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Uniting Plaintiff, Defense, Insurance, and Corporate Counsel to Advance the Civil Justice System
Summer 2013
CommitteeNewsCommitteeNews
Complex products are typically composed of multiple component parts, which are combined and integrated into the finished product. Product liability litigation
concerning these complex, integrated products often includes claims by the plaintiff against the individual manufacturers of the many component parts. There is a great deal of confusion among practitioners about the liability of component part manufacturers in multi-party product liability cases. When are the manufacturers of the component parts liable?
Component part manufacturers should focus on the Restatement (Third) of Torts: Product Liability, Section 5 (1998) (hereinafter “Restatement, Section 5”), which sets forth what is commonly known as the “component supplier doctrine”. That section provides as follows:
Liability of Commercial Seller or Distributor of Product Components for Harm Caused by Products Into Which Components Are Integrated
One Engaged in the business of selling or otherwise distributing product components who sells or distributes a component is subject to liability for harm to persons or property caused by a product into which the component is integrated if:
Products Liability Committee
IN THIS ISSUE:
THE COMPONENT SUPPLIER DOCTRINE: WHEN ARE MANUFACTURERS OF COMPONENT PARTS LIABLE? By: Jonathan Shoebotham1
Continued on page 11
The Component Supplier Doctrine: When Are Manufacturers Of Component Parts Liable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Letter From The Editors . . . . . . . . . . . . . . . 4Personal Liability For Product Recalls: Should Corporate Officers Be Concerned . . 6Spring 2013 Update On California’s Proposition 65: Changes And Challenges Afoot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8A Step Back From The Issue Of Other Incidents: The How And Why Of Substantial Similarity . . . . . . . . . . . . . . . . . 92013 - 2014 TIPS Calendar . . . . . . . . . . . . 17
1 Jonathan Shoebotham is a Partner in Thompson & Knight’s Houston office. He focuses his practice on product liability, environmental litigation, and commercial litigation. He has more than 30 years of legal experience and has been named to The Best Lawyers in America and Texas Super Lawyers for many years. He is a Fellow of the Texas Bar Foundation and the Houston and American Bar Associations.
Products Liability Committee Newsletter Summer 2013
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ChairAmir M Nassihi
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Products Liability Committee Newsletter Summer 2013
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LETTER FROM THE EDITORS
Dear Readers:
Welcome to the 2013 Summer Issue of the Products, General Liability, and Consumer Law Committee newsletter. This issue contains four articles that we hope will provide information helpful to your practice or, at the very least, a bit of interesting reading when you need a break from your busy work day.
In the first article, Jonathan Shoebotham discusses the liability of component part manufacturers in multi-party product liability cases. Specifically, Shoebotham explains the importance of focusing on the “component supplier doctrine” in such cases.
Next, David G. Wix writes about the Consumer Product Safety Commission’s administrative action against Maxfield and Oberton Holdings, LLC, the importer and distributor of “Buckyballs” and “Buckycubes.” Wix discusses the Administrative Law Judge’s ruling that the CPSC could seek to hold the CEO of Maxfield personally liable for the product recall-related remedies sought against Maxfield and the impact this ruling may have on companies that fall under the CPSC’s jurisdiction.
In the third article, Monica M. Welt and Lynn R. Levitan provide an update on California’s Safe Drinking Water and Toxic Enforcement Act of 1968 (“Prop 65”). The authors discuss legislative proposals that will reduce the number of “bounty hunter” plaintiff cases. The article also covers an industry association’s successful court challenge to delist the chemical bisphenol A (“BPA”) from Prop 65.
Finally, Katherine A. Wang discusses the evidentiary issue of prior “other incidence” evidence as it relates to litigating automotive defect cases. Wang encourages practitioners to take a step back when encountering this issue and focus on the purpose of the rule, which is to ensure that only relevant evidence reaches the jury and results in a fair trial for all.
Enjoy the issue, and thank you for your continued participation in the Products, General Liability and Consumer Law Committee.
Gregory BoulosMariel Taylor
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©2013 American Bar Association, Tort Trial & Insurance Practice Section, 321 North Clark Street, Chicago, Illinois 60654; (312) 988-5607. All rights reserved.
The opinions herein are the authors’ and do not necessarily represent the views or policies of the ABA, TIPS or the Products Liability Committee. Articles should not be reproduced without written permission from the Copyrights & Contracts office ([email protected]).
Editorial Policy: This Newsletter publishes information of interest to members of the Products Liability Committee of the Tort Trial & Insurance Practice Section of the American Bar Association — including reports, personal opinions, practice news, developing law and practice tips by the membership, as well as contributions of interest by nonmembers. Neither the ABA, the Section, the Committee, nor the Editors endorse the content or accuracy of any specific legal, personal, or other opinion, proposal or authority.
Copies may be requested by contacting the ABA at the address and telephone number listed above.
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On May 3, 2013, an Administrative Law Judge (“ALJ”) handling an action filed by the Consumer Product Safety Commission (“CPSC”) against
Maxfield and Oberton Holdings, LLC (“Maxfield”), the importer and distributor of Buckyballs and Buckycubes magnet sets, ruled that the CPSC could seek to hold Maxfield’s CEO, Craig Zucker, personally liable for the product recall-related remedies sought against Maxfield.2 This decision, and the specter of corporate officers being held personally liable in the product-recall setting, creates some intriguing implications for companies that fall under the jurisdiction of the CPSC.3
The CPSC Targets Dangers Associated with Small, High-Powered Magnets
The backdrop for the CPSC’s administrative action against Maxfield (now focused on Zucker) stems from the CPSC’s efforts to regulate and ban the sale of small, high-powered magnets. As far back as April 2007, the CPSC issued a safety alert about the dangers associated with children ingesting powerful magnets detaching from children’s toys.4 Essentially, if two or more magnets (or a magnet and another metal object) are swallowed, the magnets can attract each other, become trapped in the body and can twist or pinch the intestine, causing holes, blockage and infection in the intestine or blood poisoning, all of which can lead to death.5 Several manufacturers conducted recalls of children’s products containing magnets in the years that followed the CPSC’s safety alert. Despite these recalls, incidents involving children swallowing high-powered magnets continued to increase, prompting the CPSC in November 2011 to issue a public warning regarding the dangers posed to children by high powered magnets contained
in products marketed to adults.6 Thereafter, the CPSC began requesting that importers/manufacturers stop selling products containing masses of small, powerful, individual magnets. Most complied; Maxfield did not.
The CPSC’s Administrative Action Against Maxfield
In July 2012, the CPSC filed an administrative action against Maxfield seeking an order forcing the company to cease importation and distribution of Buckyballs and Buckycubes magnet sets, conduct a recall campaign, refund consumers the purchase price of the products and reimburse retailers for expenses in connection with carrying out any recall, including the costs of returns, refunds and/or replacements.7 Buckyballs and Buckycubes consist of many small, individual high-powered magnets and were involved in over one dozen reports of children ingesting the product since the November 2011 safety report. The CPSC alleged that the products continued to cause harm to young children and teenagers who ingested loose magnets, that the warnings and labeling of the products are defective as they do not effectively communicate the hazards associated with ingestion and that the products are a substantial risk hazard.
Initially, Maxfield vigorously and publicly defended against the CPSC action. Zucker was front and center in the media campaign arguing that Maxfield had been unfairly singled out. However, on December 27, 2012, Maxfield stopped doing business and filed a Certificate of Cancellation with the Secretary of State of Delaware. Following the dissolution, Maxfield’s counsel filed a notice of withdrawal from the administrative action and stopped communicating with CPSC’s counsel regarding the company’s status or its intentions in the litigation.8 Moreover, the Trustee for the Maxfield
PERSONAL LIABILITY FOR PRODUCT RECALLS: SHOULD CORPORATE OFFICERS BE CONCERNED?By: David G. Wix1
Continued on page 13
1 David Wix is a founding partner of Tarpey Wix LLC in Chicago, Illinois. In addition to his commercial litigation practice, Dave represents manufacturers in product liability litigation and routinely advises manufacturers on the coordination and implementation of product recalls as well as strategies for the reduction of potential product liability and product recall exposure. Dave graduated from Princeton University in 1989 and obtained his law degree from Chicago-Kent College of Law in 1994. 2 In the Matter of Maxfield and Oberton Holdings, LLC, “Order Granting Complaint Counsel’s Motion For Leave To File Second Amended Complaints In Dockets Nos. 12-1 and 12-2,” CPSC Docket Nos. 12-1, 12-2, 13-2 (May 3, 2013)(hereinafter referred to as the “Order”).3 As of the writing of this article, Mr. Zucker has pending a motion seeking leave to appeal the ALJ’s Order. 4 CPSC Release #07-163, “Small Magnets Are Injuring Children; CPSC Releases Stronger Warning to Parents,” April 19, 2007. 5 Id.6 CPSC Release #12-037, “CPSC Warns High-Powered Magnets and Children Make a Deadly Mix,” November 10, 2011.7 Complaint, CPSC Docket No. 12-1.8 Complaint Counsel’s Memorandum In Support Of Motion For Leave To File Second Amended Complaint In Docket Nos. 12-1 and 12-2, p. 1.
Products Liability Committee Newsletter Summer 2013
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To purchase tickets and for more information, visit www.ambar.org/BrentAwards.
Products Liability Committee Newsletter Summer 2013
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This past spring has sprung a flurry of activity related to California’s Safe Drinking Water and Toxic Enforcement Act of 1986, also known as Proposition 65 (“Prop 65”). Two of the most notable are legislative proposals to update and amend Prop 65 to deflate the growing number of “bounty hunter” plaintiff cases, and an industry association’s successful court challenge to de-list the chemical bisphenol A (“BPA”). These developments provide some insight into the future of this controversial law.
PROPOSED CHANGES TO PROP 65
Currently, Prop 65 requires manufacturers, suppliers, importers and retailers to provide “clear and reasonable warnings” to Californians about the presence of chemicals “known to cause cancer or reproductive toxicity” in the products they purchase, in their workplaces, and in commercial spaces such as apartment buildings, hotels, airports, gas stations, restaurants, and stores. The Governor publishes an updated list of regulated chemicals at least once a year. Businesses have twelve months to comply from the date a chemical is listed.
To the consternation of many business owners, Prop 65 allows “private attorneys general”—in addition to the California Attorney General and local district attorneys—to sue when appropriate warnings are claimed to be required but missing. As a result, the majority of lawsuits brought under Prop 65 are filed by private “bounty hunters” and their attorneys who file “shake-down” lawsuits and reap enormous fees for doing so. According to the Attorney General’s Settlement Summary for 2012, of the 437 Prop 65 cases settled last year, 397 were brought by private “bounty hunters.” In 2012 alone, these “bounty hunters” received attorneys’ fees of $14,579,593.00, which comprised 71.3% of total
settlement monies. Thus, the majority of settlement funds, constituting “civil penalties” and attorneys’ fees, convey little real benefit on the citizens of California.
In a long-overdue effort to improve California’s faltering business climate, Governor Jerry Brown recently proposed certain measures to reform Prop 65. Gov. Brown and the California Environmental Protection Agency agree changes are necessary to update the applicable scientific standards and address the “bounty hunter” lawsuits. The current proposals include:
• limiting plaintiffs’ attorney fee recoveries;
• requiring stronger scientific showing in support of plaintiffs’ claims before initiating litigation;
• requiring greater disclosure of plaintiffs’ supporting information;
• setting limits on the amount of money that can go into settlement funds in lieu of penalties;
• giving the state the ability to adjust “safe harbor levels” for chemicals that purportedly cause reproductive harm; and
• requiring the dissemination of more useful information to the public on what they are being exposed to and how they can protect themselves.
This plan parallels recent efforts by the California Legislature to amend Prop 65. Earlier this year, a bill that would allow businesses to fix alleged warning violations (“AB 227”) achieved unanimous bipartisan support in the Assembly Judiciary Committee. In mid June, the Senate Environmental Quality Committee unanimously voted to pass AB 227 and refer it to the Committee on Judiciary. AB 227 is essentially a “fix-
SPRING 2013 UPDATE ON CALIFORNIA’S PROPOSITION 65: CHANGES AND CHALLENGES AFOOTBy: Monica M. Welt and Lynn R. Levitan1
Continued on page 15
1 Monica M. Welt and Lynn R. Levitan are counsel at Crowell & Moring LLP, in the Washington, DC and Los Angeles offices, respectively. Both are members of the firm’s Product Liability & Toxic Tort Practice with broad experience in commercial litigation and product liability issues. Ms. Welt provides strategic counseling to major chemical industry companies on federal regulatory compliance, litigation avoidance, and risk management issues, while Ms. Levitan counsels corporate clients with regard to California’s Proposition 65 as well as compliance with the federal and California Occupational Safety and Health Act. This article states opinions of its authors, and does not necessarily represent opinions of Crowell & Moring LLP or its clients.
Products Liability Committee Newsletter Summer 2013
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The evidentiary issue of prior “other incidents” evidence, or “other similar incidents” (“OSI”) evidence,2 is a familiar one to attorneys litigating automotive
defect cases. Most product manufacturers, and particularly motor vehicle manufacturers, keep detailed databases of customer complaints of “incidents” or “defects” involving their products, which may involve tens of thousands of pages of discoverable material. Under the well established “substantial similarity” standard,3 Plaintiffs seek to introduce those complaints at trial in some form, while defendants seek to exclude or limit that evidence. While both attorneys and judges speak in terms of “substantial similarity,” the concept is such a familiar and often invoked one that its nuances tend to get lost, creating confusion about the precise level and form of similarity that must be shown for those other incidents to reach the factfinder. The answer varies depending on the particular case, alleged defect, purpose and accident facts, and proper application of these principles may require reassessing what many of us already know.4
In the “typical” automotive design defect crashworthiness case, both sides are in possession of numerous consumer complaints regarding the same model vehicle, or the same alleged defect, as the subject case. During pretrial motion practice, the defendant manufacturer cites distinguishing factors and missing information to exclude that evidence. The plaintiff, in turn, attempts to maximize the amount of evidence that reaches the jury, pointing to the similarities in, for instance, vehicle model, accident type, defect alleged, or injuries sustained. While plaintiffs and defendants, therefore, advance understandably divergent views of what constitutes “substantial similarity,” both sides—indeed, trial courts as well—run the risk of missing the true purpose of the substantial similarity requirement:
limiting evidence to what is probative on the issues in the case.
Any practitioner who has encountered the “OSI” issue can recite the basic requirements: the other incidents generally must involve the same product; the evidence may be admissible on the issues of defect, causation, or notice; the proponent of the evidence has the burden of proving substantial similarity. What some judges and practitioners may overlook, however, is the need for the inquiry to be a flexible one. The issue of substantial similarity is relatively straightforward in, say, a premises liability case or simple product design case involving a limited number of factors to consider. The substantial similarity issue gains multiple dimensions in the highly technical and fact-sensitive arena of motor vehicle design, in conjunction with the dynamic circumstances of a motor vehicle accident.
Therefore, the general parameters of the substantial similarity requirement may not be difficult to grasp, but in practice the doctrine is trickier to apply. Take, for example, a claim that a driver’s side door latch is defective and improperly opened during a side impact collision, ejecting the driver. Plaintiffs will seek admission of other incidents involving perhaps no more than the same vehicle model, in which the same door was impacted, resulting in injuries to an occupant in the same position. In contrast, the defendant will argue that, additionally, the impact speed and angle must be the same, as well as the driving and roadway conditions, post-impact vehicle trajectory, and other factors that may be unique to the particular case. Inevitably, the court will have to draw the line somewhere between a bare showing of cursory similarity and virtual identity of incidents. Thus, before incidents can even be compared to determine whether they are substantially similar to the subject case, the question that must be answered is what factors must be compared for a proper evaluation of the asserted similarity between incidents.
A STEP BACK FROM THE ISSUE OF OTHER INCIDENTS: THE HOW AND WHY OF SUBSTANTIAL SIMILARITYBy: Katherine A. Wang1
1 Kate Wang is an associate at Campbell Campbell Edwards & Conroy, in Berwyn, Pennsylvania. Kate’s practice focuses on product liability defense and appeals, and she defends auto manufacturers in state and federal courts across the country. 2 The commonly used “other similar incidents” or “OSI” shorthand is itself a misnomer—the title puts the cart before the horse in assuming the “similarity” of other proffered incidents before undertaking any comparison to the facts of the subject accident.3 In other words, the requirement that, for a prior incident to be admissible, it must be “substantially similar” to the subject incident. See, e.g., McKinnon v. Skil Corp., 638 F.2d 270 (1st Cir. 1981); Barker v. Deere & Co., 60 F.3d 158 (3d Cir. 1995); Lewy v. Remington Arms Co., 836 F.2d 1104 (5th Cir. 1988); Jones v. Otis Elevator Co., 861 F.2d 655 (11th Cir. 1988).4 Because of the myriad sub-issues that can and do often arise in the context of other incidents, this article attempts only a general overview of some of the most common issues and is in no way a comprehensive look at the full scope of “OSI” or “substantial similarity” issues.
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Problems arise when trial courts either try to apply an artificially rigid standard to OSI evidence, or when courts make their evidentiary rulings in an effort to “split the baby.” Again, taking the door latch example, an easy out for the trial judge is to rule, for instance, that the plaintiff may introduce incidents involving only the vehicle model at issue, for side impact collisions in which the same door was impacted. Such a ruling is potentially both overinclusive and underinclusive; however, rulings of this type are also much too common.
Taking each factor separately, the identity of the vehicle model, alone, may say little or nothing about the true issue at hand: the design defect allegation in the driver’s door. A single vehicle model may utilize multiple different designs of the door latch or other components that will affect the operation of the driver’s door latch. Certain vehicle options may interact with the door latch in a way that, for purposes of the specific allegations in a given case, makes some vehicles substantially dissimilar—even if they otherwise look identical. At the same time, different vehicle models utilizing the same vehicle body and door latch may or may not, based on the specific defect theory, be more similar to the subject vehicle and incident than an outwardly identical vehicle.
Likewise, the level of similarity required for the impact itself will vary based on the specific incident and allegations in the subject case. While judges may attempt to simplify the inquiry, the reality is that design defect allegations, particularly in crashworthiness cases, require detailed accident reconstruction—not only of the subject accident, but any accident being compared. Without the aid of experts for both sides who have the full facts of each proffered other incident and may be cross-examined on their opinions, it is difficult, if not impossible, for the court or the jury to adequately and accurately compare the proffered incident to determine its relevance to the subject accident and defect claims.
In the door latch example, for instance, the angle and velocity of the impact are crucial factors in determining whether the subject latch failed because of a defect or whether the severity of the impact exceeded the latch design’s reasonable capacity. Thus, a collision that involved a SUV impacting a stationary sedan at a 90 degree angle and 45 mph may have vastly different defect implications from a collision involving the same two vehicles impacting at a 75 degree angle or 38 mph. Again,
there is no hard and fast rule; the proper inquiry will require analysis of the subject latch design’s impact threshold—in other words, if the latch is designed to remain closed in impacts up to 40 mph, the fact that a door opened in a 45 mph impact does not suggest any design defect, while the door opening in a 35 mph impact might. In that hypothetical scenario, if the subject impact took place at 35 mph, an otherwise identical accident at 45 mph may be less similar, and therefore, less relevant, than an impact involving a different vehicle model manufactured with the same latch that occurred at 25 mph.5 Similarly, if the particular plaintiff in the subject case suffered injuries as a result of being ejected, an accident involving a seatbelted occupant who suffered injuries from an intruding object is of limited relevance, even if the accident facts are otherwise similar. Determining what factors are relevant to the substantial similarity analysis in a given case, therefore, in itself requires expert guidance.6
A related problem arises when the proffered incidents lack sufficient factual background to determine whether they are substantially similar. Because the proffered incidents generally are within the manufacturer’s possession and produced by the manufacturer during discovery, trial courts are understandably reluctant to exclude such incidents based on a lack of factual basis or background. However, in reality, it would be impractical and prohibitively expensive—if not simply impossible—to conduct a full expert investigation into each customer complaint. Thus, unless the complaint results in a lawsuit, only limited information is available, and only a summary record will be created and retained. Allowing such bare facts of other incidents to reach the jury implicates both the relevance and prejudice considerations that the substantial similarity requirement is intended to avoid.
In summary, like any issue in automotive litigation, the issues of other incidents and substantial similarity arise frequently, but are not always completely understood. It is, therefore, incumbent upon both practitioners and trial judges to occasionally get back to the basics of thinking about probative value and potential prejudice attached to evidence of other incidents. Taking that step back is a necessary measure for those encountering the issue to observe and uphold the substantial similarity requirement based on the purpose for its existence—ensuring that only relevant evidence reaches the jury and results in a fair trial for all.
5 See, e.g., Nachtsheim v. Beech Aircraft Corp., 847 F.2d 1261, 1269 (7th Cir. 1988) (plaintiffs failed to present evidence that the same “dangerous condition” was involved between subject incident and proffered other accident). 6 Further complicating the issue, the parties and their experts will often disagree as to what vehicle or accident features must be identical in order to reach a finding of substantial similarity—for instance, a defense expert may opine that the angle or duration of the impact must be within 10 degrees of the subject impact to be substantially similar, while a plaintiff’s expert may argue that any impact within 20 degrees meets the standard.
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(a) the component is defective in itself, as defined in this Chapter, and the defect causes the harm; or
(1) the seller or distributor of the component substantially participates in the integration of the component into the design of the product; and
(2) the integration of the component causes the product to be defective, as defined in this Chapter; and
(3) the defect in the product causes the harm .
Comment a to the Restatement, Section 5 explains that, as a general rule, component suppliers should not be subject for strict liability when the component itself is not defective. If the component is not itself defective, it would be unjust and inefficient to impose strict liability on the component part manufacturer solely on the ground that the manufacturer of the integrated or finished product utilizes the component in a manner that renders the integrated, finished product defective. Comment a further notes that imposing strict liability on the manufacturer of a component part would require the component seller to scrutinize another’s product which the component seller has no role in developing. This would require the component seller to develop sufficient sophistication to review the decisions of the business entity that is already charged with responsibility for the integrated, finished product. Sellers of non-defective components who do not participate in the integration of the component into the design of the integrated, finished product should not be liable merely because the integration of the component causes the product to become dangerously defective. The Restatement, Section 5 subjects component sellers to liability only when the components themselves are defective or when the component providers substantially participate in the integration of the components into the design of the finished product and the integration actually causes the finished product to be defective and the resulting defect causes the harm.
So what is “substantial participation” in the integration of the component into the finished product? Comment e to the Restatement, Section 5 provides that
substantial participation can take various forms. The manufacturer or assembler of the integrated product may invite the component seller to design a component that will perform specifically as part of the integrated product or to assist in modifying the design of the integrated product to accept the seller’s component. Or the component seller may play a substantial role in deciding which component best serves the requirements of the integrated product. Comment e explains that under such circumstances, it is fair and reasonable to hold the component seller responsible for harm caused by the defective, integrated product.
However, comment e cautions that a component seller who simply designs a component to its buyer’s specifications, and does not substantially participate in
the integration of the component into the design of the product, is not liable
within the meaning of subsection (b) of the Restatement, Section 5. Moreover, simply providing
mechanical or technical services or advice concerning
a component part does not, by itself, constitute substantial participation that would subject the component supplier to liability.
What about the duty to warn? Comment b to the Restatement, Section 5 notes that the same principles apply in determining a component seller’s duty to supply reasonable instructions and warnings to the component buyer. The component seller is required to provide instructions and warnings regarding risks associated with the use of the component product. However, when a sophisticated buyer integrates a component into another product, the component seller owes no duty to warn either the immediate buyer or ultimate consumer of dangers arising because the component is unsuited for the special purpose to which the buyer puts it. “To impose a duty to warn in such a circumstance would require that component sellers monitor the development of products and systems into which their components are to be integrated.” Comment b, Restatement, Section 5. A component part manufacturer has no duty to warn of dangers unless the component itself is defective, or the component supplier “actively participated in the integration of the component into the final system.” Ranger Conveying & Supply Co. v. Davis, 254 S.W.3d 471, 482 (Tex. App.—Houston [1st Dist.] 2007, pet. denied) (citing the Restatement, Section 5); Zaza v. Marquess & Nell, Inc., 675 A.2d 620, 635 (N.J. 1996) (“The duty to warn does not extend to the speculative
THE COMPONENT SUPPLIER...Continued from page 1
There is a great deal of confusion among practitioners
about the liability of component part manufacturers in multi-party product
liability cases.
Products Liability Committee Newsletter Summer 2013
12 12
anticipation of how component parts that are not defective can become potentially dangerous, depending on the nature of the integration into a complex system designed and assembled by another.”); see also McCormick v. Nikkel Associates, Inc. d/b/a Electrical Contractors, 819 N.W.2d 368, 375 (Iowa 2012) (“Therefore, we recognize various ‘no duty’ rules in the warning area based on principles analogous to the lack of control,” citing the Restatement, Section 5).
The component supplier doctrine is well recognized in jurisdictions throughout the United States. In fact, courts in some 17 states have adopted or cited with approval to the Restatement, Section 5, or the substance of the component supplier doctrine. For example, under Texas law, a manufacturer who supplies a non-defective component which is assembled into a finished product by another party generally cannot be held liable for defects in the finished product itself. “[I]f the component-part manufacturer does not participate in the integration of the component into the finished product, it is not liable for defects in the final product if the component itself is not defective.” Bostrom Seating, Inc. v. Crane Carrier Co., 140 S.W.3d 681, 683 (Tex. 2004) (citing the Restatement, Section 5). Bostrom Seating further notes that a manufacturer of a non-defective part is also not liable for indemnity to the manufacturer of the finished product. “[I]f no evidence exists to indicate that the component part was itself defective, the component part manufacturer should be relieved of any liability for a design or manufacturing defect in the final product, including any action for indemnification.” Id. (emphasis added).
In Smith v. Robin America, Inc., a case in the U.S. District Court for the Southern District of Texas in which this writer represented one of the defendants, the plaintiffs alleged that a small engine used in a generator caused three persons to die of carbon monoxide poisoning during Hurricane Ike. 773 F. Supp. 2d 708, 710 (S.D. Tex. 2011), aff’d, 484 F. App’x 908 (5th Cir. Aug. 1, 2012). The trial court noted that the defendant engine manufacturer and distributor “ can be liable only if the engine itself was defective or it actively participated in the integration of the engine into the generator.” Id. at 715. The trial court found that the engine “was a small, multipurpose internal combustion engine that could have been used for any number of outdoor applications for which the risk of carbon monoxide build-up would have been minimal or nonexistent.” Id. Because the component itself was not defective, and because the manufacturer and distributor had not substantially
participated in the integration of the component into the finished generator, the trial court granted summary judgment, dismissing plaintiffs’ claims against the manufacturer and distributor of the engine. Id.
Courts in many other states have expressly adopted the Restatement, Section 5, or the substance of the component supplier doctrine. See, e.g., Loos v. Am. Energy Savers, Inc., 522 N.E.2d 841, 845 (Ill. App. Ct. 1988) (affirming summary judgment entered under Illinois law on behalf of builder of tower portion of wind-powered generator where tower support legs failed during high wind, but tower had been built according to specifications); O’Neil v. Crane Co., 266 P.3d 987, 1005, 1007 (Cal. 2012) (holding under California law that a product manufacturer could not be held liable in strict liability or negligence for harm caused by another manufacturer’s product unless the defendant’s own product contributed substantially to the harm, or the defendant participated substantially in creating a harmful combined use of the products); Kohler Co. v. Marcotte, 907 So. 2d 596, 598–600 (Fla. Dist. Ct. App. 2005) (reversing a jury verdict in favor of the plaintiff and holding under Florida law that the defendant component part manufacturer of a lawn mower engine could not be held strictly liable for a child’s injuries because its generically designed engine was not “defective in itself” and it took no part in integrating the engine into the lawn mower or reviewing the overall lawn mower design for safety); Gudmundson v. Del Ozone, 232 P.3d 1059, 1074 (Utah 2010) (adopting the “component-parts doctrine” under Utah law, and remanding to the trial court to determine whether an ozone generator was a non-defective product, the integration of which caused the overall system to be defective, and whether defendants substantially participated in the design of the installed system); Godoy ex. rel. Gramling v. E.I. du Pont de Nemours & Co., 743 N.W.2d 159, 163–64 (Wis. Ct. App. 2007) (affirming dismissal of claims against the manufacturer of a non-defective pigment used in paint, reasoning under Wisconsin law that raw material sellers are not subject to liability for harm caused by defective design of the end-product).
Accordingly, those who represent manufacturers of component parts in product liability litigation should focus on the component supplier doctrine. If it can be proved that the component itself was not defective, and that the manufacturer or seller of the component did not substantially participate in the integration of the component into the design of the finished product, then dismissal or summary judgment of the plaintiff’s
Products Liability Committee Newsletter Summer 2013
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Liquidating Trust, established to deal with potential claims against the company, stated that it would not appear in the litigation.9
The Maxfield dissolution prompted the CPSC to shift its focus to having Zucker as a Respondent.
The ALJ Allows the Case to Proceed Against the CEO
In ruling that the CPSC could proceed against Zucker, individually, the ALJ first determined that his status as a party would not unduly broaden the ultimate issue to be decided because the principal determination “is whether the subject magnets present a substantial product hazard within the meaning of the Consumer Product Safety Act (“CPSA”), and, if so what relief should be granted.”10
Next, the ALJ examined whether an individual could be held responsible for recall-related remedies under the CPSA. Finding that the statutory language did not answer the question, the ALJ examined the ‘responsible corporate officer doctrine’ which has its origins in the United States Supreme Court decisions in United States v. Dotterweich, 320 U.S. 277 (1943) and United States v. Park, 421 U.S. 658 (1975). That doctrine, which has been applied to statutes involving public health and safety, permits corporate officials to be held liable for the actions of the company when the individual’s position within the company gave him the responsibility to prevent the alleged violation. After discussing the relevant case law, the ALJ determined that because “the responsible corporate officer doctrine has been applied throughout the federal circuits, especially in the context of public health, safety, and welfare statutes,”11 and the CPSA relates to the public’s health and safety, the doctrine was applicable. The ALJ held that allegations that Zucker “is responsible for ensuring Maxfield’s compliance with the CPSA” were sufficient to state a claim against him. The ALJ refrained from making any decisions on the merits of the CPSC’s claim that Zucker was integral to the design, manufacturing and marketing of the products.
Potential Ramifications For Corporate Officers
This decision raises the prospect of corporate officers being held personally responsible for product recall-related remedies and expenses. This is not insignificant as even small recalls can be very expensive. Factor in potential liability for such things as providing refunds to consumers, which the CPSC is seeking against Zucker, or paying substantial civil penalties, and the amounts at stake could be staggering.
In practice, pursuit of individual liability will be limited since the CPSC rarely resorts to filing administrative actions and it has no practical incentive to pursue individuals when a viable company exists to carry out a recall or other corrective action. Indeed, the CPSC’s decision to pursue Zucker in this case was likely driven by Maxfield’s dissolution and subsequent lack of participation in the litigation than by any dramatic shift in CPSC policy to pursue individuals.
Nonetheless, if this decision stands, the CPSC will have the ability to threaten corporate officers with personal liability for violations of the CPSA. This could dramatically increase the CPSC’s power and influence. For instance, corporate officers faced with a decision whether to challenge CPSC demands for a recall or other action will have to consider the specter of being personally named in a CPSC administrative action. Even if ultimately found not to be liable, corporate officers will have to participate personally in any proceeding, and likely will have to engage separate counsel, which because of possible criminal implications may not be covered by applicable D&O insurance policies. Faced with these potential risks, a company may be forced to capitulate to CPSC demands rather than challenging the CPSC. Thus, the mere threat of individual liability could prove to be a very powerful weapon for the CPSC in enforcing its mandates or agenda.
This threat will have teeth because based on this ruling, the bar for stating a claim against corporate
PERSONAL LIABILITY FOR...Continued from page 6
9 Id., pp. 1-2.10 Order, p. 7.11 Id., p. 15.
claims against the manufacturer of the component part should be sought. Further, cases such as Bostrom Seating, supra, make it clear that the component
supplier doctrine can provide a defense to indemnity claims by other manufacturers as well as direct claims by the plaintiff.
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officers is low. The allegations deemed to be sufficient against Zucker were:
• Zucker is the cofounder and Chief Executive Officer of Maxfield. As such, he controls the acts, practices and policies of the Firm.
• Upon information and belief, at all relevant times Zucker was and is responsible for ensuring Maxfield’s compliance with the requirements of the CPSA, ASTM-963-08 section 3.1.72 and its most recent version, ASTM 963-11 section 3.1.81 (the “Toy Standard”) and regulations issued thereunder.
• Whenever this Complaint refers to any act of the Respondents, the reference shall be deemed to mean that the directors, officers, employees, or agents of the Firm, including Zucker, authorized such act while actively engaged in the management, direction, or control of the affairs of the Firm while acting within the scope of their employment or official duties.12
These are very broad and general allegations that could apply to virtually every CEO or corporate officer.
Finally, while the ALJ’s decision did not address the merits of whether sanctions against Zucker were appropriate, the evidence the CPSC apparently intends to rely on to prove he exercised personal control over the acts and practices of the corporation is potentially concerning to any corporate officer. According to filed pleadings, the CPSC intends to rely on the following actions by Zucker to prove its case:
• Communications with the CPSC where he “consistently identified himself as the CEO and principal decision maker” of Maxfield.
• Meetings he participated in with the CPSC.
• Formal information he submitted to the CPSC on behalf of the company including a Section 15(b) Full Report in which he is identified as the author of the report, the CEO, and as the person “responsible for the development and enforcement of [Maxfield’s] compliance program.”
• Comments submitted in response to the CPSC’s Proposed Safety Standard for Magnet Sets.
• His lobbying of Congress and his open letter to President Obama.
• His numerous interviews on television, in print, and on internet radio on behalf of Maxfield.
• Declarations he made on Maxfield’s behalf in other federal litigation.
These actions are routinely undertaken by CEOs or corporate officers, particularly in smaller companies. If this ruling is upheld and the case against Zucker actually proceeds to trial, it will be very interesting to see whether this type of evidence is sufficient to support liability under the responsible corporate officer doctrine. It is too early to jump to any conclusions on this, but the potential implications are many.
For now, the ultimate impact this decision will have remains to be seen, but it is definitely one manufacturers and industry groups should and will continue to monitor.
12 Second Amended Complaint, CPSC Docket No. 12-1, ¶¶6-7, 9.
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Products Liability Committee Newsletter Summer 2013
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it ticket” for warning violations for the most common, everyday substances regulated by Prop 65, including exposures to beverage alcohol, food-related chemicals, tobacco smoke, and vehicle exhaust. In these cases, an alleged violator could avoid a lawsuit by paying a $500 penalty for each facility where the violation occurred, and by posting the required warnings within 14 days of being notified of the violation. AB 227 originally required that businesses demonstrate to the State Attorney General, or private party “bounty hunter” that they had fixed the alleged violations. Amendments to the bill instead provide that businesses need only swear in a written statement, under penalty of perjury, that the violations have been corrected.
Any change to Prop 65 requires approval from at least two-thirds of both houses of the Legislature. However, given the unanimous bipartisan votes thus far, it is predicted that AB 227 will pass. If this occurs, and because most Prop 65 violations are typically resolved by paying penalties and adding warnings, AB 227 is expected to dramatically decrease the number of purported violations that would be attractive to Prop 65 bounty hunters.
ACC’S BATTLE WITH CALIFORNIA OVER ADDING BPA TO PROP 65
In January 2013, California’s Office of Environmental Health Hazard Assessment (“OEHHA”) announced that it intended to add BPA to the Prop 65 list of regulated chemicals. BPA is an industrial chemical primarily used in epoxies and to make shatter-resistant, lightweight polycarbonate plastic. Adding BPA to the Prop 65 list would have required warning labels on thousands of products in California’s stream of commerce, including metal food and drink storage containers, medical syringes, safety goggles, headlights, sunroofs, cell phones, and computers. In response, the American Chemistry Council (“ACC”) filed suit against OEHHA two months later on the grounds that BPA’s proposed addition to the Prop 65 list was “scientifically unjustified” and that no governmental agency or health body had ever found BPA to be a reproductive health concern. (American Chemistry Council v. Office of Environmental Health Hazard Assessment, Cal. Super. Ct., No. 34-2013-00140720).
OEHHA’s move to add BPA to the Prop 65 list came nearly four years after California appointed a
committee of experts to consider whether BPA should be considered a reproductive toxicant. Nonetheless, OEHHA acted unilaterally and without regard for the expert committee’s findings. Within three months, OEHHA executed its notice and published a new Prop 65 list that included BPA. The listing was in direct contravention of the expert committee’s unanimous (7-0) vote that the science did not support listing BPA as a known reproductive toxin. OEHHA’s decision to act contrary to an expert committee’s findings regarding a chemical’s toxicity was unprecedented, but short-lived.
Approximately one month after the ACC filed its complaint, a California trial judge issued a preliminary injunction ordering OEHHA to remove BPA from the Prop 65 list until there was a final determination concerning its toxicity. The Court ruled “that ACC has a reasonable probability of prevailing on the merits,” thereby preventing OEHHA from listing BPA. The Court recognized that the National Toxicity Program’s Center for Evaluation of Risks to Human Reproduction 2008 report on BPA (“NTP Report”), which formed the sole basis for OEHHA’s decision, did not identify BPA as causing reproductive harm in humans. To the contrary, the NTP Report found there was “insufficient evidence for a conclusion that BPA causes adverse developmental or reproductive effect in humans.” Thus, the Court concluded that while the animal studies identified developmental toxicity risks, the NTP Report did not definitively state that these risks could be reasonably extrapolated to human impacts. The State’s expert committee had analyzed the same report and underlying studies before unanimously determining that the animal data was itself insufficient.
In light of these findings, the Court agreed that listing BPA as a reproductive toxicant under Prop 65 would cause irreparable harm to ACC members and virtually all U.S. manufacturers, wholesalers, and retailers of products that use BPA. ACC argued successfully that the failure “to enjoin OEHHA from listing BPA [would] create scientifically unwarranted and spurious fears among an unsuspecting public, result in an imminent and irreversible de-selection by consumers and retailers (among others) of products containing BPA…and cost millions of dollars in losses among manufacturers, distributors, retailers, farmers, and the economy in general.” Even though the requirement to post a Prop 65 warning is not triggered until a chemical has been listed for 12 months—April 2014 had OEHHA’s decision stood—the stigma of a Prop 65 listing could immediately impact consumer perceptions and purchasing choices.
SPRING 2013 UPDATE ON...Continued from page 8
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For example, despite the fact the levels of BPA in most cans and bottles with epoxy linings are below OEHHA’s proposed “safe-harbor,” it was foreseeable that overly cautious producers would have either removed epoxy linings or added Prop 65 warnings on the majority of canned products sold across all 50 states, since most canned food is either produced in California or potentially sold there. Indeed, if BPA remained on the Prop 65 list while the Court determined the underlying matter, manufacturers and retailers would have likely stopped making and selling products with BPA even before the Court had a chance to rule. With the absence of scientific support underlying OEHHA’s decision, the Court ordered the de-listing of BPA to prevent such unwarranted harm.
Where Does the BPA Prop 65 Fight Go From Here?
The battle over BPA is far from over, and the timing of the next phase is unclear. While the Court indicated that the underlying matter would be assigned to an administrative law judge (“ALJ”), that has not yet occurred. In any event, the ALJ will be required to consider the National Resources Defense Council’s (“NRDC”) recently-filed motion to intervene before the merits of the case can be litigated. Further, sources close to the litigation predict that, no matter which side prevails, the Court’s final decision will be appealed—virtually guaranteeing that this battle will continue through 2014.
Presently unpublished results from ongoing scientific testing may make all the difference in the ongoing fight over BPA. Two highly credible government bodies have studies underway that may shed new light on the safety or toxicity of BPA. The Food and Drug Administration is performing three studies to assess exposure to low dose exposure to BPA from dietary sources. The results from a subchronic toxicity study are expected to be published shortly. A chronic toxicity study and a medical device exposure study are also underway. In addition, the National Toxicity Program is assessing the absorption, distribution, metabolism and excretion of BPA in humans.
While these studies may not be in evidence in the current ACC litigation, they will likely play a role in the next assessment of BPA’s toxicity. OEHHA has signaled that it will not drop the BPA issue. Even if the preliminary injunction becomes permanent, it may be limited to a Prop 65 listing that relies solely on the 2008 NTP Report. Once the ongoing FDA and NTP studies are complete, NTP may issue a new report on reproductive toxicity which could trigger an OEHHA reassessment of BPA. Any reassessment is likely to be conducted by new players—only one of the seven experts who voted against listing BPA remains on the panel. With pressure from the NRDC and its allies, it is fair to assume that OEHHA will look again at listing BPA on Prop 65 when the opportunity arises.
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2013-2014 TIPS CALENDARAugust 2013 8-11 ABA Annual Meeting Westin St. Francis Contact: Felisha A. Stewart – 312/988-5672 San Francisco, CA Speaker Contact: Donald Quarles – 312/988-5708
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