On February 12, 2007, Congressmen Dan Boren and Steve Chabot introduced in the United States House of Representatives a bill known as the "Innocent Sellers Fairness Act." Its purpose was "[t]o prevent undue disruption of interstate commerce by limiting civil actions brought against persons whose only role with regard to a product in the stream of commerce is as a lawful seller of the product." H.R. 989, 110th Cong. (2007). The Act can be understood as a legislative response to Restatement (Second) of Torts § 402A and Restatement (Third) of Torts §2, both of which impose strict liability – sometimes referred to as "liability without fault" – on every entity in the chain of commerce through whose hands a defective product passes before reaching the consumer. This includes a seller who did not know, and may have had no reason to know, that a product was defective.

Those lower in the chain are sometimes able to recover a judgment rendered against them by seeking indemnification from those higher in the chain that are primarily responsible for the defect at issue –usually the manufacturer of the product. As noted in the "Findings" portion of the Innocent Sellers Fairness Act, however, the very fact that "sellers are often brought into litigation despite the fact that their conduct had nothing to do with the accident or transaction giving rise to the lawsuit" exposes them to "unfair and disproportionate damages awards," "unwarranted litigation costs" and "high costs in purchasing insurance." H.R. 989, 110th Cong. (2007).

To prevent such injustice, under the terms of Innocent Sellers Fairness Act:

    No seller1 of any product [would] be liable for personal injury, monetary loss, or damage to property arising out of an accident or transaction involving such product, unless the claimant prove[d] one or more of the following non-sale activities by the seller:

  1. The seller was the manufacturer of the product.
  2. The seller participated in the design of the product.
  3. The seller participated in the installation of the product.
  4. The seller altered, modified, or expressly warranted the product in a manner not authorized by the manufacturer.
Id. Furthermore, even if the seller had engaged in one or more of these non-sale activities, "the seller's liability [would] be limited to the personal injury, monetary loss, or damage to property directly caused by such non-sale activity." Id. (emphasis added).

Although the Innocent Sellers Fairness Act was never signed into law, several states have similar statutes whose purpose is "to immunize innocent sellers who are not actively negligent, but instead are mere conduits of a product." Miss Code Ann. § 11-1-63(h) (2004). These statutes fall into two categories –

Statutes in the first category allow an "innocent" seller/retailer to be dismissed from a products liability lawsuit. At least thirteen states have such statutes: Colorado, Delaware, Kansas, Kentucky, Maryland, Minnesota, Mississippi, Missouri, New Jersey, North Carolina, North Dakota, Tennessee and Washington.2 Most of these statutes create an affirmative defense under which the defendant seller must prove that its dismissal from the action is warranted, although the language of a few statutes appears to place the burden on the plaintiff to justify that the seller is a proper defendant.3 Before the court will dismiss an "innocent" seller, however, the seller generally must identify the product manufacturer, and, often, the manufacturer must be either subject to the court's jurisdiction, solvent or otherwise able to satisfy a potential judgment, or both, before the seller will be dismissed from the action.4

For example, in order for a product seller to be dismissed from a product liability suit under New Jersey law, the seller must first "file an affidavit certifying the correct identity of the manufacturer of the product." N.J.S.A. 2A:58C-9(a) (1995). The seller then bears the burden of showing that it:

  1. Did not "exercise[] some significant control over the design, manufacture, packaging or labeling of the product relative to the alleged defect in the product which caused the injury, death or damage”;
  2. Did not "kn[o]w or should [not] have known of the defect"; and
  3. Did not "create[] the defect in the product." (See N.J.S.A. 2A:58C-9(d))
Even if the seller succeeds in demonstrating its innocence, the safe harbor will not apply if "[t]he manufacturer has no attachable assets or has been adjudicated bankrupt and a judgment is not otherwise recoverable from the assets of the bankruptcy estate." N.J.S.A. 2A:58C-9(c)(3).

Delaware has a "sealed container defense" that is similar to New Jersey's "innocent seller" defense. In order to invoke this defense, the seller of a product whose defective design or manufacture allegedly caused property damage or personal injury must "establish[] that:
  1. The product was acquired and then sold or leased by the seller in a sealed container and in unaltered form;
  2. The seller had no knowledge of the defect;
  3. In the performance of the duties the seller performed or while the product was in the seller's possession could [sic] not have discovered the defect while exercising reasonable care;
  4. The seller did not manufacturer [sic], produce, design or designate the specifications for the product, which conduct was the proximate and substantial cause of the claimant's injury;
  5. The seller did not alter, modify, assemble or mishandle the product while in the seller's possession in a manner which was the proximate and substantial cause of the claimant's injury; and
  6. The seller had not received notice of the defect from purchasers of similar products." (See 18 Del. C. § 7001(b))
The "sealed container defense" is not available if the seller cannot "identify the manufacturer through reasonable effort" or if "[t]he manufacturer is insolvent, immune from suit or not subject to suit in Delaware." 18 Del. C. § 7001(c)(1-2). Furthermore, although a successful defense results in summary judgment being entered in the seller's favor, "the seller will thereafter continue to be treated as though he/she were still a party for all purposes of discovery including the uses thereof." 18 Del. C. § 7001(d)(1-2).

In the second category of statutes, the innocent seller is not dismissed from the case; instead, when the manufacturer of a defective product refuses to accept a tender of defense from the product seller, the manufacturer is required, under certain circumstances, to indemnify the seller for any judgment rendered against the seller and reimburse the seller for reasonable attorney's fees and costs incurred in defending such action.5 At least four states have statutes in this category: Arizona, Idaho, Louisiana (limited to suits involving manufactured homes) and Texas.6 Like the statutes in the first category, these statutes generally predicate an innocent seller's indemnification on the manufacturer being subject to service of process and/or the court's jurisdiction and being solvent or otherwise able to satisfy a potential judgment.

The majority of states, including California, Florida, New York and Pennsylvania, do not provide any statutory protection for an innocent seller made a defendant to a products liability lawsuit.7 Consequently, choice-of-law disputes are (or should be) prevalent in product liability cases in which a seller is a defendant. See Engine Components, Inc. v. A.E.R.O. Aviation Co., Inc., No. 04-10-00812-CV, 2012 WL 666648 (Tex. Ct. App. Feb 29, 2012) (finding that "[t]here is a true conflict between Wisconsin and Texas law regarding indemnity in the product liability context because whereas Texas law "obligates manufacturers to indemnify innocent sellers from product liability actions arising out of their products," "Wisconsin has clearly rejected a total shifting of responsibility and has opted [to provide an innocent retailer] only contribution").

Therefore, attorneys for both the injured plaintiff and the defendant seller will find it useful to acquire a strong understanding of the factors considered in a choice-of-law analysis.

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1 The bill defines "seller" as "a person who is lawfully engaged in the business of marketing, distributing, advertising, or selling a product in interstate or foreign commerce during such person's regular course of trade or business." H.R. 989, 110th Cong. (2007).

2 COLO. REV. STAT. ANN. § 13-21-402(1) (West 2003); DEL. CODE ANN. tit. 18, § 7001 (West 1995); KAN. STAT. ANN. § 60-3306 (West 1981); KY. REV. STAT. ANN. § 411.340 (West 1978); MD. CODE ANN. [CTS. & JUD. PROC.] § 5-405 (West 1997); MINN. STAT. ANN. § 544.41 (West 1980); MISS. CODE ANN. § 11-1-63(g-h) (West 2004); MO. REV. STAT. § 537.762(1) (West 1987) – Interestingly, unlike the other statutes in this category, Missouri's statute does not list the factors for determining whether a particular seller is "innocent" and should thus be dismissed from the case, instead stating only that "[a] defendant whose liability is based solely on his status as a seller in the stream of commerce may be dismissed from a products liability"); N.J. STAT. ANN. § 2A:58C9 (West 1995); N.C. GEN. STAT. ANN. § 99B-2(a) (West 1996); N.D. CENT. CODE § 28-01.3-04 (West 1993); TENN. CODE ANN. § 29-28-106 (West 2011); WASH. REV. CODE ANN. § 7.72.040 (West 1991). – Utah similarly has a "passive retailer exception," but it is unique in that it is a judicially-created seller safe harbor. In 2004, the Court of Appeals of Utah held that the Utah Liability Reform Act, which does not explicitly exclude passive product sellers from liability, nevertheless does not permit apportioning fault to "a passive retailer with no knowledge of any design or manufacturing defects," and who "did not participate in the design, manufacture, engineering, testing, or assembly of the product," particularly when the manufacturer is also a party to the lawsuit. Sanns v. Butterfield Ford, 94 P.3d 301, 307 (Utah Ct. App. 2004).

3 For example, Colorado's statute declares that "[n]o product liability action shall be commenced or maintained against any seller of a product unless said seller is also the manufacturer of said product." COLO. REV. STAT. ANN. § 13-21-402(1) (West 2003). A seller is considered a "manufacturer" of a product if the seller "has actual knowledge of a defect in a product" or "creates and furnishes a manufacturer with specifications relevant to the alleged defect for producing the product" or "otherwise exercises some significant control over all or a portion of the manufacturing process or who alters or modifies a product in any significant manner after the product comes into his possession." COLO. REV. STAT. ANN. § 13-21-401(1) (West 1977). Tennessee's statute similarly employs "no product liability action . . . shall be commenced or maintained against any seller, other than the manufacturer, unless . . . " language. TENN. CODE ANN. § 29-28-106(2) (West 2011)

4 Some states, like Minnesota and Tennessee, instead place the burden on the plaintiff to prove that it exercised due diligence in attempting to obtain jurisdiction over (i.e. attempting to serve) the manufacturer, and/or that the manufacturer is insolvent or otherwise will not be able to satisfy a potential judgment. Hadjdjelloul v. Glocal Mach. Co., Civil No. 10-4782 (DSD/SER), 2011 WL 4860025, at * 3 (D. Minn. Oct. 7, 2011); Jones v. Buddy Gregg Motor Homes LLC, No. 3:08-cv-245, 2010 WL 289098, at *1 (E.D. Tenn. Jan. 19, 2010).

5 Interestingly, a non-innocent seller may similarly be required to indemnify an innocent manufacturer.

6 ARIZ. REV. STAT. ANN. § 12-684 (1978); IDAHO CODE ANN. § 6-1407 (West 1980); LA. REV. STAT. ANN. § 51:911.24.1(C); TEX. [CIV. PRAC. & REM.] CODE ANN. § 82.002 (Vernon 1993).

7 These states do, however, permit an innocent seller held strictly liable for a defective product to seek indemnification from the product manufacturer. Am. Aerial Lift, Inc. v. Perez, 629 So.2d 169, 171 (Fla. Dist. Ct. App. 1993) ("Although a seller may be held strictly liable for damages resulting from a defective product, a seller who has neither created nor assumed the risk of loss associated with the use of a defective product is entitled to indemnity from the manufacturer."); Godoy v. Abamaster of Miami, Inc., 754 N.Y.S.2d 301, 306 (N.Y. App. Div. 2003) ("[A] seller or distributor of a defective product has an implied right of indemnification as against the manufacturer of the product."); Moscatiello v. Pittsburgh Contractors Equip. Co., 595 A.2d 1190, 1197 (Pa. Super. Ct. 1991) (discussing cases in which the court "held that the seller's status as a mere conduit did not relieve it of liability to the purchaser but did entitle it to indemnification from the manufacturer, since the manufacturer was primarily responsible for the defective product"). California does not appear to have a clear pronouncement regarding an innocent seller's right to indemnification, but innocent sellers have been allowed to recover against manufacturers on a theory of implied indemnity. E.g. Davis v. Air Tech. Indus., Inc., 582 P.2d 1010, 1011-12 (Cal. 1978); DeYoung v. Kerr Chems., Inc., 99 Cal. Rptr. 162, 163 (Cal. Ct. App. 1971).