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EXPERT ANALYSIS

VOLUME 38, ISSUE 22 / AUGUST 19, 2016

California’s Supreme Court Tackles the Sophisticated Intermediary Defense By Katherine P. Gardiner, Esq., and Kendra Bray, Esq. Walsworth

Earlier this year, on May 23, 2016, the California Supreme Court issued a ruling in William B. Webb v. Special Electric Company., Inc., 63 Cal.4th 167 (2016), formally adopting the sophisticated intermediary defense against failure to warn claims. In a 5-2 ruling, the Court held that a supplier of a hazardous raw material may discharge its duty to warn of dangers associated with that material if it either (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 product’s dangers, and (2) reasonably relies upon the purchaser to convey appropriate warnings to the end users of the finished products that incorporate that raw material. While the ruling is a win for component parts and material suppliers facing lawsuits from end-users of finished products into which those raw materials are incorporated, some important questions remain unanswered, including what level of evidence will be required to prove up this defense. Among the claims a plaintiff can make in a product liability action is failure to warn, alleging that a product is dangerous because it lacks adequate warnings or instructions. (Brown v. Superior Court, 44 Cal.3d 1049, 1057 (1988).) In California, a plaintiff may claim failure to warn under both strict liability and negligence theories. As explained in Johnson v. American Standard, Inc., 43 Cal.4th 56, 64 (2008), manufacturers have a duty to warn consumers about the hazards inherent in their products. The duty to warn applies to all entities in a product’s chain of distribution. (Taylor v. Elliott Turbomachinery Co. Inc., 171 Cal.App.4th 564, 575 (2009).) Thus, all entities in the chain of distribution have a duty to warn about product risks known or knowable in light of available medical and scientific knowledge. (Anderson v. Owens-Corning Fiberglas Corp., 53 Cal.3d 987, 995, 1000, 1002 (1991). A seller will be strictly liable for failure to warn if a warning was feasible and the absence of a warning caused the plaintiff’s injury. (Blackwell v. Phelps Dodge Corp., 157 Cal.App.3d 372, 377 (1984).) To date, product manufacturers and suppliers have been able to rely on three major defenses to failure to warn claims in product liability lawsuits — the sophisticated user doctrine, the component parts defense, and bulk supplier defense. Webb has just expanded defendants’ shield by adding the sophisticated intermediary defense.

SOPHISTICATED USER A manufacturer of an allegedly hazardous product need not warn a sophisticated purchaser about the dangers of that product: “[S]ophisticated users need not be warned about dangers of which they are already aware or should be aware.” (Johnson, supra, 43 Cal.4th at 65.)

WESTLAW JOURNAL ASBESTOS Actual awareness of potential hazards is thus not required, instead, a product manufacturer or supplier must only show that the user either knew or should have known of the product’s risk in light of his training or skill. (Johnson, supra, 43 Cal.4th at 71.) Under this defense, the focus is whether the danger in question is so generally known within the trade or profession that a manufacturer should not have been expected to provide a warning specific to the group to which plaintiff belonged. (Id. at 72.)

To date, product manufacturers and suppliers have been able to rely on three major defenses to failure to warn claims in product liability lawsuits — the sophisticated user doctrine, the component parts defense, and bulk supplier defense.

Because sophisticated users should already know about the product’s dangers, the manufacturer’s failure to warn cannot be the legal cause of any harm. (Id.) This defense only applies to situations where the injured party him- or herself is the sophisticated user, however, and not to situations where the product goes to a sophisticated purchaser who subsequently passes the product to another, less sophisticated end-user.

COMPONENT PARTS The component parts doctrine shields manufacturers and sellers of a component part from liability for failure to warn of potential injuries caused by a finished product unless the component part is it itself defective or the component part supplier participated in integrating the component into an end product and the integration caused the product to be defective. (See Rest.3d Torts, Products Liability, § 5, coms. a, b, and c, pp. 130-134.) As noted in Webb, the rationale behind the component parts doctrine is that, while component part sellers should be responsible for protecting purchasers from dangers in their own product, they cannot reasonably be expected to monitor the development of all potential products into which their components are integrated. (Webb, supra, at 63 Cal.4th at 183.) When a sophisticated buyer integrates a component into another product, the component seller owes no duty to warn either the immediate buyer or ultimate consumers of dangers arising because the component is unsuited for the special purpose to which the buyer puts it. (Ibid.) Importantly, however, as set forth recently in Ramos v. Brenntag Specialties, Inc., 203 Cal.Rptr.3d 273 (2016), the component parts doctrine is not available when the product supplied has not been incorporated into a different finished product or end product, but instead itself allegedly causes injury when used in the manner intended by the product supplier (e.g. injuries suffered by an employee of the purchaser, who is using the component part to manufacture the end product).

BULK SUPPLIER The bulk supplier doctrine is a particular application of the component parts doctrine — providing that where raw materials (as opposed to manufactured component parts) supplied are not inherently dangerous, the raw material is sold in bulk to a sophisticated buyer, the material is substantially changed during the manufacturing of a finished product, and the supplier has a limited role in creating the finished product, a supplier of the raw materials may avoid liability based on a failure to warn claim. (Artiglio v. General Electric Co., 61 Cal.App.4th 830, 839 (1998).) Like the component parts doctrine, this defense is limited to products that are not inherently dangerous.

SOPHISTICATED INTERMEDIARY AND WEBB Though product manufacturers and suppliers in California have long argued for a sophisticated intermediary doctrine and pointed to the Restatement Third of Torts and its predecessor Restatement Second of Torts for support, it was not until Webb that the California Supreme Court formally adopted the affirmative defense. Though the sophisticated user defense is limited to situations where the end-user of an allegedly defective product is sophisticated, the Webb decision has now made clear that, even if the enduser of a finished product is not sophisticated, a component parts manufacturer or supplier may meet his duty to warn regarding the dangers inherent in his product if the sophisticated

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WESTLAW JOURNAL ASBESTOS manufacturer of a finished product into which the component part is incorporated can reasonably be relied upon to warn the end-user of those dangers. Plaintiff William Webb claimed to have developed mesothelioma as a result of his exposure to asbestos-containing products. In his suit against various defendants, he named raw asbestos supplier, Special Electric, claiming that it failed to warn him about the dangers of asbestos. Plaintiff specifically claimed he was exposed to asbestos through his work with and around Johns-Manville asbestos cement pipe which incorporated raw asbestos fiber whose sale had been brokered by Special Electric. There was no dispute among the parties that Johns-Manville was extremely knowledgeable about asbestos and did not look to its suppliers for information about safe handling – it was the oldest and largest manufacturer of asbestos-containing products in the country, with plants throughout the world, and it owned and operated a chrysotile mine in Quebec. At the close of plaintiffs’ case, Special Electric moved for nonsuit on plaintiffs’ failure to warn claims and directed verdict with respect to plaintiffs’ strict liability claims, arguing it had no duty to warn a sophisticated purchaser like Johns-Manville about the health risks of asbestos. The Court deferred ruling on the nonsuit.

Webb has expanded defendants’ shield by adding the sophisticated intermediary defense.

The jury returned a verdict finding Special Electric liable for failure to warn and negligence, but not liable for supplying a defectively designed product. Before judgment was entered, Special Electric sought a ruling on its motion for nonsuit and directed verdict motions. The trial court held that Special Electric was not liable for failure to warn, entered judgment on the jury verdict and construed the motions as seeking judgment notwithstanding the verdict (JNOV). A divided panel of the Court of Appeals found some of the trial court’s rulings were procedurally improper, and concluded that the entry of JNOV was substantively improper because evidence demonstrated that Special Electric breached a duty to warn both Johns-Manville and downstream users like Webb about the risks of asbestos exposure.

RULING While the California Supreme Court affirmed the Court of Appeal’s ruling, holding that substantial evidence supported the jury’s verdict and Special Electric did not have a complete defense as a matter of law given the evidence presented at trial, it for the first time acknowledged the sophisticated intermediary defense could be applicable had supporting evidence been presented which demonstrated that Johns-Manville was in fact a sophisticated buyer upon whom Special Electric could have reasonably relied to warn end users about the potential harm posed by asbestos-containing products. In coming to its conclusion, after reciting the general principles concerning the duty to warn of product dangers and the types of defenses available to defendants, the Court examined the origin and development of the sophisticated intermediary doctrine. The Court reasoned the doctrine originated in Restatement Second of Torts, section 388, comment n, which addressed when warnings to a party in the supply chain are sufficient to satisfy a supplier’s duty to warn and recognized that warnings to a direct purchaser may not always be sufficient, such that the “ultimate question is whether the supplier has exercised reasonable care to ensure ‘that the information will reach those whose safety depends on their having it.’” (Id. at 185, citations omitted.) The “reasonableness” standard is similarly crucial to Restatement Third of Torts, Products Liability, section 2, comment i, which the Webb court noted is substantively the same as section 388, comment n, of the Restatement Second of Torts. As the Restatement Third notes: “There is no general rule as to whether one supplying a product for the use of others through an intermediary has a duty to warn the ultimate product user directly or may rely on the intermediary to relay warnings. The standard is one of reasonableness in the circumstances. Among those factors to be considered are the gravity of the risks posed by


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WESTLAW JOURNAL ASBESTOS the product, the likelihood that the intermediary will convey the information to the ultimate user, and the feasibility and effectiveness of giving a warning directly to the user.” (Id. at 186-187.) Focusing on the feasibility of a raw material or component part supplier to provide warnings directly to consumers of finished products, the Webb Court formally adopted the sophisticated intermediary doctrine. Under the rule, “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 product’s immediate purchaser, or sells to a sophisticated purchaser that it knows 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.” (Ibid.) Because the sophisticated intermediary doctrine is an affirmative defense, “the supplier bears the burden of proving that it adequately warned the intermediary, or knew the intermediary was aware or should have been aware of the specific hazard, and reasonably relied on the intermediary to transmit the warnings.” (Ibid., citations omitted.) Just as the sophisticated user defense applies to both negligence and strict liability failure to warn claims, so does the sophisticated intermediary doctrine.

Just as the sophisticated user defense applies to both negligence and strict liability failure to warn claims, so does the sophisticated intermediary doctrine.

In order to satisfy the first prong of the defense, generally a supplier must have provided adequate warnings to the intermediary about the particular hazard. However, the Webb Court added that in some cases, a buyer’s sophistication can be a substitute for actual warnings, if the buyer was so knowledgeable about the material supplied that it knew or should have known about the particular danger. This addition is a specific disapproval of Stewart v. Union Carbide Corp., 190 Cal.App.4th 23 (2010), which had ruled that the sophisticated intermediary defense applies only if a manufacturer actually provided adequate warnings to the intermediary. An intermediary’s sophistication is not, as a matter of law, sufficient to avert liability, however — there must also be a sufficient reason for believing that the intermediary’s sophistication is likely to operate to protect the user, or that the user is likely to discover the hazards in some other manner, the crux of the second prong of the defense. There are several factors relevant in determining whether a supplier has reasonably relied upon the intermediary to provide a warning, and which the Court noted would usually raise questions of fact for the jury. In Restatement Third, Products Liability, the factors were put into three distinct categories: 1) gravity of the risks posed by the product; 2) the likelihood the intermediary will convey the information to the ultimate user; and, 3) the feasibility and effectiveness of the component part supplier giving a warning directly to the end-user of the finished product. When applying these factors, the Court noted that while a defendant may point to a purchaser’s legal duty under California law to warn customers of all dangers, a supplier cannot ignore known facts that would provide notice of a substantial risk that the intermediary might fail to warn or that warnings might not reach the customer — a reliance on the intermediary to warn end users in the face of evidence that no warning will be provided is not reasonable reliance. In applying the doctrine to the specific facts of Webb’s case, the Court found that Special Electric never presented evidence to the jury that it reasonably relied on Johns-Manville to warn end users. There was disputed evidence regarding whether Special Electric consistently provided warnings to Johns-Manville during the relevant period, and there was no evidence that established JohnsManville was aware of the acute risks posed by crocidolite asbestos supplied by Special Electric. Further, the Court noted that there was no evidence that Special Electric actually and reasonably relied on Johns-Manville to warn end users about the dangers of asbestos, finding instead that there was evidence that Johns-Manville failed to warn its own workers about the hazards of asbestos prior to the mid-1970s.

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WESTLAW JOURNAL ASBESTOS QUESTIONS LEFT UNANSWERED While Webb promises to be helpful to suppliers defending cases filed by end users, it is yet to be determined whether it will be helpful in lawsuits filed by employees of the suppliers’ customers. In fact, the Webb court explicitly declined to consider the issue of whether an employee of the purchaser must be warned if the purchaser is a sophisticated entity. Raw material and component parts manufacturers and suppliers will certainly argue that just as in end user cases, it is much more feasible for a sophisticated purchaser to convey the hazards of a given product to its employees than for the supplier of raw materials; however, how convincing this argument will be to the Court is yet to be determined. Further, given the limitations of the evidence Special Electric set forth prior to the Court’s formal adoption of the sophisticated intermediary defense, exactly what level of evidence will be required to establish both sophistication and reasonable reliance is an open question – one that all parties in products liability cases will be dealing with in the days to come.

Kate Gardiner (L) is a partner at Walsworth’s San Francisco office and an experienced litigation and trial attorney who focuses her practice in toxic tort and product liability litigation, with an emphasis in asbestos litigation. She can be reached at [email protected]. Kendra Bray (R) is an associate at the Orange County, California, office who primarily focuses on asbestos litigation. She can be reached at [email protected]. Reprinted with permission.

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