The Lawletter Vol 39 No 9
In a recent decision, the U.S. District Court in Yanez v. Graco, Inc., CIV. 13-2243 JRT/JSM, 2014 WL 4415291 (D. Minn. Sept. 8, 2014), held that both a parent corporation and its subsidiary were manufacturers of the hose and paint system that allegedly caused the plaintiff's injuries. The plaintiff brought a state law strict products liability action against a number of defendants involved in the manufacture and distribution of the product. After removal of the case to federal court, the defendants moved for summary judgment.
The applicable North Dakota law relieves a nonmanufacturing seller of strict liability under circumstances applicable to the case at issue. However, North Dakota law also defines a "manufacturer" to include a seller of a product "who is owned in whole or significant part by the manufacturer." N.D. Cent. Code § 28-01.3-01 subd. 1. Examining the relationship between the manufacturer and the seller of the paint system, the court concluded that the parent corporation, which manufactured the product, and its subsidiary, the nonmanufacturing seller, were both "manufacturers" of the product for purposes of strict liability.
In so holding, the court noted that the parent corporation, either as a corporate entity or through its sole shareholder and board member, owned all of the shares of the subsidiary. The court further explained that the actual percentage of ownership is not dispositive of control giving rise to liability under the products liability statute but is part of a more comprehensive inquiry into the degree of control that an owner exerts over the corporation or the other shareholders.
The lesson of Yanez is that both products liability plaintiffs and defendants should be alert to the corporate relationships between parties in the chain of a product's distribution when a statute purports to relieve one or more of these entities from strict products liability.