Keralink Intl., Inc. v. Geri-Care Pharmaceuticals  Corp., 2023 WL 2000999 (4th Cir. Feb. 15, 2023), is unusual because it is an affirmance of summary judgment in favor of the plaintiff.  

Many years ago, we won a summary judgment on behalf of our big bank client, which was suing another big bank for failure to fulfill its loan servicing duties.  The case turned on contractual interpretation, the judge read the contract to favor our side, and our client walked away with a share of a multi-billion dollar judgment.  It was a heady time, and it was our last case before we joined the U.S. Attorney’s Office and devoted half a decade to prosecuting crimes involving narcotics, counterfeiting, bank robberies, and major frauds. Then we returned to private practice, and every summary judgment motion we have filed over the last 30 years has been on behalf of a defendant.  So the Keralink case is a curiosity for us. 

Keralink is a product liability case, but not the sort that we typically encounter. The plaintiff  Keralink is a non-profit operator of a national network of eye banks.  It claimed that contaminated eyewash rendered transplanted eye tissue unusable.  Although prohibited by law from selling recovered tissue, Keralink collects certain fees for reimbursement of costs related to the removal, processing, and transportation of the eye tissue. 

The plaintiff brought claims against two suppliers of the eyewash for, inter alia, strict product liability and breach of warranty.  The eyewash suppliers did not dispute that the plaintiff had made out the elements of those claims, but argued that those claims nonetheless ran aground on (1) Maryland’s sealed container defense, and (2) the economic loss doctrine.  Unfortunately for the defendants, the Maryland district judge did not see any merit in the defendants’ arguments, and neither did the Fourth Circuit.  

Sealed Container defense

The Keralink decision informs distributors what not to do if they want to invoke the sealed container affirmative defense.  The defense is available to a “seller” under certain circumstances (yes, you guessed it: the product must remain in a sealed container, plus the seller was unaware of the defect and could not reasonably have discovered it, etc).  A “seller” is defined in the Maryland statute as “a wholesaler, distributor, retailer, or entity … other than a manufacturer that is regularly engaged in the selling of a product”.  In Keralink, the two distributor defendants each invoked the sealed container defense, each claimed to be a “seller” of the eyewash, and each argued that the other qualified as the liable manufacturer.  Good times for the plaintiff. 

The Maryland statute requires that the intermediate distributor asserting the defense not hold itself out as the product’s manufacturer.  One of the defendants had placed its logo on eyewash manufactured by someone else (the contaminated product appears to have originated in Korea), which deprived it of the defense.  A defendant contended that “sophisticated” purchasers would understand that the defendant was only a distributor.  But that defendant required its name be added to the label and did not list anyone else as the manufacturer in its FDA filings.  Consequently, that defendant was the “apparent manufacturer” and could not wrap itself up in the sealed container defense. Perhaps there is a lesson in there somewhere. If so, it was learned at great expense. 

The other defendant distributor in the chain lost the sealed container defense when it described the contents of what it shipped as “sterile,” thereby creating an express warranty, which triggered another exception to the defense. The product description of “sterile eyewash” was enough to create a warranty under the UCC.  Restating someone else’s product description is sufficient.  Express warranties are not “passed on” without the passer also being liable.  So long, sealed container defense. 

Economic Loss rule

Maryland law is similar to most jurisdictions in limiting strict liability damage recoveries to three categories: (1) personal injury; (2) physical harm to property other than the defective product; and (3) economic loss suffered because the product fails to meet the buyer’s expectations.  Maryland law is also similar to most jurisdictions in applying an “economic loss rule,” which bars plaintiffs from recovering in tort when the claimed damages are solely grounded in economic loss.  The purpose of the rule is to preserve the distinction between tort claims, like the strict product liability claim here, and contract claims. 

The plaintiff sought recovery for lost service fees relating to the damaged tissue, the cost to replace the unusable eyewash, and lost employee time. One of the defendants argued that Keralink’s asserted damages constituted strictly economic loss because Keralink “did not seek damages related to injury to other property, because the eye tissue was not Keralink’s property.”

The court held that the economic loss rule did not bar recovery in Keralink because the plaintiff had “possessory rights to the donated tissue” – even if it was statutorily barred from “selling” it.  That the tissue became unusable due to the contamination from the eyewash was a damage to the plaintiff’s interest in the tangible “other property” that falls within an economic loss rule exception. The court concluded that “[b]ecause Keralink had a limited but sufficient property interest in the tissue, the economic loss rule did not bar recovery for the challenged damages sought by Keralink in its strict products liability claim.”

The Keralink case supplies ocular proof that plaintiffs can win on summary judgment, but it might also supply guidance to sellers as to how to ensure they look like sellers rather than manufacturers.