Emerging Issues in Management (Mgmt 440)

1. Emerging Issues in Management (Mgmt 440) Negligence, Product Liability and Damages (Consumerism – Chapter 15) Professor Charles H. Smith Summer 2012

2. Traditional Theories Used in Defective Product Cases • Our coverage of this chapter will be limited to defective product cases only (pages 534-48 only) which feature the following tort theories • Negligence. • Product liability. • Breach of express or implied warranty. • We will cover negligence and product liability only since breach of warranty is largely included in those two theories anyway.

3. History of How Courts Dealt With Defective Product Cases • In the past, the buyer/user bought/used a product at his/her own risk – “caveat emptor.” • After all, manufacturing was a big part of the U.S. economy that was really taking off due to the Industrial Revolution of the mid to late 19th Century. • However, as time went on, attitudes changed so that an injured person could be compensated for losses suffered due to a defective product.

4. Negligence • Most popular legal theory used in tort cases; e.g., cases involving defective products but also auto and slip-and-fall accidents. • Intentional misconduct not required; instead, negligence involves an accident, misjudgment, mistake, etc. • Differentiate from intentional torts such as fraud which require some kind of conscious action. • Examples – running the red light; shooting gun in the air.

5. Elements of a Negligence Case • Plaintiff must prove all four of the following • Duty of care – defendant owes a duty of care to plaintiff, who may be specific person or part of group of any size; examples include • Driving to school or work. • Manufacturer or assembler of product. • Breach – defendant breaches the duty of care owed to plaintiff; examples include • Driver disobeys traffic laws. • Product not assembled correctly.

6. Elements of a Negligence Case cont. • Plaintiff must prove all four of the following cont. • Causation and damage – defendant’s breach of the duty of care owed to plaintiff causes damage (financial loss) to plaintiff • Causation – logical or reasonable relationship between defendant’s bad act and plaintiff’s financial loss; examples include Palsgrafand Vons truck driver cases. • Damage – financial loss, which can be determined in many ways (see slides re what can plaintiff win in court). • Often, plaintiff will build negligence case on serious injuries or other obvious financial loss but will be unable to provide link of causation to defendant’s bad act. • 1st line of defense is to show one or more elements missing.

7. Defenses to Negligence • Even if plaintiff proves all elements of negligence, defendant still has some defenses, such as • Assumption of the risk – plaintiff cannot win negligence case because he/she injured while in dangerous situation. • Traditional scenario – “fireman’s rule” (injury suffered while performing inherently dangerous job); e.g., firefighter injured due to defective hose while fighting fire cannot win negligence case vs. hose manufacturer. • More current scenario – injury suffered while plaintiff engaged in recreational or sports activities; e.g., person injured due to opponent’s negligence while playing basketball cannot win negligence case vs. opponent. • Ethics/policy question – what is the purpose of the assumption of the risk defense?

8. Defenses to Negligence cont. • Another defense is where the defendant disclaims some or all fault in the following situations • Comparative negligence – liability proportionate to percentage of plaintiff’s fault; recognizes that plaintiff may contribute to the accident but should still be entitled to some money. • Example – product assembled incorrectly by retailer but plaintiff careless while using it. • 3rd party’s fault – liability proportionate to percentage of negligence or other tort of 3rd party who can be co-defendant or anyone else who caused injury. • Superseding/intervening cause – is there a break in the causal connection between defendant’s bad act and plaintiff’s damage? • Example – unassembled product provided by manufacturer to retailer/independent contractor/consumer who then incorrectly assembles product.

9. Product Liability • “Product liability” (sometimes called “products liability” or “strict products liability”) recognizes that there will be injuries resulting from the intended use of mass-produced product. • “Intended use” examples. • Theory developed as a policy decision • Someone other than the injured consumer or bystander should be legally responsible for damage caused by these products – i.e., manufacturer, retailer, etc. can be held liable even if “reasonable care” taken . . . after all, who is making money from the sale of the product?

10. Product Liability – Defect Theories • Three types of defect theories can be used to prove a product liability case • Manufacturing defect. • Design defect. • Warning defect. • More than one theory might apply to same situation.

11. Product Liability – Manufacturing Defect • Manufacturing defect occurs when a problem, mistake, etc. in the manufacturing process causes the product to be assembled improperly which can cause injury even if product used as intended. • Example – product assembled incorrectly due to human or mechanical error. • Student examples.

12. Product Liability – Design Defect • Design defect happens when a problem, mistake, etc. in the design of the product causes the product to be inherently defective which can result in injury even if product used as intended. • Example – Ford Explorer tire case. • Student examples.

13. Product Liability – Warning Defect • Warning defect is when an inadequate warning or lack of any warning results in injury that could have been avoided with proper warning even if product used as intended. • Example – warnings on plastic bags; aerosol spray case. • Student examples. • Ethics/Policy Question – should a product manufacturer be able to avoid liability by placing a label with a disclaimer or limitation of remedies on the product?

14. Defective Product Cases – Strategy • Product liability and negligence can be alleged in the same case – this gives the plaintiff some options since • If cannot prove fault for negligence (breach of duty of care), use product liability as a “fall-back” postion. • But, if fault for negligence can be proved, then the jury may award more money against a defendant who is “blameworthy” and “did a bad thing.”

15. Defective Product Cases – What Can Plaintiff Win in Court? • The goal of any tort case is compensation which usually falls into two categories • Special damages – can be measured in exact terms; easiest to prove since usually documentation and/or other clear way to show nature/amount; e.g., medical bills in personal injury case, contract or pay stubs re loss of income. • General damages – intangible “quality of life” damages (e.g., emotional distress or pain and suffering) – harder to prove with any precision.

16. Defective Product Cases – What Can Plaintiff Win in Court? • General damages cont. • Every case is different based on the facts, the victim, and the “badness” of the defendant’s conduct. • Ethics/policy questions • What is the legitimacy of a general damages claim? • How to justify a general damages claim? • How could a general damages claim be abused?

17. Defective Product Cases – What Can Plaintiff Win in Court? cont. • How to evaluate damages for settlement purposes; after all, the vast majority of lawsuits do not go to trial since most are settled and the others are dismissed. • Ordinary injury case – negligence or product liability • Special damages can be easily calculated since they are supported by documentation or other clear evidence. • General damages – not so easy, but one method is to multiply the amount of special damages by three. • Add these two up and you often get a reasonable settlement figure. • Of course, many other factors – legal and non-legal – may come into play in this calculation; student examples.

18. Defective Product Cases – What Can Plaintiff Win in Court? cont. • No punitive damages (money awarded to plaintiff in addition to special and general damages to punish defendant) in negligence and product liability cases since only available for intentional torts such as fraud, defamation, or assault and battery. • Exception based on intentional misconduct – Grimshaw v. Ford Motor Co. (Pinto case); why was the plaintiff awarded punitive damages in this defective product case? • Ordinarily, no injunction (judgment telling defendant to stop doing bad act) unless the wrongdoing is ongoing; threat of judgment of damages is designed to serve as deterrent to manufacturing defective products.

19. Defective Product Cases – What Can Plaintiff Win in Court? cont. • Ethics/Policy Question – should there be any limitations on the type or amount of damages? • Ethics/Policy Question – if a defendant wins, should he/she/it be entitled to recover attorney’s fees from the unsuccessful plaintiff? If so, under what circumstances? • Ethics/Policy Question – is a judgment of damages (or the threat of one) the best way to deter defective products?

20. McDonald’s Case Studies • Pelman v. McDonald’s – guardians of two obese children filed suit seeking to hold McDonald’s responsible for the children’s weight. • Liebeck v. McDonald’s – the “hot coffee” case. • See next slide for questions to be discussed with small groups in class.

21. McDonald's Case Studies cont. • Which legal theory(ies) could have been applicable in these lawsuits? • What was the outcome of these lawsuits? • Ethics/Policy Question – What is your opinion of the outcome of these lawsuits? • Did McDonald’s make any changes which might be attributable to these lawsuits? • Ethics/Policy Question – What could be the reason(s) for these changes? • Assume that the plaintiffs in these lawsuits would be entitled to damages – what kind and how much?