Class Action Lawsuits – Risks and Mitigation Strategies for Component Manufacturers

07 January 2015 Manufacturing Industry Advisor Blog

Manufacturers of components incorporated into consumer products increasingly find themselves involved in product liability class action lawsuits. Manufacturers can be drawn into these types of lawsuits when their own customer (the end manufacturer of the final product) gets sued and comes knocking on the manufacturer’s door. Manufacturers also may be named as defendants directly by the plaintiffs. Being named in a consumer class action lawsuit sometimes can come as a shock to a manufacturer that has no direct relationship with the end consumers. However, in some jurisdictions, a manufacturer can be held liable in certain circumstances.

Class action lawsuits are a form of lawsuit provided for under the law of most jurisdictions. Class action lawsuits allow a small number of representative plaintiffs to sue on behalf of a much larger class of individuals. Class action lawsuits are particularly notable because, even if the individual claims are relatively small, the aggregate claims often run into the multi-million dollar range, with some of the largest cases even exceeding a billion dollars.

The types of claims that a manufacturer may face in a class action lawsuit are similar to the kinds of claims generally filed against the manufacturer of the end product into which the components are installed. Such claims often include negligence, product liability, fraud, breach of warranty, violation of implied warranty under the Magnuson-Moss Warranty Act, and unjust enrichment claims. Key issues for the manufacturer in these kinds of cases are often: (a) whether the component part was defective; (b) whether the manufacturer breached any warranty to its own customer; (c) whether the end product was defective; (d) whether the manufacturer substantially participated in the design of the end product; and (e) whether privity is required in the jurisdiction. A manufacturer may also face claims for indemnification, contribution, or contract-related claims brought by its own customer.

There are a number of practices that a manufacturer can employ to mitigate the risk posed by consumer lawsuits (class action or otherwise) including:

  1. Ensuring that the manufacturer’s contracts with its sub-suppliers (including raw material suppliers) include indemnification obligations that mirror any obligation that the manufacturer has to its customer.
  2. Drafting their own warranty provisions in a manner that, to the extent possible, minimizes the manufacturer’s warranty obligations and limits its liability to its customer.
  3. In cases where a manufacturer is supplying a product based to a customer’s specifications, documenting that design responsibility lies with the customer. This includes documenting responsibility for any design changes requested by a customer.

As such, manufacturers should take precautionary measures and use best efforts to employ these practices to mitigate the risks of this kind of litigation.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services