Sale and Resale of EPI Products Memorandum

THE ONLY SOURCES TO BE USED:LA1

Saylor: Advanced Business Law and the Legal Environment

Chapters 1,3,4:

Saylor: The Legal and Ethical Environment of Business

Chapter 1:

LINKS:

Common Law v. Civil Law Systems

Police Powers of States

Alternative Dispute Resolution (ADR)

The U.S. Constitution

Jurisdiction and Internet Sales

LA2Saylor: Advanced Business Law and the Legal Environment

Chapter 7:

LINKS:

Civil and Criminal Law Comparison

Elements of Negligence Summary

Premises liability

Introduction to Torts (video – 15 mins)

Maryland Workers’ Compensation Law

LA3Instructor Notes – very important to read!(SEE ATTACHED ON SP)

Review assigned materials in Week 2

Saylor: The Legal and Ethical Environment of BusinessChapter 17LINKS:

Manufacturing Defect v. Design Defect

Warranties and Product Liability

Summary of Product Liability Law:  click link below, please

/content/enforced/375136-M_001041-01-2192/Business Law I (Week 3) (1).pdf

LA4

Saylor: Business Law and Legal Environment

 

Chapters 8,9,10,11,12:

LA5Law for Entrepreneurs, Saylor Academy, 2012Chapters 13, 15.1, 16.3LINKS:

Summary of Contract Law, Statute of Frauds:  click on link below, please

/content/enforced/375136-M_001041-01-2192/Business Law I (Week 5).pdf

LA6Saylor: Advanced Business Law and the Legal EnvironmentChapters 8,9,10,11LINKS:

CISG:  Guide for Business Managers and Attorneys in Applying CISG

LA7Law for Entrepreneurs, Saylor Academy, 2012Chapter 20, 21

Principal and Agent Relationships

Termination of Agency Relationships

LA8

Choosing a Business Structure

Partnerships

General Corporation

Limited Liability Company

 

Purpose

The purpose of this project is to research, analyze and apply tort law, product liability law, agency and contract law and their associated potential risks and liabilities in business. The project requires you to identify and analyze legal issues and to make recommendations.

You will also develop skills in critical thinking to create an in-depth comprehensive analysis.

The project relates to the concepts covered in weeks 1-7.  You should refer to assigned materials in earlier weeks of the course, including Instructor Notes in Week 3 and other weeks.

Outcomes Met by Completing this Assignment:

recommend appropriate actions in the business environment based on an understanding of sources of law, legal process and procedure, and available remedies

analyze contractual rights, obligations, liabilities, and remedies in the business environment

analyze tort rights, obligations, liabilities, and remedies in the business environment

Background:  Things are moving quickly for the GC owners.  They are almost ready to open operations.  GC will be purchasing EPI products exclusively for use in GC cleaning services and will be reselling some EPI products to the public.  The GC owners have some final concerns about these sales contracts and about potential liabilities that could arise from the use of EPI products.

Winnie and Ralph asked you to complete research and prepare some instructional materials to present in a memorandum for discussion among Winnie, Ralph, the GC owners, and you at a meeting.   You decide to create hypothetical scenarios for analysis and later discussion at the meeting.

Instructions:

Part I.  Use of EPI Products in GC Cleaning Services

Review the tort of product liability in week 3 Overview, Instructor Notes.

Review the scenario below and respond to the items following.

Scenario:  GC contracted to clean the ABC Industries, Inc. (ABC) office building using EPI cleaning products.  GC assigned several experienced GC employees to the job.  While cleaning the office windows with EPI’s Clear Light window cleaner, the cleaner left a sticky film on several of the windows.  The cleaner was used exactly according to product directions. The sticky film could not be removed except by scraping which left permanent scratches on the windows.  GC had used Clear Light many times before with no damage or problems.

ABC expects GC to pay to replace the windows and sues GC to recover costs of replacing the windows.  Note:  ABC sued only GC.

Analyze and discuss whether GC has any potential liability under product liability law for damage to the windows as described in the scenario:

Describe any possible product liability claim(s) for which ABC could sue GC and why/how the claim(s) could apply to GC.

2-3 paragraphs minimum

Analyze and describe whether GC is likely to be found liable for the claim(s) identified in #1 above and why.

Product Liability**
Product liability, sometimes called strict product liability refers to cases in which a
person is injured by a product, or use of a product because the product is
defective in some way. When a product is defective it may become abnormally
dangerous although the product, when not defective, may be safe.
Definitions of a Defective Product in Product Liability
Products may become defective because of:
1) defective manufacture (so the product is “broken”, not perfectly made, i.e., a product
is manufactured so that the electric wiring is improperly made/attached, etc. and may
cause a fire or cause electric shock, or burn the user, etc.
2) failure to adequately warn of how to properly use a product, or potential dangers from
misuse, i.e., a warning to not use an electric hair dryer in the shower,
3) defective design, i.e., an electric lawn mower on which the blade is not covered so
that it can easily cut a foot when in use,
4) defective packaging, i.e., packaging for food that can be easily tampered with, and
5) breach of warranty of merchantability so that a product does not function for the
purpose for which it was intended, i.e., a car that does not operate/drive (breach of
warranty of merchantability does not always cause harm, except perhaps economic
harm because a user paid for a product that does not work as intended).
A product can be simultaneously defective in several ways. For example, a car that does
not operate/drive is not merchantable for its intended purpose but is also defectively
manufactured in some way so that it does not operate.
Everyone in the chain of distribution (from manufacturer to consumer) may be
liable for harm caused by a defective product. The chain of distribution
includes manufacturers, suppliers to manufacturers, lessors of a product, distributors of
products from manufacturers to wholesalers, distributors to other middle-persons (such
as vending machine product distributors, shippers, distribution to retailers and other
sellers, consumers, and innocent bystanders who may be injured by another’s use of a
defective product.
All parties in the chain of distribution may be sued for the injuries caused by a
product, but not all these parties will necessarily be found liable. For example, assume
a toaster catches fire and burns a consumer who attempts to make toast. Clearly, the
toaster is defective because toasters should not catch fire. An injured consumer could
sue all in the chain of distribution, but probably only the manufacturer will be held
liable. The defect is likely due to faulty wiring inside the toaster, and this defect is not
reasonably discoverable by others in the chain of distribution.
Parties Who Can Recover for Product Liability – Anyone injured by a product,
including a product user, and usually an innocent third party bystander, can sue
under product liability. An injured party does not have to have a contractual
relationship with anyone in the chain of distribution to sue for injuries. For
example, assume a consumer is properly using his new gas grill at a tailgate party when
the grill spontaneously explodes. The consumer and two friends standing nearby are
injured. Only the consumer has a contractual relationship (a sales contract created to
purchase the grill from a retailer) with either the manufacturer or retailer, but all three
injured parties may sue. All will likely recover damages for injuries received from the
defective grill.
Damages Recoverable for Product Liability – Typically, injured parties may collect
damages to compensate for their personal injuries, such as medical
costs. Property owners may also collect damages to compensate for harm to their
property, such as costs to repair a garage door damaged in a fire caused by a defective
lawn mower. So-called punitive damages, over and above actual compensation
damages, may be awarded in some very serious cases to “punish” the manufacturer or
others in the chain of distribution. Punitive damages tend to be arbitrary and the trend in
the courts is to limit punitive damages to only the most extreme cases.
Typically, consumers return defective products to the seller and a monetary refund for
the product, rather than collecting the cost of the product in court.
Types of Product Defects:
1. Defect in Manufacture
When the manufacturer fails to properly assemble, test, or check quality of a product,
there may be a defect in manufacture.
For example, a cup of coffee containing a piece of metal is defective and abnormally
dangerous as the metal could injure an unsuspected consumer drinking the coffee. Or,
an electric food processor is defective and abnormally dangerous if the top and blade fly
off when the mixer is turned on.
2. Defect in Design
When a product is designed so that faulty design causes the product to become
dangerous, the product is defective.
For example, a power table saw is designed so a safety guard surrounding the
blade can be removed and the saw will still operate. This becomes abnormally
dangerous and likely to injure users. The safer design would have been for the
saw to lock and not operate with the safety guard removed.
3. Failure to adequately Warn
Most products carry warnings, so the key word is “adequately”. A warning can be
included but may not adequately warn of risks for various reasons:
1) a warning may not be reasonably accessible or easily visible to consumers;
2) a warning may not clearly or adequately describe the risks;
3) a warning may not include all possible dangers.
Manufacturers and sellers of products are, by law, required to provide certain warnings
on most products. Products that are inherently dangerous, such as knives, power tools,
etc., must warn of these dangerous propensities. If an electric knife does not carry a
warning, it becomes abnormally dangerous with potential to serious injure a user.
4. Defect in Packaging
Manufacturers owe a duty to design and provide safe tamperproof packaging. Failure to
meet this duty may make a product abnormally dangerous and defective. For example,
an over-the-counter medication for which the packaging can be opened and re-closed
without notice by consumers, is potentially abnormally dangerous. The packaging could
be opened, the medication poisoned or contaminated, without being visible to a
consumer.
Possible Defenses to Product Liability
Defenses to claims of strict product liability may minimize damages or result in a
favorable ruling for a defendant, but this is not a given. Defenses often fail in product
liability cases as the liability is so broad.
Defenses are raised only by defendants.
Possible Defenses:
Generally Known Dangers –If the product is known to the general population to be
inherently dangerous, such as guns, sellers typically may not be held strictly liable for
failure to adequately warn.
Assumption of Risk – A defendant who claims this defense must show that the plaintiff
knew and understood the risk, and then voluntarily assumed it anyway, and carelessly.
Misuse of Product – Defendants using this defense will not be held liable if the
plaintiff ’s misuse was unforeseeable and gross misuse. For example, if a consumer puts
wet in a microwave to dry them, and the microwave explodes, this is unforeseeable,
gross misuse and any injuries are the fault of the consumer.
Correction of a Product Defect – Manufacturers that become aware of a product’s
defect must make reasonable efforts to notify purchasers and users and correct the
defect. Failure on the part of a user to have the defect corrected, after notice, may be
raised as a defense in an action brought against the manufacturer. This will not always
absolve the manufacturer of liability, but may mitigate damages or result in a ruling for
the defendant, depending on circumstances and type of defect.
Supervening Event – If a product has been materially modified or altered by a
consumer, and the modification alteration is the direct cause of the injuries, the
defendant(s) may not be held liable. The modification or alteration is considered an
event that occurred after manufacturing and before injury.
**Strict product liability is often confused with the separate common law tort
of strict liability, sometimes referred to as “liability without fault”. Strict liability
applies only to a small category of abnormally dangerous activities, such as use of
explosives, fireworks, and stunt flying. Regardless of how careful these activities are
handled, there is a high risk of accident and injury. If there is injury to a third party
resulting from one of these activities, the “actor” responsible for these activities will be
liable for any injuries. The injured party only must show the injury occurred from the
dangerous activity and does not have to prove that the defendant was at fault by acting
carelessly.
Warranties and Products Liability Case Example:
Following is a court opinion for a product liability case that will illustrate application
of product liability law.
Liriano v. Hobart Corp. 92 N.Y.2d 232 (1998) Court of Appeals of the State of
New York (failure to adequately warn, defective and negligent design)
Facts:
In 1961, Liriano, a 17 year-old employee in the meat department at Super Associated
grocery store (Super), was injured on the job while feeding meat into a commercial
meat grinder whose safety guard had been removed. His right hand and lower forearm
were amputated.
The meat grinder was manufactured and sold by Hobart Corporation (Hobart) with an
affixed safety guard that prevented the user’s hands from coming into contact with the
grinder. No warnings were on the machine or otherwise provided to state it was
dangerous to operate the machine without the safety guard in place. Subsequently,
Hobart became aware that a significant number of purchasers of its meat grinders had
removed the safety guards; in 1962, Hobart began issuing warnings on its meat
grinders concerning removal of the safety guard.
At trial, Super conceded the safety guard was intact at the time it acquired the grinder
and that the guard was removed while in its possession. It is further conceded that
Hobart actually knew, before the accident, that removals of this sort were occurring
and that use of the machine without the safety guard was highly dangerous.
Liriano sued Hobart for negligence and strict product liability for defective product
design and failure to warn. The case was removed to the United States District Court
for the Southern District of New York, and Super was impleaded as a third-party
defendant, seeking indemnification and/or contribution.
The District Court dismissed all of Liriano’s claims except those based on failure to
warn. The trial court ruled failure to warn was the proximate cause of Liriano’s
injuries and apportioned liability 5% to Hobart and 95% to Super. On partial retrial,
Liriano was assigned 33 1/3% of the responsibility.
Hobart and Super appealed, arguing that they had no duty to warn, as a matter of law,
and that the case should have been decided in their favor.
Opinion:
The appellate court agreed, essentially, with the rationale of the lower courts on the
issues of Hobart’s and Super’s liability.
The Court discussed the responsibility to warn of inherent dangers. The Court
declared, “A manufacturer who places a defective product on the market that causes
injury may be liable for the ensuing injuries.***A product may be defective when it
contains a manufacturing flaw, is defectively designed or is not accompanied by
adequate warnings for the use of the product.***A manufacturer has a duty to warn
against latent dangers resulting from foreseeable uses of its product of which it knew
or should have known.***A manufacturer also has a duty to warn of the danger of
unintended uses of a product provided these uses are reasonably foreseeable.”
The Court further reasoned, “A manufacturer is not liable for injuries caused by
substantial alterations to the product by a third party that render the product defective
or unsafe.***Where, however, a product is purposefully manufactured to permit its
use without a safety feature, a plaintiff may recover for injuries suffered as a result of
removing the safety feature.”
Furthermore, the Court stated, “…Unlike design decisions that involve the
consideration of many interdependent factors, the inquiry in a duty to warn case is
much more limited, focusing principally on the foreseeability of the risk and the
adequacy and effectiveness of any warning. The burden of placing a warning on a
product is less costly than designing a perfectly safe, tamper-resistant product. Thus,
although it is virtually impossible to design a product to forestall all future riskenhancing modifications that could occur after the sale, it is neither infeasible nor
onerous, in some cases, to warn of the dangers of foreseeable modifications that pose
the risk of injury.”
Manufacturer liability may exist under a failure-to-warn theory in cases in which the
substantial modification defense would preclude liability under a design defect theory.
Strict Liability for Abnormally Dangerous Activities Case Example:
Following is a court opinion for a common law strict liability case that will illustrate
application of strict liability law regarding abnormally dangerous activities. Please
note: this is NOT a strict product case.
Klein v. Pyrodyne Corporation
817 P.2d 1359 (strict liability)
Supreme Court of Washington
Facts:
The plaintiffs in this case are persons injured when an aerial shell at a public
fireworks exhibition went astray and exploded near them. The defendant is the
pyrotechnic company, Pyrodyne Corp., hired to set up and discharge the
fireworks. All operators of the fireworks display were Pyrodyne employees acting
within the scope of their employment duties at the time of the accident.
During the fireworks display, a 5-inch mortar was knocked into a horizontal position
so that an aerial shell inside was ignited and discharged. The shell flew 500 feet and
exploded near the crowd of onlookers. Plaintiffs Danny and Marion Klein were
injured by the explosion.
The issue before this court is whether Pyrodyne is strictly liable for damages caused
by fireworks displays.
Kleins contend that strict liability is the appropriate standard to determine the
culpability of Pyrodyne because Pyrodyne was participating in an abnormally
dangerous activity.
Pyrodene moved for summary judgment which the court denied.
Opinion:
The Court reasoned, “Section 520 of the Restatement lists six factors that are to be
considered in determining whether an activity is “abnormally dangerous”. The factors
are as follows: (a) existence of a high degree of risk of some harm to the person, land
or chattels of others; (b) likelihood that the harm that results from it will be great; (c)
inability to eliminate the risk by the exercise of reasonable care; (d) extent to which
the activity is not a matter of common usage; (e) inappropriateness of the activity to
the place where it is carried on; and (f) extent to which its value to the community is
outweighed by its dangerous attributes.”
The Court also considered who should bear the loss when an innocent person is
injured through the nonculpable but abnormally dangerous activities of another. The
Court concluded that in the case of fireworks displays, it is most fair for the
pyrotechnicians who present the displays to bear the loss rather than the injured
parties.
Pyrodyne argued that even if there is strict liability for fireworks, it is not liable under
the facts of this case because of the manufacturer’s negligence in producing the
fireworks. According to Pyrodyne, a shell detonated without leaving the mortar box
because it was negligently manufactured.
The Court argued, “…intervening acts of third persons serve to relieve the defendant
from strict liability for abnormally dangerous activities only if those acts were
unforeseeable in relation to the extraordinary risk created by the activity.” Given the
nature of fireworks, it is foreseeable an accident could occur.
Pyrodyne Corporation is strictly liable for all damages suffered by plaintiff as a result
of the fireworks display. Detonating fireworks displays constitutes an abnormally
dangerous activity warranting strict liability. Public policy also supports this
conclusion.
Affirmed.