kotler 00 fmt auto4 05.02.2005 1:33 PM Page i Products Liability and Basic Tort Law kotler 00 fmt auto4 05.02.2005 1:33 PM Page ii kotler 00 fmt auto4 05.02.2005 1:33 PM Page iii Products Liability and Basic Tort Law Martin A. Kotler Professor of Law Widener University Carolina Academic Press Durham, North Carolina kotler 00 fmt auto4 05.02.2005 1:33 PM Page iv Copyright © 2005 Martin A. Kotler All Rights Reserved ISBN LCCN Carolina Academic Press 700 Kent Street Durham, North Carolina 27701 Telephone (919) 489-7486 Fax (919) 493-5668 www.cap-press.com Printed in the United States of America kotler 00 fmt auto4 05.02.2005 1:33 PM Page v To Melinda kotler 00 fmt auto4 05.02.2005 1:33 PM Page vi kotler 00 fmt auto4 05.02.2005 1:33 PM Page vii Contents Acknowledgments xix Table of Cases xxi Chapter 1 Negligence 3 1.1 Introduction: Sources of Law 3 1.2 Common-Law Negligence 5 1.2.1 The Standard of Conduct: The Reasonable Person Standard 6 1.2.1.1 Imputed Knowledge: Defendants Held to “Expert” Standard 8 1.2.2 The “Delegation” Problem in Negligence Cases 9 1.2.3 Balancing Approaches to Determine Reasonableness 13 1.2.3.1 Risk-Utility Analysis 13 1.2.3.2 Cost-Benefit Analysis 14 1.2.4 The Concepts of Reasonableness and Rationality: An Economic Approach to Negligence Law 15 1.3 Negligence Per Se 18 1.4 Due Care Per Se 27 Chapter 2 Misrepresentation 29 2.1 Introduction: Forms of Tortious Misrepresentation 29 2.2 Fraudulent Misrepresentation (Common Law Deceit) 29 2.2.1 False Representation of Material Fact 30 2.2.1.1 False Representation 30 2.2.1.2 “Mere” Nondisclosure 31 2.2.1.3 Materiality 32 2.2.1.4 The Fact—Opinion Distinction 33 2.2.2 Scienter 34 2.2.3 Intent to Induce Reliance 36 2.2.3.1 Direct and Indirect Misrepresentation 37 2.2.3.2 Reliance by One Other than the Plaintiff 38 2.2.3.3 Intent to Defraud the Plaintiff 39 2.2.3.4 Fraud on Regulatory Agencies 40 2.2.4 Causation: The Detrimental Reliance Requirement 41 2.2.4.1 Reasonable or Justifiable Reliance 43 2.2.5 Damages 47 2.2.5.1 Benefit of the Bargain 48 2.2.5.2 Out of Pocket 48 2.2.5.3 A Compromise Approach 49 2.2.5.4 Consequential Damages 50 vii kotler 00 fmt auto4 05.02.2005 1:33 PM Page viii viii CONTENTS 2.2.6 Defenses 52 2.3 The Negligence—Fraud Intersection 53 2.4 Negligent Misrepresentation 55 2.4.1 Duty 56 2.4.1.1 Personal Injury-Property Damage Cases 56 2.4.1.2 Pecuniary Loss Cases 57 2.4.1.2.1 Persons to Whom a Duty is Owed 58 2.4.1.2.2 Who Owes a Duty and the Nature of the Underlying Transaction 59 2.4.2 Breach 61 2.4.3 Causation 62 2.4.3.1 Reliance 62 2.4.3.2 Reasonable or Justifiable Reliance 63 2.4.4 Damages 64 2.4.5 Defenses 65 2.4.5.1 Contributory/Comparative Negligence 65 2.4.5.2 Voluntary Assumption of Risk 66 2.5 Strict Liability for Innocent Misrepresentation 67 2.5.1 Duty Issues 68 2.5.2 False Representation of Material Fact 68 2.5.2.1 The Fact—Opinion Distinction 69 2.5.2.2 Public Misrepresentations 69 2.5.3 Scienter 70 2.5.4 Reasonable or Justifiable Reliance 70 2.5.5 Damages 72 2.5.6 Defenses 72 2.6 Misrepresentation under the Products Liability Restatement 73 Chapter 3 Breach of Warranty 75 3.1 Introduction 75 3.2 The Vertical Privity Problem 76 3.3 Horizontal Privity 79 3.4 Tort and Contract: The Scope of the Code 81 3.5 Express Warranty 84 3.5.1 Affirmations, Promises, Descriptions and Models or Samples 84 3.5.1.1 Affirmations, Promises and Descriptions 84 3.5.1.2 Models and Samples 87 3.5.2 Basis of the Bargain 88 3.5.2.1 Reliance Required 89 3.5.2.2 Post-Sale Statements as Contract Modifications 90 3.5.2.3 Reliance Unnecessary or Burden Shifts 91 3.5.2.4 2003 Revisions 91 3.5.2.5 The “Sales Puff” Problem 92 3.5.3 Adoption of Warranties 93 3.6 Implied Warranty of Merchantability 95 3.6.1 In General 95 3.6.2 “Merchant with Respect to Goods of that Kind” 96 3.6.3 Merchantability 98 3.6.3.1 “Pass without Objection in the Trade” 98 kotler 00 fmt auto4 05.02.2005 1:33 PM Page ix CONTENTS ix 3.6.3.2 “Fair Average Quality” 100 3.6.3.3 “Fit for the Ordinary Purpose for which Such Goods Are Used” 100 3.6.3.4 “Run...ofEven Kind, Quality and Quantity” 103 3.6.3.5 “Adequately Contained, Packaged, and Labeled” and “Conform to the Promise or Affirmation of Fact Made on the Container or Label” 103 3.6.3.6 “Course of Dealing or Usage of Trade” 104 3.7 Implied Warranty of Fitness for Particular Purpose 106 3.7.1 Reliance 107 3.7.2 Ordinary Purpose and Particular Purpose 108 3.8 Disclaimers 109 3.8.1 Disclaiming Written Express Warranties 110 3.8.2 Disclaiming Oral Express Warranties 110 3.8.3 Disclaiming Implied Warranties 111 3.8.3.1 Conspicuousness 111 3.8.4 “As Is” Disclaimers 113 3.8.5 Buyer’s Opportunity to Inspect 114 3.8.6 Restrictions on Disclaimers 115 3.8.6.1 Statutory Prohibition of Disclaimers in Consumer Sales 115 3.8.6.2 Unconscionability and Other Restrictions on Warranty Disclaimers 116 3.9 Notice of Breach 117 3.10 Remedies for Breach 119 3.11 Sellers’ Attempts to Limit Remedies 120 3.11.1 Attempts to Exclude Personal Injury from Consequential Loss 121 3.11.2 Refund, Repair or Replace Limitations 122 3.12 Statute of Limitations and Accrual of the Cause of Action 123 3.12.1 2003 Proposed Revisions 124 Chapter 4 Strict Liability in Tort 127 4.1 Introduction 127 4.2 Elements of the Strict Liability Cause of Action 131 4.2.1 Commercial Distribution of the Product by One in the Business 132 4.2.1.1 Defendant as a Commercial “Seller” 132 4.2.1.2 Commercial Distribution: Placing the Product in the Stream of Commerce 133 4.2.1.2.1 Sale or Commercial Lease 133 4.2.1.2.2 Products That Have Not Yet or Will Never Enter the Stream of Commerce 134 4.2.1.2.3 Parties Other Than Distributors 135 4.2.1.2.4 The Sales—Service Distinction 136 4.2.2 The Concept of “Defectiveness” 139 4.2.2.1 Intended and Foreseeable Uses and Abuses 140 4.2.2.1.1 The “Crashworthiness” Doctrine 141 4.2.2.1.2 Other Product Misuse Cases 142 4.2.2.1.3 Dismantling and Disposing of Products 143 4.2.3 Types of Defects 144 4.2.3.1 Manufacturing Defects 144 kotler 00 fmt auto4 05.02.2005 1:33 PM Page x x CONTENTS 4.2.3.2 Design Defects 145 4.2.3.2.1 Consumer Expectation Test 145 4.2.3.2.1.1 The Background: Escola and Greenman 145 4.2.3.2.1.2 Application of the Consumer Expectation Test 147 4.2.3.2.1.2.1 The Patent Danger Rule 148 4.2.3.2.1.2.2 Who Is “the Consumer?” 150 4.2.3.2.2 Risk-Utility Test 151 4.2.3.2.2.1 The Problem of Defining “Utility” 152 4.2.3.2.2.2 The Feasible (Reasonable) Alternative Design Requirement 154 4.2.3.2.2.2.1 The Feasibility of the Alternative Design: One View of the State of the Art Problem 157 4.2.3.2.2.3 The Strict Liability-Negligence Distinction 159 4.2.3.2.2.4 Hindsight and Foresight Approaches 160 4.2.3.2.2.4.1 The Unknowable Generic Risk Cases: Another View of the “State of the Art” Problem 162 4.2.3.2.2.4.2 Changes in Technology 165 4.2.3.2.2.5 The Delegability Problem in Design Cases 166 4.2.3.2.2.5.1 Finished Products 166 4.2.3.2.2.5.1.1 Single Use Products 166 4.2.3.2.2.5.1.2 Multi- Purpose Products 168 4.2.3.2.2.5.2 Unfinished Products 170 4.2.3.2.2.5.3 Raw Materials 171 4.2.3.2.3 Other Approaches to Design Defects 172 4.2.3.2.3.1 The Two-Prong Approach 172 4.2.3.2.3.2 The Products Liability Restatement Approach 176 4.2.3.2.3.3 The Pennsylvania Approach 178 4.2.3.3 Marketing Defects: Failure to Warn (Adequately) or Failure to Give (Adequate) Instructions 181 4.2.3.3.1 The Test for “Defect” 183 4.2.3.3.1.1 The Attempt to Use a Hindsight Approach 184 4.2.3.3.1.2 The Delegability Problem in Marketing Defect Cases 185 4.2.3.3.2 Common Warning and Instruction Breaches 187 4.2.3.3.2.1 Inadequate Display 187 4.2.3.3.2.2 Inadequate Content 189 kotler 00 fmt auto4 05.02.2005 1:33 PM Page xi CONTENTS xi 4.2.3.3.2.3 Inadequate Instructions for Safe Usage 190 4.2.4 Defining “Product” for Strict Liability Purposes 192 4.2.4.1 Realty 193 4.2.4.1.1 Conveyances of Realty as Product Sales 193 4.2.4.1.2 Sale of Building Components 194 4.2.4.2 Intangible Products 195 4.2.4.3 Used Products 198 Chapter 5 Duties and Immunities 203 5.1 Introduction 203 5.2 Duty: In General 204 5.3 “Rules” and “Standards” Approaches to Duty or “No-Duty” Decisions 207 5.4 Extension of the Foreseeability Principle: The Rescue Doctrine 210 5.4.1 The Fireman’s Rule 211 5.5 The Foreseeability Principle and Preconception Torts 212 5.6 Acts and Omissions 214 5.6.1 The Post-Sale Duty Cases: In General 215 5.6.1.1 Latent Defect or Danger at Point of Sale 217 5.6.1.2 Voluntary Assumption of Post-Sale Duty 219 5.6.1.3 Obligations Arising Out of Post-Sale Technological Advances 220 5.6.1.4 Duty to Respond to Post-Sale Information Regarding Misuse 221 5.6.2 Post-Sale Duty to Warn: Successor Corporations 223 5.7 Other Judicially Imposed Limitations 224 5.7.1 The Privity Doctrine 224 5.7.2 The Patent Danger Rule 227 5.7.3 The Duty Problem in Point-of-Sale Failure to Warn Cases 229 5.7.3.1 No Duty to Warn of Obvious or Generally Known Dangers 230 5.7.3.2 Dangers Actually Known 233 5.7.3.3 Duty to Warn Experts or Sophisticated Purchasers 235 5.7.3.4 Duty to Warn of Dangers of Using Another’s Product 238 5.7.3.5 Allergic Reactions (Other than Prescription Drugs) 240 5.8 Legislatively Imposed Limitations 243 5.8.1 The Workers’ Compensation Bar 243 5.8.1.1 The Intentional Harm Exception 244 5.8.1.2 The Dual Capacity Doctrine 246 5.8.2 Legislative Pre-Emption 249 5.8.2.1 Federal Pre-Emption: The Background 249 5.8.2.2 Cipollone v.