In a ruling that may have important implications for future product liability lawsuits, the New York Court of Appeals (the highest court in that state) issued a ruling in Finerty v. ABEX Corp. rejecting a plaintiff’s argument that despite no basis to pierce the corporate veil, a parent business should be liable for a foreign subsidiary because it was the best situated to impose pressure for improved products.
While product distributors have been strictly liable for dangerous product defects on the basis of ability/ duty to exert pressure for safer products, this theory for derivative liability had not been applied before to parent companies of wholly-owned subsidiaries. But with the decision, the New York state’s highest court rejected the idea that a parent company in the U.S. should be considered the “guardian” of the brand globally.
Of course, this is not great news for plaintiff in Finerty, who filed the lawsuit after being diagnosed with mesothelioma as a result of exposure to Ford-manufactured asbestos products in the United Kingdom. However, he is still free to pursue his case against Ford UK, which is the entity alleged to have manufactured, produced, distributed and sold the parts in question.
According to court records in the case, plaintiff alleged he suffered exposure to the toxic asbestos fibers that cause mesothelioma starting some 40 years ago, while working on asbestos-laden parts on vehicles at an Ireland repair shop. In the mid-1980s, plaintiff moved to Queens, NY. Many years later, doctors informed he he had a condition known as mesothelioma, a type of terminal cancer that effects the lining of either the lungs or the stomach. It is solely caused by exposure to asbestos.
Six years ago, following his diagnosis, plaintiff filed this lawsuit against Ford USA and Ford UK (other defendants were named, but these are the only two at issue in this case). He alleged strict products liability based on the strict liability theory on the basis the parts were defectively designed and the company failed to warn of it.
Ford USA, following discovery, asked the court for summary judgment on the grounds it did not manufacture, product, distribute or sell the parts in question; all of that was done by the subsidiary, Ford UK. Defendant also argued no evidence was presented that the court should “pierce the corporate veil,” such that it could be derivatively liable for the foreign subsidiary’s actions. Derivative liability refers to holding one accountable for the acts of another based on assistance provided to that person/company.
The New York Supreme Court ruled that despite no basis to pierce the corporate veil, defendant did exercise a great deal of control over its subsidiary and had a primary role in getting those asbestos-laden products into the hands of consumers. For this reason, there was a question of direct responsibility for plaintiff injuries. Appellate division affirmed, calling the U.S. defendant the “global guardian” of the company’s brand, wielding significant power in the development, design and use of auto products doled out by the United Kingdom subsidiary. Still, the appellate division certified to the New York Court of Appeals whether this ruling was correct. The court ruled it was not.
Justices noted that while it is well-settled that manufacturers who release defective products into the stream of commerce can be held strictly liable when personal injury results from the defectiveness of those products – even those injuries aren’t foreseeable. This type of strict liability can be imposed on distributors and retailers because of their unique position and relationship with manufacturers. But in this case, U.S. defendant wasn’t involved in the distribution chain. It did not release these products into the stream of commerce. Although there was evidence presented by plaintiff showing defendant provided some instruction to the UK subsidiary regarding the design of the product components, there was no evidence defendant actually manufactured or sold those products.
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Finerty v. ABEX Corp., May 3, 2016, New York Court of Appeals
More Blog Entries:
SCOTUS Boosts Plaintiffs’ Chances of Collecting on Personal Injury Lawsuits, May 7, 2016, Charlotte Asbestos Lawyer