Post-sale Duties: How to Comply and How to Defend Product Liability Litigation after Recalls

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Post-sale Duties: How to Comply and How to Defend Product Liability Litigation after Recalls TUESDAY, APRIL 2, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Kenneth Ross, Of Counsel, Bowman and Brooke, Midway, Utah George W. Soule, Partner, Soule & Stull, Minneapolis The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 1.

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5 Post-Sale Duties: How to Comply and How to Defend Product Liability Litigation after Recalls Kenneth Ross George W. Soule 5

6 Preventive Law Product Liability Product Safety Regulatory Compliance 6

7 Why should product safety be your concern? Product Liability Lawsuits Insurance claims Lost Sales Recalls Increased Operational Costs Reputation Damage Media Exposure Public Embarrassment Government Penalties Fines Consent Decrees Criminal charges Social Responsibility 7

8 RECALLS: Common Law and Regulatory Law Kenneth Ross Bowman and Brooke LLP 8

9 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 9

10 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 10

11 Boeing software update NYT, 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 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. 11

12 U.S. regulatory Consumer Product Safety Commission National Highway Traffic Safety Admin. Food and Drug Administration U.S. common law Foreign regulatory Legal Requirements EU, Canada, Australia, Japan, South Africa, Taiwan, China, Brazil, etc. 12

13 U.S. Common Law 13

14 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). 14

15 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 15

16 Section 10 Restatement Since 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 16

17 Independent claims Most states have adopted some form of postsale 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. 17

18 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 18

19 Based on negligence What is adequate? 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 19

20 U.S. Regulatory Law 20

21 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 CPSA or 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 21

22 Pattern of defect CPSC Criteria for Substantial Product Hazard (Reporting and Recall) 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 22

23 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 23

24 Report to FDA Malfunction Serious injury or illness Death 24

25 International Regulatory Law 25

26 Canada 26

27 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 27

28 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 28

29 Japan Korea South Africa Brazil China Other countries 29

30 Preparing Pre-sale and Post-sale 30

31 Design issues Contracts Pre-Sale Advance Planning Traceability and marking Ability to identify customers, including social media efforts Public communications Determine legal reporting responsibilities Checklists, personnel and committees 31

32 Pre-Sale Advance Planning Finance and accounting Early warning systems Record creation and retention Training/mock recalls Reintroduction Audit 32

33 Information Gathering Claims, accidents and lawsuits Complaints from consumers and users directly and via social media Warranty returns Observations by service personnel Parts sales 33

34 Information Gathering Information from government Information from competitors and trade associations Information from vendors Information from Internet (i.e. blogs and social media) 34

35 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? 35

36 Managing the Recall 36

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39 Recall Checklist Identify defect/safety issue Stop production Isolate inventory to be recalled Determine appropriate remedy Test replacement/repair 39

40 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 40

41 High-tech Developments Communicate by to customers, distributors, retailers, etc. Video and text messages on website Web based registration for returns Increase ID of customers Increase response rate 41

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44 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. 44

45 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. 45

46 Recall Insurance 46

47 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 47

48 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 48

49 For articles on post-sale duties, see 49

50 RECALLS: LESSONS FROM LITIGATION George W. Soule Soule & Stull LLC Minneapolis, Minnesota 50

51 TOPICS Managing the recall Defending the recall Defending the product after the recall 51

52 DO THE RIGHT THING SPIKE LEE,

53 DO THE RIGHT THING Make the right decision for product safety Understand that you will become a target Be mindful of litigation interests 53

54 STAY IN TOUCH WITH FIELD Accident reports Communications from dealers and customers Warranty claims Competitors designs Product and safety literature Scientific advancements 54

55 TIMING IS EVERYTHING GARRETT HEDLUND, COUNTRY SINGER 55

56 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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58 DON'T LET YOUR IDEAS GET BURIED 58

59 WHATEVER YOU SAY MAY BE USED AGAINST YOU IN A COURT OF LAW MIRANDA WARNING 59

60 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 60

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62 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 redesigned fuel pump and fuel system filter screens and hoses. 62

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67 BE GALLANT, NOT GOOFUS Be careful in communications 67

68 THINK BEFORE YOU PRESS SEND Avoid product criticisms Do not speculate or editorialize Do not blame others Do not equate safety with cost 68

69 CLOSE THE LOOP ON DECISION You have received information about potential problems Must document decision on how to respond to problems 69

70 JUST THE FACTS, MA'AM JACK WEBB, DRAGNET 70

71 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 71

72 DEFENDING THE RECALL 72

73 TIMELINE Product Manufactured Recall Accident 73

74 NO DUTY TO RECALL PRODUCT No duty to recall or retrofit Restatement (3 rd ) Products Liability 11 If manufacturer undertakes recall, duty to use reasonable care 74

75 FAILURE TO NOTIFY OWNER Mistake in notification process Insufficient efforts to reach owners Failure to use mass media Obligation to use social media? 75

76 OTHER CLAIMS Recall was too late The recall fix was inadequate 76

77 OFFENSIVE USE OF RECALL Product owner ignored recall notice Ground for comparative fault Recall provided additional warnings against misuse 77

78 DEFENDING THE PRODUCT AFTER THE RECALL 78

79 TIMELINE Product Manufactured Accident Recall 79

80 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 80

81 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

82 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 82

83 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 83

84 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 84

85 DUE CARE STORY Standards Government regulations Agency approval Competitors Risk evaluation Testing Product literature Warnings/instructions 85

86 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 86

87 Number of motorcycles 1999: : : 2109 Assume all sold on July miles per year 87

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89 6509 motorcycles 51,072,000 motorcycle miles 0 accidents 0 injuries 89

90 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 90

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95 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 95

96 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 96

97 Stay Calm and Call Your Lawyer 97