Jerry L. Kennon and Mary Ann Kennon, Individually and as Next Friend of Jerry L. Kennon, Jr. v. Slipstreamer, Inc. , 794 F.2d 1067 ( 1986 )

CLARK, Chief Judge:

Texas law governs this product liability case based upon diversity jurisdiction. The jury rendered a verdict against defendant-appellant Slipstreamer, Inc. Slipstreamer appeals, alleging various errors in the conduct of the trial. Finding that the district court’s improper comment to the jury on the amounts paid in plaintiff’s settlements with other defendants was prejudicial to the rights of Slipstreamer, Inc., we reverse and remand for a new trial.

I

On June 12, 1980, the moped on which Jerry L. Kennon, Jr., was riding struck a chughole in a private road. A piece of the moped’s windshield pierced the boy’s right eye. Kennon’s parents filed suit in the United States District Court for the Eastern ^District of Texas against Slipstreamer, the manufacturer of the windshield, and Mid-America Vespa, the windshield wholesaler. Slipstreamer cross-claimed against Mid-America Vespa and brought third-party actions against Moped Traveland, Inc., the windshield retailer, and E.I. DuPont De Nemours & Co., the manufacturer of the lucite from which the windshield was made.

After jury selection but before trial had begun, the Kennons settled with Mid-America Vespa, Moped Traveland, and DuPont for ten dollars each. The district court dismissed the three parties from the suit. The Kennons’ action against Slipstreamer proceeded to trial and was submitted to the jury on a strict liability theory. The Ken-nons alleged that the windshield had two manufacturing defects: excessive brittleness, and three small gouge marks on the inside of one of the holes drilled in the windshield for the attachment of mounting hardware. The jury found Slipstreamer liable. It awarded Jerry L. Kennon, Jr. $1,000,000 in damages and awarded his parents $100,000 in their individual capacity. The district court entered judgment on the verdict.

II

Following the settlement and the testimony of the first witness, the district court, on its own initiative, made these comments to the jury:

Ladies and Gentlemen, before we break for lunch I want to mention one other thing. For two reasons, I want to make sure you understand the true facts and I don’t want you to speculate on something that doesn’t have anything to do with the job you have to perform. That relates to why the other Defendants are not here. I mentioned that casually this morning. I meant to elaborate on it a little bit at that time and I forgot to do so.

The Plaintiff has made an election in this case, which is not that unusual, that it wishes to proceed in the lawsuit against the one Defendant only, and there is a procedure available to do that, that eliminates their presence, even though the other two had been sued by this Defendant. The way that works is that the Plaintiff can accept a nominal payment, it was Ten Dollars in this case, and then they are excused from further participation in the case.

Now the effect of that is that, depending on what the evidence is, their contribution to the cause of this occurrence may still be submitted to the jury or it may not. That’s a decision I will have to make at some point. You may have to make a decision in that respect. We will see how that goes later in the case. But I didn’t want you speculating on why they were not here and be concerned as to whether the Court had made a ruling on the merits of the case, which I have not, or speculate on whether the Plaintiff had received substantial monies, which they have not. I wanted you to know the full facts of the matter, (emphasis added)

Slipstreamer’s counsel objected to the court’s disclosure of the amount of the settlement. In response to the court’s inquiry as to how this disclosure prejudiced Slipstreamer, counsel argued that the disclosure constituted an impermissible comment on the weight of its third-party claims against DuPont and Moped Traveland. Slipstreamer moved for a mistrial. The court denied the motion. The court also denied Slipstreamer’s subsequent motion for a new trial, in which Slipstreamer contended that the court had erred in informing the jury of the amount of the settlement.

Fed.R.Evid. 408 provides that evidence of a settlement is not admissible “to prove liability for or invalidity of the claim or its amount.” While a principal purpose of Rule 408 is to encourage settlements by preventing evidence of a settlement (or its amount) from being used against a litigant who was involved in a settlement, the rule is not limited by its terms to such a situation. Even where the evidence offered favors the settling party and is objected to by a party not involved in the settlement, Rule 408 bars the admission of such evidence unless it is admissible for a purpose other than “to prove liability for or invalidity of the claim or its amount.” See Belton v. Fibreboard Corp., 724 F.2d 500, 505 (5th Cir.1984). The district court has discretion to admit evidence of a settlement for other purposes. Branch v. Fidelity & Casualty Co., 783 F.2d 1289, 1294 (5th Cir.1986).

The district court’s disclosure of the fact of settlement was clearly for the purpose of avoiding jury confusion, rather than for the purpose of showing liability. In a case such as this one, where the absence of defendants previously in court might confuse the jury, the district court may, in its discretion, inform the jury of the settlement in order to avoid confusion. See Belton, supra, 724 F.2d at 505. The district court did not abuse its discretion in revealing the fact of settlement in this case.

The district court's disclosure of the amount of settlement, however, is a different matter. While revealing the fact of settlement explains the absence of the settling defendants and thus tends to reduce jury confusion, disclosing the amount of settlement serves no such purpose. See Belton, supra, 724 F.2d at 505 (disclosure of the fact of settlement did not violate Rule 408 because it was offered to reduce jury confusion but disclosure of the settlement amount did not fall under any exception to Rule 408). Disclosing the amount of settlement had no proper purpose in the circumstances of this case and therefore it violated Rule 408.

The district court’s disclosure of the amount of the settlement prejudiced Slip-streamer in two ways. First, the fact that the settlement was for a nominal amount suggests that the plaintiffs thought that the settling defendants were not liable for the plaintiff’s injuries and therefore points the finger at Slipstreamer as the one responsible. Just as we held in McHann v. Firestone Tire & Rubber Co., 713 F.2d 161, 166-67 (5th Cir.1983), that informing the jury of a large settlement by a co-defendant might lead the jury to believe that only the co-defendant, and not the nonset-tling defendant, was negligent, the disclosure of the “nominal” ten dollar settlement in this case suggests to the jury that Slip-streamer alone was liable.¹ Furthermore, the willingness of the plaintiff to settle for a pittance with the other defendants could be taken by the jury as a reflection of the strength of the plaintiffs’ case against Slip-streamer.

Second, revelation of the amount of the settlement informed the jury that if the plaintiff was to receive any compensation for his injuries, he would have to get it from Slipstreamer. Such information is clearly prejudicial in a case such as this one where a ten year old child is permanently injured and where defendant’s liability is sharply contested.

We do not attribute to the district court any intention that disclosure of the settlement amount should be used by the jury to determine Slipstreamer’s liability or the amount of the claim. It is nonetheless clear that Slipstreamer was prejudiced by that disclosure. No instruction was given to mitigate that prejudice. When Slip-streamer’s counsel objected to the court’s disclosure of the settlement amount, the court responded that it revealed the settlement amount as part of the explanation of the procedure by which the defendants were required to be removed from the case. The court then asked counsel if he wished the court to further elaborate on that Texas procedure. Slipstreamer’s counsel’s refusal of this offer cannot be construed as a waiver of the error. Further discussion would have re-emphasized to the jury the nominal payment involved in the settlement. The court did not offer to give any other type of instruction, and it is not apparent what other sort of instruction could have minimized the prejudice already visited on Slipstreamer. Moreover, the district court’s comments may have appeared to invite the jury to consider the settlement amount in its deliberations. The court stated that it did not want the jury speculating “on whether the Plaintiff had received substantial monies, which they have not.” This statement suggests that the fact that the plaintiff has received no money may be relevant to the issues before the jury.

The dissent takes the position that statements made to the jury by a district judge cannot be classified as “evidence,” and, therefore, they are not subject to the Federal Rules of Evidence. We disagree. When a judge chooses to bring matters of fact to the attention of the jury, we have applied the Federal Rules of Evidence. As the dissent notes (n.2), both Belton and McHann have employed this analysis.²

The dissent also asserts that it is contrary to the purpose of Rule 408 to allow one who is not a party to a settlement to invoke the protection of the rule. Again, we disagree. The central purpose of Rule 408 is to exclude compromise negotiations as to all rights they do not expressly control. It does not discourage settlement to prohibit the use of the fact or amount of settlement as an offensive weapon which can reach beyond its terms. Literally and substantively Rule 408 would forbid Ken-non advising the jury that his settlements with the other defendants netted him nothing. The court cannot do for Kennon what Kennon could not do for himself.

Finally, the dissent suggests that a jury would most likely assume that a plaintiff who releases some but not all defendants received little or nothing from those released. The validity of this observation is obviously at the core of our disagreement. Rather than predict who is right, we hold no more than that no party, or the court, should disclose to the jury the amount of a settlement with other defendants in the absence of compelling circumstances demanding disclosure which are not present here.

Under the circumstances of this case, the district court’s announcement to the jury violated Rule 408 and prejudiced the substantial rights of Slipstreamer. It is enti-tied to a new trial.

III

Our resolution of the Rule 408 issue makes it unnecessary to consider other errors raised by Slipstreamer. We do address two questions raised because they are likely to occur on retrial.

A

Slipstreamer contends that the district court erred in refusing to submit an issue concerning Jerry L. Kennon, Jr.’s negligence for failing to wear protective headgear and his parents’ negligence for failing to require him to wear his headgear. Slip-streamer asserts both a statutory and a common-law duty to wear protective headgear.

The district court properly refused to submit an instruction concerning breach of a statutory duty. Tex.Rev.Civ.Stat.Ann. art. 6701c-3 § 2 (Vernon Supp.1986) states: “No person under 18 years of age may operate a motorcycle on a public street or highway of this state unless he wears protective headgear that meets standards adopted by the Department of Public Safety____” There is no evidence in the record, however, to indicate that the accident occurred on a “public street or highway.” The undisputed testimony was that the accident took place on a private road. Furthermore, the evidence showed that the Texas Department of Public Safety does not require any eye protection with its approved headgear. Therefore, even if the Kennons violated the Texas statute, such violation could not have been a “cause” of the injury to Jerry L. Kennon, Jr.’s eye.

The common-law duty is a different matter. In Duncan v. Cessna Aircraft, Co., 665 S.W.2d 414 (Tex.1984), the Texas Supreme Court adopted a system of comparative causation in strict liability cases. Under this system, the amount of a plaintiffs recovery in a strict liability action will be reduced by the percentage of the injury attributable to the plaintiff’s negligence, “whether it is characterized as assumption of risk, misuse, or failure to mitigate or avoid damages____” Id. at 428. Under Duncan, then, Slipstreamer was entitled to an instruction on breach of a common-law duty if there was evidence in the record from which the jury could reasonably find that the failure to wear eye protection was negligent.

Carnation Co. v. Wong, 516 S.W.2d 116, 117 (Tex.1974), in which the Texas Supreme Court held that “persons whose negligence did not contribute to an automobile accident should not have the damages awarded to them reduced or mitigated because of their failure to wear available seat belts,” is not to the contrary. Wong was a negligence, not a strict liability, action and therefore beyond the scope of Duncan. As a noted commentator on Texas tort law has written:

Prior to Duncan, the Supreme Court determined in [Wong] that a plaintiff’s negligence contributing to his injuries but not contributing to the accident producing event was not applicable to limit that plaintiff's recovery. Under the comparative negligence statute, the court declared that a plaintiff’s failure to wear safety belts or otherwise mitigate the injury did not limit his recovery even though such failure unquestionably contributed to his injuries. However, under comparative causation as literally defined in Duncan, the plaintiff’s recovery should be reduced by the percentage of the injury caused by his failure to avoid the consequences of injury. Thus, when the plaintiff obtains a jury award based on a theory other than negligence, contributory negligence in failing to utilize injury avoidance devices should clearly limit the amount of recovery.

Sales, Product Liability Law in Texas, 23 Houston L.R. 1, 652-53 (1986) (footnotes omitted).³

Duncan does state that the “negligent failure to discover or guard against a product defect is not a defense.” Duncan, supra, 665 S.W.2d at 432. This statement does not mean, however, that the plaintiff’s negligence which permits or increases injury is not a defense merely because the product defect was the sole or initiating cause of the accident. To the contrary, Duncan expressly characterizes the “failure to mitigate or avoid damages” as a defense. Id. at 428. While the plaintiff’s negligence in failing to discover or prevent a defect is not a defense under Duncan, conduct which is negligent irrespective of the knowledge or existence of the defect can constitute a defense. See Sales, supra, at 239-40.

We conclude that the district court erred in holding, as a matter of law, that Jerry L. Kennon, Jr. had no Texas common-law duty to wear a helmet with eye protection. Since proof may be different when the case is retried, the district court should decide whether that record contains evidence of Jerry L. Kennon, Jr.’s negligence in failing to wear such a helmet or of his parents’ negligence in failing to require him to wear one sufficient to create a jury issue. We hold only that the issue of common law duty cannot be dismissed as a matter of law if a jury could reasonably find such action negligent.

B

Slipstreamer contends that the district court erred in refusing to submit to the jury an issue concerning Moped Trave-land’s comparative causation in bringing about the Kennons' harm. Slipstreamer argues that under Duncan, 665 S.W.2d at 430, it was entitled to have its liability reduced by the percentage of causation attributable to settling third-party defendant Moped Traveland. Slipstreamer asserts that Moped Traveland’s liability should have been submitted to the jury on two theories: strict liability for placing a defective product into the stream of commerce, and negligence for failing adequately to inspect the windshield for defects.

No reversible error occurred in the court’s refusal to submit the strict liability issue. Duncan makes clear that “[cjomparative causation does not affect the right of a retailer ... to receive indemnity from the manufacturer of the defective product when the retailer ... is merely a conduit for the defective product and is not independently culpable.” 665 S.W.2d at 432; see Sales, supra, at 314-17. The jury found Slipstreamer strictly liable for placing a defectively manufactured product into the stream of commerce. Even if it had also found Moped Traveland strictly liable, Moped Traveland would have been entitled to indemnity from Slipstreamer. See Thiele v. Chick, 631 S.W.2d 526, 533 (Tex.App.—Houston [1st Dist.] 1982, writ ref’d n.r.e.), cited with approval in Duncan, 665 S.W.2d at 432. Thus, Slipstream-er would in either case bear the entire liability. If Slipstreamer is not found strictly liable on retrial, the issue would also disappear.

The district court’s refusal to submit the negligence issue presents a more difficult problem. An “independently culpable” retailer cannot recover indemnity from a strictly liable manufacturer. Duncan, 665 S.W.2d at 432; see Sales, supra, at 316-17; see also Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 819-20 (Tex.1984) (noting that indemnity exists in product liability cases “to protect the innocent retailer in the chain of distribution” (emphasis in original)). Thus, if the jury had found Moped Traveland negligent in failing adequately to inspect the windshield, Slip-streamer would have been entitled to a reduction in its liability by the percentage of causation allocated by the jury to Moped Traveland, the settling tortfeasor. Duncan, 665 S.W.2d at 430.

Under Texas law, a retailer has no duty to inspect a product manufactured by another for latent defects. Cf. Champion Mobile Homes v. Rasmussen, 553 S.W.2d 237, 243 (Tex.Civ.App.—Tyler 1977, writ ref’d n.r.e.) (“We have found no Texas cases, and have been cited none, holding that a vendor has a duty to inspect or test a product manufactured by another for latent defects either before or after it has been sold to a third party.”); Restatement (Second) of Torts § 402 (1965) (retailer “who neither knows nor has reason to know” that product is likely to be dangerous is not liable for failing to discover the danger by inspection). On the other hand, a retailer has a duty to conduct a reasonable inspection for non-latent defects. Cf. McLain v. Hodge, 474 S.W.2d 772, 777 (Tex.Civ.App.—Waco 1971, writ ref’d n.r.e. (holding that retailer of used gun could be found negligent for failing to discover defect in shell ejector); Restatement (Second) of Torts § 401 (1965) (retailer who “knows or has reason to know” that product is dangerous must make a reasonable effort to warn users). This is not a case involving a closed package which a retailer would not be required to inspect. Indeed, the owner of Moped Traveland testified that Moped Traveland customarily inspected Slip-streamer windshields for defects at the time that it installed them and that, as a retailer, it had a responsibility to conduct such inspections.

The court should make several determinations. It should determine whether there was sufficient evidence to warrant submitting to the jury the issue of whether the manufacturing defect could have been discovered by a reasonable inspection. If so, it should determine whether there was sufficient evidence to justify submitting an issue on the reasonableness of Moped Traveland’s inspection. If the evidence is sufficient on both of these issues, it should decide whether the evidence is sufficient that Moped Traveland’s failure to adequately inspect the windshield was approximate cause of Jerry Kennon, Jr.’s injuries. In making these determinations, the court must, of course, regard all of the evidence in the light most favorable to Slipstreamer and inquire whether reasonable jurors could have resolved these issues in Slipstreamer’s favor. See Foster v. Ford Motor Co., 616 F.2d 1304, 1309 & n. 10 (5th Cir.1980); cf. Boeing Co. v. Shipman, 411 F.2d 365, 374-75 (5th Cir.1969) (en banc) (establishing standard for motions for directed verdict and judgment notwithstanding the verdict).

We cannot know what the record on retrial will contain, however, on the record before us now we conclude that there was sufficient evidence on all three of these points to have required the issue of Moped Traveland’s negligence be submitted to the jury. Both the Kennons’ expert, Dr. Jack Roberts, and Slipstreamer’s expert, Mr. Willard Castner, testified that there were three small gouge marks on the inside of one of the holes drilled in the windshield for the attachment of mounting brackets. The experts agreed that two of the gouges were visible to the naked eye.⁴ Mr. James Ted Williams, principal stockholder and president of Moped Traveland, testified that when Moped Traveland received the windshield rubber grommets were in place in the holes. He added, however, that he was able to see the condition of the mounting holes despite -the placement of the grommets. While the smallest of the three defects may be considered latent; whether the two larger defects were non-latent is a matter upon which reasonable minds could differ. Thus, a jury issue is presented.

Whether Mr. Williams’ inspection of the windshield was reasonable also presents an issue for the jury. Williams testified that he inspected the windshield, including the area around the mounting holes. He stated that he did not observe any defects. Dr. Roberts, on the other hand, testified that, the two larger marks were “easily visible.” He added that “any visual inspection would pick up those.” Mr. Castner testified that “if you take that windshield and you look at it, you can, if you look closely, you can see these two [larger flaws] without a microscope.” Castner later described the two gouges as “rather large.” On the basis of this testimony, a jury could reasonably conclude that Williams’ inspection of the windshield was inadequate.

Finally, we turn to the proximate cause issue. Dr. Roberts testified that the two visible flaws did not contribute to the cracking of the windshield; only the third flaw, not visible to the naked eye, was responsible. Arguably, therefore, even a reasonable inspection would not have revealed the existence of a dangerous condition. In such a case, “the failure to inspect cannot be said to be the cause of a risk of injury.” Davis v. Gibson Products Co., 505 S.W.2d 682, 688 (Tex.Civ.App.—San Antonio 1973, writ ref’d n.r.e.). However, in this case a reasonable jury could find that an adequate inspection would have revealed the two visible gouges and that the discovery of those gouges would have put Williams on notice that the mounting hole was flawed.

The evidence in this record was sufficient to permit a reasonable jury to find that the two larger gouges were non-latent, that Moped Traveland’s inspection of the windshield was inadequate, and that the inadequate inspection was a proximate cause of the Kennons’ injuries.

IV

Based on the district court’s error in disclosing the amount of settlement in violation of Rule 408, we reverse the judgment below and remand for further proceedings consistent with this opinion.

REVERSED AND REMANDED.

1 . The district court did not submit instructions to the jury on the liability of either DuPont or Moped Traveland. We hold, however, infra, that there was sufficient evidence to go to the jury on the question of Moped Traveland's negligence.

2 . The dissent concedes that Belton, 724 F.2d at 505, applies Rule 408 to protect a non-settling litigant but would distinguish Belton on its facts. We fail to see how any factual distinctions between Belton and the present case support the dissent's position that Rule 408 can never be used to protect a litigant who was not a party to the settlement in question. Under the dissent’s approach Belton must be wrongly decided. It may be true that the prejudice involved in Bel-ton was even greater than that in the present case. All we say is that the prejudice to Slip-streamer was substantial enough to require reversal.

3 . Sales also notes that the failure to wear a safety belt may present a special case because Tex.Rev.Civ.Stat.Ann. art. 6701d specifically provides that failure to use a safety belt is not contributory negligence. See Sales, supra, at 653 n. 177 ("Plaintiffs recovery would not be reduced if his negligence was failure to use a safety belt, but should be if, for example, the negligence was failure to wear a motorcycle helmet’) (emphasis added).

4 . Dr. Roberts testified that the two larger gouges were "fairly large, about .75 millimeters thickness and about one millimeter in depth.” The smallest gouge, he testified, was "just barely detectable to the naked eye, but it’s about half a millimeter by half a millimeter." Dr. Roberts did not notice the smallest gouge when he first inspected the windshield. Only after further inspection under a microscope did the gouge become evident.

Mr. Castner stated:

[W]e have two rather large, in my opinion rather large gouges and the one that is near the hole is much smaller, as I said earlier, and I would estimate it is only half the depth and certainly area wise it is probably, is on the order of possibly to a tenth of that of the size of these____