Legal News

Made In China: Sued In The USA

China product defect lawyers

The WSJ law blog has a post today, entitled, Made in China, Sued in the U.S.A., on the spate of lawsuits against U.S. distributors of defective Chinese products. The post points out how US plaintiffs are suing these distributers/importers of Chinese manufactured products and how they will keep suing U.S. distributors/importers and not the Chinese manufacturers:

A spate of tainted Chinese products — from shrimp to toys to toothpaste — have made their way on to U.S. shores. And as surely as night follow day, lawyers here are filing lawsuits against the U.S. companies that distribute them. The cases might prove to be a new lucrative product line for the products-liability plaintiffs bar, reports Business Week. At the very least, they”ll provide good fodder for final exams in first-year torts.

The post then discusses how Foreign Tire Sales, a New Jersey tire distributor, is a defendant in a wrongful death lawsuit involving tires made by Chinese company, Hangzhou Zhongce Rubber and how Del Monte, “which sold pet food made with tainted Chinese ingredients” is also being sued.

The WSJ post is based on a Business Week article that nicely lays out the new reality for U.S. distributors of Chinese product:

Meanwhile, the Washington (D.C.) firm of Cohen, Milstein, Hausfeld & Toll is weighing litigation against Western distributors of Chinese-made counterfeit glycerin that found its way into cold medicine, killing hundreds of children in Panama and elsewhere. “Do people along the chain have responsibility for knowing where key ingredients are coming from? The answer you’re going to find in an era of globalization is ‘Yes,” says Cohen Milstein’s Michael Hausfeld.

Despite a wave of business-friendly legal reforms in recent years, companies can be held liable in most states in the U.S. even if they unwittingly sell a dangerous product. “All you have to show is that the product was defective,” says William Ruskin, a defense litigator with Epstein, Becker & Green in New York. “It’s no defense to say, ‘We didn’t know.'” Under product-liability law, one company often can be held 100% liable for all damages awarded to all consumers, regardless of its market share or the amount of tainted product it might have sold.

Don’t expect plaintiffs’ lawyers to make their way to China. They aren’t likely to bother with small, far-flung producers that can’t afford to pay big judgments

Someone left a comment to the WSJ post saying distributors cannot be found liable in Texas unless they changed or altered the product:

You are wrong on the law. In at least one state, Texas, distributors are not liable for the defective product if they did not change or alter the product. The consumer loses thanks to our Republican representatives. Please call your state representative to thank them for protecting you and your family.

I suspect this comment is accurate not just with respect to Texas but to certain other states as well, but only to the extent it is speaking of a distributor’s strict liability, under which there is liability for defective product whether negligent or not. But even in Texas, a distributor of Chinese product can be found liable for negligently choosing a particular Chinese manufacturer or liable for negligently failing to test a product or liable for negligently failing to recall a product. In addition to potential liability for negligence, I also believe many U.S. companies that think of themselves as “just” distributors or importers are, for purposes of their state’s strict liability laws, actually manufacturers and thus, even in states like Texas, strictly liable for their product.

If you are an American company telling a Chinese company exactly how to manufacture a product with your name on it, are you not also a manufacturer? And how do you see an American jury ruling on this issue when faced with a paralyzed 12 year old and no other company available to pay?

All I can say is that our China lawyers and our international litigators are increasingly working with insurance companies and distributers and importers and even retailers who have been sued because the Chinese manufacturer is just too difficult to reach. We are being retained by these companies to advice on (among other things) what, if anything, they can do to bring the Chinese manufacturer into the already pending U.S. lawsuit.

I suggest companies involved in bringing Chinese product into North America or Europe (or anywhere else for that matter) read our previous post, entitled, How To Protect Your Company From Bad Chinese Product.

23 responses to “Made In China: Sued In The USA”

  1. I found interesting on the press coverage on the dangerous Chinese import issues. Many call for the Chinese government to act but few have call for FDA to get involved. Is there a different standard for “We are from the government and we are here to help?” 😉

  2. Chris D-E —
    This is the US, where private enterprise rules. The FDA/Customs typically check only a small percentage of incoming goods and they (as far as I know) cannot be held liable for letting stuff through.
    Many Chinese companies will not go along with indemnity provisions and many American companies choose not to press it because they know they may not be able to collect on them in any event.
    We are of the view that a good contract with the Chinese supplier can at least help in the US litigation.

  3. David Li —
    One of the things that has always irritated me a bit is that the US calls for China to expand private enterprise, but when things go wrong, we call for the government to intervene.

  4. Todd Platek —
    Many years ago, we were retained by a New Zeeland company that had paid about $2 million to buy a ship in Florida that had been inspected/surveyed to high marks. The ship that went to NZ was a complete piece of junk and it was a miracle it even made it. The NZ government essentially required it be junked and the appraisal said it had no value beyond scrap. We looked into suing the surveyer, but we faced two huge problems. First, was that our client had not been a party to the survey contract. Second, was that the contract had language making such lawsuits borderline impossible. I think all of this is fairly typical with examining companies.

  5. CLB – As counsel for two vessel classification societies, I have seen this kind of suit before. It would have been a very expensive and highly technical suit. Best, Todd

  6. “Many call for the Chinese government to act but few have call for FDA to get involved. Is there a different standard for “We are from the government and we are here to help?” ;)”
    Chris D-E:
    There lies the hypocrisy of US corporations. They want US tax dollars and US political capital (what little we have left) to work FOR them in China and other countries. Giving the FDA the funding they need to do a proper job usually means that taxpayer dollars will be working AGAINST them in the form of fines, bad publicity and occasionally criminal charges for shoddy food products.
    I believe there is a federal agency that deals with the tire issue, but Bush has done a wonderful job of finding Iraq war funding by gutting certain federal agencies that he and his corporate friends don’t like.
    It’s more a case of “I’m from the government and would like to help but I don’t have the funding to travel to your location much less to help you.”

  7. I find this blog very interesting and have added it to the blogroll at Right Truth. China has been in the news for many reasons recently and deserves watching. Looking at China from political and financial points is the norm, but you take on the legal side of the issues. I look forward to reading your future articles.
    I’m not sure how much control the FDA and other U.S. organizations have over foreign items shipped into the U.S. I’m also not sure how much control U.S. businesses have in the manufacturing process and materials used in foreign countries. It seems this might be something Americans would want to educate themselves on.

  8. Chris,
    Re: your fourth point presumably in response to my comments, do you really see American consumers’ interest in cheaper goods as a contributing factor to the overall problem of potentially widespread product quality issues? Didn’t reports concerning the pet food matter indicate that Chinese factories had been putting the same valueless/harmful additive into product that they had been selling in the domestic market for quite some time? The Chinese market has been flooded for years with substandard and potentially dangerous, harmful products by local producers. Although your point has merit, in fact American/foreign buyers may be in a position superior to Chinese buyers in placing product QC chaps on the production lines to watch, teach, supervise, etc.
    With respect to liking cheaper goods (I am unsure whether you mean cheaper in price or quality), it used to be common that, for instance, the German market desired heavier, sturdier goods. For example, in the early 1980’s I operated a small buying office in Taiwan, and whereas we bought for the US market relatively flimsy luggage carriers, the German market demanded thicker-gauge metal and larger, stronger wheels. I would be interested to know from any readers with experience on manufacturing in China for export to Germany, whether quality issues at Chinese factories producing for the German market differ in nature or extent from those being reported with respect to goods arriving in the USA, and if so, what the reasons appear to be. Is it a “cheaper goods get poorer attention at the factories” issue?
    Last, yes, foreign buyers would do well to make more thorough investigations of the factories they wish to use, and hammer out more protective indemnification clauses, and maybe seek the posting of “performance bonds” as tangible protection. My consulting company in Qingdao/Shanghai/Hangzhou attempts to do that, to give as much “inside” info as may be obtainable under the circumstances, and my partners are all local Chinese men and ladies who can get closer to the inside than the foreigners or their attorneys, since we have no vested interest in seeing deals get done. But once deals do get done, the foreign party still needs to maintain vigilant monitoring of the local party’s situation, the dynamics of which might not be in the foreign party’s best interests.

  9. “Just watch as the cost of living goes up and inflation increases as the REAL cost of quality and safety is hammered home in the US. Recession looming ? You bet,”
    It’s going to happen anyway as the sub-prime mortgage and sub-prime business lending bubbles deflate and take alot of investors’ money with them…then credit requirements will rise like a hot air balloon.

  10. I’d imagine that a jury wouldn’t get to rule on whether a corporation is a “manufacturer” or not since that is an issue of law and would be dealt with in pre-trial motions before the judge. In practice, almost all product liability suits in the United States are settled out of court, and everyone wants to avoid a jury trial if they can.
    I doubt that a plausible, private cause of action exists against a public agency. US administrative law gives executive agencies wide discretion on the actions they can take or not take, and the doctrine of sovereign immunity limits the causes of action that a private individual can take against the US government.

  11. I would *really* like comment on the Microsoft xbox 360 issue, with the apparently catastrophic levels of recalls due to faulty manufactoring/design…

  12. “For example, in the early 1980’s I operated a small buying office in Taiwan, and whereas we bought for the US market relatively flimsy luggage carriers, the German market demanded thicker-gauge metal and larger, stronger wheels.”
    Europeans have different perception of quality. Take American car interiors, even on expensive models from Cadillac and Jeep, as an example. It is a veritable orgy of flimsy plastic, cheap materials and poor workmanship. I’m not surprised you found the Germans having higher demands.

  13. PaulW: Interesting non-reply. I know the Germans have different quality demands. My question relates to Chinese factories manufacturing for the German market, and what q.c. goes on in those factories. Would appreciate any light you can throw on it.

  14. TLP,
    If you want to compare you should check one of the largest markets for China – Japan. Many Japanese companies do manage to get low cost (compared to Japan) with high quality products from China. They have been here for a long time and they understand the market far better. They also dont take **** when it comes to quality. They will do 100% inspection if necessary. Manage their local china factories the same as if it would be in Japan (I have been to a warehouse in pudong where you have to take your shoes off. I can tell, you it was CLEAN and nice. Quite impressive).
    Japan(ense) already been here for quite awhile now, know how to do it and where — the truth is that europeans/americans looking to source here should go to one of the japanese trading companies and save themselves allot of trouble.

  15. nh —
    I think you are right that US companies do not necessarily want more FDA involvement and I am not even sure that is necessary. US companies need to start cleaning up their own acts on this score and if they don’t, they are going to be facing big lawsuits.

  16. Chris D-E —
    I agree and disagree.
    You say “US attorneys maybe haven’t been doing a good enough job on indemnity clauses.” First off, I am not aware of a single instance where an attorney from any country failed to put an indemnity clause in a contract with a Chinese supplier where the Chinese company agreed to it. What happens is the Chinese company either refuses such a provision, leaving the foreign company to have to decide whether to go forward or not, or the foreign company fails to use a lawyer and, by doing so, fails even to consider such a provision.
    2. The liklihood of collecting damages on a hold harmless and indemnify clause in China is well above “minimal.” Chinese courts are, more and more, enforcing clear contracts. The liklihood of an injured plaintiff recovering sufficient personal injury damages in China is minimal.
    3. I am pretty certain a lawsuit against a US government agency for failing to protect from bad Chinese goods is a non-starter. The only thing that pervents me from being certain on this is that I have not researched it.
    I agree with you 100% regarding due diligence, but that certainly should not be confined to just American companies.
    You must not have read the recent Economist article on the US. No matter what happens with Chinese product, we will do just fine.
    2) Even if they have, the liklihood of collecting damages in China is minimal;
    3) Jury seems to be out on the culpability of pertinent US government agencies responsible for protecting the good ole USA from those nasty foreign low quality imports;
    4) It’s all the American consumers fault for wanting cheap Chinese goods.
    How about:
    Supplier due diligence now means:
    Checking to see if the Chinese suppliers registered capital really exists (it’s his limited liability status) and if he can withstand a hefty lawsuit for defective products ? Sounds to me that should start to become a mandatory piece of legal work. But do US buyers REALLY want that ? If they start getting sued they might.
    How many American traders ever REALLY did any meaningful due diligence on Chinese suppliers ? I bet it’s minimal. America cannot have it’s cake (cheap products) and eat it (quality issues).
    Just watch as the cost of living goes up and inflation increases as the REAL cost of quality and safety is hammered home in the US. Recession looming ? You bet, and anyone standing for President of the USA right now has to be barking mad with what’s going to happen domestically in the next ten years.

  17. Jonathan’s response to my query is indicative of the optimism that should exist, despite NH’s extreme pessimism. I have said this all along. There was a time when even the “Made in Japan” label inspired images of shoddiness. We know that isn’t so anymore, and hasn’t been so since Japanese industries flew up the learning curve in the 1960’s. The same is occurring (n.b.: present, not future, tense) in China.
    I don’t agree that the American/European companies should source through the “sogoshosha.” If we put the same amount of energy and time into pursuing the quality we demand, as those Japanese trading houses do, we will be happier with the results. It is already happening.

  18. I am a 4th generation owner of a 100% domestic furniture operation that caters to the hotel/motel industry. We have found a niche in our particular industry (I call it the “idiots niche”..we stuck with America through the tough times and will benefit on the backside just because we were able to last.)Anyway. I have been reading these posts and catch myself smiling 🙂
    Looking into a crystal ball I can see my domestic business benefiting greatly from the stupidity and short sightedness (greed?) of these multinational coorperations. Have fun learning Chineese and sifting through the BS boys. Happy 4th.

  19. China Not Unique in Safety Problems with Its Exports
    China is hardly the only country which has a safety problem with its exports, reports the New York Times: . . . federal inspectors have stopped more food shipments from India and Mexico in the last year than they have…

  20. Hi. Hope to get some advise. I have invented a product and want to have it manufactured in China. I have found a manufacturer that will design and build the prototype for free. I asked him to sign a nondisclosure agreement and his response was, “Not now. After we design product and build prototype, we will talk about it then.” I am seeing this as a huge red flag. I, of course, have not discussed the details of the invention with him. Advice?
    Thanks!
    Tonya

  21. Tony/Tonya —
    I am sorry but we do not give personalized advice on this site. I will, however, state that we generally view the unwillingness of a manufacturer to sign a nondisclosure agreement as a giant red flag. But that is because we give them a very short one in Chinese that has been agreed to countless times by other Chinese manufacturers. It might mean something very different if they are refusing to sign something in English that calls for litigation in Wichita.

  22. Tonya, be very careful! Be even more careful if you don’t have a US Patent or money to protect it. I recently had one of my best-selling products copied by a Chinese “partner.” Even if it costs more you might want to consider another country, like Chile for example. It costs somewhat more but not a lot and they are much more honest as a rule.

  23. Thank you for referencing the WSJ article where I discuss the liability of American importers. As I discuss in a recent blog post, there appears to be an over-emphasis in the media concerning recalls from China-imported products. There is a tendency to want to focus on the “foreign” cause of problems because a thoughtful examination of the entire issue can be avoided. For example, the recent Salmonella outbreak arising from a domestic peanut processor highlighted a deficiency in regulatory control of our domestic food industry. Without minimizing the severity of a lack of regulatory sophistication in China, it may be more productive to examine the entire global network of which we are an integral part.

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