Caught Between a Rock and a Hard Law

Caught Between a Rock and a Hard Law

By Mark A. Love and Christopher C. Ranck

Distributors of defective products in tort claims are crushed between the public policy of strict liability and the public policy encouraging good faith settlements.

It’s another sunny day in California, but Tom Trusty sees only gathering clouds.  Trusty Hardware finds itself paying a large settlement to resolve a personal injury suit.  Tom Trusty asks Trusty’s counsel, “How did we end up holding the bag on this case, when we didn’t do anything wrong?”  Their attorney shakes his head and has no good answer.

Trusty apparently sold a sack of Acme brand insulating cement to the plaintiff’s employer 45 years earlier, and the plaintiff recently contracted cancer from asbestos exposure, which he claimed was caused, in part, by his exposure to the asbestos that was an ingredient of that bag of cement.  The plaintiff sued several defendants, including both Trusty Hardware and Acme Cement Company, which is still in business.  Trusty’s lawyer sought indemnity from Acme, and even served them with a cross complaint, but Acme just ignored it.  Acme then settled the case with plaintiff’s counsel for $500,000 and brought a good faith settlement motion, which was granted.  The court found that the significant settlement was made in good faith, and per California law, this good faith finding eliminated Trusty’s cross complaint and indemnity claim.

As the case wound its way forward, Trusty was confident that they could show that they did nothing wrong, and that the liability rested with Acme, who made a product that contained asbestos.  After all, Acme never informed any of their sellers or end users that asbestos was an ingredient in their product, and Trusty never altered the product.

California law applies the same strict liability to distributors as it does to manufacturers, but to Trusty’s surprise, case law also held that they could not seek apportionment against Acme at trial, nor even seek to separate their fault from Acme’s.  As the trial approached, the full picture finally came into focus for Trusty:  They were to be held in the shoes of Acme because, supposedly, they were in a better position than plaintiff to pursue indemnity from the manufacturer.  But, not only did the plaintiffs already sue and collect from Acme, but the manufacturer was allowed to wipe out Trusty’s rights to pursue them for indemnity.

These two public policy concerns, one to encourage full recovery for defective products, and the other to encourage settlement before trial, resulted in Trusty being on the hook for Acme.  Trusty had no recourse against them, and plaintiff got a double recovery.  The plaintiff got the $500,000 that Acme paid to compensate plaintiff for his injury resulting from the exposure to the insulating cement, then went on to win a verdict for an even larger amount against Trusty for the same exposure.  How is this possible?

California:  Strict Liability and Distributors

The doctrine of strict product liability is a long standing one.  California imposes strict liability in tort not only on the manufacturer of a defective product that causes injury, but on others in the chain of distribution.  Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57 (Cal. 1963); Escola v. Coca Cola Bottling Co., 24 Cal.2d 453 (Cal. 1944).  The doctrine was extended to retailers under the rationale that “[t]hey are an integral part of the overall producing, and marketing enterprise that should bear the cost of injuries resulting from defective products,” and that, “. . . the retailer may be the only member of that enterprise reasonably available to the injured plaintiff.”  Vandermark v. Ford Motor Co., 61 Cal.2d 256,262-63 (Cal. 1964).

The state’s intent is for the risks and costs associated with product defects to be borne by the makers and sellers of the products who are better able to bear those costs, and not the end users.  Id.  These entities benefit from the limited liability associated with the corporate form.  Furthermore, the makers and sellers can mitigate their risk, spreading it across the industry through the purchase of insurance policies.  The makers and sellers can also spread the costs associated with product defects across their entire customer base through the price mechanism.  See Far West Financial Corp. v. D & S Co., 48 Cal.3d 796,813-14, fn. 13 (Cal. 1988).

Strict liability and the allocation of risk to those in the chain of distribution also serves as an incentive for safety when it comes to consumer products.  Jiminez v. Superior Court, 29 Cal.4th 473, 485 (Cal. 2002). The retailer or distributor may be in a position to exert pressure on the manufacturer to make a safe product.  Vandermark, supra, 61 Cal.2d at 262-63.  The threat of potential liability incentivizes everyone in the chain of distribution, from the manufacturer down through the retailer, to ensure that any product for which they are in the chain of distribution is safe for consumers.  Id.

The extension of the doctrine down the supply chain to the final seller to the end user allows the injured party to seek compensation from the seller even in those cases where the purchaser does not know the identity of the manufacturer or where the manufacturer is out of business.

In some cases the retailer may be the only member of that enterprise reasonably available to the injured plaintiff . . . .  Strict liability on the manufacturer and retailer alike affords maximum protection to the injured plaintiff and works no injustice to the defendants, for they can adjust the costs of such protection between them in the course of their continuing business relationship.

Id.  The downstream retailer or distributor is naturally in a better position than the plaintiff to determine the identity of the manufacturer.  The downstream defendant has presumably had a business relationship with the manufacturer such that the defendants can adjust the costs between one another.  When the plaintiff does not know the identity of the responsible manufacturer or cannot pursue the manufacturer for some reason, principles of equity ensure that the plaintiff is made whole.

California:  Indemnity Between Manufacturers and Sellers

As discussed above, it is well established in California that “. . . a consumer injured by a defective product may sue any business entity in the chain of production and marketing, from the original manufacturer down through the distributor and wholesaler to the retailer.”  Kaminski v. Western MacArthur Co., 175 Cal.App.3d 445, 455-56 (Cal. Ct. App. 1985), citing Becker v. IRM Corporation, 38 Cal.3d 454 (Cal. 1985); Vandermark, supra, 61 Cal.2d 256 (Cal. 1964); Barth v. B. F. Goodrich Tire Co., 265 Cal.App.2d 228 (Cal. Ct. App. 1968).

This extension of strict liability further down the chain of distribution meets the public policy objective of seeing injured plaintiffs compensated, and the retailers and distributors then have a right to seek indemnity against the manufacturer.

California courts have consistently recognized the right of the distributor or retailer of a defective product to seek indemnity from the manufacturer, since this is one of the justifications for extending strict liability to the sellers of products.

As reaffirmed by our Supreme Court in Becker, the purpose for this “stream of commerce” approach to strict liability is to extend liability to all those engaged in the overall producing and marketing enterprise who should bear the social cost of the marketing of defective products.  […]  By extending liability to entities farther down the commercial stream than the manufacturer, the policy of compensating the injured plaintiff is preserved, and retailers and distributors remain free to seek indemnity against the manufacturer of the defective product.

Kaminski, supra, 175 Cal.App.3d at 456 (Cal. Ct. App. 1985) [internal citations omitted].  California courts have consistently recognized the right of the distributor or retailer of a defective product to seek indemnity from the manufacturer, since this is one of the justifications for extending strict liability to the sellers of products.  See, e.g., Far West Financial Corp, supra, 48 Cal.3d 796 (Cal. 1988).

California:  Application of Proposition 51 Apportionment and Cases with Joint Tortfeasors

The case of Li. v. Yellow Cab, 13 Cal.3d 804 (Cal. 1975), established the use of comparative fault as a form of equitable apportionment in California, and the concept was extended to strict liability cases by the court in Daly v. General Motors Corp., 20 Cal.3d 725 (Cal. 1978), adopting the term “comparative fault.”  The Daly court held that this apportionment better reflected the “equitable apportionment or allocation of loss,” holding that a jury could consider and compare one defendant’s strict liability against another’s negligence.  Id. at 736.

 

When an indemnity action is precluded by a good faith settlement between the plaintiff and the manufacturer, are the state’s public policy goals achieved by the distributor carrying the bulk of the liability for a manufacturer’s defective product?

In 1986, California voters passed Proposition 51, which eventually became codified as Civil Code section 1431 et. seq.  Per Civil Code section 1431.2:

In any action for personal injury, property damage, or wrongful death, based upon principles of comparative fault, the liability for each defendant for non-economic damages shall be several only and shall not be joint. Each defendant shall be liable only for the amount of non-economic damages allocated to that defendant in direct proportion to that defendant’s percentage of fault, and a separate judgment shall be rendered against that defendant for that amount.

The comparative fault apportionment directed by Proposition 51, which makes damages several only and not joint, applies to the non-economic damages only.  Economic damages continue to be joint and several, regardless of the apportionment of fault.  Following the proposition’s 1986 passage, courts have struggled to determine the exact limits and extent of its application.

In Safeway Stores, Inc. v. Nest-Kart, 21 Cal.3d 322 (Cal. 1978), the Supreme Court of California held that apportionment is appropriate between a strictly liable defendant and a negligent defendant, as well as between multiple negligence defendants under the common law equitable indemnity doctrine (as modified to permit apportionment among joint tortfeasors on a comparative fault basis).  Id. at 324-25.  The case involved a plaintiff who was injured when a shopping cart broke and fell on her foot.  Id. at 325.  The plaintiff sued the supermarket, which was the owner of the shopping cart, and also sued the supplier of the shopping cart.  Id.  The jury found that the supermarket had been negligent and was strictly liable, and that the supermarket’s comparative fault was 80 percent.  The jury also found that the supplier was strictly liable, and that the supplier’s comparative fault was 20 percent.  Id. at 326.  On motion by the supermarket, the trial court ruled that apportionment between a strictly liable defendant and a strictly liable and negligent defendant on a comparative fault basis was not permissible, and that each of the tortfeasors should pay 50 percent of the judgment.  Id. at 326-27.

In reversing the trial court’s ruling, the Supreme Court in Safeway noted that “even in cases in which one or more tortfeasors’ liability rests on the principle of strict liability, fairness and other tort policies, such as deterrence of dangerous conduct or encouragement of accident-reducing behavior, frequently call for an apportionment of liability among multiple tortfeasors.”  Id. at 330.  The court reasoned that the jury determined that while the defectiveness of the shopping cart, for which both Safeway and the supplier were strictly liable, was a partial cause of the accident, Safeway’s negligence was the primary cause.  Id.  There is nothing in the rationale of strict product liability that conflicts with a rule that apportions liability between a strictly liable defendant and other liable defendants, whether they are liable under a strict liability or a negligence theory.  Id.  Importantly, the court highlighted that “under these circumstances both ‘common sense’ and equitable considerations suggest that Safeway should bear a proportionately greater share of liability for the accident than [the supplier].”  Id.  Common sense clearly dictated that a tortfeasor who is comparatively more responsible for an injury should bear a larger share of the burden in compensating the plaintiff for his or her injury than a tortfeasor who is comparatively less responsible.

In Arena v. Owens-Corning Fiberglas Corp., 63 Cal.App.4th 1178 (Cal. Ct. App. 1998), the court held that “Proposition 51 is applicable in a strict liability asbestos exposure case where multiple products cause the plaintiff’s injuries and the evidence provides a basis to allocate liability for non-economic damages between the defective products.”  Id. at 1197.  In another case, Wilson v. John Crane, Inc., 81 Cal.App.4th 847 (Cal. Ct. App. 2000), the court further clarified, stating that “. . . section 1431.2 [Proposition 51] applies to actions sounding in strict products liability.”  Id. at 858.

As considered in Safeway and Daly in 1978, the appellate courts in Wilson and Arena agreed that a jury could consider and balance the complex question of weighing the plaintiff’s own fault against the negligence of some defendants and strict liability of others to apportion out the 100 percent of total fault into appropriate allocations.  However, the question of allocation gets more complicated where two defendants are in the same chain of distribution.

California:  Wimberly and the Application of Proposition 51 to the Manufacturer-Seller Relationship

In Wimberly v. Derby Cycle Corp., 56 Cal.App.4th 618 (Cal. Ct. App. 1997), the plaintiff was injured when the fork assembly on his mountain bike failed.  Id. at 624.  He sued both the manufacturer and distributor of the fork assembly, then settled with the manufacturer and went to trial against the distributor.  Id.  The manufacturer’s settlement was for $135,000 but the total verdict was for $105,168 in economic damages and $300,000 in noneconomic damages.  Id.

The Wimberly court concluded that Proposition 51 apportionment was not available as between defendants in the same chain of distribution.  Id. at 628-31.  The court likened the relationship to vicarious liability, where prior cases had held that apportionment was unavailable.  Id.; see, e.g., Srithong v. Total Investment Co., 23 Cal.App.4th 721 (Cal. Ct. App. 1994).

The Wimberly court found that the reasoning of Daly and Safeway – that the jury can apportion between strict liability and negligence from different sources — did not apply to a situation where a single product defect was the 100 percent cause of injury and apportionment was sought between members of the same chain of distribution.  Wimberly, supra, 56 Cal.App.4th at 632.  “In that circumstance, the potential reduction or elimination of plaintiff’s recovery for noneconomic damages through apportionment of ‘fault’ would reallocate the risks accompanying use of the defective products and utterly defeat the principal policy reasons for the adoption of strict product liability.”  Id.  The court opined that apportioning damages between strictly liable defendants in the same chain of distribution would require plaintiffs to prove defendants’ negligence in order to recover non-economic damages.  Defendants would shift the blame to insolvent or unavailable defendants, which would shift the risks to the plaintiff and thwart the public policy of consumer protection.  Id. at 632-33.

The Wimberly court relied on the theoretical underpinnings which underlie strict liability to justify the allocation of risk to downstream defendants with little actual fault.

The parties in a defective product’s chain of distribution are not joint tortfeasors in the traditional sense; rather, as a matter of law their liability to plaintiff is coextensive with others who may have greater “fault,” as in other instances of statutorily or judicially imposed vicarious, imputed or derivative liability.  

Id. at 633.

The net result in Wimberly was that the distributor, which merely sold, and did not make, the defective product, was responsible for more than double the amount paid by the manufacturer.  The court advised that “[defendant’s recourse, if not precluded by good faith settlement principles, lies in an indemnity action.  [Citations omitted.]”  Id.  Thus, the court rationalized the result of the distributor being found more financially responsible than the manufacturer as a matter to be handled by the distributor through an indemnity action.

Good Faith Settlement in California

California’s good faith settlement law, Code of Civil Procedure section 877.6, protects settling defendants from the indemnity claims of non-settling defendants.  The statute was intended to promote the goals of encouraging settlements and sharing of litigation costs.

A settling defendant is therefore able to extinguish the indemnity claims against it with a judicial determination that the settlement was entered into in good faith.  Per Code of Civil Procedure section 877.6(c):

A determination by the court that the settlement was made in good faith shall bar any other joint tortfeasor or co obligor from any further claims against the settling tortfeasor or co-obligor for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault.

Any party contending that the settlement was not in good faith bears the burden of so proving.  Cal. Code Civ. Proc. section 877.6(d).

So then, how can a settlement be determined to be in “good faith” under this section?  The state’s supreme court considered this in Tech-Bilt, Inc. v. Woodward-Clyde & Assoc., 38 Cal.3d 488 (Cal. 1985), declining to define good faith, but enunciating factors for evaluating whether a settlement was in good faith for the purposes of Code of Civil Procedure section 877.6:  (1) A rough estimate of the total settlement value of plaintiff’s case and the settling defendant’s share; (2) the amount of the settlement; and (3) the allocation of the settlement proceeds among the plaintiffs.  Tech-Bilt, supra, 38 Cal.3d at 499.  The court in Tech-Bilt considered a good faith settlement to be one which bears a reasonable relationship to the settlor’s share of the liability and where the settlement is not so far “out of the ball park” of what is reasonable.  Id. at 499-500.

Nothing in section 877.6 makes a special exception for the manufacturer-seller relationship.  A downstream seller is treated no differently from any other joint tortfeasor codefendant, even though the manufacturer and seller were brought into the lawsuit based on a single product.

The Problem in Focus in California

While strict liability and good faith settlement are grounded in public policies that take into account important considerations such as the allocation of risk, consumer protection, encouraging settlement, and the sharing of litigation costs, a problem arises when the two doctrines collide and are applied in so absolute a manner that common sense and equitable considerations are undermined.

When an indemnity action is precluded by a good faith settlement between the plaintiff and the manufacturer, are the state’s public policy goals achieved by the distributor carrying the bulk of the liability for a manufacturer’s defective product?  Certainly when an injured plaintiff cannot recover from an insolvent or unavailable manufacturer, the public policy of consumer protection is consistent with the downstream defendant bearing the risk, since the defendant can better “distribute losses over an appropriate segment of society.”  Safeway, supra, 21 Cal.3d at 330.  However, this consideration is not applicable when the plaintiff negotiates a settlement with the manufacturer, only to turn around and attack the manufacturer’s downstream distributors.  Should Trusty Hardware still be responsible after the plaintiff settled with Acme?  After all, Acme manufactured the product, which Trusty merely sold, and Acme was neither insolvent nor unavailable.

The Safeway court recognized that an application of strict liability that eschewed comparative fault principles would lead to inequity.  Basic principles of fairness in Safeway required that the supermarket, which was comparatively more responsible for the plaintiff’s injury, bear more of the burden in making the plaintiff whole than the supplier, who was comparatively less responsible.  Likewise, a manufacturer of a defective product, who is comparatively more responsible for a plaintiff’s injury than a downstream distributor or seller of that product, should bear a larger share of the burden in making that plaintiff whole.  The same principles of equity and fairness that required that a negligent defendant not be able to escape its comparative share of liability simply by pointing the finger at a strictly liable defendant are at play in the situation of a manufacturer and the strictly liable seller of its product.

If the manufacturer of the product is insolvent or otherwise unavailable to compensate the plaintiff, public policy considerations rightly demand that entities in the manufacturer’s chain of distribution should be liable to the plaintiff and should cover the full amount of his or her damages, so that the plaintiff should not be left to bear that cost.  But when the plaintiff has the manufacturer available to him or her and negotiates a settlement with that manufacturer that is supposed to represent a rough estimate of the value of the plaintiff’s case, doesn’t equity require that the plaintiff not be able to recover damages from the strictly liable downstream defendant that are attributable to the manufacturer?  Wouldn’t such damages be included in plaintiff s settlement amount with the manufacturer?

Common sense and equity likewise demand that Trusty Hardware not pay a greater amount than the more responsible Acme, with whom the plaintiff chose to settle.  It is easy to picture the possible scenarios created by applying the Wimberly court’s reading of Proposition 51 apportionment to situations where savvy manufacturers have gotten out of a lawsuit early and stuck their distributors with no recourse.  California’s good faith law allows the manufacturer to eliminate any indemnity claim the distributor may have.

Tom Trusty is thinking of getting out of the hardware business.  The store has been a local institution on Main Street for decades, since his grandfather first opened its doors.  But Tom just keeps thinking how he never saw the storm coming.  While he was focused on helping his customers and keeping his small business afloat in tough economic waters, he had no idea the future would be full of litigation, and that he would be held responsible for a giant corporation like Acme.  Tom wonders, “How can Acme settle cases resulting from the sale of a defective product, and stick a hardware store who knew nothing about its formulations, with the lion’s share of the liability?  How can I pass on my store to my son Timmy when plaintiffs and big manufacturers seemingly join together to put little guys like us out of business?  My insurance premiums are skyrocketing.  What can I do?”

Other State Approaches to Strict Liability

The states have taken varying approaches to address the policies that underlie strict liability in the case of downstream distributors.  There are a number of possible solutions from other states that California could adopt to mitigate the challenges faced by downstream distributors and sellers to prevent them from paying an inequitable share of plaintiffs’ recoveries when there is an available solvent manufacturer.

For example, Georgia and Nebraska have enacted absolute bars to imposing strict liability on non-manufacturing sellers.  Georgia Code section 51-1-11.1(a) provides that a “product seller” is

a person who, in the course of a business conducted for the purpose, leases or sells and distributes; installs; prepares; blends; packages; labels; markets; or assembles pursuant to a manufacturer’s plan, intention, design, specifications, or formulation; or repairs; maintains; or otherwise is involved in placing a product in the stream of commerce.

Section 51-1-11.1(b) further provides that “[f]or purposes of a product liability action based in whole or in part on the doctrine of strict liability in tort, a product seller is not a manufacturer as provided in Code Section 51-1-11 and is not liable as such.”  See also, Neb. Rev. Stat. §25- 21,181, providing

[n]o product liability action based on the doctrine of strict liability in tort shall be commenced or maintained against any seller or lessor of a product which is alleged to contain or possess a defective condition unreasonably dangerous to the buyer, user, or consumer unless the seller or lessor is also the manufacturer of the product or the part thereof claimed to be defective.

In Michigan, which has statutorily abolished strict product liability, a showing of some fault is required to impose liability on a non-manufacturing seller.  See Mich. Comp. Laws §§600.2947, 600.2948; See also Curry v. Meijer Inc., 780 N.W.2d 603, 606-10 (Mich. 2009).  Delaware and North Carolina have enacted statutes allowing for some form of the “sealed container” defense.  In Illinois, there is a statute that bars suit against the distributor when there is a solvent manufacturer available to the plaintiff and the distributor files an affidavit identifying the responsible manufacturer.  Under the Illinois scheme, only when the manufacturer is insolvent or otherwise unavailable to the plaintiff can the downstream distributor be held liable in the manufacturer’s stead.

While the varying approaches involve trade-offs between the conflicting policies of strict liability and indemnity, each makes some attempt to take into the account the basic unfairness in holding a downstream distributor defendant liable in cases where the manufacturer is available to the plaintiff.  This article examines in more detail Delaware and North Carolina’s approach — the so-called “sealed container” defense — and the Illinois approach requiring an affidavit.

Delaware and North Carolina Approach:  The “Sealed Container” Defense

Delaware Code has a “sealed container” defense that provides immunity for a non- negligent downstream distributor or seller of a product, provided the product is sold in an unaltered form.  Del. Code title 18, §7001(b) provides:

It shall be a defense to an action against a seller of a product for property damage or personal injury allegedly caused by the defective design or manufacture of a product if the seller establishes that:

(1)       The product was acquired and then sold or leased by the seller in a sealed container and in an unaltered form;

(2)       The seller had no knowledge of the defect;

(3)       In the performance of the duties the seller performed or while the product was in the seller’s possession could not have discovered the defect while exercising reasonable care;

(4)       The seller did not manufacture, produce, design or designate the specifications for the product, which conduct was the proximate and substantial cause of the claimant’s injury;

(5)       The seller did not alter, modify, assemble or mishandle the product while in the seller’s possession in a manner which was the proximate and substantial cause of the claimant’s injury; and

(6)       The seller had not received notice of the defect from purchasers of similar products.

The Delaware statute provides protection for an innocent seller with no responsibility in causing the plaintiff’s injury outside of the seller’s role in the product’s distribution chain.  Notably, the Delaware statute applies only to sales that occurred after the statute’s 1987 enactment.  This scheme thus apportions liability to the manufacturer, which bears relatively more responsibility for the plaintiff’s injury than the downstream distributor or seller.  However, Delaware balances this protection for the innocent seller by allocating risk to downstream defendants and away from the injured plaintiff when the manufacturer is unavailable.  Section (c) of the statute disallows the defense where the manufacturer cannot be identified, is insolvent, is not subject to jurisdiction, or where the seller breached an express warranty.  Del. Code title 18, §7001(c).

North Carolina also has a “sealed container” defense similar to that in Delaware, with an exception where the manufacturer is insolvent or not subject to the court’s jurisdiction.  North Carolina General Statute section 99B-2 prohibits a product liability action, except for breach of express warranty, when the product was acquired and sold by the seller in a sealed container or when the seller had no reasonable opportunity to inspect the product to reveal its defect.  N.C. Gen. Stat. §99B- 2.  Like the Delaware statute, North Carolina does not apply the “sealed container” defense when the manufacturer is not subject to the court’s jurisdiction or is insolvent.  Id.  Thus, North Carolina’s scheme still fulfills the policy goal of shifting the risks and costs associated with product defects away from end users and toward the makers and sellers of the products who are better able to bear those costs.

Illinois Approach:  Statute Barring Suit Against the Distributor When the Culpable Manufacturer Can Be Sued

In Illinois, there is a statute in place to protect distributors where there is a solvent manufacturer.  Section 2-621 provides that in a product liability action against defend ants other than the manufacturer, the defendants upon answering should file an affidavit certifying the correct identity of the manufacturer.  The applicable statute of limitation and statute of repose for asserting a strict liability action is then tolled as to those defendants. Section 2-621(a).

Once the plaintiff has filed a complaint against the manufacturer and the manufacturer has answered, the court should dismiss the causes of action against the certifying defendants, except in certain circumstances.  Section 2 621(b).  A certifying defendant should not be dismissed if (1) the defendant has exercised some significant control over the design or manufacture of the product, or has provided instructions or warnings to the manufacturer relative to the alleged defect in the product which caused the injury, death, or damage; or (2) the defendant had actual knowledge of the defect in the product that caused the injury, death, or damage; or (3) the defendant created the defect in the product that caused the injury, death, or damage. Section 2-621(c)(l-3).

Furthermore, the certifying defendants can be reinstated in a number of circumstances: if the plaintiff shows that the applicable period of statute of limitation or statute of repose bars the assertion of a cause of action against the manufacturer or manufacturers of the product allegedly causing the injury, death or damage; or (2) the identity of the manufacturer given to the plaintiff by the certifying defendant or defendants was incorrect; or (3) the manufacturer no longer exists, cannot be subject to the jurisdiction of the courts of this state, or, despite due diligence, the manufacturer is not amenable to service of process; or (4) the manufacturer is unable to satisfy any judgment as determined by the court; or (5) the court determines that the manufacturer would be unable to satisfy a reasonable settlement or other agreement with plaintiff. Section 2 621(b)(l-5).

The Illinois statute prevents downstream distributors and sellers from being on the hook for the manufacturer by disallowing the suit from going forward if the defendants can certify the identity of the responsible manufacturer.  Under a system like that in Illinois, Trusty would have been protected from having to pay for injuries caused by Acme’s product.  However, the Illinois statute also protects plaintiffs by ensuring that they will have an entity to pursue should the manufacturer be insolvent or otherwise unavailable, or in circumstances where the downstream defendants bear additional responsibility for an injury.  The solution is simple and effective, protecting both the rights of distributors and consumers.

The states have taken varying approaches to address the policies that underlie strict liability in the case of downstream distributors.

Conclusion

The current system in California is not working.  Distributors like Trusty are like a small boat caught between the rocks and stormy seas of two conflicting public policies.  This juxtaposition of two spheres of policy leaves hundreds of stores, shops, dealers, and retailers caught in the untenable situation of being sued for a product they did not make and potentially with no recourse against the solvent maker of the product.

Wimberly and related cases in California leave the seller of a product holding the bag for the manufacturer, strictly liable as if they were the manufacturer, but without recourse to apportion fault with that manufacturer.  Their reasoning is that the seller can seek indemnity from that manufacturer.  But, the state’s good faith settlement statute allows a manufacturer to eliminate the seller’s indemnity claim by simply settling with the plaintiff “around” the seller.  It is time that the state’s legislature took a closer look at this issue.  There are any number of ways the system could be mended, including those solutions adopted in other states.

 


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