Leveling the Playing Field In Strict Products Liability: The Peripheral Involvement Exception

WDC Journal Edition: Spring 2007
By: Mark T. Budzinski, Esq. - Corneille Law Group

Strict products liability holds manufacturers and sellers accountable for defective and unreasonably dangerous products that cause injuries to consumers. While holding the manufacturer liable as the party responsible for creating the defect satisfies a common sense notion of fairness, the seller is held responsible under an entirely different rationale. A seller is liable even though completely “innocent”, i.e. having no knowledge of or involvement in creating the defect.

The rationale behind holding a seller strictly liable is that the seller is in the paramount position to distribute the costs of the risks created by the defective product.[i] Theoretically, the seller is also in a position to exert pressure on the manufacturer to induce needed change. Practically however, this theory falls far short of reality. While Wisconsin law currently allows a tenuous connection between the defective product and seller to form the basis of strict liability, defense counsel must advocate for greater protection for sellers in the form of the peripheral involvement exception.

Wisconsin adopted the rule of strict liability in tort, as set forth in Restatement (Second) Torts, § 402A (1965), in Dippel v. Sciano.[ii] Section 402A, titled “Special Liability of Seller of Product for Physical Harm to User or Consumer,” states:

(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if:

(a) the seller is engaged in the business of selling such a product, and

(b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.

(2) The rule stated in Subsection (1) applies although:

(a) the seller has exercised all possible care in the preparation and sale of his product, and

(b) the user or consumer has not bought the product from or entered into any contractual relation with the seller.

Therefore, in order to succeed on a claim against a chain of distribution defendant, the plaintiff must prove:

(1) that the product was in a defective condition when it left the possession or control of the seller,

(2) that it was unreasonably dangerous to the user or consumer,

(3) that the defect was a cause of the plaintiff’s injuries or damages,

(4) that the seller engaged in the business of selling such product (i.e., that the sale of the product in question was not an isolated or infrequent transaction, unrelated to the principal business of the seller), and

(5) that the product was one which the seller expected to and did reach the user or consumer without substantial change in the condition it was when he sold it.[iii]

The doctrine of strict liability relieves the plaintiff from proving specific acts of negligence, and protects him from certain contract-based defenses such as lack of privity.[iv] It is a doctrine based on public policy considerations. In Dippel, the Wisconsin Supreme Court stated those policies which serve as the foundation for strict liability:


"The reason, which has been reiterated most often, is that the seller is in the paramount position to distribute the costs of the risks created by the defective product he is selling. He may pass the cost on to the consumer via increased prices. He may protect himself either by purchasing insurance or by a form of self-insurance. In justification of making the seller pay for the risk, it is argued that the consumer or user has the right to rely on the apparent safety of the product and that it is the seller in the first instance who creates the risk by placing the defective product on the market. A correlative consideration, where the manufacturer is concerned, is that the manufacturer has the greatest ability to control the risk created by his product since he may initiate or adopt inspection and quality control measures thereby preventing defective products from reaching the consumer." 37 Wis. 2d at 450-451.


The “public policy” behind strict liability is focused solely on the plaintiff. The current law in Wisconsin disregards the nature of the defendant’s relationship to the product, so long as the defendant lies within the chain of distribution. Defending a strict liability case can feel like you’re walking into a firefight with a squirt gun. It doesn’t matter how diligent the defendant is or how limited his or her involvement in the transaction. The law is focused solely on the product and the plaintiff.

These cases are fertile ground for the plaintiff’s bar. Plaintiffs can capitalize on the dynamics of the strict liability claim because they don’t have to point the finger at an individual sitting across the room. They are asking the jury to judge an inanimate object. Even in cases where contributory negligence is an issue, defense counsel is asking the jury to compare a potentially sympathetic plaintiff to an object. This is a problematic dichotomy for the defense and therefore makes it critical for defense counsel to level the playing field wherever possible.



THE PERIPHERAL INVOLVEMENT EXCEPTION


Several states have recently recognized a common sense exception to strict product liability, although Wisconsin has not yet addressed the issue. Deemed the “peripheral involvement” exception, it is a doctrine that recognizes the often ridiculous application of strict liability to sellers whose involvement is so limited, that public policies from which strict products liability derives its legitimacy, are not applicable.

The exception was first discussed in Nutting v. Ford Motor Co.:

Strict products liability should not be imposed upon a party whose role in placing the product in the stream of commerce is so peripheral to the manufacture and marketing of the product that it would not further the policy considerations which are the foundation for the imposition of this onerous liability on certain sellers [citations deleted]. These policy considerations include the ability of the seller, because of its continuing relationship with the manufacturer, “to exert pressure for the improved safety of products and to recover increased costs within their commercial dealings, or through contribution of indemnification in litigation; additionally by marketing the products as a regular part of their business such sellers may be said to have assumed a special relationship to the public, which has come to expect them to stand behind their goods.” [v]

The peripheral involvement exception has also been recognized in learned treatises. As stated in American Law of Products Liability 3rd § 5:8, “[T]he stream of commerce theory is not limitless, not extending beyond the judicially perceived public policy considerations supporting the strict liability doctrine. Strict liability is not imposed on a party whose role in placing the defective product in the stream of commerce is peripheral to the manufacture and marketing of the product.”

Although Wisconsin has not yet addressed the peripheral involvement exception, the courts acknowledge its existence, and appear to be amenable to adopting the rule if presented with the right facts. In Sedbrook, the court stated “The wisdom of a rule subjecting a distributor with only minimal contact with the product to strict liability for injuries caused by its defective condition is not before us.”[vi] The Seventh Circuit has predicted that Wisconsin would not impose strict liability upon a party that truly acted as a mere conduit between a manufacturer and a purchaser.[vii] It is up to the defense bar to push for the adoption of the peripheral involvement exception in order to level the playing field in these types of strict product liability claims.

When evaluating a strict liability case, defense counsel needs to think about facts that will support the application of the peripheral involvement exception. That evaluation should include:


  • Whether the defendant has a continuing relationship with the manufacturer of the product
  • Whether this was an isolated sale in the context of the defendant’s business
  • Whether the defendant had an opportunity to see or inspect the product
  • Whether the defendant ever actually possessed the product
  • Whether the chain of distribution defendant has any recourse against the manufacturer
  • Whether the defendant’s relationship with the manufacturer is substantial enough that it can exert meaningful pressure to effect any substantive change

If your case fits within the framework of the peripheral involvement exception, pursue a motion for summary judgment on that issue. The application of strict liability principles to an undisputed set of facts is a question of law.[viii] At a minimum, you will educate the court on the inherent inequities of applying strict products liability against the chain of distribution defendant.



LOSING THE BATTLE AND WINNING THE WAR

Regardless of whether summary judgment is granted, the motion will set the stage for trial. After setting forth the facts showing the defendants limited involvement in the transaction, the plaintiff will be forced to counter by laying out the facts sufficient to defeat the application of the peripheral involvement exception as a matter of law.

The summary judgment motion may be denied because there are competing inferences that can be drawn from those facts. In other words, whether or not there are sufficient facts to apply the peripheral involvement exception, has now become an issue of fact for the jury to determine at trial.

By making the peripheral involvement of the defendant a question of fact, the defense gains a significant advantage at trial. The defense can now introduce powerful evidence that appeals to the jury’s common sense and basic sense of fairness. For example, the fact that the defendant never had the opportunity to see or inspect the product, the fact that the defendant provided no warranty work, has no relationship with the manufacturer, and even whether or not the manufacturer is bankrupt, all becomes relevant evidence. If the defendant’s peripheral involvement is not at issue, this evidence likely has no bearing on any issue in the case.

The significance of being able to present this evidence to the jury bears repeating. Application of strict product liability in cases where the defendant’s involvement is extremely limited, is a legal principle that is contrary to common sense and basic concepts of personal responsibility and fairness. For example, in one recent case tried in Dane County, a family business whom we’ll call “John Doe Inc.” sold a trailer in 1993 to a Wisconsin trucking company. That trailer was involved in an accident in 2004; 11 years after the sale. As a result of that accident the plaintiff was rendered a paraplegic. He filed suit claiming the trailer was defectively manufactured and that the alleged defect had caused the accident.

The 1993 sale was the only transaction between the manufacturer and John Doe Inc. between 1989 and 2007. John Doe Inc. never had possession of the trailer, never had the opportunity to see or inspect the trailer, and never performed any warranty work on the trailer. This was essentially a one time paper transaction. The purchaser picked up the trailer directly from the manufacturer. Furthermore, because the manufacturer had gone bankrupt, it was not a party to the case and John Doe Inc. had no recourse against it.

The evidence regarding this particular defendant’s limited involvement was compelling. Had this evidence been excluded, the jury never would have had a full and fair understanding of the facts. It is situations like this where the application of strict liability has the potential of creating an absurd liability result.



THE SPECIAL VERDICT – YOUR LAST CHANCE TO LEVEL THE FIELD

As stated earlier, the plaintiff must prove five elements to succeed on a claim of strict products liability. However, the standard special verdict contained in Wis JI--Civil 3290 lumps all of those elements into two questions; 1) “When the product left the possession of the seller was the product in a defective condition so as to be unreasonably dangerous to the prospective user?’ and 2) “Was the defective condition a cause of the plaintiff’s injuries?”

This limited analysis affords insufficient protection for the strict liability defendant. It fails to ensure that the jury specifically addresses each of the five required elements, and answers each in the affirmative.

Where the peripheral involvement of the defendant is an issue of fact, the first question on the verdict must address that issue. Essentially the jury must determine whether the defendant’s involvement in the chain of distribution was substantial enough for it to be considered a “seller” of the product. The comment to 3290 includes a question that can be used to address this issue: “Did the defendant, as part of its business, sell the product in question?”

Wis JI—Civil 3264 provides the definition of “business.” That instruction includes the following clarification; “The term business does not apply to an isolated or an occasional sale of a product by one who is not engaged in that activity as part of his or her business”. Using this definition, defense counsel can argue that the involvement of the defendant was so peripheral, that the sale of the product in question was not a part of its “business.”

If the jury concludes the sale was a part of the defendant’s business, they will then need to address whether the product has undergone substantial change between the date of sale and date of accident. Again, the question on substantial change is not included in the standard verdict form, but is included in the comment.

Only after the jury concludes that the defendant sold the product as part of its business, and that the product was not substantially changed, should the jury address the issue of whether the product was defective. Again, this standard verdict form in 3290 lumps two elements into one question: “When the product left the possession of the seller was the product in a defective condition so as to be unreasonably dangerous to a prospective user?” However, whether a product is defective, and whether the product is unreasonably dangerous, are two separate elements of strict liability. [ix] Accordingly, they should be treated as such on the verdict form.

Combining the defective and unreasonably dangerous inquiries into one question fails to ensure the jury addresses each element. It is akin to combining the negligence and causation questions in a standard negligence case. A product can certainly be defective and not unreasonably dangerous, just as a defendant may be negligent but not causally negligent. Only after the plaintiff establishes these four elements of the claim, should the jury address causation.

The goal in peripheral involvement cases is to maximize the impact of common sense and fairness by allowing the jury to consider the limited involvement of the chain of distribution defendant. While not applicable in most cases, this doctrine has the potential to provide a fair, commonsense defense under the right circumstances.



CONCLUSION
The deck is stacked heavily in favor of the plaintiff in cases of strict products liability. The peripheral involvement exception presents counsel with a commonsense defense in cases where the principles and assumptions which form the basis of strict liability law, do not apply. It is imperative that the defense bar push for the adoption of the peripheral involvement exception under the appropriate facts. Finally, defense counsel should demand that the jury be required to specifically address each element of the strict liability claim. Only then can the defense bar begin to level the playing field in strict products liability.


[i] Kemp v. Miller, 154 Wis. 2d 538, 550-51, 453 N.W.2d 872 (1990).

[ii] 37 Wis. 2d 443, 155 N.W.2d 55 (1967).

[iii]Dippel, 37 Wis. 2d at 460, 155 N.W. 2d at 63.

[iv] Id.

[v] 180 A.D.2d 122, 128-129, 584 N.Y.S.2d 653 (1992).

[vi] Sedbrook v. Zimmerman Design Group, 190 Wis. 2d 14, 18, 526 N.W.2d 758 (Ct. App. 1994).

[vii] 159 F.3d 993, 1000 (7th Cir. 1998)

[viii] See Estate of Cook by Cook v. Gran-Aire, Inc., 182 Wis. 2d 330, 334-35, 513 N.W.2d 652, 654 (Ct. App. 1994).

[ix] Restatement (Second) Torts § 402A (1965); Dippel v. Sciano, 37 Wis. 2d 443, 155 N.W.2d 55 (1967). See also Wis JI-Civil 3264; Burrows v. Follett and Leach, Inc., 115 Wis. 2d 272, 340 N.W.2d 485 (1983); Glassey v. Continental Ins. Co., 176 Wis. 2d 587, 500 N.W.2d 295 (1993).