Foreign Suppliers: Managing the Products Liability Risks In Your Supply Chain

Transcription

1 PROFESSIONAL ASSOCIATION_ ATTORNEYS AT LAW Foreign Suppliers: Managing the Products Liability Risks In Your Supply Chain Chuck Bavol, Esq. The Bleakley Bavol Law Firm N. Florida Avenue Tampa, FL (phone) (fax )

2 A verbal contract isn t worth the paper it s written on. Samuel Goldwyn

3 PROFESSIONAL ASSOCIATION_ ATTORNEYS AT LAW A contract with foreign suppliers and manufacturers is often only worth the weight of the paper. Chuck Bavol

4 Foreign Suppliers Why It s Important Recent bad press (e.g., Chinese drywall) identifies Made In China as a lawsuit target. 10% of products sold in the U.S. are made in China. 60% of the product recalls announced by the CPSC in 2007 involved Chinese products.

5 Foreign Suppliers Why It s Important Product liability lawsuits tend to result in very large verdicts. [Juror rationale: When the defendant is a large corporation, it will only change its behavior (i.e. make a safer product) if it is economically necessary.] McDonald s coffee case: $2.9M verdict = two days of coffee revenues.

6 Foreign Suppliers Why It s Important Foreign supplier scenario provides the Plaintiffs lawyers their favorite motive Profits Over People. Emerging theories of liability are focusing upon alleging direct negligence by U.S. companies for failure to ensure adequate quality control.

7 Foreign Suppliers Why It s Important Recalls can be bet the company expensive. Foreign Tire Sales (a 16 employee distributor) began a recall of 450,000 Chinese-made tires at a projected cost of $90 million.

8 Foreign Suppliers Why It s Important Business practices, customs, and laws are different in these emerging centers of manufacturing. Awareness of these fundamental differences will minimize the risk that key business understandings will become lost in translation.

9 Lost In Translation

10 Lost In Translation Cultural and legal nuances do make a difference when dealing with foreign businesses.

11 Foreign Suppliers - Scenarios Part incorporated into product otherwise manufactured and assembled in U.S. Product imported elsewhere and imported and distributed in U.S.

12 Foreign Suppliers Real Life Case

13 Foreign Suppliers Real Life Case

14 Foreign Suppliers Real Life Case

15 Foreign Suppliers Real Life Case

16 Foreign Suppliers Real Life Case

17 Foreign Suppliers Real Life Case

18 Foreign Suppliers Real Life Case

19 Foreign Suppliers Real Life Case MEDIATION AGREEMENT $700, TH day of April, 2009

20 What Do You Do?? Demand that the foreign supplier indemnify. Ask pretty please when they refuse. Sue them (or their carrier) in the U.S. Sue them in the foreign country.

21 Suing in the United States In Personam Jurisdiction Goodyear Dunlop Tires, S.A. v. Brown, 131 S. Ct. 2846, 180 L. Ed. 2d 796 (2011). J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780, 180 L. Ed. 2d 765 (2011).

22 Goodyear v. Dunlop Tires Operations SA v. Brown Two American teenagers die in a bus accident in France. Plaintiffs sue in North Carolina state court. The tires causing the accident are made by Goodyear s foreign subsidiaries.

23 Goodyear v. Dunlop Tires Operations SA v. Brown The tires are made to U.S. specifications. The tires entered forum state through the stream of commerce. Nevertheless, the Supreme Court held that the foreign subsidiaries were not subject to state jurisdiction (insufficient contacts).

24 Obtaining Jurisdiction in U.S. Courts The Stream-of-Commerce theory alone is no longer sufficient to establish minimum contacts to allow for personal jurisdiction. It is purposeful activity within a given state, not just the U.S. as a whole, that will determine entirely fact driven.

25 What Will Your State Do? In 16 different appeals since June 2011, appellate courts have distinguished and declined to either follow or extend the Goodyear and McIntyre holdings.

26 Questions to Ask Regarding Jurisdiction Where was the contract between the distributor and the manufacturer negotiated? Does the agreement consent to U.S. jurisdiction? Does the manufacturer ship directly to the forum state? Does the manufacturer have a branch office in the forum state? Does the manufacturer target advertising in the forum state? Does the manufacturer have agents in the forum state operating on their behalf?

27 U.S. Lawsuit Realities Notice of suit (service of process) may be difficult. For a foreign supplier without a U.S. agent, this must be carried out under the terms of The Hague Service Convention. Example: If the defendant were a Chinese Manufacturer, the Plaintiff would file a USM-94 and request service of process from the Chinese Central Authority. Then all of the documents would need to be translated into Mandarin.

28 U.S. Lawsuit Realities Likelihood of a jurisdictional appeal is virtually certain. Thus, without touching on the substantive merits of the case, the case will be tried twice procedurally.

29 Enforcing Judgment Attach U.S. assets (Customs keeps detailed records on import of every single shipment). Attach assets in another country.

30 Enforcing Judgment Abroad Does the foreign court even recognize American judgments? Chinese courts rarely recognize the expansive personal jurisdiction exercised by American courts. Chinese courts do not recognize the Hague Convention on Foreign Judgments.

31 Bringing Suit Against Foreign Suppliers In a Foreign Court Proceeding against a foreign supplier in its home country offers separate challenges. Example: In China, the concept of Guan Xi is the rule (loosely translated, similar to our Old Boys Network, but on steroids!).

32 The People s Court of China It is certainly not The People s Court of Judge Wapner or Judge Milian!

33 Realities of Chinese Litigation You must have your evidence before you begin the process of your case. Expect little or no discovery (especially depositions). Documents from outside of China must first be notarized, and then further must be authenticated ( apostilled ) by the Chinese Embassy.

34 Realities of Chinese Litigation In China (and Korea), court fees are 2.5% of the actual amount of the claim. The People s Court of China currently does not permit foreign lawyers or foreign firms to litigate in China ( Guan Xi ). Plan on going to trial. Settlement in many Eastern nations, (such as China, Japan, and Korea) is highly unlikely as it is seen as an admission of guilt.

35 Realities of Chinese Litigation No live testimony all evidence taken by documents and written briefing. China does not permit, and will not award, damages for pain and suffering, lost profits, or punitive damages. May be problematical in a case where the U.S. plaintiff has these damages awarded/included.

36 On The Plus Side No live testimony. Chinese courts give greater weight to issues of fairness. China is a signatory to the 1958 Convention on the Recognition and Enforcement of Arbitral Awards (the New York Convention ).

37 What To Expect/To Do??? Expect to be the target. Expect little or no cooperation from the supplier - no matter what the contract says. Expect new theories, including allegations of audit duty re inspecting and ensuring upstream QC.

38 What To Do? Ask Your Carrier Managing Foreign Supply Chains to Avoid Importing Risk Medmarc s own Sara Dyson!

39 Practical Steps to Limit Liability: The Contract Caveat: Even good language may only be worth the weight of the paper.

40 Practical Steps to Limit Liability: Indemnification Include a solid indemnification clause that indemnifies you no matter who causes the loss, with the exception of losses attributable to your sole negligence. Make sure the clause also includes indemnification for recalls or FDA actions.

41 Practical Steps to Limit Liability: Consent-to-Jurisdiction Include a consent-to-jurisdiction clause in indemnification contracts. Include an arbitration clause in the contract, to include indemnification. Remember: While Chinese courts may not recognize a judgment based upon U.S. jurisdiction, they do recognize arbitration awards.

42 Practical Steps to Limit Liability: Insurance Consult your insurer/broker for advice on covering risks associated with foreign suppliers. Require foreign suppliers to carry insurance with the American distributor listed as an additional insured and a consent to jurisdiction in the U.S. (with foreign insurance companies, problems with enforcing coverage could be similar to those with recovering against a foreign supplier).

43 Practical Steps to Limit Liability: Don t Forget the Goodyear Decision Just because a company with whom you deal as a foreign supplier of your part/product has an American parent company does not mean that recovery will be available from its foreign subsidiaries here in the U.S. Expect U.S. parents to be mindful of Goodyear and to make changes in corporate structure in order to maximize protection under this decision.

44 Practical Steps to Limit Liability: Sara s Tips Make clear in your contract who is responsible for recall risks. Identify and make clear your quality requirements (but make sure you audit and enforce). Be mindful of FDA Good Importer Practices guidelines.

45 Practical Steps to Limit Liability: Sara s Tips Require in your contract notification for changes in the manufacturing process or in raw materials/ingredients. Include a cooperation clause regarding inspections by either you or the FDA.

46 If You Follow The Tips, Are You Protected?

47 Great Contract Language Indemnification

48 Great Contract Language Insurance

49 Great Contract Language Even U.S. Arbitration!

50 So Why This??! MEDIATION AGREEMENT $700, TH day of April, 2009

51 Practical Steps to Limit Liability: Chuck s Tips Possession is 9/10ths of the law.

52 Great Contract Language Made Better Right To Offset Clause

53 PROFESSIONAL ASSOCIATION_ ATTORNEYS AT LAW Questions? Chuck Bavol, Esq. The Bleakley Bavol Law Firm N. Florida Avenue Tampa, FL (phone) (fax )