New York High Court Rejects Plaintiff Bar Effort To Broaden Multinationals’ Product Liability

By on May 5, 2016

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In a ruling of major importance to the business community, the New York Court of Appeals issued its decision on May 3, 2016 in Finerty v. ABEX Corp.(Ford Motor Company) rejecting plaintiff’s argument that, even in the absence of any basis for corporate veil-piercing, a parent company can be held liable for torts committed by its foreign subsidiary on the theory that the parent is “in the best position to exert pressure to improved safety products.”  The court firmly rejected the notion that a U.S. parent is the global “guardian” of its brand and that the broad imposition of liability for products sold by its subsidiaries in foreign countries is therefore appropriate.  The decision goes a long way in reaffirming well-settled New York law on corporate separateness and basic principles of corporate law.

Plaintiff claims that he developed peritoneal mesothelioma as a result of exposure to asbestos during the 1970s and 1980s while replacing asbestos-containing brakes, clutches and engine parts  or avant garde wheels on Ford tractors and passenger vehicles in Ireland.  The plaintiff later immigrated to New York.  It was not disputed that Ford USA’s wholly owned subsidiary, Ford UK, manufactured, produced, distributed and sold the parts in question.  Both the trial court and the Appellate Division, First Department, determined that, while there was no basis on which to pierce the corporate veil, the plaintiff had nonetheless produced sufficient evidence showing that Ford USA “exercised significate control over Ford UK and Ford Ireland and had a direct role in placing the asbestos-containing products to which plaintiff was exposed into the stream of commerce.”  Thus, both lower courts found that there was a question of fact concerning Ford USA’s “direct responsibility for plaintiff’s injuries…”

There was no factual question as to whether Ford USA was the manufacturer, retailer or distributor of the asbestos-containing parts.  That was not at issue.  Rather, the appellate division hinged Ford USA’s potential liability on the premise that there was evidence that Ford USA played a “substantial rule in the design, development and use of the auto parts distributed by Ford UK” such that Ford USA’s “role in facilitating the distribution of the asbestos-containing auto parties” could subject it to strict liability because it was in the best position to exert pressure on Ford UK into warn its users of the hazards presented by the auto parts.  (emphasis in original opinion).

The court determined that the lower appellate court had committed two significant errors in its ruling.  First, the court held that Ford USA, as the corporate parent of Ford UK, could not be held derivatively liable to plaintiff under the theory of strict products liability unless Ford USA disregarded the separate identity of Ford UK and involved itself directly in that entity’s affairs such that the corporate veil could be pierced.

Essentially, the court faulted the First Department for its seemingly basic misunderstanding of the role parents play with their subsidiaries across different markets throughout the world to ensure product standardization.  As the US Chamber of Commerce observed in its amicus curiae brief, successfully selling a product locally requires a balance between standardizing products across markets in various countries and adapting them to the differences among markets in those countries.  The US Chamber of Commerce cited a study of 128 products sold in foreign markets by 62 multinational corporations that showed that this balance was best achieved through direct contact between headquarters and subsidiary managers to positively influence product performance in international markets.  Parent-subsidiary corporation is a fact of life for multinational corporations and hardly controversial.  The Court of Appeals held:

“Moreover, absent any indication that Ford USA was in the distribution chain, it is of no moment that Ford USA exercised control over its trademark.  …In any event, the record indicate that Ford USA’s “world-wide” trademark program described how the trademark was to be used on packaging of Ford products, and did not contain directives as to what warnings, if any, were required to be placed on the packaging itself.”

The second significant error made by the First Department was its conclusion that Ford USA could be subject to strict liability because it was in the “best position” to “exert pressure” on Ford UK for improved product safety.  The court recognized that as Ford UK’s parent company, Ford USA could “exert pressure” on Ford UK, but clarified that:

“…we have never applied that concept to a parent company’s presumed authority over a wholly owned subsidiary.  We have, however, routinely applied that concept to sellers of a manufacturer’s product because it is the sellers who, through their ongoing relationship with the manufacturers and through contribution and indemnification in litigation, combined with their role in placing the product in the consumer’s hands, are in the best position to pressure the manufacturers to create safer products.”

Accordingly, because Ford USA was not in the distribution supply chain as a manufacturer, retailer or distributor, it was a mistake for the appellate division to seek to subject Ford USA to strict liability.

If it had been left unchallenged, the poorly reasoned decision of the First Department would have potentially opened the litigation floodgates in New York, not just for asbestos defendants, but to all American product manufacturers, and potentially create confusion concerning the proper role of multinational corporations in today’s world.  The Court of Appeals decision provides clear judicial guidance to New York trial courts concerning how they must address creative challenges to American corporate law principles in the future.

Filed under Asbestos, Corporate Veil Piercing, friction exposures, MULTINATIONAL, new york court of appeals, PARENT CORPORATION

Support for the Friction Defense in the Federal Register

By on October 28, 2014
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The Federal Register is the official publication of the U.S. government, for which judicial notice may be appropriate in many instances. It is in this record that the Occupational Safety and Health Administration, the Environmental Protection Agency, the Consumer Product Safety Commission and others have made their case for regulatory control of potential exposure to asbestos. There are many entries in this record that provide support to arguments of friction defendants in asbestos personal injury litigation matters. This post will focus on consistent regulatory findings that the exposures for automotive mechanics are very modest and routinely well below the applicable regulatory limits in place at any given time.

It is important to place the OSHA regulations in context. It is not uncommon for plaintiffs’ counsel to argue that the exposure limits established by OSHA were not meant to guarantee a “safe” workplace, and that it is not determinative to demonstrate that exposures for automobile repair workers were within the regulatory limits, on the rationale that  the regulatory limits allowed for residual risk for some workers. Such an argument, however, assumes that OSHA regulators ignored their own mandate. “[I]n promulgating standards dealing with toxic materials or harmful physical agents under this subsection, [the secretary of labor] shall set the standard which most adequately assures, to the extent feasible, on the basis of the best available evidence, that no employee will suffer material impairment of health or functional capacity even if such employee has regular exposure to the hazard dealt with by such standard for the period of his working life.” 29 U.S.C. §651 and §655) (b) (5) [OSHA].

Thus, if OSHA does its job in accord with its mandate, it is promulgating standards such that no employee would suffer material impairment as a result of a lifetime of exposure. In OSHA’s submission to the Federal Register in Nov. of 1983 in support of its proposed emergency temporary standard to reduce the permissible exposure limit from two fibers per cc as a time-weighted average (TWA) to 0.5 fibers per cc as a TWA (48 Fed. Reg. 51086), OSHA notes that it is relying on government contractor reports, various studies in the reported literature, National Institute for Occupational Safety and Health (NIOSH) Health Hazard Evaluations, and OSHA compliance data and field inspection experience to estimate exposure (48 Fed. Reg. 51092).  The table created by OSHA to detail the estimated exposure to various occupations describes the exposure for brake repair work done in garages and brake repair shops to be 0.15 fibers per cc on an eight-hour TWA, and similar exposure in “gasoline stations” to be less than 0.1 fibers per cc on an eight-hour TWA (48 Fed. Reg. 51093). Thus, the extensive information accumulated by OSHA, and modified by OSHA’s own field experience, indicates that the anticipated exposures for automotive mechanics was already well below the emergency temporary standard proposed for enactment.

In June 1986, OSHA made its record regarding amendments to its present standard for regulating occupational exposure to asbestos. The new standard was set at 0.2 fibers per cc as an eight-hour TWA, with an “action level” of 0.1 fibers per cc as an eight-hour TWA, the level above which employers must initiate certain compliance activities (51 Fed. Reg. 22612). OSHA’s submission in support of this new standard is massive, comprising more than 120 pages in the record. There is a wealth of information, including several entries regarding the anticipated exposures for automotive mechanics, which are not entirely consistent. In particular, at page 22662, OSHA submits that it has relied upon its own MIS compliance database and a November 1982 study by the National Institute of Occupational Safety and Health, which in turn contained 47 observations for the period of 1979 through 1984. Those observations of automotive brake and clutch repair facilities showed a mean eight-hour TWA exposure of 0.03 fibers per cc. Just three pages later, at 22665, OSHA inserts into the record a table estimating the occupational exposure to asbestos in the general industry for 1984, and describes automotive repair as having a level of exposure of 0.06 fibers per cc.

Whether one adopts the 0.03 fiber per cc figure or the 0.06 fiber per cc figure, both are well within the proposed new standard of 0.2 fibers per cc.

In September 1988, OSHA submitted into the record an amendment to its rules establishing a short-term exposure limit (STEL) of 1 fiber per cc averaged over a sampling period of 30 minutes. This was in addition to the previously announced reduction of the PEL to 0.2 fibers per cc over an eight-hour TWA.

OSHA admits it has no specific data regarding short-term exposures for automotive mechanics (53 Fed. Reg. 35613). Nevertheless, with little explanation, OSHA indicates that it has “estimated” that 5 percent of the population of automotive repair workers may have exposures exceeding the 1 fiber per cc STEL. OSHA goes on to suggest that by utilizing a particular dust suppression technique (the use of solvent spray to remove brake drum dust), the eight-hour TWA exposure for mechanics could be reduced from approximately 0.13 fibers per cc to 0.06 fibers per cc (53 Fed. Reg. 35615). The source of this figure of 0.13 fibers per cc is not entirely clear, and is not consistent with OSHA’s “estimates of occupational exposure” for automotive repair services at 0.06 fibers per cc as articulated in 1986 (51 Fed. Reg. 22665). Regardless, it appears that OSHA is indicating that 95 percent of the mechanics’ population is already achieving exposures less than 0.13 fibers per cc, and that the remaining 5 percent can easily do so by simply using solvent spray bottles. Indeed, OSHA concludes that should this offending 5 percent portion of the population of mechanics adopt appropriate precautions, the entire industry would be in compliance with the newly announced reduced PEL and the proposed STEL.

The EPA again takes a position regarding the potential exposure of automotive mechanics in its July 1989 proposal, which would prohibit the future manufacture, importation, processing and distribution of asbestos in almost all products (54 Fed. Reg.  29460).  In a curious twist, the EPA elects to describe exposures in terms of millions of fibers breathed per year (106 fiber per year). The EPA notes that assuming an eight-hour workday, with 250 days of work per year and a breathing rate of 1.3 meters cubed per hour, 100 million fibers breathed per year equals an exposure of 0.038 fibers per cc (54 Fed. Reg. 29475). Using this scale, the EPA then inserts into the record a table wherein it has “estimates” of occupational exposures (54 Fed. Reg.  29475).  The EPA estimates that the exposure associated with the repair and disposal of drum brake linings is 376 million fibers per year. A similar number for working upon disc brake pads on lightweight and medium-weight vehicles is 386 million, for disc brake pads on heavy vehicles 390 million, and for brake blocks 388 million fibers per year. Thus, if 100 million fibers per year equals 0.038 fibers per cc on an eight-hour TWA, then 376 million fibers per year equates to a TWA exposure of 0.143 fibers per cc. Why the EPA elected to utilize these “estimates” rather than the hard data previously accumulated and commented upon by OSHA and NIOSH remains unexplained. Nevertheless, this estimated number remains well within the then-applicable OSHA PEL of 0.2 fibers per cc, while admittedly exceeding the OSHA “action” level of 0.1 fibers per cc.

However, the validity of this estimate is immediately called into question by additional language from the EPA. In this same submission, the EPA states, “The 8 hour TWA exposure level for the servicing of disc and drum brake systems is estimated to average 0.05 fibers per cc” (54 Fed. Reg. 29492). In support of this estimate, the EPA cites its own “Asbestos Exposure Assessment, Revised Report”(March 21, 1988).  Again, if the EPA was already in possession of its assessment report describing exposures from servicing disc and drum brake linings as averaging 0.05 fibers per cc, why would the EPA find it necessary to create an alternative scale of potential exposure that erroneously suggests much higher levels? Clearly, the more reliable number is that supported by the “Asbestos Exposure Assessment, Revised Report” quantifying average exposures for automotive mechanics at 0.05 fibers per cc. Perhaps such inconsistent logic helps explain why the EPA’s proposed ban on asbestos-containing products was struck down by the court in Corrosion Proof Fittings v. EPA (5th Cir. 1991, 947 F.2d 1201).

OSHA confirms yet again its position regarding potential exposures for automotive mechanics in July 1990 when it enters a submission in the record with regard to a supplemental rulemaking for occupational exposures to asbestos. OSHA then proposes lowering the PEL to 0.1 fibers per cc as a TWA (55 Fed. Reg. 29712).  In this submission, OSHA specifically addresses the question of whether it should adopt an action level of 0.05 fibers per cc. OSHA specifically rejects this possibility as “OSHA does not believe that more than a de minimis benefit would result from a 0.05 fiber per cc action level. . . .” OSHA goes on to explain that it “does not believe that a reduction of the action level would lead to an expansion of the training for brake repair workers, because based on OSHA’s data most such workers have exposures below 0.05 fibers per cc” (55 Fed. Reg. 29722).  Thus, OSHA is supporting the contention that the exposure for most brake mechanics is not more than 0.05 fibers per cc, which would be consistent with the 1988 “Asbestos Exposure Assessment” of the EPA.

OSHA goes on to describe that its assessment of the potential exposure for automotive mechanics is based upon its own MIS compliance database and from a November 1982 study by NIOSH. As discussed above, the OSHA data contained 47 observations of asbestos fiber release resulting from brake servicing operations with a mean eight-hour TWA exposure of 0.03 fibers per cc for the time period from 1979 through 1984. An analysis of additional OSHA data collected from 1986 to 1989 yielded a mean of 0.012 fibers per cc as an eight-hour TWA in those samples in which any fiber was detected (55 Fed. Reg. 29722).  OSHA goes on to estimate the “current occupational exposure estimates for general industries” as reflected in Table 1 at page 29734, describing the estimated mean exposure level for “Auto Repair: Dry Mechanical” to be 0.015 fibers per cc.

In summary, over the years OSHA and the EPA have considered automotive brake mechanic work to create a potential for exposure. Both have consistently lobbied for ever-increasing restrictions on the potential exposures for mechanics. However, at the same time, the exposure data collected by these two regulatory agencies and their own estimates of potential exposures consistently have indicated that mechanics confront only modest potential exposures, routinely within the regulatory limits that have applied over the years.

Filed under asbestos exposures, friction exposures, OSHA regulations