California Supreme Court Tackles Sophisticated Intermediary Doctrine

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Raw suppliers that place their products in the stream of commerce face a dilemma regarding the uncertainty of their duty to warn of the potential hazardous nature of their products. The sophisticated intermediary doctrine is one weapon a raw supplier has against the presumption that a supplier of a hazardous raw material has a general duty to warn all downstream users. The sophisticated intermediary doctrine originated in the Restatement Second of Torts in an attempt to define the duty of a supplier. The doctrine allows a supplier to discharge its duty to warn end uses of its product if it: (1) provides adequate warnings to the product’s immediate purchaser, or sells to a sophisticated purchaser that it knows is aware or should be aware of the specific danger, and (2) reasonably relies on the purchaser to convey appropriate warnings to downstream users who will encounter the product.

The California Court system recently grappled with this issue in the context of asbestos litigation, and late last month, the California Supreme Court affirmed a lower court’s decision to uphold a jury verdict finding a defendant eighteen percent at fault for a plaintiff’s mesothelioma.

In the 1970s, a company known as Special Electric Company brokered the sale of crocidolite asbestos to Johns-Manville. Special Electric arranged for the material to be sent directly from the mine to Johns-Manville; it never took possession of the asbestos, and it received a commission for the sale. Johns-Manville used that raw product to produce transite piping which it later sold to a supply company called Familian Pipe & Supply Company. Familian ultimately sold the piping to Pyramid Pipe & Supply Co., the plaintiff’s employer from 1969-1979. The plaintiff alleged that he handled the piping about ten times per year during that period.

In 2011, the plaintiff was diagnosed with mesothelioma and brought suit in California alleging that the transite piping he handled from 1969-1979 was the cause of his cancer. The plaintiff further claimed he was never warned about the dangers of asbestos and that he was never provided breathing protection. Ultimately, the plaintiff went to trial against Special Electric and two other companies.

At trial, Special Electric filed pre-verdict motions for non-suit on the failure to warn allegations because, it  argued, it had no duty to warn a sophisticated purchaser like Johns-Manville about the health risks of asbestos. The trial court deferred ruling on these pre-verdict motions and instead allowed the jury to reach a verdict. However, after  the jury found Special Electric liable for failure to warn, the  trial court heard, and granted, Special Electric’s pre-verdict motions and styled them a judgment notwithstanding the verdict (JNOV).

The California Court of Appeals, in a divided decision, reversed the trial court’s JNOV decision, and last month, the California  Supreme Court affirmed the Court of Appeals decision to vacate the JNOV decision and allow the jury verdict to control. Based on the particular evidentiary requirements needed to grant a JNOV, the Supreme Court decided that Special Electric’s JNOV could not stand.

While it did not save Special Electric this time, the Supreme Court addressed  the sophisticated purchaser doctrine in its opinion. In doing so, the Court recognized that, under the doctrine, a supplier can discharge its duty to warn if it conveys adequate warnings to the material’s purchaser, or sells to a sufficiently sophisticated purchaser, and reasonably relies on the purchaser to convey adequate warnings to others, including those who encounter the material in a finished product.

This decision is a win for suppliers of raw materials that are incorporated into finished products. As a result of this opinion (Webb v. Special Electric Co., S20992), the California Supreme Court has now formally adopted  the sophisticated intermediary defense in the state of California as a valid defense with ascertainable elements. However, the application of this defense is not uniform. Reasonable reliance depends on many circumstances, including the degree of risk posed by the material, the likelihood the purchaser will convey warnings, and the feasibility of directly warning end users. As the Supreme Court explained,  the policy of the doctrine is to balance the competing policies of compensating those injured by dangerous products and encouraging conduct that can feasibly be performed. Essentially, each factual circumstance is different. The fact-driven nature of the defense would render an argument at the summary judgment stage extremely difficult. Further, the court emphasized that the burden of proving this defense is the suppliers. Because this defense is likely to require proofs at trial, defendants who may wish to take advantage of it should plan sufficiently in advance to ensure that they will have sufficient evidence to offer at the time of trial.

 

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