Can a Retailer or Distributor Be Liable for a Product It Didn’t Design or Manufacture?

Elisabeth M. McOmber

By Elisabeth M. McOmber

 

The short answer is – it depends.

Utah case law has established what is commonly referred to as the passive retailer doctrine. This doctrine creates an exception to Utah’s Product Liability Act, which states that a manufacturer or seller of a product may be held liable for injury caused by the product if found to be defective and unreasonably dangerous. The passive retailer doctrine stems from a tension created between the concept of strict liability under the Product Liability Act – under which a seller could be held liable regardless of its respective degree of fault – and the Utah Liability Reform Act (ULRA) – which expressly eliminated joint and several liability in favor of comparative fault. The ULRA specifically defines fault to include strict liability and thus, under the ULRA, a defendant in a product liability case in Utah may only be held liable for its proportionate degree of fault.

In Sanns v. Butterfield Ford, 94 P.3d 301, 303 (Utah App. 2004), the Utah Court of Appeals addressed this tension and created the passive distributor doctrine in Utah. The court held that Utah law does not permit a product liability claim against a purely passive retailer or distributor who was not involved in the manufacture or design of the purportedly defective product. In Sanns, the plaintiff sued both the automobile manufacturer and the car dealership to recover damages for the injuries he incurred in a rollover accident, asserting claims for strict liability, breach of warranty and negligence against both companies. The Utah Court of Appeals affirmed summary judgment in favor of the dealership, finding that the dealership “did not participate in the design, manufacture, engineering, testing, or assembly” of the vehicle. The Court of Appeals held that the dealership could not be liable under the ULRA when there was no evidence that the seller knew of or contributed in any way to the vehicle’s defective condition. The Sanns court further held that a passive distributor cannot be liable in negligence for an allegedly defective product when the defect is latent and the retailer has no means of discovering the defect. Since Sanns, both federal and state courts in Utah have applied the passive retailer rule to dismiss product liability claims against purely passive retailers or distributors of products. For example, in Yirak v. Dan’s Super Markets, Inc., 188 P.3d 487 (Utah App. Ct. 2008), the Utah Court of Appeals applied its ruling in Sanns to find that a supermarket was not liable for an alleged defect in pre-packaged lettuce. Likewise, in France v. Harley-Davidson, Inc., Case No. 2:06-CV-00961 TS, 2007 WL 1795722 (June 18, 2007 D. Utah), the Utah District Court held that motorcycle dealerships were not liable for an alleged defect in a motorcycle.

Recently, however, the Court of Appeals did find that the distributor of a product was potentially liable under Utah’s Product Liability Act and reversed summary judgment based on the passive retailer doctrine. McQuivey v. Fulmer Helmets, Inc., Case No. 20121056, 2014 WL 3747561 (Utah Ct. App. July 31, 2014) involved an 8-year-old boy who was in an ATV accident and was injured due to an alleged defect in the helmet he was wearing at the time. The helmet was designed and manufactured by KYL, a Taiwanese company, distributed by Fulmer Helmets, Inc., and sold in Utah by retailer White Knuckle Motor Sports, Inc. The plaintiff sued all three companies. KYL was dismissed for lack of personal jurisdiction. According to the McQuivey decision, White Knuckle Sports was dismissed by stipulation because the evidence “showed that White Knuckle had neither knowledge of potential defects nor influence over the helmet’s design, safety, or manufacturing.” In other words, White Knuckle satisfied the standard for dismissal based on the passive retailer doctrine.

Fulmer also sought dismissal based on the passive retailer doctrine and the trial court granted summary judgment in its favor. The McQuivey court disagreed on the basis that the evidence in the case demonstrated that Fulmer had been at least somewhat involved in the design and manufacture of the helmet unlike the retailers in Sanns or Yirak. Specifically, the court pointed to evidence that showed Fulmer participated in the helmet’s design by providing input to the manufacturer regarding fit of the helmets and designing the helmets’ graphics and tags, participated in the manufacture of the helmets by conducting on-site visits to the manufacturer’s factory, examining the manufacturer’s quality control procedures and requiring the manufacturer to comply with U.S. Department of Transportation standards, and conducted its own independent testing of the helmets. Under these particular facts, the court held that, even though it was apparent that KYL primarily conducted the design and manufacture of the helmet, summary judgment based on the passive retailer doctrine was not appropriate because “the passive-retailer doctrine does not ask whose role in manufacturing a defective product was the greatest” but rather whether a party actually participated in the products design, manufacture, testing or assembly. The court also explained that the rationale behind exempting purely passive retailers from liability is that such retailers or sellers are “not in a position to eliminate the unsafe character of the product and prevent the loss, one of the rationales for imposing strict liability.”

Interestingly, the McQuivey court appears to have independently raised the issue of the apparent manufacturer doctrine, which, as the court acknowledged, has never been addressed or adopted by the Utah courts or legislature. The apparent manufacturer doctrine is based on the rationale that where a company holds itself out to the purchasing public as the manufacturer of a product, it potentially may be held liable for any defect in that product. Like the passive retailer doctrine, the application depends on the facts of a given case. Since the appellant in McQuivey did not request the court to adopt the doctrine, the court “reserve[ed] the question for another day” and did not base its holding on this doctrine but on the failure of the facts in the case to support dismissal under Utah’s existing passive retailer doctrine. Thus, despite the dicta in McQuivey, the apparent manufacturer doctrine is not currently the law in Utah.

In sum, following McQuivey, it remains the law in Utah that a purely passive retailer or distributor that had nothing to do with the design or manufacturer of the product at issue, did not alter it in any way, and had no way of knowing about the alleged defect is generally not subject to a strict liability product defect claim. However, it is likewise evident that, depending on the specific facts and circumstances, taking steps that cross into participation in the design or manufacturing process could lead to potential liability for a claimed defect in a product that a retailer or distributor did not actually design or manufacture.

Elisabeth M. McOmber is an attorney with Snell & Wilmer L.L.P. Her practice is concentrated in product liability defense litigation and other complex commercial litigation. She defends high-stakes product defect claims against leading manufacturers of automobiles, commercial vehicles and component parts, watercraft and marine products, aircraft, pharmaceuticals, medical devices and asbestos containing products. Liz’s complex commercial litigation experience includes advising and defending insurance carriers on coverage issues and in claims for breach of contract and bad faith, defending companies in Limitation of Liability Act proceedings and defending construction defect cases. For more information, you can reach her at emcomber@swlaw.com.