The South Carolina Supreme Court recently weighed in again on two issues near and dear to the hearts of those who have an active products liability practice: (1) the admissibility of expert witness testimony and (2) punitive damages. In Austin v. Stokes-Craven Holding Corp., — S.E.2d —-, No. 26784, 2010 WL 760410, (S.C. March 8, 2010), the Supreme Court considered the admissibility of two experts offered by the Plaintiff and whether the punitive damages awarded to that Plaintiff were excessive. In Austin, the Plaintiff filed suit against Stokes-Craven Holding Corporation, d/b/a Stokes Craven Ford, an automobile dealership, after he experienced problems with a vehicle that he purchased used from the dealership. As it turned out, the vehicle had sustained extensive damage in an accident prior to the sale of the vehicle to the Plaintiff, requiring repairs to the tune of over $20,000. Problems ensued even following repairs when the vehicle developed an oil leak, finally prompting the first owner to trade in the vehicle.

When the Plaintiff went to purchase the vehicle, he asked a series of questions related to the extent of the warranty, whether the vehicle had been wrecked, and questions regarding the previous owner. In response, the Plaintiff was informed that the warranty was a “5-year, 100,000 miles powertrain warranty,” that the truck had not been wrecked, and that the previous owner may have been someone with whom the Plaintiff was familiar and considered to be very responsible with regard to vehicle maintenance. A couple of months after purchase, the Plaintiff discovered an oil leak, which he then sought to have repaired. It was then that the Plaintiff was told by the Defendant that the vehicle was not covered by a 5-year, 100,000 mile power train warranty. The Plaintiff further discovered that the vehicle had a 5-year, 100,000 mile warranty limited to the engine, that the truck had been registered to a person different from the person whom the Plaintiff believed first owned the vehicle, and that the vehicle had sustained extensive damage prior to Plaintiff’s purchase. The dealership further provided the Plaintiff with a “Buyer’s Guide” document purportedly containing the Plaintiff’s signature that confirmed that the warranty was only up to 100,000 miles on the diesel engine. The Plaintiff adamantly denied that he signed or ever received the document. After the Plaintiff’s repeated requests to receive a return of the purchase price in exchange for the vehicle were rejected, he filed suit under multiple causes of action.

At the conclusion of trial, the Plaintiff was awarded actual and punitive damages on his causes of action for negligence, fraud, constructive fraud, and violation of the Dealer’s Act, with actual damages being awarded in the amount of $26,371.10 on each cause of action and punitive damages in the amount of $216,600 as to the Plaintiff’s cause of action for fraud. Among the multiple issues on appeal were the admissibility of experts and excessiveness of punitive damages.

The Defendant argued that the trial judge erred in qualifying two of the Plaintiff’s witnesses as experts in the areas of auto-body repair and in appraisal and valuation of Plaintiff’s truck, respectively. As was not unexpected, in both instances, the South Carolina Supreme Court found that the Defendant was not prejudiced by the admission of the expert’s testimony. Key to the Court’s ruling appeared to be its conclusion that the Defendant was able to extensively cross-examine the experts on their qualifications and their ultimate conclusions.

On the issue of punitive damages, the Court applied the guideposts set forth in the recent decision in Mitchell v. Fortis Ins. Co., 385 S.C. 570, 686 S.E.2d 176 (2009), to be applied in conducting a post-judgment review of punitive damages awards, those being: (1) the degree of reprehensibility of defendant’s misconduct; (2) the disparity between the actual and potential harm suffered by the plaintiff and amount of the award; and (3) the difference between the punitive damages awarded and civil penalties authorized or imposed on comparable cases.

As to reprehensibility, multiple additional factors are considered, including whether (1) the harm is physical versus economic; (2) the conduct evinced an indifference to or a reckless disregard for the health or safety of others; (3) the target of the conduct had financial vulnerability; (4) the conduct involved repeated actions or was an isolated incident; and (5) the harm was the result of intentional malice, trickery, or deceit, rather than mere accident. Here, the Court found that, even though the harm was economic, that fact did not minimize the reprehensibility of the dealership’s conduct. The dealership’s employees failed to disclose that the truck had been wrecked and did not have a power train warranty and potentially forged the Plaintiff’s signature to a document in an effort to legitimize the lack of the power train warranty. The Court found that those acts evinced an indifference to or a reckless disregard the health and safety of the Plaintiff and the general public that would share the road with the potentially unsafe vehicle, that the Plaintiff was financially vulnerable, and that the incidence was not isolated in that the dealership’s employee testified that he had never shown a title to a customer.

Turning to the ratio, the Court admitted that an 8.21 ratio was high, particularly given the type of injury. However, the Court noted that it was a single-digit ratio; there was evidence of the Defendant’s ability to pay; that given the extent of wreck damage and resultant safety issues, there was potential for the Plaintiff and his passengers to be subjected to serious injury; and the amount of the award would serve as a deterrent to future misconduct.

Finally, the Court endeavored to review factually-similar cases to assess the reasonability of the award. In doing so, it cited cases from Missouri and Oregon in which plaintiffs had purchased used vehicles that had a past and in which significant punitive damage awards had been affirmed. Accordingly, in light of the above, the Court affirmed the punitive damages award rendered by the jury. Whereas Justice Pleicones dissented in part from the majority opinion, he nonetheless found that punitive damages were warranted, although he would have reduced such damages to $100,000.

The case involves the sudden acceleration of a vehicle, making it a very timely topic. On December 11, 1999, Sonya L. Watson was driving her 1995 Ford Explorer with Patricia Carter and two other passengers in the vehicle when she lost control, veered off the interstate, and rolled four times. Carter did not survive the accident and Watson was rendered a quadriplegic. Watson and Carter filed a products liability action against Ford, claiming that the accident occurred because the cruise control system was defective, and that their injuries were enhanced because the seat belts were defective.

At trial (which was conducted in Greenville County, SC), the Plaintiffs presented (and the trial court allowed) three types of evidence that was the subject of Ford’s appeal. First, the Plaintiffs presented testimony of Dr. Antony Anderson, an electrical engineer from the United Kingdom. He opined that electromagnetic interference (“EMI“) took hold of the vehicle’s cruise control system, causing it to suddenly accelerate. Dr. Anderson further testified that Ford could have prevented the accident through an alternative design. Second, the Plaintiffs presented the testimony of Bill Williams, a purported automotive industry veteran, as an expert on cruise control diagnosis. Finally, the Plaintiffs offered evidence of similar accidents involving sudden acceleration in Ford Explorers.

This morning, the South Carolina Supreme Court reversed an $18 million verdict against the Ford Motor Company arising from an automobile accident which killed one passenger and paralyzed the driver. At issue in this products liability case was the cruise control system of a Ford Explorer. The case is Watson v. Ford Motor Co., No. 26786 (S.C. March 15, 2010). In sum, the Supreme Court reversed and accepted Ford’s arguments that the trial court erred in qualifying two of the Plaintiff’s experts (one a cruise control expert, the other an alternative design expert) and by admitting evidence of prior sudden acceleration accidents. We’ll have more on this opinion in the coming days, but for now, you can see the opinion here and some early media coverage here. Authored by Chief Justice Jean Toal, the majority opinion drew one concurring opinion from Justice Costa M. Pleicones (who concurred in the result only).

• “[W]hile the Beastie Boys might disagree, the First Amendment does not imply a ‘right to party’ dissociated from expression.” URI Student Senate v. Town of Narragansett, — F. Supp. 2d —-, No. 08-207, 2010 WL 222587, at *6 n.4 (D.R.I. Jan. 22, 2010) (internal link obviously added) (Link courtesy of The Volokh Conspiracy). Nice, but can it compete with the 1987 Fifth Circuit Talking Heads opinion? We here think not.
• The Cal Biz Lit blog offers its analysis of some recent uses of California’s Proposition 65, which empowers private plaintiffs to sue certain companies who are allegedly exposing persons to “chemicals known to the State of California to cause cancer” or “chemicals known to the State of California to cause reproductive or developmental harm” without a “clear and reasonable warning.” The blog notes how this provision was recently used to extract settlements from manufacturers of purses made of vinyl and leather, which sometimes contain lead.
• The VLW Blog reports on the very recent Sutton v. Roth, L.L.C., No. 08-1914, 2010 WL 235143 (4th Cir. Jan 21, 2010) (unpublished), a ruling the TortsProf Blog is calling a “sequel to the McDonald’s coffee case.” Apparently, the Plaintiff alleged that when he bit into his sandwich, “the grease from the inside of the chicken sandwich spread out all over [his] bottom lip, [his] top lip, down onto [his] chin.” According to The VLW Blog, the Plaintiff sued McDonald’s and its franchisee for $2 million, but a federal district judge granted summary judgment for McDonald’s and judgment as a matter of law for the franchisee, who had to face a brief trial on the merits. (Perhaps the franchisee didn’t earn summary judgment because one of its employees remarked that “[t]his is what happens to the sandwiches when they aren’t drained completely.”). The district court did, however, grant the franchisee’s motion in limine to exclude that statement, which became one of the Plaintiff’s appellate points. Last week, the Fourth Circuit reversed both orders and remanded the case back to trial. (The opinion is here [PDF]).
• This week, Brian A. Comer at the South Carolina Products Liability Blog began the first in a series of posts on South Carolina warning law.
• The South Carolina Bar has made available online the full report of its Young Lawyers Division Social Media Task Force. Initially submitted to the Bar’s Board of Governors in November of 2009, the report was presented to the Board at last week’s South Carolina Bar state convention by our own Jim Dedman, who chaired the task force. Included in the report are recommendations on how the State Bar can use social media to better communicate with its members. You can see the full report here (PDF).

Recently, the U.S. District Court for the District Court of South Carolina issued a products liability opinion, Ervin v. Continental Conveyor & Equip. Co., Inc., — F. Supp. 2d —, No. 4:07-CV-3010-TLW–TER, 2009 WL 4895559 (D.S.C. July 23, 2009), in which it denied two motions for summary judgment filed by the defendant-manufacturer. The issue in the case was the application of the statute of repose for actions involving real estate improvements to cases involving alleged defects in production equipment. Although the opinion was apparently issued seven months ago, it was only made accessible through Westlaw this week.

In that case, Plaintiff Marcus Ervin sued Continental Conveyor and Equipment Company, Inc. (“Continental Conveyor”) following a 2005 accident at a U.S. Department of Agriculture facility which caused him to lose an arm above the elbow. At issue was Continental Conveyor’s incline conveyor system. Due to the incline conveyor system’s “propensity to collect cotton around the lower belt pulley,” an unknown third party cut an access hole into the system’s casing to facilitate the removal of accumulated cotton. Immediately prior to the accident, the Plaintiff reached through the access hole to remove cotton “without turning off or locking out the power to the machine.” The system had originally been sold to the USDA in 1985 but was later disassembled and moved to its current location in Florence, South Carolina in 1994.

Continental Conveyor filed two separate motions for summary judgment, one based on South Carolina’s Statute of Repose for Improvements to Real Estate, and the other regarding substantive product liability issues. After a lengthy analysis, the court denied both motions.

In addressing the statute of repose issue, the Court construed S.C. Code 15-3-640, which established the period of repose after substantial completion of improvements to real property. The question for the Court was whether the incline conveyor system constituted an “improvement to real property” under South Carolina law. Finding no controlling state authority in South Carolina, the Court thoroughly surveyed a number of cases from other jurisdictions interpreting whether industrial equipment fell within the scope of similar statutes of repose.

The Court also noted that South Carolina authority suggested that the determination of whether an addition to real property constitutes an improvement required a case by case determination. Analyzing the factors set forth in South Carolina Pipeline Corp. v. Lone Star Steel, 345 S.C. 151, 546 S.E.2d 654 (2001), the Court easily concluded that the equipment at issue made the property more valuable and involved the investment of labor and money. However, the Court was “not prepared to reach the conclusion that the incline conveyor system [was] a permanent improvement to real property.” It reached that determination primarily because the system at issue was “relatively small scale” and the fact that not only was it mobile, but that it had been previously been moved, a fact the court found to be “important.”

With respect to Continental Conveyor’s second motion for summary judgment, the Court denied it on all its stated grounds, those being comparative fault (because the Court could not “conclude that the evidence support[ed] a finding that the plaintiff’s negligence exceeded that of the defendant as a matter of law”), assumption of risk (because the Plaintiff testified he “did not understand the nature and extent of the risk posed by the conveyor system,” despite his acknowledgment that he knew he could be injured by placing his arm into the machine), unforeseeable modification (because the defendant had preexisting knowledge of the accumulation of cotton problems which led to the unknown third party’s creation of the access hole), and the failure of Plaintiff’s experts to establish the equipment was defective (because there remained a question of fact whether the equipment was defective due to the accumulation problem).

The opinion does not necessarily signal the defeat of the statute of repose defense in South Carolina products liability litigation. As fact intensive as the opinion is, it may be difficult to rely upon this case in the future, simply because future disputes can be readily distinguished from the set of facts presented in Ervin.

Last month, the South Carolina Supreme Court retreated from some exceptions it had previously carved out of the economic loss rule and strongly suggested the possibility that it will find no further exceptions to the rule. In Sapp & Smith v. Ford Motor Co., — S.E.2d —-, No. 26754 (S.C. Dec. 21, 2009), the Court began this new direction by noting that South Carolina continues to follow the economic loss rule in products liability cases:

‘The economic loss rule is a creation of the modern law of products liability. Under the rule, there is no tort liability for a product defect if the damage suffered by the plaintiff is only to the product itself.’ Kennedy v. Columbia Lumber & Mfg. Co., 299 S.C. 335, 341, 384 S.E.2d 730, 734 (1989). In other words, tort liability only lies where there is damage done to other property or personal injury.

Id. In the past, South Carolina courts have developed an exception to the rule for construction of residential homes. See Kennedy, 299 S.C. at 341, 384 S.E.2d at 734. Some of the reasons for the exception were: a home is typically the single largest investment of an individual, a home is a completely different type of manufactured good, and the sale of a home involves inherently unequal bargaining power between the parties. Two years ago, in Colleton Preparatory Acad,, Inc. v. Hoover Universal Inc., 379 S.C. 181, 666 S.E.2d 247 (2008), the court seemed to extend this exception to the construction of commercial buildings, as well.

In Sapp, the plaintiffs involved in the consolidated appeal had each purchased used Ford trucks. The trucks allegedly had a design defect with their cruise control mechanism, which in turn caused the trucks to catch fire. In each case, there was neither a personal injury claim nor a property damage claim (other than to the trucks themselves). Further, in each respective case, the plaintiffs lost at the trial court level due to the court’s application of the economic loss rule. On appeal, each plaintiff argued that the exception outlined in Colleton applied to their cases, and thus, their claims should not be barred by the economic loss rule. The court disagreed, holding that that the economic loss rule barred both plaintiffs’ claims.

The Sapp court went on to overrule the expansion of the exception initially created in Kennedy. In so doing, it expressly overruled Colleton to the extent it expanded the narrow exception to the economic loss rule beyond the residential builder context as pronounced by Kennedy.