May 23, 2016

California adopts sophisticated intermediary doctrine

By Deborah J. La Fetra Senior Attorney

Special Electric Co. brokered the sale of raw asbestos from a mine in South Africa to Johns-Manville, which incorporated it into Transite pipe sold to Familian, a pipe supply company, that sold it to Pyramid Pipe & Supply, William Webb’s employer. As a broker, Special Electric never had possession of the raw asbestos. Webb worked with the pipe at Pyramid and later developed mesothelioma. He sued Special Electric for strict liability and failure to warn. A jury awarded Webb $900,000 against Special Electric but the trial court granted a judgment notwithstanding the verdict (JNOV) in favor of the company. Today, in Webb v. Special Electric Co., the California Supreme Court reinstated the jury verdict, but it also formally adopted the “sophisticated intermediary doctrine.”

Writing for the court, Justice Corrigan’s opinion explained that a supplier discharges its duty to warn end users about risks of a product if it “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.” Suppliers bear the burden of proving each element of this affirmative defense, which applies in cases involving both strict liability and negligence. PLF supported the adoption of this doctrine because there is no practical way for bulk suppliers to warn end-users. 

The devil is in the details, and how courts apply this doctrine in the future will determine whether this case marks an actual change in California tort law. Certainly, the doctrine is not a get-out-of-liability-free card. In this case, the court agreed that Johns-Manville was a sophisticated purchaser that knew or should have known about the risks of asbestos in general, but held that Special Electric failed to prove that Johns-Manville knew about the acute risks posed by the particular type of asbestos that caused Webb’s illness. Moreover, the court held that Special Electric did not prove that it reasonably relied on Johns-Manville to convey the warnings to users further down the chain.

Chief Justice Cantil-Sakauye and Justice Chin concurred and dissented, because, in their view, the majority opinion did not go far enough in the plaintiffs’ direction. They would not permit the sophisticated intermediary defense when a supplier can show only that the intermediary “should have known” about the specific danger. That is, the concurrence would presume that Johns-Manville was unaware of the dangers of crocidolite asbestos, despite the plaintiff’s expert knowing of “no company in the United States more knowledgeable about asbestos.”

Courts should not be required to feign ignorance and presume that every case exists in a vacuum. In this case, Johns-Manville could be presumed to have known that crocidolite asbestos presents dangers by reference to any number of sources—both internal and external. The concurrence would nonetheless impose a duty to supply a redundant warning because it could identify no “policy reason to allow a supplier merely to assume a buyer is aware of the risks associated with a product.” In fact, there is an very important policy reason: Pointless warnings—warning people of facts they already know—not only serve no purpose as to that product, but undermine the functions of warnings generally, as people learn to ignore them. As the court noted in Johnson v. American Standard (2008), extensive warnings “invite mass consumer disregard and ultimate contempt for the warning process.” Such a rule would shift the costs of injuries resulting from product use to attenuated businesses that have only a hypothetical ability to prevent the harm through pointless warnings, which would not protect consumers. It would create a tremendous, unjustified burden on a broad array of industries by increasing the difficulty and expense of countless transactions. Liability costs are a serious burden on business, unnecessarily over-deterring economic activity, stifling investment, economic growth, and job creation. The majority opinion’s balancing test at least acknowledged these policies. It remains to be seen which philosophy of tort recovery will prevail as Webb is applied to pending and future cases.

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