Manufacturers Should Be Liable (Darby V. Doan Commentary)

Arkansas has a diverse industrial base that includes a manufacturing sector producing nearly 20 percent of the gross state product. Included in this sector are manufacturers of such products as household appliances, power tools and electronics.

Many foreign manufacturers provide low-cost component parts to Arkansas manufacturers. The result is countless Arkansas-manufactured end products with foreign-manufactured components currently in use throughout the United States.

In today’s litigious society, when a product allegedly has caused property damage or personal injury, the injured party seldom hesitates to institute legal action.

While the plaintiff may file suit against multiple defendants responsible for the manufacture of the product and its component parts, often only the easily identifiable, end-product manufacturer is sued.

Where the alleged defect relates to a foreign-manufactured component part, however, the end-product manufacturer may wish to hold the foreign manufacturer accountable for joining in the legal defense and contributing to any ultimate monetary award or settlement.

U.S. sales of component parts result in billions of dollars in profits annually to foreign manufacturers. Can these manufacturers be joined in litigation in Arkansas to account for their products and, potentially, held accountable for contribution?

The answer is far from black and white.

Both state and federal courts in Arkansas allow a defendant-manufacturer to bring into a lawsuit additional parties that may be liable for the plaintiff’s claims of product defect and damages.

For an Arkansas court to exercise jurisdiction over a foreign manufacturer such that it remains in the lawsuit, however, constitutional due process must be satisfied.

One fundamental requirement is that the foreign manufacturer has “minimum contacts” with Arkansas.

This contact requires some act, direct or indirect, by the foreign manufacturer in which it purposefully takes part in the privilege of transacting business in Arkansas and, therefore, receives the benefit and protection of its laws.

The foreign manufacturer may have “minimum contacts” with Arkansas under a “general” jurisdiction theory. In this situation, the foreign manufacturer’s contacts with Arkansas need not be related to the allegedly defective product but may be established through other substantial contacts with the state.

For example, the foreign manufacturer may have a presence in Arkansas via its sales force, distribution channels, marketing efforts, or other continuous and systematic actions. An interactive Web site through which the foreign manufacturer enters into sales contracts in Arkansas may provide the contacts necessary to subject it to the jurisdiction of the courts.

In essence, the contacts required as a general matter are those that indicate the foreign manufacturer’s willingness to be subjected to the jurisdiction of an Arkansas court. Often, however, foreign manufacturers avoid such actions, with sales consummated overseas and movement of their product done by others.

Alternatively, and more likely, the foreign manufacturer may have “minimum contacts” with Arkansas under a “specific” jurisdiction theory. In this situation, the foreign manufacturer’s “minimum contacts” may be no more than a single act directed toward Arkansas if the plaintiff’s claims relate to this action.

Without ever having set foot in Arkansas, a foreign manufacturer that delivered the component part into the “stream of commerce” with the expectation that it would end up in Arkansas may be subject to the jurisdiction of an Arkansas court.

The necessary expectation will rarely be admitted. Knowledge that the product was sold to an end-product manufacturer with distribution throughout Arkansas, however, may be enough. The same may be said for other actions on the part of the foreign manufacturer, such as designing the product for U.S. markets, including Arkansas. The foreign manufacturer’s obtaining Underwriters Laboratories Inc. listing for its product may evidence sufficient expectation of sales into Arkansas.

Consequently, it is possible in certain situations that the foreign manufacturer of an allegedly defective component part may be joined in the defense of the product and potentially held liable for contribution by the end-product manufacturer.

Nevertheless, the uncertainty of the proposition is such that alternative precautions, including contractual indemnification from the foreign component part manufacturer, should be considered in advance by the Arkansas manufacturer.

(Darby V. Doan is a CPA and a law partner in the trial and appellate law firm Haltom & Doan of Texarkana, Texas. E-mail him at [email protected].)