Andrew Serwin of Foley and Lardner says the law is creating extortion-type settlements because it’s cheaper to settle than fight. (photo/alandeckerphoto.com)

Businesses and the attorneys who represent them have 370 million reasons for taking a fresh look at product liability law. Last month, a San Diego jury awarded $370 million to Benetta Buell-Wilson, who was paralyzed when her 1997 Ford Explorer rolled over nearly two years ago. While the dollar amount of the verdict makes headlines, practitioners in product liability law say California will continue to be a “hot spot” for litigation against businesses, and sometimes the plaintiff doesn’t even have to allege an injury.

One reason for California’s status as a business suit magnet is state code section 17200, a statute that prohibits unfair and deceptive business practices. It’s being used to bolster traditional causes of action and in some cases, novel approaches to the law that can leave a company liable, though no one was actually injured.

A traditional products liability case has three elements, says Buchanan Ingersoll litigator John Cooley. “There must be a defective design or manufacture of the product, there must be an injury as a result, and the product must be unreasonably dangerous,” Cooley says.

For example, Buchanan Ingersoll represented SSL Americas Inc., a distributor of the Regent Biogel brand of latex medical gloves. Plaintiffs, mostly medical personnel, alleged that the gloves caused wrongful deaths and a variety of injuries because of plaintiffs’ allergic reaction to latex. The seven years of litigation covered some 400 cases, the majority of which were settled. “The extent of the injuries was the big sticking point,” Cooley says.

To protect themselves, Cooley suggests businesses check with their attorneys about the warnings they put on their products. And with medical devices and drugs a target of many product liability suits, it is no defense that the government allows distribution of the product following FDA approval. “It doesn’t make you immune to liability,” he says.

If a medical device is regulated by the federal government, plaintiffs may be preempted from suing in state court. But in California, plaintiffs need not allege an injury under state code section 17200, which prohibits unfair and deceptive business practices.

John Cooley of Buchanan Ingersoll suggests businesses check with their attorneys about the warnings they place on their products. (photo/alandeckerphoto.com)

“It has become the sport of the day in California,” says Mike Tracy, managing partner of Gray Cary’s San Diego office. “It drives corporate America nuts.”

The three prongs of 17200 are unfair, fraudulent and illegal activity. Because no injuries need to be shown, defendants are subject to restitution, which in this instance means loss of profits. “It doesn’t deal with products, it deals with conduct,” Tracy says.

Although he generally defends companies charged with 17200 violations, Tracy is currently prosecuting a pro bono case in Northern California involving predatory lending. The defendant targeted hundreds of people with a scheme in which he was to work out consumers’ mortgage debts. To do this, the defendant would refinance the consumers’ houses at rates they couldn’t afford, and secured his fees against their houses. As a result, consumers owed him many times the original debt.

Though Tracy won the case, he says, “the main problem with the law is that ‘deceptive’ is not defined.”

Tracy is more troubled by the threat of punitive damages that product liability cases bring. “Companies will settle suits because of the risk of punitive damages,” he says. “It’s not a fair fight, (because) there’s a distrust of large corporations that has come about since Enron; the majority of corporations get branded by the operations of a few.”

Although product liability and free speech rarely cross paths (see sidebar), advertising can make businesses subject to 17200 actions. “You say the product does X, but it doesn’t,” he explains. “The bottom line is you need to be truthful and scrupulous in your conduct in representing your product. In California, you have to be careful that people understand you are puffing,” or expressing your opinion that the product is “the best,” as distinguished from claims that “this is factual, we tested the product and it does X.”

Foley and Lardner’s Andrew Serwin says 17200 grew out of the simple case of passing off one’s goods as another’s into a virtual industry with some law firms specializing in throwing 17200 at small businesses who have little resources to defend themselves. Members of the Trevor law firm in Los Angeles were recently disbarred for what amounted to 17200 extortion.

“The bad thing is that (17200) has gone so far beyond (its original role) and so you get law firms that specialize in this and form corporations to be plaintiffs. What you get is a lot of extortion type settlements because it’s cheaper to settle than fight.”

Lawyer Susan Hack of Higgs, Fletcher & Mack is currently defending Metabolife, a dietary supplement that contains ephedra, against suits from 70 California plaintiffs who allege that Metabolife caused stroke, seizure, heart attack and death.

Hack says the science that supports the plaintiffs’ claims is insufficient and based on unreliable, anecdotal evidence and that the product is safe when taken as directed. She says many of the plaintiffs had conditions that would predispose them to the types of injuries alleged.

Asked if the cases could be settled, Hack says, “We’re working through the litigation.”

Don Rushing, partner at Morrison & Foerster, is an expert in locating litigation hot spots. (photo/alandeckerphoto.com)

With 25 years in corporate defense work, Morrison & Foerster partner Don Rushing is an expert in locating “litigation hot spots,” or places where plaintiffs like to bring cases because of sympathetic judges and juries.

“California is a hot spot along with the Rio Grande Valley in Texas, Madison County in Illinois; Mississippi and Alabama. What they have in common is that they are liberal in the sense of high award juries, and the judiciary is expansive in terms of evidence that can come in,” he says. “They are called litigation hellholes.”

In California, San Francisco and downtown Los Angeles are considered plaintiff friendly, although San Diego is not, the jury verdict in the Ford rollover case notwithstanding.

To avoid product suits, Rushing advises businesses to practice “preventive law.” “Thoroughly investigate the safety features of your product,” he says. “Find out how the product might fail, provide adequate warnings, and when you see a problem in the field, quickly fix it and tell people about it.”

Rushing spots two product liability trends: 1) Asbestos liability is not over. That’s because there’s a long latency period, sometimes decades, between the time a worker is exposed and the onset of symptoms and illness and 2) fast food obesity cases won’t be the bonanza that tobacco was. “It’s a very different situation. Tobacco lawyers say the product is addictive and the person doesn’t have free will, but it’s hard to argue that people can’t choose their diet or choose to exercise. Come on, where does this end?”