Products Liability: Putting a Product on the U.S. Market. Natalia R. Medley Crowell & Moring LLP 14 November 2012

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1 Products Liability: Putting a Product on the U.S. Market Natalia R. Medley Crowell & Moring LLP 14 November 2012

2 Overview Regulation of Products» Federal agencies» State laws Product Liability Lawsuits» Jurisdiction & Forum Non Conveniens» Typical Claims» Class Actions» Discovery» Damages Mitigating enforcement and litigation risks

3 Federal vs. State Government Federal government and states may regulate products» Federal preemption» Certain states are more active than others Lawsuits may be brought in federal or state courts» Federal courts = limited jurisdiction» State courts = general jurisdiction

4 Federal Agencies Regulating Products

5 CPSC Regulates consumer products» Safety standards» Labeling requirements» Testing and certification Mandatory reporting requirement for» Noncompliant products» Defects that present a substantial product hazard» Unreasonable risk of serious injury or death Enforcement: investigations, recalls, seizures, civil and criminal penalties

6 FDA Regulates food, drugs, medical devices, & cosmetics Level of regulation generally depends on the level of harm presented to the public and is product-specific Premarket studies & approvals required Enforcement: investigation & seizure, recalls, civil & criminal penalties

7 NHTSA Regulates motor vehicles and motor vehicle equipment Mandatory safety standards for these products Mandatory reporting requirement for product that fails to comply with a safety standard or presents a safety-related defect Must also report repair campaigns Enforcement: investigations, recalls, civil penalties

8 FTC Regulates competition, including advertising False & misleading, deceptive marketing violates the FTC Act» Print and television advertising» Product labeling & point of sale ads» Pamphlets» Website statements Labeling requirements for textiles, country of origin Guidance provided for using endorsements and making environmental claims, among others Enforcement: investigations, civil penalties

9 State Regulation States may have their own product safety requirements» Example: California Proposition 65» For products sold or distributed in those states Cannot conflict with federal regulations State Attorneys General may pursue enforcement actions Some laws authorize private causes of action

10 Product Liability Lawsuits

11 Jurisdiction Jurisdiction» A court s power to preside over a case» Personal jurisdiction measured by a defendant s contacts with the forum Recent U.S. Supreme Court decisions limit jurisdiction over foreign defendants» A defendant must do more than simply place goods in the stream of commerce; there must be purposeful availment of conducting activities in a particular state» Questions remain

12 Forum Non Conveniens Request to a court to reject jurisdiction in favor of an alternative court, which may be in another country Courts will consider:» Deference to plaintiff s choice of forum» Adequate alternative forum» Private & public interest factors

13 Class Actions Cases where a representative party or parties sue the defendant on behalf of a large number of claimants Class actions must meet certain requirements:» Numerosity joinder of all members is impracticable» Commonality claims or defenses of the representative parties are typical of the claims or defenses of the class» Representative(s) must fairly and adequately protect the interests of the class» In addition, one of the FRCP 23(b) requirements must be met

14 Breach of Contract Negligence Strict Liability Breach of Warranty Fraud State Statutes Typical Claims

15 Breach of Contract Typical Claims» Agreements between commercial parties may control what happens if something goes wrong with a product» Terms may limit liability Warranties Damages Indemnification, duty to defend

16 Negligence Typical Claims, cont d» Requires a claimant to prove duty, breach, causation, & damages» May be based on a product defect, a misrepresentation, or failure to properly warn consumers of dangers Strict Liability» Requires a claimant to prove a product is defective, that defect existed when it left the manufacturer s or supplier s possession, and that it caused injury based on reasonably foreseeable use of the product» May be based on failure to warn» Does not require proof of fault

17 Breach of Warranty» Implied Warranties Typical Claims, cont d 2 general types in sales Implied Warranty of Merchantability Implied Warranty of Fitness for a Particular Purpose Others may attach depending on the jurisdiction May be disclaimed in contracts» Express Warranties Affirmative statements or promises made about a product to the buyer Cannot be disclaimed

18 Fraud Typical Claims, cont d» Requires a false statement of fact that the defendant knew was false that induced the claimant to be damaged» Must be pleaded with particularity» Potential for increased damages Consumer protection statutes» State statutory causes of action for false and misleading advertising» Potential for increased damages» May authorize a state enforcement action» Varies from state to state

19 Extensive discovery Civil Discovery» Scope: any nonprivileged matter that is relevant to any party's claim or defense» Initial disclosures may be required» Parties may request: Documents (including electronic materials) Written discovery (interrogatories, requests for admissions) Depositions» Spoliation concerns Blocking statutes do not excuse a foreign litigant from complying with discovery requirements

20 Damages Compensatory Damages» In general, claimants are entitled to foreseeable damages of the wrongful act» May include demonstrated monetary loss, pain and suffering, emotional distress, and loss of income or lost profits» In some jurisdictions, may include medical monitoring

21 Damages, cont d Attorneys Fees and Costs» Not typically awarded in U.S. civil litigation» Federal court: requires costs to be paid by the losing party but not attorneys fees» May be authorized by federal or state statutory law for certain types of claims or conduct

22 Punitive Damages Damages, cont d» Intended to punish the defendant for egregious behavior and to deter others Intentional conduct Knowledge that harm will result or that there is a strong probability of harm Failure to take steps to ensure product safety (e.g. testing, recall)» No limit set Typically determined by juries May be reversed by appellate court if determined to be excessive

23 Product Liability Insurance Insurance coverage available for regulatory and litigation risks Cost of coverage may vary, depending in part on type of product sold, where and how distributed, frequency of lawsuits, and level of sales Policies may cover only damages, others cover the costs of defending the lawsuit Coverage dates matter May not cover punitive damages

24 Mitigation Risk Strategies Understand requirements for products before sale in the U.S.» Understand applicable standards» Be aware of reporting and certification requirements» Be proactive with authorities, where necessary Know your supply chain, incorporate favorable terms in contracts with suppliers and distributors Understand risk of litigation for your products and have procedures in place to handle if a claim is filed Secure insurance coverage for risks

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