Continuing Developments in Product Liability Litigation

01 June 2007

Yves St-Arnaud, director of legal services, Bombardier Recreational Products Inc

will also have to consider whether a new standard developed by the American National Standards Institute, ANSI Z535.6, should be applied to their collateral sources of safety information. Finally, manufacturers with a presence in Europe also face the potential for being held strictly liable when a defective product causes injury, death or property damage. Europe is a relatively new frontier for product liability litigation; therefore, commentators advise that consumer product manufacturers should “monitor the European experience” for two reasons. First, European Directives impose duties on manufacturers, which affect the cost of doing business. Second, they may be the basis for creating more stringent general duties of safety in the United States in the future.

Electronic Discovery

Amendments to the Federal Rules of Civil Procedure (Rules) went into effect on December 1, 2006. They are significant because the Rules now require litigation counsel and their clients to directly address the role that electronic discovery will play in a case litigated in federal courts. What these amendments mean for attorneys and their clients is that they need to have a plan of action regarding the collection and preservation of electronically stored information that may be relevant to a claim or defense. They must also have a complete understanding of the data storage systems where the electronically stored information is kept so that they can be prepared to proceed through discovery. Here are some suggestions on how to accomplish these goals.

Develop and implement data retention and destruction policies. A plan of action should begin with developing a uniform, comprehensive, company wide document and data retention/destruction policy that is regularly implemented. Such policies may receive “deference from the courts if the is starting point is ‘when does this data lose its business purpose?’” These policies and procedures have value because they help “accomplish the business and litigation goals.”

But they may also be the basis for sanctions when the respondent and its for the first time after three years of discovery. The court commented that if the defendants candidly disclosed its policy, an order could have been crafted to address the retrieval of this information.

To add insult to injury, the defendants did not even advise their attorneys that the email retention policy existed. This meant that the attorneys’ search for responsive data was limited to only recent e-mails. And when the defendants did finally advise their attorneys regarding the e-mail retention policy, their lawyer never advised the court or the plaintiffs. Despite being ordered to preserve evidence, it appeared that the defendants’ top-level employees were also unaware of the lawsuit or the duty to preserve. The conduct of the defendants’ attorney also became the topic of potential personal sanctions because he objected to searching backed-up e-mails because the search was cost prohibitive and burdensome. But when the defendants later ‘elected’ to search the emails, their conduct was contrary to their attorney’s representations to the court and demonstrated that the court’s order to restore, search and produce e-mails was violated.

The moral of Wachtel is three-fold. First, candour toward the court and litigants is an overriding factor in litigation. Secondly, a ‘don’t ask, don’t tell’ approach to client representation is unwise. In other words, an attorney must be prepared to discuss these issues with his or her client, be well-versed with the client’s data storage systems, and, in turn, advise the court and opposing counsel, if necessary. Likewise, the litigant must be candid with its attorney so he or she can formulate an appropriate response to discovery and properly defend the client’s interests. Finally, when the duty to preserve electronically stored information arises, individuals who might have access to relevant information need to be advised of the litigation and measures to prevent spoliation must be taken.

Litigation hold letters can provide the requisite notice to individuals and establish a company’s good faith preservation efforts. “A litigation hold letter has become the shorthand reference to a letter directing a party to segregate and protect from destruction certain documents and data that are, or arguably may be, relevant to a threatened or pending litigation….” It is, in essence, a memorandum to specific individuals requesting that specifically identified information and data be preserved in connection with a threatened or actual lawsuit.

As previously reported, the duty to preserve in the context of electronically stored information is triggered when the defendant reasonably knows that a lawsuit will be filed against it. The need for a litigation hold letter, therefore, often arises before a lawsuit is filed. Form litigation hold letters should be avoided; instead, they should be specific to the circumstances giving rise to the litigation hold letter. It is important to keep in mind that these letters will be read by employees, and perhaps opposing parties and the court; therefore, they should be prepared in a way that maximizes their effectiveness.

Litigation hold letters should come from a high-level corporate officer to convey the importance of the duty to preserve. Not only should they be directed to those individuals with direct involvement in the event leading up to the prospective or pending litigation, they should also go to those who have relevant information. “An internal hold letter should not exceed five or six brief, plainly worded, and easily understood, paragraphs.” It should clearly identify the type of information that is to be preserved, which may include back-up tapes and other electronically stored information. The trigger date for preservation should be avoided, however, because “a corporate document mentioning the specific trigger date or event can later become an admission from which the company (and its counsel) may wish it could distance itself”. Finally, when the litigation hold letter is circulated “counsel must [continue to] oversee compliance with the litigation hold, monitor the party’s efforts to retain and produce the relevant documents”.

Ansi standard Z535.6

The American National Standards Institute (ANSI), has developed a new standard, ANSI Z535.6, which will be applied to safety information located in “collateral materials” such as “owner’s manuals, instructions, user’s guides, maintenance or service manuals, assembly instructions, and safety manuals”. The impetus for developing this standard was the absence of uniform standards for hazard communication systems in collateral materials. Before ANSI Z535.6 was developed, there were “attempts to apply various aspects of ANSI Z535.4 to safety information in collateral materials. However, ANSI Z535.4 was not intended for and is not well suited for this purpose.”

ANSI Z535.6 will incorporate certain graphical elements, signal words, alert symbols, and colors that are already used in other Z535 standards. The standard’s initial application will be complex because it provides an entirely new means by which safety information will be communicated and will, in most cases, require a reorganisation of the collateral materials. Experts in the field believe that there is a benefit to applying this new standard to collateral materials because it will give a manufacturer the “opportunity to reevaluate the content and location of safety messages, and to develop a consistent approach” to the use of collateral materials. For the manufacturers that choose to change their system of providing safety information according to ANSI Z535.6, the cost of reorganising, and perhaps creating new systems of safety information, will also pose a significant cost, at least at the outset. This new standard will also add another level of scrutiny in the litigation context. Not only will manufactures be required to defend their product in the courtroom, their collateral mater ials will also become the subject of examination.

Product Liability Litigation in the European Union

In 1985, the Council of the European Communities issued a Directive Concerning Liability for Defective Products, 85/374/EEC (the Directive), which establishes the principal of strict liability against manufacturers for personal injury, death, or property damage caused by a defective product. Even though the Directive is over twenty years old, it “is only now being implemented in practice”. The Council also implemented the General Product Safety Directive (GPSD), 2001/95/ EC, in 2001. This Directive states that only safe products can be placed on the market. It also imposes additional duties upon producers in an effort to prevent risks to consumers by unsafe products. These Directives go hand-inhand and manufacturers, whose products are sold in Europe, must fully understand their obligations and the potential consequences under the Directives. The following are some key elements of these Directives:

• Persons or entities potentially liable. The Directive refers to manufacturers as “producers,” a term that is broadly defined to “include[] any participant in any phase of manufacturing process, including the supplier of any component part, the final assembler, or the supplier of raw materials….” This includes importers of a defective product “and any entity that places its name, trademark or other distinguishing feature on the product is also considered to be a manufacturer”, and entities, such as retailers, that supply the product when the manufacturer cannot be identified;

• Factors considered in determining whether a product is defective. The Directive provides that “[a] product is defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account, including: (a) the presentation of the product; (b) the use to which it could reasonably be expected that the product would be put; (c) the time when the product was put into circulation”;

• Under the GPSD, a manufacturer must provide the consumer with an owner’s manual, warnings, and “relevant information to enable [the consumer] to assess the risks inherent in a product throughout the normal or reasonably foreseeable period of its use, where such risks are not immediately obvious without adequate warnings, and to take precautions against those risks”. Simply because a warning is present, does not exempt the manufacturer from complying with other requirements set forth in the GPSD. Neither the GPSD nor the Directive address the anticipated misuse of a product, which some commentators believe gives manufactures the latitude to “shape the interpretation of the law when faced with this common accident scenario”;

• Burden of proof and recoverable damages. The injured party has the burden of proving “that the product was defective; the damages sustained; and the causal relationship between the defect and the resulting damages”. If this burden is satisfied, the injured party will be entitled to be compensated for “pain and suffering and other non-material damages payable, where appropriate, under the law applicable to the case.”

• Although the Directive does not permit a manufacturer’s liability to be limited as a result of the acts or omissions of third parties, a manufacturer’s liability may be limited, or altogether barred, “when, having regard to all circumstances, the damage is caused both by a defect in the product and the fault of the injured person or any person for whom the injured person is responsible”.

• Joint and several liability is also applied when two or more persons are liable for the same damage, who will, in turn, also have rights of contribution. A manufacturer’s liability cannot be limited or exempted by contract, such as a warranty, provided with a product. The Directive also states that the injured party’s contractual rights are not affected. The calculation of damages, which greatly differ among the member States, will be left to the member States;

• Defences: state of the art is an effective defence because a product is not deemed “defective for the sole reason that a better product is subsequently put into circulation”. Similarly, a product shall be deemed safe under the GPSD “in the absence of a specific European Provision governing the safety of the product, the product conforms to the specific mandatory rule of National Law or National Standards of the member State in whose territory the product is marketed”.

• A manufacturer may also avoid liability if it can prove: (1) that it did not put the product into circulation; (2) the defect did not exist at the time the product was put into circulation or was created after circulation; (3) the defect was created as a result of compliance with mandatory regulations issued by the public authorities; (4) the product was not manufactured for profit-making sale; (5) the product was not distributed by the manufacturer in the course of its business.

• Statutes of limitation and repose: article 10 of the Directive requires member States to mandate a three year statute of limitation in their legislature for proceedings to recover damages under the Directive.

• The statute of limitations begins “from the day on which the plaintiff became aware, or should reasonably have become aware, of the damage, the defect and the identity of the producer”.

• The length of time when a manufacturer may be held liable for a damage caused by a defective product is not indefinite.

• The statute of repose is 10 years “from the date on which the producer put into circulation the actual product which caused the damage….” The date the product is put into circulation is measured from the date the consumer first buys the product, not from the time the product leaves the manufacturer’s facilities; a product that remains in the inventory of a distributor for five years will increase the ‘liability tail’ for that same period.

• Other obligations imposed on manufacturers and distributors: the GPSD requires the manufacturer to adopt measures that will enable it to be apprized of risks posed by their products, take appropriate action (including withdrawing the product from the market), effectively warn consumers of the risks, and recall the product, if necessary. These measures must include:

• (1) identifying, on the product or its packaging, the identity and details of the producer, the product reference, or where applicable, the batch of products to which the product belongs; and

• (2) in all cases where appropriate, sample testing of marketed products, investigating, keeping a register of complaints and keeping distributors informed of the monitoring.

• Recalls are remedies of last resort, but are considered necessary when other measures do not suffice to prevent the risks involved; when the manufacturer considers it necessary; or when it is obliged to do so to further a measure taken by the competent authority

• Under the GPSD, distributors are required to act with due care to help ensure compliance with safety requirements “by not supplying products which they know or should have presumed, on the basis of information in their possession and as professionals, do not comply with those requirements”.

• They must participate in the monitoring of the product; convey information regarding product risks to consumers; maintain and provide information that will trace the origin of the product; and cooperate with manufacturers and authorities to avoid risks posed by products.

• Manufacturers and distributors are required to report to the designated authority of the member State that a product placed on the market poses a risk to the consumer that are inconsistent with the general safety requirement. They are also required to cooperate with the authorities of the member State.

Can a member State’s laws go beyond the scope of the Directive? A European Court of Justice’s decision has held that French and Danish laws imputing liability on all suppliers of products in the supply chain (including retailers) under strict liability principals – irrespective of whether the suppliers informed the consumer of the product’s ultimate manufacturer or producer. This opinion has sparked a debate over whether the Directive should be amended to impose liability against a supplier on the same grounds as imposing liability against manufacturers/producers. Whether an amendment will be considered is unclear.

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Electronic discovery, newly developed safety standards, and the increasing awareness of product liability in Europe are some of the driving forces behind the evolution of product liability litigation. This analysis suggests that manufacturers must increase their understanding of the standards under which they will be held accountable as the global markets increase and diversify, and litigants advance their technological acumen.

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