May 17, 2016 Practice Points

How to Take Advantage of "Seller's Exception" Statutes

By Rachel S. Nevarez

Many states have statutes that specifically address an injured person's ability to file a lawsuit and impose liability against a retailer or distributor of a product. These common names of these laws vary from state to state but are commonly referred to as "seller's exception," "distributor statutes," or "innocent seller" statutes. Seller's exception statutes typically allow a truly innocent seller or distributor to obtain dismissal from some or all of a plaintiff's product liability claims at an early stage of the litigation. Although many states' statutes refer to "sellers" of the product, certain states have extended the protections of the statute to licensees, lessees, and other entities within the chain of distribution.

Many of these statutes have specific requirements that the seller must meet in order to take advantage of the protections of the statute. The most common requirement is that the identity of the manufacturer of the product be known, and in many cases, the statute requires the manufacturer to be a party to the lawsuit. These types of requirements ensure that the injured party has a remedy, while passing along the costs and burden of litigation to the manufacturer. At the outset of the case, analyze the applicable state's statutes to determine the requirements that must be met prior to moving for dismissal. To streamline the process, consider whether the best method of meeting the requirements is via responsive pleading, affidavit, or initial discovery responses and disclosures.

Another issue to consider is the whether the statute provides protection for all types of claims or only certain claims. In Illinois, the seller's exception statute provides protection from only strict liability claims but allows a plaintiff to proceed with negligence and breach of warranty theories. 735 ILCS 5/2-621. In Indiana, all product liability claims are barred unless the seller is also the manufacturer of some or all of the product. Burns Ind. Code Ann. 34-20-2-3.

Additionally, most seller's exception statutes have exceptions. One common exception is where the manufacturer cannot be sued. The manufacturer may not be subject to jurisdiction, may be out of business, or may be unable to satisfy a judgment. In these cases, some states simply allow the seller to be sued, like Illinois' statute. In Indiana and Colorado, where the manufacturer cannot be sued, the seller may only be held liable where it is the primary seller of the manufacturer's product. Burns Ind. Code Ann. 34-20-2-4; C.R.S. 13-21-402(1).

A second common exception is where the seller knew or should have known the product was defective, participated in the design of the product, or negligently assembled or altered the product. E.g., Md. Code Ann., Cts. & Jud. Proc. § 5-405(b); 735 ILCS 5/2-621(c)(1)-(3). When the plaintiff's complaint makes allegations that the seller engaged in conduct that affirmatively caused the occurrence (other than simply placing the product into the stream of commerce), obtaining early dismissal may be difficult. In these cases, the seller may be able to certify by affidavit or declaration that it did not engage in the alleged conduct, which should shift the burden to the plaintiff to prove otherwise. However, if the seller moves to dismiss on this basis at the outset of a case, the plaintiff may have an opportunity to depose the seller's representative prior to initial discovery and development of case facts. This may not be a problem if your client's role in the chain of distribution is simple; if your client's role is more complicated, it may be worthwhile to wait until after written discovery and the plaintiff's deposition have been completed. This will help ensure that key facts that may impact liability are known prior to your client giving a deposition.

Lastly, consider whether the seller is a forum defendant and whether, if that defendant were dismissed, the case would be removable to federal court on the basis of diversity jurisdiction. In such cases, determine whether the statute provides a basis to definitively argue that the seller was fraudulently joined to defeat diversity jurisdiction; some states, like Colorado, specifically crafted their statutes with this goal in mind. See Carter v. Brighton Ford, Inc., 251 P.3d 1179, 1186 (discussing statutory history).

Practice points:

  • Determine which state's law applies to the claims against your client and then determine if that state has a seller's exception statute;
  • Determine whether the exceptions to the statute might apply;
  • Identify the requirements for obtaining protection of the statute;
  • Determine the best way to meet the requirements: responsive pleading, affidavit, written discovery, etc.;
  • Decide whether there are any disadvantages to moving for dismissal at the outset of the case; and
  • File the appropriate papers.

Rachel S. Nevarez is with Wiedner & McAuliffe, Ltd., in Chicago, Illinois.


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