Saturday, January 13, 2007

Mirchandani v. Home Depot USA, Inc. (Maryland U.S.D.C.)

Decided January 11, 2006--Opinion by Magistrate Judge Beth P. Gesner.

Products liability claim by a consumer against a retailer for injuries suffered as a consequence of using an allegedly defective ladder sold by the retailer. The retailer, Home Depot, moved for summary judgment based on the "sealed container defense" which provides that a seller of a product may avoid liability for property damage or personal injury allegedly caused by the defective design or manufacture of a product if it can establish that:

(1) The product was acquired and then sold or leased by the seller in a sealed container or in an unaltered form;

(2) The seller had no knowledge of the defect;

(3) The seller in the performance of the duties he performed or while the product was in his possession could not have discovered the defect while exercising reasonable care;

(4) The seller did not manufacture, produce, design, or designate the specifications for the product which conduct was the proximate and substantial cause of the claimant's injury; and

(5) The seller did not alter, modify, assemble, or mishandle the product while in the seller's possession in a manner which was the proximate and substantial cause of the claimant's injury.

Md. Code Ann. Cts. & Jud. Proc. §5-405(b).

There are several exceptions to the sealed container defense as follows:

(1) The manufacturer is not subject to service of process under the laws of this State or the Maryland Rules;

(2) The manufacturer has been judicially declared insolvent in that the manufacturer is unable to pay its debts as they become due in the ordinary course of business;

(3) The court determines by clear and convincing evidence that the claimant would be unable to enforce a judgment against the product manufacturer;

(4) The claimant is unable to identify the manufacturer;

(5) The manufacturer is otherwise immune from suit; or

(6) The seller made any express warranties, the breach of which were the proximate and substantial cause of the claimant’s injury.

Md. Code Ann. Cts. & Jud. Proc. §5-405(c).

The Court denied Home Depot's motion for summary judgment and held that:

(1) Home Depot had participated in a recall of a similar ladder by the same manufacturer and other accidents continued to be reported to Home Depot after the recall. Because the sealed container defense does not apply where the seller could have discovered the defect by "exercising reasonable care" while the product was in the seller's possession, there are genuine issues of material fact as to whether Home Depot could have discovered a defect in the ladder at issue in this case, the third element of the sealed container defense.

(2) The manufacturer had filed for bankruptcy. In that proceeding, the Bankruptcy Court converted the bankruptcy from a reorganization case under Chapter Eleven to a liquidation case under Chapter Seven. The Court found that "there is a genuine issue as to whether the effect of the bankruptcy order [converting the proceeding from a Chapter Eleven to a Chapter Seven] was a judicial declaration of insolvency based on a finding that [the manufacturer] was unable to pay its debts as they become due in the ordinary course of business. The clear import of the court's actions supports such a finding." Furthermore, "there is no indication that the availability of insurance proceeds to satisfy a judgment against the manufacturer has any bearing on the application of the sealed container defense."

The opinion is available in PDF. The order is available here.

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