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Retailers in a minority of states may have a defense to product liability claims when they have nothing to do with the manufacture of the product.

The Passive-Retailer doctrine provides a defense for companies in the supply chain who have no hand, influence or part of the manufacturing process. The key word in the defense is the word passive.

Mcquivey v. Fulmer Helmets, Inc., 2014 UT App 177; 335 P.3d 361; 766 Utah Adv. Rep. 32; 2014 Utah App. LEXIS 184; CCH Prod. Liab. Rep. P19,438

State: Utah, Court of Appeals of Utah

Plaintiff: Jamie Mcquivey

Defendant: Kim Yong Lung Industrial (KYL), which manufactured the helmet in Taiwan; Fulmer Helmets, which distributed the helmet throughout the American market; and White Knuckle Motor Sports, which sold the helmet

Plaintiff Claims: strict liability for defective design as well as negligence and failure to warn, Utah Product Liability Act

Defendant Defenses: Passive retailer defense

Holding: For the plaintiff

Year: 2014

The facts in this case are a little outside of the normal facts written about here. However, the defense in the case is rare and the opportunity to write about the case is important.

This case involves a helmet that failed during an ATV accident. The eight-year-old son of the plaintiff was riding an ATV when he crashed. His helmet cracked, and the helmet cut his face. The mother sued the Manufacturer, the importer distributor and the retailer.

The manufacturer and retailer were dismissed from the case leaving only the importer, Fulmer. The retailer was dismissed because “White Knuckle [retailer] had neither knowledge of potential defects nor influence over the helmet’s design, safety, or manufacturing.” The manufacturer was dismissed because it moved to dismiss for lack of personal jurisdiction.

The importer/defendant then moved to dismiss based on the theory that Fulmer was a passive retailer and could not be held liable for the defects in the helmet. The district court agreed and dismissed Fulmer. The plaintiff appealed that decision leading to this appeal.

Analysis: making sense of the law based on these facts.

The court first went through Utah Product liability law.

Under general principles of tort law, “as between an injured buyer of a product, and the seller of the product, the seller must bear the liability.”

Under Utah’s Product Liability Act, a “manufacturer or other initial seller” who sells an “unreasonably dangerous product” may be liable for resulting “personal injury, death, or property damage.”

Under Utah’s law, strict liability does not require proof of fault, only that the manufacturer sold a defective helmet.

The court then defined the Passive-Retailer Doctrine.

The passive-retailer doctrine creates an exception to strict liability under the Product Liability Act for “passive retailers”–sellers who do not “participate in the design, manufacture, engineering, testing, or assembly” of a product. Under this doctrine, “a passive retailer is not subject to a strict liability claim . . . where the manufacturer is a named party to the action.” The passive-retailer doctrine thus allows the trial court to dismiss a strict-liability claim against a codefendant when undisputed facts establish that no fact finder could, under principles of comparative fault, apportion fault to that codefendant. In this circumstance, “as long as [the actual manufacturer] is present in the suit, there remains no reason to require [a passive retailer] to incur the time and expense of defending” the action.

This is a defense for retailers, that has been adopted by a minority of states. It makes sense in today’s world of prepackaged products that are too complicated for the normal retailer to understand.

This decision found legislatures in Nebraska, Delaware, Idaho, Kansas, Iowa, Maryland, Minnesota, Missouri, North Dakota, Tennessee and Washington had adopted a variation of the doctrine. Courts in Texas, New York, and Oklahoma adopted  the doctrine.

In Utah, the doctrine only was used twice. However, in this case this court found the doctrine did not apply. The defendant Fulmer did more than merely import and sell the helmets.

The defendant’s name was on the helmets, and they were marketed as Fulmer’s helmets. Fulmer reviewed the design of the helmets, tested samples and made changes to the samples. Fulmer performed on-site visits to the manufacturing facility twice annually. Fulmer required the helmets to be manufactured to US DOT standards.

Finally, we note that Fulmer holds itself out to the public as the manufacturer of the helmets that bear its name. Under Second Restatement of Torts, “[o]ne who puts out as his own product a chattel manufactured by another is subject to the same liability, as though he were its manufacturer.” Restatement (Second) of Torts § 400 (1965). “[O]ne puts out a chattel as his own product when he puts it out under his name or affixes to it his trade name or trademark.”

This level of participation was found by the court to be more than passive. The court based on this review found the defendant importer did not qualify for the defense of the Passive Retailer doctrine and sent the case back for trial.

So Now What?

The product liability laws in the US were developed to protect people. That worked when everyone in the supply chain from the manufacturer to the retailer could identify a defect and stop the sale of a defective product. That time ended when we moved from a “general store” to the current marketing system we use today.

If you are a retailer, you should investigate if the Passive-Retailer Doctrine applies to you in your state. Find out what you need to do to make sure you understand the doctrine and how you must work to be afforded its protection.

If you are a manufacturer, you need to understand who in your supply chain may be subject to this defense and keep that in mind when dealing with everyone in your supply chain to keep the defense viable.

What do you think? Leave a comment.

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