California Finds Distributor Liability for Downstream Entity’s Defective Assembly

On October 26, 2022, the California Fourth District Court of Appeal issued its published decision in Defries v. Yamaha Motor Corporation, U.S.A, which reversed a jury finding of no liability against a defendant who distributed a product that was improperly assembled by another party, and caused injury to the plaintiff. The Court of Appeal held that a distributor selling a non-defective unassembled product is liable for the defective assembly by an authorized dealer.

What Happened?

Plaintiff Chad Defries (“Defries”) suffered injuries while riding a Yamaha dirt bike when a handlebar component slipped. Defries alleged negligence and breach of implied warranty claims against Defendant Yamaha Motor Corporation, U.S.A. (“Yamaha”). Yamaha denied any negligence, arguing that it sent a non-defective, unassembled product to an authorized dealer to assemble and sell. Notably, Yamaha argued that its duty ended when the non-defective product left its control, and the authorized dealer’s assembly was the source of the product’s defect. Although he bought the dirt bike from a Yamaha authorized dealer, Defries alleged that Yamaha had a nondelegable duty to ensure the proper assembly of the product.

The trial court denied Defries’ request to include a nondelegable duty jury instruction. The jury found for Yamaha. The court also denied Defries’ motion for a new trial, and he appealed.

What Did The Court of Appeal Say?

The Court of Appeal found the trial court erred in denying Defries’ motion in light of its error in denying his request for the nondelegable duty jury instruction.

The Court held that if an authorized dealer negligently assembled a product, then the distributor could be found negligent. Finding support from Dow v. Holly Mfg. Co. (1958) 49 Cal.2d 720 and Vandermark v. Ford Motor Co. (1964) 61 Cal.2d 256, the Court explained that withdrawing the strict liability claim did not preclude finding Yamaha negligent due to the alleged negligence of the authorized dealer. The Court indicated that the plaintiff’s burden would be to prove the negligent assembly by the authorized dealer in order to find a distributor liable under a negligence theory.

The Court also found Yamaha had a nondelegable duty under an agency relationship between the distributor and authorized dealer. The Court noted that an agency relationship existed, thereby creating liability because the distributor authorized the dealer to assemble its product. Notably, the Court explained that such a rule encourages upstream entities to make certain of the proper assembly of its products in the market, even after it leaves the distributor’s hands.

Conclusion

The Defries v. Yamaha Motor Corporation, U.S.A. holding will likely change California’s product liability landscape. Upstream entities, including manufacturers and distributors, could be found negligent for the improper assembly of their products by an authorized dealer. The case also stands for the proposition that a plaintiff does not have the burden of discovering and proving which entity in the supply chain is responsible for the defective product. For example, when it is alleged that an authorized dealer improperly assembled a consumer product, it would be up to the manufacturer, distributor, or another upstream entity to argue that it did more than just provide a non-defective unassembled product.

Based on this decision, any upstream entity would seemingly be required to take an extra step to ensure proper assembly of a product, which would be difficult or nearly impossible to do. For this reason, to protect an upstream entity within the supply chain, we suggest (in any contract between the upstream entity and authorized dealer/assembler who would assemble the product) strong defense and indemnity language, and language that would require the upstream entity to be named as an additional insured on any insurance policy of the authorized dealer/assembler of the product.

If you have additional questions about this case and the appropriate contract language for upstream entities within the supply chain, please  contact Michael T. McCall.

Hira Yoshihara-Saint contributed to this article.