The Expansion of Product Liability Theory

Depending on the source cited, California's expanding economy ranks in size, worldwide, anywhere between six and 10, if California were a country in and of itself. (www.en.wikipedia.org/wiki/economyofCalifornia#endnote_worldranking) California's position as a stand-alone economy may be matched as a stand-alone jurisdiction if recent appellate and trial court decisions permitting the expansion of the product liability theory to claims of environmental damage are upheld.

After a 78-day trial, on June 13, 2006, a San Francisco jury found against chemical manufacturing defendants The Dow Chemical Company and Vulcan Materials, and awarded a verdict of approximately $175 million. The trial judge subsequently reduced the verdict to $13 million but refused to grant a motion for a new trial. City of Modesto v. Vulcan Materials, The Dow Chemical Company Co., et al., City and County of San Francisco, Superior Court action number CGC-98-999345 (complaint filed Nov. 18, 1998).

The City of Modesto action is currently on appeal. Though briefs have not yet been filed, it is anticipated that the California First Appellate District Court will be addressing the issue of whether claims against defendant chemical manufacturers of Perchloroethyene under a product liability theory, in a situation where it is undisputed that the defendants did not release the widely used dry cleaning solvent into the soil and groundwater of the city of Modesto, are viable under California product liability law.

California has long been on the cutting edge of novel legal theories, and has enacted comprehensive legislative schemes to investigate, report, and clean up alleged environmental contamination. Among the issues facing the First District Appellate Court will be whether the use of product liability theories in prosecuting claims against alleged polluters is a new theory under California law, as well as whether it is a theory that should be permitted as a matter of public policy.

California's Strict Product Liability Law

The elements of a strict product liability cause of action in California require a defect in the manufacture or design of a product or a failure to warn; causation; and injury. In California, a plaintiff must ordinarily show: 1) the product is placed on the market; 2) there is knowledge that it will be used without inspection for defect; 3) the product proves to be defective; and 4) the defect causes injury. (Scott v. Metabolife Internat., Inc., 115 Cal.App.4th 404, 415 [9 Cal.Rptr.3d 242] (2004).)

Unlike many other jurisdictions, California state law does not restrict liability to cases arising after a retail sale or equivalent transaction, which might imply a more limited class of potential, expected uses. In California, a sale of a product is not necessary for imposition of product liability; the object must be 'placed on the market, knowing that it is to be used without inspection for defects … ' This is an important deviation from the Restatement Second of Torts and continues to distinguish California law from other jurisdictions, where a sale or an equivalent transaction is required.

California law in this area includes the public policy decision to allow bystanders to recover in strict liability. The California State Supreme Court observed in Price v. Shell Oil Co., 2 Cal.3d 245, 250 [85 Cal.Rptr. 178, 406 P.2d 722] (1970), that California's 'broad philosophy evolves naturally for the purpose of imposing strict liability which 'is to ensure the costs of injury resulting from defective products are borne by the manufacturers that put such products on the market rather than the injured persons who are powerless to protect themselves.” In fact, the California Supreme Court has pointed out in Elmore v. American Motors Corp., 70 Cal.2d 578, 586 75 Cal.Rptr. 652 (1969), that, if anything, bystanders should be given greater protection than consumers and users where harm to bystanders from a defect is reasonably foreseeable. The Elmore court emphasized: 'Consumers and users, at least, have the opportunity to inspect for defects and to limit their purchases to articles manufactured by reputable manufacturers and sold by reputable retailers, whereas the bystander ordinarily has no such opportunities.' Further, the court cited authority pointing out that injuries to bystanders are often perfectly foreseeable risks of the enterprise.

Application of California Product Liability Law to Environmental Damage Claims

Against this background, a panel of the Court of Appeal for the Third Appellate District in D.J. Nelson v. Superior Court, 144 Cal.App.4th 689 (2006), reversed a dismissal of a claim by the trial court against a gasoline manufacturer based on spills of its product by third parties. The property owner alleged that an additive to gasoline sold by Exxon Mobile Corporation leaked from gas stations not operated by Exxon Mobile into the property owner's water system. The trial court concluded that strict liability did not apply because the property owner was not harmed by any use of the gasoline after it had reached an ultimate consumer or user.

The appellate court, in granting relief to a writ of mandate challenging the trial court's granting judgment on the pleadings, held that strict liability extended to products that had left the control of the manufacturer and had been placed on the market. The court reasoned that California provided broad protection to bystanders and did not limit strict liability to situations occurring after the sale of the product or an equivalent transaction. A manufacturer had to anticipate reasonable uses of a product while it was on the market. Foreseeable uses of gasoline reasonably included storing it at a gas station, transferring it through gas pumps into a vehicle, and storing it in a vehicle's tank before it was actually burned as fuel. The appellate court held that permitting injured third-party bystanders to recover for damages associated with any of those uses was consistent with strict liability doctrine in California.

Though the appellate court's decision in D.J. Nelson goes to great lengths to argue that it is not issuing an opinion that is inconsistent with or adding to the strict liability doctrine in California, the opinion is bereft of any discussion as to how this decision interplays with federal, state, and local authority in the regulation and protection of harmful exposure from chemicals unlawfully released in soil and water. The result of this opinion potentially provides the responsible party for the contamination a 'free pass.'

It has been reported in California newspapers that public entities are bringing actions against manufacturers while permitting the polluters, generally small businesses, the opportunity to resolve claims for a nominal sum. This strategy appears to be a double whammy for manufacturers. Not only do the manufacturers of chemicals face regulatory requirements relating to labeling, good manufacturing practices, and other such legislative requirements, but manufacturers also face liability when their own operations produce environmentally damaging releases.

The trial court decision in City of Modesto and the appellate court's decision in D.J. Nelson add an additional layer of potential liability to manufacturers under a product liability theory that results when third parties, not under the control of the manufacturer, unlawfully release the manufacturer's product into the environment.

Any assertion that a manufacturer's failure to warn buyers of its products' potential environmental harm is a viable product liability claim ignores the reality that chemical solvent releases into soil or water resources have long been prohibited by
local, state, and/or federal law. Additionally, it also ignores the fact that the ultimate users of the chemicals are generally sophisticated and are not 'consumers' as that phrase is generally defined.

An argument that the manufacturer may have a right for indemnity or contribution is potentially abrogated by recent tort reform in some jurisdictions, which provides that where a manufacturer is subject to personal jurisdiction, parties below it in the chain of distribution are to be dismissed. Accordingly, the manufacturers face being whipsawed by these decisions.

Conclusion

Before D.J. Nelson and City of Modesto become the law of California, the reviewing courts must fully evaluate competing public policy concerns. Bystanders should be protected from defective products, but the parties that make the products defective, namely the parties responsible for the release of a chemical, should not be issued an environmental free pass.

Daniel J. Herling is a partner in the San Francisco office of Duane Morris, LLP. He focuses his practice on product liability, with an emphasis on pharmaceuticals and medical devices; commercial litigation, including class actions; intellectual property litigation; and professional liability.

Depending on the source cited, California's expanding economy ranks in size, worldwide, anywhere between six and 10, if California were a country in and of itself. (www.en.wikipedia.org/wiki/economyofCalifornia#endnote_worldranking) California's position as a stand-alone economy may be matched as a stand-alone jurisdiction if recent appellate and trial court decisions permitting the expansion of the product liability theory to claims of environmental damage are upheld.

After a 78-day trial, on June 13, 2006, a San Francisco jury found against chemical manufacturing defendants The Dow Chemical Company and Vulcan Materials, and awarded a verdict of approximately $175 million. The trial judge subsequently reduced the verdict to $13 million but refused to grant a motion for a new trial. City of Modesto v. Vulcan Materials, The Dow Chemical Company Co., et al., City and County of San Francisco, Superior Court action number CGC-98-999345 (complaint filed Nov. 18, 1998).

The City of Modesto action is currently on appeal. Though briefs have not yet been filed, it is anticipated that the California First Appellate District Court will be addressing the issue of whether claims against defendant chemical manufacturers of Perchloroethyene under a product liability theory, in a situation where it is undisputed that the defendants did not release the widely used dry cleaning solvent into the soil and groundwater of the city of Modesto, are viable under California product liability law.

California has long been on the cutting edge of novel legal theories, and has enacted comprehensive legislative schemes to investigate, report, and clean up alleged environmental contamination. Among the issues facing the First District Appellate Court will be whether the use of product liability theories in prosecuting claims against alleged polluters is a new theory under California law, as well as whether it is a theory that should be permitted as a matter of public policy.

California's Strict Product Liability Law

The elements of a strict product liability cause of action in California require a defect in the manufacture or design of a product or a failure to warn; causation; and injury. In California, a plaintiff must ordinarily show: 1) the product is placed on the market; 2) there is knowledge that it will be used without inspection for defect; 3) the product proves to be defective; and 4) the defect causes injury. ( Scott v. Metabolife Internat., Inc. , 115 Cal.App.4th 404, 415 [9 Cal.Rptr.3d 242] (2004).)

Unlike many other jurisdictions, California state law does not restrict liability to cases arising after a retail sale or equivalent transaction, which might imply a more limited class of potential, expected uses. In California, a sale of a product is not necessary for imposition of product liability; the object must be 'placed on the market, knowing that it is to be used without inspection for defects … ' This is an important deviation from the Restatement Second of Torts and continues to distinguish California law from other jurisdictions, where a sale or an equivalent transaction is required.

California law in this area includes the public policy decision to allow bystanders to recover in strict liability. The California State Supreme Court observed in Price v. Shell Oil Co., 2 Cal.3d 245, 250 [85 Cal.Rptr. 178, 406 P.2d 722] (1970), that California's 'broad philosophy evolves naturally for the purpose of imposing strict liability which 'is to ensure the costs of injury resulting from defective products are borne by the manufacturers that put such products on the market rather than the injured persons who are powerless to protect themselves.” In fact, the California Supreme Court has pointed out in Elmore v. American Motors Corp. , 70 Cal.2d 578, 586 75 Cal.Rptr. 652 (1969), that, if anything, bystanders should be given greater protection than consumers and users where harm to bystanders from a defect is reasonably foreseeable. The Elmore court emphasized: 'Consumers and users, at least, have the opportunity to inspect for defects and to limit their purchases to articles manufactured by reputable manufacturers and sold by reputable retailers, whereas the bystander ordinarily has no such opportunities.' Further, the court cited authority pointing out that injuries to bystanders are often perfectly foreseeable risks of the enterprise.

Application of California Product Liability Law to Environmental Damage Claims

Against this background, a panel of the Court of Appeal for the Third Appellate District in D.J. Nelson v. Superior Court , 144 Cal.App.4th 689 (2006), reversed a dismissal of a claim by the trial court against a gasoline manufacturer based on spills of its product by third parties. The property owner alleged that an additive to gasoline sold by Exxon Mobile Corporation leaked from gas stations not operated by Exxon Mobile into the property owner's water system. The trial court concluded that strict liability did not apply because the property owner was not harmed by any use of the gasoline after it had reached an ultimate consumer or user.

The appellate court, in granting relief to a writ of mandate challenging the trial court's granting judgment on the pleadings, held that strict liability extended to products that had left the control of the manufacturer and had been placed on the market. The court reasoned that California provided broad protection to bystanders and did not limit strict liability to situations occurring after the sale of the product or an equivalent transaction. A manufacturer had to anticipate reasonable uses of a product while it was on the market. Foreseeable uses of gasoline reasonably included storing it at a gas station, transferring it through gas pumps into a vehicle, and storing it in a vehicle's tank before it was actually burned as fuel. The appellate court held that permitting injured third-party bystanders to recover for damages associated with any of those uses was consistent with strict liability doctrine in California.

Though the appellate court's decision in D.J. Nelson goes to great lengths to argue that it is not issuing an opinion that is inconsistent with or adding to the strict liability doctrine in California, the opinion is bereft of any discussion as to how this decision interplays with federal, state, and local authority in the regulation and protection of harmful exposure from chemicals unlawfully released in soil and water. The result of this opinion potentially provides the responsible party for the contamination a 'free pass.'

It has been reported in California newspapers that public entities are bringing actions against manufacturers while permitting the polluters, generally small businesses, the opportunity to resolve claims for a nominal sum. This strategy appears to be a double whammy for manufacturers. Not only do the manufacturers of chemicals face regulatory requirements relating to labeling, good manufacturing practices, and other such legislative requirements, but manufacturers also face liability when their own operations produce environmentally damaging releases.

The trial court decision in City of Modesto and the appellate court's decision in D.J. Nelson add an additional layer of potential liability to manufacturers under a product liability theory that results when third parties, not under the control of the manufacturer, unlawfully release the manufacturer's product into the environment.

Any assertion that a manufacturer's failure to warn buyers of its products' potential environmental harm is a viable product liability claim ignores the reality that chemical solvent releases into soil or water resources have long been prohibited by
local, state, and/or federal law. Additionally, it also ignores the fact that the ultimate users of the chemicals are generally sophisticated and are not 'consumers' as that phrase is generally defined.

An argument that the manufacturer may have a right for indemnity or contribution is potentially abrogated by recent tort reform in some jurisdictions, which provides that where a manufacturer is subject to personal jurisdiction, parties below it in the chain of distribution are to be dismissed. Accordingly, the manufacturers face being whipsawed by these decisions.

Conclusion

Before D.J. Nelson and City of Modesto become the law of California, the reviewing courts must fully evaluate competing public policy concerns. Bystanders should be protected from defective products, but the parties that make the products defective, namely the parties responsible for the release of a chemical, should not be issued an environmental free pass.

Daniel J. Herling is a partner in the San Francisco office of Duane Morris, LLP. He focuses his practice on product liability, with an emphasis on pharmaceuticals and medical devices; commercial litigation, including class actions; intellectual property litigation; and professional liability.