United States: Innovator Liability, Perpetual Liability Argued In California Supreme Court

Last Updated: October 6 2017
Article by Steven Boranian

The California Supreme Court heard oral argument in T.H. v. Novartis on Monday. That is the case where the California Court of Appeal held that a prescription drug manufacturer could be held liable for injuries allegedly caused by a product that it did not make and did not sell. This situation usually presents itself when plaintiffs sue an innovator drug manufacturer for injuries allegedly caused by generic products. T.H. v. Novartis has an added twist—the innovator manufacturer that the plaintiff sued had not made or sold the product for six years. It sold the product line to another manufacturer, who made and sold the product that the plaintiff allegedly used.

How then can the innovator manufacturer owe a duty to this plaintiff, when it did not sell the product that allegedly harmed her and had not sold the product for anyone's use for six years? We set forth our views on this question here and here, where we listed the Court of Appeal's opinion in T.H. v. Novartis the fifth worst decision of 2016.

The argument before the California Supreme Court lasted well more than the one hour allotted, and it featured questions from all seven justices. We're not going to give you a blow-by-blow account. Our stenographic skills are not up to that task, and it would take too long anyway. We will start, however, the same way counsel for the defendant did: The case presents not one, but two issues of duty. For the plaintiff's case to proceed, the California Supreme Court would have to recognize two unique legal duties: (1) the duty of an innovator drug manufacturer to users of its competitors' generic products, widely called "innovator liability", and (2) the duty of a product's former manufacturer to users of products made and sold by subsequent manufacturers, which we will call "perpetual liability."

Perhaps the Court already knows what it wants to do with innovator liability, because nearly all the questioning was on perpetual liability, and the answers did not completely satisfy all the justices. To start, both sides attempted to seize the status quo—the defendant argued that no court anywhere has ever held a former manufacturer liable for a injuries allegedly caused by a subsequent manufacturer's product, and the plaintiff argued that everyone owes a duty to everyone else to refrain from negligence.

The argument, however, dwelled on the limits of duty and how/where the Court should draw the line. Only one thing was clear: The Court was troubled by the prospect of liability in perpetuity for a manufacturer that no longer sells a product. The plaintiff tried to minimize the issue, arguing more than once that the prospect of perpetual liability was overblown and that perpetual liability cases would be rare. Counsel even suggested once that the Court's questions were "stacking a rare hypothetical upon a rare hypothetical." Despite these efforts, the Court directly confronted the issue, with a couple of justices noting that the situation would not necessarily be rare.

Now, whether the Court will recognize a new duty for former manufacturers and, if so, how the Court will limit such a duty is anyone's guess. Of course, the best and obvious solution is to adopt the bright-line rule urged by the defense, that a former manufacturer owes no duty at all to users of a subsequent manufacturer's products. This is what every court to consider perpetual liability has decided, and it follows California Supreme Court precedent holding that a manufacturer owes no duty to warn regarding hazards in another manufacturer's product, most recently in O'Neil v. Crane Co., 53 Cal. 4th 335, 360 (2012) ("An interpretation of [the law] that would require a manufacturer to warn about all potentially hazardous conditions surrounding the use of a product, even when those hazards arise entirely from the product of another manufacturer, reaches too far."). It is likewise faithful to decades of product liability law in California and elsewhere, which places the duty to warn on a product's manufacturers and sellers.

The Court questioned counsel on other potential limits, for example by asking repeatedly how long a former manufacturer's duty should persist. One justice noted that the lapse of time was the most difficult question. In this case, six years passed between the defendant's sale of the product line and the plaintiff's use of the product manufactured by another company, so how long is too long? Plaintiff had no answer to these concerns, and counsel finally acknowledged after nearly an hour of argument that there was no way to "scrub" perpetual liability from the case.

The Court also asked whether concepts of breach of duty and causation would adequately protect the defendant. In other words, if the Court created the duties, could the defendant move for summary judgment or defend itself at trial on the basis that it neither breached a duty nor caused any injury? At least one justice was relatively open in supporting this idea. Others preferred to focus on the threshold question presented—whether the defendant owed a duty in the first place. In this regard, the expense of litigation and the ability (or inability) of a defendant to spread the cost when it no longer sells the product are particularly relevant considerations.

There were other suggested limits. The plaintiff argued that a former manufacturer could protect itself by updating its label before transferring a product line. But as the defendant pointed out in response, that solution offers false assurance because plaintiffs would just claim the updated label was inadequate, too. One plaintiff's attorney suggested that the Court set a time limit for suing the former defendant, but another retracted that suggestion, noting that statutes of repose were the business of the legislature.

The plaintiff also suggested that a former manufacturer could protect itself by bargaining for indemnity, which led to questions about the whether the identity and reputability of the purchaser of the product line would make a difference. At least one justice thought that it might. One plaintiff's attorney argued that a former manufacturer's duty should depend on how much a more robust warning would have affected the sale price of the product line. We did not follow counsel's reasoning, and we would be surprised if the Court did either.

In rebuttal, the defendant reiterated that the issue is duty, that it is the role of the Court to define duties and set limits, and that the plaintiff had offered no viable protection against perpetual liability. We agree. These are not jury questions. In the end, it will be a split decision, but we know how we would vote. The law cannot justify creating an unprecedented duty of care for a company that did not sell the product that allegedly harmed the plaintiff and no longer sells the subject product at all. The plaintiff's remedy is against the manufacturer and seller of the product that she allegedly used and that allegedly resulting in an injury, just as it always has been under California product liability law. We understand that this will not always give the plaintiff a complete remedy. The manufacturer could be bankrupt or outside the jurisdiction of the court, and in some cases federal regulation of prescription drugs will preemption state-law claims. But California has guidelines on when duties exist and when they do not. We call them the Rowland factors, and they do not predict that a plaintiff will have the right to full recovery in every case. So it should be here. The opinion should be out in about 90 days.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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