Recreation Law Center: Are you offering a Product or a Service? It Makes a BIG Difference

Susana Ontiveros v. 24 Hour Fitness Corporation, 2008 Cal. App. Lexis 2445.

Almost all recreational or adventure activities involve the use of a product.  In many cases, the product is used in a challenging environment, under challenging conditions (climbing harness, raft, avalanche beacon, skis, helmets, crampons, etc.).  You may think that because you are not a product manufacturer, you do not have to worry about "products liability."  However, if your organization provides, rents or sells products for use by participants in your program you will be interested in the case discussion which follows.  The issue is whether, in offering your program or activity, you are sufficiently in the chain of distribution of a product (as opposed to merely providing a service) to expose your organization to a suit for strict products liability, with all its dangerous ramifications.

Susana was injured while using a stair step machine at a fitness center owned and operated by 24 Hour Fitness ("24 Hour"). She claimed that both steps of the machine collapsed, causing her to fall to the floor. She sued 24 Hour, asserting claims of premises liability and strict products liability in her effort to find them responsible for her injuries. 24 Hour then filed motions for summary judgment on both counts.  The trial court granted both motions and dismissed the suit. Specifically, the trial court dismissed the strict liability claim finding that Susana had acknowledged in her membership agreement that 24 Hour could not be held liable for defective exercise equipment and that 24 Hour provided "recreational services."

 Susana appealed the dismissal of the strict products liability claim, arguing that there were fact issues (not disposable by summary judgment) as to whether the "dominant purpose" of the membership agreement was the use of machines or fitness services.  The membership agreement signed by Susana gave her access to a variety of machines, fitness classes and testing services (blood pressure, weight loss, etc.).  All these were available at the Center where she was hurt. According to Susana, she joined to lose weight, and intended to do so solely by the use of the machines – not classes or testing.  24 Hour claimed that it was not in the chain of distribution of the "...allegedly defective exercise equipment which caused her injury" and that, in addition, Susana had signed a membership agreement waiver acknowledging that 24 Hour "...was providing "recreational services" and could not be held liable for a defective product."

Interestingly, the Appeals Court could not discern the basis for the lower court's dismissal of Susana's strict liability claim – that is, whether the court looked to the membership agreement as a waiver of Susana's strict liability claims, or simply as evidence that the agreement was one for services.  Since the parties had argued to the court about the application of strict products liability, the Appeals Court chose to affirm the dismissal on that basis.  The Appeals Court held that the dominant purpose of the membership agreement was the provision of services – NOT the use of the machines on the premises, and therefore, 24 Hour was not subject to a claim of strict products liability, affirming the lower court’s dismissal. 

Discussion

  • Significance of strict liability claim:

Why is a products liability claim significant?  Product defect cases, if successful, can prove debilitating for manufacturers and others in the chain of distribution because it is essentially liability without "fault" in the event it is proven that the user was injured by a defective product.

Product "sellers" are generally those individuals or entities in a product's chain of distribution, including product manufacturers, distributors, retailers or dealers.  The doctrine has been extended to lessors, because they are logically found to be in the chain of distribution as well.  All of those within this chain of distribution are considered sellers of the product, because they have dealt with the product in the chain of commerce leading to the ultimate consumer.    

Under traditional products liability law, a user can assert a claim against the seller in three ways.  The user can claim that the specific product is defective; the entire product line was defectively designed; or the seller failed to warn or instruct (regarding the product).  Many times, a user claiming injury or damage resulting from the use of a recreational product will assert more than one basis for a claim against a seller (e.g. defective design and failure to warn).  Compounding this confusion, these multiple allegations can be wrapped into any one (or sometimes all) of three general products liability legal theories and stated as claims or counts in a lawsuit complaint.  These three theories of liability include negligence, strict liability, and breach of warranty. 

Susana sued only for strict products liability – not for any other form of negligence, or contract breach.  These authors guess that her attorney may have advised her that a breach of contract or negligence claim would be barred by the waiver provisions in the membership agreement – and hence why she stuck with premises and strict liability claims.  However, these authors wonder why – if she was serious about a strict liability claim, she did not add the manufacturer of the equipment as a defendant?  Maybe plaintiff's counsel was looking for a quicker, less expensive way to attempt a products liability claim.

  • "Dominant Purpose" test:

24 Hour was not a traditional seller (manufacturer, retailer, distributor), so, you might wonder why there was even a question about strict products liability? Well, the courts have developed the "dominant purpose" test to deal with gray areas, where sometimes non-traditional sellers may allow use of the product in such a way that they should be considered in the chain of distribution and thus subject to strict liability claims.  Essentially, the product (or use of it) must be the "essence" or the primary objective of the transaction.  If the transaction involves the provision of services, the court will look to the "dominant purpose" of the transaction, to determine if products liability should apply. 

A good example provided by the court was in the case of Garcia v. Halsett, 3 Cal.App.3d 319 (1970).  In that case, plaintiff was injured while using a washing machine in a laundromat.  Although the laundromat did not sell or distribute the product (a washer) to the plaintiff, the court determined that the essence of the transaction (dominant purpose) was plaintiff's use of the washer.  As a result, the court held that the Laundromat was in the chain of distribution and thus strictly liable for injury resulting from a proven product (washer) defect.  Alternatively (like Ontiveros), the court in Ferrari v. Grand Canyon Dories, 32 Cal.App.4th 248 (1995), found that the dominant purpose of its transaction with the injured plaintiff was its service in providing the rafting trip (versus use of a raft in conjunction with the trip). 

Even where a product is sold to a plaintiff – if a service is involved, the court will look to the dominant purpose of the transaction in considering application of strict liability principles (see, e.g., Murphy v. E.R. Squibb & Sons, Inc., 40 Cal.3d 672 (1985), pharmacist who sold drug to plaintiff was primarily providing a service and not a product, and thus, strict products liability claim did not apply to them).  Note that traditional strict products liability principles generally apply to sellers engaged or "regularly engaged" in the business of selling or leasing a product (See Restatement (Second) and (Third) of Torts and many states' strict products liability statutes).  This may explain the justification for and development of the dominant purpose test.

Interesting in the Ontiveros court's discussion is its determination that the objective terms of the parties' membership agreement, rather than Susana's subjective intent (or even what she was doing when she was hurt), governed its determination of the dominant purpose of the transaction.  Susana was actually using equipment when she was hurt, and further claimed that her sole purpose in using 24 Hour's facilities was to access the equipment, and not its services (consultants, classes, etc.).

  • Waiver of strict liability claims:  

Note that the Appeals Court did not base its holding on Susana's purported "waiver" of strict liability claims against 24 Hour.  Instead, the Appeals Court based its affirmed dismissal on the application of strict products liability to the facts of the case – finding that the dominant purpose of the transaction was a service and not a product.  This was important for the court, because California courts have ruled that claims for strict products liability cannot be waived in a written document.  See Westlye v. Look Sports, Inc., 17 Cal.App.4th 1715 (1993) (many other jurisdictions, besides California, forbid the waiver of such claims).  In fact, Susana had argued on appeal that IF the lower court had ruled to dismiss the strict liability claim based upon the waiver, it was error (citing this California case authority).  24 Hour did not contest her assertion regarding the validity of the waiver of a products claim.  Instead, it hung its hat on the "dominant purpose" test, outlined in California and many states' case law.  Again, work with your legal counsel to understand whether your organization may have strict products liability exposure, and if so, whether this liability can be waived in a written document.

  • Lessons Learned:

If you conduct any sales or rental in your business, consider the potential products liability exposure.  Do you hold used or new gear sales for the general public?  Do you rent gear in your gear shop to folks in the community?  Do you sell new or used gear to participants in conjunction with the provision of services or otherwise?  If so, you should talk with your legal counsel about potential exposure and ways in which you can address or minimize that exposure, considering your jurisdiction's statutes and case law.  You should also check with your liability insurance carrier to assure your organization has insurance in place, considering product use, rental and sale.

On another note, even if you are not a product seller subject to products liability claims, you have real liability exposure if you use products in conjunction with the services you provide.  Claims can include negligent maintenance of equipment, negligent instruction (failure to properly instruct participants on the use of equipment), and allegations of improper use of equipment or modification of equipment.  Your program's attention to the legal and risk management issues associated with using, storing, inspecting, maintaining and replacing equipment is critical to running a quality program.  In addition, it can assist your program in staying (or getting) out of a products liability lawsuit and/or keeping the focus on what is really a products issue.  Work with your legal counsel in addressing these issues.


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