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Poole & Shaffery, LLP

Poole & Shaffery, LLP’s litigation practice concentrates in the areas of general liability, transportation, product liability, construction defect, business litigation, employment litigation, toxic torts, professional liability and intellectual property.

Issue 3 | December 2016

CONSTRUCTION LAW: Appellate Decision Has Far Reaching Implications for Construction Industry

Subcontractors who supply and incorporate defective products into construction now may be held strictly liable for such conduct according to the Second Appellate District. The holding in the Hernandezcueva case stands a departure from establish precedent which insulated subcontractors who followed project specifications and plans. In doing so, it has provided another avenue for hungry plaintiff's attorneys to seek relief. This decision is yet another example of the California's trend of liability expansion in defective construction actions.

E.F. Brady Co., Inc. was a subcontractor whose trade specialties included plastering and the installation of drywall and fireproofing materials. In the early 1970's, Brady served as a subcontractor in the construction of several office buildings in Irvine, California. As part of its scope of work, Brady installed drywall and drywall taping mud. Unbeknownst to Brady, both the drywall and drywall taping mud contained asbestos.

In the early 1990's, Joel Hernandezcueva worked as a janitor at the offices buildings. During his time of employment, the office buildings were remodeled with the drywall in certain areas removed and replaced. Hernandezcueva cleaned up drywall debris and dust as part of his job responsibilities.

In or about 2011, Hernandezcueva was diagnosed with mesothelioma. Hernandezcueva then filed suit including Brady as one of the defendants in his action. At trial, Brady moved for partial nonsuit on Hernandezcueva's cause of actions for strict liability, misrepresentation, and intentional failure to warn, plus his request for punitive damages. The trial court granted the motion for the causes of action but denied it on the request for punitive damages. After the motion, only a cause of action for negligence remained. After Brady's presentation of evidence, the jury returned a verdict in favor of Brady. Hernandezcueva appealed.

In Hernandezcueva v. E.F. Brady Co., Inc. (2015) 243 Cal.App. 4th 249, the Second Appellate District reversed the trial court's decision and found that Brady could be held liable under a strict liability theory. Previously, California law provided that a subcontractor who supplies and installs a product is not liable under a strict liability theory if that product is defective. See, e.g., Monte Vista Development Corp. v. Superior Court (1991) 226 Cal.App. 3d 1681 (a tile subcontractor not strictly liable for supplying and installing a defective soap dish).

The appellate court also ignored or distinguished the decision in La Jolla Village Homeowners Association v. Superior Court (1989) 212 Cal.App. 3d 1131. The La Jolla decision previously afforded subcontractors who provide products in compliance with the project's plans and specifications a defense, finding that they cannot be held strictly liable for a defective product. The Second Appellate District reasoned that the La Jolla decision was not consistent with existing law because it predated the imposition of strict liability on a party's "participatory connection – rather than its precise legal relationship – to the stream of commerce." The court determined that a fact sensitive inquiry into a party's activities concerning the defective product was required for the imposition of strict liability.

In Hernandezcueva, the Second Appellate District focused upon a "stream of commerce" analysis, finding that Brady always provided and installed the products on its projects. With respect to the Irvine project, evidence showed that Brady's workmen contacted the manufacturer and supplier of the drywall mud due to a problem with its application. The manufacturer and supplier of the product both sent representatives to the site to meet with Brady and observe the problem. The court found that Brady's ability to "summon" the manufacturer and supplier to investigate the problem and that 25% of Brady's bid was for the supply of product or materials supported liability under a strict liability theory. Based upon these considerations, the Second Appellate District held that the question of whether Brady was in the "stream of commerce" for strict liability should have gone to the jury.

The California Supreme Court subsequently denied Brady's petition for review of the Second Appellate District's decision.

Given the Second Appellate District's decision in Hernandezcueva, subcontractors can anticipate the following potential negative impacts from that decision. First, subcontractors can anticipate that more personal injury plaintiffs will seek to hold them accountable for asbestos-related injuries from construction projects in the 1970's and prior. Second, because the decision is not limited to only asbestos-related injuries, subcontractors should anticipate that plaintiffs in construction defect actions will pursue them for strict liability where plaintiffs can show that the subcontractor installed a defective product, or in the context of mass produced residential housing, for strict liability where plaintiffs alleged that the home itself is a defective product. Under either scenario, the subcontractor may no longer be able to rely on the La Jolla defense that it complied with the plans and specifications a defense to a strict liability claim. Finally, given that the Hernandezcueva decision concerned a commercial construction project, an ambitious plaintiff may attempt to extend strict liability for defective construction from mass produced residential construction to commercial construction.

The decision in Hernandezcueva should be viewed as a continuation of the expansion of liability for defective construction, similar to the California Supreme Court's holding in Beacon Residential Community Association v. Skidmore, Owings & Merrill LLP, California Supreme Court No. S208173 (July 3, 2014). Moreover, based upon the decision in Hernandezcueva, California subcontractors should anticipate an increase in litigation filed against them with likely increases in liability resulting from the same. This, in turn, could likely result in increased insurance costs for California subcontractors. Accordingly, subcontractors need to find a means to limit their exposure to strict liability claims. One such method may be to require the general contractor to purchase all of the products to be used and installed in the construction of a project.

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By: J. Kevin Moore

PRODUCT LIABILITY: Uniformity or Calamity? Admitting Customs Evidence in Products Liability

The decision by the California Supreme Court to grant review of Kim. V. Toyota Motor Corp. (2016) Cal.App.4th 1366 ("Kim") may have a resounding impact on the admissibility of evidence in strict liability cases here in California. Prior to Kim, a split of authority existed between the circuits that allowed each circuit to follow one of two bright-line rules: either to admit evidence of industry custom or practice or to deny it in its entirety as irrelevant. The Kim decision muddied the waters further in holding that the inquiry into whether to admit or deny such evidence should be determined on a case-by-case examination. By granting review, the California Supreme Court has a golden opportunity to create a uniform rule of admissibility.

As articulated by the California Supreme Court in Barker v. Lull Engineering Co. (1978) 20 Cal.3d 413, 418 (Barker), a product is defective in design and a manufacturer is strictly liable if the product failed to perform as safely as an ordinary consumer would expect (the consumer expectations test), or if the benefits of the challenged design do not outweigh the risk of danger inherent in the design (the risk-benefit test). The test utilized depends on the complexity of the scientific or technical issues involved. Under the former, a product has a design defect if the product, when used in an intended or reasonably foreseeable manner, fails to perform as safely as an ordinary consumer would expect. Under the latter, a product has a design defect if the risks of danger inherent in the design outweigh the benefits.

Prior to the Kim ruling, Appellate Courts applied one of two bright-line rules when analyzing a case under the risk-benefit test regarding evidence of industry custom and practice: either the evidence was wholly admissible or wholly inadmissible without exception. Courts holding that such evidence is always inadmissible aver that a consideration of industry custom and practice is irrelevant to a risk-benefit analysis and impermissibly injects negligence principles into a strict liability cause of action by improperly focusing on the reasonableness of the manufacturer's conduct, rather than the condition of the product itself. By contrast, Courts holding that such evidence is always admissible reason that evidence of compliance with industry standards is not irrelevant and should be properly taken into account through expert testimony as part of the design defect balancing process.

In Kim, the plaintiff sustained injuries when he lost control of his vehicle after swerving to avoid a collision with another vehicle. Asserting a claim for strict liability design defect against the vehicle's manufacturer, the plaintiff alleged that the accident occurred because the manufacturer failed to include as standard, a vehicle stability control device; the absence of which was purportedly a design defect. The prevailing issue in Kim was whether the trier of fact may consider evidence of "industry custom and practice" in its risk-benefit analysis. In declining to follow either of the bright-line rules articulated by circuits before it, the Kim Court carved a new case-by-case approach, holding that evidence of industry custom and practice may be relevant and admissible in a strict products liability action, depending on the nature of the evidence and the purpose for which it is offered.

What is most alarming about Kim is not merely the adoption of a new approach to evidentiary procedure, but rather, that it serves as an example of a broader trend in California to depart from traditional bright-line rules distinguishing the admissibility of evidence in negligence and strict products liability design defect claims. Further, while the new rule may discourage the degree of forum shopping prevalent with the prior bright-line standards, it also creates a larger issue of unpredictability over what evidence would be admissible in any given court.

In granting review, the California Supreme Court may be signaling its intent to further blur the line between negligence and strict liability. It is entirely possible that the holding in Kim v. Toyota Corp., et al. could soon be the new uniform "bright-line" rule in in California regarding the admissibility of evidence of industry custom and practice in a risk-benefit analysis of strict product liability design defect claims.

Whether the California Supreme Court will ultimately adopt one of the three approaches, maintain the status quo with allowance of three separate approaches, or articulate a new approach of its own creation, Poole & Shaffery's renowned transportation practice group is uniquely equipped to counsel clients in the trucking and transportation industry to navigate the changing landscape in this area of the law.

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By: Silviana Dumitrescu