The nightmare scenario: an embedded chip exists in an intake/filtration device at a water-treatment facility. This chip regulates the timed release of water from a large reservoir into a bay. At the Year 2000, the chip fails, and the reservoir floods hundreds of acres of residential property and discharges millions of gallons of bad water into the bay. The bad water sickens thousands of people, especially those with suppressed immune systems, such as the elderly or AIDS patients. The manufacturer of the time-release device is sued. The theory put forth is that its product had a defect which caused physical damage to both persons and property.1 Such a theory could be successful, and is more than likely to survive a pleading motion.
What we don't know is how many embedded chips still exist in similar facilities. What about elevators? Fortunately, most are programmed to return to the ground level and wait for further instructions. And airplanes? There is so much uncertainty surrounding the impending malfunction of embedded chips that certain major airlines have decided to simply ground their fleets at the start of the Year 2000, until they can be assured that flying is safe. One small problem: at any given time, 80% of the world's airplanes are in the air; there are gates on the ground for only about 20% of them at any one time.2/small>
In the sections that follow, we discuss strict liability issues, including that strict liability may require damage other than to the product and may not apply to commercial plaintiffs, privity of contract, and causation.
i. A Manufacturer is Strictly Liable When Its Product's
Design Defect Causes Injury to Persons or Property
Nightmare scenarios aside, there is a potential for major products liability associated with the Year 2000 problem. Products liability actions could involve an unimaginable number of parties and scenarios. Products liability actions sound in tort, but are based upon a hybrid of contract and tort principles. A manufacturer is strictly liable when "an article he places on the market, knowing that it is to be used without inspection for defects, proves to have a defect that causes injury to a human being."3 The manufacturer alternatively may be liable under the so-called consumer-expectations test where the product does not meet the minimum safety expectations of its ordinary users.4 Strict liability most commonly involves design defects, but can also apply to failure to warn. Products liability also involves negligence actions, where the gravity of the harm is balanced against the burden of precaution.
The statute of limitations in California on an action for injury to a person is one year and for injury to property is three years.5 All causes of action for injury from a defective product accrue at the time the injury is sustained. Since injuries are likely to be sustained after the Year 2000, statute of limitations is unlikely to be a major defense issue as it was seen to be in the breach of contract context.
ii.New Legislation
Congress is currently considering a bill, entitled the "Year 2000 Consumer Protection Plan Act," that would require plaintiffs in Year 2000 cases to prove that the loss was foreseeable and that defendants acted unreasonable. (H.R. 192, introduced by Rep. Donald Manzullo on Jan. 6, 1999.) It is far too early in the legislative season to know whether any final legislation would apply this standard to contract and other claims, but it is a reminder that state and federal legislatures will continue to explore new statutes.
iii. California Courts Are Unlikely To Find Strict Products Liability
Where the Damage Manifests Itself in the Defective Product Alone
There is dispute within and among jurisdictions regarding whether products liability actions are allowed where the only injury is to the defective product itself and not to any other persons or property.6 This is because many courts argue that the U.C.C. should preempt tort recovery, where the underlying principle of recovery is based upon the warranties that result from commercial relationships.7 However, because of the bargaining power differences between customers and corporate-sellers, many courts have allowed strict products liability, especially where the implied warranty of merchant ability was disclaimed, or the statute of limitations on warranty actions had already run.8
This issue is potentially significant for the Year 2000 law, since questions undoubtedly will arise as to whether data corruption is damage to the software application itself, or to property other than the defective product. Because many affected customers are likely to be large corporations, judicial concerns about differentials in bargaining power may vanish from the decision-making.
In International Knights of Wine, Inc.v. Ball Corp.,9 the court allowed a strict liability action against a wine-maker where the sole injury was wine spoilage caused by defective metal caps.10 In Sacramento Regional Transit Dist.v. Grunmann Flexible,11 the court stated that recovery is available under strict liability for damage to the defective product, but declined to follow International Knights and ruled recovery for product damage could only be had where the damage is separate from the manifestation of the defect itself.12 The Supreme Court, in the context of admiralty law, also has concluded that a manufacturer in a commercial relationship is under no duty in tort to prevent a product from injuring itself.13
iv. Courts Might Find Strict Products Liability Wholly Inapplicable to Commercial Plaintiffs
Because There Are No Inequalities in Bargaining Power or Economic StrengthIn addition, there is also an issue regarding whether a commercial plaintiff is permitted to state a cause of action under a strict liability theory even where damage occurs to more than the defective product. The California Supreme Court has not yet addressed the issue. In Kaiser Steel Corp.v. Westinghouse Elec. Corp.,14 the appellate court stated the following: "[T]he doctrine of products liability does not apply as between parties who: (1) deal in a commercial setting; (2) from positions of relatively equal economic strength; (3) bargain the specifications of the product; and (4) negotiate concerning the risk of loss from defects in it."15 In International Knights, the court declined to follow Kaiser, holding that "[s]trict liability in tort is intended to operate in favor of any person or entity, corporate or otherwise, having no significant bargaining power respecting the manufacturing process and which is thereby best calculated to be its victim."16 The court in Southern California Edison Co.v. Harnischfeger Corp.,17 also appeared to favor a narrow reading of Kaiser, stating that "[a]ll of the enumerated criteria in Kaiser must be present to preclude the application of products liability . . . ."18
In contrast, the United States District Court for the Central District of California19 surveyed California law and concluded that Kaiser should be "interpreted liberally, not narrowly;"20 and that the California Supreme Court would adopt the more liberal construction of Kaiser if presented with the issue21; e.g. strict liability may not apply in a commercial setting even if specifications are not actually bargained.22
v. Products Liability Does Not Require That Plaintiffs Are in Privity
of Contract With Defendants, Allowing Any Injured Party To
Bring an Action
There is no privity of contract requirement in a products liability action, so an injured bystander can sue.23
vi. Litigants May Debate Whether the Year 2000 Defect Was
a Substantial Factor of Any Recoverable DamagesIn order to be recoverable, the Year 2000 claimed defect must be a cause in fact - i.e., a substantial factor in bringing about the injury or damages claimed for products liability.24
Endnotes
1..See Testimony of Vito C. Peraino, Hearing of the Technology Subcommittee of the House Science Committee, Mar. 20, 1997. The nightmare scenario described above would have unfolded if the facility managers had not inadvert-ently discovered a bad embedded chip when they drained the reservoir to unclog intakes. RETURN
2..See Nicholas Bannister, "Millennium Bug Poses Threat to Nuclear Sector," The Guardian, May 13, 1997. RETURN
3..Greenman v. Yube Power Products, Inc., 59 Cal. 2d 57, 62 (1963). RETURN
4..E.g., Morton v. OCF Corp., 33 Cal. App. 4th 1529 (1995). RETURN
5..Cal. Civ. Proc. Code §§ 340, 338 (West 1973). RETURN
6..See 72 A.L.R. 4th 12. RETURN
7..See 15 A.L.R. 4th 791. RETURN
8..See, id. RETURN
9..110 Cal. App. 3d 1001 (1980). RETURN
10..Id. at1003, 1005. RETURN
11..158 Cal. App. 3d 289 (1984). RETURN
12..Id. at 294. See also The Fieldstone Co. v. Briggs Plumbing Products, Inc., 54 Cal. App. 4th 357 (1997) (following Sacramento Regional Transit, plaintiff denied tort recovery in action against manufacturer of sinks that were prone to premature rusting and chipping). RETURN
13..See East River Steamship Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 871 (1986). RETURN
14..55 Cal. App. 3d 737 (1976). RETURN
15..Id. at 748. RETURN
16..110 Cal. App. 3d at 1006. RETURN
17..120 Cal. App. 3d 842 (1981). RETURN
18..Id. at 855. RETURN
19..Department of Water and Power of City of Los Angeles v. ABB Power T&D Co., 902 F. Supp. 1178 (C.D. Cal 1995). RETURN
20..Id. at 1184. RETURN
21..Id. RETURN
22..Id. RETURN
23..See Elmore v. American Motors Corp., 70 Cal. 2d 578, 587 (1969). RETURN
24..See Lineaweaver v. Plant Insulation Co., 31 Cal. App. 4th 1409 (1993). See also Rutherford vs. Owens-Illinois, Inc., 16 Cal. 4th 953, 968-69 (1997). RETURN