PRIVATE AND

CONFIDENTIAL

ME M O R A N D U M

To: Sally Ellyson, President and CEO of Astral Corporation

From: John Michael Fryback, Pranav Himatsingka, Steven Richards & Tyrone Schiff
Date: November 20, 2008
Re: Cook v. Astral Lawsuit
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The following memo contains a detailed analysis of the legal challenges presented to Astral

Corporation as a result of the recent personal injury product liability lawsuit served by attorney Steve

Morrissey regarding the product Astraldex. As students in LHC 305 at the Ross School of Business, we

have worked to lay out the most important strengths and weaknesses of our case as well as provide useful

recommendations for how the company should proceed. The following three sections are organized to

present our findings in the clearest manner possible and we hope to have addressed all of your concerns.

_____________________________________________________________________________________

Discussion

In looking at the following four counts, we believe it is important to understand the broader

context of these charges in relation to the actual actions of Astral Corp. To do so, we believe it is

important to keep the following two questions in mind when trying to understand the specifics of each of

the four charges : (1) Whether Astral caused Mr. Cook’s condition and (2) whether Astral deserves to be

held liable for it. These two broad questions give us some context for understanding how to attack each of

the charges and are important to think about in any discussion of how to proceed.

Count I - Negligence

Based on the data provided, we believe that Astral can be considered potentially liable for

negligence. An act of negligence consists of three elements, breach of duty, proximate cause and injury. In

this case, there might be a breach of duty by Astral because they had superior knowledge about the

product and the effects of its contents. It can be debated whether or not Astral is liable for breach of duty.

They did take precautions by testing the product in the 1970’s and by showing that BMB may not be

considered a potential health hazard. Also, all the producers in the market reached a consensus that the

use of BMB was not a health hazard. Finally, Astraldex is a government approved product.

However, there are weaknesses in Astral’s defense. Astral’s tests in the 1970’s are not conclusive

and Astral did not continue testing in the 1980’s and 1990s, even though there were more research tools

available. Another weakness in Astral’s defense is that the harmful consequences resulting from the use of

BMB were foreseeable. It was always suspected that BMB could lead to cancer. Even after the Internet
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rumors in 2001, the tests done by other research departments were disregarded even though they showed

a carcinogenic aspect to BMB. Astral’s own test, though not conclusive, did prove that there was an

increased risk of lung damage to rats exposed to BMB vapors.

The main defense that can be used by Astral in the negligence count is the proximate cause

element. According to the proximate cause element, the plaintiff has to prove that the injury caused was

the result of negligence by the defendant. In this case, the defendant suffers severe injury and illness, but

it will be difficult to prove that the lung cancer is due to inhaling excess BMB. There is not sufficient

proof that BMB causes lung cancer. Also, the plaintiff has asthma and is a regular smoker of cigarettes,

both of which could be reasons for his illness. It will be difficult for the plaintiff to prove what portion of

the injury is due to the defendant's negligence. Astral could also focus their defense on determining

whether the risk of harm was unreasonable. The tests done by outside researchers showed that at worst 1

in 45,000 healthy people would have adverse reactions that would heighten the risk of cancer.

However, Astral has no evidence to disprove the heightened harmful effects of BMB on users

with pre-existing respiratory problems. They should have anticipated that users with health risks would

have used Astraldex and created a proper warning. In its defense, Astral could discuss the cost of taking

the precautions that would have reduced the risk. It is clear that if we substituted BMB with BBC, the

manufacturing costs would have increased. However, the weakness in this defense is that there was a

substitute that guaranteed a safe product. By not substituting, Astral could be painted as a company that

cared more about making high profits than its consumer’s safety.

Count VI - Strict Liability

Astral should anticipate several issues arising as they relate to Count VI, strict liability. Strict

liability in tort encompasses concepts such as possible product defects. Astraldex is considered a defective

product under strict liability due to the apparent defects in warnings, labeling, packaging, and poor choice

of material usage.

Though the Astraldex solution performs its intended purpose, the packaging is inadequately

labeled. The failure of a seller to warn a buyer of the product’s possible dangers and directions for safe
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use render the seller strictly liable in a tort. On their warning label, Astral failed to mention the 1970's

findings concerning the hazardous risks involved in ingesting the solution. Further, research has also

indicated a carcinogenic link to an ingredient found in Astraldex, BMB, that effects 1 in 45,000 healthy

people without any prior risk factors. This information is not shared with the consumer via a label.

Additionally, the warning label only appears on the side of boxes used while shipping 1 gallon bottles of

Astraldex. This is an inadequate warning. Warning labels should be placed on all bottles of Astraldex,

regardless of volume, size, or quantity. Due to the hazardous nature of the materials that make up

Astraldex, Astral ought to perform the due process necessary so that packaging, labeling, and warnings

are clear and conspicuous on all of their products.

Furthermore, without sufficient knowledge of the contents of the product, the buyer is exposed to

an unreasonable amount of danger associated with the unknown product; another instances of strict

liability in tort. To be unreasonably dangerous, a product must merely contain a danger beyond which

would be contemplated by the ordinary consumer with common knowledge of its characteristics. The

advent of potentially contracting cancer would qualify as a danger. Without labels indicating the

potentially dangerous consequences of using the product, the product is deemed defective and thus the

count of strict liability in tort could be affirmed.

Astral also knowingly designed their product with dangerous or hazardous materials. Since the

1970s, Astral has been aware of a substitute to BMB called BBC. Although the cleaning power decreases

slightly, there are apparently no adverse health effects with BBC. This qualifies as a design defect because

Astral could have designed a safer product with the given technology. However, there are several

confounding factors to this contention. First, Astral had no indication that BMB was unsafe, and

therefore, did not need to switch without good reasoning. Second, the switch to BBC would have

increased the unit cost for Astraldex by $1.00, which would have been “corporate suicide.”

These elements adversely impact Astral, especially on counts brought forth relating to strict

liability. Continuing to use BMB, when BBC was a known alternative, may be used against Astral in

determining strict liability, however, the line of reasoning has certain deficiencies. Yet, although Astraldex
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may have had nothing to do with Mr. Cook’s illness, the defining factor in this case for determining strict

liability in tort will be the inadequacies in warnings, labeling, and packaging. Astraldex can be considered

an unreasonably dangerous product.

Count VII - Warranty

Based upon the facts presented, defending against the charge of breach of warranty could present

significant difficulties arising from Astral’s lack of a clear express warranty or disclaimer. In order for the

plaintiff to bring warranty action against Astral it is necessary to prove four things: (1) that a warranty

existed, (2) that the warranty has been breached, (3) that the breach of the warranty proximately caused

the loss suffered, and (4) that notice of the breach of warranty has been given to Astral.

The existence of an implied warranty exists as an operation of law. That is, just by virtue of

selling Astraldex, the company is bound by the implied warranty to produce goods fit for their intended

purpose. We believe it will be advantageous for our defense to acknowledge the existence of this implied

warranty as well as to acknowledge the existence and possible faults contained in any express warranty

listed by the plaintiff. Essentially, we want to make it clear that we recognize and respect the

responsibility of the company to provide a safe product. The difficulty here will be that Astral has done

little to provide a clear express warranty or any form of a disclaimer that might discharge us from liability

in this case.

The most important and most difficult issue to address in regards to Count VII is whether the

warranty, either express or implicit, has been breached. According to Article 2 and 2A of the UCC, it is

Astral responsibility to produce goods that are "fit for ordinary purposes" and "adequately contained,

packaged, and labeled." It is our belief that Astraldex was not adequately labeled. The plaintiff has

challenged that our products did not adequately warn and instruct users about the dangers of using a

product containing BMB. We believe this will be difficult to defend against. While we can make solid

arguments in regards to the charges of defective testing, defective design, fitness for ordinary purposes,

and the like, we believe that the insufficient labeling of our product could be the one hurdle that we can't

overcome in defending against this breach of warranty charge.

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Perhaps our best chance to defend ourselves centers around whether any breach of warranty

actually caused the condition(s) that Mr. Cook is suffering from. Given Mr. Cook's medical history, a

strong case can be made that the use of BMB containing products was not the underlying cause of his

health problems. Furthermore, this argument could lend credence to the effectiveness of our testing

procedures by showing that health problems are only likely to occur if the user has a related preexisting

medical condition such as asthma or engages in other dangerous behavior like smoking. It is important,

however, that we do not charge that Mr. Cook did not properly use our product. In doing so, we would

only be further highlighting Astral’s ineffective labeling and ineffective warning as to the dangers of

using BMB containing products. While it may seem easy to claim that it's "common sense" to use

industrial cleaners in well ventilated areas and only with adequate protection, nowhere in any of the

materials provided with our Astraldex do we expressly direct customers to do so. This would be required

if we are to disclaim any express warranty.

Finally, given the particulars of this case, it might be possible for Astral to charge that adequate

notice had not been given to the corporation. However, because the injuries to Mr. Cook have developed

over a long period of time, it will be difficult to argue that he should have brought this suit earlier or in a

more reasonable time period. At the same time, in order to show that Astral Corp has genuine concern for

his injuries, we believe it might be more advantageous to focus on the actual effects of Astral products

rather than what the plaintiff could or should have done differently.

Count VIII – Willful and Wanton Misconduct / Intentional Tort

With regard to Count VIII, the court should not find the company liable of intentional tort. The

definition of an intentional tort is the desire to cause the consequences of an act or knowledge that the

consequences are substantially certain to result from the act. The assumption is that as a company, we

were substantially certain that by using BMB there would be a link to cancer or other types of diseases.

However, the testing done during the initial launch of Astraldex was sufficient in determining that there

was no link between the standard use of the product and lung cancer. The lab rats that had extensive

exposure to BMB and had ingested the chemical were most at risk for cancer. This finding was consistent
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with the findings of the other three companies in the field and inline with government regulation.

Therefore, when we first released Astraldex, we were substantially certain that using BMB should have

no adverse health effects in humans.

After the initial testing proved the chemical was substantially safe for use, rumors concerning the

risks of using the BMB surfaced and required more testing. The testing done in 2002 found an increased

risk of lung damage to rats that inhaled Astraldex vapors for long periods of time. Outside studies

suggested that at worst 1 in 45,000 people would have an adverse reaction that might heighten the risk of

cancer. For all products, there is always some risk that when used improperly there could be a greater risk

of injury. The knowledge of risks to healthy people who are exposed to BMB for long periods of time

does not change the fact we were not substantially certain that using BMB would be a link to cancer.

Even government and consumer safety organizations did not come out claiming the risk to humans by

using this product. Furthermore, even our findings after 2002 showed that there wasn’t any significant

relationship between Astraldex and cancer in humans.

There is one potential line of reasoning that could be used by the plaintiff. The studies that were

published in 2003 did uncover a carcinogenic aspect to BMB. We might have uncovered this link had we

done more research in between the end of 1970 and early 2000s. The plaintiff could prove that the

knowledge that there was an outside risk to cancer would lead to us being liable for releasing a potentially

dangerous product. However, this point should not hurt our defense because we did not have this

knowledge initially. There isn't enough of a link to prove that the consumer could have been harmed by

our product. If we would have uncovered this data when launching the product, we would be exposed to

the potential of an intentional tort lawsuit. The extensive testing at launch and lack of knowledge

concerning the health risks of BMB should protect us from being charged with the intent to hurt the

consumer.

We shot a gun into the desert. We didn’t intend to hit anyone, but Mr. Cook got hurt. Even though

we knew we were going to shoot the gun, we didn’t think anyone would be walking through the desert.
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This is a simplification of what actually happened, but we should not be liable for Count VIII, concerning

intentional tort.

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Recommendations

One of our primary recommendations is to substantially improve the current location and wording

of the warning label. The most important change will be placing warning labels on all Astraldex products,

not only on the boxes used to ship them. This will ensure that users of the product are aware of the

product’s risk factors. Also, the warning label should not include traces of product promotion. Instead, the

focus of the warning label should be on symbols and proper descriptions of the risk factors involved in

using Astraldex. The warning label is intended to inform the user of potential hazards associated with use

of the product and should not be used as a marketing tool. The warning label also needs to be edited for

its content. The warning needs to be more comprehensive, detailing risk factors directly and definitively.

It should detail individuals who would be at most risk while using this product. It should include

statements about how to handle the product or necessary precautions that should be taken in using the

product. We have attached a new warning label that is more closely aligned with the improvements we

have suggested (see appendix item). We think that this change will benefit Astral immensely and shield it

from further litigation in the future.

Astral will need to be proactive with their customers, board, shareholders, and the media. The

situation surrounding this lawsuit is very serious. The company has exposed the customers to a potentially

dangerous product and the only solution is to ensure the public that steps are being taken to remedy the

situation. Employees should be the first to understand how Astral will be changing their products to

prevent future lawsuits. Informing the employee will allow them to communicate this information directly

the the distributors and customers. The company should be transparent while making these changes to

regain the public’s trust. The customers are important to our company and we need to ensure that they

will still consume our product. Allowing the media to investigate and broadcast the changes being made

would also help ease consumer fears. Finally, the board and shareholders should understand the potential
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liability in the lawsuit and how the changes will affect the bottom line of Astral. Management needs to

ensure that the changes being made will not bankrupt the company and are feasible in the long run. We

must review every aspect of our company and keep the lines of communication open while we make these

changes. Even though this lawsuit might be a setback, we will be able to communicate with these

different groups and restore confidence in our product and brand.

Astral should also take action on the products they have previously shipped, to prevent future

lawsuits. They should post on their website and in newspapers their new warning label and information

about health problems caused due to Astraldex. Making this information publicly available will allow

existing users to understand the dangers and take safety precautions. Also, they should distribute the new

warning labels to their distributor Okkervil and other stores that sell Astral. The clerks at these stores will

be able to successfully transmit the update warning to the consumers to protect the company from future

liability.

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Conclusion

Upon analyzing the case as presented to us, we believe that Astral will face significant challenges

in defending itself against the allegations of the plaintiff. We have expressed specific concern in regards

to the charges of negligence (Count I), strict liability (Count VI), and breach of warranty (Count VII).

Each of these charges are closely related and present the challenge facing Astral Corp in its defense. The

most important issues from our perspective are: (1) Whether Astral caused Mr. Cook’s condition and (2)

whether Astral deserves to be held liable for it. The ability to adequately defend against these two

questions will determine the outcome of the case.

The fundamental part of the case is the lack of clear and direct communication concerning the

risks involved in using Astraldex. This refers directly to the question as to whether or not Astral deserves

to be held liable for any detriment caused to the plaintiff. To avoid similar lawsuits in the future, Astral

should have included direct labeling and a disclaimer. Failing to instruct the users of Astraldex of its

dangers is a major gaffe in our eyes and potentially to any jury or judge that Astral may face. From the
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company’s perspective, the failure to “cover our tracks” by providing a disclaimer, step by step directions,

or a warning could prove to be a fatal mistake. Accordingly, the appropriate changes to Astraldex

packaging should be made as soon as possible.

Despite the challenges in defending Astral, there are opportunities to make a strong case against

the plaintiff. In answering the question related to Mr. Cook’s unfortunate condition, there are many

important arguments that must be articulated. Perhaps the strongest piece evidence centers on the idea of

proximate cause. With Mr. Cook’s medical history and the research conducted regarding the effects of

BMB, it is certainly possible for Astral to win an argument that Mr. Cook’s use of Astraldex was not the

determining factor in his condition. If this is proven, the plaintiff’s case loses a tremendous amount of

traction. Without direct causation, it will be difficult to be found liable for further damages no matter how

lacking Astraldex labels and warnings are.

By following through with the recommendations laid out in this memo, we believe that Astral can

weather the current storm. By addressing customers, employees, shareholders, the media and our board

proactively, we can address the issues at hand. The incorporation of our recommendations is essential if

Astral is to protect against further lawsuits and maintain goodwill. Taking a proactive stance towards

Astral’s responsibilities to its customers, both in legal terms and on a moral/personal level, should prove

to be an important tool for ensuring success for years to come.

Appendix Item #1

Below is our recommended warning label

Make sure to use in a well ventilated area. Use

gloves while handling the product for further
protection. Astraldex contains an ingredient called
BenzeMethylBenzene (BMB), which has been
known to heighten the risk factors involved with
cancer. Users with health risk factors relating to
respiratory illness may find that Astraldex
potentially causes minor respiratory tract infections
and minor digestive tract irritation or adverse tissue
reactions. Astraldex may cause skin and eye
irritation. Keep out of reach from children and
animals. Do not breathe the vapors deeply or drink
the Astraldex solution. Do not use near an open
flame. If Astraldex solution is accidentally ingested
or has contact with an open wound or enters the eye,
please contact the American Association of Poison
Control Centers: 1-800-222-1222.