Chapter 7: Business Torts and Product Liability

Negligence in Tort

Manufacturer must exercise reasonable care under the circumstances - failure to inspect or test materials used in the product can be negligence.

Caveat emptor

"let the buyer beware" applied when there is no privity. This changed with MacPherson v. Buick Motor

Primary Areas of Product Liability Law

1. Defect in product from manufacturing 2. Manufacturer failed to warn consumer of risks of use or of known hazards in certain uses of product. 3. Product had design defect that could have been avoided by alternative design 4. Product resulted in latent injuries that may not become known for years.

Aspects of Interference with contracts

1. existence of a contractual relationship (privity). 2. 3rd party knows about the contract. 3. 3rd party intentionally induces a breach of contract or interferes with it. 4. Absence of justification for the interference. 5. Damages as a result of the interference.

Elements of Intentional misrepresentation or fraud

1. misstatement of an important or material fact. 2. Scienter or intent to defraud (intentional deceit) 3. Person knows or has reason to know that statement being made is false 4. recipient of false info justifiably relies on this information and decides to enter into the deal 5. Privity between parties - relationship exists 6. Proximate cause - logical link between reliance on misstatement and losses suffered by the plaintiff. 7. Damages

Ultrahazardous Activity

Abnormally Dangerous Activity Common law rules developed about uncommon activities where utmost care is needed i.e. use of explosives, transport of dangerous chemicals, crop dusting, etc. Kansas Case: Groundwater contamination from oil refinery

Baxter v. Ford Motor Company

Baxter buys Model A. Printed material states: "Triple Shatter-Proof Glass," "will not fly or shatter under the hardest impact. . .it eliminates the danger of flying glass." Rock hits windshield. Not shatterproof - Baxter loses an eye. Trial court did not allow advertising to be admitted into evidence; said there was no privity of contract. Baxter appealed. Held: Trial court erred in taking the case from the jury. Representations of Ford were false and Baxter relied on them. Ford failed to provide the safety glass as advertised. Breach of express warranty. Reversed and remanded to grant a new trial allowing advertisement to be admissible evidence.

Strict Liability and Unknown Hazards or Latent Defects

Dangers not known at the time of the product's manufacture. Hazard associated with the product is not learned for many years. Consumer Expectation standard used by courts What is the expectation of an ordinary customer regarding safety of a product? Claims are often class action suits. Asbestos Industry - has paid tens of billions of dollars to tens of thousands of plaintiffs in claims over decades. Manufacturers must have recalls or warnings when hazard is detected.

torts particular to businesses

Fraud or Intentional Misrepresentation Interference With Contractual Relations Interference With Prospective Advantage Product Liability Consumer Products & Negligence Strict Liability Primary Areas of Product Liability Law Ultrahazardous Activity

Product Liability

liability of producers of defective products want companies to have incentives to ensure their products are safe.

Failure To Warn

Failure by manufacturer to warn of dangers in using a product Includes a wide variety of circumstances Failure to give information about specific dangers Failure to issue added warnings about problems that become known after product has been in use Failure to give special emphasis on biggest dangers

Express Warranty

Guarantee of safety or performance By model By statement By contract By advertising Misrepresentation of product safety may be basis of strict liability

Hamby v. Health Management Associates

Health Management Associates (HMA) contracted with Emcare to provide emergency room (ER) staff at a hospital. Emcare hired Dr. Hamby for ER on one-year contract. CEO of HMA demanded financial improvements. Emcare chastised physicians for missing opportunities to order more billable testing. Hamby's patient charts were reviewed. Head of hospital wrote to HMA: "We continue to have issues with low ER metrics from Dr. Hamby . . . . Please send me your plan for how this will be resolved." Emcare soon fired Hamby. He sued HMA, Emcare, and others for tortious interference with employment contract. Said he was fired before contract was up for refusing to run up patient bills. Trial Court: Dismissed suit. Hamby appealed. Appeals court reversed and remanded. HELD: Trial court abused discretion in dismissing tortious interference claim. Intentional interference occurs when: 1) Existence of valid contractual relationship or business expectancy 2) Knowledge of relationship or expectancy 3) Intentional interference, inducing or causing breach or termination of relationship or expectancy 4) Resulting damage to party whose relationship has been disrupted. Hamby may be able to prove these elements at trial.

MacPherson v. Buick

In the landmark case of MacPherson v. Buick, Justice Cardozo dispensed with the previously applied requirement of privity of contract in products liability cases and extended the manufacturer's duty of care to include the ultimate consumer of the product, whether or not the consumer was the actual purchaser of the product. Later cases extended the duty to include not just the purchaser or the ultimate consumer, but to include all persons and property likely to be endangered by the product's probable use, such as the consumer's family or guests, or even near bystanders.

Categories of Business Torts

Intentional Negligence Strict Liability Torts are traditionally common law, but increasingly statutes are playing an important role in this area.

Kim v. Toyota Motor Corporation

Kim driving 2005 Toyota Tundra pickup on wet, curvy road at 5o mph. Said car driving toward him crossed over center line. He swerved to avoid the vehicle. Right tires went off the road on to shoulder. Tried to regain control by turning back on the road. Truck went off road and rolled over. He suffered serious injuries. Sued Toyota for design defect: Truck lacked electronic stability control (ESC) a/k/a as vehicle stability control (VSC). Feature would have increased a chance of regaining control of truck. Not standard equipment on vehicles at that time. Trial Court: Found for Toyota. Kim appealed. Decision affirmed. California has set out two alternative tests to identify design defect. Consumer Expectation Test: Product has design defect if product fails to perform as safely as ordinary consumer would expect. Risk-Benefit Test: Plaintiff must show evidence that design is proximate cause plaintiff's injuries. Burden shifts to defendant to prove "the benefits of the challenged design outweigh the risk of danger inherent in such a design" Trier of fact may consider: Gravity of the danger by the challenged design The likelihood that such danger would occur The likelihood that such danger would occur The mechanical feasibility of a safer alternative design Financial cost of improved design Adverse consequences to product & consumer that would result from an alternative design. Issue: Whether trier of fact may consider evidence of industry custom and practice in the risk-benefit analysis. Yes, it is appropriate to consider compliance with industry standard in risk-benefit analysis. Held: Risk-benefit balancing was appropriate in strict product liability cases. State of art at the time of product's manufacture is admissible in strict products liability failure to warn cases.

Product liability is a general term that is based primarily in

tort law. However, elements of contract law come into play.

Strict Liability In Tort

Manufacturers are strictly liable for defective products The courts ask: Was the product defective? Did the defect create an unreasonably dangerous product or instrumentality? Was the defect a proximate cause or substantial factor of the injury? Did the injury cause damages? Courts do not worry about carefulness, due care, reasonableness, etc.

Joint and Several Liability

Most states have held plaintiffs may sue any or all manufacturers to share the liability created. Manufacturers are allowed to fight it out as to which should pay for amounts of damages. Any of the defendant-manufacturers may be held responsible for all damages. Limits put on application of joint & several liability in some areas (i.e. medical malpractice) in some states.

Aspects of interference with prospective advantage

One party makes it difficult for another party to continue in some/all business dealings. a business attempts to improve its place in the market by interfering with another's business. Unreasonable, improper manner of interference Predatory behavior, not "merely competitive"

Parish v. ICON

Parish was jumping on a backyard trampoline made by Jumpking. Surrounded by a safety net made by ICON He did a back somersault, landed on his head, rendered quadriplegic. Sued ICON and Jumpking for failure to warn of dangers in using products. District court granted summary judgment for manufacturers; Parish appealed. HELD: Affirmed. Warnings were not inadequate. Look at reasonable instructions or warnings if foreseeable risks of using a product. Numerous warnings provided. 3 warnings placed permanently on pad of trampoline. Included warnings not to land on head or neck; paralysis or death could result; reduce chance of landing on head or neck by not doing somersaults/flips; only1 person on trampoline at a time; multiple jumpers increase chances of loss of control, collision, falling off; results can be broken head, neck, back or leg; not recommended for children under 6 years of age. Warning on each of 8 legs of trampoline - designed so warnings face out, visible to user. Jumpking sewed 2 printed warnings onto the trampoline bed. Warning placard for the owner to affix to the trampoline - both pictorial warning and language re: safe use of trampoline. Owner's manual contains warnings found on trampoline, plus added warnings about supervision and educational instruction. Warnings exceed the requirements of the American Society for Testing and Material (ASTM). Warnings are also provided with safety net, which has separate owner's manual. Restatement says users must pay some attention for their own safety. Consumers must "bear appropriate responsibility for proper product use." "Prevents careless users and consumers from being subsidized by more careful users and consumers" - damages paid from law suits are built into higher product prices. Warnings were adequate.

Defenses To Negligence and Strict Liability

Product Misuse or Abuse Assumption of Risk (alcohol) Sophisticated User Defense and Bulk Supplier Doctrine Some statutory limits exist.

Manufacturing Defect

Straightforward. Liability is imposed when product comes off assembly line with defect that causes danger. Consumers do not expect such defects - consumer expectation test. Producers know such cases are difficult to contest. So cases usually settled. Problem for consumer—product comes from maker in another country with few assets.

Greenman v. Yuba Power Products (1963)

Strict liability moves to tort law -- Wife buys husband power tool. Due to defect, two years later wood flies out of the machine, striking Greenman's head. He alleges breaches of warranties and negligence. However: S. Ct. of Calif. affirms trial court decision in favor of Greenman and says that the manufacturer is "strictly liable in tort." By mid-1970s every state supreme court had adopted strict liability rule. Standard adopted in Section 402A of Restatement (Second) of Tort.

Restatement (Third) of Torts on Products Liability

The American Law Institute (ALI) definition of strict liability in Sec. 402A of the Restatement (Second) of Torts adopted by most states. ALI wrote a new standard for product defect in Restatement (Third) of Torts. State supreme courts consider the new concepts of law and often gradually adopt it. Restatement (Third) of Torts defines categories of defect in §2 concerning (a) product departing from intended design, (b) foreseeable risk of harm could be reduced or avoided by an alternative design, or (c) harm could have been reduced by reasonable instructions or warnings. Restatement Third speaks of "risk-utility balancing." Restatement Third encourages courts to move away from the a distinction between negligence and strict liability.

Strict Liability under contract law

The legal responsibility for damage or injury even if you are not negligent. Express or implied warranties.

aspects of negligence in tort

Were the dangers foreseeable? Care must be taken to avoid misrepresentation in product promotion. Defects and dangers must be revealed. Causal connection must be present between the product or the design defect and the injury. By the 1960s, courts began to apply strict liability. Producers are responsible for damages even if no negligence.

Yazdianpour v. Safeblood Technologies, Inc.

Yazdianpour and Faisal Ali Mousa al Naqbi entered in to licensing agreement with Safeblood, owned by Worden. Bought exclusive rights to market patented technologies overseas Worden told licensees that patents were marketed by another company in U.S., but they would have exclusive rights otherwise. Worden knew he missed deadline for his U.S. patents to be eligible for protection in other countries. Foreign licensing rights were worthless. Plaintiffs, did not know truth of patents' legal status. Learned later they could not register them in other countries. Sued Safeblood and Worden for fraud. District Court: Dismissed claim. Plaintiffs appealed. HELD: Reversed dismissal of fraud claim. Remanded to District Trial Court for trial. Plaintiff required to investigate a misrepresentation only when obvious problem may exist. Requirement to investigate: Only when "facts should be apparent . . . or . . . have [been] discovered." Even if plaintiffs could check status of patent with USPTO website, not required to investigate unless obvious they were were being deceived. Worden knew the status of the patents overseas But executed an agreement nevertheless.

Privity of contract requirement (19th century)

a contractual relationship between injured party and the manufacturer was needed.

There is no such thing as a

business tort

Relationships of parties is a factor in creating legal duties.

claim often added to a suit of breach of contract.

Fraud

deliberate deception also known as misrepresentation, fraudulent misrepresentation, or deceit

Interference with contracts

known also as interference with business relations or interference with contractual relations. When breaking a contract will benefit a 3rd party.

interference with prospective advantage

known also as interference with prospective economic advantage or interference with prospective contractual relationship.

Implied Warranty

of safety at common law: Began with food Safety Implied AT LAW - whether the manufacturer wants to warrant the product or not From UCC: Implied Warranty of Merchantability Implied Warranty of Fitness for a Particular Purpose

Cases with businesses are typically settled

out of court