By: William A. Dreier and Steven A. Karg
October 1999

The recent decision in Port Authority of New York and New Jersey v. Arcadian, ____ F.3d ____ (3rd Cir. 1999) [1999 WL 624590 (3rd Cir. N.J.)] points out some potential pitfalls and planning opportunities in design defect product liability management. The facts in the Port Authority case are unusual, but the principles discussed are of wide application. We must initially state a caveat. We question whether the New Jersey Supreme Court would have reached the same result as the Third Circuit on the issue of whether reasonable foreseeability is an issue of law on these facts. With this proviso, we will examine the decision.

The case involved the Port Authority’s liability claim against the manufacturers of the ammonium nitrate and urea prill fertilizers that were the principal ingredients of the bomb used at the World Trade Center several years ago. According to plaintiff, the then-current literature in the bomb-making field clearly pointed to the explosive nature of the material when mixed with fuel oil. There had been several prior instances worldwide in which deadly bombs had been so constructed, including terrorist bombs in Ireland and in many other countries worldwide, the most prominent at the time of sale being the bomb that had killed Lord Mountbatten. There were but two such instances in the United States before the Trade Center bombing, one thirty years earlier during anti-war protests, and the other twenty years before that.

In its design defect claim, the Port Authority asserted that the addition of a small quantity of an inexpensive agent (diamonium phosphate, another fertilizer) to the ammonium nitrate would have stabilized it sufficiently and made it useless as a bomb component. Many European and other countries prohibit the sale of the unstabilized fertilizer, and require detonation tests, and the EEC by directive sets strict limits on its manufacture, as had other countries, all well before the Trade Center bombing. The Port Authority contended that the defendant ammonium nitrate manufacturers knew of the harmful propensity of their product unless stabilized, had opposed legislation controlling its American manufacture, but failed to design their products with the addition of the stabilizing compound. Relying on the Restatement (Third) of Torts: Products Liability, Section 2(b), the Port Authority claimed the stabilized product would have been a “reasonable alternative design…the omission of [which] renders the product not reasonably safe.” In short, defendants failed to change the design to one that would have ameliorated the product’s harmful aspects if misused in a foreseeable manner.

The District Judge determined that, because the product was only a component of the final bomb, the alleged design defect would not support liability. In addition, he found no duty was owed to plaintiff because of his factual conclusion that the manufacturers of the ammonium nitrate could not reasonably have assumed that their product would be incorporated into an explosive device. He also based his decision in part upon the rejection of a similar claim based on Oklahoma law relating to the Oklahoma City bombing. The judge took the unusual step, sustained on appeal, of dismissing the case on the pleadings, before the completion of discovery, and without the requisites of a summary judgment proceeding, much less a plenary trial.

The Third Circuit affirmed the decision on the principle that the manufacturers of the ammonium nitrate could not reasonably have concluded that their products would be incorporated into an explosive device. The Court analyzed both New Jersey and New York law and concluded that both would bar plaintiff’s claim. We will discuss only the New Jersey law here. The Court acknowledged that New Jersey law usually would leave such issues for resolution by a jury. Nevertheless, it determined that on the issue of foreseeability, the Port Authority had provided the Court with all instances where plaintiff’s research could reveal that ammonium nitrate had been used as a bomb component. That issue became one of law, bearing upon whether defendants had a duty to plaintiff to prevent their component part from being integrated into a bomb. The Court found that no reasonable jury could determine that these examples should have put the manufacturers on notice that protective action was required. Plaintiffs and defendants may well disagree concerning how, in the face of the numerous known examples of the product’s misuse, the Circuit Court could find a basis to agree with the District Judge’s dismissal on the pleadings.

The Court correctly did not rely on the Oklahoma precedent. Oklahoma applies a “consumer expectation” standard rather than the risk-utility or Restatement standard applied in the New Jersey courts. Furthermore, the Court rejected the District Judge’s exclusion of liability on the basis that the ammonium nitrate was a mere component of the bomb and recognized New Jersey law as permitting such liability. The concurring judge stressed the temporal nature of the decision, i.e., the proper focus was upon what was reasonably to be anticipated prior to the Trade Center and Oklahoma City bombings; such an analysis might be quite different today. If one accepts the Third Circuit’s rationale, then the concurring judge’s warning makes eminent sense.

While defendants should not fully rely on the Third Circuit’s unusual factual determination of a matter generally left for a jury, the lesson to be learned in this case is that liability must always be viewed at the time of the defendant’s actions. This principle has both positive and negative aspects when viewed by a potential defendant. On the positive side, the decision underscores that later developments in the manufacturer’s field or unanticipated misuses of the product will not retroactively cause a manufacturer to be liable where such developments or misuses are not readily discernible when it placed the product on the market. This basically is an application of the state-of-the-art defense in a design defect case. Liability in an inadequate warning case may be based on post-sale developments in the field. (See Restatement (Third) of Torts: Products Liability Section 10, covering post-sale warnings). Design defect liability, however, will generally not be predicated upon such esoteric risks, although a few states provide more stringent requirements. Hawaii and Pennsylvania (and, until recently, Massachusetts) permit no state-of-the-art defense. Colorado, Montana, New Hampshire and Oregon require that a manufacturer adhere to cutting-edge technology. Usually, however, a manufacturer need only design against risks reasonably known in its field.

There is a flip-side to this coin. In the warning defect area, a manufacturer must give a post-sale warning concerning risks, although not knowable when the product was distributed, which the manufacturer knows or should have known at a later date. The implication, even from the Port Authority case and the emphasis in the concurring opinion stressing the temporal nature of the decision, is that a manufacturer that knows or should have known that the product has later become dangerous must not only take reasonable steps to warn concerning its products that are already on the market, but also must make immediate design changes if feasible, to protect against these newly-discovered risks. Notwithstanding Port Authority, this principle can apply even when the risks involve a misuse of the product as a component.

We therefore suggest to our clients and friends that there is a duty of vigilance giving rise to appropriate remedial action. Manufacturers are and will be responsible not only for post-sale warnings concerning what they know or should have known, but also necessary design changes dictated by known or reasonably foreseeable misuses in the marketplace. We would be happy to discuss the ramifications of the Port Authority case as applicable to specific problems.