California Adopts the Sophisticated Intermediary Doctrine

by Morrison & Foerster LLP - Class Dismissed
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In a recent opinion, the Supreme Court of California formally adopted the Sophisticated Intermediary Doctrine, clarifying what circumstances may permit a raw materials supplier to discharge its duty to warn consumers.  Webb v. Special Electric Co., No. S209927, slip op. (Cal. May 23, 2016).  Although Webb involved hazardous raw materials, the holding could apply broadly to many types of component suppliers.

Though it is hardly a free pass, the long-awaited ruling allows suppliers of raw materials to discharge their duty to warn by relying on intermediaries to warn downstream users.  But the defense is only available if the supplier conveys adequate warnings to the intermediary or if the intermediary is a sufficiently sophisticated purchaser.  The supplier can then reasonably rely on the purchaser to convey adequate warnings to others—including those who encounter the material in a finished product.  What is reasonable reliance?  Not surprisingly, it depends on all attendant 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.

Background

Plaintiff William Webb was employed by Pyramid Pipe & Supply Co. (“Pyramid”) as a warehouseman and truck driver between 1969 and 1979.  As part of his job, he regularly handled pipe containing crocidolite asbestos, the most harmful form of the cancer-causing substance.  Special Electric Company, Inc. (“Special Electric”) brokered the sale of the crocidolite asbestos to Johns-Manville, which was at the time the oldest and largest manufacturer of asbestos-containing products in the United States.  Johns-Manville, in turn, sold the pipe to Familian Pipe & Supply, who sold the product to Mr. Webb’s employer, Pyramid.

Over thirty years later, Mr. Webb was diagnosed with mesothelioma, a fatal disease known to be caused by asbestos.  He and his wife sued multiple defendants related to his asbestos exposure and ultimately went to trial against Special Electric and two other defendants.  At trial, Special Electric argued that it had no duty to warn a sophisticated purchaser like Johns-Manville about the health risks posed by asbestos.  This argument did not persuade the jury, which returned a verdict in favor of the Plaintiffs, apportioning 49% fault to Johns-Manville, 18% to Special Electric, and 33% to other entities.  The Court, however, granted Special Electric’s motions for a directed verdict and nonsuit, finding that Special Electric was not liable for failure to warn; the Court also entered a judgment notwithstanding the verdict (“JNOV”).

The California Court of Appeal held not only that the JNOV ruling was premature and lacked written notice, but also that the ruling was improper because substantial evidence supported the Plaintiff’s claims—specifically, that Special Electric breached a duty to warn Johns-Manville and other foreseeable downstream users about the risks of asbestos exposure.

The New Rule

It is well established that manufacturers have a duty to warn not only their consumers, inherent in their products, but also all entities in their product’s chain of distribution about hazards in their products.  See Taylor v. Elliott Turbomachinery Co., 171 Cal. App. 4th 564, 575 (2009).  Several defenses have emerged in response to this sweeping requirement, including the obvious danger rule, the sophisticated user defense, the component parts doctrine, and the bulk supplier doctrine.  With its decision in Webb, the California Supreme Court adds the Sophisticated Intermediary Doctrine to their company and overturns the California Court of Appeal decision in Stewart v. Union Carbide Corp., 190 Cal. App. 4th  23 (2010).

In Webb, the Court formally adopts the Sophisticated Intermediary Doctrine in accordance with the Third Restatement of Torts, holding that a supplier may discharge its duty to warn end users about known or knowable risks in the use of its product if it:  (1) provides adequate warnings to the products’ 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.

Reasonable reliance depends on a totality of the circumstances, including:  (1) the degree of risk posed by the material, (2) the likelihood the purchaser will convey warnings, and (3) the feasibility of directly warning end users.  Thus, the test requires the supplier to show that it actually relied on the intermediary to convey warnings, as well as the reasonableness of doing so.  The latter category is established by examining (1) the gravity of the risks posed by the product, (2) the likelihood the intermediary will convey the information, and (3) the feasibility and effectiveness of giving a warning directly to the user.

The supplier bears the burden of proving both prongs of the Sophisticated Intermediary test, which applies to claims sounding in both strict liability and negligence.

Holding

The Supreme Court affirmed the decision of the Court of Appeal, holding that the record did not establish as a matter of law that Special Electric discharged its duty to warn by relying on a sophisticated intermediary.  The trial record did not establish consistent warnings to Johns-Manville, and there was no evidence that Johns-Manville was aware of the particularly acute risks of crocidolite asbestos.  To the contrary, evidence showed that at least one Special Electric salesperson told customers that crocidolite asbestos was safer than other forms of asbestos fiber.  More importantly, the record did not establish that Special Electric actually and reasonably relied on Johns-Manville to warn end users like Mr. Webb about the dangers of asbestos.  Because substantial evidence supported the jury’s verdict against Special Electric, the trial court erred in granting JNOV and the lower court’s decision was affirmed.

Implications

The Webb decision is a landmark product liability case in California because it provides a path, albeit one with specific requirements, for suppliers of raw materials to discharge their duty to warn downstream intermediaries and consumers.  To take advantage of the new rule, however, it is imperative that suppliers comply with the specific requirements outlined in Webb.

Any supplier hoping to take advantage of the Webb decision must be sure to comply with the discrete requirements of the new rule.  We will continue to monitor these developments and to provide further updates on the legal landscape for product and component manufacturers.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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