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From Products Liability Law Daily, May 4, 2017

Michigan’s law on punitive damages applied to design defect claims against Ford

By Susan Engstrom

Michigan law, which does not permit the recovery of punitive damages in products liability cases, governed design defect claims brought against Ford Motor Company by an individual who was injured in a collision in Mississippi while driving a Ford Explorer, a Michigan federal court ruled. Contrary to the driver’s contention, Mississippi—which allows punitive damages—had only a slight interest in having its law applied in this case. Michigan, in contrast, had a substantial interest in applying its ban on punitive damages because Ford is one of its corporate domiciliaries and the state has a predominant interest in protecting the economic health of the companies that conduct business within its borders (Gaillet v. Ford Motor Co., May 3, 2017, Edmunds, N.).

The plaintiff, a Mississippi resident, was driving a 1992 Ford Explorer in Mississippi when he lost control of the vehicle and crashed, sustaining serious injuries as a result. He alleged that the accident occurred because Ford defectively designed the Explorer. He asserted claims for strict liability, negligence, negligent failure to warn, and breach of warranty, and sought punitive damages based on Ford’s allegedly willful, wanton, and reckless disregard for his rights.

Ford is incorporated in Delaware, and its principal place of business is in Michigan. It designed the 1992 Explorer in Michigan and manufactured it in Kentucky. The company does not manufacture any vehicles in Mississippi and does not directly service its vehicles in that state. However, it sells a substantial number of autos to independent dealerships in Mississippi, including Ford Explorers, and provides new vehicle warranties to vehicle owners in that state.

The driver originally filed suit in a federal court in Mississippi, but that court transferred the case to the Michigan federal court "in the interests of justice." In the instant case, the driver sought application of Mississippi law, which permits the recovery of punitive damages in products liability cases, but Ford argued that the court should apply Michigan law, which does not.

Personal jurisdiction. Had the case been transferred to cure Mississippi’s lack of personal jurisdiction, then Michigan’s choice of law framework would automatically apply. However, because the Mississippi court expressly declined to address whether it had personal jurisdiction over Ford, the Michigan court was required to resolve that issue before undertaking a choice of law analysis.

Because the driver’s injuries and the damages allegedly caused by Ford’s product had occurred in Mississippi, Ford fell within that state’s long-arm statute. However, the driver failed to satisfy the "due process" requirement, which provides that a court may exercise jurisdiction over a nonresident defendant only if the defendant has certain minimum contacts with the forum state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.

Although the driver presented facts establishing that Ford had minimum contacts with Mississippi (e.g., its sale of Explorers to independent dealerships in that state, its admission that it advertised its products nationally, and its provision of new vehicle warranties and service bulletins to owners and dealerships in Mississippi), he failed to establish that his claims arose out of, or resulted from, those contacts. First, the vehicle involved in the accident was not among those that Ford had sold to independent dealerships in Mississippi. Rather, it was distributed to an independent dealership in Georgia and brought into Mississippi by a family member. Second, the driver failed to demonstrate that his claims arose out of, or were related to, Ford’s advertisements. Third, he did not allege that his Explorer was supposed to be serviced or was insufficiently serviced under the services Ford provided in Mississippi. Accordingly, Mississippi lacked jurisdiction over the company.

Choice of law analysis. Because Mississippi could not exercise jurisdiction over Ford, the Michigan court was required to apply Michigan’s choice of law rules. The Michigan Supreme Court has held that Michigan courts should apply Michigan law unless there was a "rational reason" not to. To decide whether a rational reason exists, a court first must determine if any foreign state has an interest in having its law applied. If no state has such an interest, the presumption that Michigan law will apply cannot be overcome. If a foreign state does have an interest, the court must determine if Michigan’s interests mandate that Michigan law be applied, despite the foreign interests.

In this case, Mississippi did have an interest in having its punitive damages law applied because the driver was a Mississippi resident and the accident had occurred in that state. However, Michigan’s interest was greater than Mississippi’s, thus necessitating the application of Michigan law. Most importantly, Michigan had a substantial interest in applying its ban on punitive damages because Ford is one of its corporate domiciliaries. As explained by another judge, Michigan bans punitive damages in products liability cases in order to induce companies to conduct business in Michigan, to protect the economic health of those companies, and to further the economic well-being of the entire state. Ford employs many of Michigan’s residents and brings substantial revenue to the state both directly and indirectly through sales and taxes.

Michigan’s interest in this case was strengthened by the fact that much of the alleged misconduct had occurred in Michigan—e.g., the allegedly wrongful design, manufacture, assembly, and sale of the Explorer. Mississippi, on the other hand, had only a slight interest in having its law applied. Even if the injury’s occurrence in Mississippi gave that state some interest, it was not significant.

In addition, the policy underlying Mississippi’s law on punitive damages was not strongly implicated. Mississippi permits punitive damages in order to punish a defendant’s wrongdoing and to deter others from committing similar offenses. A state’s interest in punishing a defendant and deterring future misconduct is far less when, as here, the defendant is a non-resident.

In sum, this was not a case in which Mississippi had a significant interest and Michigan had only a minimal interest in the matter. Thus, the court predicted that Michigan’s high court would find no rational reason for displacing Michigan law. As such, Michigan’s law on punitive damages governed the action.

The case is No. 16-13789.

Attorneys: Craig E. Hilborn (Hilborn & Hilborn, PC) for Dan Gaillet and Bethany Gaillet. Elizabeth A. Favaro (Bowman and Brooke LLP) for Ford Motor Co.

Companies: Ford Motor Co.; XYZ Co.

MainStory: TopStory JurisdictionNews MotorVehiclesNews MichiganNews MississippiNews

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