BUSINESS TORTS and PRODUCT LIABILITY

1
BUSINESS TORTS and PRODUCT LIABILITY

• Chapter 7

2
Torts in the Business Setting

• There is no such thing as a business tort.
• This just means torts that concern businesses.
• Often cases with businesses are settled out of
  court.
• There are often big awards, as plaintiffs and
  juries view businesses as deep pockets.

3
Fraud

• Deliberate Deception fraud, misrepresentation,
  fraudulent misrepresentation, or deceit
• Relationship of parties
• 1) Representation has been made knowingly
• 2) Without belief in its truth, OR
• 3) Recklessly and careless whether it is true or
  false
• Malice, intent, knowledge and other conditions
  of a persons mind may be alleged generally
  (Rule 9b, Federal Rules of Civil Procedure)
• Claim often added to a suit of breach of contract

4
Intentional Misrepresentation or Fraud

• 1 Misstatement of an important or material fact
• Misstatement induces entry into business
  relationship
• Unrelated/unimportant misstatement not a basis of
  fraud
• 2 Scienter or intent to defraud
• Intentionally misleading and deceiving another
• 3 Person knows statement being made is false
• 4 Recipient of false information justifiably
  relies on the information and makes a decision to
  enter into the deal
• 5 Privity between the parties relationship
  exists
• 6 Proximate Cause logical link between
  reliance on misstatement losses to the
  plaintiff
• 7 Damages

5
Lightle v. Real Estate Commission

• Lightle, Alaska real estate agent, listed house
  for sale by Leighs.
• Lightle allowed two offers (Seeley Williams) to
  be made on same property, telling both buyers
  they would get the house.
• Seeley found out, rescinded offer, demanded
  deposit back.
• Seeley filed a claim against the Alaska Real
  Estate Commissions surety fund (to compensate
  losses in real estate due to fraud).
• Commission heard case held that Lightle
  committed fraudulent misrepresentation. Awarded
  Seeley damages. Suspended Lightles real estate
  license. Lightle appealed.
• HELD Affirmed Commissions ruling.
• Lightle told Seeley that other offer was dead
  that Seeley offer had been accepted and the
  house is yours.
• Lightle failed to disclose facts that might have
  affected Seeleys decision.

6
Interference With Contractual Relationsand
Interference With Prospective Advantage

• Interference with Contractual Relations
• Breaking the contract benefits a 3rd party
• 1. Existence of a contractual relationship
• 2. 3rd party knows about the contract
• 3. 3rd party intentionally interferes with the
  contractual relationship

• Interference With Prospective Economic Advantage
• A business attempts to improve its place in the
  market by interfering with anothers business
• Unreasonable, improper manner of interference
• Predatory behavior, not merely competitive

7
Product Liability

• Liability of producers and sellers of goods re
  defective products
• We want companies to have incentives to ensure
  their products are safe.
• But, we do not want companies to pay for injuries
  consumers suffer while using products improperly.
• General term applied that deals primarily in
  tort law
• Involves some contract law
• Primarily now statutory law

8
History of Consumer Products and Negligence

• In the 19th century courts, there was the privity
  of contract requirement a contractual
  relationship with the manufacturer was needed
• Burden on consumer
• If there was no relationship, caveat emptor
  applied Let the
  buyer beware
• This changed with MacPherson v. Buick Motor
  Company

Let the Buyer Beware!
9
Negligence in Tort

• Manufacturer must exercise reasonable care under
  the circumstances.
• Were the dangers foreseeable?
• Care must be taken to avoid misrepresentation.
• 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 and
  punitive damages may be added.
• This theory can be used in conjunction with and
  as a separate theory from strict liability in a
  lawsuit.

10
MacPherson v. Buick Motor Company
(1916 landmark case)

• Buick sells cars to dealers. Dealer sells car to
  MacPherson.
• Wheel collapses, causing accident/injury to
  MacPherson.
• MacPherson sues for negligence Buick says it has
  no privity with MacPherson trial court holds
  that privity is not required tort law applies
  MacPherson wins. Appeal.
• NY Ct. of Appeals holds manufacturer has primary
  control over product design safety.
• Defects could have been discovered by reasonable
  inspection, which was omitted, so Buick negligent
  in tort.
• Buick (not dealer) is responsible for the
  finished product.
• Judgment affirmed.

11
Strict Liability Created Under Contract Law

• Implied Warranty of safety
• Manufactured Products
• Food Products
• Implied Warranty of Merchantability
• Under the UCC Implied Warranty For Fitness For A
  Particular Purpose
• Implied AT LAW whether the manufacturer wants
  such a warranty for the product or not
• See Issue Spotter Understanding Product
  Problems

• Express Warranty
• Guarantee of safety or performance
• By model
• By statement
• By contract
• By advertising
• Misrepresentation theory is used as well to
  create strict liability
• Ex Baxter v. Ford Motor

12
Baxter v. Ford Motor Company (1932)

• Baxter buys new 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 Baxter loses left eye. Not
  shatterproof.
• Trial court did not allow advertising to be
  admitted into evidence said there was no privity
  of contract.
• Baxter appeals.

• 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.
  

13
Strict Liability in Tort Law California Changes
Law Greenman v. Yuba Power

• Wife buys husband power tool.
• Two years later wood flies out of machine,
  striking Greenmans head.
• He alleges breaches of warranties and negligence.
• 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 in tort rule.

14
Strict Liability In Tort402 A Restatement
(Second) 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 to person or
  property?
• Courts do not worry about carefulness, due care,
  reasonableness, etc.

15
Restatement (Third) of Torts on Products
Liability

• The American Law Institutes (ALI) definition of
  strict liability in Section 402A of the
  Restatement (Second) of Torts still leading rule.
• ALI wrote a new standard for product defect cases
  in newer Restatement (Third) of Torts.
• State supreme courts consider the new concepts of
  law and often gradually adopt it.
• Key part to the Restatement (Third) of Torts
  define categories of defect in 2 regarding (a)
  product departing from intended design, (b)
  foreseeable risk of harm could be reduced or
  avoided by an alternative design and (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
• Product defect law deals with design defects and
  manufacturing defects

16
Parish v. ICON

• Parish was jumping on a backyard trampoline made
  by Jumpking.
• Surrounded by a safety net (fun ring) made by
  ICON
• He did a jump, landed on his head, left
  quadriplegic.
• Sued ICON and Jumpking for failure to warn of
  dangers in products.
• District court granted summary judgment for
  manufacturers Parish appealed.
• HELD Affirmed. Warnings were adequate.
• Look at reasonable instructions or warnings if
  foreseeable risks of using a product. Numerous
  warnings were 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 only 1 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.
• 
  (Continued)

17
Parish v. ICON, cont.

• Had nationally recognized warning symbols on the
  product.
• 1 warning on each of 8 legs of trampoline
  designed to assemble so that warnings face out,
  visible to user.
• Jumpking manufactures 2 printed non-pictorial
  warnings sewn onto the trampoline bed.
• Warning placard for the owner to affix to the
  trampoline both pictorial warning and language
  about safe use of trampoline.
• Owners manual contains warnings found on
  trampoline, plus additional warning about
  supervision and educational instruction.
• Warnings exceed the warnings required by the
  American Society for Testing and Material (ASTM).
• Warnings are also provided with fun ring, which
  has separate owners manual with added warnings.
• Restatement says users must pay some attention
  for their own safety.
• Users and consumers are required to 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 here were adequate.

18
Timpte Industries v. Gish

• Gish, a trucker, arrived at a plant to pick up
  load of fertilizer.
• His truck was pulling a trailer made by Timpte
  twin hopper trailer, loaded from above by a
  downspout that pours fertilizer into opper.
• Downspout wasnt going into position Gish
  climbed on top of trailer walked out along the
  top rail that is about 5 wide so he could put
  downspout in position to pour in fertilizer.
• While on top, gust of wind blew. He fell was
  severely injured.
• Gish ( his workers compensation insurance
  carrier) sued for design defect.
• Contended that trailer shouldnt have a ladder
  that allowed him to climb up to the rail (top
  rail is too narrow to walk on safely).
• Timpte argued Danger of being on rail was open
  and obvious.
• District court granted summary judgment for
  Timpte.
• Appeals court reversed. Timpte appealed.
  (Continued)

19
Timpte Industries v. Gish

• HELD Reversed reinstated trial courts judgment
  for Timpte.
• No evidence that design rendered the trailer
  unreasonably dangerous.
• Gishs expert witness proposed 3 design changes.
• 1) Remove top 2 rungs of ladder to make it
  impossible for person to climb atop trailer
• 2) Provide adequate foothold and handhold at top
  of trailer
• 3) If an adequate handhold cannot be provided,
  widen the side rail to at least 12 to provide
  adequate footing
• Texas courts apply risk-utility analysis.
• Basis of design defect claim is if there is a
  reasonable alternative design (at a reasonable
  cost) that would reduce a foreseeable risk of
  harm.
• Timpte always warned users to maintain 3-point
  contact with trailer (this cant be done if a
  user standing on the top rail).
• Gish did not adhere to warning. Loses lawsuit.

20
Strict Liability and Unknown Hazards or Latent
Defects

• Dangers not known at the time of the products
  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 billions of dollars
  to tens of thousands of plaintiffs in claims over
  a 30-year period
• Injuries caused by IUDs have been in the courts
  for years
• Manufacturers must have recalls or warnings when
  hazard is detected

21
Joint and Several Liability

• Courts have held plaintiffs may sue any or all
  manufacturers to share the liability created.
• Manufacturers fight it out as to which should pay
  for damages.
• Any of the defendant-manufacturers may be held
  responsible for all damages
• The result has been limits on application of
  joint several liability in some areas (i.e.
  medical products) in some states

22
Defenses To Negligence and Strict Liability

• Product Misuse or Abuse
• Assumption of Risk
• Tobacco and alcohol use are controversial areas
  so far courts havent applied the defense to
  users.
• Sophisticated User Defense and Bulk Supplier
  Doctrine
• Usually apply to business settings
• Bulk supplier does not have to police details of
  what is done as product continues down the chain,
  as bulk products go to intermediary in bulk and
  on down.
• Sophisticated user is one who reasonably should
  know of the products dangers e.g. another
  manufacturer.

23
Ultrahazardous 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.
• See Old Island Fumigation (in text)