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Fifth Circuit Court of Appeals Rules that Shipper of Defective Product Labeled As Its Own Can Be Held Liable as Apparent Manufacturer

In a recent decision, the Fifth Circuit Court of Appeals found that a shipper of a defective product that is labeled as its own may be held liable under Louisiana law as the apparent manufacturer of that product.  Chevron USA Inc. v. Aker Maritime Inc., No. 07-31117 (5th Cir. April 27, 2010).

In Chevron, Plaintiff, Chevron USA Inc. ("Chevron"), the part-owner and operator of an oil production facility, had contracted with defendant Aker Maritime Inc. ("Aker") for the construction of a riser system. Carriage bolts were required for the riser system's construction, and Aker ordered these bolts from Defendant T-3 Custom Coating Applicators, Inc. (hereinafter "Lone Star"), a "well-known" bolt manufacturer who also distributed others' bolts. Lone Star shipped bolts that were manufactured by Oriental Fastener Co. ("Oriental") and which were marked "OF". The bolts were shipped in boxes bearing Lone Star's logo and contained a packing slip which noted that they were either "manufactured or distributed" by Lone Star.  At the conclusion of the riser system's installation, the construction was inspected and bolt failures were discovered. During the investigation of these failures, it was discovered that the wrong kind of bolts had been used and that the bolts were also defective due to a defective manufacturing process.

In July 2003, Chevron commenced a lawsuit against Aker, claiming negligence, strict liability, redhibition, products liability and breach of contract. Aker brought claims for indemnity against Oceaneering International, Inc. ("Oceaneering"), who had assembled the risers, and Lone Star. To avoid inconsistent verdicts, the parties agreed to try all the claims other than the contract claims to a jury, which returned a verdict in favor of Chevron on all claims. The Court also entered a judgment against Lone Star and Oriental, awarding attorneys' fees to Chevron, and dismissed all of the contract claims. Chevron, Aker and Lone Star appealed. On appeal, the Court only considered those issues raised by Lone Star's appeal, noting that its resolution would allow it to dispose of Chevron's appeal. Lone Star argued that Chevron's claims against it were prescribed; that insufficient evidence supported the jury's verdict; and that its liability under the Louisiana Products Liability Act (the "LPLA") precluded an award of attorneys fees in redhibition. The Court noted that the jury had found Lone Star liable on three theories: negligence, the LPLA, and redhibition. Because the Court found that any of these theories would support the jury's entire award of compensatory damages, the Court considered only the LPLA action.

Considering each of Lone Star's arguments in turn, the Court first concluded that the jury had sufficient evidence to conclude that Chevron's claims were not prescribed. Lone Star argued that Chevron was required to file its action within a year of the claims' accrual and that the prescriptive period should have begun when the first bolt broke in 2001. Citing Louisiana case law, the Court found that the prescriptive period does not begin to run until a plaintiff has a reasonable basis to pursue a claim against a particular defendant. Because Chevron's investigation did not reveal theories as to who was responsible for the bolt failures until less than a year before it filed suit, the Court concluded that the jury was correct in finding that prescription did not bar Chevron's claims against Lone Star.

The Court next considered the jury's imposition of liability, and concluded that there was sufficient evidence to support the jury's LPLA verdict. The LPLA provides remedies against the "manufacturer" of an unreasonably dangerous product for claimants who have been harmed by that product. In addition to those who actually manufacture a product, the LPLA also imposes liability upon those who "label[] a product as his own or who otherwise holds himself out to be the manufacturer of the product" under a theory known as the "apparent manufacturer doctrine."  Although the Fifth Circuit and the Louisiana Supreme Court had not previously considered the scope of this doctrine, the Court looked to the decisions of lower courts in Louisiana and concluded that "when the distributor's actions give the buying public a basis to assume that it may be the manufacturer of a product it distributes, a jury will usually be within its province to conclude that the distributor held itself out as the product's manufacturer."  Because the evidence revealed that Lone Star did not inform Aker that the bolts were not its own; that the bolts were shipped in Lone Star-labeled boxes; and the boxes included a packing slip indicating that Lone Star was possibly the manufacturer, the Court affirmed the jury's determination that Lone Star was liable to Chevron as apparent manufacturer under the LPLA. 

However, the Court reversed the district court's judgment awarding Chevron attorneys' fees. The Court found that attorneys' fees would only be allowed if Chevron had a redhibition claim under La. Civ. Code art. 2545. Lone Star argued, inter alia, that the LPLA precluded Chevron's redhibition claim and thus precluded an award of attorneys' fees. The Court agreed, finding that the LPLA "establishes the exclusive theories of liability for manufacturers for damages caused by their products" and provides that "[a]ttorneys' fees are not recoverable."  The Court found that Chevron could only succeed with its redhibition claim if damages were awarded for damage to the bolts themselves or for economic loss. Finding that Chevron's damages were entirely under the LPLA, the Court concluded that Lone Star's liability in redhibition was precluded and that attorneys' fees were not available to Chevron.

The Court remanded the case to the District Court for further consideration of the parties' contract claims.

Read a copy of the Fifth Circuit's decision

For more information about this decision, please do not hesitate to contact us at info@chaloslaw.com

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