Arcelik A.S. v. EI DuPont de Nemours & Co ( 2023 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
No. 22-2634
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ARCELIK A.S.,
Appellant
v.
EI DUPONT DE NEMOURS & CO
______________
On Appeal from a Decision of the United States
District Court for the District of Delaware
(D.C. No. 1-15-cv-00961)
District Judge: The Honorable Timothy B. Dyk*
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Argued
May 18, 2023
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Before: CHAGARES, Chief Judge, GREENAWAY, JR.,
and PHIPPS, Circuit Judges.
(Opinion Filed: June 7, 2023)
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OPINION**
______________
*
Sitting by designation from the United States Court of Appeals for the Federal Circuit.
**
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
Christopher F. Cannataro
April M. Ferraro
John M. Seaman [ARGUED]
Abrams & Bayliss
20 Montchanin Road
Suite 200
Wilmington, DE 19807
Christopher M. Ryan
Shearman & Sterling
401 9th Street NW
Suite 800
Washington, DC 20004
Attorneys for Appellant
Brandon R. Harper
John A. Sensing [ARGUED]
Potter Anderson & Corroon
1313 N Market Street
Hercules Plaza, 6th Floor
P.O. Box 951
Wilmington, DE 19801
Attorneys for Appellee
GREENAWAY, JR. Circuit Judge.
Arcelik A.S. (Arcelik) appeals the District Court’s grant of summary judgment to
E.I. DuPont de Nemours and Company (DuPont) on two claims: negligent manufacture
and violation of the Delaware Consumer Fraud Act (DCFA), Del. Code Ann. tit. 6 §§
2511–2527. After examining the appeal, we will affirm the District Court’s decision to
grant summary judgment on those claims.
2
I. BACKGROUND
Factual Background
Arcelik, a Turkish company producing household appliances, sells its products
under various brands in over 100 countries. One of Arcelik’s products is electric tumble
dryers for drying clothes. In late 2012, Arcelik started receiving complaints from
customers about its dryers catching fire. As a result, the company issued a voluntary
recall in Europe, offering to replace or repair the affected dryers and compensate
customers for any property damage caused by the fires. Arcelik claims that it faced
significant costs and damages as a result.
Multiple independent investigations revealed that the fires were due to a defect in
a flame-resistant material contained in a plastic product called “Zytel FR50,” which was
used in electrical capacitors inside the dryers. The flame-resistant material had higher-
than-normal levels of certain substances, which caused the dryers to overheat and catch
fire when exposed to high temperatures and humidity.
Defendant DuPont says that it did not manufacture or sell the defective lot of Zytel
FR50 (“the defective Zytel”). Instead, various other companies contributed to its
production and distribution. A Chinese company, Shandong Brother, produced the flame-
resistant material, which contained certain contaminants that lessened its heat-resistant
properties. Shandong Brother then sold it to DuPont China, a subsidiary of DuPont.
DuPont China then used this material to make the defective Zytel plastic at its plant in
Shenzhen, China. The defective Zytel was later sold to DuPont India, another DuPont
subsidiary, which then sold it to a separate company, EPCOS India.
3
Either EPCOS India or a related German company, EPCOS AG, used the
defective Zytel to make electrical capacitors that were sold to Arcelik. The defective
Zytel was used to create a protective top disc for the capacitors, sealing them and
providing a shield between certain components. EPCOS AG, following a 2009 contract
with Arcelik, sold electrical capacitors containing the defective Zytel to Arcelik. These
capacitors were then integrated into Arcelik’s dryers.
Procedural History
In 2015, Arcelik sued DuPont, the Delaware-based parent company of DuPont
China and DuPont India, seeking damages tied to dryer fires caused by the defective
Zytel, asserting claims under Delaware common law and the DCFA.
DuPont moved to dismiss the case, and the District Court obliged, dismissing five
of Arcelik’s six claims without prejudice, citing a failure to allege sufficient evidence of
agency relationships between DuPont and its subsidiaries. Arcelik then filed an amended
complaint with additional allegations and reasserted its claims. DuPont moved to dismiss
once more, but the District Court granted only a partial dismissal. Ultimately, Arcelik
was left with four claims: negligent manufacture, negligent misrepresentation, violation
of the DCFA, and tortious interference with a contract.
After discovery, DuPont sought summary judgment on all four remaining claims,
which the District Court granted.
4
II. JURISDICTION
The District Court had federal question jurisdiction pursuant to 28 U.S.C. § 1332.
The District Court issued a final order granting DuPont’s motion for summary judgment,
which Arcelik timely appealed.1 We therefore have jurisdiction pursuant to 28 U.S.C. §
1291.
III. STANDARD OF REVIEW
This appeal emerges from the District Court’s grant of summary judgment. We
review a grant of summary judgment de novo. Cranbury Brick Yard, LLC v. United
States, 943 F.3d 701, 708 (3d Cir. 2019). We may affirm the District Court’s decision “on
any grounds supported by the record, even if the court did not rely on those grounds.”
MRL Dev. I, LLC v. Whitecap Inv. Corp., 823 F.3d 195, 202 (3d Cir. 2016) (internal
quotation marks and citations omitted).
Summary judgment is appropriate when, construing the evidence in the light most
favorable to the nonmoving party, “there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” Sec’y U.S. Dep’t of Lab. v.
Kwasny, 853 F.3d 87, 90 (3d Cir. 2017) (quoting Fed. R. Civ. P. 56(a)).
IV. DISCUSSION
Arcelik raises two issues on appeal. First, Arcelik argues that the District Court
erred in granting summary judgment on Arcelik’s negligent manufacture claim because,
viewing the facts in the light most favorable to Arcelik, (i) DuPont directly manufactured
1
On appeal, Arcelik contests the grant of summary judgment on only two claims:
negligent manufacture and violation of the DCFA.
5
the defective Zytel or (ii) DuPont China acted as DuPont’s agent in manufacturing the
defective Zytel. Second, Arcelik argues that the District Court erred in granting summary
judgment on Arcelik’s DCFA claim because it (i) introduced an unwarranted “duty to
speak” requirement and incorrectly concluded that no reasonable juror could find that
DuPont’s conduct generated such a duty, (ii) incorrectly concluded that Arcelik
“conceded” that its DCFA and negligent misrepresentation claims “rise and fall”
together, and (iii) introduced an unwarranted requirement that Arcelik and DuPont have a
“direct business or fiduciary relationship.” We find each of these arguments lacking and
will affirm the order below.
A. Negligent Manufacture Claim
To make a negligent manufacture claim under Delaware law, a plaintiff must show
that the defendant is responsible for the manufacture of the defective product. See Nacci
v. Volkswagen of Am., 325 A.2d 617, 619–20 (Del. Super. Ct. 1974) (“[A] manufacturer
may be liable to those whom he should expect to be endangered by the probable use of
the product.” (citing Restatement (Second) of Torts § 395 cmt. i (Am. L. Inst. 1965))).
This can be done by showing that the defendant either (i) directly manufactured the
product or (ii) manufactured the product through an agent. Because Arcelik has failed to
create a genuine dispute as to either theory of liability, we will affirm the District Court’s
grant of summary judgment on this claim.
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i. DuPont did not directly manufacture the defective Zytel.2
Arcelik has failed to present evidence that DuPont was involved in the actual
manufacture of the defective Zytel.3 When the District Court asked Arcelik “[w]here is
your evidence that [DuPont] controls the actual manufacture [of the defective Zytel]?”
Arcelik responded “[there is] nothing in the record about the actual manufacture of Zytel
[by DuPont], broadly.” App. 5786. Nor could Arcelik point to any evidence that DuPont
2
DuPont has argued that Arcelik forfeited any argument that DuPont directly
manufactured the defective Zytel. Not so. DuPont’s error comes in its claim that Arcelik
first raised this argument in its opposition to summary judgment. Had the argument been
raised that late, it may well have been waived. In re Bestwall LLC, 47 F.4th 233, 242 (3d
Cir. 2022) (“As a court of review, we generally decline to consider arguments that were
not first presented to the court whose ruling is before us.”); see also Miranda-Rivera v.
Toledo-Dávila, 813 F.3d 64, 76 (1st Cir. 2016) (“Plaintiffs may not raise new and
unadvertised theories of liability for the first time in opposition to a motion for summary
judgment.” (internal quotation marks and citations omitted)). But this argument was
raised far earlier. In Arcelik’s Amended Complaint, under the heading “Claim Four
Negligent Manufacture of a Defective Product” Arcelik alleges that “DuPont is engaged
in the business of manufacturing, selling, or otherwise distributing Zytel, both directly
and through global subsidiaries.” App. 106 (emphasis added). This made clear that
Arcelik was alleging “direct” manufacture in addition to advancing its agency theory. As
such, the argument was not waived, and we will consider it.
3
Existing precedent leaves unanswered what minimum amount of conduct by a parent
company can constitute “manufacture.” Arcelik draws our attention to two cases outside
our Circuit that suggest the bar falls below total control, requiring only that the Defendant
was “involved in” or “participated in” the manufacture of the product. Gregus v. Stryker,
No. C 11-00404 RS, 2012 WL 13069924, at *2 (N.D. Cal. Apr. 20, 2012); Standing v.
Watson Pharms., Inc., No. CV09-0527 DOC(ANx), 2009 WL 842211, at *7 (C.D. Cal.
Mar. 26, 2009)). It is worth noting that both cases diverge significantly from the present
one. In Gregus, the record revealed that over a sixteen-year period, all of the relevant
products’ FDA registrations were made in the parent corporation’s name. 2012 WL
13069924, at *2. And in Standing, the relevant product labels stated: “Manufactured by:
[Defendant’s Name], [City and State of Defendant’s business].” 2009 WL 842211, at *7.
No similar evidence exists in this case linking DuPont itself to the manufacture of the
defective Zytel. Ultimately, we need not opine on the precise boundaries of what
constitutes “manufacture” to find that the record here is insufficient under any standard.
7
was involved in the day-to-day manufacture of Zytel FR50. See App. 5785–86 (The
Court: “But where is the evidence that DuPont controlled the day-to-day manufacture of
this product?” Counsel for Arcelik: “It does not. [DuPont], itself, is not making those
decisions.”).4
Arcelik’s alternative theory, that DuPont essentially manufactured the defective
Zytel because (a) it controlled the quality control process for manufacturing Zytel FR50
generally and (b) control of quality control is tantamount to manufacturing fails because
it is not supported by the record or the law.
As the District Court correctly noted, all Arcelik can point to is that DuPont “set
the standard for the flame retardant,” “signed off on the qualification of the third-party
supplier,” “required that the supplier provide certificates of analysis with each shipment
showing compliance with the specification [of qualities for raw materials],” and
“investigated problems that arose.” App. 11 (citing App. 3803–05, 3374–75, 3459).
These actions, without more, fall short of the direct manufacturing claims that
have survived summary judgment. See supra note 3. Arcelik provides no authority, and
we have found none, showing that such limited involvement makes DuPont the overall
manufacturer of the defective Zytel.
ii. DuPont China is not DuPont’s Agent.
4
In its brief, Arcelik argues that this quote refers to DuPont China, not DuPont, and thus
only stands for the proposition that DuPont China does not control the day-to-day
operations of manufacturing Zytel FR50 at its factories. Arcelik’s Br. at 36–37. Even if
this is true, Arcelik nonetheless points to no evidence that DuPont was directly involved
in the manufacture of the defective Zytel.
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1. Agency Standard
As a general principle, parent corporations are not liable for the actions of a
subsidiary. See United States v. Bestfoods, 524 U.S. 51, 61 (1998). There are, however,
two, limited exceptions to this general rule, only one of which is relevant here: agency
liability.5 Id.; see also Phx. Can. Oil Co. v. Texaco, Inc., 842 F.2d 1466, 1476–77 (3d Cir.
1988) (articulating the two standards). Under this exception, “one corporation—
completely independent of a second corporation—may assume the role of the second
corporation’s agent during one or more specific transactions.” Phx. Can., 842 F.2d at
1477.
This agency relationship does not create blanket liability for all conduct of the
agent—an agency relationship may exist for one subset of actions but not another.
Instead, a plaintiff must show that the agency relationship is “relevant to the plaintiff’s
[specific] claim of wrongdoing.” Id. Our analysis, thus, must focus on whether DuPont
China acted as an agent of DuPont in the “specific transactions” in question: the
manufacture of the defective Zytel. Id.
To determine whether an entity is an “agent,” we look to both Delaware agency
law and the general common law, which are “consistent.” Id. at 1477 n.4. While the exact
form may vary, an agency relationship always involves two entities (a “principal” and an
“agent”) “manifest[ing] assent” to one another that the agent shall act (1) “on the
5
The other exception, referred to alternatively as “piercing the corporate veil” or the
“alter ego” theory, requires “total domination” of the subsidiary such that it is “merely a
shadow of the parent.” Phx. Can. Oil Co. v. Texaco, Inc., 842 F.2d 1466, 1476–77 (3d
Cir. 1988). Arcelik has not advanced this theory, and we need not address it.
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principal’s behalf” and (2) “subject to the principal’s control.” Metro Storage Int’l LLC v.
Harron, 275 A.3d 810, 843 n.14 (Del. Ch. 2022) (quoting Restatement (Third) of Agency
§ 1.01 (Am. L. Inst. 2006)); see also Jack Eckerd Corp. v. Dart Grp. Corp., 621 F. Supp.
725, 732 (D. Del. 1985) (“The ‘touchstone’ of the agency relationship is the principal’s
right to control the agent.” (quoting Gov’t of V.I. v. Richards, 618 F.2d 242, 244 (3d Cir.
1980) (citing Restatement (Second) of Agency § 14 (Am. L. Inst. 1958)))).
2. Application
Arcelik has presented no evidence that DuPont controlled DuPont China in
manufacturing the defective Zytel or that DuPont China acted on DuPont’s behalf in
doing so. As such, the District Court correctly granted summary judgment on this theory.
What evidence Arcelik does cite falls broadly into six categories: DuPont setting
global quality control standards for Zytel FR50, DuPont employees collaborating with
employees of DuPont China, a general sense amongst DuPont executives that DuPont
and its subsidiaries operate as a collective, global network, Dupont marketing all Zytel
products (including those produced by subsidiaries like DuPont China) under the
universal moniker “DuPont,” DuPont qualifying and approving the suppliers used by
DuPont China to manufacture the defective Zytel, and DuPont leading the response to
customers and the public regarding the defective Zytel.
But none of these facts evidence DuPont’s control over the manufacture of the
defective Zytel or DuPont China’s authority to act on DuPont’s behalf. Collaborating
across legal entities, informally seeing subsidiaries as part of a parent company’s global
network, and using a common moniker on products is exactly what one expects from a
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parent-subsidiary relationship—a relationship that does not generally generate liability
for the parent. Bestfoods, 524 U.S. at 61; Martinez v. E.I. DuPont Nemours & Co., Inc.,
82 A.3d 1, 15–16 (Del. Super. Ct. 2012) (citing Pauley Petroleum, Inc. v. Cont’l Oil Co.,
239 A.2d 629, 633 (Del. 1968)). And while setting minimum quality standards,
approving suppliers, and leading incident response shows an interest in the Zytel FR50
brand, we find no support for the contention that such limited involvement—looking at
the actions individually or collectively—constitutes control.
Nor has Arcelik presented evidence that DuPont China manufactured the defective
Zytel at DuPont’s behest—either under DuPont’s direction to fulfill obligations to third
parties or with its imprimatur to enter into such agreements on DuPont’s behalf. See
generally App. 5793 (The Court: “Wait. But does it have the authority to alter the legal
relations between the defendant and someone else?” Mr. Seaman for Arcelik: “I don’t
know that. I haven’t thought of it that.”); id. at 5794 (The Court: “But I mean is there any
evidence that DuPont China is altering the legal relationships of the defendant with
anybody else?” Mr. Seaman: “I don’t think there’s any evidence that DuPont China is
doing much of anything on this record. All the evidence is as to what DuPont, itself, the
defendant, has done. We don’t have any testimony from any DuPont China entities.”).
Finding no evidence of control or authority, we will affirm the District Court’s
grant of summary judgment on Arcelik’s negligent manufacture claim.
B. DCFA Claim
Section 2512 of the DCFA provides that “[t]he purpose of this subchapter shall be
to protect consumers and legitimate business enterprises from unfair or deceptive
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merchandising practices in the conduct of any trade of commerce in part or wholly within
[the state of Delaware].” Theis v. Viewsonic Corp., No. 12-1569-RGA, 2013 WL
1632677, at *2 (D. Del. Apr. 16, 2013) (first alteration in original). To state a claim under
the DCFA, “a plaintiff must, at a minimum, allege with the required particularity that the
defendant negligently omitted or concealed a material fact, and that the defendant
‘intended that others rely on the omission or concealment.’” Eames v. Nationwide Mut.
Ins. Co., No. 04–1324–JJF–LPS, 2008 WL 4455743, at *13 (D. Del. Sept. 30, 2008),
aff’d, 346 F. App’x 859 (3d Cir. 2009) (quoting Stephenson v. Capano Dev. Inc., 462
A.2d 1069, 1074 (Del. 1983)).
Arcelik argues that DuPont is liable under the DCFA because DuPont omitted
material information from its marketing materials and other communications concerning
DuPont’s deficient quality-control process for Zytel FR50. Namely, Arcelik alleges that
“DuPont concealed by omission from its direct and indirect customers that it lacked the
quality-control process to detect ionic contamination.” Arcelik’s Br. at 56. The District
Court rejected that argument and held that Arcelik did not properly make out a DCFA
claim because Arcelik failed to provide proof that there was an omission in the face of a
duty to speak. We agree.
Arcelik raises three arguments in response, each of which fails.
First, Arcelik contends the District Court erred by importing a “duty to speak” into
the DCFA. This is not the case. That a failure to reveal information only generates
liability in the presence of a duty to speak is common sense. Without such a requirement,
the DCFA would create unbounded liability for words unspoken and actors uninvolved in
12
the manufacturing process. The law is much more sensible than that, requiring only that a
company reveal specific information when—through some relationship, agreement,
representation, or principle of law—it has a duty to do so.
As the District Court properly noted, we can look to the Delaware common law’s
discussion of negligent misrepresentation to instruct us in this arena. While there are
differences between the common law and the DCFA, Teamsters Loc. 237 Welfare Fund
v. AstraZeneca Pharms. LP, 136 A.3d 688, 693 (Del. 2016) (discussing these
differences), none of these distinctions are relevant here. The District Court was correct
to interpret the DCFA “in light of established common law definitions and concepts of
fraud and deceit.” Id. (quoting Stephenson, 462 A.2d at 1074).
Under the common law, plaintiffs must show “a particular duty to provide
accurate information.” H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 147 n.44 (Del.
Ch. 2003). That same principle applies here. Accordingly, the District Court was correct:
under the DCFA—just as with the common law—omitting a material fact must occur “in
the face of a duty to speak.” Nicolet, Inc. v. Nutt, 525 A.2d 146, 149 (Del. 1987).
On this record, no reasonable juror could conclude that DuPont possessed such a
duty. DuPont did not represent that all Zytel FR50, produced by all actors on the globe,
would be safe. Nor did it represent that the specific, defective batches produced by
DuPont China would be safe. Neither DuPont’s general actions (creating general
informational materials and promulgating quality standards for Zytel FR50) nor specific
actions (approving suppliers for DuPont China or learning of and investigating defects in
specific batches of DuPont China’s products) generate such a duty.
13
Second, Arcelik argues that the District Court made an incorrect factual finding:
that Arcelik’s counsel conceded that Arcelik’s negligent misrepresentation and the DCFA
claims rise and fall together. Arcelik is correct in one sense: the District Court
misattributed the statement in question, and Arcelik did not concede this point. Yet, this
error does not generate the force Arcelik believes it does. Concession or not, the District
Court’s legal conclusion—that the claims rise and fall together under these
circumstances—is correct.
Under Delaware law, negligent misrepresentation and DCFA claims generally rise
and fall together because “[i]f a plaintiff cannot at least prove the existence of a negligent
misrepresentation, the plaintiff cannot make out a claim under the DCFA.” Washington v.
William H. Porter, Inc., No. N17C-01-170 EMD, 2017 WL 3098210, at *5 (Del. Super.
Ct. July 20, 2017). “Although there are material distinctions in the standards required to
prove the two claims,”6 as the District Court correctly explained, “both require proof that
there was an omission in the face of a duty to speak.” App. 17. Because Arcelik has failed
to present proof that DuPont had a duty to speak, the claims do rise and fall together.
6
The District Court explained the difference between the two claims well:
“The statute [] depart[s] from the common law in the following ways: (1) ‘a
negligent misrepresentation is sufficient to violate the statute,’ (2) a violation of
the statute ‘is committed regardless of actual reliance by the plaintiff,’ and (3) the
plaintiff need not show ‘intent [by the defendant] to induce action or inaction by
the plaintiff.’” Eames v. Nationwide Mut. Ins. Co., 412 F. Supp. 2d 431, 437 (D.
Del. 2006) (quoting Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del.
Super. Ct. 1983)). Only the latter two differences distinguish the statute from
common law negligent misrepresentation.
App. 17. n.14 (alterations in original).
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Third, Arcelik argues that the District Court manufactured an unprecedented
DCFA requirement: that claims may only be asserted if the buyer has a direct relationship
with the seller. Here again, Arcelik is correct in one respect: the District Court incorrectly
suggested that a “direct business or fiduciary relationship between DuPont and Arcelik”
was necessary. App. 19. While a direct relationship may be sufficient to establish a duty
to speak, it is not necessary. The DCFA creates a cause of action for “any victim of a
violation,” not just those in direct relation to the violator. Del. Code Ann. tit. 6 § 2525(a).
But the District Court did not end its analysis there, going on to write that Arcelik
had also failed to produce evidence showing a partial disclosure by DuPont, which could
also trigger “a duty to disclose its purportedly lacking quality control processes.” Id. That
independent basis is enough for us to affirm.7 See MRL Dev. I, LLC, 823 F.3d at 202 (We
may affirm a district court’s decision “on any grounds supported by the record, even if
the court did not rely on those grounds” (internal quotation marks and citations omitted)).
V. CONCLUSION
The District Court correctly granted summary judgment in favor of DuPont.
Arcelik failed to prove that DuPont or its agent manufactured the defective Zytel or that
DuPont made any misstatements or omissions in the face of a duty to speak. Accordingly,
we will affirm the District Court’s grant of summary judgment to DuPont.
7
Arcelik infuses its second argument with the claim that the District Court violated the
law-of-the-case doctrine by stating that there must be a direct relationship between seller
and victim to make a DCFA claim. Even if such a violation occurred, we are free to
review and affirm on any grounds supported by the record. See MRL Dev. I, LLC, 823
F.3d at 202.
15