Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Cal. App.: Auto dealership may be strictly liable for defects in vehicle it delivered to consumer, (Dec 4, 2013)

By Kathleen Bianco, J.D.

A California court of appeals ruled in an unpublished opinion that an automobile dealership that inspected and delivered a new vehicle sold by its franchisor could be held strictly liable as the last link in the distribution chain moving the product to the consumer (Ibarra v. Todey Motor Co., Inc., December 2, 2013, Perren J.).

Background. From 1991 to 2009, Todey Motor Co., Inc. operated as a franchised dealer of Chevrolet vehicles in Southern California. In April 2000, Todey received, inspected, and delivered a 2000 Chevrolet C3500 Crew Pickup truck to a General Motors (GM) national account customer that had purchased the vehicle directly from GM. The truck was subsequently purchased by plaintiff Fernando Ibarra’s employer. In 2008, Mr. Ibarra was paralyzed in a rollover accident while driving the truck. Mr. Ibarra and his wife filed claims against Todey for strict liability, negligence, breach of warranty, and loss of consortium based on alleged design and manufacturing defects in the vehicle, including issues with the seatbelts. Todey challenged the claims, arguing that it had not placed the vehicle in the stream of commerce, had no duty to detect the alleged defects during it pre-delivery inspection, and was not liable for breach of warranty because it did not sell the vehicle. The Ibarras asserted that California law holds franchisees strictly liable for products they distribute and alleged that Todey had a duty of ordinary care when inspecting the vehicle. A trial court granted summary judgment in favor of Todey, finding that because the dealer had not sold the vehicle, it had not placed the vehicle into the stream of commerce. The Ibarras appealed the judgment as it related to the strict liability and negligence claims.

Strict liability. The doctrine of strict liability, which insures that the cost of injuries resulting from defective products is borne by the “overall producing and marketing enterprise,” applies to all entities in the vertical chain of distribution. Even though the defendant dealership did not sell the vehicle from its own stock and invoice the manufacturer for its cost, it still played a role in moving the vehicle from its franchisor to the consumer. Moreover, it benefitted from servicing the national account customers through vehicle service and maintenance. The appellate panel determined that this was enough to expose the defendant to strict liability as “part of the overall marketing enterprise” for new vehicles delivered through the dealership. As such, summary judgment was not warranted on the strict liability and loss of consortium issues.

Negligence. The plaintiff’s negligence claim was properly decided in favor of the defendant because the plaintiff failed to raise a triable issue of material fact regarding the alleged breach.

The case number is 2d Civil No. B242386.

Attorneys: Garo Mardirossian (Mardirossian & Associates, Inc.); Jeffrey Isaac Ehrlich (The Erhlich Law Firm) for Ibarra. Vincent Galvin, Jr. (Bowman and Brooke) for Todey Motor Co., Inc.

Companies: Todey Motor Co., Inc.

Cases: FranchisingDistribution CaliforniaNews