Chen v. L.A. Truck Centers, LLC

Filed 1/18/17
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
HAIRU CHEN et al., B265304
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC469935)
v.
L.A. TRUCK CENTERS, LLC,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Los
Angeles County. J. Stephen Czulegar, Judge; Holly E. Kendig,
Judge. Reversed.
Law Offices of Martin N. Buchanan; Girardi & Keese and
David R. Lira for Plaintiffs and Appellants.
Shook, Hardy & Bacon, Frank C. Rothrock and Douglas W.
Robinson for Defendant and Respondent.
__________________________
Plaintiffs, Chinese nationals, brought suit against a
California tour bus distributor, seeking to recover in strict
products liability for injuries and deaths suffered in a bus
rollover accident occurring in Arizona. The trial court applied
Indiana law, which is substantially less favorable to plaintiffs
than is California law, because the tour bus had been
manufactured in Indiana, by an Indiana manufacturer who had
previously settled out of the case. We conclude the trial court
erred in its application of Indiana law, and therefore reverse.
FACTUAL AND PROCEDURAL BACKGROUND
1. The Accident
Plaintiffs are the passengers who were injured, and the
survivors of the passengers who were killed, in a tour bus rollover
accident which occurred in Arizona as they were travelling from
their hotel in Las Vegas to the Grand Canyon for a day trip.
There were 10 passengers, all Chinese nationals on holiday in the
United States. The tour was provided by TBE International, Inc.,
a California tour company. The bus was driven by Zhi Lu, a
California resident, who had driven the bus from Los Angeles to
Las Vegas, in order to pick up the passengers for their Grand
Canyon tour.
That driver Lu was responsible for the accident is not
disputed. Lu drove the bus around a curve with an advisory
speed limit of 35 miles per hour. He instead took the curve at
around 55 miles per hour, and lost control of the bus. The bus
left the roadway and rolled over twice. The two front seats of the
bus, for the driver and tour guide, had three-point seatbelts (lap
and shoulder restraints). The driver and tour guide had been
wearing their seatbelts and were virtually uninjured in the
accident. The passengers, who had no seat belts at all, fared
much worse. One passenger was killed when she was impaled on
the door mechanism. A second passenger was ejected from the
bus and fatally fractured his skull. Six other passengers were
totally ejected from the bus during the roll sequence and
sustained injuries. The remaining two passengers, who were not
ejected, were nonetheless injured in the rollover.
2
2. The Bus
Plaintiffs’ theory of the case, supported by expert
testimony, was that passenger seatbelts would have prevented
the deaths and greatly lessened the injuries suffered. Indeed,
even the defense expert agreed that the primary factor in
reducing the risk of ejection in a rollover accident is a seatbelt.
The bus had been manufactured in Indiana by an entity
known as Starcraft.1 Starcraft did not build tour buses from the
ground up; instead, it purchased existing chassis from other
manufacturers, and built tour buses on top of them. In this case,
a Ford chassis was used.
Starcraft sold its buses nationally, through a network of
dealers. L.A. Truck Centers, doing business as Buswest, the
respondent in this appeal, was Starcraft’s dealer in four western
states, including California. Buswest has its principal place of
business in California, and describes itself as a California
resident. It was the exclusive dealer of Starcraft buses in
California. Pursuant to its written agreement with Starcraft,
Buswest was obligated to sell at least 72 Starcraft buses per year
in California. Buswest also agreed to keep an inventory of at
least eight Starcraft buses at all times.
While Buswest could order a custom bus for one of its
customers from Starcraft, the tour bus in question had been
ordered instead for Buswest’s general stock. In September 2005,
Buswest ordered a 14-passenger Starcraft bus. Buswest paid
Ford for the chassis, and separately paid Starcraft $17,540 for
the conversion into a tour bus. When Buswest ordered the bus, it
could select among various options. Among its options were seat
belts. Buswest could have purchased non-retractable passenger
lap belts for the bus for $12 each. It also could have ordered
retractable passenger lap and shoulder belts for $45 each.
1 Eventually, Starcraft was purchased by Forest River, Inc.,
which was also named as a defendant. When Starcraft
ultimately settled with plaintiffs, Forest River did as well.
Because the buses are known as Starcraft buses, we use that
name to refer to the manufacturer.
3
Instead, Buswest chose to order the bus without passenger seat
belts at all. The Buswest sales manager in charge testified that,
except for buses geared toward the health care industry, all buses
he ordered for stock were without seat belts.
Starcraft manufactured the bus as ordered, and Buswest
picked it up in Indiana and had it driven to California. The bus
sat on Buswest’s lot unsold for two years. Ultimately, Buswest
sold the bus to TBE International, Inc., the tour company
involved in this litigation. TBE had purchased several buses
from Buswest over the years. Although both Buswest and TBE
were located in California, they arranged for delivery of the bus
in Las Vegas, so that TBE could obtain apportioned license
plates, which enabled the bus to be used interstate.2 When the
bus was first registered, TBE obtained approval to operate the
bus in California, Arizona, and Nevada. At the time of the
accident, in 2010, the bus had a California apportioned license
plate.
3. The Lawsuit
Plaintiffs filed suit against Starcraft, Buswest, TBE and
Lu, seeking damages for wrongful death and personal injuries.
The operative pleading is the second amended complaint, which
alleged causes of action for wrongful death, negligence, strict
products liability, loss of consortium, and negligent infliction of
emotional distress.3
In December 2012, TBE and Lu settled with plaintiffs for a
payment of $5 million, in exchange for a full release of all claims
against them.
2 This also enabled TBE to avoid paying California sales tax
on the bus.
3 Apparently by mistake, the cause of action for strict
products liability did not list Buswest as one of the defendants
against whom it was asserted. There is no doubt, however, that
the action proceeded as though the cause of action was alleged
against Buswest.
4
4. The First Choice of Law Ruling
One year after TBE and Lu had settled out of the case,
Starcraft and Buswest filed a joint motion to apply the
substantive law of Indiana to the case. Neither party ultimately
argued for Arizona (the site of the accident) law to apply, and on
appeal, no party argues for application of Chinese (the residence
of the plaintiffs) law. The appeal thus squarely presents the
question: Should Indiana or California law govern? 4 Starcraft
and Buswest pointed out seven material ways in which Indiana
law differs from California law, including the law of product
defects, apportionment of damages among culpable defendants,
and limitations on wrongful death damages for the loss of the
decedent’s love and companionship. Acknowledging that
California applies the governmental interest test in choice of law
situations, Starcraft and Buswest argued that Indiana had a
greater interest in the application of its law to this case than
California had in the application of its law. Specifically, Starcraft
and Buswest argued that Indiana’s products liability laws
reflected its “strong interest in regulating manufacturing
occurring with[in] its borders and protecting its residents from
excessive financial burdens.” While this interest clearly applied
to Starcraft, Buswest also argued that, because it had conducted
business in Indiana, Indiana’s interest in protecting businesses
should extend to Buswest as well. In contrast to the Indiana
interest, Starcraft and Buswest argued that California had no
interest in applying its more plaintiff-friendly laws, as the
plaintiffs here were not California residents and the accident had
not occurred in California.
4 In passing, the original motion by Starcraft and Buswest
had argued for the application of Arizona or Chinese law in the
alternative to Indiana law. However, at the hearing on the
motion, Buswest argued against the application of Arizona law.
A California court will apply California law “unless a party
litigant timely invokes the law of a foreign state.” (Hurtado v.
Superior Court (1974) 11 Cal. 3d 574, 581 (Hurtado).)
5
In opposition, plaintiffs acknowledged that California and
Indiana law differed in the ways identified in the motion. But
plaintiffs argued that California had an interest in the
application of its laws because Buswest – a California dealer –
had placed the bus in the stream of commerce in California.
They argued that California had interests in discouraging its in-
state dealerships from selling defective vehicles in California,
preventing future harm to California residents, and providing
compensation to foreign tourists who are injured in defective
vehicles operated by California touring companies. Plaintiffs also
argued that Indiana could not possibly have an interest in the
application of its law, because, due to Indiana’s use of lex loci
delicti rules of choice of law, Indiana courts would apply Arizona
law to this case.
In reply, Starcraft and Buswest argued that California’s
“lone interest in this case is its resident defendant, [Buswest],
who would be harmed by the application of its laws.” As Indiana
had a strong interest in protecting its manufacturer (Starcraft),
and California had no interest at all, Starcraft and Buswest
argued Indiana law must govern.
On January 13, 2014, the trial court granted the motion,
largely adopting the argument offered by Starcraft and Buswest.
The court began by agreeing that Indiana and California law
differ, with Indiana law being more protective of defendants.
Turning to governmental interest analysis, the court identified
three interests which could potentially be at stake: (1) a state’s
interest in compensating its injured residents; (2) a state’s
interest in deterring wrongful conduct within its borders; and (3)
a state’s interest in protecting its resident defendants from
excessive damages. As between Indiana and California, the first
interest did not apply, as plaintiffs were Chinese nationals. The
second interest did not apply either, as the accident occurred in
Arizona. The court concluded the third interest favored only
Indiana, in that Indiana has an interest in applying its law to
protect its resident defendant (Starcraft) and California’s interest
6
is aligned, in that the application of Indiana law would also
protect the California defendant (Buswest).
After the trial court’s ruling, the case proceeded under
Indiana law.5 Twice, in passing (in opposition to Buswest’s
motion for summary judgment and in their trial brief), plaintiffs
requested the court to reconsider its choice of law ruling. The
court did not do so.
5. The Second Choice of Law Ruling
In August 2014, eight months before trial, Starcraft settled
with plaintiffs, for a total payment of $3,250,000, leaving
Buswest as the sole defendant. In light of the dismissal of the
only Indiana defendant, plaintiffs sought reconsideration of the
trial court’s decision to apply Indiana law, both in a brief
regarding choice of law, and by means of a motion in limine.
Plaintiffs argued that, in the absence of Starcraft, Indiana had no
interest in the application of its law. They argued that, to the
extent Indiana had a residual interest in encouraging the
purchase of products from its residents, that interest was
overwhelmed by California’s interest in regulating the sale of
defective products within its borders.
Buswest opposed the motion as an untimely motion for
reconsideration dressed up as a motion in limine. Buswest
argued that the court was correct in its initial determination that
Indiana law applied, and the dismissal of Starcraft did not alter
the ruling. Buswest again argued that California’s only interest
was the protection of its resident defendant, and that this
interest would be furthered by the application of Indiana law,
which is more favorable to defendants than California law.
Buswest argued that California “has no interest in having its
liability and damages laws applied to the detriment of its sole
5 In January 2014, plaintiffs filed a petition for writ of
mandate, challenging the trial court’s ruling that Indiana law
applied. (Chen et al. v. Superior Court, B253966.) We denied the
petition as plaintiffs had failed to demonstrate entitlement to
extraordinary relief.
7
remaining interest in this case: its resident defendant
[Buswest].” It further argued that Indiana’s business-protective
interest applied, even though Starcraft was no longer in the case,
because Buswest itself had done business in Indiana by means of
buying the bus there. Finally, Buswest argued – with no citation
to authority – that granting the motion would “set a dangerous
precedent moving forward in multi-defendant cases,” with a
possibility for reconsideration of choice of law whenever any
defendant settled. Moreover, changing the applicable law this
close to trial would be prejudicial.
By the time of the hearing, the case had been reassigned to
a different judge. The new judge denied the motion. First, the
court agreed with Buswest that plaintiffs’ motion was not a
proper motion in limine, and stated that it could “be denied on
that basis alone.” Second, the court agreed with Buswest that
the motion did not meet the statutory prerequisites for a motion
for reconsideration, and that it could therefore “be denied on that
basis as well.” The court recognized that plaintiffs had argued
that the dismissal of Starcraft was a change in the facts, but the
court concluded that the dismissal of Starcraft did “not change
[the prior judge’s] choice of law analysis in any way.” Third, the
court turned to the merits of the motion, and found that
California had no interest in the case because the plaintiffs are
not California residents and the accident did not occur in
California. The court concluded that Indiana had an interest,
because plaintiffs alleged the bus was negligently designed, and
the bus was designed, manufactured, and sold in Indiana.
Finally, the court agreed with Buswest that the applicable law
should not change at the eleventh hour just because of Starcraft’s
settlement. “The parties have prepared for trial based on a
definitive ruling by the previous judge. The parties should be
able to rely on that ruling in their trial preparation. The
happenstance of a change in parties should not affect the law to
be applied here.”
8
6. The Trial
The case proceeded to trial under Indiana products liability
law which, among other things, imports a negligence standard
into the definition of a defective product. Under Indiana law, a
plaintiff can recover against the seller of a product placed in the
stream of commerce in a defective condition unreasonably
dangerous to any user. (Ind. Code § 34-20-2-1.) “However, in an
action based on an alleged design defect in the product . . . , the
party making the claim must establish that the manufacturer or
seller failed to exercise reasonable care under the circumstances
in designing the product . . . .” (Ind. Code, § 34-20-2-2.)
At trial, plaintiffs’ case focused on Buswest’s decision to
order the bus without lap belts. Plaintiffs argued that the bus
was unreasonably dangerous without $12 lap belts, which would
have protected the passengers during the rollover accident.
Buswest did not argue that $12 was too much to spend on
seatbelts; instead, it took the position that its decision not to
include seatbelts constituted an exercise of reasonable care,
based on three facts: (1) federal National Highway
Transportation Safety Administration standards did not require
lap belts in this bus; (2) the industry standard was not to include
seatbelts at the time; and (3) while lap belts would likely protect
occupants in a rollover accident, lap belts could cause serious
injuries to passengers in frontal collisions, which were much
more common than rollover accidents.
A special verdict form was presented to the jury. The jury
concluded that Buswest was a manufacturer or seller of the bus
under Indiana law. However, it concluded that the bus was not
in a “defective condition” at the time of the accident. The jury
was polled; its answer to the latter question was not unanimous,
but by a vote of 10-2. Judgment was entered in favor of Buswest.
Plaintiffs filed a timely notice of appeal.
DISCUSSION
Before discussing the specific issues in the case, we provide
a brief overview of California conflicts of law. Then, we consider
9
whether the trial court should have fully reconsidered the choice
of law motion after Starcraft’s settlement with plaintiffs.
Concluding that it should have, we do not consider the propriety
of the first choice of law ruling and instead consider de novo
whether Indiana or California products liability law should apply
to the action between the Chinese plaintiffs and the California
defendant, Buswest. Considering the governmental interests at
stake in this products liability case, we conclude that California
has an interest in applying its laws, while Indiana does not.
Therefore, the trial court erred in applying Indiana products
liability law. Finally, we conclude that the error was prejudicial,
in that it is reasonably probable that plaintiffs would have
prevailed had California law been applied. We therefore reverse
and remand for a new trial.
1. Choice of Law Rules in California
Generally speaking, California courts will apply California
substantive laws “unless a party litigant timely invokes the law
of a foreign state. In such event he must demonstrate that the
latter rule of decision will further the interest of the foreign state
and therefore that it is an appropriate one for the forum to apply
to the case before it. [Citations.]” (Hurtado, supra, 11 Cal.3d at
p. 581.) Thus, the starting point in our analysis is that a
California court should apply California law unless there is a
reason not to.
In 1967, our Supreme Court adopted the governmental
interest test of conflicts of law. (Reich v. Purcell (1967) 67 Cal. 2d
551, 555 (Reich).) “ ‘We typically summarize governmental
interest analysis as involving three steps: “First, the court
determines whether the relevant law of each of the potentially
affected jurisdictions with regard to the particular issue in
question is the same or different. Second, if there is a difference,
the court examines each jurisdiction’s interest in the application
of its own law under the circumstances of the particular case to
determine whether a true conflict exists. Third, if the court finds
that there is a true conflict, it carefully evaluates and compares
the nature and strength of the interest of each jurisdiction in the
10
application of its own law ‘to determine which state’s interest
would be more impaired if its policy were subordinated to the
policy of the other state’ [citation], and then ultimately applies
‘the law of the state whose interest would be the more impaired if
its law were not applied.’ ” ’ [Citation.] Because this is an issue
of law, we review the trial court’s decision de novo. [Citation.]”
(Scott v. Ford Motor Co. (2014) 224 Cal. App. 4th 1492, 1503
(Scott).)
We stress that the first element requires looking at the law
of the potentially affected jurisdictions “with regard to the
particular issue in question.” (Scott, supra, 224 Cal.App.4th at
p. 1503.) California follows the doctrine of dépeçage, under which
different states’ laws can be applied to different issues in the
case. (Smith v. Cimmet (2011) 199 Cal. App. 4th 1381, 1396 [“ ‘[A]
separate conflict of laws inquiry must be made with respect to
each issue in the case. . . .’ [Citation.]”]; see Browne v. McDonnell
Douglas Corp. (N.D. Cal. 1980) 504 F. Supp. 514, 517, 519
(Browne) [applying California law on products liability and
damages, but Yugoslavia law on allocating liability among
multiple defendants].) Thus, the issue in this case is not whether
California and Indiana laws are different in the abstract, but
whether they are different with respect to the particular issues
disputed in the case. A different governmental interest analysis
must be performed with respect to each particular issue.
The second element of the test looks to each jurisdiction’s
interest in the application of its own law. Again, due to dépeçage,
we must consider each state’s interest behind its laws on each
legal issue on which the states’ laws disagree. Thus, for example,
when considering whether to apply a jurisdiction’s limitation on
wrongful death damages, we consider the policies implicated by a
limitation on wrongful death damages. (E.g., Hurtado, supra,
11 Cal.3d at p. 583.) But when considering whether to apply a
jurisdiction’s prohibition on punitive damages, we consider the
somewhat different policies that are implicated by such a
limitation. (E.g., Scott, supra, 224 Cal.App.4th at pp. 1504-1505.)
The court must also consider the circumstances of the case in
11
determining any state’s interest. (McCann v. Foster Wheeler LLC
(2010) 48 Cal. 4th 68, 90 (McCann).) The parties to the action are
relevant to the determination of the jurisdictions’ relative
interests. In Kasel v. Remington Arms Co. (1972) 24 Cal. App. 3d
711 (Kasel), the plaintiff, a California resident, was injured in
Mexico by a defective shotgun shell manufactured in Mexico. In
determining the governmental interests, the court stated,
“Mexico is the place of manufacture, ultimate purchase, use of
and injury by the defective shotgun shell. However, it is
significant that no Mexican nationals are litigants in this action.
The importance of these elements certainly diminishes when the
only litigating parties are citizens of the United States . . . . ” (Id.
at p. 732, fn. omitted.) Based on these and other factors, the
court of appeal upheld the trial court’s application of California
law. (Id. at pp. 728-739.)
If the interests of the foreign state “will not be significantly
furthered by applying its law,” any conflict is a false conflict, and
forum law will prevail. (American Bank of Commerce v.
Corondoni (1985) 169 Cal. App. 3d 368, 372.) Assuming the
existence of a true conflict between the states’ laws and interests,
the third element of governmental interest analysis looks to see
which jurisdiction’s interests would be more impaired if its policy
were subordinated to the other jurisdiction’s policy. (McCann,
supra, 48 Cal.4th at pp. 96-97.) In conducting this evaluation, we
do not “weigh” the conflicting interests in the sense of
determining which law manifests the “better” or “worthier” social
policy on the issue. Instead, we are determining the proper
allocation of law-making power in a multi-state context – we
determine the appropriate limitations of the reach of state
policies. Emphasis is to be placed on the appropriate scope of
conflicting state policies rather than the quality of those policies.
(Id. at p. 97.)
2. Reconsideration of Choice of Law was Required
The first issue we face is whether the trial court was
correct in its alternative determination that plaintiffs could not
obtain reconsideration of the initial choice of law ruling by means
12
of a motion of limine after Starcraft had settled. We conclude
this determination was erroneous.
Procedurally speaking, it is important to recognize the
nature of the trial court’s initial choice of law ruling on the
motion brought by Starcraft and Buswest. A motion to determine
the law to be applied in a case is “the equivalent of an in limine
motion that seeks to resolve a conflict of laws or choice of law
issue.” (State Farm Mutual Automobile Ins. Co. v. Superior Court
(2004) 121 Cal. App. 4th 490, 502.) In limine rulings are not
binding; they are subject to reconsideration upon full information
at trial. (Cristler v. Express Messenger Systems, Inc. (2009)
171 Cal. App. 4th 72, 90, fn. 6.) Because by their very nature,
motions in limine are subject to reconsideration at any time prior
to the submission of the cause (ibid.), they are not subject to the
formal constraints of a motion for reconsideration under Code of
Civil Procedure section 1008. Buswest would characterize the
ruling on its first motion as a binding determination of the law to
be applied in the case, and plaintiffs’ subsequent motion in limine
as an untimely and procedurally improper attempt to obtain
reconsideration of that ruling. But, in truth, the original motion
brought by Buswest and Starcraft was simply an in limine
motion, filed a year before trial, which could obtain nothing more
than a non-binding ruling subject to reconsideration when the
facts were fully developed at trial. (See Kasel, supra,
24 Cal.App.3d at pp. 721, 732 [trial was bifurcated with choice of
law litigated first; unsuccessful party could have sought
reconsideration if stronger evidence had been introduced in the
second phase].)6
Substantively, this must be the case. Under dépeçage,
choice of law is not an across-the-board determination, but one
which is made issue-by-issue. Conflicts of law questions cannot
properly be resolved until the actual issues are known. More
importantly, identification of the governmental interests
6 Even if plaintiffs were required to show “new facts,” in
order for the trial court to revisit the choice of law query, the
Starcraft settlement was such a new fact.
13
implicated by the conflicting laws on any issue depend on the
circumstances of the case – both the facts as they are developed
at trial and the parties involved. In this case, it is the parties
involved that are key. At the time Starcraft and Buswest
originally moved for the application of Indiana law, California
defendants TBE and Lu had already been dismissed from the
case, so any interest California may have had in applying its law
to those defendants was not at issue, and the trial court correctly
did not consider those interests. Similarly, once Starcraft had
been dismissed from the case, any interest Indiana had in
applying its law to Starcraft was no longer at issue. The court
was required to reconsider its choice of law analysis in the
absence of the Indiana defendant.
In reaching this conclusion, we necessarily reject two
arguments Buswest makes. First, Buswest notes that in Reich,
supra, 67 Cal. 2d 551, our Supreme Court held that facts
occurring after the accident – in that case, the Ohio plaintiffs’
relocation to California – had no affect on the choice of law
analysis, as it would otherwise encourage forum-shopping. (Id. at
pp. 555-556.) Buswest therefore argues that choice of law is itself
fixed at the time of the accident. Buswest greatly overstates the
effect of Reich. The Supreme Court simply held that the
historical facts of the parties’ residences were fixed at the time of
the accident; it did not hold that the relevant state interests
were. Indeed, the relevant state interests could not possibly be
determined until it was known what parties would be sued.
Suppose, for example, that the plaintiffs in this case believed the
bus was not defective at all, and had sued only Lu for his
negligent driving. In such a case, Indiana would have no interest
at all, and the dispute would be between the application of
California negligence law and Arizona negligence law. The
relevant interests cannot be accurately determined until the
defendants, and the theories of liability alleged against them, are
known – things that are only known for certain as the case gets
closer to trial.
14
Second, Buswest suggests that allowing plaintiffs to seek
reconsideration of the choice of law ruling would promote
gamesmanship. We think it unlikely that parties would settle, or
hold up a potential settlement, based on the effects a settlement
might have on the law to be applied when the remaining parties
proceed to trial. In any event, the risk of gamesmanship only
arose in this case because Buswest and Starcraft chose to seek a
preliminary in limine ruling on choice of law 15 months before
trial. Any prejudice arising from the parties’ reliance on this
ruling was due to their misunderstanding of the nature of a
pretrial choice of law ruling, not from plaintiffs’ proper attempt to
redetermine the applicable law at the time of trial.
3. California Strict Products Liability Law Applies
We turn to the application of the governmental interest test
in this case. While the parties identified seven different areas in
which California and Indiana law differed, there was only one
which determined the defense verdict in this case: strict products
liability.
A. Step One: The Laws Differ
The first question is whether the laws of the two
jurisdictions differ. As noted above, Indiana law does not permit
a plaintiff to recover for a defectively designed product unless the
seller failed to exercise reasonable care in designing the product.
(Ind. Code, § 34-20-2-2.) This is in marked contrast to California,
as California law allows recovery for a defectively designed
product even if the defendant used reasonable care. “[T]he fact
that the manufacturer took reasonable precautions in an attempt
to design a safe product or otherwise acted as a reasonably
prudent manufacturer would have under the circumstances,
while perhaps absolving the manufacturer of liability under a
negligence theory, will not preclude the imposition of liability
under strict liability principles if, upon hindsight, the trier of fact
concludes that the product’s design is unsafe to consumers, users,
or bystanders.” (Barker v. Lull Engineering Co. (1978) 20 Cal. 3d
413, 434 (Baker); see Johnson v. United States Steel Corp. (2015)
240 Cal. App. 4th 22, 32.)
15
B. Step Two: Determining the State Interests
We turn to the second step in the governmental interest
analysis, determining California’s and Indiana’s respective
interests in the application of their laws of products liability. In
this regard, Buswest argues that we should consider the three
possible governmental interests identified in the Hurtado case:
(1) a state’s interest in compensating its injured residents; (2) a
state’s interest in deterring wrongful conduct within its borders;
and (3) a state’s interest in protecting its resident defendants
from excessive damages. (Hurtado, supra, 11 Cal.3d at p. 584.)
But these are not three governmental interests at issue in every
choice of law case; they are simply the three interests that may
be implicated by a state’s limitation (or lack thereof) on wrongful
death damages. We are not concerned with a limitation on
wrongful death damages; we are concerned with the law of
products liability.7 Different issues are at stake.
In Barrett v. Superior Court (1990) 222 Cal. App. 3d 1176,
the court faced the issue of whether California law provided for
strict products liability as a basis of recovery in a wrongful death
case. In the course of its opinion, the court set forth both the
Hurtado interests supporting California’s wrongful death statute
and the different set of interests supporting California’s law of
strict products liability. (Id. at pp. 1185-1186.) It is the latter set
of interests that we must consider in determining which state’s
products liability law applies: “The primary purpose of imposing
strict products liability ‘is to insure that the costs of injuries
resulting from defective products are borne by the manufacturers
7 There is a distinction between Indiana law and California
law on wrongful death damages. When Starcraft and Buswest
initially moved for the application of Indiana law, they noted that
Indiana, unlike California, imposes a $300,000 cap on wrongful
death damages that may be awarded for the loss of a decedent’s
love and companionship. (Ind. Code § 34-23-1-2.) As no damages
were awarded in this case, the issue of which state’s law
regarding wrongful death damages should be applied is not
before us.
16
that put such products on the market rather than by the injured
persons who are powerless to protect themselves.’ [Citation.] [¶]
The other purposes, or public policies, behind the creation of the
doctrine of strict products liability in tort as a theory of recovery
are: ‘(1) to provide a “short cut” to liability where negligence may
be present but difficult to prove; (2) to provide an economic
incentive for improved product safety; (3) to induce the
reallocation of resources toward safer products; and (4) to spread
the risk of loss among all who use the product. [Citations.]’
[Citation.]” (Id. at p. 1186.)
1. California’s Interests
We consider whether the interests motivating California’s
adoption of strict products liability law would be enhanced by the
application of California products liability law to this case, and
frustrated by the imposition of Indiana law. The primary
purpose of California’s strict products liability law is to insure
that the cost of injuries of defective products is borne by the
manufacturers that put such products on the market rather than
by the injured persons who are powerless to protect themselves.
It is true that California has no interest in compensating injured
plaintiffs who are neither injured in California nor California
residents. (Hurtado, supra, 11 Cal.3d at p. 583.) But the policy
behind strict products liability is greater than simple plaintiff
compensation. For one, it implicates the public policy that the
cost of defective products be borne by the manufacturers who put
such products on the market. Buswest placed the bus on the
market in California; California’s policy interest is therefore
implicated. The same is true with respect to three of the other
four purposes behind California’s adoption of strict products
liability. While the first interest, to provide a “short cut” to
liability where negligence may be present but difficult to prove,
seems to relate only to plaintiffs and would therefore only apply
to California resident plaintiffs, the other three are not so
limited. The second interest is to provide an economic incentive
for improved product safety; this clearly applies to a California
dealership which orders products and has the option to include
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safety devices in its orders. The third interest is to induce the
reallocation of resources toward safer products; again, this
applies to a California dealership that imports products,
particularly when the dealership had the opportunity to order an
allegedly non-defective product but chose not to do so. The fourth
interest is to spread the risk of loss among all who use the
product. This, too, applies to this case, as it would enable the
risk of injuries on tour buses without seatbelts to be imposed on
all users, via the cost of the product, rather than the injured
plaintiffs alone. In short, California’s interest in imposing its
rules of strict products liability in this case, in which a California
dealership ordered an allegedly defective product, imported it
into the state, and sold it to a California tour company, for use on
California roads, is strong.
2. Indiana’s Interests
We turn to Indiana’s interest in applying its more business-
friendly products liability laws. Indiana apparently has chosen
to balance the interests more in favor of manufacturers than
injured plaintiffs. This is an interest which, initially, extends
only to Indiana businesses, and does not apply when there are no
Indiana defendants in the action. (Hurtado, supra, 11 Cal.3d at
p. 583.) However, in some cases, a state’s interest in protecting
businesses within the state can extend to foreign businesses
doing business in the state. “When a state adopts a rule of law
limiting liability for commercial activity conducted within the
state in order to provide what the state perceives is fair
treatment to, and an appropriate incentive for, business
enterprises, we believe that the state ordinarily has an interest in
having that policy of limited liability applied to out-of-state
companies that conduct business in the state, as well as to
businesses incorporated or headquartered within the state. A
state has a legitimate interest in attracting out-of-state
companies to do business within the state, both to obtain tax and
other revenue that such businesses may generate for the state,
and to advance the opportunity of state residents to obtain
employment and the products and services offered by out-of-state
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companies. In the absence of any explicit indication that a
jurisdiction’s ‘business friendly’ statute or rule of law is intended
to apply only to businesses incorporated or headquartered in that
jurisdiction (or that have some other designated relationship with
the state—for example, to those entities licensed by the state), as
a practical and realistic matter the state’s interest in having that
law applied to the activities of out-of-state companies within the
jurisdiction is equal to its interest in the application of the law to
comparable activities engaged in by local businesses situated
within the jurisdiction.” (McCann, supra, 48 Cal.4th at pp. 91-
92.)
Buswest takes the position that it falls within this
rationale, in that it does business in Indiana. Buswest does not
sell any products in Indiana; it does not provide goods or services
there; it does not employ any Indiana residents. It simply buys a
product in Indiana and distributes it in its home state of
California. We are hard-pressed to conclude that Indiana has an
interest in extending the favorable laws it has adopted for the
benefit of local sellers to a foreign buyer who then resells the
product in its home jurisdiction.
Buswest also argues that Indiana’s interest in protecting
its own businesses, including Starcraft, is still at issue even
though Starcraft has settled. This is so, Buswest argues, because
its dealership agreement has an express indemnity clause, under
which Buswest may seek indemnity from Starcraft for damages it
is required to pay plaintiffs. The short answer to this argument
is dépeçage – whether Indiana law applies to a separate
contractual indemnity action between Starcraft and Buswest has
nothing to do with whether Indiana law applies to this products
liability action between Buswest and plaintiffs. To the extent
Buswest argues that Indiana has an interest in limiting
Buswest’s obligation to pay damages in tort only because
Starcraft may subsequently be liable for the damages in contract,
we disagree. No state’s interests can reach that far.
In short, we conclude Buswest does not do business in
Indiana; it simply buys a product manufactured there and
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distributes it in other jurisdictions, where it does business.
Starcraft, the Indiana manufacturer, has settled and is no longer
a party. Indiana’s interest in protecting its resident product
manufacturers is not implicated by this case.8
3. California Has No Interest in Protecting
Buswest
We take a moment to correct a misunderstanding of
California law which appears to have infected the ruling in this
case. Buswest had argued, and the trial court agreed, that
California has an interest in protecting its resident defendants
from paying damages, and that – as Indiana law was more
favorable to defendants than California law – California therefore
had an interest in applying Indiana law to limit the damages its
residents defendant might have to pay. This view of the law
appears to have arisen due to an oversimplification of the
interests discussed in Hurtado.
As noted above, the Hurtado court found three interests
potentially implicated in statutes governing wrongful death
damages: (1) an interest in plaintiff compensation; (2) an
interest in deterring wrongful conduct; and (3) an interest in
limiting excessive damages. The court noted that these interests
are “primarily local in character.” (Hurtado, supra, 11 Cal.3d at
p. 584.)
8 Because we conclude that Indiana has no interest in this
case, we need not address plaintiffs’ argument that Indiana has
no stake because Indiana courts themselves would not apply
Indiana law. There is a line of authority which holds that, in
considering the relative states’ interests, a court may consider
whether the state itself would apply its own law. (E.g. Forsyth v.
Cessna Aircraft Company (9th Cir. 1975) 520 F.2d 608, 612.)
Plaintiffs argue that since Indiana would apply Arizona law, not
Indiana law (Rexroad v. Greenwood Motor Lines, Inc.
(Ind.Ct.App. 2015) 36 N.E.3d 1181, 1183-1184) to this accident,
Indiana can have no interest in the application of its laws.
Plaintiffs cite to no authority that has adopted this doctrine in
California, and we do not address the issue.
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Some cases have suggested that the interests any state has
in any conflicts of law analysis are: (1) compensating resident
plaintiffs; (2) deterring wrongful conduct within its borders; and
(3) restricting the damages paid by resident defendants. (E.g.,
Browne v. McDonnell Douglas Corp., supra, 504 F.Supp. at p. 518
[the third Hurtado interest is “limitation of damages payable by a
resident defendant,” which interest would be impaired by
imposing California law on a California defendant].) As noted
above, we disagree with generalizing Hurtado’s interests outside
the context of limitations on wrongful death damages. But, we
also disagree with the idea that Hurtado held that California has
an interest simply in limiting the damages California defendants
must pay. Hurtado was concerned with statutory limitations on
wrongful death damages. Mexico had such a limitation;
California did not. (Hurtado, supra, 11 Cal.3d at p. 583.) This
meant that, in its wrongful death law, Mexico had chosen the
interest of protecting its resident defendants. (Ibid.) But as
California does not limit wrongful death damages, California has
chosen victim compensation and deterrence over defendant
protection. (Id. at p. 584; Barrett v. Superior Court, supra,
222 Cal.App.3d at p. 1185.) In short, Hurtado itself illustrates
that a state does not have an interest in protecting its resident
defendants from damages in all circumstances. Instead, in
applying the governmental interest test, a court must look at the
law at issue and the interests each state has chosen to advance
by its substantive law. That is the analysis we have performed,
and it results in California having a strong interest in imposing
its products liability law on a California defendant allegedly
importing defective products for sale in California.
C. Step Three: There is No True Conflict
The third step of the analysis requires us to determine
whether California’s interests or Indiana’s interests would be
more impaired by the application of the other’s law of products
liability. As we have explained, California has a strong interest
which would be impaired by the application of Indiana law in this
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case, while Indiana has no interest. There is therefore no true
conflict, and California law should be applied.
Even if we were to have found a conflict, the result would
be the same. The weighing we conduct is not a balancing of
which state’s laws are better, but a determination of the
appropriate limitations of the reach of state policies. California’s
interests are in insuring manufacturers are liable for the harm
they cause, providing an economic incentive for improved product
safety, inducing the reallocation of resources toward safer
products, and spreading the risk of harmful products. Advancing
these interests by imposing California law on Buswest, a
California defendant which ordered the allegedly defective
product, brought it into California, and sold it to a California tour
company, for use in California (and elsewhere), would all be well
within California’s scope of authority. In contrast, any interest of
Indiana in limiting the scope of liability of Buswest for this
conduct would be an unprecedented extension of Indiana law –
allowing Indiana to permanently attach to any product
manufactured in the state its restrictive views of products
liability, regardless of resale. California’s interests would be
more impaired by an application of Indiana law. California law
should therefore apply.
4. The Error was Prejudicial
Finally, we turn to whether the error was prejudicial. “A
judgment may not be reversed on appeal, even for error involving
‘misdirection of the jury,’ unless ‘after an examination of the
entire cause, including the evidence,’ it appears the error caused
a ‘miscarriage of justice.’ [Citation.] When the error is one of
state law only, it generally does not warrant reversal unless
there is a reasonable probability that in the absence of the error,
a result more favorable to the appealing party would have been
reached. [Citation.]” (Soule v. General Motors Corp. (1994) 8
Cal. 4th 548, 574.)
We conclude that the error was prejudicial. Had the jury
been instructed on California law, plaintiffs likely would have
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proceeded under the risk-benefit theory of defective design.9
Under that theory, a product is defective if “in light of the
relevant factors discussed below, the benefits of the challenged
design do not outweigh the risk of danger inherent in such
design.” (Barker, supra, 20 Cal.3d at p. 418.) “[A] jury may
consider, among other relevant factors, the gravity of the danger
posed by the challenged design, the likelihood that such danger
would occur, the mechanical feasibility of a safer alternative
design, the financial cost of an improved design, and the adverse
consequences to the product and to the consumer that would
result from an alternative design. [Citations.]” (Id. at p. 431.)
Moreover, once the plaintiff makes a prima facie showing that
the injury was proximately caused by the product’s design, the
burden shifts to the defendant to prove, in light of the relevant
factors, that the product is not defective. (Ibid.)
Having reviewed the record, we conclude this case
presented a classic jury question for design defect under the risk-
benefit analysis. It was virtually undisputed that lap belts were
a simple, inexpensive safety feature which, if properly used,
would have prevented the fatalities and other serious injuries
suffered in this rollover accident. However, defendants presented
evidence that lap belts would be unsafe in frontal collisions,
which were much more common than rollovers. Federal
authorities seemed split on the advisability of seatbelts in tour
buses of this size. While the National Highway Safety
Administration did not require them, the evidence showed that
the National Traffic Safety Board supported mandatory
9 At one point in their conflicts briefing, plaintiffs mistakenly
argued that Indiana law and California law were not in conflict,
in that they both used the “consumer expectation” test to define a
defective product. Buswest suggests that this argument was
some sort of silent waiver of plaintiffs’ right to pursue the
alternative risk-benefit test should California law be applied in
this case. We disagree. When plaintiffs proposed California jury
instructions on strict products liability, they specifically included
the risk-benefit instruction.
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installation. Faced with persuasive evidence on both sides, it is
reasonably probable that a properly instructed jury would have
found for plaintiffs. Indeed, two of the twelve members of the
jury thought the bus was defective even under Indiana law.
Buswest argues that there is no reasonable probability of a
plaintiffs’ verdict, because even under California law, it would
still be able to introduce its persuasive evidence of compliance
with industry custom and governmental standards. But the
California Supreme Court just granted review in a case
presenting the issue of whether industry custom evidence is
admissible in a risk-benefit case. (Kim et al. v. Toyota Motor
Corporation (2016) 243 Cal. App. 4th 1366, review granted
April 13, 2016, S232754.) Moreover, even if the evidence were
admitted, we do not find it as dispositive as Buswest would like,
particularly given that the government itself disagreed over the
risks and benefits of seatbelts in tour buses.
DISPOSITION
The judgment is reversed and the matter remanded for a
new trial governed by California products liability law. Plaintiffs
shall recover their costs on appeal.
RUBIN, ACTING P. J.
WE CONCUR:
GRIMES, J.
CHANEY, J. *
* Judge of Division One of the Second District Court of
Appeal, assigned by the Chief Justice pursuant to article VI,
section 6 of the California Constitution.
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