Business

Outsourced Products = Home Grown Lawsuits

pO157.

Posted to Business on Thu Jul 05, 2007 at 04:02:08 PM EST (promoted by port1080). RSS.

Mega corporations love subcontracting out to China, despite the allegations of human rights violations, corruption, repressive government, massive death from environmental shenanigans. However, there is danger of a new kind of blowback from subcontracting... product liability lawsuits.

Chinese subcontracting appears a 'no brainer' to executives looking to drop prices 30-50% and pick up a tidy profit. There are even entire institutes set up to advise corporations how to best maximize cheap labor and costs overseas to save money in all industries.

However, these arrangements have sometimes gone south for the importers. A recent disaster occurred in which tons of pet foods brought in from China were contaminated with melamene (a compound added to fake the appearance of extra protein in animal feed, allegedly a common practice in China) and supposedly killed thousands of cats and dogs. This scandal expanded and it was later claimed that human foods and medical products were also tampered with.  

All of this has dumped stacks of homemade lawsuits on the heads of the US importers. Menu Foods, who was front and center in the pet food scandal, is currently facing over 100 class action lawsuits. In addition, retailers who purchased their stock from the importer are facing claims as well.

Importers and retailers could become increasingly liable for the mistakes and recklessness of the Chinese producers. According to William Audet, a lawyer from San Fransisco, "For most states there's a duty on the seller to distribute a product that doesn't have poison in it."

This has already been observed in the case of Foreign Tire Sales, a NJ based operation with 16 employees. A regioanl tire empire build single handedly by its current owner after 38 years of hard labor, FTS is heading to bankrupcy after being forced to recall almost half a million tires due to the alleged negligence of their Chinese Partner: Hangzhou Zhongce Rubber. The tired produced by HZR allegedly caused the deaths of innocent people. Pending lawsuits against HZR have remain unanswered by the company and it is unclear whether a default judgment could even be enforced against a company with no US assets.

Civil actions by US citizens in Chinese courts would be pointless and are completely unheard of. Until greater accountability occurs for China's exporters it is likely that importers and retail merchants will be left holding the bag for damages.

Tags: edited by Port1080, written by pO157, William Audet, lawsuit, law, claim, court, China, Human Rights, Business, dog food, product tampering, melamine, cat food, pets, Foreign Tire Sales, San Fransisco, Hangzhou Zhongce Rubber, melamene, law suit, Import, Export, Menu Foods, outsourcing, subcontracting, death, toothpaste, manufacturing, shipping, freight, ChiComm (all tags)

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1

Re: Outsourced Products = Home Grown Lawsuits

jwb.

Thu Jul 05, 2007 at 05:09:40 PM EST

4.00 (interesting)

The liability faced by these corporations is negligible.  Because all the manufacturing and shipping have been outsourced to overseas parties, the US corporations who import these goods have practically no assets.  Their assets consist of inventory on hand, net accounts receivable, and short term cash balances.  Profits are distributed to the shareholders as soon as possible.

A corporation is a limited liability entity, which means that only the corporation's assets are at risk.  None of the shareholders or directors put their own assets at risk.  So if you sue one of these virtual companies, you are going to get a virtual payout.  As most you'll be able to recover the book value of the enterprise -- in other words, however much you can get at auction for the typewriters and filing cabinets.

Unless a court finds them personally liable, the shareholders and directors of these corporations will be able to just fold their current operations, file new documents reorganizing the company under a different name, and start over.

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Re: Outsourced Products = Home Grown Lawsuits

zyxwvutsr.

Thu Jul 05, 2007 at 07:29:04 PM EST

none

A corporation is a limited liability entity, which means that only the corporation's assets are at risk.  None of the shareholders or directors put their own assets at risk
That's not true: if there is a judgment in a lawsuit against a corporation then the value of the stock will be affected by it. If a judgment is so large that it drives the corporation into bankruptcy, then the stock could become worthless.
Unless a court finds them personally liable, the shareholders and directors...
Why should they be held personally liable? If they broke a law then they should be criminally prosecuted. But if they were not breaking the law why should they be personally accountable?

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Re: Outsourced Products = Home Grown Lawsuits

jwb.

Thu Jul 05, 2007 at 07:36:34 PM EST

none

I'm not saying they should be held accountable.  I'm saying that suing a corporation with no assets is pointless.

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Re: Outsourced Products = Home Grown Lawsuits

zyxwvutsr.

Thu Jul 05, 2007 at 08:51:52 PM EST

2.00 (illiterate)

Some sensible tort reform would certainly help, don't you think?

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Yes indeed

Lou.

Thu Jul 05, 2007 at 09:29:11 PM EST

none

Some sensible tort reform would certainly help, don't you think?

It would be a great help to those who want to sell defective shit.

It's the end of the world as we know it, and I feel fine

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Re: Yes indeed

zyxwvutsr.

Thu Jul 05, 2007 at 09:36:29 PM EST

none

It would be a great help to those who want to sell defective shit
It wouldn't make a bit of difference to a company that wanted to sell defective products. Such an enterprise would have been set up from the get-go to shield its investors assets from lawsuits.

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Re: Outsourced Products = Home Grown Lawsuits

gerrymander.

Thu Jul 05, 2007 at 09:27:29 PM EST

none

if there is a judgment in a lawsuit against a corporation then the value of the stock will be affected by it.

And if enough lawsuits drive down stock prices, eventually corporate culture will start to consider Chinese companies as not worth the trouble of doing business with.

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Re: Outsourced Products = Home Grown Lawsuits

pO157.

Thu Jul 05, 2007 at 09:13:21 PM EST

none

Someone always holds the bag though, right? At the end of the chain (assuming a completely 100% internet only merchant who still would have a warehouse and logistics supply chain unless he rented) there would have to be bricks and mortar property to sell the tainted garbage.

Of course, that is possibly a mom & pop joint like in the tire example.

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Re: Outsourced Products = Home Grown Lawsuits

jwb.

Thu Jul 05, 2007 at 09:53:04 PM EST

4.00 (astute, interesting)

I happen to think that the retailers should be the ones on the hook.  The retailers are the ones who marketed the goods and warranted their suitability for the stated purpose.  If you go to a tire store and buy tires, there is an implied expectation that you are, in fact, getting a product which is suitable and safe for use as a tire.  The same goes for toothpaste and cat food and the rest.

The first recourse of the consumer should be against the retailer.  Then the retailer can go after their supplier or the manufacturer directly.  Of course in this case we see that suing the Chinese in China is fruitless, which should eventually have the result that retailers stop carrying Chinese goods.

But the first step is for consumers to hold the retailers accountable for selling unsafe products.

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Re: Outsourced Products = Home Grown Lawsuits

WMK.

Fri Jul 06, 2007 at 12:46:33 PM EST

5.00

I agree that the retailer should be held responsible.

In selecting products to sell to customers they have some obligation to make reasonably sure that the products are suitable and safe for use as intended (i.e. the cat food you bought to  feed your cat with feeds the fucking cat and doesn't kill it).  It seems to me that lawsuits are just another facet of the loving and benevolent invisible hand of the market that capitalists say they love.  A bruising lawsuit delivers the sharp correction needed to a business that has forgotten its responsibility to satisfy the requirements of its customers, and the risk of being severely punished for negligent behavior is supposed to supply a motive for businesses to choose their suppliers/partners wisely.

This all assumes that killing your customers cats (or dogs, or the customers themselves) is in any way illegal to begin with.  In a true free market paradise a food seller who sells poison would eventually be forced out of business without any lawsuits or law enforcement action against that business because the word of mouth about 'eat this guys stuff and you'll die' would get around to whatever customers were left alive and eventually nobody would buy his poison.  That correction assumes the potential customers could easily identify 'Mr. Poison' brand food products and avoid them.  That leads right into nasty old regulations and laws again - labeling laws for ingredients and disclosure of origin for ingredients and so on and so forth driving up the costs of everything. Pretty soon someone will propose making it illegal to kill your customers too - don't these people have any respect for the power of the market?

I see the lawsuit as a way of achieving the desired result of compelling a business to be somewhat careful about how they behave towards customers FASTER than waiting for an unregulated market to render its correction.  Making sure the business that is in closest proximity to the customer in the chain of consumption is liable for product safety ensures responsible conduct by retailers and sets the market for suppliers.

This CHINA is teh CHEAP frenzy for fast-bucking US businesses playing supplier roulette has played out to a logical result - dead pets and potentially injured people.  The Chinese operate their form of capitalism without much in the way of regulation - a general principle of 'get it done as cheap and quick as possible' is in constant effect - at least until a major scandal causes the powerful to be embarrassed - then someone gets blamed and executed.  That someone gets held accountable and then killed for their mistake (embarrassing the leadership) thus serving as a warning to his replacement is nice and everything but it still doesn't amount to requiring food producers to certify they aren't poisoning their customers.

My hope is that we can expect to see food products/ingredients coming from places like china to be clearly labeled so that consumers have a chance to decide for themselves what risks they want to take with the lives of their loved ones.  Right now - I don't really know what a person can do to make informed choices about WHERE the stuff they are about to eat came from.

"...when theft and high crime becomes obscenely obvious to even the blindest beer sucking idiot, it is always the Republicans who are in office." -- Joe Bageant

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Re: Outsourced Products = Home Grown Lawsuits

zyxwvutsr.

Tue Jul 10, 2007 at 05:18:10 PM EST

4.00 (informative)

...suing the Chinese in China is fruitless
What you have to do with China is embarrass them. Eventually they'll punish the guilty in their own inimitable fashion.

You won't get a big lawsuit award, of course. But if your goal really is to ensure product safety then that shouldn't matter to you.

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Re: Outsourced Products = Home Grown Lawsuits

joshv.

Fri Jul 06, 2007 at 03:49:46 PM EST

none

Sure, if the consumer is willing to pay 50-100% more to finance the due dilligence required to ensure that all products the retailer sells are safe.  

I mean seriously - are you kidding me?  Sure, the retailer can send out a contingent to inspect a plant before it signs a contract, but how does it make sure that things at the plant don't change?  Or that the supplier doesn't change plants, or hire new subcontractors?  

It's virtually impossible for a retailer to ensure that all the products it sells are safe and fit for their intended purpose.  To require them to be held legally responsible for product failures is ludicrous.  You thought our courts were glutted with nuisance lawsuits now?  Just make Walmart liable for the catfood it sells and sit back and wait for the legal system to collapse under the weight of "you killed my Fluffy" lawsuits.

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Re: Outsourced Products = Home Grown Lawsuits

WMK.

Mon Jul 09, 2007 at 10:22:54 AM EST

5.00 (astute)

So a consumer can have cheap or safe but not both?

I mean seriously - are you kidding me?

I'm serious - I'm not kidding you.  

A retailer could easily set a policy that they will only buy products from manufacturers who offer some guarantee of quality assurance/product safety AND assume some measure of liability if they fail to live up to that agreement (which could all be made enforceable with the right trade agreement).   A retailer held liable to consumers for the damage inflicted by stocking its shelves with poison instead of wholesome food products would make sure they had 'done their homework' with respect to selecting reliable suppliers who make the effort to not screw up.  Or if retailers should just be allowed to put anything on their shelves without any obligation to guard public safety Chinese products should at least have a big red, white & black label saying 'WARNING Made in China - Caveat Emptor! - we offer no guarantee that these products are safe to eat, touch, or consume in any way - you get the product safety you pay for and when you buy Chinese you get none'.

Which party is responsible for product safety when transacting for foodstuffs?   The seller or the buyer?  If it is the buyer then how many poisonings does it take before the market 'corrects' and the poison seller can't find any more customers because they are either dead or wised up?  Does mass marketing poison as being 'Safe to eat and delicious...your Cat/Dog/Child will love it' change the overall speed/chance that people will wise up and stop buying it?  What laws regarding consumer safety do you agree with?

 To require them to be held legally responsible for product failures is ludicrous.  Just make Walmart liable for the catfood it sells and sit back and wait for the legal system to collapse under the weight of "you killed my Fluffy" lawsuits.  

I strongly disagree.
If they were liable they would be compelled out of self interest to take effective measures in ensuring their suppliers produced products that did not generate a crushing wave of 'you killed my Fluffy' lawsuits.  If they sell safe products then there are no lawsuits - no harm, no foul, commerce is conducted, sellers and buyers happily profiting and consuming in a retail paradise - or something.  If something very occasionally goes wrong, a big business could have insurance against a lawsuit payout - or at least impress a jury with their recorded regimen of good sense efforts to protect public safety (via vetting their suppliers) along with the option of determining the manufacturer/suppliers culpability and recouping damages in court.  If the business intentionally poisons its customers - like Tobacco - should they ever be held responsible or are the consumers to blame for being a bunch of dumbasses  who chose to poison themselves either knowingly or unknowingly?

Lawsuits are not just a 'nuisance' - even when it is a 'you killed my fluffy' case.  They serve a vital corrective purpose when trying to balance consumer welfare with company profits.  In an environment where many instances of consumers being injured by businesses occurs the problem is NOT the there are too many lawsuits, it is that the business practices are unsafe.  Provide incentive to increase safety to 'reasonable' levels and the number of legitimate lawsuits will decrease.  The problem isn't that some people want to abuse the system with silly bullshit attempts to use lawyers to chisel money out of corporations - the problem is that corporations all too often engage in practices that injure their customers.  

The guy who ate 5 big macs a day for 20 years and is suing McDonalds because he is fat and has medical problems is a cartoonish example of how the system is abused.

Thousands of pet owners whose pets get killed by poison food sold by big retail stores suing the retailers is exactly what the ability to litigate is all about - it compels corrective action and punishes negligence hopefully resulting in fewer incidents in the future.  It ultimately helps everyone.

"...when theft and high crime becomes obscenely obvious to even the blindest beer sucking idiot, it is always the Republicans who are in office." -- Joe Bageant

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Re: Outsourced Products = Home Grown Lawsuits

thefadd.

Mon Jul 09, 2007 at 02:17:20 PM EST

4.00 (interesting)

I just don't think it's feasible to enforce this on the retailer. Firstly, you'd be just BEGGING to destroy mom and pop in favor of Wal-Mart and that isn't even the real issue. Certainly retailers have to do certain homework on their suppliers and they have to pull things as soon as they find out its bad. But their liability genuinely ends there. The rest of the liability really belongs on the supplier and/or manufacturer. Retailers are pushed around the suppliers and manufacturers all the time. The profit margins of your average major clothing or food retail chain are in the 2-5% range. These are miniscule compared to the much larger profit margins (frequently in the 10-50% range) of suppliers and manufacturers. You would create the kind of instability in the industry that wouldn't be good for consumer safety and put the burden of proof a layer too far from where it should realistically be expected to sit. Food and other federal safety inspectors look at less than 1% of the goods brought into this country. It is a ridiculously atrocious system that (quite typically) a Republican President has allowed to atrophy. This is reason A-1 that Bush is a pussy on terror. Even domestically the system has been allowed to rot. The mechanisms and the systems are known and in place since the public outcry at the turn of the 19th century in reaction to Upton Sinclair's The Jungle. There's no reason to go about revamping a system that has already been proven to work when funded correctly. We've been bringing tea from China for 200 years. The importation of goods simply isn't a new thing somehow deserving of "New Improved Globalized Economy!" scare words.

make it rain you nappy headed ho's

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Re: Outsourced Products = Home Grown Lawsuits

pO157.

Mon Jul 09, 2007 at 02:38:14 PM EST

none

This could be capitalized on by the trade protectionist types in the future. "Buy foreign crap and retailers will go out of business from product liability! Mom & Pop won't be able to pay for their diabetic syphilis medications! ZOMG!"

However, if they only buy from an American distributor or supplier then there is somebody to pass the blame on to. Buy American, not because the job you save would be your own but rather because it is cheaper than product liability insurance!

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Re: Outsourced Products = Home Grown Lawsuits

pO157.

Sat Jul 07, 2007 at 10:27:05 AM EST

none

They already have pretty steep federal criminal penalties for this. However, I assume the whole outsourcing to China and lack of help from corrupt foreign regulatory agencies pretty much moots any chance of bringing the no-talent-assclowns responsible to justice.

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Re: Outsourced Products = Home Grown Lawsuits

jwb.

Mon Jul 09, 2007 at 04:02:16 PM EST

none

I think you seriously misunderstand our system of laws.  Of course the retailer is responsible for ensuring the quality and safety of the products they sell.  It has always been this way.  Nobody can sell you defective tires and then duck responsibility.  There is always an implied warranty that the product is suitable for the normal purpose of such products, conforms to normal standards of quality and safety, and performs all the things that are claimed on the package.  

If Wal*Mart thinks they are not responsible for selling unsafe products, they will eventually find themselves on the wrong side of a lawsuit.

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Re: Outsourced Products = Home Grown Lawsuits

thefadd.

Mon Jul 09, 2007 at 04:21:01 PM EST

none

Retailers didn't pay for Firestone's defective tires, Firestone did. They're a manufacturer. They have some retail stores but independent retailers that sold Firestone tires were never liable...retailers didn't get sued (with any success) in the recent pet food recall, Menu Foods, the distributor did. Most people who sued didn't even think of suing the mom and pop they got the food from -- they went straight to the money. I think you must seriously misunderstand on a general basis.

make it rain you nappy headed ho's

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Re: Outsourced Products = Home Grown Lawsuits

jwb.

Mon Jul 09, 2007 at 06:24:02 PM EST

4.00 (astute)

That's just an optimization.  If people had sued the tire outlets, the tire outlets would have sued Firestone, because the tire shop has the same implied warranty from Firestone that the customer gets from the tire shop.  Moreover, the tire shop has a defense from the lawsuits because they made efforts in good faith to sell quality tires from a major, well-known manufacturer.  It makes more sense for the injured party to have simply sued Firestone.

In this case, the ultimate culprit is not under USA jurisdiction.  Suing the manufacturer becomes impossible.  There's no reason to believe that the tire shop in question was acting in good faith when they started selling Happy Lucky Magnificent Tire Company products.  So why shouldn't the injured party go after them?

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Re: Outsourced Products = Home Grown Lawsuits

thefadd.

Tue Jul 10, 2007 at 07:25:14 PM EST

none

I'll have to remember that rhetorical device next time someone walks rings around my arguments a couple posts in a row, "That's just an optimization." A classic...honestly.

make it rain you nappy headed ho's

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