Market Share Liability for DES Diethylstilbestrol Injury

INTRODUCTION

Dynamic changes in products liability have occurred during the past several decades. The courts, focusing on consumer protection, have expanded producers’ liability by moving away from the privity doctrine and toward strict liability for manufacturers. A current effort to protect consumers through products liability law involved a series of DES cases, in which the plaintiffs proposed “intra-industry joint liability.” This theory of products liability allows plaintiffs to hold entire industries liable for injuries caused by defective products of unknown origin. The number of plaintiffs involved in these cases and the likelihood that other plaintiffs will adapt the theory to different types of cases give the implications of intra-industry liability a continuing interest.

Market Share Liability for DES (Diethylstilbestrol) Injury: A New High Water Mark in Tort Law: Sindell v. Abbott Laboratories, 26 Cal. 3d 588, 607 P.2d 924, 163 Cal. Rptr. 132, cert. denied, 101 S. Ct. 285 (1980), Nebraska Law Review, Volume 60 | Issue 2 Article 9, 1981.

There are four possible bases for intra-industry liability: concerted action, alternative liability, industry-wide liability, and market share liability. Each would allow a plaintiff to collect substantial damages from multiple defendants without proof that any particular defendant caused the plaintiff’s injuries. Eliminating the plaintiff’s burden of proving which manufacturer’s product injured the plaintiff virtually guarantees that plaintiffs will prevail on the causation issue.

In Sindell v. Abbott Laboratories, the California Supreme Court discussed intra-industry liability for adverse effects of drugs and adopted the market share liability theory for DES injuries. Although the majority purported to shift only the burden of proving causation from the plaintiff to the defendants, the effect of its adopting the intra-industry joint liability concept (or, more specifically, the market share doctrine) is to guarantee that the plaintiff will prevail on the causation issue. By departing from traditional tort doctrine and effectively eliminating causation as an issue, market share liability thus represents a new high water mark in tort law. This Note will analyze Sindell and the various approaches taken to overcome the obstacle of product identification in DES cases. In addition, it will examine the legal, social and economic ramifications of intra-industry joint liability.

FACTS

The plaintiff in Sindell brought a class action suit which sought to hold several major drug companies jointly and severally liable for injuries she had sustained as a result of her mother’s use of DES as a miscarriage preventative while she was pregnant with the plaintiff. The complaint alleged that DES had caused her to develop precancerous and cancerous tumors and lesions, but it did not identify the specific manufacturer of the DES ingested by her mother. The trial judge sustained the defendants’ demurrers on the ground that the plaintiff failed to identify which defendant had manufactured the drug responsible for her injuries.

The California Court of Appeals reversed the trial court’s decision, concluding that the plaintiff had alleged facts sufficient to state a claim against the defendants. These included allegations that the defendant drug companies had collaborated in testing, marketing, and promoting DES and that they had agreed to a common formula for the drug in order to permit filling prescriptions with a brand other than that prescribed. Pointing to these allegations, the court concluded that the theories of concerted action and alternative liability were available to the plaintiff.

FOUR THEORIES OF INTRA-TNDUSTRY LIABILITY

The appellate court in Sindell identified two theories which would support joint and several liability of the defendants. Under the first theory, concerted action, a person would be liable for harm resulting from the tortious conduct of others if he assists or encourages that conduct, and either has breached a duty owed the plaintiff or has knowledge that the others’ conduct constitutes a breach of duty.

Under the second theory, alternative liability, all negligent defendants would be liable for the plaintiff’s injuries if it is possible to ascertain which defendant actually caused the injuries and if it is fairly certain that the injuries were caused by one of them. The appellate court relied on a well-known California case, Summers v. Tice, in which two negligent hunters were held jointly and severally liable for the plaintiffs injuries, where it was fairly certain that the shot came from one of them, but it was impossible to tell which hunter had fired the particular shot. The burden of proving causation was shifted to each defendant to exculpate himself if possible. The Summers court concluded that it would be unfair to leave the plaintiff remediless in the face of the defendants’ concurrent negligence.

Although not relied upon by the appellate court in Sindell, two other theories of liability have been proposed as bases for intraindustry liability: industry-wide and market share liability. The industry-wide liability theory was suggested first in Hall v. E.I. Du Pont De Nemours & Co., Inc. , which involved children who were injured by the explosion of dynamite blasting caps. The manufacturer of the blasting caps could not be identified because their markings had been destroyed in the explosion. The plaintiffs sued six American manufacturers of blasting caps and the industry trade association, alleging concerted action. The court decided that a cause of action existed under the concerted action allegation because all of the manufacturers had agreed to not place warnings on the blasting caps although they knew that the caps were dangerous. The court also determined that the defendants jointly controlled the risk because they had delegated some safety functions to a trade association. The court concluded that imposing industry-wide liability upon the manufacturers joined in the action was justified because they were aware of the risk and jointly controlled it. The Hall theory of industry-wide liability grounds each manufacturer’s liability for all injuries caused by its product upon industry-wide adherence to a specified standard of safety. The industry standard itself becomes the cause-in-fact of the plaintiff’s injury. Each industry member contributes to the plaintiff’s injury by adhering to the standard, thereby perpetuating the resulting manufacture of an unidentifiable injury-producing product.

The market share liability theory is an extension of the Summers doctrine. Using an undiluted Summers rationale, it is inappropriate to shift the burden of proving causation to the defendants where there is a possibility that none of them made the product which injured the plaintiff. However, the market share theory alters this doctrine by shifting the burden of proof to the defendants if the plaintiff joins the manufacturers of a “substantial share” of the type of product which caused the plaintiff’s injury. Under the market share theory, each manufacturer’s liability is equivalent to its percentage of total sales by all manufacturers of the product. Thus, a manufacturer’s liability should correspond to its responsibility for the injuries caused by its own products.

THE DECISION

Although the California Supreme Court rejected the appellate court’s reasoning, it affirmed the outcome of the case on a different basis: market share liability. The supreme court concluded that the concerted action and alternative liability doctrines, as interpreted by the appellate court, could not be applied to hold the Sindell defendants liable. The court reasoned that the defendants’ parallel or imitative conduct in relying on each others’ testing and promotion methods described a common practice in the industry, not a concerted action. The formula for DES is a scientific constant which a manufacturer producing the drug must follow by law. For these reasons, and because application of the concerted action theory to Sindell would expand the doctrine beyond its intended scope, the court found no concert of action among the defendants.

The supreme court also rejected the alternative liability theory.  While in Summers v. Tice there was a fifty percent chance that one of the two defendants was responsible for the plaintiffs injuries, the court noted in Sindell that any one of two hundred companies which manufactured DES might have made the product which injured the plaintiff. Therefore, there was no “rational basis upon which to infer that any defendant in the action caused plaintiff’s injuries, nor even a reasonable possibility that they were responsible. The court found the chance that any one of the five defendants supplied the DES to plaintiff’s mother was “so remote that it would be unfair to require each defendant to exonerate itself.” The court, therefore, did not use the alternative liability doctrine to relieve the plaintiff’s burden of proving which drug manufacturer caused her injuries.

The supreme court also discussed two other bases of liability: industry-wide and market share liability. It declined to apply the former theory, but concluded that adoption of the latter doctrine was warranted.

The court rejected industry-wide liability because the large number of producers of DES would create practical problems of management. In addition, it would be unfair to impose liability upon a manufacturer for injuries resulting from the use of a drug manufactured within standards suggested or mandated by the government.

The supreme court did adopt the market share doctrine as the basis for the defendants’ liability. Although it perceived that some discrepancy in the correlation between the market share and liability is inevitable, the court concluded that policy reasons nevertheless warranted application of the market share theory. The policy reasons presented by the court were:

  1. A change in the rules of causation and liability is necessary to fashion remedies that meet the changing needs arising from our complex, industrialized society;
  2. between an innocent plaintiff and negligent defendants, the latter should bear the cost of injury;
  3. defendants are better able to bear the cost of injuries resulting from the manufacture of a defective product;
  4. and holding drug manufacturers liable for defects provides an incentive for product safety.

The majority did not define what constitutes a “substantial share” of the DES market, but it did reject a suggested requirement of seventy-five to eighty percent. Therefore, from the majority’s viewpoint, it appears that a “substantial share” is something less than seventy-five percent.

ANALYSIS

Is Market Share Liability an Extension of, or a Break from, Traditional Tort Law?

According to the Sindell majority, the DES cases are merely a factual variant upon the theme composed in Summers v. Tice; hence, the shift in the burden of proof inherent in market share liability does not completely lack precedent.

However, according to the dissenting justices, the Summers case differs so fundamentally from the DES cases that its precedential value is suspect. In Summers the entire class of responsible parties was before the court; however, only some of the potential defendants were joined in Sindell. “Furthermore, the negligence of the defendants in Summers caused the plaintiff’s inability to identify the tortfeasor.” Conversely, in Sindell the plaintiff’s inability to satisfy the identification requirement resulted from the passage of time. Thus, the dissenters’ suspicions of an unprecedented extension of liabilty seem well-founded. The majority in Sindell argued that the plaintiffs cause of action was based on a reason similar to that advanced in Summers: as between an innocent plaintiff and negligent defendants, the latter should (Summers), or are better able to (Sindell), bear the cost of the injury. This “deep pocket” theory of liability, however, should not play a role in the legal analysis of the case because a defendant’s wealth is an unreliable indicator of fault. In addition, a system priding itself on ‘equal justice under law’ does not flower when the liability… aspect of a tort action is determined by a defendant’s wealth.

Policy Considerations

Adoption of the market share doctrine seems unfair if one considers that the theory imposes liability upon manufacturers who may have had nothing to do with causing the injury. Such an inference of fault approaches the imposition of liability on the basis of injury alone. Allowing courts to infer fault in this manner transforms manufacturers into insurers of societal safety. Also, such a broad extension of liability may diminish the money available for recovery.

In addition to the problems involved in imposing liability under the market share theory, allocation of liability is similarly perplexing. Assuming that no state other than California will adopt the market share doctrine because of its radical departure from traditional tort principles, California courts will allocate liability only to those manufacturers who are amenable to suit in California. Accordingly, as an eventual result of Sindell, California producers of DES may be held liable for 100 percent of a plaintiff’s injuries despite the fact that their aggregate share of the market may be considerably less. Similarly, DES victims would recover unevenly under the market share theory. California plaintiffs are in a better position than are out-of-state plaintiffs to recover fully for their injuries because California plaintiffs can pick and choose their defendants. For example, if the producer which actually caused the injury is now insolvent, a California plaintiff may recover by joining in the action other manufacturers of the same product. Conversely, in other states which still require identification a plaintiff may have a judgment which is valid but unenforceable because of insolvency.

Practical Implications of the Market Share Approach

In view of the legal, social, and economic consequences of the market share theory, it is essential to consider its practical implications. Market share liability would pervasively affect product safety and research and development of new products, and it also could have a detrimental impact on free competition.

Theoretically, market share liability would promote product safety because manufacturers of similar products would find it advantageous to join in establishing higher industry safety standards. However, it is also possible that the market share doctrine would decrease product safety because manufacturers would feel that despite whatever extra precautions are taken during production, they still could be held responsible for injuries resulting from the careless manufacturing practices of others. In addition, if manufacturers are liable regardless of fault, products liability judgments may become a mere business expense. If it is less costly to pay tort claims than to improve safety, producers may not bother to correct an injury-causing product. Market share liability, therefore, loses sight of one of the principal goals of the tort system: to reduce the number of injuries.

Adoption of the market share doctrine may prove to be similarly shortsighted as a matter of social policy concerning the promotion of research and development of new products. Although one commentator maintained that current drug research is duplicative and wasteful, public policy favors the research and development of new pharmaceuticals. The market share theory could hamper this research and development because each new discovery would be a potential source of liability. If policymakers want to encourage the development and marketing of new pharmaceuticals, they must absolve manufacturers of liability arising from dangers hidden prior to the marketing of the new drug. Furthermore, if the drug industry is required to anticipate side effects or medical complications which might surface a generation after ingestion, pharmaceutical research laboratories would be burdened with the duty to predict the future.

Free competition is one of the most important underpinnings of the American standard of living. However, it also could suffer from the Sindell decision. The market share theory suggests the socialistic concept of centralized authority for redistributing private resources. If all producers were held liable for similar products manufactured by the various members of the industry, the larger producers would have an incentive to organize the industry and to attempt to set quality-control standards. Dissenting marginal producers could be driven out of the market, leaving the largest manufacturers in control. If so, the market share liability doctrine would affect the economic structure of American industry extensively.

A NEW APPROACH TO THE INTRA-INDUSTRY LIABILITY PROBLEM

The Sindell majority referred to Justice Traynor’s opinion in Escola v. Coca Cola Bottling Co.,11o which recognized the need to adapt tort principles to changing and complex methods of mass production and marketing. One cannot quarrel with the need for some alteration in the present system of compensating plaintiffs injured by defective products. The theory of intra-industry joint liability, which eliminates proof of causation, is an attempt by the courts to keep pace with society. While market share liability is a worthy effort at balancing the rights of producers and consumers, the problems inherent in the market share theory warrant a search for an alternative solution.

Many commentators have proposed no-fault schemes of products liability to replace our current system. Others have suggested a limited no-fault version to be administered by an administrative tribunal. However, the problems that would arise from these systems make such changes undesirable. There are, undoubtedly, more satisfactory alternatives for apportioning losses from DES injuries than no-fault or market share liability. Yet, such an apportionment exceeds judicial competence. It is the province of the legislature, not the judiciary, to weigh the various economic, social, and political factors involved in such a complex policy determination.

Several minor legislative changes might result in better apportionment of DES losses. Partial governmental liability has been suggested, relying upon the belief that government approval of DES should carry with it some financial responsibility. Another suggestion is to limit the amount of damages a plaintiff could recover; this would decrease a manufacturer’s exposure in individual cases in order to offset its overall expanded liability. A legislature also might boost funding for the agencies responsible for regulating manufacturing. Banning sales of products which violate statutory quality and safety standards would spur manufacturers to develop safer products. Agency scrutiny, if properly funded, would deter irresponsibility in the research and development of new products without substantially inhibiting such undertakings.

While minor changes in the system will aid plaintiffs today, major alterations are needed to cope with the increasing number of plaintiffs who cannot locate or even identify the manufacturers of injury-causing products. Perhaps the most satisfactory solution would be congressional action to establish a framework for uniform loss apportionment. This would eliminate the market share doctrine’s problems of uneven distribution of recovery and unfair allocation of liability.

For example, a scheme similar to the Federal Deposit Insurance Corporation (FDIC) could be instituted, whereby each manufacturer deposits into a federal fund a percentage of its gross sales. Such a plan could be called Manufacturer’s Deposit Insurance Corporation (MDIC) and would function as follows: Each manufacturer of a designated product would pay into the fund a percentage of its gross income from sales of that product according to a flexible rate assigned to the product. Federal administrators could increase the rate for a manufacturer found negligent in its manufacturing practices or could revoke its manufacturing license. Plaintiffs could collect from the fund for injuries and losses attributable to defective products without proving that the defect was foreseeable or that the manufacturers had “joint control of the risk.” The only producer identificaton required would be that the product is American-made.

MDIC would balance the positions of both manufacturers and consumers. If products became defective, or if unforeseeable flaws were discovered, the fund could buy back the products, or pay the resulting injury claims, or both. Hence, a manufacturer would not face bankruptcy because of an unexpected imperfection in its product. Research and development of new products would flourish under MDIC because the introduction of a new product would not be inhibited by the threat of liability. Because contributions to the fund would be proportional to each producer’s gross sales, marginal producers could still compete with large manufacturers, and free competition would remain as the mainstay of the American economy. MDIC would allocate liability more equitably than would the market share doctrine because manufacturers of all states (rather than just California) would contribute to the payment of claims. The fund’s cost would become a business expense imposed concurrently with the manufacture of a product; consequently all producers would bear responsibility for injuries caused by their products, even those occurring after bankruptcy.

MDIC offers advantages to consumers as well as to producers. Under this plan, recovery for injuries or losses would be allocated among plaintiffs in all fifty states. In addition, a plaintiff could collect compensation for her injuries regardless of whether the producer at fault is currently solvent. The absence of a manufacturer identification requirement would allow recovery for plaintiffs who previously were unjustly denied compensation for their injuries or losses because of their inability to match the injury-causing product with a producer. Under MDIC, product safety and quality standards would be policed by federal administrators. Such supervision and the threat of lost sales or a rate increase would deter negligent production practices.

MDIC would include all manufacturers and would not discriminate against certain industries. It would allocate liability fairly and distribute recovery evenly. The MDIC system for compensation would not sacrifice deterrence as a control on product safety.

CONCLUSION

The market share doctrine is an attempt to resolve equitably the question of intra-industry joint liability. Although market share liability is not the appropriate solution, the California Supreme Court’s decision in Sindell is instructive. Several unsettling questions raised by the appellate court in Sindell were answered by the supreme court. First, it reaffirmed the Hall “joint control of risk” requirement for industry-wide liability. Second, it held that alternative liability could not be asserted in DES cases. Some queries, such as the due process ramifications of market share liability, remain unresolved and may require consideration by the United States Supreme Court.

Sindell will affect manufacturers throughout the country. Any producer dealing in interstate commerce can reasonably expect that, at some point, its product will reach California. It is difficult to predict fully the effect on products liability law; however, Sindell certainly is a landmark in the struggle to solve the producer identification problem.

Legislatures should aid the courts in adapting traditional tort doctrines to modern technology. Minor changes in the present system will aid plaintiffs and judges today, but major alterations are imperative for the future. In this regard, MDIC may be a viable alternative solution to the problem of intra-industry joint liability. Legislative changes in the future will not assist the courts in making today’s decisions concerning the producer identification problem in products liability cases. However, Sindell may encourage the search for more equitable solutions to the problem of intra-industry joint liability.

Barbara J. Koperski, 1981

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