post-sale duties: how to comply and how to defend product
TRANSCRIPT
Post-sale Duties: How to Comply and How to
Defend Product Liability Litigation after
Recalls
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TUESDAY, APRIL 2, 2019
Presenting a live 90-minute webinar with interactive Q&A
Kenneth Ross, Of Counsel, Bowman and Brooke, Midway, Utah
George W. Soule, Partner, Soule & Stull, Minneapolis
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Post-Sale Duties: How to Comply
and How to Defend Product
Liability Litigation after Recalls
Kenneth Ross
George W. Soule
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Product
Safety
Product
Liability
Regulatory
Compliance
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Preventive Law
Why should product safety be
your concern?
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Product Liability• Lawsuits• Insurance claims
Reputation Damage• Media Exposure• Public Embarrassment
Lost Sales
Recalls
Government Penalties • Fines• Consent Decrees• Criminal charges
Increased Operational Costs
Social Responsibility
RECALLS:
Common Law and
Regulatory Law
Kenneth Ross
Bowman and Brooke [email protected]
www.productliabilityprevention.com
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Why discuss post-sale issues?
• “…post-sale warnings are probably the
most expansive area in the law of products
liability”
• “timeless”
• “monster duty”
Henderson and Twerski
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Why discuss post-sale issues?• Potential penalties from government have
increased
• In recent study, over 70% of punitive damage
awards based on failure of manufacturer to take
adequate post-sale remedial actions
• Legal requirements to report and undertake
remedial programs have increased in U.S. and
elsewhere
• Plaintiff’s attorneys will attack manufacturer for
failure to comply
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Boeing software updateNYT, March 14, 2019
• Weeks after a deadly crash involving a Boeing plane last
October, company officials met separately with the pilot
unions at Southwest Airlines and American Airlines. The
officials said they planned to update the software for
their 737 Max jets, the plane involved in the disaster, by
around the end of 2018.
• It was the last time the Southwest pilots union heard
from Boeing, and months later, the carriers are still
waiting for a fix. After a second 737 Max crashed, on
Sunday in Ethiopia, United States regulators said the
software update would be ready by April.
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• U.S. regulatory
– Consumer Product Safety Commission
– National Highway Traffic Safety Admin.
– Food and Drug Administration
• U.S. common law
• Foreign regulatory
– EU, Canada, Australia, Japan, South Africa,
Taiwan, China, Brazil, etc.
Legal Requirements
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U.S. Common Law
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Post-Sale Duty To Warn
“Although a product [may] be reasonably safe
when manufactured and sold and involve no
then known risks of which warning need be
given, risks thereafter revealed by user
operation and brought to the attention of the
manufacturer or vendor may impose upon one
or both a duty to warn.”*
*Cover v. Cohen, New York Court of Appeals
(1984).
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Balancing test –Common law and Restatement 3d (Section 10)
• Post-sale warning is to be provided if:
– substantial risk of harm
– users can be identified and can
reasonably be assumed to be
unaware of risk
– can be effectively communicated to
those at risk and acted upon; and
– risk of harm is sufficiently great to
justify burden
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Section 10 – RestatementSince 2012
• 3 states have adopted – Alabama,
Minnesota, and New Hampshire
• But, 3 states (Connecticut, Nebraska, and
Tennessee) have said no post-sale duty to
warn.
• Tennessee says no post-sale duty for
internet sales distributors
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Independent claims
• Most states have adopted some form of post-
sale duty to warn.
• Plaintiff may sue on two theories: selling a
defective product (strict liability and negligence)
and post-sale failure to warn (negligence).
• Seller cannot absolve itself of liability for selling
a defective product by issuing a post-sale
warning. Seller can negate negligence in the
post-sale allegation.
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Common Law
• No duty to recall; however can be liable for
negligent voluntary recall or if government
orders a recall
• Subject to evidentiary rules, actions by
government agencies (orders, civil
penalties, documentation) can get into
litigation
• Foreign actions can also get into U.S. cases
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What is adequate?
• Based on negligence
• Whatever the jury thinks is reasonable care
• Could manufacturer have done more, should
they have done more (generally no common law
duty to recall)
• Compliance with regulatory requirements may
not provide a defense
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U.S. Regulatory Law
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Report to CPSC• fails to meet a consumer product safety
standard or banning regulation,
• fails to comply with any other rule, regulation, standard or ban under the CPSAor any other Act enforced by the Commission,
• contains a defect which could create a substantial product hazard to consumers, or
• creates an unreasonable risk of serious injury or death (no defect required)
Fines for failure to report or late reporting
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CPSC Criteria for
Substantial Product Hazard(Reporting and Recall)
• Pattern of defect
• Number of products in use
• Severity of risk
• Likelihood of injury
• Applies to hazards anywhere in world
• Non-U.S. recall is a factor to consider
• Litigation and settlements are a factor
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Report to NHTSA
• Report to NHTSA required if vehicle or
accessory contains a “safety-related defect”
• Recall necessary if that defect presents an
“unreasonable risk” to “motor vehicle safety”
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Report to FDA
• Malfunction
• Serious injury or illness
• Death
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International Regulatory Law
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Canada
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EU GPSD Safety Obligation
…any product which, under normal or reasonably
foreseeable conditions of use … does not present
any risk or only the minimum risks compatible with
the product's use, considered to be acceptable and
consistent with a high level of protection for the
safety and health of persons…
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Reporting in Australia
• Actual death, serious injury or illness (anywhere
in the world)
• Recall undertaken (anywhere in the world)
• Level of risk not applicable
• Need actual knowledge by Australian supplier
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Other countries
• Japan
• Korea
• South Africa
• Brazil
• China
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Preparing Pre-sale and Post-sale
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Pre-Sale Advance Planning
• Design issues
• Contracts
• Traceability and marking
• Ability to identify customers, including social
media efforts
• Public communications
• Determine legal reporting responsibilities
• Checklists, personnel and committees
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Pre-Sale Advance Planning
• Finance and accounting
• Early warning systems
• Record creation and retention
• Training/mock recalls
• Reintroduction
• Audit
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Information Gathering
• Claims, accidents and lawsuits
• Complaints from consumers and users directly
and via social media
• Warranty returns
• Observations by service personnel
• Parts sales
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Information Gathering
• Information from government
• Information from competitors and trade
associations
• Information from vendors
• Information from Internet (i.e. blogs
and social media)
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Decision Points
• Post-sale duty?
• Duty to report to government?
– Which ones?
• Duty to perform corrective action?
– What to do – recall, repair, replacement?
• Only on future products
• Only on products in field
• On future products and products in field
– Where?
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Managing the Recall
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Recall Checklist
• Identify defect/safety issue
• Stop production
• Isolate inventory to be recalled
• Determine appropriate remedy
• Test replacement/repair
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Recall Checklist (cont.)
• Repair/Dispose units on hand and units returned under the recall
• Discuss all aspects with CPSC Compliance staff
• Redesign future production to eliminate hazard
• Change model/serial number for redesigned product
• Where product changes are made to existing products, label so as to distinguish from recalled products
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High-tech Developments
• Communicate by email to customers,
distributors, retailers, etc.
• Video and text messages on website
• Web based registration for returns
• Increase ID of customers
• Increase response rate
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4242
4343
CPSC - Class A Hazard
• Exists when a risk of death or grievous injury or illness is likely or very likely, or serious injury or illness is very likely.
• Class A hazards warrant the highest level of attention. They call for a company to take immediate, comprehensive, and expansive corrective action measures to identify and notify consumers, retailers and distributors having the defective product and to remedy the defect through repair or replacement of the product, refunds, or other measures.
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FDA Recalls
• When a company undertakes a recall, the FDA performs a Health Hazard Evaluation that decides on a risk level based, in part, on probability and severity of harm and designates a recall classification (21 CFR Sec. 7.41). – Class I is for hazards that will cause serious adverse
health consequences or death.
– A class II hazard is for the remote probability of temporary or medically reversible adverse health consequences.
– And class III is where a violative product is not likely to cause adverse health consequences.
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Recall Insurance
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Coverage
• Policy is triggered by a voluntary,
involuntary or mandatory stock recovery,
market withdrawal or recall (by or on
behalf of the insured, its customer or a
regulatory body)
• Unsafe insured product has resulted in or
would result in bodily injury or property
damage
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Protection
• Reimbursed insured for expenses and other
financial loss which are typically excluded in a
General Liability policy.
– Costs of performing recall
– Consultant costs
• Extra coverage for
– Replacement costs (i.e. refunds)
– Loss of profit
– Rehabilitation costs
– Consequential damages
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For articles on post-sale duties, see
www.productliabilityprevention.com
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RECALLS:
LESSONS FROM LITIGATION
George W. Soule
Soule & Stull LLC
Minneapolis, [email protected]
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TOPICS
• Managing the recall
• Defending the recall
• Defending the product after the recall
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DO THE
RIGHT THINGSPIKE LEE, 1989
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DO THE RIGHT THING
• Make the right decision for product safety
• Understand that you will become a target
• Be mindful of litigation interests
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STAY IN TOUCH WITH FIELD
• Accident reports
• Communications from dealers and
customers
• Warranty claims
• Competitors’ designs
• Product and safety literature
• Scientific advancements
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TIMING IS EVERYTHINGGARRETT HEDLUND, COUNTRY SINGER
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ACT DECISIVELY AND EXPEDITIOUSLY
• Assume that recall “process” documents
will be admissible
• Wringing of hands or passing the buck will
not appeal to jury
• Even a few weeks can seem like an
eternity in the courtroom
• More difficult to defend products sold or
injuries that occur during decision period
56
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DON'T LET YOUR IDEAS GET BURIED
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WHATEVER YOU SAY MAY
BE USED AGAINST YOU IN A
COURT OF LAWMIRANDA WARNING
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DRAFT THE MESSAGE WITH CARE
• Not an admission that product is defective
• Recall condition may not exist in every product
• Create an incentive for user to respond to recall condition
• Remember that lawsuits will come
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This notice is sent to you in accordance with the requirements of the National Traffic and Motor Vehicle Safety Act.
The Company has determined that a defect which relates to vehicle safety exists in the models listed above. Our records indicate that you have purchased one of these vehicles.
Under certain conditions the fuel pump on the vehicle listed above may not provide adequate pressure or may fail entirely, which can cause poor performance or possible engine stalling, increasing the risk of a crash.
The repair will consist of the installation of a re-designed fuel pump and fuel system filter screens and hoses.
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BE GALLANT, NOT GOOFUS
Be careful in e-mail communications
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THINK BEFORE YOU PRESS SEND
• Avoid product
criticisms
• Do not speculate or
editorialize
• Do not blame others
• Do not equate safety
with cost
68
CLOSE THE LOOP ON DECISION
• You have received information about
potential problems
• Must document decision on how to
respond to problems
69
JUST THE FACTS,
MA'AMJACK WEBB, DRAGNET
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JUST THE FACTS:
DOCUMENT FACTS, NOT OPINIONS• Document findings in risk assessments
• Detail observations in test reports
• Record facts in incident investigations
• Log reasons for design changes
• Represent company only as authorized
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DEFENDING THE RECALL
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TIMELINE
Product
Manufactured Recall Accident
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• No duty to recall or retrofit – Restatement
(3rd) Products Liability §11
• If manufacturer undertakes recall, duty to
use reasonable care
NO DUTY TO RECALL PRODUCT
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FAILURE TO NOTIFY OWNER
• Mistake in notification process
• Insufficient efforts to reach owners
– Failure to use mass media
– Obligation to use social media?
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OTHER CLAIMS
• Recall was too late
• The recall fix was inadequate
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OFFENSIVE USE OF RECALL
• Product owner ignored recall notice
– Ground for comparative fault
• Recall provided additional warnings
against misuse
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DEFENDING THE PRODUCT
AFTER THE RECALL
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TIMELINE
Product
Manufactured Accident Recall
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RECALL ≠ LIABILITY
• Consider all potential defenses
• "Recall" is term of art
– May occur when product could be risk to
health
– Remedy may be inspection, repair,
adjustment, re-labeling
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PICK THE LOSERS AND “WINNERS”
• Evaluate reports, claims and lawsuits
promptly
• Settle when injury caused by recall
condition
• Defend when injury not caused by recall
condition
• Recognize that even “winners” can be
difficult cases
81
WEIGH PROS AND CONS OF
EXCLUDING THE RECALL• Rule 407: Subsequent remedial measures
inadmissible to prove defect, negligence
• If coming in, better to deal with up front
• Do not want to walk tightrope throughout
trial or be impeached
• Part of due care story
• Needed to defend punitive
damages claim
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EXCLUDE EVIDENCE AND CLAIMS
NOT SUPPORTED BY LAW• Failure to recall or retrofit
• Should have issued recall sooner
• Violation of agency process
• Should have reported incidents to federal
agency
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TELL THE DUE CARE STORY
• You are a careful manufacturer, concerned
with product safety
• Explain how you did not foresee recall
condition or scenario
• May need to defend against punitive
damages allegations
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DUE CARE STORY
• Standards
• Government regulations
• Agency approval
• Competitors
• Risk evaluation
• Testing
• Product literature
• Warnings/instructions
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PUT RISK OF INJURY INTO
PERSPECTIVE• Contrast number of injuries with product
use to show low risk
• Factors
– Number of products
– Years of use
– Numbers of use per year
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• Number of motorcycles
– 1999: 1859
– 2000: 2541
– 2001: 2109
• Assume all sold on July 1
• 4000 miles per year
87
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• 6509 motorcycles
• 51,072,000 motorcycle miles
• 0 accidents
• 0 injuries
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PROVE THE RECALL CONDITION
DID NOT CAUSE THE INJURY • Recall condition did not exist in product
• Recall condition did not cause injury
• Another factor caused accident
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POST-SALE DUTY TO WARN
• Duty to warn is question of law for the court
• When facts disputed, jury may need to resolve
• Elements of claim
– Seller becomes aware of risk of substantial harm
– Those to whom warning might be provided can be
identified and will be unaware of harm
– Warning may be effectively communicated and acted
upon
– Risk of harm sufficiently great to justify burden
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LACK OF WARNING DID
NOT CAUSE INJURY• User aware of risk of harm
• Learned intermediary
• User is professional who should have
known of the danger
• User did not read warning
• User had no contact with sales
representative
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Stay Calm
and
Call Your Lawyer
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