). 7. 750 So. 2d 103 (Fla. Dist. Ct. App. 1999). Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 256 UNIT II THE LEGAL ENVIRONMENT Nonetheless, plaintiffs’ attorneys usually try to prove negligence as well as strict liability. Proof of negligence will often stir the jury’s emotions, leading to higher damages awards and, in some cases, to punitive damages.8 For example, in 2006, a jury awarded $9 million in punitive damages on top of $4.5 million in compensatory damages to a plaintiff who had taken Vioxx pain medication, after the jury found that Merck had withheld information about the drug’s health risks from the Food and Drug Administration.9 Jury foreperson Timothy Kile explained 8. Punitive damages are discussed further in Chapters 4 and 9. 9. Alex Berenson, Merck Jury Adds $9 Million in Damages, N.Y. Times, Apr. 12, 2006, at C1. the jury’s thought process: “[Merck is] responsible for people taking the medication and putting it in their bodies. To not put information out there about public safety that I feel you have a responsibility to put out there, that’s willful and wanton.”10 Once the plaintiff raises the issue of negligence, the defendant is permitted to introduce evidence that its products were “state of the art” and manufactured with due care. (The state-of-the-art defense is discussed later in this chapter.) Such evidence would otherwise be inadmissible in strict liability cases governed by the Restatement (Second) and manufacturing defect cases governed by the Restatement (Third). 10. Id. IN BRIEF Theories of Product Liability* What needs to be shown? Contract—Breach of Warranty Tort—Negligence Tort—Strict Liability Warranties may be express (stated in the contract) or implied (by law). Implied warranties are merchantability and sometimes fitness for a particular purpose. !1. #The injured party (or property) was injured (damaged) by the product, resulting in an actual loss. !1.! The injured party (or property) was harmed by a defective product (i.e., has a design defect, a manufacturing defect, or a failure to adequately warn) that is unreasonably dangerous (i.e., the danger extends beyond that contemplated by the ordinary consumer who purchases with ordinary knowledge in the community). 2. The defendant owed a duty to the injured party. 3. The defendant did not use reasonable care in designing the product, manufacturing the product, or providing adequate warnings. 4. The defect caused the injury or damage. 5. The injury was reasonably foreseeable. 2. The product reached the consumer without substantial change in the condition in which it was sold. 3. The seller is engaged in the business of selling the product. Is privity of contract required? Yes, for common law warranties; varies by state for UCC warranties No No Who is covered? Only the parties in privity of contract under common law; under the UCC, parties in privity, members of their household and guests personally injured by the breach, and, in certain states, any reasonably foreseeable user or bystander Purchasers, users, and bystanders (Note: Purchasers of used property generally are not covered.) Same as Tort—Negligence Who is liable? Only the parties in privity of contract under common law; seller who made the warranty under the UCC The person(s) who acted negligently Anyone in the commercial chain of distribution: component manufacturers, manufacturers, distributors, wholesalers, and retailers (but not casual sellers; and in some jurisdictions, there are limits on the liability of component manufacturers, wholesalers, and retailers) Is “fault” required? No Yes—failure to use reasonable care in designing, manufacturing (including inspecting for defects in components), or providing adequate warnings No CONTINUED Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CHAPTER 10 PRODUCT LIABILITY 257 Contract—Breach of Warranty Tort—Negligence Tort—Strict Liability For express warranties, the terms of the warranty generally bar or severely limit recovery. In contributory negligence states— no recovery Contributory negligence does not apply. In comparative negligence states— reduced recovery In some jurisdictions, comparative fault can reduce awards. Unforeseeable misuse will generally bar recovery. Unforeseeable misuse will generally bar recovery. Generally no recovery What if the product was “state of the art”? (Note: States differ as to the standard used to establish “state of the art.”) Generally precludes claims for negligent design Generally irrelevant What if the product met all federal and state regulatory standards? Generally irrelevant as to express warranties but may eliminate any claim under implied warranties If the standards do not preempt state product liability law—no effect What damages are recoverable? Economic only Economic damages, bodily injury, property damage, and pain and suffering Same as Tort—Negligence Are punitive damages available? No Yes, if the defendant’s conduct was grossly negligent or reckless No What if the injured person negligently used or misused the product? For implied warranties, especially fitness for a particular purpose, the result will be fact specific. Manufacturing defects and failure-towarn claims are still available. Same as Tort—Negligence If the standards do preempt state product liability law—recovery is limited to the preemption limitations. *Key assumptions: 1. The defendant sold a product, not a service. 2. The defendant was not engaged in an ultrahazardous activity. 3. The product was not unavoidably unsafe. 4. The court will apply standards similar to the Restatement (Second). 5. Variations among jurisdictions have not been noted in all possible circumstances. 103 WHAT IS A PRODUCT? Strict liability in tort applies only to products, not services and other intangibles. 10-3a Products Versus Services or Information In some cases, it is unclear whether an injury was caused by a defective product or a negligently performed service. For example, a person may be injured by a needle used by a dentist or the hair solution used by a beautician. Some courts apply strict liability in these situations. Other courts will treat the product as incidental to the service and not apply strict liability. Courts that have addressed the definition-of-product question have required that the item giving rise to liability be tangible. But what happens when harm results from defective information contained in a book or other tangible item? Is the “product” the information or the physical characteristics of the item in which the information is embedded? In the case of books, courts have generally taken the position that the text in a book is not a product. One court noted the distinction between “the tangible portion of the book, the binding and printing, which is a good, from the thoughts and ideas contained therein, which are not.”11 For example, mushroom enthusiasts who had relied on descriptions in a book entitled The Encyclopedia of Mushrooms to determine which wild mushrooms were safe to eat, but who became critically ill after eating a poisonous variety, could not bring a strict product liability claim based on the erroneous information.12 The court reasoned that the allegedly defective “product” was a collection of ideas and expressions, not a tangible item. The First Amendment to the U.S. Constitution evidences the high value placed on the unfettered exchange of ideas; this could be seriously inhibited by the threat of strict liability for the contents of books. Courts have used similar reasoning to dismiss product claims based 11. Smith v. Linn, 563 A.2d 123, 126 (Pa. Super. Ct. 1989). 12. Winter v. G.P. Putnam’s Sons, 938 F.2d 1033 (9th Cir. 1991). Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 258 UNIT II THE LEGAL ENVIRONMENT on a dieting guide,13 an instruction guide for a floor hockey game,14 video games,15 and scuba diving lessons.16 In contrast, courts have allowed product liability claims to proceed against publishers of written materials that are akin to specialized instruments. For example, a court ruled that aeronautical charts are sufficiently tangible to qualify as products because they provide visual representations of technical information, such as headings, distances, and minimum altitudes required by pilots.17 Similarly, if the information at issue is characterized as “an integral part of a product in a ‘smart good,’ such as a computerized braking system in a car,” then strict product liability will apply.18 Software With the evolution of the digital age, courts have also considered whether software is sufficiently tangible to be considered a product. Certain scholars argue that “[t]he reasons for treating software differently from all other products no longer withstand close scrutiny, if they ever did,” and they have called for “the extension of strict liability to defective software that causes injury at the earliest opportunity.”19 But courts have reached varying results. A federal court applying Louisiana law ruled that the software State Farm Insurance used to calculate home damage estimates might be a product under the state’s product liability law.20 The homeowners had alleged that State Farm had intentionally programmed the software to underestimate the costs of repairing or replacing property damage suffered during Hurricane Katrina in 2005. In reaching its decision, the court relied on a Louisiana Supreme Court ruling on a tax code issue. In that case, Louisiana’s highest court, reaching back to Roman law, had held that software is a “corporeal movable,” or physical thing capable of being moved, not an “incorporeal movable,” or abstract concept such as a legal right.21 (Note that Louisiana is not a common law jurisdiction.) In another case, which examined the issue outside of the product liability context, the U.S. Court of Appeals for the Fourth Circuit came to the opposite conclusion. It characterized computer files and operating systems as “abstract ideas, logic, instructions, and information,” not tangible products.22 In contrast, the Eighth Circuit held 13. Gorran v. Atkins Nutritionals, Inc., 464 F. Supp. 2d 315 (S.D.N.Y. 2006), aff ’ d, 279 F. App’x 40 (2d Cir. 2008). 14. Garcia v. Kusan, Inc., 655 N.E.2d 1290 (Mass. App. Ct. 1995). 15. Wilson v. Midway Games, Inc., 198 F. Supp. 2d 167 (D. Conn. 2002). 16. Isham v. Padi Worldwide Corp., 2007 WL 2460776 (D. Haw. Aug. 23, 2007). 17. Aetna Cas. & Sur. Co. v. Jeppesen & Co., 642 F.2d 339 (9th Cir. 1981). 18. Michael Traynor, Information Liability and the Challenges of Law Reform: An Introductory Note, in Consumer Protection in the Age of the Information Economy 81, 82 (Jane K. Winn ed., 2006). 19. Frances E. Zollers, Andrew McMullin, Sandra N. Hurd & Peter Shears, No More Soft Landings for Software: Liability for Defects in an Industry That Has Come of Age, 21 Santa Clara Computer & High Tech. L.J. 745, 782 (2005). 20. Schafer v. State Farm Fire & Cas. Co., 507 F. Supp. 2d 587 (E.D. La. 2007). 21. South Cent. Bell Tel. Co. v. Barthelemy, 643 So. 2d 1240, 1244 (La. 1994). 22. Am. Online, Inc. v. St. Paul Mercury Ins. Co., 347 F.3d 89, 96 (4th Cir. 2003), aff ’ d, 347 F.3d 89 (4th Cir. 2003). that software that caused a subscriber to lose use of his computer did cause damage to a tangible product within the meaning of a general liability insurance policy.23 10-3b Fixtures and Structural Improvements A similar issue arises when a telephone pole or other product installed in the ground is defective. Some courts take the position that fixtures of this type are structural improvements of real property and, as such, are not products for purposes of product liability actions. For example, the Florida Court of Appeal held that a conveyor was a structural improvement as a matter of law and not subject to strict liability.24 Other courts, such as the Alabama Supreme Court, have ruled that telephone poles maintain their product characteristics even after being attached to real property.25 Alabama’s top court also treated the following structural improvements as products: (1) a conveyor belt installed in a grain-storage facility,26 (2) a gas water heater in a home,27 (3) a cylindrical rotary soybean conditioner located in a soybean extraction facility,28 and (4) a diving board that had been installed with an in-ground, vinyl-lined swimming pool.29 Similarly, the U.S. District Court for the District of South Carolina treated a conveyor belt as a product under South Carolina law.30 A New Jersey Superior Court recognized that a pool was an improvement to real property but ruled that it was still subject to strict liability under state law.31 In contrast, the Alabama Supreme Court ruled that certain items, such as fireplaces32 and multilayered exterior wall systems,33 that become part of the structure once installed are not products because they “will have the same useful life as the house or building itself and will not need to be replaced over the life of the building.” 104 WHAT MAKES A PRODUCT DEFECTIVE? An essential element for recovery in strict liability is proof of a defect in the product. The injured party must show that (1) the product was defective when it left the hands of the manufacturer or seller, and (2) the defect made the product unreasonably dangerous. Typically, a product is dangerous if its characteristics do not meet consumers’ 23. 24. 25. 26. 27. 28. 29. 30. 31. Eyeblaster, Inc. v. Fed. Ins. Co., 613 F.3d 797 (8th Cir. 2010). Plaza v. Fisher Dev., Inc., 971 So. 2d 918, 925 (Fla. Dist. Ct. App. 2007). Bell v. T.R. Miller Mill Co., 768 So. 2d 953, 957 (Ala. 2000). Beam v. Tramco, Inc., 655 So. 2d 979 (Ala. 1995). Sears, Roebuck & Co. v. Harris, 630 So. 2d 1018 (Ala. 1993). McDaniel v. French Oil Mill Mach. Co., 623 So. 2d 1146 (Ala. 1993). King v. S.R. Smith, Inc., 578 So. 2d 1285 (Ala. 1991). Ervin v. Cont’l Conveyor & Equip. Co., 674 F. Supp. 2d 709 (D.S.C. 2009). Dziewiecki v. Bakula, 824 A.2d 241 (N.J. Super. Ct. App. Div. 2003), aff ’ d, 853 A.2d 234 (N.J. 2004). 32. Wells v. Clowers Constr. Co., 476 So. 2d 105 (Ala. 1985). 33. Keck v. Dryvit Sys., Inc., 830 So. 2d 1 (Ala. 2002). Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CHAPTER 10 expectations or, in a design defect case, its risks exceed its utility. For example, a consumer expects that a stepladder will not break when someone stands on the bottom step. 10-4a Manufacturing Defect A manufacturing defect is a flaw in a product that occurs during production, such as a failure to meet the design specifications. A product with a manufacturing defect is not like the others rolling off the production line. For example, suppose the driver’s seat in a truck is designed to be bolted to the frame. If a worker forgets to tighten the bolts, the loose seat will be a manufacturing defect. 10-4b Design Defect A design defect occurs when a product manufactured according to specifications is, nonetheless, “unreasonably dangerous to the user or consumer or to his property” due to its inadequate design or a poor choice of materials.34 Under the consumer expectations test set forth in the Restatement (Second) of Torts: “The article sold must be dangerous to an extent beyond that which would be contemplated by the ordinary consumer who purchases it, with the ordinary knowledge common to the community as to its characteristics.”35 Under the risk–utility balancing test, which a majority of the states have adopted,36 courts balance the risks associated with the product with its utility to the user and the public. A notorious product satisfying both tests was the Ford Pinto, which a jury found to be defectively designed because the car’s fuel tank was too close to the rear axle, causing the tank to rupture when the car was struck from behind. John Wade, a noted American jurist whose articles are frequently cited by courts,37 set forth the following factors for determining whether the design of a product is defective: 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 that 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 34. 35. 36. 37. Restatement (Second) of Torts § 402A (1965). Id. cmt. i. Evans v. Lorillard Tobacco Co., 990 N.E.2d 997, 1012 (Mass. 2013). See, e.g., Nunnally v. R.J. Reynolds Tobacco Co., 869 So. 2d 373 (Miss. 2004). PRODUCT LIABILITY 259 E T H IC A L CO N S I D E R ATI O N You are a manager of a major manufacturing corporation. An interview with a low-level engineer leads you to believe the design specifications for your model PaZazz-4 are, in fact, the cause of numerous deaths. You are facing a wrongful death and product liability suit for defective design. The plaintiffs have not deposed this engineer, even though his name was provided as one of the hundreds who worked on this project. Thus, although you believe the design for PaZazz-4 was defective, it will be extremely difficult—if not impossible—for the plaintiffs to prove it. What should you do? public knowledge of the obvious condition of the product or because 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. 38 Criticisms of the Restatement (Second) Consumer Expectations Test Although strict product liability is predicated on the assumption that manufacturers are in the best position to insure against loss or to spread the risk of loss among their customers, in practice, insurance policies often are available only with a substantial deductible, if at all. This leads to increased manufacturing costs and higher prices. The strict product liability scheme also takes its toll on industry efficiency and competitiveness. Companies have become unwilling to invest in product creation or modification because this may be seen as an admission of fault. Informed by these concerns, the American Law Institute (ALI) approved the Restatement (Third) of Torts: Products Liability in 1997. The new restatement proposed bold changes in the doctrine of product liability. As noted earlier, however, no court is bound by the restatement’s formulation of product liability law. The Reasonable-Alternative-Design Requirement Instead of imposing strict liability for defectively designed products, the Restatement (Third) requires that any claim of design defect be supported by a showing of a reasonable alternative design. According to comment (d) to Section 2(b) of the Restatement (Third), “the plaintiff must prove that such a reasonable alternative was, or reasonably could have been, available at time of sale or distribution.” Comment (f) further provides: A broad range of factors may be considered in determining whether an alternative design is reasonable and whether its omission renders a product not reasonably safe. The factors include, among others, the magnitude and 38. Id. at 379–80. Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 260 UNIT II THE LEGAL ENVIRONMENT probability of the foreseeable risks of harm, the instructions and warnings accompanying the product, and the nature and strength of consumer expectations regarding the product, including expectations arising from product portrayal and marketing. In the following case, the South Carolina Supreme Court considered whether to accept the Restatement (Third)’s reasonable-alternative-design requirement or to permit a plaintiff to recover for a design defect based on the consumer expectations test. A CASE IN POINT IN THE LANGUAGE OF THE COURT Branham v. Ford Motor Co. Facts!Jesse Branham III, a passenger in a Bronco II 4×2 truck driven by Cheryl Hale, was injured when the truck rolled over, throwing him out of the vehicle. No one was wearing a seat belt. Hale had taken her eyes off the road to turn toward the backseat to quiet the children sitting there. When the right rear wheel left the road, Hale overcorrected to the left, causing the truck to roll over. Branham sued Hale for negligence and Ford Motor Company for negligence and strict liability. He alleged that Ford’s failure to install a different suspension system constituted a design defect. Ford engineers had criticized the Bronco’s twin I-beam design and suggested more stable (but also more expensive) alternatives. After the jury returned a verdict against Hale and Ford for $16 million in actual damages and $15 million in punitive damages, Ford appealed. Supreme Court of South Carolina 701 S.E.2d 5 (S.C. 2010). CASE 10.2 Issue Presented!Should South Carolina adopt the Restatement (Third) approach to design defects, which requires the plaintiff to show the existence of a reasonable alternative design before a product will be deemed unreasonably dangerous, or permit recovery based on the consumer expectations test? Opinion!KITTRIDGE, J., writing on behalf of the South Carolina Supreme Court: II ■ ■ ■ ■ C We next address Ford’s two-fold argument that: (1) Branham failed to prove a reasonable alternative design pursuant to the risk-utility test; and (2) South Carolina law requires a risk-utility test in design defect cases to the exclusion of the consumer expectations test. For a plaintiff to successfully advance a design defect claim, he must show that the design of the product caused it to be “unreasonably dangerous.” In South Carolina, we have traditionally employed two tests to determine whether a product was unreasonably dangerous as a result of a design defect: (1) the consumer expectations test and (2) the risk-utility test. In Claytor v. General Motors Corp., 39 this Court phrased the consumer expectations test as follows: “The test of whether a product is or is not defective is whether the product is unreasonably dangerous to the consumer or user given the conditions and circumstances that foreseeably attend use of the product.” The Claytor Court articulated the risk-utility test in the following manner: “[N]umerous factors must be considered [when determining whether a product is unreasonably dangerous], including the usefulness and desirability of the product, the cost involved for added safety, the likelihood and potential seriousness of injury, and the obviousness of danger.” ■ ■ ■ ■ Ford contends Branham failed to present evidence of a feasible alternative design. Implicit in Ford’s argument is the contention that a product may only be shown to be defective 39. 286 S.E.2d 129, 131 (S.C. 1982). and unreasonably dangerous by way of a risk-utility test, for by its very nature, the risk-utility test requires a showing of a reasonable alternative design. Branham counters, arguing that under Claytor he may prove a design defect by resort to the consumer expectations test or the risk-utility test. Branham also argues that regardless of which test is required, he has met both, including evidence of a feasible alternative design. We agree with Branham’s contention that he produced evidence of a feasible alternative design. Branham additionally points out that the jury was charged on the consumer expectations test and the risk-utility test. . . . Branham challenged the design of the Ford Bronco II by pointing to the MacPherson suspension as a reasonable alternative design. A former Ford vice president, Thomas Feaheny, testified that the MacPherson suspension system would have significantly increased the handling and stability of the Bronco II, making it less prone to rollovers. Branham’s expert, Dr. Richardson, also noted that the MacPherson suspension system would have enhanced vehicle stability by lowering the vehicle center of gravity. There was further evidence that the desired sport utility features of the Bronco II would not have been compromised by using the MacPherson suspension. Moreover, there is evidence that use of the MacPherson suspension would not have increased costs. Whether this evidence satisfies the risk-utility test is ultimately a jury question. But it is evidence of a feasible alternative design, sufficient to survive a directed verdict motion. While the consumer expectations test fits well in manufacturing defect cases, we do agree with Ford that the test is ill-suited in design defect cases. We hold today that the exclusive test in a products liability design case is the riskutility test with its requirement of showing a feasible alternative design. In doing so, we recognize our Legislature’s presence in the area of strict liability for products liability. CONTINUED Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CHAPTER 10 In 1974, our Legislature adopted the Restatement (Second) of Torts § 402A (1965), and identified its comments as legislative intent.40 . . . Since the adoption of section 402A, the American Law Institute published the Restatement (Third) of Torts: Products Liability (1998). The third edition effectively moved away from the consumer expectations test for design defects, and towards a risk-utility test. We believe the Legislature’s foresight in looking to the American Law Institute for guidance in this area is instructive. The Legislature has expressed no intention to foreclose court consideration of developments in products liability law. For example, this Court’s approval of the risk-utility test in Claytor yielded no legislative response. We thus believe the adoption of the risk-utility test in design defect cases in no manner infringes on the Legislature’s presence in this area. Some form of a risk-utility test is employed by an overwhelming majority of the jurisdictions in this country. Some of these jurisdictions exclusively employ a risk-utility test, while others do so with a hybrid of the risk-utility and the consumer expectations test, or an explicit either-or option. States that exclusively employ the consumer expectations test are a decided minority. ■ ■ ■ ■ . . . The very nature of feasible alternative design evidence entails the manufacturer’s decision to employ one design over another. This weighing of costs and benefits attendant to that decision is the essence of the risk-utility test. This approach is in accord with the current edition of the Restatement of Torts: A product . . . is defective in design when the foreseeable risks of harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative design by the seller or other distributor, or a predecessor in the commercial chain of distribution, and the omission of the alternative design renders the product not reasonably safe.41 In every design defect case the central recurring fact will be a product that failed causing damage to a person or his property. Consequently, the focus will be whether the product was made safe enough. This inquiry is the core of the risk-utility balancing test in design defect cases, yet we do not suggest a jury question is created merely because a product can be made safer. We adhere to our longstanding approval of the principle that a product is not in a defective condition unreasonably dangerous merely because it “can be made more safe.” As we observed in Marchant v. Mitchell Distributing Co.: Most any product can be made more safe. Automobiles would be more safe with disc brakes 40. S.C. Code Ann. §§ 15-73-10–30. 41. Restatement (Third) of Torts: Prods. Liab. § 2(b) (1998). PRODUCT LIABILITY 261 and steel-belted radial tires than with ordinary brakes and ordinary tires, but this does not mean that an automobile dealer would be held to have sold a defective product merely because the most safe equipment is not installed. By a like token, a bicycle is more safe if equipped with lights and a bell, but the fact that one is not so equipped does not create the inference that the bicycle is defective and unreasonably dangerous.42 ■ ■ ■ ■ In sum, in a product liability design defect action, the plaintiff must present evidence of a reasonable alternative design. The plaintiff will be required to point to a design flaw in the product and show how his alternative design would have prevented the product from being unreasonably dangerous. This presentation of an alternative design must include consideration of the costs, safety and functionality associated with the alternative design. On retrial, Branham’s design defect claim will proceed pursuant to the risk-utility test and not the consumer expectations test. III Notwithstanding the existence of ample evidence to withstand a directed verdict motion on the handling and stability design defect claim, we reverse and remand for a new trial [due to several evidentiary errors, including the admission of information that only became known after the truck was placed into the stream of commerce]. . . . Result!After embracing the Restatement (Third) ap- proach to design defects, the court overturned the jury verdict and ordered a new trial. To prevail in the new trial, the plaintiff will have to show a reasonable alternative design. Comments!Although the consumer expectations test is different from the risk–utility test, there is some overlap. As comment (g) to the Restatement (Third) acknowledged: [T]he fact that a product design meets consumer expectations may substantially influence or even be ultimately determinative on risk-utility balancing in judging whether the omission of a proposed alternative design renders the product not reasonably safe. It follows that, while disappointment of consumer expectations may not serve as an independent basis for allowing recovery under Subsection (b), neither may conformance with consumer expectations serve as an independent basis for denying recovery. Such expectations may be relevant in both contexts, but in neither are they controlling. 42. 240 S.E.2d 511, 513–14 (S.C. 1977). Critical Thinking Questions 1. How do the approaches of the Restatement (Second) and the Restatement (Third) with regard to design defects differ? What public policies are implicated? 2. Should the plaintiff or the defendant have the burden of proving the existence of a reasonable alternative design? Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 262 UNIT II THE LEGAL ENVIRONMENT 10-4c Inadequate Warnings, Labeling, or Instructions To avoid charges of failure to warn, a product must carry adequate warnings of the risks involved in its foreseeable use. To prevail in a failure-to-warn case, most states require the plaintiff to prove that “the defendant did not adequately warn of a particular risk that was known or knowable in light of the generally recognized and prevailing best scientific and medical knowledge available at the time of manufacture and distribution.”43 For example, the manufacturer of a ladder must warn the user not to stand on the top step. A product must also be accompanied by instructions for its safe use. For example, sellers have been found liable for failing to provide adequate instructions about the proper use and capacity of a hook and the assembly and use of a telescope and sun filter. Although a warning can shield a manufacturer from liability for a properly manufactured and designed product, it cannot shield the manufacturer from liability for a defectively manufactured or designed product. For example, an automobile manufacturer cannot escape liability for defectively designed brakes merely by warning that “under certain conditions this car’s brakes may fail.” As discussed later, in cases involving unavoidably unsafe products, such as certain types of vaccines, the adequacy of the warning determines whether a product known to be dangerous is also “defective.” Failure to Warn of Foreseeable Risks or to Provide Reasonable Instructions under the Restatement (Third) of Torts: Product Liability In failure-to-warn cases, the Restatement (Third) embodies the majority view that defendants are liable only if they fail to warn of risks that are foreseeable at the time of sale.44 It also interjects a negligence standard, however, by providing that a product “is defective because of inadequate instructions or warnings when the foreseeable risks of harm posed by the product could have been reduced or avoided by the provision of reasonable instructions or warnings by the [defendant], . . . and the omission of the instructions or warnings renders the product not reasonably safe.” 45 Comment (i) acknowledges: No easy guideline exists for courts to adopt in assessing the adequacy of product warnings and instructions. In making their assessments, courts must focus on various factors, 43. Anderson v. Owens-Corning Fiberglass Corp., 810 P.2d 549, 558 (Cal. 1991). 44. See, e.g., Powers v. Taser Int’l, Inc., 174 P.3d 777 (Ariz. Ct. App. 2007) (defendant is not liable for failure to warn against risks that were unforeseeable at the time of sale). 45. Restatement (Third) of Torts: Prods. Liab. § 2(c) (1998) (emphasis added). such as content and comprehensibility, intensity of expression, and the characteristics of expected user groups.46 Comment (i) also explains, “In some cases, excessive detail may detract from the ability of typical users and consumers to focus on the important aspects of the warnings, whereas in others reasonably full disclosure will be necessary to enable informed, efficient choices by product users.” 47 Few courts have adopted the Restatement (Third) negligence standard for failure to warn. Bilingual Warnings The United States is heterogeneous, and diversity is one of its great strengths. With diversity can come challenges, however. Misunderstandings may arise due to differences in culture or language. Legislatures in states with substantial non-English-speaking populations have recognized the need for bilingual or multilingual documents in such areas as voting and public services. In the area of product labeling, requirements may vary. For example, although the Food and Drug Administration (FDA) encourages labeling that meets the needs of non-English speakers, it only requires manufacturers to provide full labeling in English for nonprescription drugs except those distributed solely in Puerto Rico or another territory where the predominant language is not English.48 Causation Requirement To prevail on a failure-to-warn claim, the plaintiff must show that (1) the defendant breached a duty to warn and (2) the defendant’s failure to warn was the proximate cause (or legal cause) of the plaintiff’s injuries. The question of proximate cause is one for the jury to determine. As a result, the vast majority of courts will not disturb a jury’s finding that a failure to warn was the proximate cause of an injury. However, in an extreme case—one in which the court believes no reasonable person could have deemed the failure to warn a proximate cause of the plaintiff ’s injury—the court may set aside a verdict on causation grounds. Unavoidably Unsafe Products If the societal value of using an unavoidably unsafe product outweighs the risk of harm from its use, the manufacturer may be exonerated from liability as long as it provided proper warnings. For example, certain drugs are generally beneficial, but are known to have harmful side effects in some situations. The authors of both the Restatement (Second) and the Restatement (Third) recognized that there should be a separate concept of product liability for manufacturers of prescription drugs 46. Id. cmt. i. 47. Id. 48. Ramirez v. Plough, Inc., 863 P.2d 167 (Cal. 1993). Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CHAPTER 10 and medical devices. Comment b to section 6 of the Restatement (Third) articulated the rationale behind this special treatment: The traditional refusal by courts to impose tort liability for defective designs of prescription drugs and medical devices is based on the fact that a prescription drug or medical device entails a unique set of risks and benefits. What may be harmful to one patient may be beneficial to another. Under Subsection (c) [of section 6] a drug is defectively designed only when it provides no net benefit to any class of patients. . . . [M]anufacturers must have ample discretion to develop useful drugs and devices without subjecting their design decisions to the ordinary test applicable to products generally under § 2(b).49 Nearly every jurisdiction in the United States has followed this reasoning in some form or another.50 For example, the manufacturer of the Sabin oral polio vaccine was held not strictly liable to an individual who contracted polio from the vaccine.51 The odds of contracting polio from the vaccine were one in a million. The drug’s benefits outweighed its dangers, and the manufacturer’s warning about the remote risk of harm was reasonably adequate.52 The National Vaccine Injury Compensation Program is a “no-fault alternative to the tort system” to resolve claims that individuals were injured by certain vaccines.53 An excise tax, collected by the Department of the Treasury, funds the program. 105 WHO MAY BE STRICTLY LIABLE FOR PRODUCT DEFECTS? In theory, each party in the chain of distribution may be strictly liable for product defects: manufacturers, distributors, wholesalers, and retailers. Although disclaimers of liability are generally ineffective, parties in the chain of distribution may (and should) enter into contracts giving them a right to indemnity (that is, reimbursement) if they are found liable for defects caused by other members of the distribution chain. 10-5a Product Manufacturers A manufacturer will be held strictly liable for its defective products regardless of how remote the manufacturer is from the final user of the product. The only requirement for strict liability is that the manufacturer be in the business of selling the injury-causing product. The 49. 50. 51. 52. 53. Restatement (Third) of Torts: Prod. Liab. § 6 cmt. b (1998). See Restatement (Second) of Torts § 402A cmt. k (1965). Johnson v. Am. Cyanamid Co., 718 P.2d 1318 (Kan. 1986). Id. at 1324–26. U.S. Dep’t of Health & Human Servs., National Vaccine Injury Compensation Program, http://www.hrsa.gov/vaccinecompensation/index .html (last visited Feb. 13, 2014). PRODUCT LIABILITY 263 manufacturer may be held liable even when the distributor makes final inspections, corrections, and adjustments of the product. 10-5b Component Parts Manufacturers Manufacturers of component parts are frequently sued as well and are generally liable for any defects in the components they produce. But the maker of a component part is not liable for defective design specifications for the entire product as long as (1) the component is not itself defective and (2) the component manufacturer did not participate in the design of the finished product.54 For example, the maker of a nondefective seat installed in a garbage truck was not liable to either the driver of the truck or the truck manufacturer when the driver was hurt after the truck rolled over.55 The truck manufacturer had designed the garbage truck and had chosen which seat to install, and its own attorney had “admitted that ‘there isn’t anything wrong with the seat.’”56 10-5c Wholesalers Wholesalers are usually held strictly liable for defects in the products they sell. In some jurisdictions, however, a wholesaler is not liable for latent or hidden defects if the wholesaler sells the products in exactly the same condition it received them. 10-5d Retailers A retailer may also be held strictly liable. For example, in the automobile industry, retailers have a duty to inspect and care for the products. In several jurisdictions, however, a retailer will not be liable if it did not contribute to the defect and played no part in the manufacturing process. 10-5e Sellers of Used Goods and Occasional Sellers Sellers of used goods are usually not held strictly liable because they are not within the original chain of distribution of the product.57 In addition, the custom in the used-goods market is that there are no warranties or expectations relating to the quality of the products (although some jurisdictions have adopted rules requiring warranties for used cars). A seller of used goods is, however, strictly liable for any defective repairs or replacements he or she makes. Occasional sellers, such as people who host garage sales, are not strictly liable. 54. 55. 56. 57. See Restatement (Third) of Torts: Prods. Liab. § 5 (1998). Bostrom Seating, Inc. v. Crane Carrier Co., 140 S.W.3d 681 (Tex. 2004). Id. at 684. Allenberg v. Bentley Hedges Travel Serv., Inc., 22 P.3d 223 (Okla. 2001). Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 264 UNIT II THE LEGAL ENVIRONMENT 106 SUCCESSOR, MARKET-SHARE, AND PREMISES LIABILITY Companies may also face product liability because they acquired the firm that sold the defective product, sold an undifferentiated product, or operated premises tainted by defective products. 10-6a Successor Liability Most states employ the traditional successor liability rule: a corporation purchasing or acquiring the assets of another is liable for the acquired company’s product liability and other debts only when (1) there is a consolidation or merger of the two corporations,58 (2) the acquirer expressly or impliedly agrees to assume such obligations, or (3) the transaction was wrongfully entered into to escape liability.59 A minority of jurisdictions have adopted one of two additional bases for successor liability: the product-line theory and the continuity-of-enterprise approach. Product-Line Theory Under the product-line theory, espoused by the California Supreme Court,60 a successor that continues to manufacture the same product line as its predecessor, under the same name and with no outward indication of any change of ownership, may be held liable for product liability claims resulting from that product line, even if the particular item was manufactured and sold by the acquired firm prior to the acquisition. Continuity-of-Enterprise Approach Courts applying the continuity-of-enterprise approach look for constancy between the buyer and seller organizations to determine whether the successor company is essentially “a mere continuation or reincarnation of the predecessor entity.”61 Among the factors a court will analyze are similarity of management, personnel, assets, facilities, operations, and shareholders, and whether the successor holds itself out to the public as a continuing enterprise.62 For example, several people injured in a boating accident caused by defects in the craft successfully used the continuity-ofenterprise approach to sue the company that succeeded the boat manufacturer.63 Although the name of the company changed, the owners, officers, employees, address, phone number, and line of business remained the same. 58. The de facto merger doctrine is discussed in Chapter 19. 59. See, e.g., Nissen Corp. v. Miller, 594 A.2d 564, 565–66 (Md. 1991) (adopting the traditional successor liability exceptions). 60. Ray v. Alad Corp., 560 P.2d 3 (Cal. 1977). But see, e.g., Semenetz v. Sherling & Walden, Inc., 851 N.E.2d 1170 (N.Y. 2006) (declining to adopt the “product-line” exception). 61. Nissen Corp., 594 A.2d at 565–66. 62. Turner v. Bituminous Cas. Co., 244 N.W.2d 873 (Mich. 1976). 63. Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640 (5th Cir. 2002) (applying Florida law). 10-6b Market-Share Liability When there are multiple manufacturers of identical products, the injured party may not be able to prove which of the defendant manufacturers sold the product that caused the injury. In certain unusual cases, particularly those involving prescription drugs, the court may allocate liability on the basis of each defendant’s share of the market. This doctrine of market-share liability was developed by the California Supreme Court in Sindell v. Abbott Laboratories 64 to address the specific problem of DES litigation. The daughters of women who took the drug diethylstilbestrol (DES) during pregnancy alleged that they were injured by the DES, which, among other things, increased their likelihood of developing cancer. The harmful effects of DES were not discovered until many years after the plaintiffs’ mothers had used the drug. Many of the plaintiffs could not pinpoint which manufacturer was directly responsible for their injuries. Because all manufacturers made DES from an identical chemical formula, druggists typically filled prescriptions from whatever stock they had on hand. As a result, the plaintiffs sought damages from a number of DES manufacturers. Given the difficulty of identifying the defendant responsible for each plaintiff, the court held that the fairest approach was to apportion liability based on each manufacturer’s national market share. The court reasoned that it was more appropriate that the loss be borne by those who produced the drug than by those who suffered injury. Although the New York Court of Appeals applied market-share liability in DES cases, it characterized the DES situation as “a singular case.”65 The Appellate Division of the Supreme Court of New York (New York’s intermediate appeals court) refused to extend the doctrine to lead-based paints because (1) 20% of the lead pigments could have been manufactured by defendants not named in the litigation; (2) the plaintiffs were unable to identify the years in which the house at issue was painted, making it impossible to determine which defendants manufactured paint during the relevant period; (3) lead-based paints were not uniform, fungible products; and (4) there was no signature injury in lead poisoning cases.66 In contrast, the Wisconsin Supreme Court extended the doctrine to lead-based paint,67 and a federal court in New York imposed market-share liability in a case involving well-water contamination by oil companies.68 64. 607 P.2d 924 (Cal. 1980). 65. Hymowitz v. Eli Lilly & Co., 539 N.E.2d 1069, 1075 (N.Y. 1989). 66. Brenner v. Am. Cyanamid Co., 699 N.Y.S.2d 848, 852-54 (N.Y. App. Div. 1999). 67. Thomas v. Mallett, 701 N.W.2d 523 (Wis. 2005) (utilizing a modified version of market-share liability termed “risk-contribution theory”). 68. In re Methyl Tertiary Butyl Ether Prods. Liab. Litig., 175 F. Supp. 2d 593 (S.D.N.Y. 2001). Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CHAPTER 10 Many jurisdictions have rejected market-share liability outright.69 It has been criticized for being a simplistic response to a complex problem and for implying that manufacturers must be insurers of all their industry’s products. Market-share liability has also been challenged on the constitutional ground that it violates a defendant’s right to due process of law because it denies a defendant the opportunity to prove that its individual products did not cause the plaintiff’s injury. 10-6c Premises Liability Courts have imposed liability on building owners for asbestos-related diseases on a premises liability theory. Under this theory, a building owner may be found liable under a theory of negligence for violating its general duty to manage the premises and warn of asbestos dangers.70 This is in addition to the liability imposed on the manufacturers of the asbestos-laden insulation, roofing, or other materials. The same theory has been applied to buildings with mold. 107 PRODUCT LIABILITY CLASS ACTIONS Product liability cases are frequently resolved through class actions, a procedural device that allows a large number of plaintiffs to recover against a defendant in a single case. Lawsuits involving the tobacco industry, silicone breast implants, and harmful diet drugs were all resolved through class actions. The U.S. Supreme Court’s decisions in both Amchem Products, Inc. v. Windsor 71 and Wal-Mart v. Dukes 72 have made class certification more difficult, however. The Ohio Supreme Court refused to certify a class of more than 4,000 workers exposed to beryllium at an Ohio job site who were seeking the creation of a medical monitoring program.73 The members of the proposed class spanned forty-six years, multiple contractors, and multiple locations within the plant. The court concluded that “lack of cohesiveness is fatal.” 74 As a result, the individual questions outweighed the questions common to the class. 69. See, e.g., Doe v. Baxter Healthcare Corp., 380 F.3d 399 (8th Cir. 2004) (rejected theory on “broad policy grounds,” in case involving hemophiliac who allegedly acquired HIV after taking the drug Factor VIII). This theory has been “expressly rejected in Illinois.” In re Methyl Tertiary Prods. Liab. Litig., 175 F. Supp. 2d at 622. 70. CA App. Ct. Reverses Exxon Nonsuit Ruling, 21 No. 12 Andrews Asbestos Litig. Rep. 11, July 16, 1999. See, e.g., John Crane, Inc. v. Jones, 604 S.E.2d 822 (Ga. 2004). 71. 521 U.S. 591 (1997) (refusing to certify class containing both symptomatic and asymptomatic asbestos plaintiffs because the class members had different interests). 72. 131 S. Ct. 2541 (2011) (Case 3.1). 73. Wilson v. Brush Wellman, Inc., 817 N.E.2d 59 (Ohio 2004). 74. Id. at 65. PRODUCT LIABILITY 265 108 COMMON LAW DEFENSES The defendant in a product liability case may raise the traditional common law tort defenses of assumption of risk and, in some jurisdictions, a variation of comparative negligence known as comparative fault. Other defenses, such as obvious risk, sophisticated user, unforeseeable misuse of the product, the government-contractor defense, and the state-of-the-art defense, may be available only in product liability cases. These defenses are sometimes codified into state statutes, and their acceptance varies from state to state. Finally, under certain circumstances, state product liability law is preempted by federal law. 10-8a Assumption of Risk Under the doctrine of assumption of risk, when a person voluntarily and unreasonably assumes the risk of a known danger, the manufacturer is not liable for any resulting injury. For example, under Michigan law, if the claimant voluntarily exposed himself or herself to a risk, and that risk was the proximate cause of the injury, then recovery is completely barred.75 Thus, if a ladder bears a conspicuous warning not to stand on the top step, but a person steps on it anyway and falls, the ladder manufacturer will not be liable for any injuries caused by the fall. In contrast, the Ohio Court of Appeals affirmed the trial court’s finding that the manufacturer of a hammer was not entitled to an assumption of risk defense when an alleged manufacturing defect (a “quench crack”) caused the claw of its hammer to break off during use and severely injure the user’s eye.76 The hammer came with a sticker warning users to wear safety goggles because “tools or struck objects may chip.” Nonetheless, because the plaintiff was not using the hammer to strike an object (he was using it to break a metal strap on roofing supplies), he did not expect the tool to chip. The appeals court reasoned that a manufacturer cannot avail itself of the assumptionof-risk defense unless it can show that (1) the plaintiff knew of the specific defect, (2) the defect was “patently dangerous,” and (3) the plaintiff voluntarily exposed himself or herself to that condition. Because there was no evidence showing the plaintiff was aware of the quench crack, the manufacturer could not use the assumption-ofrisk defense. 10-8b Comparative Fault Contributory negligence by the plaintiff is not a defense in a strict liability action. Nevertheless, in some states, the plaintiff’s damages may be reduced by the degree to which his or her own negligence contributed to the injury. This doctrine is known as comparative fault. 75. Mich. Comp. Laws § 600.2947(3). 76. Eastman v. Stanley Works, 907 N.E.2d 768, 781 (Ohio Ct. App. 2009). Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 266 UNIT II THE LEGAL ENVIRONMENT For example, Michigan law provides that the negligence of the plaintiff does not bar recovery, but damages are reduced by his or her degree of fault—that is, the negligence attributed to the plaintiff. 77 Under Wisconsin law, if the fact finder determines that the degree of the plaintiff’s fault exceeds 50%, then the plaintiff cannot recover any damages. If the degree of the plaintiff’s fault is equal to or less than 50%, then the plaintiff can recover damages, but the damages will be reduced by the percentage attributed to the plaintiff. 78 10-8c Obvious Risk If the use of a product carries an obvious risk, the manufacturer will not be held liable for injuries that result from ignoring the risk. Although a plaintiff will often argue that the manufacturer has a duty to warn of the dangers of a foreseeable use of the product, courts often apply the standard that a manufacturer need not warn of a danger that is generally known and recognized. For example, two men sustained serious injuries in a collision while they were riding in the cargo bed of a GM pickup truck. The court rejected their claims that GM was liable because it had failed to warn of the dangers of riding in the bed. 79 As the public generally recognizes the dangers of riding unrestrained in the cargo bed of a moving pickup truck, GM had no duty to warn of those dangers. Rather, the duty to warn is measured by what is generally known or should have been known by the class of sophisticated users. The relevant time for determining user sophistication is at the time of the plaintiff ’s injury, rather than the date that the product was manufactured or distributed. As the South Carolina Court of Appeals explained: “[T]he sophisticated user doctrine applies when there is evidence the seller of a product was aware that an intermediate purchaser [such as a large employer whose employees would be the ones using the product] understood the dangers associated with the product and had the ability to effectively communicate those dangers to the end user.”82 In such a case, the jury must decide “whether the supplier . . . acted reasonably in assuming that the intermediary would recognize the danger and take precautions to protect its employees.”83 10-8e Unforeseeable Misuse of the Product The sophisticated user defense relieves a manufacturer from liability to a sophisticated user of its product “for failure to warn of a risk, harm or danger if the sophisticated user knew or should have known of that risk, harm, or danger.”80 The particular sophisticated user’s actual knowledge is irrelevant, because “it would be nearly impossible for a manufacturer to predict or determine whether a given user or member of the sophisticated group actually has knowledge of the dangers because of the infinite number of user idiosyncrasies.”81 The manufacturer or seller of a product will not be held liable for injuries resulting from abnormal use of its product. For example, unforeseeable misuse of a product is a defense under Indiana law if it was the proximate cause of the harm and was not reasonably expected by the seller at the time the seller conveyed the product to another party.84 Unusual use that is reasonably foreseeable may be deemed a normal use, however. For example, operating a lawn mower with the grass bag removed was held to be a foreseeable use, and the manufacturer was liable to a bystander injured by an object that shot out of the unguarded mower.85 As a general rule, a company is not liable for the criminal acts of third parties using its products unless the company knew or should have known that its negligence might allow the crime to occur.86 In the following case, the court considered whether a video game manufacturer was strictly liable for a teenager’s shooting spree. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 10-8d Sophisticated User Mich. Comp. Laws § 600.2959. Wis. Stat. Ann. § 895.045. Maneely v. General Motors Corp., 108 F.3d 1176 (9th Cir. 1997). Johnson v. Am. Standard, Inc., 179 P.3d 905, 914 (Cal. 2008). Id. Lawing v. Trinity Mfg., Inc. 749 S.E. 2d 126, 132 (S.C. Ct. App. 2013). Id. at 132. Ind. Code Ann. § 34-20-6-4. LaPaglia v. Sears Roebuck & Co., 531 N.Y.S.2d 623 (N.Y. App. Div. 1988). Gaines-Tabb v. ICI Explosives, USA, Inc., 160 F.3d 613, 621 (10th Cir. 1998). A CASE IN POINT SUMMARY James v. Meow Media, Inc. Facts!In 2002, a teenager in Kentucky went on a shooting spree, killing a number of classmates at the high school he attended. The families of the victims brought a suit against Meow Media, Inc., which makes and sells video games. The families claimed that the defendant’s games desensitized the shooter to violence, thereby leading to the tragedy. United States Court of Appeals for the Sixth Circuit 300 F.3d 683 (6th Cir. 2002). CASE 10.3 CONTINUED Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CHAPTER 10 PRODUCT LIABILITY 267 Issue Presented!Is the creator of a video game, movie, or Internet site that contains violent images and themes liable under a theory of either negligence or strict product liability when children who view these images act violently? Summary of Opinion!The U.S. Court of Appeals defendant’s conduct (distributing video games). The court reiterated that the shooter’s actions were intentional criminal acts and found, in keeping with a century of precedent, that a third party’s criminal act that causes all of the harm generally functions as an intervening act, thereby breaking the chain of causation. To find a duty of care, the plaintiffs had to show that the shooter’s actions were reasonably foreseeable by the defendant. After a lengthy discussion, the court concluded that the shooting was so aberrant as to be unforeseeable by the video game producer. Furthermore, “individuals are generally entitled to assume that third parties will not commit intentional criminal acts.” Here, the shooter’s intentional act of murder, regardless of the situation, made his act unforeseeable to the defendant. Since there was no duty of care, the defendant could not have breached a duty of care to the victims. The court also addressed the defendant’s actions in light of the First Amendment guarantees of free speech and expression. Like virtually all U.S. courts, the Sixth Circuit was “loathe . . . to attach tort liability to the dissemination of ideas.” for the Sixth Circuit first addressed the negligence claim. In order to prove negligence, the plaintiffs needed to prove three separate elements: (1) the defendant owed a duty of care to the victims, (2) it breached that duty of care, and (3) the breach was the proximate cause of the injury. The court then considered whether the plaintiffs had proved proximate cause by establishing a direct connection between the action (in this case, the shooting) and the 10-8f Government-Contractor Defense Under the government-contractor defense, a manufacturer of products under contract to the government can avoid product liability if (1) the product was produced according to government specifications, (2) the manufacturer possessed less knowledge about the specifications than did the government agency, (3) the manufacturer exercised proper skill and care in production, and (4) the manufacturer did not deviate from the specifications. The rationale for this immunity is that the manufacturer is acting merely as an agent of the government. Thus, to hold the manufacturer liable would unfairly shift the insurance burden from the government to the manufacturer. As discussed later in this chapter, the Homeland Security Act extended this defense to certain products designed to thwart terrorists. 10-8g State-of-the-Art Defense In some jurisdictions, the state-of-the-art defense shields a manufacturer from liability for a defective design if no safer product design is generally recognized as being possible. As discussed elsewhere in this chapter, the Restatement (Third) of Torts: Products Liability would require all plaintiffs asserting defective design to prove the existence of an alternative design. The contours of the state-of-the-art defense are often first laid down by judges, then codified by state legislatures. For example, an Arizona statute provides a defense “if the plans or designs for the product or the methods and techniques Finally, the court characterized as “deeply flawed” the plaintiffs’ theory that the defendant’s video games, movies, and Internet transmissions were defective products. The court ruled that video game cartridges, movie cassettes, and Internet transmissions were not “sufficiently ‘tangible’ to constitute products in the sense of their communicative content.” Result!The plaintiffs had no valid product liability claim, so their suit was dismissed. of manufacturing, inspecting, testing and labeling the product conformed with the state of the art at the time the product was first sold by defendant.”87 State courts have split over two aspects of this defense. First, “state of the art” is not defined consistently. A majority of the states accepting the defense deem “state of the art” to refer to what is technologically feasible at the time of design. Accordingly, a manufacturer may have a duty to use a safer design even if the custom of the industry is to use a less safe alternative.88 Certain states define “state of the art” in terms of industry custom (e.g., New Jersey89) or with reference to whether the defects were discoverable when using procedures mandated by a government entity responsible for licensing the product (e.g., New Hampshire90). Second, in states that do not recognize the state-ofthe-art defense, there is a split as to whether to even allow the introduction of evidence of alternative designs in defective design cases. Certain courts have ruled that state-of-the-art evidence is irrelevant, and therefore inadmissible, in strict product liability cases because it improperly focuses the jury’s attention on the reasonableness of the manufacturer’s conduct. In contrast, the overwhelming majority of states hold that state-of-the-art evidence is relevant simply to determining the adequacy of the product’s design. 87. 88. 89. 90. Ariz. Rev. Stat. § 12-683(1). See Potter v. Chicago Pneumatic Tool Co., 694 A.2d 1319, 1347 (Conn. 1997). N.J. Stat. Ann. § 2A:58C-3. N.H. Rev. Stat. Ann. § 507:8-g. Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 268 UNIT II THE LEGAL ENVIRONMENT The state-of-the art defense has also been applied in certain failure-to-warn cases. For example, a Missouri statute provides that if the defendant can prove the dangerous nature of the product was not known and could not reasonably have been discovered at the time the product was placed into the stream of commerce, then the defendant will not be held liable for failure to warn.91 10-8h Preemption Defense Perhaps the most significant and controversial of the defenses to product liability is the preemption defense, whereby certain federal laws and regulations that set minimum safety standards are held to preempt state-law product liability claims. As the Supreme Court explained in Mutual Pharmaceutical Co., Inc. v. Bartlett,92 “[t]he Supremacy Clause provides that the laws and treaties of the United States ‘shall be the supreme Law of the Land . . . any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.’ Accordingly, it has long been settled that state laws that conflict with federal law are ‘without effect.’” Accordingly, manufacturers that meet the federal standards will sometimes be granted immunity from product liability claims on the grounds of federal preemption. The rationale for deferring to the federal regulatory scheme is that allowing states to impose fifty different sets of requirements would frustrate the purpose of a uniform federal scheme. As a representative of the medical device industry put it, “What it boils down to is whether we want to have the experts at the FDA tell us what is a safe pacemaker, or do we want each jury designing its own pacemaker—one doing it one way in Brooklyn and one doing it another way in Missouri?”93 Manufacturing groups want preemption to serve as a “silver bullet” defense, effectively eliminating the possibility of state-law product liability claims in any sphere governed by federal safety law and regulation. In practice, compliance with a regulatory scheme is not always a valid defense.94 Instead, the availability of the preemption defense depends largely on the language and context of the federal statute at issue. 91. Mo. Ann. Stat. § 537.764. 92. 133 S. Ct. 2466, 2472–73 (2013). 93. Paul M. Barrett, Lora Lohr’s Pacemaker May Alter Liability Law, Wall St. J., Apr. 9, 1996, at B1 (quoting Victor Schwartz). 94. See, e.g., Sprietsma v. Mercury Marine, 537 U.S. 51 (2002) (holding that state common law tort claims arising out of the death of a woman who fell off a boat and was struck by a propeller manufactured by the defendant were not preempted by the Federal Boat Safety Act of 1971 or by the U.S. Coast Guard’s decision not to issue a regulation requiring propeller guards on boat motors). The U.S. Supreme Court reasoned that neither the language nor the scope of the statute indicated that Congress intended federal law to occupy the field exclusively. There was no implied conflict preemption because a private party could comply with both state and federal requirements. Finally, the Coast Guard’s decision not to adopt a regulation requiring propeller guards on motorboats was deemed not to be “the functional equivalent of a regulation prohibiting all States and their political subdivisions from adopting such a regulation.” Even though the Coast Guard’s decision “was undoubtedly intentional and carefully considered, it does not convey an ‘authoritative’ message of a federal policy against propeller guards.” Id. at 67. In general, the more rigorous the federal regulatory process, the more likely that product liability claims will be preempted. For example, Medtronic, Inc. v. Lohr 95 involved a pacemaker that the Food and Drug Administration (FDA) had cleared pursuant to an exemption from thorough review for medical devices “substantially equivalent” to devices already on the market.96 Because the Medtronic pacemaker had not undergone rigorous premarket regulatory examination, the plaintiff’s state-law product liability claims were not preempted.97 In 2013, DePuy Orthopaedics, Inc., a division of Johnson & Johnson, faced thousands of design defect product liability suits involving its metal-on-metal hip implants, including the articular surface replacement XL (ASR XL).98 The product fell under the exemption for “substantially equivalent” devices and underwent only a limited FDA review process; thus, the suits were not preempted.99 Trial results have been mixed. A plaintiff in a California state court proceeding was awarded more than $8 million for pain and suffering, as well as $338,000 for medical expenses; but one month later, Johnson & Johnson won a case in an Illinois state court. In November 2013, Johnson & Johnson announced a $2.5 billion plan to settle approximately eight thousand pending lawsuits involving the product.100 The estimated average payout per plaintiff, after attorney’s fees, was estimated at $160,000.101 The settlement was contingent on 94% of the eligible plaintiffs submitting the required paperwork by April 2014. In a case involving a Medtronic catheter that had undergone the more thorough premarket approval process,102 the U.S. Supreme Court ruled that state tort liability claims of strict liability, breach of warranty, and negligent design were preempted by the Medical Device Amendments of 1976 (MDA).103 The MDA provides: Except as provided in subsection (b) of this section, no State or political subdivision of a State may establish or continue in effect with respect to a device intended for human use any requirement— (1) which is different from, or in addition to, any requirement applicable under this chapter to the device, and 95. 518 U.S. 470 (1996). 96. 21 U.S.C. § 360(k). 97. This interpretation was supported by the FDA’s proposal of regulations to clarify its position. 98. George Conk, First Hip Replacement Trial Set to Begin, Torts Today Blog Spot (Sept. 3, 2013), http://tortstoday.blogspot.com/2013/09/first -hip-replacement-trial-set-to-begin.html; Amanda Bronstad, First Hip Replacement Trial Set to Begin, Nat’l L J., Aug. 29, 2013, available at http:// www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202617543405&First_Hip _Replacement_Trial_Set_to_Begin#ixzz2dpgUD3tW. 99. Conk, supra note 98. 100. Barry Meier, Frustration From a Deal on Hip Implants, N.Y. Times, Nov. 25, 2013, at B1. 101. Id. 102. Riegel v. Medtronic, Inc., 552 U.S. 312 (2008). 103. The MDA (Pub. L. No. 94-295, 90 Stat. 539 (1976)) amended the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et seq. Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CHAPTER 10 (2) which relates to the safety or effectiveness of the device or to any other matter included in a requirement applicable to the device under this chapter.104 The Court observed that premarket approval is a “rigorous” process and that “[t]he FDA spends an average of 1,200 hours reviewing each application and grants approval only if it finds there is a ‘reasonable assurance’ of a device’s ‘safety and effectiveness.’” Because the benefits are weighed against the risk of injury, the FDA may approve a device that poses substantial risks if it offers significant benefit compared with available alternatives. The Court held that common law causes of action for negligence and strict liability imposed “requirements” that were different from those imposed by the FDA and were therefore preempted, reasoning: State tort law that requires a manufacturer’s catheters to be safer, but hence less effective, than the model the FDA has approved disrupts the federal scheme no less than state regulatory law to the same effect. Indeed, one would think that tort law, applied by juries under a negligence or strictliability standard, is less deserving of preservation. A state statute, or a regulation adopted by a state agency, could at least be expected to apply cost-benefit analysis similar to that applied by the experts at the FDA: How many more lives will be saved by a device which, along with its greater effectiveness, brings a greater risk of harm? A jury, on the other hand, sees only the cost of a more dangerous design, and is not concerned with its benefits; the patients who reaped those benefits are not represented in court.105 In contrast, the Court ruled that federal law did not preempt state laws providing for damages for claims premised on a violation of FDA regulations. It found that such state laws “parallel,” but do not add to, federal requirements. The dissent in Riegel quoted a statement by the former general counsel of the FDA acknowledging that “FDA regulation of a device cannot anticipate and protect against all safety risks to individual consumers.”106 Until the FDA filed an amicus brief arguing for total preemption in the Riegel case, the agency’s position had been that FDA approval and state tort liability each provided “a significant, yet distinct, layer of consumer protection.”107 In 2008, an evenly split U.S. Supreme Court affirmed a New York court ruling that federal law does not preempt claims against a drug company that fraudulently gained 104. 21 U.S.C. § 360k(a). 105. Riegel, 552 U.S. at 325. The Court noted: “The Riegels [the plaintiffs] . . . invoke §360h(d), which provides that compliance with certain FDA orders ‘shall not relieve any person from liability under Federal or State law.’ This indicates that some state-law claims are not pre-empted, as we held in Lohr. But it could not possibly mean that all state-law claims are not pre-empted, since that would deprive the MDA pre-emption clause of all content. And it provides no guidance as to which state-law claims are pre-empted and which are not.” Id. at 325 n.4. 106. Id. at 337 (Ginsburg, J., dissenting). 107. Id. PRODUCT LIABILITY 269 FDA approval of the drug in question.108 One year later, in Wyeth v. Levine,109 the Supreme Court held that FDA approval of a brand-name drug label does not preempt an inadequate warning claim under state law. The Court found substantial evidence that Congress did not intend for FDA oversight to be the exclusive means of ensuring drug safety and effectiveness. The FDA has “limited resources” for postapproval monitoring of drug safety, and manufacturers have “superior access” to data about their drugs. This was not a case of impossibility: Wyeth could have satisfied both its state-law duty to provide a stronger warning and its federal labeling duties by seeking FDA approval of a strengthened label. In fact, the FDA’s “changes being effected” (CBE) procedure authorizes drug manufacturers to alter labels to reflect new safety information before FDA approval of the new label. In PLIVA, Inc. v. Mensing,110 the Supreme Court held that state-law failure-to-warn claims for generic drugs are preempted by the federal law requiring generic drugs to bear the same FDA-approved labels as the brand-name drugs from which they are derived. The Court concluded that a conflict existed because it was “impossible” for the generic manufacturers of metoclopramide, the generic form of Reglan, to comply with both the federal and the state requirements.111 If the generic manufacturers had independently changed their labels to comply with state law, they would have violated federal law. The Court rejected the argument that the generic manufacturers could not prove impossibility because they did not even try to persuade the FDA to require a safer label, holding: “[W]hen a party cannot satisfy its state duties without the Federal Government’s special permission and assistance, which is dependent on the exercise of judgment by a federal agency, that party cannot independently satisfy those state duties for pre-emption purposes.”112 The Supreme Court acknowledged that “from the perspective of [the plaintiffs], finding pre-emption here but not in Wyeth makes little sense. Had [they] taken Reglan, the brand-name drug prescribed by their doctors, Wyeth would control and their lawsuits would not be pre-empted. But because pharmacists, acting in full accord with state law, substituted generic metoclopramide instead, federal law pre-empts these lawsuits.”113 The Court reasoned that it is the job of Congress and the FDA, and not the courts, to change federal law. In Justice Sotomayor’s dissent, in which Justices Breyer, Ginsburg, and Kagan joined, she stated: “The Court gets 108. Warner-Lambert Co. v. Kent, 552 U.S. 440 (2008). The Court was evenly split, with Chief Justice Roberts recusing himself. By rule, an evenly divided Court affirms the lower court ruling, but carries no precedential weight. Linda Greenhouse, Court Allows Suit Against Drug Maker, N.Y. Times, Mar. 4, 2008, at A21. 109. 555 U.S. 555 (2009). 110. 131 S. Ct. 2567 (2011). 111. Id. at 2577. 112. Id. at 2581. 113. Id. at 2581. Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic...
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Running head: FINAL EXAM: ESSAY QUESTION

Final exam: essay question
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FINAL EXAM: ESSAY QUESTION

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In each and every sector or industry, there are always a number of issues that either
directly or indirectly affects the people and stakeholders within the sector. When such issues
come, some well-defined procedures need to be followed so as to come up with the right
solution. The judiciary system in the United States is an umbrella that covers these various
procedures as well as laws that need to be considered when solving issues in different sectors.
Apart from the laws known to be commonly covered by the Federal and State laws, there are also
a number of ethical behaviors that are expected to be observed in different organizations. In the
entertainment industry, specifically sports, there are some traditional rules that need to be
observed and anyone who tries to assume or take them for granted may receive some
consequences depending on the magnitude of the offense. For instance, the National Football
Lead (NFL) has always had issues with some players or fans kneeling during the National
Anthem. As a new commissioner of the NFL, I will handle the issue of players and fans kneeling
during the National Anthem in a very unique manner.
Controversy has been in the past over kneeling on the [pitch during the National Anthem just
before the games kick off and even the current pre...


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