Torts and Products Liability PDF

CHAPTER 9 - Torts and Products Liability L earning to recognize situations in which a business venture may have potential liability to another party is an important part of limiting risk in business operations. Tort law and products liability law set out certain conduct and standards of reaso...

CHAPTER 9 - Torts and Products Liability L earning to recognize situations in which a business venture may have potential liability to another party is an important part of limiting risk in business operations. Tort law and products liability law set out certain conduct and standards of reasonableness and provide legal recourse when a violation of those standards results in an injury causing losses. Because business owners are ordinarily responsible for the intentional or accidental conduct of their employees who cause another party harm, it is essential for managers to understand ways in which to control risk and reduce liability. In this chapter, we discuss The fundamental principles of tort law, types of torts, and how each applies in a business context. Rules governing intentional and business competition torts. How liability arises for negligent acts and the defenses to liability. OVERVIEW OF TORT LAW LO 9-1 Articulate a basic definition of a tort and identify the source of law governing various types of torts. A tort1 is a civil wrong where one party has acted, or in some cases failed to act, and that action or inaction causes a loss to be suffered by another party. The law provides a remedy for one who has suffered an injury by compelling the wrongdoer to pay compensation to the injured party. Tort law is best understood as law that is intended to compensate injured parties for losses resulting in harm from some unreasonable conduct by another.2 One who commits a tort is known as the tortfeasor. The tortfeasor’s wrongful conduct is described as tortious conduct. Recall from Chapter 1, “Legal Foundations,” that an individual may commit a criminal offense and a civil wrong in the very same act. While criminal statutes are intended to punish and deter the wrongdoer, the common law of torts is primarily intended to provide compensation for the victim. In some cases, tort law also may be used to deter wrongful conduct in the future. SOURCES OF LAW For the most part, tort law is governed by state common law principles. Recall from Chapter 1, “Legal Foundations,” that courts look to rules articulated by the American Law Institute (ALI) for guidance on applying common law legal principles. For tort law, these rules are known as the Restatement of Torts. The ALI has amended the Restatements twice, and, therefore, these sources of law are called the Restatement (Second) of Torts and the Restatement (Third) of Torts. Remember that courts are not bound by any of the Restatements, but they do recognize them as widely applied principles of law. The Second Restatements have the benefit of volumes of case law and wide acceptance, and therefore references to the Restatements in this chapter refer to the Second Restatements unless otherwise noted.  Laws that cover individuals who are injured by a product, known as products liability laws, may take the form of state common law or state statutes that expressly impose liability for injuries that result from products. These statutes are based primarily on the Restatements and are relatively uniform from state to state. CATEGORIES OF TORTS LO 9-2 Determine the classification of tort based on the conduct of the wrongdoer. LO 9-3 Give specific examples of how tort law applies in the business environment. Torts fall into one of three general categories: intentional torts, negligence, and strict liability. An intentional tort is one in which the tortfeasor is willful in bringing about a particular event that causes harm to another party. Negligence is an accidental (without willful intent) event that causes harm to another party. The difference between the two is the mind-set and intent of the tortfeasor. For example, suppose that Pangloss is the delivery van driver for Cultivate Your Garden Flowers Inc. One day while on a delivery he spots his archenemy crossing the street, so he accelerates his truck and hits him. In this case, Pangloss has committed an intentional tort (battery). If, on the other hand, Pangloss is late for his delivery, carelessly speeds around a turn, and accidentally hits a pedestrian crossing the street, he has committed the tort of negligence. Strict liability torts, in which a tortfeasor may be held liable for an act regardless of intent or willfulness, applies primarily in cases of defective products and abnormally page 284 dangerous activities (such as major construction demolition). Owning a wild animal or even some breeds of dogs can result in strict liability should the animal harm an individual, regardless of the precautions taken by the animal’s owner.3 Legal Speak >)) Willful Conduct Intentional behavior directed by the “will.” INTENTIONAL BUSINESS-RELATED TORTS LO 9-4 Apply the elements and defenses of the torts of defamation, trade libel, and product disparagement and discuss the applicability of each in the business environment. While the law provides relief for injured parties in a variety of circumstances, there are some intentional torts that are more important to business owners and managers because they have the potential to impact business relationships and operations. Defamation The law recognizes an individual’s or a company’s reputation as a valuable asset by imposing liability on any party that makes false and defamatory statements affecting another party’s reputation. In this context, the term party means an individual, business, or product. Just as in all civil lawsuits, the untrue statements must have caused the victim to suffer damages. Generally, we think of written defamation as libel and oral (spoken) defamation as slander. In order to recover for a defamation action, the plaintiff must prove four elements: Defamatory statement: A false statement concerning a party’s reputation or honesty or a statement that subjects a party to hate, contempt, or ridicule. In order to qualify as defamatory, the statement must have a tendency to harm the reputation of the plaintiff.4 Because many statements can be interpreted in more than one way, the law provides that the statement is defamatory so long as a defamatory interpretation is an objectively reasonable one and the plaintiff shows that at least one of the recipients did in fact make that interpretation. Note that the statement must be false, not merely unkind. Moreover, if a statement was pure opinion, that statement is not defamatory. That is, a defamatory statement is one that must be provable as false. Dissemination to a third party: In the Restatements, this requirement is referred to as publication, but in this context it does not literally require the statement to be published. Rather, this element requires that the statement must somehow reach the ears or eyes of someone other than the tortfeasor and the victim. For example, suppose a manager telephones one of his employees and says, “You are the one who stole $100 in petty cash, so you’re fired.” Even if the accusatory statement is false, the manager has not defamed the employee based on that action alone. No third party heard the statement, and, thus, the dissemination element is missing. Specificity: The statement must be about a particular party, business, or product. Thus, any general statement about a profession as a whole cannot constitute defamation, but a false statement about a specific company can be the basis of a reputation claim. Damages: In a business context, the aggrieved party must be able to prove that he or she suffered some pecuniary harm. Examples of damages in a defamation suit include situations in which the victim has lost a valuable client due to the tortfeasor’s defamatory comment or the victim is unable to secure employment because of a tortfeasor’s defamatory comment during a reference check. Legal Speak >)) Pecuniary Harm Lost revenue or profits, both actual and potential. Legal Speak >)) Malice The intent, without justification or excuse, to commit a wrongful act or inflict harm. Public Figure Standard If the victim is a public figure, such as a candidate for political office or a celebrity, the defamation must have been committed with malice or page 285 reckless disregard for the truth. This “public figure” rule is based on the U.S. Supreme Court’s landmark ruling in New York Times v. Sullivan.5 The case involved a public official, the police commissioner of New York City, who sued The New York Times for defamation based on allegations printed in the newspaper that accused him of complicity in criminal activity. In announcing the public figure standard, the Court ruled that, in order for a public figure to prevail in a defamation case, the plaintiff must provide evidence that the defamer either had “actual knowledge” that the statement was false or made the defamatory statement with a “reckless disregard for the truth.”  In Case 9.1, a federal court of appeals considers whether a professional football coach is a public figure in a defamation context. CASE 9.1 Turner v. Wells, 879 F.3d 1254 (11th Cir. 2018) FACT SUMMARY The National Football League hired the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP and one of its partners, Theodore Wells (collectively Wells), to investigate allegations of bullying within the Miami Dolphins organization. The investigation centered on the bullying of a football player, Jonathan Martin, who abruptly left the Dolphins team midway through the 2013 season. At the time, Martin was an offensive lineman in his second year with the Dolphins. After leaving a Dolphins facility on October 28, 2013, Martin checked himself into a hospital for psychological treatment. Later, Martin explained that he left the team because of persistent taunting from other Dolphins players. After several months of investigation, Wells published a 144-page report (the Report) that concluded that bullying by other Dolphins players contributed to Martin’s decision to leave the team. The Report also included several references to their offensive line coach, James Turner (Turner), and opined that Turner’s unprofessional conduct played a role in Martin’s struggles. The Report noted that Dolphins coaches and players created a culture that enabled the bullying by discouraging players from snitching on other players, known in the organization as “the Judas Code.” It concluded that the treatment of Martin and others in the Miami Dolphins organization at times was “offensive and unacceptable in any environment.” After receiving the Report in February 2014, the Dolphins fired Turner, who in turn filed a defamation lawsuit against Wells and his law firm. The trial court found in favor of Wells because (1) the Report consisted of opinions and therefore was not actionable in a defamation suit and (2) Turner was a public figure and failed to adequately plead actual malice in his complaint. Turner appealed. SYNOPSIS OF DECISION AND OPINION The U.S. Court of Appeals for the eleventh Circuit affirmed the decision of the trial court in favor of Wells. The court held (1) the Report was a product of a careful balance in the investigation and that the statements were opinion-based and could not be categorized as false or misleading and (2) Turner was a public figure and therefore had an even higher hurdle to clear, malice, but that there was no evidence of malice during the investigation or upon publication of the subsequent report. WORDS OF THE COURT: Fact versus Opinion “Notably too, the Report included several cautionary statements that inform a reasonable reader that the conclusions contained therein are opinions. For example, the Report stated several times that it sets forth the Defendants’ opinions, based on a lengthy investigation: ‘[t]he opinions set forth in the findings and conclusions below and elsewhere in this Report are our own’; ‘[i]n our opinion, the factual record supports the following findings’ … Further, it is well settled in Florida that commentary or opinion based on accurate facts set forth in an page 286 article ‘are not the stuff of libel.’ That is precisely the case here.” WORDS OF THE COURT: Public Figure “‘[S]ports figures are generally considered public figures because of their position as athletes or coaches.’ … Here, Coach Turner chose to put himself in the public arena. As the Report noted, Turner was the focus of the 2012 season of Hard Knocks, an HBO television program that ‘showcase[ed] Turner’s coaching style and featur[ed] interviews and footage of him on the field and in the locker room.’ During his coaching career, Turner was the subject of several articles discussing his career and coaching philosophy. Turner was a prominent person on the closely followed Dolphins professional sports team…. [Turner] has failed to provide any evidence of malice in this case.” Defenses to Defamation The second phase of a defamation analysis is an inquiry into whether the defendant may avail him- or herself of a statutory or judicially recognized defense. Truth Truth is an absolute defense to a charge of defamation. If the statement made is truthful, no defamation has occurred. To assert truth as a defense, the defendant must prove that the statement was either literally true or substantially true. Privilege Defenses If the injured party meets all of the requirements of a defamation claim, the defendant may still avoid liability if the defamatory statement falls into the category of privileged statements. Privilege is a defense that recognizes either a legal or public policy–based immunity from a defamation claim. It is divided into two subcategories: absolute privilege, whereby the defendant need not offer any further evidence to assert the defense, and qualified privilege, whereby the defendant must offer evidence of good faith and be absent of malice to be shielded from liability. Absolute Privilege Courts generally recognize three types of absolute privilege: Government officials: The framers of the Constitution recognized the need for free debate among members of Congress and gave immunity in the Constitution via the Speech and Debate Clause, which shields members of Congress from liability for any statement made during a congressional debate, hearing, and so on, while in office. The U.S. Supreme Court later extended that protection to all federal officials.6 Judicial officers/proceedings: All states now recognize some protection of participants of a judicial proceeding for statements made during the proceeding. This includes judges, lawyers, and, in some cases, witnesses. State legislators: Similar immunity has been extended by the states to protect state legislators for statements made in the course of carrying out their duties. page 287 Qualified Privilege Courts also recognize certain qualified privileges that are grounded in public policy: Media: Employees of media organizations (e.g., television, radio, periodicals) are afforded a qualified protection from defamation liability. So long as the media have acted  in good faith, absent of malice, and without a reckless disregard for the truth, the media are protected from liability through privilege as a defense for unintentional mistakes of fact in their reporting. Fair report privilege: If one relies on an official public document or a statement made by a public official and cites the document or public statement when making an allegedly defamatory statement, no cause of action for defamation occurs unless the speaker knows the statement is false. Employers: An increasing number of states have extended some liability protection for employers who are providing a reference for an ex-employee. In most cases, employers do not have liability if the employee’s defamation claim is connected to a reference check. However, an employer may lose this privilege if it provides false information or acted with malice. In Case 9.2, a state appellate court considers an employer reference privilege as a defense to defamation. CASE 9.2 Nelson v. Tradewind Aviation, 111 A.3d 887 (Conn. App. Ct. 2015) FACT SUMMARY Tradewind Aviation (TA) employed Nelson as a pilot for a small commercial airline that primarily flew from New York and New Jersey to Martha’s Vineyard and Nantucket. Over the course of the summer of 2007, Nelson copiloted 137 flights without incident or complaint from passengers. Nelson was never removed from flying status for a performance-based reason or disciplinary reason. Although some senior pilots did complain about Nelson, he was never given a written warning, disciplined, or suspended. As the summer ended, TA announced that some pilots would be laid off due to a decrease in demand during the off-season. Nelson committed to working during the first part of the off-season; however, TA informed Nelson it would be unable to continue his employment. TA’s human resources office completed necessary paperwork indicating that Nelson was laid off due to “lack of work.” In December 2007, Nelson was offered a job by Republic Airways (Republic). As part of his initial interview, Nelson signed authorizations that gave TA permission to verify his employment with TA and to release all of his employment records to Republic. This authorization also required TA to send copies of these records to Nelson so that he had an opportunity to submit written comments to correct any inaccuracies. TA completed the reference forms and indicated that (1) Nelson had been involuntarily terminated from TA and (2) Nelson had been involuntarily removed from flying status based on poor performance. Responding to Republic’s request for more details, TA faxed Republic a letter stating that Nelson was terminated “after he failed to perform to company standards. Prior to that date, he was given several opportunities to discuss the need for improvement as well as additional training to help him perform at the levels we needed.” TA never page 288sent the records or letter to Nelson. Republic subsequently revoked its job offer. Nelson sued TA for, among other claims, defamation. The jury awarded the plaintiff a total of $307,332.94 in damages. TA appealed, asserting the employer reference privilege. SYNOPSIS OF DECISION AND OPINION The court affirmed the jury’s verdict in favor of Nelson. The court reasoned that it was well settled that defamation is actionable if it charges improper conduct or lack of skill or integrity in one’s profession or business and is of such a nature that it is calculated to cause injury to one in his profession or business. The court rejected TA’s argument that Nelson had not proven that TA’s  statements rose to the level of being malicious. The court held that a qualified privilege in a defamation case may be defeated if it can be established that the holder of the privilege acted with malice in publishing the defamatory material. Based on the facts in this case, the jury’s conclusion that the statements were made with malice was reasonable. WORDS OF THE COURT: Improper Motive “A review of the evidence reveals that the jury reasonably could have concluded that the defendant’s defamatory statements were made with knowledge that they were false and with an improper motive. The jury reasonably could have found that [Nelson] was laid off due to lack of work, that [TA supervisors] never removed the plaintiff from a flight for performance or professional competency reasons, that [Nelson] was never offered or sent for any additional training…. Additionally, the jury reasonably could have found that the statements were made with an improper motive in light of the timing and manner in which the statements were made.” Trade Libel and Product Disparagement Laws In cases where a competitor has made a false statement that disparages a competing product, an injured party may sue for trade libel. This tort requires that the statement (1) be a clear and specific reference to the disparaged party or product (e.g., using the actual brand name of the product), (2) be made with either knowledge that the statement is false or reckless disregard for the truth, and (3) be communicated to a third party (similar to defamation). Some states have passed product disparagement statutes intended to protect the interest of a state’s major industries, such as agriculture, dairy, or beef.7 In perhaps the most famous product disparagement case, the Texas Cattle Ranchers Association sued Oprah Winfrey under a Texas law allowing recovery for any rancher who suffers damages as a result of false disparagement. On her television show, Winfrey agreed with statements made by one of her guests that alleged certain U.S. market hamburger meat could cause mad cow disease, which is fatal to humans. At the end of the segment, Winfrey took the position that she would cease eating any hamburgers. The ranchers showed evidence that beef sales dropped precipitously immediately after the broadcast and alleged that Winfrey’s statements were false and caused the ranchers lost revenue. The jury rejected the cattle ranchers’ claim as too broad and without sufficient evidence that the remarks alone were the cause of the losses.8 Fraudulent Misrepresentation LO 9-5 Identify the differences in terms of liability for traditional print defamation and defamation in cyberspace. Recall the discussion of misrepresentation and fraudulent misrepresentation in Chapter 7, “Contract Enforceability and Performance.” It is important to note that there are some important overlapping legal principles of tort and contract law. For example, in some cases contract law allows a contract to be canceled if one party has made false representations concerning a material fact. This means that the misrepresented fact must involve an important aspect of the basis of the contract, such as a change in the value of the contract or an increase in one party’s risk. Fraudulent misrepresentation (sometimes referred to simply as fraud) is also recognized as a tort in cases where the law provides a remedy to recover damages when the innocent party suffers a pecuniary loss as a result of the false representation. In cases of fraudulent misrepresentation, the law allows the innocent party to recover if (1) the misrepresentation was a material fact known to be false by the tortfeasor (or was a reckless disregard for the truth); (2) the tortfeasor intended to persuade the innocent party to rely on the statement, and the innocent party did, in fact, rely on it; and (3) damages were suffered by the innocent party. For example, Buyer asks Seller whether Seller’s property is properly zoned for a manufacturing facility. In an effort to induce Buyer to purchase the property, Seller misrepresents that the property is zoned for manufacturing. Buyer then enters into a purchase agreement for the property with a 10 percent down payment, balance due in 30 days. Buyer then proceeds to spend money by hiring an architect to visit the site and draw plans for the new facility. The day after the agreement is signed, Seller applies to the zoning board for a change in zoning, hoping that it will be changed before Buyer completes the agreement by paying the balance owed. The zoning board does not change the status. In a case against Seller for fraud, Buyer would be entitled to cancel the contract and recover any losses in tort suffered as a result of Seller’s fraudulent misrepresentation (such as the money spent on hiring the architect). KEY POINT Fraudulent misrepresentation (in both contracts and torts) must center on a material fact; that is, a fact that is significant or would impact the parties’ rights or obligations in a transaction as opposed to a minor and inconsequential detail. LEGAL IMPLICATIONS IN CYBERSPACE Protections for Online Content Providers Along with holding the actual tortfeasor liable in a defamation case, the law imposes certain liability upon the publisher of libelous statements as well. However, the law does not impose liability on the distributor of the publication (such as a bookstore or newsstand). For example, suppose a famous movie star is the subject of a gossip feature in a hypothetical tabloid called the American Tattler. The feature implies that the movie star was seen at a local restaurant and was so intoxicated that she could not control her conduct. In a lawsuit for defamation, the movie star proves that the story was false and that it led to her being fired by her movie studio. In terms of liability, both the author of the defamatory feature and the publication (American Tattler) may be liable for damages. However, the rules pertaining to publishers of online content in cyberspace are different. In our movie-star example, suppose that instead of the American Tattler publishing the defamatory feature, a gossip columnist hired by America Online (AOL) wrote the article for an AOL entertainment news board. There would be no doubt of the liability of the author, but would AOL be liable as the “publisher”? page 290 As Internet accessibility increases rapidly, courts have struggled with this question. In the 1991 case Cubby Inc. v. CompuServe, Inc.,9 the plaintiffs filed a defamation action against CompuServe as a “publisher” of defamatory materials contained in an online publication called Rumorville, USA. Rumorville was composed, written, and edited by a third party who was not employed by CompuServe. The federal trial court in the southern district of New York held that CompuServe was not a publisher in the context of defamation law but rather was more akin to a bookstore, and, thus, Internet service providers (ISPs) such as CompuServe were to be treated as “distributors.” Consequently, CompuServe was not subject to liability for any defamatory statements so long as it did not “edit, review or reformulate” the publication. However, not all courts have taken that view. A few years later, as the number of ISPs grew, a New York state trial court issued a very different ruling. In Stratton Oakmont v. Prodigy Services Company, decided in 1995,10 the court ruled that an ISP could be held liable as a publisher of defamatory material. The case involved a Prodigy-maintained electronic bulletin board, available to its subscribers, called “Money Talk.” Although Prodigy did not formally edit the postings, it had a policy that reserved the right to eliminate postings if they were objectionable. The plaintiff filed suit against Prodigy as a publisher of material that was allegedly libelous. In stark contrast to the Cubby court, a state trial court in New York ruled that Prodigy was a publisher in the context of a defamation claim and, therefore, could be liable for damages resulting from defamatory comments in its electronic bulletin board. The court held that Prodigy’s “conscious effort to maintain editorial control” over the content was sufficient to qualify it as a publisher as that term is understood in defamation law. In an apparent effort to address the pleas of ISPs for a uniform standard, Congress enacted the Communications Decency Act (CDA) of 1996.11 This law extended immunity to the ISPs by protecting them from any defamation liability as a “publisher or speaker of any information provided by another information content provider.” In effect, Congress made the policy choice that ISPs were to be treated as newsstand-like distributors. One of the first cases to interpret this law was Blumenthal v. Drudge and America Online, Inc.12 Although the case was decided by a trial court, the reasoning is often cited by appellate courts when applying the ISP safe harbor. The case involved a defamation lawsuit filed by a high- profile White House adviser (Blumenthal) against a controversial political journalist (Drudge) and America Online (AOL) because of spousal abuse and cover-up allegations in a column written by Drudge. The column was posted on an AOL news board as part of an agreement between Drudge and America Online. After Drudge posted a retraction and acknowledged that the allegations were false, Blumenthal sued Drudge and AOL for defamation. The trial court dismissed the case against AOL, citing the Communications Decency Act’s safe-harbor provisions for ISPs. The court noted that even if AOL could conceivably be categorized as a publisher of defamatory material under previous cases, Congress specifically exempted ISPs such as AOL from civil suits for defamation. Every state has enacted a consumer fraud protection act. These acts severely punish those who commit fraud and, in many instances, allow victims of fraud to sue and collect treble damages. Courts will also allow recovery for misrepresentations that are not intentional but are negligent misrepresentations. In most cases, the parties have to have some type of business relationship for the innocent party to recover. Any statement made by a party that turns out page 291to be inaccurate may still allow the innocent party to recover if the tortfeasor’s statement was negligent. In the Buyer-Seller case discussed earlier, suppose that Seller had no actual knowledge of the zoning status for the property but made a statement that it was zoned for manufacturing. Buyer would still be able to recover despite the fact that Seller did not know that the statement was false. Seller is still liable because he was negligent in his duty to know such an important fact (negligence is discussed in detail later in this chapter). Legal Speak >)) Treble Damages Treble damages are a remedy in fraud cases whereby the victim of fraud can collect triple the amount of actual damages. False Imprisonment The tort of false imprisonment is defined by the Restatements as the “intentional infliction of a confinement upon another party.” In the business context, a merchant most commonly encounters these circumstances in cases of suspected retail theft. While the merchant has the right to briefly detain a suspected shoplifter, she must be cautious about giving rise to a false- imprisonment claim when detaining an individual or attempting to recover the merchandise. The Restatements provide for a merchant’s privilege13 to shield a merchant from liability for temporarily detaining a party who is reasonably suspected of stealing merchandise. This privilege, however, is very narrow. In order to gain protection under the privilege, the merchant must follow certain guidelines: Limited detention: The privilege applies only for a short period of time under the circumstances. Some courts have limited this time period to as few as 15 minutes. However, most courts follow a case-by-case analysis with the general framework that the detention may last the time duration necessary to confront the accused party, recover any goods stolen, and wait for the authorities to arrive (if necessary). Limited to premises: Generally, the privilege applies only if the suspected party is confronted on the merchant’s premises or an immediately adjacent area (such as a parking lot). Seizure of property: The merchant or merchant’s agent may seize alleged stolen property in plain view but may not search the accused shoplifter. Coercion: The merchant or merchant’s agent (such as a store security guard) may not attempt to coerce payment, purport to officially arrest the detained party, or attempt to obtain a confession. Table 9.1 provides an overview of other types of intentional torts and examples of each.  TABLE 9.1 Other Intentional Torts Tort Definition Example Intentional touching of another An employee touches another employee, person, without that person’s Battery without consent, causing embarrassment, a consent, in a harmful or offensive feeling of harassment, or physical injury. manner. A bill collector contacts a debtor’s mother Intentional Extreme, outrageous, or reckless and threatens to physically harm and infliction of conduct that is intended to inflict imprison the debtor son and to put a lien on emotional emotional or mental distress the mother’s house. The mother suffers two distress (physical harm is not necessary). heart attacks after the threats persist.* A survey crew mistakenly surveys the The act of entering another’s land wrong property. While working, the crew Trespass or causing another person or object damages landscaping. The landowner is (land) to enter land owned by a private entitled to compensation as a result of the party without the owner’s consent. crew’s trespass. An employee takes home his employer’s drill for personal use without the employer’s permission and with the intent to return it The act of interfering with Trespass the next morning. The drill is broken while another’s use or possession of (chattel†) under the employee’s control. The employee chattel (such as personal property). is liable for costs of repair/replacement and any lost profits resulting from the downtime. The civil counterpart to theft; The controller of a corporation embezzles intended to reimburse a party who corporate funds and covers up discrepancies suffers damages as a result of theft on the financial statements. In addition to or any other substantial interference Conversion the controller’s facing criminal charges, the with the party’s ownership, where controller’s employer may sue her for fairness requires that the tortfeasor conversion in an attempt to recover the reimburse the injured party for the embezzled funds. full value of the property. A worker yells at a customer and starts The act of putting someone in fear moving toward the customer in a hostile and apprehension of immediate manner. If the customer reasonably believes Civil assault harmful or offensive contact that she is about to be struck, she has been (battery). No actual contact is civilly assaulted even if she runs away required. without being touched. * Based on George v. Jordan Marsh Co., 268 N.E.2d 915 (Mass. 1971). Business Competition Torts LO 9-6 Distinguish business competition torts from other intentional torts and understand their applicability in commercial relationships. Tort law also provides for the promotion of fairness in business dealings and for the reimbursement of a party that has suffered some damages as a result of a competitor’s tortious acts. These common law torts arise when a tortfeasor (typically a competitor to the harmed party) interferes with an existing contract or hinders a prospective contract between two parties. Tortious Interference with Existing Contractual Relationship When one party induces another party to break an existing contract with a third party, the inducing party may be liable for any damages suffered by the innocent party as a result of breaking the contract. For the injured party to recover damages, the tortfeasor must have (1) had specific knowledge of the contract, (2) actively interfered with the contract, and (3) caused some identifiable damages (losses) to the injured party. Business owners and managers may encounter contract interference torts in the context of employment contract restrictions against working for competitors (known as a restrictive covenant14) or page 292in defending an allegation of interference in the process of hiring a new employee away from a competitor. For example, Lee is a talented software programmer and signs a contract with Computer Researchers Inc. (CRI) for three years. The contract stipulates that Lee will not work for any of CRI’s competitors during that time even if he is terminated or voluntarily resigns from CRI. After one year, one of CRI’s competitors, MultiCom, contacts Lee and attempts to convince him to leave CRI and work for MultiCom. During the negotiations, Lee shows MultiCom his contract with CRI, and MultiCom’s manager then offers a higher salary and a $1,000 signing bonus to Lee. Lee resigns from CRI with two years left on his contract and goes to work for MultiCom. CRI must then spend several thousand dollars recruiting and training a new programmer to finish Lee’s projects. In this case, many courts would consider holding MultiCom liable for CRI’s damages because CRI was injured as a result of MultiCom’s tortious interference with the CRI-Lee contract. Of course, CRI would also be entitled to recover damages from Lee for breaking the contract. page 293 Note that interference does not occur when a competitor merely offers a better price to a competitor’s customer. For example, suppose that Chung is the owner of several self-service car washes and signs a two-year agreement with Mega Distributor for the supplying of snack vending machines in the lobby of each of Chung’s car washes. Under the contract, Chung will receive 30 percent of the sales from the machines. Shortly thereafter, Chung is contacted by a sales rep from Start-Up Snacks and offered the same terms as the Mega contract except that Chung will receive 60 percent of the sales from the machines. Chung crunches the numbers and concludes that the increase in revenue will more than make up for any penalties incurred for breaching the Chung-Mega contract, so he breaks his contract with Mega and enters into a new contract with Start-Up. Despite the fact that Start-Up knew of the Mega contract, the level of interference is not sufficient to constitute a tort. In this case, Chung decided on his own to break the contract with Mega and was not induced to do so by Start-Up. It is important to note, however, that Mega could still sue Chung for failing to perform his obligations as agreed in the contract.15 Legal Speak >)) Induce To bring about or give rise to. In the context of tortious interference, liability is triggered if interference causes the harm. Tortious Interference with Prospective Advantage In addition to providing protection against interference from third parties in existing contracts, the law also protects interference with potential contract (prospects) or other business relationships. The protections and definition of interference are similar to the existing contractual interference rules discussed earlier. However, because no contract actually exists, courts allow recovery for this tort only under limited circumstances in which the tortfeasor’s conduct was highly anticompetitive. For example, assume that OldCo intends to sabotage NewCo’s efforts to obtain a new customer through a competitive bidding process. An OldCo employee hacks into NewCo’s computer and destroys the proposal forms. NewCo cannot submit the bid before the deadline and, thus, doesn’t get the contract. Assuming that NewCo can prove it suffered damages, OldCo could be held liable for interference with prospective advantage. Self-Check Intentional Torts Which tort, if any, fits each of the following facts? 1. Jason and Elaine are both being considered for a promotion to VP of Sales. Jason starts a false rumor that Elaine doctored the books to make her accounts look better than they actually are. Because of the investigation and the need to fill the position, Elaine is dropped from consideration and Jason gets the promotion. 2. MOT Corporation does all of its banking with Second National Bank. MOT receives a 1 percent interest rate on its savings account and pays a fee of $.02 per check written. A representative of Third National Bank visits MOT’s offices and tells the company that Third National pays 1.25 percent interest and has free corporate checking. MOT closes its accounts with Second National and moves all its banking business to Third National. 3. Wayne gets into his car after work, but it won’t start. He returns to his office, and everyone has gone home. He takes the keys to a company vehicle and drives home, intending to drive it back to the office in the morning. That night, a violent storm causes a tree branch to fall on the car, causing extensive damage. 4. Nancy has triplets attending eighth grade. Every once in a while she takes small quantities of paper, pens, paper clips, and other stationery supplies home from work and gives them to her kids for school use.  5. page 294Frank is a used-car salesman. He is working with a customer who decides to buy a car. The price is agreed to, and the customer tells Frank that he will go to the bank to get a certified check. They shake hands. Frank then says, “You should know that this car used to be owned by Bill Gates!” The customer returns with the certified check, all paperwork is signed, and the customer drives the car home. The next day, the customer discovers that Bill Gates never owned the car. Answers to this Self-Check are provided at the end of the chapter. CONCEPT SUMMARY Business-Related Intentional and Competition Torts A tort is a civil wrong and can be classified as intentional, negligent, or strict liability. Defamation is a false statement that specifically concerns an individual, company, or product; is communicated to a third party; and results in pecuniary harm to the victim. A victim of fraud must show intentional misrepresentation by the tortfeasor of a material fact, reliance on that fact, and damages resulting from that reliance. False imprisonment is an intentional tort unless the tortfeasor is a merchant who temporarily and reasonably detains a suspected thief. When a business competitor’s actions exceed standard competitive practices, that company may be liable for intentional interference with a contract by a third party if the company has specific knowledge of a contract and intentionally disrupts its proper execution. NEGLIGENCE LO 9-7 Recognize conduct that is classified as negligent and identify any potential defenses. Tort law also applies when one party fails to act reasonably and harm occurs, even though that party did not intend to cause harm. The negligent party is liable for any injuries or damages suffered by another party as a result of his unreasonable conduct. This category of tort is called negligence. Recall from the first section of this chapter that the primary difference between intentional torts and negligence is the mind-set of the tortfeasor. When a tortfeasor causes harm to an injured party by creating an unreasonable risk of harm, the law provides the injured party a remedy regardless of the tortfeasor’s intent. The Restatements also recognize certain defenses that may be asserted in a negligence case. Elements of Negligence The law requires that specific elements be proved in order to recover in a lawsuit against a tortfeasor for negligence. The injured party must prove five fundamental elements by answering certain questions about the conduct in question: Duty: Did the tortfeasor owe a duty of care to the injured party?  Breach of duty: Did the tortfeasor fail to exercise reasonable care? Cause in fact: Except for the breach of duty by the tortfeasor, would the injured party have suffered damages? Proximate (legal) cause: Was there a legally recognized and close-in-proximity link between the breach of duty and the damages suffered by the injured party? Actual damages: Did the injured party suffer some physical harm that resulted in identifiable losses? page 295 Duty The initial consideration in a negligence analysis is whether or not the tortfeasor owed the injured party a legal duty. The law imposes a general duty on all parties to act reasonably and not to impart unreasonable risk to others. In addition to having this general duty, some parties owe a special (heightened) duty of conduct to avoid liability for negligence. General Duty of Reasonable Conduct The law imposes a general duty on every party to act as a reasonably prudent person would under the circumstances. That is, everyone owes a duty to everyone else to act in a manner that does not impose unreasonable risk. The reasonably prudent person standard emphasizes that the conduct must be objectively reasonable. This means that at trial a fact finder (such as the jury) could conclude that a reasonably prudent person in the same circumstances should have realized that certain conduct would be risky or harmful to another person. In general, the scope of that duty is defined by foreseeability. In tort law, the term person in the reasonably prudent person standard is meant to be a generic term. The scope of duty is frequently defined by a particular industry or occupation. For example, the level of duty for a physician is defined by what a reasonably prudent physician would have done under the circumstances. It is important to understand that duty is an element that expands and contracts based upon whether or not it was foreseeable that the conduct in question would cause an unreasonable risk of harm. For example, Cain is a guest on a shock-host television show. The owners of the show arrange to have Abel surprise Cain on the show with an embarrassing secret. Cain is embarrassed and runs off the stage, and no further incident ensues. Three days later, Abel persists in calling Cain and harassing him about this secret. Cain then shoots and kills Abel later that afternoon. Cain is sentenced to a life term, so Abel’s heirs sue the owners of the shock-host television show for negligence, claiming they owed Abel a duty to protect him from Cain. In this case, a court will likely rule that due to the time period between the show and the shooting (three days) and the fact that no incident occurred on the show or immediately thereafter, the duty owed to Abel ended when the show ended and did not extend to the time of the incident. This is primarily because it was not reasonably foreseeable under the factual circumstances of this case that Cain would act in such a rash manner then or thereafter.16 No General Duty to Act The duty of care, discussed above, does not include a general duty to act or to rescue another. Tort law allocates liability based on a fundamental difference between some act by one party that harms or endangers another party, known as misfeasance, and the failure to act or intervene in a certain situation, known as nonfeasance. While injured parties may generally recover for misfeasance, injured parties may not hold a defendant liable for failing to act unless the parties had a special relationship to each other. Special relationships that are set out in the Restatements include those of a common carrier (such as a bus company) to its passengers, innkeepers to guests, employers to employees, a school to students, and a landlord to tenants.17 One important special relationship of interest to business owners and managers is a business’s duty to warn and assist any business visitors or patrons in regard to potential danger or harm (such as a slippery floor) on business page 296premises. Therefore, businesses have a special relationship with their visitors and patrons that would allow recovery even in a case of nonfeasance. Landowners Landowners owe a general duty to parties off the land from any unreasonable risks to them caused by something on the land. Courts use a reasonableness standard to determine the point at which the landowner should have acted. For example, the owner of GreenAcre plants several trees on the edge of his property, which is adjacent to a busy suburban street. One month later, one tree is dead, with no green vegetation and evidence of decaying bark and cracks in the roots. Eventually, the tree falls onto the road and injures a passerby. In this instance, a court may find that the landowner had a duty to inspect and remove the tree because it was foreseeable that the dead tree would be a risk to passersby if it fell.18 Landowners also owe a special duty to certain parties based on categories spelled out in the Restatements. It is important to understand that in a situation where a tenant is in possession of leased space, the tenant has the same special duties and level of liability that is imposed on landowners. Once a landlord/owner has given possession of the property to the tenant, the landlord is generally not held liable except for certain common areas (e.g., common stairwells, restrooms, or lobby).19 The expected level of care varies by category. Table 9.2 sets out the categories of special relationship duties owed by landowners to licensees, invitees, and trespassers. TABLE 9.2 Special Relationship Duties Owed by Landowners Special Relationship Definition Example Duties Owed to Party has owner’s Warn licensee of any known consent to be on dangerous conditions on or about the Licensee Social guest property for a premises. No duty owed to licensee to nonbusiness purpose. inspect for hidden dangers. Party is invited onto Warn invitee of any known property by owner for dangerous conditions on or about the business purposes or Customer in a Invitee premises. Duty to inspect the because landowner holds retail store premises for hidden dangers and take the premises open to the reasonable efforts to fix any defects. public. Landscaping No duty to warn, inspect, or repair. crew that Exception is a general duty of care Party enters premises Trespasser accidentally when (1) owner has reason to know without owner’s consent. mows wrong of regular trespass (such as a worn property pathway) or (2) owner has reason to  anticipate that young children might trespass on the property. Assumption of Duty Another exception to the no general duty to act/rescue is when one party voluntarily begins to render assistance even when there is no legal obligation to page 297do so. This is known as assumption of duty and it requires that the party rendering assistance must proceed with reasonable care. This includes the duty to continue rendering aid and to take care not to leave the injured party in a worse position.20 For example, suppose that Davis, a delivery truck driver, hears a call for help during one of his deliveries. He discovers that the call is coming from a nearby apartment that is on fire. Davis enters the building and rescues the caller. Although Davis has no legal duty to rescue, he undertakes the rescue and therefore assumes the duty to keep the caller safe. For example, if the caller is unconscious, Davis must use reasonable care to secure medical help and cannot abandon the caller. In Case 9.3, a state appellate court considers a claim by a college student, injured as part of a fraternity prank that went awry, that he was owed a duty under both a landowner theory and an assumption of duty theory. CASE 9.3 Yost v. Wabash College, Phi Kappa Psi Fraternity, 3 N.E.3d 509 (Ind. 2014) FACT SUMMARY Brian Yost (Yost) was an 18-year-old first-year student at Wabash College (Wabash) and a pledge at the local Phi Kappa Psi fraternity (Local Fraternity). Part of the Local Fraternity’s traditions involve “creeking,” meaning that a fraternity brother is thrown into a nearby creek. In September 2007, Yost and his pledge brothers confronted some of the Local Fraternity’s member brothers in an attempt to toss one of these members, Yost’s Pledge Father, into a nearby creek. Later that night, several Local Fraternity brothers retaliated by attempting to forcibly place Yost in the shower. This action was also a tradition of the Local Fraternity, and one in which Yost and his pledge brothers had previously participated two other times the evening of his injury. During this attempt, several Local Fraternity member brothers were carrying Yost to the shower when one of the fraternity members put him into a headlock that rendered Yost unconscious. The other member brothers panicked and dropped Yost to the ground. Yost suffered significant physical and psychological injuries from the incident that caused him to withdraw from college. Yost filed suit alleging his injuries were a result of negligence and seeking damages from, among others: (1) Wabash College (the owner and landlord of the fraternity house), contending that a special relationship existed, and (2) the Local Fraternity on an assumption of duty theory. The trial court granted summary judgment to both Wabash and the Local Fraternity and Yost appealed. SYNOPSIS OF DECISION AND OPINION The Indiana Supreme Court affirmed the summary judgment for Wabash but reversed the summary judgment for the Local Fraternity. In the case of Wabash, the court reasoned that a landlord has no liability to tenants or others for injuries on the property when the tenant is in full control of the leased premises. In the case of the Local Fraternity, the court held that there was sufficient evidence to reasonably conclude that Yost may be able to show that the Local Fraternity assumed a duty and that the actions of its members increased the risk of harm to him. This was especially true as the activity which led to the incident was a fraternity tradition. WORDS OF THE COURT: Wabash College’s Duty as Property Owner “Within the contours of this duty, we have held that landowners have a duty to take reasonable precautions to prevent foreseeable criminal acts against invitees. However, when the landowner is a lessor and the lessee is in operational control of the premises, such duty rarely exists…. In the absence of statute, covenant, fraud or concealment, a landlord who gives a tenant full control and possession of the leased property will not be liable for personal injuries sustained by the tenant or other persons lawfully upon the leased property.” WORDS OF THE COURT: Local Fraternity’s Assumed Duty “Here, Yost’s argument is not page 298that a conventionally recognized duty (such as a landowner’s duty to an invitee or common carrier’s duty to a passenger) existed, but rather that the local fraternity assumed a duty requiring the local fraternity to act with reasonable care. As the above facts show, Yost was living at the local fraternity, subject to the mentorship of a Pledge Father from the local fraternity, participating in traditions maintained at the local fraternity, was involved in the pledgeship program being run by local fraternity members, and, therefore, at least partially under the control and direction of the local fraternity…. The undisputed designated evidence does not preclude the possibility that Yost may show at trial that the local fraternity undertook to render supervisory services intended to reduce the risk of harm to members like Yost, that upon which supervision Yost relied, and further that by failing to exercise reasonable care the local fraternity increased the risk of harm to Yost.” Case Questions 1. What factors did the court use to determine that the Local Fraternity may have assumed a duty here? Do you agree? Why or why not? 2. Why did the court find that Wabash College had no liability for this incident? 3. Focus on Critical Thinking: One of Yost’s unsuccessful arguments against Wabash centered on a doctrine called in loco parentis (i.e., in place of the parent). The doctrine has largely disappeared from higher education since 1961. Yost claimed that the college had a duty to protect him and should have had a system in place to prevent fraternity pranks from becoming dangerous. Do you agree? Should an 18-year-old college student have full responsibility for his own safety while in a college-owned facility? Should colleges and universities have in loco parentis liability? Breach of Duty Once it has been established that one party owes another a general or special duty, the next factor in the analysis is whether or not the party has fulfilled her obligations. Failing to meet these obligations is known as a breach of duty. As discussed earlier, duties include (1) general obligations to act in a reasonable manner so as not to put another in harm’s way; (2) special duties to certain parties, including the duty to inspect or the duty to warn of defects; and (3) assumption of duty. While the Restatements don’t actually list events of breach, courts have traditionally looked to certain guideposts for determining whether a breach of duty has occurred. Violation of Safety Statute If the legislature has passed a statute intended to promote safety and one party violates the statute, there is a strong presumption that the party violating the statute has also breached her general duty to those who are protected by the law. Violations of safety statutes are sometimes referred to as negligence per se. For example, suppose the state legislature passes a law requiring that construction companies provide hard hats for all workers and visitors on a construction site. One day a prospective tenant visits an office building construction site to check on its progress, but there are not a sufficient number of hard hats available. The site manager allows the visitor on the site without a hard hat. The visitor is then injured by falling debris. In this case, the construction company has violated the state safety statute, and a court may find a breach of duty occurred without delving into a reasonably prudent person analysis. States also pass statutes intended to establish specific liability standards in certain circumstances. For example, dram shop laws, enacted in most but not all states, impose liability on the owners and employees of a public establishment where alcohol is being served. These laws allow a third party who has been injured or harmed by an intoxicated tortfeasor to recover damages against the owner or employee who served the obviously intoxicated patron.21 page 299 Common Law Standards of Behavior When the state legislature has been silent, appellate courts in each individual state have usually developed a fairly extensive body of cases in their common law so that certain standards of behavior may be used in judging whether or not a breach occurred. Standards related to maintenance of property (such as clearing ice from sidewalks) and safety measures (such as keeping one’s car in good repair if driving on public roads) are examples of nonstatutory standards for reasonable behavior. Res Ipsa Loquitur The doctrine of res ipsa loquitur (a Latin phrase meaning “the thing or matter speaks for itself”) is deep-seated in American tort law. This doctrine allows an injured party to create a presumption that the tortfeasor was negligent by pointing to certain facts that infer negligent conduct without showing exactly how the tortfeasor behaved.22 An English judge first used this Latin phrase over a century ago in a case involving a pedestrian who was struck by a flour barrel that fell from a warehouse owned by the defendant. Although the injured party could not actually show how or why the barrel fell, the court held that the facts themselves were sufficient to impute a presumption of negligence.23 Assume that Ginsberg notices smoke coming out from under the hood of her car. She has the car towed to a mechanic, who determines that a valve cover gasket is leaking. She instructs him to make the necessary repairs. When she picks up the car, she pays the bill and drives off. One mile later, while stopped at a light, Ginsberg sees smoke coming from the hood again and gets out of the car just before it catches fire. The fire consumes the car, causing the engine to melt, and thus no specific cause for the fire can be determined. Ginsberg cannot prove exactly what the mechanic did wrong, but the car shouldn’t have caught fire if the mechanic had repaired the car properly. She can use res ipsa loquitur to infer negligence. Cause in Fact After establishing that a breach of duty has occurred, the injured party must also prove that the tortfeasor’s conduct was the cause in fact of the damages suffered by the injured party. In other words, there must be a link between breach of duty and damages. The overwhelming majority of courts use a simple test, known as the but-for test, to establish a link. Thus, the question that must be answered is this: “But for (except for) the breach of duty by the tortfeasor, would the injured party have suffered damages?” If the answer is no, then there is a link between the tortfeasor’s conduct and the harm suffered by the injured party. The question can also be asked this way: “If the tortfeasor had complied with her legal duty, would the injured party have suffered damages?” Again, a no answer indicates a link and, thus, cause in fact. For example, suppose that Donald checks into Hotel’s 20th-floor luxury suite. He watches a beautiful sunset while leaning on the balcony railing, but the railing snaps and Donald falls 20 stories. In a negligence analysis, one can reasonably conclude that Hotel owes Donald both a general duty and a special duty (innkeeper) and that the duty was breached because the rail was presumably defective in some way. To establish cause in fact, one would ask: But for the breach of duty by Hotel, would Donald have suffered damages? The answer is clearly no because if Hotel hadn’t breached its duty (e.g., had inspected and kept the railing in good repair), Donald would not have suffered damages. Thus, the breach of duty by Hotel was the cause in fact of Donald’s injuries. Scope of But-For Test One problem in applying the but-for test is its overreaching broadness. Its application may result in holding a tortfeasor liable for injuries that occurred page 300well beyond the foreseeable scope of the wrongdoing. For example, in the Donald-Hotel case, suppose that after Donald’s balcony rail snaps, Donald falls, but the broken balcony rail also falls and penetrates the windshield of a car on the street below, injuring the driver. The injury causes the driver of the car to swerve, hit a pedestrian, and crash into an adjacent canal. A witness to the accident then attempts to rescue the driver of the car from the canal but drowns doing so. Five blocks away, a shopkeeper is so startled by the noise from the accident that she drops a priceless vase on her foot. In this set of accidental chain reactions, using the but-for test would impose liability on Hotel for each injury and damage, including those sustained by Donald, the driver of the car, the struck pedestrian, the drowned rescuer, and the shopkeeper who suffered foot injuries resulting from the destroyed vase. Nevertheless, a sense of fairness demands that the law cannot reasonably impose all of this liability on Hotel. At what point, if any, is the tortfeasor relieved from liability? The broad sweep of the but-for test requires a further step to establish liability. This step, known as proximate (legal) cause, is discussed next. Proximate (Legal) Cause In addition to showing that the tortfeasor’s breach of duty was the cause in fact of the damages, the injured party must also prove that (1) the tortfeasor’s conduct was also the closest-in-proximity cause of the damages and (2) the tortfeasor’s liability wasn’t canceled due to a superseding cause. These proximate cause concepts protect tortfeasors from liability for far-reaching and out-of-the-ordinary injuries resulting in damages from the tortious act. Closest-in-Proximity The majority of courts favor using foreseeability to define the scope of the risk. In the Donald-Hotel example discussed above, the jury would be charged with determining the scope of Hotel’s liability. Liability would hinge on whether or not it was foreseeable that a faulty balcony railing would result in damages to be suffered by Donald (probable liability), the driver of the car (possible liability), the pedestrian (possible liability), the drowned rescuer (improbable liability), and the owner of the vase (very improbable liability). The Restatements define proximate cause as that which helps draw the line that determines when a tortfeasor is “not liable for harm different from harms whose risk made the [tortfeasor’s] conduct tortious.” The proximate cause concept was first enunciated in Landmark Case 9.4, which is perhaps the most famous case in American tort law. LANDMARK CASE 9.4 Palsgraf v. Long Island Railroad Co., 162 N.E. 99 (N.Y. Ct. App. 1928) FACT SUMMARY Palsgraf bought a railroad ticket for Rockaway Beach, New York, and was waiting on the platform for her train. A different train arrived on a platform 100 yards away, allowed passengers to board, and began to depart from the station. Running to catch the departing train, two commuters grabbed onto the side and tried to hoist themselves up and into the moving car. To aid one of the men, the conductor on the train pulled him onto the train but dislodged a package covered in newspaper that the passenger was carrying. The package, which turned out to be fireworks, fell to the platform and exploded. The blast shook the station with sufficient force that large iron scales (used to weigh freight on various trains) hanging over Palsgraf fell on her, resulting in a severe injury. Palsgraf sued the Long Island Railroad for the conductor’s negligent conduct of pulling the commuter onto the train, which eventually caused the explosion and her injury from the falling scales. page 301 SYNOPSIS OF DECISION AND OPINION In a famous opinion written by Judge Benjamin Cardozo (who would later serve on the U.S. Supreme Court), the New York Court of Appeals ruled in favor of the Long Island Railroad. Cardozo reasoned that because the conductor could not have known that the man he was helping onto the train had a box full of fireworks, the action of the conductor was not a proximate-enough cause to incur liability for Palsgraf’s injuries. WORDS OF THE COURT: Proximate Cause “[T]he orbit of the danger as disclosed to the eye of reasonable vigilance would be the orbit of the duty. One who jostles one’s neighbor in a crowd does not invade the rights of others standing at the outer fringe when the unintended contact casts a bomb upon the ground. The wrongdoer as to them is the man who carries the bomb, not the one who explodes it without suspicion of the danger. Life will have to be made over, and human nature transformed, before prevision so extravagant can be accepted as the norm of conduct, the customary standard to which behavior must conform…. The risk reasonably to be perceived defines the duty to be obeyed, and risk imports relation; it is risk to another or to others within the range of apprehension.” Case Questions 1. Are all the other elements of a negligence tort satisfied in this case? 2. Who else might Palsgraf have sued? For what?  3. Focus on Critical Thinking: Context is always important. This case was decided before any federal or state benefits for health care or lost time from work. The dissenting opinion in this case argued that public policy demanded that the Railroad pay for the injury because they were in the best position to pay and that some correlation existed between conduct and injury. In the 1928 context, does that strike you as a convincing argument? Why or why not? Superseding Cause Sometimes an intervening event takes place after the tortfeasor’s negligent act. The intervening act may also contribute to the negligence by producing additional damages to the injured party. Some (but not all) intervening acts may be the basis for limiting a tortfeasor’s liability. These acts are called superseding causes (i.e., they supersede the tortfeasor’s liability) and they are also defined by foreseeability. For example, in the Donald- Hotel case, suppose that Donald falls only one story and sustains a broken wrist. While being driven to the hospital, a freak tornado hits the car that Donald is in and the wrist injury is made worse. In a case for damages related to the injury, even though the but-for test would impose liability on Hotel even for the aggravated broken wrist, Hotel’s liability is discontinued (though not eliminated for the original injury) once the tornado hits the car. The tornado is a superseding cause and thus Hotel is not liable for the aggravated injury. This limit applies because it was not reasonably foreseeable by Hotel that Donald would be injured by a tornado en route to the hospital. Actual Damages In order to recover in a negligence case, the tortfeasor must have caused another party actual damages. This means that the party alleging injury must prove that she has suffered some type of physical harm derived from an injury caused by the tortfeasor. An injured party may not prevail if the injuries are limited to mental and/or emotional harm alone. However, once a party has proved some physical harm, she is eligible for a variety of other types of damages, including out-of-pocket economic losses (such as medical bills), pain and suffering, lost time from employment, and similar categories. Punitive damages may be awarded but are rare because they can be awarded only when the tortfeasor’s conduct has been extremely reckless or willful and wanton.24 Legal Speak >)) Estate In addition to land, assets, and personal property, a person’s estate also consists of legal rights and entitlements after death, including the right to sue for the tortious conduct that caused the death. Many states allow a spouse or children of an injured party to recover damages related to the negligence. This includes loss of companionship or marital relations (known as loss of consortium). Moreover, if the injured party dies, his estate may sue for the damages that the injured party would have recovered if he had survived. Spouses and children may also recover damages for losses sustained by virtue of the death of an injured party. Figure 9.1 provides an illustration of a negligence analysis. Defenses to Negligence Claims Once the elements of negligence are met, the analysis then shifts to potential defenses available to the tortfeasor. The two primary defenses to claims of negligence are comparative negligence and assumption of the risk. page 303 Comparative Negligence In cases where the injured party’s conduct has played a factor in the harm suffered, the Restatements allow the tortfeasor to assert the defense of comparative negligence. This defense requires a jury to allocate the proportion of negligence committed by each party in terms of percentage (see Table 9.3). Ultimately, successfully asserting comparative negligence reduces (but does not eliminate) the final award to the plaintiff. Legal Speak >)) Punitive Damages Monetary damages, generally a multiple of the actual damages, that are awarded partly to punish the tortfeasor and partly to deter others from acting in a similar manner. TABLE 9.3 Comparative Negligence Formula Suppose Abel is injured by Baker’s conduct and suffers damages totaling $100,000. A jury finds that Baker was 80 percent responsible for the injury but that Abel also contributed to his own injury and was 20 percent responsible for the harm. How much does Abel ultimately recover? Note that comparative negligence is a cousin to the common law doctrine of contributory negligence, whereby even 1 percent of negligence on the part of the plaintiff is a complete bar to any plaintiff recovery. The overwhelming majority of states do not follow this standard because of its harshness on the injured party. Four states—Alabama, Maryland, North Carolina, and Virginia—along with the District of Columbia continue to recognize the contributory negligence defense. Indiana follows the contributory negligence rule in medical malpractice cases only. Assumption of the Risk When the injured party knows that a substantial and apparent risk is associated with certain conduct and the party goes ahead with the dangerous activity anyway, the Restatements allow the tortfeasor to assert the defense of assumption of the risk so long as (1) the injured party/plaintiff knows or should know (by virtue of the circumstances, warning signs, etc.) that a risk of harm is inherent in the activity and (2) the injured party/plaintiff voluntarily participates in the activity. Certain activities are considered to be “inherently dangerous” (such as bungee jumping or parachuting), and companies that are providers of these activities may have limited protection from liability if they act reasonably in minimizing the dangers and make full disclosures of the risks to participants. In Case 9.5, a state appellate court considers the assumption-of-the-risk defense in the context of leisure sports. CASE 9.5 Zeidman v. Fisher, 980 A.2d 637 (Pa. Super. Ct. 2009) FACT SUMMARY Zeidman and Fisher were participants in a golf foursome at a charity tournament. On one hole where the view of the fairway was partially blocked, the foursome became concerned that they might inadvertently hit any players hidden by the blind spots on the fairway ahead of them. The group agreed that Zeidman would take a golf cart and ride ahead to see whether the course was clear for the group to hit. Zeidman made his observation and returned to his foursome in the cart. Because he intended on returning to his foursome to report that the group ahead was out of harm’s way and because he never signaled to his group that it was safe to hit, Zeidman never entertained the possibility that one of his group would hit a shot. Before Zeidman returned, Fisher, becoming impatient, hit his shot page 304while Zeidman was driving his cart back to the foursome. Fisher’s shot was errant, and the ball struck Zeidman in the face, causing serious and permanent injuries. The trial court dismissed Zeidman’s negligence lawsuit against Fisher on summary judgment, ruling that Zeidman had assumed the risk of participating in the golf match and this assumption of risk barred any recovery. Zeidman appealed. SYNOPSIS OF DECISION AND OPINION The Pennsylvania Superior Court reversed the trial court’s decision and ruled in favor of Zeidman. The court reasoned that the assumption-of-the- risk doctrine requires that the evidence show that the injured party (1) fully understood the specific risk, (2) voluntarily chose to encounter it, and (3) manifested a willingness to accept the known risk. In this case, an objectively reasonable person may have assumed that no risk existed because Zeidman’s agreed-upon task was to check whether the fairway was clear and then report to his own foursome if it was safe to hit. Because he had not yet completed this task, Zeidman did not manifest a willingness to accept a known risk. WORDS OF THE COURT: Assumption-of-the-Risk Doctrine “In the circumstances of the present case, it is obvious that Zeidman, on returning from his forward observer mission, did not consciously assume the risk of friendly fire when, to the contrary, he had every right to anticipate none of his playing partners would attempt a tee shot until his return to the tee box. To grant summary judgment on the basis of assumption of the risk it must first be concluded, as a matter of law, that the party consciously appreciated the risk that attended a certain endeavor…. Accordingly, whether Zeidman is able to convince a jury that his version of events is true remains to be seen, he, in any event is entitled to his day in court.” Case Questions 1. If Zeidman had signaled to his partners that all was clear from the fairway and was then hit while returning in the cart, would Fisher be entitled to a summary judgment based on assumption of the risk?  2. What duty did Fisher owe Zeidman in the first place? Was it a special-relationship duty? 3. Focus on Critical Thinking: What other leisure sports or activities might be covered under the assumption-of-the-risk doctrine? Is it good public policy to shield negligent parties with the doctrine? CONCEPT SUMMARY Negligence Analysis Duty: Did the tortfeasor owe a duty to the injured party? Breach: Did the tortfeasor breach the reasonably prudent person standard? Causation: Except for the tortfeasor’s breach of duty, would the plaintiff have suffered the injury? Proximate (legal) cause: Was the breach the closest in proximity? Were there any superseding causes? Was the harm foreseeable? Damages: Did the injury to person or property result in losses? Defenses: Did the injured party contribute to the injury (comparative negligence)? Did the injured party know of the risk but go ahead anyway (assumption of the risk)? STRICT LIABILITY TORTS The tort liability theories covered so far in this chapter are based on either intent or negligence. The Restatements also provide for liability in certain cases where neither intent nor negligence need be proved. This category of tort is known as strict liability and is page 305 recognized in the Restatements primarily for abnormally dangerous activities and for defective products (discussed in the next section).25 Strict liability is a concept rooted in the notion that the general public benefits when liability is imposed on those who engage in certain activities that result in harm to another party, even if the activities are undertaken in the most careful manner possible (without negligence). Abnormally Dangerous Activities The Restatements set out a six-factor test to determine whether abnormally dangerous activities trigger strict liability for any harm caused by the activity: Does the activity involve a high degree of risk of some harm? Is there a likelihood that the harm that results will be great? Is it possible to eliminate the risk by exercising reasonable care? Is the activity relatively common? Is the location of the activity appropriate to the risk? Is there any community value that outweighs the dangerous attributes? Strict liability is imposed on businesses engaged in abnormally dangerous operations such as the use of explosives in building demolition. ImageSource/Corbis  For example, suppose that ChemicalCo produces 100 pounds of plastic explosives for use in the demolition of a building. It leases a railroad car and ships the explosives to its storage warehouse until the buyer can pick them up. Before the buyer picks them up, thieves break in and inadvertently ignite the explosives. The explosion causes damage to several buildings and an injury to a party standing in the surrounding area. Using the page 306 six-factor test, a court will likely impose strict liability on ChemicalCo due to the nature of the abnormally dangerous activity of storing explosives. Other strict liability cases have involved the storage and use of toxic flammable liquids, nuclear power, and blasting for demolition or construction. PRODUCTS LIABILITY LO 9-8 Provide alternate theories of liability and defense that can be applied when a product is the cause of an injury. Products liability refers to the liability of any seller (including the manufacturer, retailer, and any intermediary seller such as a wholesaler) of a product that, because of a defect, causes harm to a consumer. Note that modern products liability law protects not only the actual purchaser but also any ultimate users who are harmed by the product’s defect. In a products liability case, the injured party may pursue a legal remedy against the seller under one of three theories: (1) negligence, (2) warranty, or (3) strict liability. Negligence The negligence analysis covered earlier in this chapter may also be applied to the seller of a product. Although historically negligence was severely limited as a remedy because the law protected only the actual purchaser, a revised rule announced in the landmark case of MacPherson v. Buick26 has been adopted in every state. Under the MacPherson rule, one who negligently manufactures a product is liable for any injuries to persons (and, in some limited cases, property) proximately caused by the negligence. For example, suppose that Holmes purchases a motorcycle from a dealer and gives it to his son Wendell. Wendell is injured on the motorcycle and sues the manufacturer for negligence. So long as Wendell can prove negligence, the manufacturer will be liable for Wendell’s injuries despite the fact that Wendell was not the one who entered into the purchase agreement with the dealer or the manufacturer. Courts have found that manufacturers have the duty of care regarding proper design, manufacturing, testing, inspection, and shipping. Retailers do not have as comprehensive a duty as the manufacturer but still have a duty to warn consumers of any product they know or suspect to be unreasonably dangerous. Warranty Historically, warranty laws have been an important protection for purchasers because they impose liability even in the absence of negligence. When the seller makes a representation of fact about a product, this is known as an express warranty. If the seller has not made a specific representation about the product, the buyer may still be protected by a Uniform Commercial Code– imposed implied warranty. Warranties are set out in Article 2 (Sales) of the UCC and are discussed in detail in Chapter 21, “Warranties and Consumer Protection Law.” Strict Liability LO 9-9 Articulate what must be proved in negligence and strict liability cases and appreciate how the levels of proof differ. The most appealing option for pursuing a products liability case is the doctrine of strict liability because the injured party need not prove the elements of negligence. In Greenman v. Yuba Power Products, Inc.,27 the California Supreme Court decided a groundbreaking case that paved the way for adoption of a strict liability standard for product defects by ruling that “a manufacturer is strictly liable in tort when an article he places on the market, page 307knowing that it is to be used without inspection for defects, proves to have a defect which causes injury to a human being.” Two years after the Greenman case was decided, a similar doctrine of strict liability tort for the sellers of products was included in the Restatement (Second) of Torts in § 402A. The Restatements specifically indicate that liability still exists even if the seller has used all possible care. Note that the term seller means not only the product’s manufacturer but also all business parties through the chain of commerce, including the retailer. Section 402A is a bedrock for strict products liability because a substantial majority of states have adopted the section that imposes special liability on the seller of a product that could harm the user. Specifically, § 402A imposes strict liability on the seller so long as the injured party can show that the product was in a defective condition and that the defect rendered the product unreasonably dangerous. Liability under § 402A is triggered only when The seller is engaged in the business of selling such a product, and The product is expected to and does reach the user or consumer without a substantial change in the condition in which it is sold. Section 402A’s strict liability is imposed on the seller even though The seller has exercised all possible care in preparation and sale of the product, and The user or consumer has not bought the product from or entered into any contractual relationship with the seller (i.e., no privity of contract is required). Defining “Defect” For a party to recover for an injury caused by a product, the product must have been defective and must have created a danger that is outside the reasonable consumer’s expectations. Courts have recognized several theories of unreasonably dangerous defects. Design or Manufacturing Defect A product may become dangerous if it is designed improperly in that foreseeable risks of harm posed by the product could have been reduced or avoided by some alternative design. Even products that are designed properly may still be rendered dangerously defective by some mistake made during the manufacturing process. For example, suppose CarCo designs a new car intended to have higher-than-average gas mileage. It achieves this by moving the gas tank to a different position on the car. The design, however, results in the gas tank rupturing during a rear-end crash. This is a classic design defect.28 On the other hand, suppose CarCo designs the new car properly, but one of the factory workers improperly installs the brakes and this eventually results in an injury. In this case, the product has been rendered unreasonably dangerous via a manufacturing defect. Inadequate Warning Products that are ostensibly safe may carry risks unknown to a reasonable consumer. In such cases, the law requires the product to carry sufficient warnings and instructions. Failure to warn may render the product unreasonably dangerous even absent any manufacturing or design defect. One common category of inadequate-warning cases involves prescription drugs, but the theory of unreasonable danger applies to all products that carry some danger in use (such as a lawn mower or snow thrower). In Case 9.6, an appellate court in California considers an inadequate-warning claim against the manufacturer of an above-ground pool. page 308 CASE 9.6 Bunch v. Hoffinger Industries, 123 Cal. App. 4th 1278, 20 Cal. Rptr. 3d 780 (2004) FACT SUMMARY Bunch, an 11-year-old girl, dove into an above-ground pool that was only four feet deep. As a result, Bunch suffered a severe injury to her spine that rendered her quadriplegic. Bunch filed suit against Hoffinger as the manufacturer of the pool alleging, among other theories, that Hoffinger was liable for failing to provide adequate warnings that could have prevented the tragedy. Hoffinger argued that it did not owe any duty to warn consumers because the danger was “open and obvious.” At trial, Bunch testified that she saw only a sticker that depicted a man doing a pike dive (knees straight and body bent at the waist) with the word “caution” and she thought that the caution referred only to pike diving. Bunch also called expert witnesses to testify that warnings to children between the ages of 7 and 12 must be concrete and spell out any consequences of diving into shallow water. Another of Bunch’s experts testified that the risk of spinal paraplegia was not readily apparent to an 11-year-old and that it was difficult for someone in that age group to judge the depth of a pool. Hoffinger countered that (1) warning labels on pools were not feasible before it left the factory because the label would become distorted by the stretching of the liner and (2) Bunch had assumed the risk because she had swum in that same pool prior to that occasion and ignored an adult present at the pool who warned against diving. The jury returned a verdict in Bunch’s favor and awarded her $16,112,306. Hoffinger appealed. SYNOPSIS OF DECISION AND OPINION The California Court of Appeals affirmed the judgment and verdict in favor of Bunch. The court rejected Hoffinger’s contention that it owed no duty to warn Bunch of possible head injury from the open and obvious danger of diving headfirst into a shallow above-ground pool. Although the court acknowledged that some previous cases have held that no recovery was available for those who made a shallow dive into an above-ground pool because the danger was obvious, they distinguished those cases from the facts in this case because Bunch was only 11 years old. Age was one of the important factors in determining an awareness of open or obvious danger. It also rejected Hoffinger’s assumption of the risk argument and ruled that any assumed risk by an injured party does not insulate equipment suppliers from liability for injury from providing defective equipment. With respect to the failure-to-warn issue, the court held that the jury’s conclusions were sound and in accord with expert testimony that pool industry standards require manufacturers to prominently display permanent warnings on their pools and that Hoffinger’s sticker was below industry standards. Thus, the court concluded that the record supported the jury’s determination that Hoffinger’s warnings were inadequate. WORDS OF THE COURT: Lack of Effective Warning “Given the testimony of Bunch and her two expert witnesses, we find sufficient evidence to support the conclusion that the lack of adequate warning label was neither a negligible nor theoretical contribution to Bunch’s injury. The evidence presented at trial revealed that the lack for persuasive label outlining the consequences of diving into the pool was a substantial factor in causing the injury. As the [California] Supreme Court points out ‘a very minor force that does cause harm is a substantial factor.’ Here, at the very least, the lack of an effective warning was a minor force in bringing about the fateful dive.” Improper Packaging A product can be rendered unreasonably dangerous by a defect in the packaging. Cases that have recognized this theory of defect are primarily asserted against manufacturers of products that require safety-proof containers as well as food or beverage packages that clearly indicate whether the product is sealed or whether there is evidence of tampering (e.g., a seal on a bottle of juice). Perhaps the most famous case related to improper packaging involved the well-publicized Tylenol scare in 1986. In Elsroth v. Johnson & Johnson,29 a federal court in New York held that Johnson & Johnson, the manufacturer of Tylenol, was not liable for the death of a consumer who was the victim of tampering by an unknown third party. The estate of the consumer brought suit, claiming that improper packaging had led to the tampering when an unknown third party removed a package of Tylenol from a supermarket shelf, laced it with cyanide, and then somehow resealed the container and box so the tampering was not readily detectable. However, the court pointed to the fact that the Tylenol bottle featured a foil seal glued to the mouth of the container, a shrink-wrap seal around the neck and cap of the bottle, and a box sealed with glue in which the bottle was placed. Because Johnson & Johnson went above and beyond existing standards by using three different methods to prevent consumption of a tampered product, the company could not be held liable under § 402A. A court found that Tylenol’s packaging was not defective and thus the company was not liable for any injuries resulting from third-party tampering. Roberts Publishing Services/Joshua Roberts. All rights reserved. Unavoidably Unsafe Some products are inherently dangerous. That is, some products are designed and manufactured correctly, and adequate warning has been given, but the product is still dangerous (such as a handgun). Courts have struggled to adjudicate strict liability standards in cases relating to prescription drugs, cigarettes, and guns. In each case, the product was properly manufactured and designed. The evolving view of products liability theories for cigarettes and guns is explored in more detail in Legal/Ethical Reflection and Discussion. LEGAL/ETHICAL REFLECTION AND DISCUSSION Products Liability and Guns The prevalence of gun violence in America has led some victims to use products liability theories in an attempt to halt sales of certain guns used in mass shootings and hold gun manufacturers liable for damages suffered by the victims. The families of the victims in the 2012 Sandy Hook Elementary School massacre in Newtown, Connecticut, filed a products liability lawsuit against Remington Firearms International for, among other claims, wrongful death and pain and suffering. Remington is the parent company that manufactures and markets the Bushmaster XM15, a version of the notorious AR-15 semiautomatic rifle. The AR-15 has a bloody pedigree. In addition to the Sandy Hook murders, killers used an AR-15 style rifle in mass shootings at a high school in Parkland, Florida (2018); a nightclub in Orlando, Florida (2016); a workplace in San Bernardino, California (2015); page 310community college campuses in Roseburg, Oregon (2015), and Santa Monica, California (2013); and a movie theater in Aurora, Colorado (2012). The Sandy Hook lawsuit is a products liability claim based on both negligence and strict liability for unsafe products. The suit alleged that the AR-15 is the “weapon of choice for shooters looking to inflict maximum casualties,” and “American schools are on the forefront of such violence.” The Sandy Hook plaintiffs drew on similar legal strategies used in the past to hold cigarette manufacturers liable for smoking-related deaths. As more than 40 states brought lawsuits against the tobacco industry by 1998, manufacturers agreed to an array of marketing and product use restrictions such as a ban on billboards, transit advertisements, and tobacco brand logos on clothing and merchandise. The tobacco settlement also required cigarette makers to pay $1.45 billion to finance advertisements deterring underage tobacco use. Despite the settlement, tobacco companies still faced increasingly successful lawsuits from individuals and were stung recently by a $51 million award of a California jury to a heavy smoker with inoperable lung cancer. The jury rejected big tobacco’s standard defense, assumption of the risk, after finding substantial evidence that tobacco’s manufacturers conspired to cover up the known dangers and addictions of cigarette smoking for decades. Tobacco companies are continuing to suffer heavy losses in courtrooms across America. However, the Sandy Hook plaintiffs had to overcome a significant barrier that tobacco plaintiffs did not. The Protection of Lawful Commerce in Arms Act (PLCAA)30 exempts gun manufacturers from products liability lawsuits brought by parties suffering damages as a result of a third party’s criminal act. The law was a response to a wave of products liability lawsuits filed against gun manufacturers starting in 2002. Nonetheless, the law does contain important exceptions related to negligent entrustment and improper marketing. Therefore, the Sandy Hook plaintiffs strategically decided to focus primarily on Remington’s marketing and sales strategies as reckless: Remington knowingly sold the AR-15 with no conceivable use … other than the mass killing of other human beings and unscrupulously marketed and promoted the assaultive qualities and military uses of AR-15s to a demographic of young civilians…. Invoking the unparalleled destructive power of the weapon, [Remington’s] advertising copy read: “Forces of opposition, bow down. You are single-handedly outnumbered.” Soto v. Bushmaster Firearms, Conn. Superior Ct., Plaintiff’s First Am. Compl. 72–74, (Oct. 29, 2015) Remington filed a motion to dismiss the lawsuit asserting immunity under the PLCAA. The trial court refused to dismiss the claims ruling that the Sandy Hook plaintiffs had asserted a legally cognizable theory that Remington’s conduct fell into a PLCAA exception. The court ruled that the issue of whether the PLCAA exception applied was one for a jury and therefore the lawsuit could not be dismissed.31 Discussion Questions 1. Should gun manufacturers be held strictly liable for harm caused by their products? Why or why not? Is it good public policy? 2. Compare and contrast the theories used by tobacco plaintiffs versus gun manufacturing plaintiffs. How are they similar and how are they distinguishable? 3. Why did Congress opt to pass legislation to protect gun manufacturers when no other industry has similar protection? Was it pure politics or is there a policy justification? Was it ethical? 4. The Wall Street Journal reported that the sale of guns increased after t