Supreme Court of Pennsylvania To Address Whether Registration of Out-of-State Businesses Creates General Jurisdiction

Pennsylvania’s unique corporate registration statute may be on the chopping block after a three-judge Superior Court panel in Mallory v. Norfolk Southern Railway agreed to transfer a jurisdictional dispute to the Commonwealth’s Supreme Court pursuant to a provision in the Pennsylvania Judiciary Code that gives the Supreme Court exclusive jurisdiction over any appeal from a trial court decision finding that a statute is “repugnant to the Constitution.” 42 Pa. C.S. § 722(7).

The key issue in Mallory v. Norfolk Southern Railway is whether Pennsylvania courts may constitutionally exercise general personal jurisdiction over out-of-state corporations simply because they register to conduct business in the Commonwealth of Pennsylvania. Pennsylvania law provides that a foreign corporation may not do business in the Commonwealth until it registers with the Pennsylvania Department of Business pursuant to 15 Pa.C.S.A. § 411. The Pennsylvania long-arm statute provides that general personal jurisdiction may be exercised over a foreign corporation in three circumstances: (1) incorporation under or qualification as a foreign corporation; (2) consent; and (3) the carrying on of a continuous and systematic part of its general business in Pennsylvania. 42 Pa. C.S. § 5301(a)(2). These statutes construed together appear to require foreign corporations to submit to the court’s general jurisdiction as a condition for doing business in Pennsylvania.

This is a hotly contested issue in Pennsylvania, and courts have struggled to reach a consensus as to whether the corporate registration and long-arm statutes comport with the U.S. Supreme Court’s holding in Daimler, which mandates that an out-of-state corporation is not subject to general jurisdiction unless it is registered to conduct business in or has its principal place of business in the forum.

In Mallory, the plaintiff (a resident of Virginia) filed suit in the Philadelphia Court of Common Pleas against his employer Norfolk Southern Railway (Virginia corporation with its principal place of business in Virginia) alleging violations of the Federal Employers’ Liability Act after allegedly being exposed to carcinogens while working at Norfolk’s locations in Ohio and Virginia. Norfolk filed Preliminary Objections seeking to dismiss the complaint for lack of personal jurisdiction. Plaintiff argued that Norfolk consented to general personal jurisdiction pursuant to 42 Pa.C.S.A § 5301 by registering to do business in Pennsylvania.

Judge Arnold New granted Norfolk’s Preliminary Objections for two reasons. First, he found that the Pennsylvania corporate registration statute does not comport with federal due process because it allows Pennsylvania to exert general jurisdiction over out-of-state entities that are not “at home” in the Commonwealth. This unique rule creates a federalism issue because it allows Pennsylvania courts to interfere with the right of other states to render verdicts against their own corporate citizens. Second, the corporate registration statute compels out-of-state entities to subject themselves to general jurisdiction as a condition of doing business in Pennsylvania. Judge New reasoned that this is contrary to U.S. Supreme Court law, which “made clear that a state cannot claim general jurisdiction over every corporation doing business within its borders… By wrapping general jurisdiction in the cloak of consent, Pennsylvania’s mandated corporate registration statute attempts to do exactly what the United States Supreme Court prohibited in Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011), BNSF Ry. Co. v. Tyrrell, 137 S. Ct. 1549 (U.S. 2017) and Daimler AG v. Bauman, 571 U.S. 117 (U.S. 2014).”

Judge New’s ruling is consistent with an overwhelming majority of courts throughout the country that have considered this same issue. See, e.g., Brown v. Lockheed Martin Corp., 814 F.3d 619, 636 (2d Cir. 2016) (“[T]he analysis that now governs general jurisdiction over foreign corporations…suggests that federal due process rights likely constrain an interpretation that transforms a run-of-the-mill registration and appointment statute into a corporate ‘consent’” to general jurisdiction); Lanham v. BNSF Ry. Co., 939 N.W.2d 363, 371 (Neb. 2020) (“[T]reating BNSF’s registration to do business in Nebraska as implied consent to personal jurisdiction would exceed the due process limits prescribed in [Goodyear and Daimler]”); Dutch Run-Mays Draft, LLC v. Wolf Block, LLP, 164 A.3d 435, 444 (N.J. Super. Ct. – App. Div. 2017) (“We now join the many courts that have circumscribed the view of general jurisdiction post-Daimler.”).

Pennsylvania law is unique in that it permits courts to exert general jurisdiction over out-of-state defendants solely on the basis that those entities registered to conduct business in Pennsylvania. Product defendants in Pennsylvania have for several years urged the appellate courts to align Pennsylvania law with U.S. Supreme Court law by overturning the relevant business registration and long arm statutes because those laws improperly compel foreign companies to consent to general jurisdiction though they are not “at home” in Pennsylvania. The Superior Court’s decision to transfer Mallory to the Supreme Court is a big step that we hope signals a change in controlling Pennsylvania law.

From a practical standpoint, Philadelphia has long been viewed around the country as a plaintiff-oriented jurisdiction that is a favorable forum to prosecute product liability and mass tort litigation. The Supreme Court’s ruling in Mallory has the potential to end such blatant forum shopping.

Not Fair in Pennsylvania (Update) – The Pennsylvania Supreme Court Rules That Fair Share Act Does Not Allow Fault-Based Apportionment in Strict Liability Cases

In a decision that will reshape Pennsylvania products liability cases, the Pennsylvania Supreme Court has ruled that the Fair Share Act does not require pro rata percentage apportionment of damages among codefendants in proportion to fault. Instead, in asbestos and perhaps other strict liability cases, damages are to be split per capita, equally among defendants and a limited set of other responsible parties.

The Fair Share Act

The proper method by which shares of liability are allocated to asbestos defendants (and strict liability defendants more generally) was unclear for some time in the Commonwealth of Pennsylvania. The Fair Share Act, passed in 2011, apparently clarified the issue by eliminating joint and several liability apportionment in most tort cases.

[E]ach defendant shall be liable for that proportion of the total dollar amount awarded as damages in the ratio of the amount of that defendant’s liability to the amount of liability attributed to all defendants and other persons to whom liability is apportioned.

42 Pa. C.S. §7102(a.1). This provision appears to make “pro rata” or “apportioned” allocation of fault the default mechanism for allocating liability in Pennsylvania.

The statute further provides that “a defendant’s liability shall be several and not joint, and the court shall enter a separate and several judgment in favor of the plaintiff and against each defendant for the apportioned amount of that defendant’s liability.” This provision makes all tortfeasors severally liable to the injured party except in a few defined circumstances, such as where a defendant is found more than 60% liable.

The Fair Share Act specifically applies to “actions for strict liability,” but trial courts have inconsistently applied pro rata allocation in asbestos strict liability cases, often relying upon the language from a prior version of the Fair Share Act which apportioned fault amongst strictly liable defendants on a per capita basis, such that each defendant is equally responsible for a portion of the verdict (e.g. five defendants would each be 20% liable) without regard to degrees of fault.

Roverano Lower Court Decisions

A Philadelphia jury awarded $6.4 million to a former utility worker and his wife following an asbestos (lung cancer) trial. The trial court ruled that the Fair Share Act did not apply and apportioned the judgment equally (per capita) among the eight tortfeasors. The two remaining defendants at trial appealed, arguing that pro rata allocation was required under the Fair Share Act. The Superior Court, Pennsylvania’s intermediate appellate court, sided with the defendants and reversed.

Roverano Supreme Court Decision

On February 19, 2020, a majority of the Supreme Court of Pennsylvania held that the Fair Share Act requires trial courts to apportion liability equally (per capita) among strictly liable joint tortfeasors in asbestos litigation. [The majority opinion can be found here.] The court also ruled that the Fair Share Act allows defendants to include bankrupt entities on the verdict sheet and apportion liability against them, subject to (1) appropriate proof against the bankrupt entity and (2) provided that the bankrupt entity was joined as a defendant. Per capita allocation against a bankrupt entity is also permitted if that entity entered into a release with the plaintiff. Under the Supreme Court’s logic, the same rule should apply to settling codefendants, provided non-settling parties make the appropriate proofs against each settling entity.

Justice Wecht’s concurring opinion [found here] explained that the Fair Share Act was never intended to repeal a common law strict liability rule that compelled trial courts to apportion strict liability verdicts on a per capita basis. The use of the term “strict liability” was only “intended to eliminate joint and several liability for strict liability cases as well as for negligence actions.” Justice Wecht reasoned that “in providing that strict liability would apply to defendants severally rather than jointly, the General Assembly neither said nor clearly implied that it intended to displace per capita apportionment in strict liability cases.” Like the majority, Justice Wecht believes that it is too scientifically difficult to apportion fault in asbestos cases on a pro rata basis – that juries and trial courts cannot fairly apportion relative fault in asbestos and other toxic tort cases.

Impact on Products Liability Litigation in Pennsylvania

The Supreme Court did not explicitly state whether its holding is limited to asbestos and toxic tort cases, where scientific and exposure issues arguably make it difficult to fairly assign fault-based liability (though juries seem perfectly capable of the task in most other jurisdictions), or whether per capita allocation applies across the board to all strict liability defendants in Pennsylvania.

Three major effects of Roverano are likely: (1) to increase settlement pressure on nominal defendants facing per capita liability allocation at trial; (2) to incentivize defendants to join additional parties to spread liability amongst as many defendants as possible; (3) to change the way cases are tried, for example “pointing the finger” at more culpable parties.

Many commentators believe that the Supreme Court intended Roverano as a special rule in cases where damages and liability cannot reasonably be divided between multiple defendants. If true, the Fair Share Act would still apply to other types of strict liability cases, such as those involving industrial equipment, hard consumer goods, etc. On the other hand, if Roverano has broad applicability to all forms of strict liability cases, it will lead to a drastic change in the way that product defendants negotiate settlements. This interpretation of Roverano could lead to an explosion of third-party litigation, especially in complex products cases implicating numerous product distributors, component part manufacturers, etc.

“But Everyone Else Did It This Way:” Industry Custom Admitted in California Strict Liability Cases

The California Supreme Court has ruled that industry custom and practice may be admissible in a strict products liability action, “depend[ing] on the purpose for which the evidence is offered.” (Kim v. Toyota Motor Corp.) The decision is a win for product liability defendants. Many trial courts have ruled all industry custom and practice evidence irrelevant as to strict liability, while allowing it in negligence.

Disapproving several prior appellate decisions, the court ruled that such evidence is admissible for the purpose of “the jury’s evaluation of whether the product is as safely designed as it should be, considering the feasibility and cost of alternative designs.” In contrast, “[e]vidence that a manufacturer’s design conforms with industry custom and practice is not relevant, and therefore not admissible, to show that the manufacturer acted reasonably in adopting a challenged design and therefore cannot be held liable.” Thus, it is admissible, but never dispositive.

Mr. Kim was injured when his 2005 pickup rolled over and crashed on the Angeles Crest Highway. Plaintiffs alleged that if the pickup had been equipped with a safety feature that came as standard equipment on SUVs, it would not have rolled over. Toyota introduced evidence that no manufacturers included that feature as standard on pickup trucks. The trial court, Court of Appeal and Supreme Court all approved.

The issue … is not whether the manufacturer complied with a standard of care, as measured by prevailing industry standards, but instead whether there is something ‘wrong’ with a product’s design … because, on balance, the design is not as safe as it should be.

[E]vidence of industry custom and practice sometimes does shed light not just on the reasonableness of the manufacturer’s conduct in designing a product, but on the adequacy of the design itself.

Another description: industry practice “illuminates the relative complexity of design decisions and the trade-offs that are frequently required in the adoption of alternative designs.” The court was persuaded in part by the fact that trade association standards are admissible, and there seemed no logical reason to distinguish those standards from industry custom.

The court was also persuaded in part by the fact that plaintiffs themselves introduced industry custom evidence, such as the evidence that many manufacturers included the safety feature on their SUVs. “[T]he rule is a two-way street.”

Is this the proverbial camel’s nose in the allegorical tent, thus the beginning of the end of the rule against introducing custom and practice in strict liability cases? If no manufacturer of a particular product ever included a warning about a supposed toxin, is that relevant? If all manufacturers of a set of products allowed a trace amount of say benzene because it was so hard to eliminate it 100%, is that admissible in a strict liability case? If all employers operating a certain kind of facility adopted one level of protections against chemical exposure, even though more could almost always at least theoretically be done? The Kim decision arguably allows such evidence, but other courts may limit the effect of the decision.

There are at least two significant limitations to the reach of this decision.

First, it applies only to the risk-benefit strict liability test. Not consumer expectations, which plaintiffs more frequently assert.

Second, it applies to “industry custom and practice,” but not “state of the art.” “By ‘industry custom and practice,’ we refer to the use of the challenged design within the relevant industry—‘what is done’—as opposed to so-called ‘state of the art’ evidence, which concerns ‘what can be done’ under present technological capacity.”

This second limit may benefit defendants. What “can be done” for safety likely includes more than what others in the industry actually do.

The Kim result may be less notable in other jurisdictions: the decision recites it is joining “the majority of states that have permitted the admission of [such] evidence.” It is, however, a major development in California.

California Decision Rejects Longstanding Contractor Immunity from Strict Liability, Calls Asbestos Bankruptcy Trusts “Collateral Sources”

A recent California decision has held for the first time that a contractor may be, in at least some circumstances, subject to strict liability for products used on the project. This ruling will likely expand the pool of defendants in future asbestos cases, and will apply outside the asbestos arena as well.

Traditionally, construction contractors who use or install a product are not subject to strict product liability if it turns out the product is defective. Contractors may be liable in negligence, but that is harder for plaintiffs to prove and subject to defenses unavailable in strict liability claims.

Hernandezcueva v. E.F. Brady Co. (B251933) reversed a nonsuit and held that E.F. Brady, a drywall and plastering contractor, could be subject to strict products liability despite its status as a contractor rather than a manufacturer or distributor of any product.

Home_Construction__Romolo_Tavani_-_Fotolia_largeDefendant E.F. Brady worked as the drywall subcontractor on a large construction project in the early 1970s. E.F. Brady’s bid for the contract included both labor and materials, and evidence was presented that E.F. Brady used asbestos-containing drywall joint compounds on the jobsite. The plaintiff testified that he cleaned up dusty drywall debris created by E.F. Brady employees. The trial court granted a nonsuit on the strict liability cause of action but allowed the negligence cause of action and request for punitive damages to go to the jury, which found for the defense.

The Court of Appeal reversed the nonsuit, holding that the jury should have been allowed to determine whether E.F. Brady’s supply of the allegedly defective asbestos-containing joint compound which the plaintiff encountered caused his injury. This is distinguished from whether E.F. Brady’s conduct as a contractor caused the plaintiff’s injury, which is normally how contractors are implicated in asbestos lawsuits—for example, by allegedly failing to take precautions to protect others from asbestos exposure. The court held that under the facts of the case, E.F. Brady was not “just a contractor.” Rather, E.F. Brady played a “significant” role in the stream of commerce of the asbestos-containing joint compound, because E.F. Brady:

  1. “Always” provided materials as part of its drywall contract;
  2. Structured its time-and-materials contract to recoup the costs of materials (even “without necessarily ensuring a profit regarding those costs,” in part because the costs were “substantial, as they ordinarily constituted 25 percent of the amount of a bid”);
  3. Had a relationship with manufacturers of asbestos-containing drywall products “sufficient to command the personal attention of [their] representatives to E.F. Brady’s concerns regarding the products” that placed it “‘in a position to exert pressure on the manufacturer’ to improve product safety;” and
  4. Was a large commercial operation and so was “capable of bearing the costs of compensating for injuries due to the products.”

Notably, the evidence for relationship with manufacturers was only that manufacturer reps came on site and advised as to the suitability of their products for the applications involved. There was no evidence related to conversations about changing any product formulation.

Contractors providing services have always been considered outside the stream of commerce of products supplied incidentally to services. The “primary objective or essence of the transaction” between a customer and a contractor is the provision of services, not obtaining a product, and California courts have long recognized that this fact places contractors outside the stream of commerce of products they provide under their contracts. (E.g., Monte Vista Development Corp. v. Superior Court (1991) 226 Cal.App.3d 1681 [tiling subcontractor not strictly liable for defective soap dish]; Pierson v. Sharp Memorial Hospital, Inc. (1989) 216 Cal.App.3d 340[hospital not strictly liable for defective carpet in patient room]; Silverhart v. Mount Zion Hospital (1971) 20 Cal.App.3d 1022 [hospital not strictly liable for defective surgical needle used during operation].) But under this decision, if the acquisition of a product was a “significant” aspect of the transaction, a contractor could fall into the realm of strict liability.

Take the hospital example. In Silverhart v. Mount Zion Hospital, the Court of Appeal held that a hospital was not strictly liable for an allegedly defective surgical needle used during the course of an operation performed on the plaintiff patient. In that case, the needle was “necessary” to the operation, but was still a “tool” rather than a “material.” But what if the patient wanted a pacemaker implanted? Under Hernandezcueva, perhaps the hospital could be strictly liable—a potential sea change in medical device liability law. A hospital probably “always” provides the pacemaker as part of the contract to install a pacemaker; it probably recoups the cost of the pacemaker in the contract to perform the surgery, but probably doesn’t try to make a profit; and the pacemaker manufacturer’s representatives probably visit the hospital all the time. All the requisite facts are there to impose strict liability on the hospital under Hernandezcueva—but it directly conflicts with Hector v. Cedars-Sinai Medical Center (1986) 180 Cal.App.3d 493, which held that a hospital could not be held strictly liable for defects in an implanted pacemaker.

Hernandezcueva brings within its reasoning virtually all businesses which provide products along with or “incidental to” the services they provide to customers. The court found that because E.F. Brady “derived a considerable benefit from supplying the products, as that was essential to obtaining its subcontracting work,” it was liable as a supplier of products. Every handyman who brings his own materials to a customer’s home is potentially a “seller” of those materials under this decision, as is the multinational general contractor who supplies any materials whatsoever for a subcontractor’s use, and everyone in between—as long as there is an allegation that it was “essential” to the business transaction that the materials in question be provided.

An additional possible effect of the Hernandezcueva decision is that contractors and other “non-traditional” defendants may now be considered part of the “chain of distribution” of the materials they provide incidental to their services. This means that the “single product rule” prevents these defendants from arguing that liability should be assigned elsewhere in the chain. A manufacturer, distributor, and retailer of a “single product” may not attempt to assign fault to one another under California law. If a contractor, and indeed any type of defendant who supplies an allegedly defective product along with a service, is now within the chain of distribution of those products, the several liability rule of California’s Proposition 51 will not apply and they will all be jointly and severally liable for damages stemming from the use of the product.

In a discussion of a tangential point, the Hernandezcueva court also held that payments to a plaintiff from asbestos bankruptcy trusts fall “under the collateral source rule, which bars a defendant from shielding itself from liability for injuries by identifying a source of compensation that is wholly independent of the defendant.” There are at least two potential negative effects of holding that asbestos bankruptcy trusts are “collateral sources,” like health or life insurance. One, that defendants are not entitled to offset any damages by showing payments to a plaintiff by an asbestos bankruptcy trust. Two, that bankrupt entities should no longer be placed on the verdict form for apportionment of responsibility. This is a potentially very negative ruling, because plaintiffs can often receive hundreds of thousands of dollars from bankruptcy trusts which offset eventual judgments against defendants, and defendants are presently able to shift responsibility to bankrupt entities in appropriate cases. The holding is not necessary to the decision, was on a point raised by none of the parties (but rather in response to a collateral argument made in an amicus brief), and is dicta, but it should concern all asbestos defendants nonetheless. Full disclosure: Gordon & Rees’s Don Willenburg co-authored an amicus letter brief asking the court to eliminate or modify this portion of the decision.

Because the Hernandezcueva decision appears to be in direct conflict with longstanding California law regarding both strict product liability of contractors and asbestos bankruptcy trust payments as collateral sources, depublication or California Supreme Court review are possible prospects. If the decision stands, it will significantly expand the universe of strict liability defendants, in both asbestos and non-asbestos cases, and could seriously damage asbestos defendants’ ability to reduce future judgments.

Bare Metal Defense Applied For First Time In Yet Another Jurisdiction: Wyoming

In an order issued on October 9, 2015, the U.S. District Court for the District of Wyoming determined that under Wyoming law, equipment manufacturers can employ the “bare metal defense” against strict liability causes of action. In essence, plaintiffs now cannot argue that defendants are strictly liable for insulation or any replacement parts that they did not provide. However, defendants remain strictly liable for original components, and plaintiffs can argue that defendants were negligent for failing to warn about replacement parts provided by others.

Judge Alan Johnson analyzed in detail the “bare metal defense” and noted this was an issue of first impression for the courts in Wyoming. Although he did not accept defendants’ argument “that a majority of the courts” that have looked at this issue have adopted the defense, Judge Johnson went on to rely upon the Schwartz v. Abex decision by Judge Robreno in 2015 for guidance on how to decide the issue. Doing a similar analysis, Judge Johnson concluded that Wyoming would adopt the bare metal defense, at least in regards to strict liability. He noted that to do otherwise “would allow foreseeability alone to be sufficient to create [a] strict liability claim and impose an almost absolute liability for all manufacturers that sell products with replaceable components.”

Judge Johnson also concluded that under Wyoming law, strict liability and negligence are treated separately and that under a negligence analysis the plaintiffs could still recover if they can demonstrate that:

1. Defendant knew that its product would be used with an asbestos-containing component part,

2. Defendant knew that asbestos was hazardous, and

3. Defendant failed to provide an adequate and reasonable warning.

The order then, however, goes on to say:

Accordingly, the Court finds that it will not grant summary judgment on Plaintiff’s negligence claim against Goulds regarding parts that Goulds manufactured or supplied or those that Goulds did not manufacture or supply but it specified, required or were necessary to the operation of its pumps. (emphasis added).

This final clause seems to add more prerequisites in addition to Nos. 1-3 above, and would certainly allow defendants to make additional arguments responsive to negligence claims. For example, one could argue that none of the equipment “required” asbestos to the extent that the equipment could work with non-asbestos materials. And certainly language in catalogs or sales materials that may be a “requirement” or “specification” in the eyes of plaintiff counsel is likely to be construed differently by defense counsel.

On balance, if this ruling is followed by other courts in Wyoming, it will make plaintiffs’ cases a little harder in Wyoming, but leaves a number of viable causes of action and theories.

Breach Of Warranty & Product Liability Claims Dismissed Against Auto Service Provider

In 2008, the parents of Sean Reeps, brought suit against BMW, Martin Motor Sales and Hassel Motors (“Hassel”), alleging that Sean’s mother, Debra, was exposed to gasoline fumes in the family’s BMW during her pregancy, which resulted in Sean being born with birth defects. Amarillo motor vehicle accident attorney will work with you in all types of vehicle accidents like Sean’s mother. The Complaint alleged causes of action in (1) negligence; (2) strict products liability; (3) breach of express warranty; and (4) breach of implied warranty (merchantability) . The timeline of events is as follows:

1991-In March and again in November, Reeps bring their 1989 BMW 525i to Hassel Motors, a licensed BMW dealer, to fix an exhaust odor inside the car.  Dealer fails to identiify an exhaust odor in March, but later identifies problem as a split fuel hose and repairs it under warranty.

1992-In May, Sean Reeps is born with birth defects, including cerebral palsy, which plaintiffs  attribute to Debra’s  inhalation of gas fumes early in pregnancy.

1994-BMW recalls BMW525i vehicles due to safety defect that caused odor due to feed fuel hose. Car is no longer with plaintiffs at the time.

On summary judgment, BMW argued that plaintiff’s claims were barred by the doctrine of spoliation because plaintiff could not establish a prima facie case without the car or the fuel hose to show the actual alleged defect.  BMW’s expert testified by affidavit that the Reeps’ leakage was caused by a split in the fuel hose, not by the defect that was the subject of the recall.  Thus, in the absence of the actual fuel hose, BMW argued, plaintiff could not demonstrate a defect.

The trial court rejected BMW’s spoliation argument, holding that there was no evidence of “willful or contumacious conduct” by plaintiff in disposing of the car. Remarkably, the Reeps’ BMW was actually found, but clearly not in the same condition as it was in 1991 and, not surprisingly, without the original fuel hose. The trial court held that plaintiff was not “barred from pursuing his claim, but rather he will have the onerous trial burden of proving his case solely by circumstantial evidence.”

New York law requires that to establish a prima facie case for strict product liability or design defect, a plaintiff must show that the manufacturer marketed a product that was not reasonably safe in its design; that it was feasible to design the product in a safer manner; and that the defective design was a substantial factor in causing the plaintiff’s injury. When the product at issue is no longer available, and the plaintiff seeks to prove a manufacturing defect by circumstantial evidence, the plaintiff must not only establish that the product did not perform as intended, but must also exclude all other causes of failure not attributable to the manufacturer.

The trial court denied Hassel’s motion for summary judgment. The gravamen for plaintiff’s claims against Hassel was that it was negligent in failing to find the split fuel hose when the Reeps first complained of fuel odor in March 1991. Plaintiffs argued that if Hassel had identified and repaired the problem, Mrs. Reeps would not have inhaled any fumes during her pregnancy. In denying the dealer’s motion for summary judgment, the court observed that there is a high bar for obtaining summary judgment in a negligence action. As the court noted, “Simply put, Hassel must prove that it was not negligent when it failed to find a source of the gas fumes complained of by the Reeps in March 1991. It has not done so.”

In its decision, dated April 5, 2012, the Appellate Division, First Department, weighed in on both the spoliation issue and the motion for summary judgment by Hassel. On the spoliation issue, the Appellate Division held that the defendants “failed to demonstrate that the parents disposed of the vehicle with knowledge of its potential evidentiary value.” Moreover, the court discussed the existence of other available evidence, including BMW’s Recall Bulletin and Hassel Motors-service records for the relevant period, which served to mitigate the loss of the vehicle. Basically, the court examined two of the key factors in evaluating spoliation sanctions – prejudice and intent – and determined that the movants had failed to establish either element in seeking sanctions.

As to plaintiff’s claims against Hassel, the Appellate Division held that the product liability and breach of implied and express warranty claims should be dismissed because the service provider did not design, manufacture, distribute or sell the vehicle. This holding may be the most important in the case because it clarifies that service providers, as opposed to product sellers, can not be held liable under strict product liability or breach of warranty theories of liability. Therefore, the only remaining claim against Hassel sounds in negligence, which may be difficult for plaintiff to establish at trial after a twenty year hiatus.

Apart from its other burdens, plaintiff will have to demonstrate general causation at trial, that is, whether exposure to chemical components in gasoline fumes have been associated in the scientific literature with the specific teratogenic effects alleged, including cerebral palsy. If plaintiff is able to prove general causation, he will then have to prove specific causation, that is, whether the dose of the purported teratogen was high enough, and lasted for a sufficient duration, to cause the specific birth defect.

The plaintiff attributes his injury to Debra Reeps’ inhalation of gas fumes during the first couple of months of her pregnancy between August 1991 and November 1991, when the problem with the vehicle was fixed. Are the alleged teratogenic effects associated with a toxic exposure early in pregnancy? How often did Debra Reeps ride in the automobile during those first couple of months? If the odor problem was significant, is it likely that the Reeps would not have returned their BMW 525i, which was under warranty, to the dealership before November? Because there is no expert deposition discovery under New York state practice, we will have to await trial to learn how these issues plays out.


Component Part Manufacturer Asbestos Liability

The plaintiff’s bar continues to look for fresh targets in the asbestos litigation, utilizing increasingly creative theories of liability, as the original targets of plaintiffs’ lawsuits have been largely forced into bankruptcy.  One of the new asbestos battlegrounds centers around the liability of parts manufacturers, such as pump and valve manufacturers, who never manufactured or sold asbestos-containing materials ("ACM").  Plaintiffs typically argue that these manufacturers may be liable for asbestos-containing products manufactured by different companies that they can reasonably anticipate will be used with their equipment.  However, in recent months, there have been a handful of appellate decisions suggesting that liability will not be extended to equipment manufacturers that neither sold nor included with their equipment ACM.  At the end of last year, the Supreme Court of Washington issued two decisions that rejected plaintiffs’ claim that defendants should be held liable for failing to warn of the hazards of another manufacturer’s product that is applied to or incorporated into the defendants’ products.  The Supreme Court of Washington articulated a blanket rule that a duty to warn under common law negligence "is limited to those in the chain of distribution of the hazardous product."  The court also concluded that the defendants were not strictly liable for manufacturing a defective product because, not being product sellers or manufacturers, they could not translate their knowledge of the product’s dangerous aspects into a cost of production against which liability insurance could be obtained.  Thus, the court held, it would be manifestly unfair to hold a defendant liable for another party’s product. There is a good discussion of these cases, Simonetta v. Vlad Corp. and Braaten v. Saberhagen, in a Metropolitan Corporate Counsel article written by John E. Heintz and Justin F. Lavella at Kelly Drye & Warren LLP. A great deal was at stake on the appeal of these cases.  On February 25, 2009, The California Court of Appeal decided Taylor v. Elliot Turbomachinery Co. Inc  2009 WL 458543, and reached the same result as the Washington Court.  In rejecting plaintiffs’ theory that the defendant should be liable for exposure to ACM in replacement parts sold and manufactured by other companies, the California court relied upon the California’s "chain of distribution" line of cases that culminated in Cadio v. Owens-Illinois Inc. These cases recognize that "legal nightmares" would result if one company was held liable for the products of other companies.  There is a discussion of both the California and Washington decisions in a March 17, 2009 Law360 article  In an August 21, 2009 blog post by Michael J. Pietrykowski of Gordon & Rees, LLP, the DRI Blog reported that the California Supreme Court has declined to accept an appeal of Taylor v. Elliot Turbomachinery Co. Inc.  In the world of asbestos litigation, defense victories like these in Washington and California are hard fought and few and far between.

Is Safety Equipment Ever Optional?

Kenneth Ross, one of the more discerning authors in the product liability defense bar, has authored a thoughtful piece titled, Is There Anything Optional About Safety? in the August ’09 DRI Product Liability Committee Newsletter–"Strictly Speaking".  As manufacturers design new products and update the design of old products, many times they sell and offer for sale differing levels of safety and quality.  Ken’s article explores the legal and practical risks in selling products with these differences and provides advice to manufacturers about minimizing risk.  As one law professor notes, the case law is "muddled and quite sparse".  There are cases on both sides–those that hold that safety devices can be optional and those that hold that not installing a safety device establishes a basis for liability.  Ken discusses several important considerations that should be weighed in performing this delicate balancing act.

Should Brand Name Manufacturers Be Accountable For Side Effects Caused By Generics?


How can a brand-name pharmaceutical manufacturer owe a duty to patients who take only a generic version of its product? In a case of first impression in California, a state appellate court held on November 7, 2008 that Wyeth, Inc. owed a duty to plaintiff Elizabeth Conte, who developed a serious and irreversible neurological condition as a result of taking metoclopramide, the generic version of Wyeth’s Reglan, which is used to treat gastroesophageal reflux disease. In so holding, the California appellate court declined to follow the holdings of a majority of courts that have grappled with this issue.

In Elizabeth Ann Conte v. Wyeth, Inc. et al., the Court of Appeal of the State of the California in the First Appellate District in San Francisco, held that a brand-name pharmaceutical manufacturer’s common law duty to use due care when providing product warnings extends not only to consumers of its own product, but also to those patients whose doctors foreseeably rely on the name-brand manufacturer’s product information in prescribing a medication, even if the prescription is filled with the generic version of the drug. In reversing summary judgment granted to Wyeth by the trial court, the appellate court accepted Conte’s argument that Wyeth should be liable for her injuries because a brand-name manufacturer that disseminates information about its product owes a duty of care to ensure the information’s accuracy to all physicians who prescribe the drug in reasonable reliance on that information, even if the patient ends up taking the product’s generic equivalent.

The court agreed with Wyeth that Conte could not pursue a strict products liability claim against Wyeth. Indeed, Conte did not allege that Wyeth was strictly liability due to inadequate warnings. Rather, she claimed that Wyeth failed to exercise due care in disseminating its product information to physicians.  The court rejected Wyeth’s contention that Conte’s case was merely a product liability suit masquerading as a negligence case. The court held that the plaintiff could pursue claims of intentional and/or negligent misrepresentation based upon Wyeth’s labeling information about the safety of metoclopramide, the risks of its long term use, and the likelihood of serious side effects. 

Was the court correct in determining that Wyeth owed the plaintiff a duty in a negligence context where no such duty could be found to exist in a strict liability case? As a matter of public policy, should a brand-name drug manufacturer be subjected to what Wyeth argued might be “permanent and uncontrolled liability” in perpetuity. Even as a brand-name manufacturer’s sales decrease over time, its potential product liability exposure may actually increase because of higher market share won by generic competitors. Ironically, the generic manufacturer takes precious market share from the brand-name manufacturer at the same time that the court shifts the generic’s product liability exposure back to the pioneer. 

We believe that the better reasoned analysis of this issue may be found in Foster v. American Home Products Corp. (4th Cir. 1994) 29 F.3d. 165 (2003), in which the Fourth Circuit held that a manufacturer of a name-brand drug could not be held liable under a theory of negligent representation for an injury arising from the ingestion of a generic version of the drug. Taken to its logical extreme, in the brave new world envisioned by the Conte court, it may not matter that a plaintiff cannot identify the manufacturer of a product that caused an alleged injury so long as the plaintiff can plausibly claim to have relied on some other manufacturer’s operator’s manual.

Is Electricity a “Product”?

Whether electricity supplied to a homeowner by the local electric utility  is viewed as a “product” or a “service” may have significant ramifications in litigation.  If providing electricity constitutes a “product”, injured plaintiffs can seek recovery under a theory of strict liability.  If it is not a product, the plaintiff would have to demonstrate the electric utility failed to use reasonable care.  In a recent Connecticut case, Travelers Indemnity Company of America v. Connecticut Light & Power Co, Hartford J.D. at Harford (Docket No. CV-07-5012441-S ) 2008 WL 2447351 (Conn. Super.), the trial court  held that once electricity entered the homeowner’s residence, it constituted a “product” rather than a “service” and that plaintiff could  proceed under the Connecticut Product Liability Act (“CPLA”).   In the case, a fire allegedly caused by voltage fluctuations broke out in the home of Travelers’ insureds, Linda and Michael Murphy, resulting in property damage.  Apparently,  the Murphy’s had complained to CL&P earlier about the voltage fluctuations and had been assured that the problem had been addressed.  After paying the claim,

Connecticut courts are split concerning whether electricity can be classified as a product such that a claim could be brought under the CPLA..  However, the court in Travelers relied upon what appears to be an emerging majority view nationally.  In a 1985 California appellate decision, Pierce v. PG&E, the court opined that policy justifications warranted the imposition of strict liability: (1)  difficulty of proving negligence involving a vast and complex electrical power system; (2) economic incentive for improved product safety; (3) to encourage reallocation of resources toward safer products; and (4) to spread the risk of loss among all who use the product.  What judicial limitations may be reasonable to prevent increased access to strict liability in tort for toxic tort plaintiffs injured by electricity? One bright line test might be permit electricity to be viewed as a product only when the electricity has been transferred to the consumer in a usable voltage.  Only then could a court reasonably view electricity as a consumer product.  Under this test, exposure to high voltage transmission lines would not result in a strict liability lawsuit, but you still want to make sure you cut the electricity bills down by switching to a provider that offers energy-saving options, such as those present in the Reliant Energy plans.