Diana K. Sherlock v. Quality Control ( 1996 )

No. 95-1602
Diana K. Sherlock, *
*
Plaintiff - Appellee, *
* Appeal from the United States
v. * District Court for the Western
* District of Missouri.
Quality Control Equipment *
Company, Inc., *
*
Defendant - Appellant.*
Submitted: November 15, 1995
Filed: March 27, 1996
Before McMILLIAN, FLOYD R. GIBSON, and LOKEN, Circuit Judges.
FLOYD R. GIBSON, Circuit Judge.
In this diversity action, Quality Control Equipment Company
1
("Quality") appeals the district court's entry of judgment awarding Diana
Sherlock $133,801.86 in damages. Finding no error on the record before us,
we affirm.
I. BACKGROUND
We consider here another case of human mutilation caused by a
chitterling cleaning machine located in a St. Joseph, Missouri meat packing
plant owned by Swift Independent Packing Company, which is
1
The HONORABLE HOWARD F. SACHS, Senior United States
District Judge for the Western District of Missouri.
now known as Monfort Pork.2 See Crossfield v. Quality Control Equip. Co.,
1 F.3d 701 (8th Cir. 1993). Because the factual recitation in Crossfield
provides a detailed overview of circumstances relevant to this appeal, we
will abbreviate our discussion of certain events underlying Sherlock's
cause of action. See id. at 702-03 (describing the chitterling cleaning
machine and the chitterling production process).
In 1983, Quality purchased from Strickler-DeMoss Manufacturing, Inc.
("Strickler") the patent rights for chitterling cleaning machines that,
until that time, Strickler had assembled. As part of the exchange, Quality
also acquired certain inventory, such as patterns and jigs, that Strickler
had used to service and manufacture the machines. Quality obtained the
patents so that it could manufacture, sell, and supply machines and
replacement parts to meat processing plants. Shortly after the
transaction, Strickler ceased to exist as a corporate entity.
For approximately two years, Quality built chitterling cleaning
machines identical in design to those manufactured by Strickler. In 1985,
though, Quality became concerned about potential problems in the machines
constructed pursuant to that original design ("old style" machines).
Specifically, Quality feared that the equipment might ensnare an operator's
hand or glove and pull the person's body into the device's cutting blades.
Consequently, to reduce the risk of entanglement, Quality added safety
features to the design of its chitterling cleaning machine. These design
changes included extending the length of a shield over the chain and pipes
at the machine's intake end, adding kill switches to automatically stop the
machine if the shield were raised, and straightening the machine's feeder
tubes.
2
For ease of identification, we will throughout this opinion
refer to the corporation as Monfort.
2
Monfort possessed an old style chitterling cleaning machine that it
had bought from Strickler sometime prior to 1978. In 1984, Monfort
submitted to Quality the first of many orders for replacement parts. In
fact, between March 1984 and June 1988, Quality provided parts to Monfort's
St. Joseph plant on twenty-four separate occasions. On the basis of
invoices, Quality was aware that Monfort utilized an old style machine;
still, no Quality employee had ever visited Monfort's plant in St. Joseph.
Importantly, Quality did not notify Monfort about the safety hazards
associated with the use of the cleaning apparatus. On June 14, 1988, while
working at Monfort's St. Joseph facility, Sherlock had a large portion of
her right hand severed when the old style machine entangled her appendage
and pulled it into the cutting blade inside the mechanism.
Sherlock subsequently initiated this diversity negligence action,
based on Missouri law, against Quality. After the district judge
instructed the jury that Quality, if found to be a "functional successor"
of Strickler, could under some circumstances be liable for negligent
failure to warn, the venire returned a verdict in Sherlock's favor. The
district judge thereafter denied Quality's motion for a new trial and
renewed motion for judgment as a matter of law, and Quality timely filed
an appeal to this court. In its appeal, Quality advances what we construe
to be essentially two allegations of error. First, Quality claims that the
district court in its jury instructions improperly confused the legal
theories relevant to this case. Also, Quality contends that there was
insufficient evidence to support the jury's verdict.
II. DISCUSSION
A. The Jury Instructions
Sherlock's theory of recovery was based exclusively on a successor
corporation's independent duty to warn of defects in the
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predecessor's products.3 Quality maintains that the district court,
through its jury instructions, impermissibly interjected into the case
elements of Missouri's law governing a successor corporation's liability
for its predecessor's torts. We review a district court's formulation of
jury instructions for an abuse of discretion and will not reverse if the
instructions, taken as a whole, fairly and adequately submitted the issues
in the case to the jury. Transport Ins. Co. v. Chrysler Corp., 71 F.3d
720, 723 (8th Cir. 1995).
This court is by now intimately acquainted with the theory of
corporate successor liability as applied in Missouri, having had numerous
opportunities to review this body of law. We previously summarized the
state's "well-settled" rule in this area as follows:
Where one corporation sells or otherwise transfers all of its
assets to another corporation, the latter is not liable for the
debts and liabilities of the transferor, except: (1) where the
purchaser expressly or impliedly agrees to assume such debts;
(2) where the transaction amounts to a consolidation or merger
of the corporation; (3) where the purchasing corporation is
merely a continuation of the selling corporation; or (4) where
the transaction is entered into fraudulently in order to escape
liability for such debts.
Wallace v. Dorsey Trailers Southeast, Inc., 849 F.2d 341, 343 (8th Cir.
1988)(emphasis omitted)(quoting Brockmann v. O'Neill, 565 S.W.2d 796, 798
(Mo. Ct. App. 1978)). Because Missouri's intermediate appellate courts
have thus far been unwilling to adopt more "modern" and expansive
interpretations of the four rather narrow traditional exceptions, it is
typically somewhat difficult for a Missouri plaintiff to hold a successor
corporation
3
This case is thus fundamentally different from Crossfield,
in which the plaintiff sought to attach liability because of
Quality's status as a supplier of a component part. See
Crossfield, 1 F.3d at 706 ("The only theory under which
Crossfield attempts to hold Quality liable is as a supplier of
the component part, the chain.").
4
accountable for its predecessor's torts. See Chemical Design, Inc. v.
American Standard, Inc., 847 S.W.2d 488, 492-93 (Mo. Ct. App.
1993)(refusing to depart from restrictive construction of traditional
exceptions); Young v. Fulton Iron Works Co., 709 S.W.2d 927, 940-41 (Mo.
Ct. App. 1986)(same).
Nonetheless, a successor corporation may also be liable for its own
tortious failure to warn its predecessor's customers of a defect in the
predecessor's product.4 Unlike a cause of action alleging corporate
successor liability, which necessarily focuses on the "nature of the
transaction" between the corporate transferor and its transferee, Tucker
v. Paxson Mach. Co., 645 F.2d 620, 622 (8th Cir. 1981), liability for an
independent failure to warn depends upon the nature of the relationship
between the successor and the predecessor's customers. Florum v. Elliott
Mfg., 867 F.2d 570, 577 (10th Cir. 1989). "For the most part such a duty
[to warn] has been imposed where the relation is of some actual or
potential economic advantage to the defendant, and the expected benefit
justifies the requirement of special obligations." Leannais v. Cincinnati,
Inc., 565 F.2d 437, 442 (7th Cir. 1977)(quoting William L. Prosser, Law of
Torts § 56, at 339 (4th ed. 1971)).
In determining the existence of a relationship sufficient to justify
foisting a duty to warn of known dangers on the successor corporation, the
courts have often cited four factors as being significant. See, e.g.,
Tucker, 645 F.2d at 626. These elements include: "(1) succession to a
predecessor's service contracts; (2) coverage of the particular machine
under the contract; (3) service of that machine by the purchaser-
corporation; and (4) the purchaser-corporation's knowledge of defects and
of the location or
4
In Tucker v. Paxson Mach. Co., 645 F.2d 620, 626 (8th Cir.
1981), we implicitly acknowledged that Missouri would recognize a
successor corporation's independent duty to warn.
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owner of that machine." Id. While these factors are indisputably
important, and in many cases dispositive, we remain mindful that they are
merely useful tools which provide guidance in resolving the ultimate
inquiry: whether there is an adequate nexus between the successor and the
predecessor's customers. See Downtowner, Inc. v. Acrometal Prods., Inc.,
347 N.W.2d 118, 125 (N.D. 1984)("This listing [of factors] cannot be said
to be exhaustive."). As explained in one of the foremost authorities on
corporate law:
The critical element required for the imposition of the duty is
a continuing relationship between the successor and the
predecessor's customers for the benefit of the successor.
Hence, rather than relying only on the four specific factors
above, which are not exhaustive in establishing a nexus between
the successor and its predecessor's customers sufficient to
justly impose an independent duty to warn upon notice of
dangers or potential dangers, the courts also employ a
risk/benefit analysis. Thus, the focus in deciding whether the
relationship between the successor corporation and the
preexisting customer is sufficient to create a duty to warn has
been upon the actual or potential economic advantage to the
successor corporation.
15 William M. Fletcher, Fletcher Cyclopedia of the Law of Private
Corporations § 7123.08 (perm. ed. rev. vol. 1990).
In the present case, we do not agree that the district court
improperly included within its jury instructions elements relevant only to
corporate successor liability. In essence, Quality solely bases this
allegation of error on the district court's use of the phrase "functional
successor" in its charge. While we acknowledge that this term appears to
be unique in the jurisprudence applicable to a successor corporation's
independent duty to warn, we cannot say that this novel choice of words,
in itself, irreparably tainted the otherwise correct instructions. To the
contrary, our review of the instructions reveals that the district court
properly advised the jury of the law. Notably, instead of emphasizing the
transaction between Quality and Strickler, the court directed the
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jury to examine the relationship between Quality and Monfort. Moreover,
the court correctly stated that Quality would have a "duty of care to give
adequate warning" only if it knew of the dangerous condition5 and
"maintain[ed], on a regular basis, contact with purchasers of equipment
from the original seller, through a service contract or comparable
relationship." Given these facts, we conclude that the district court
fairly and adequately submitted to the jury the issue of a successor
corporation's independent duty to warn.
B. Sufficiency of the Evidence
Quality maintains that, because there was insufficient evidence to
support Sherlock's claim, the district court committed error when it
refused to grant the company's renewed motion for judgment as a matter of
law. When reviewing a district court's denial of a motion for judgment as
a matter of law, we must:
5
At oral argument, the parties stipulated that the district
court's instruction did not require the jury to determine that
Quality had actual knowledge of the defect. Though we agree that
most courts considering this subject have required a successor
corporation to have actual, as compared to constructive,
knowledge of the defect, see, e.g., Polius v. Clark Equip. Co.,
802 F.2d 75, 84 n.10 (3d Cir. 1986), it is not entirely clear
that the Missouri Supreme Court would adopt this standard. Cf.
Flaugher v. Cone Automatic Mach. Co., 507 N.E.2d 331, 337 (Ohio
1987)(stating that the successor corporation must have had actual
or constructive knowledge of the defect). Even so, to the extent
that the district court incorrectly defined this term for the
jury, we find that error to be harmless because Quality admits
that it became aware of the design defect in old style machines.
It argues, however, that because Monfort could independently have
assimilated safety features into the machine that injured
Sherlock, it did not have the actual knowledge arguably necessary
to impose liability. We disagree. Design defects, by their very
nature, affect all machines constructed pursuant to the faulty
design. It seems to us disingenuous for a manufacturer to claim
that it did not have knowledge of a particular machine's defect
because the owner of the machine might unilaterally have made
safety alterations to the device.
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(1) resolve direct factual conflicts in favor of the nonmovant;
(2) assume as true all facts supporting the nonmovant which the
evidence tended to prove; (3) give the nonmovant the benefit of
all reasonable inferences; and (4) affirm the denial of the
motion if the evidence so viewed would allow reasonable jurors
to differ as to the conclusions that could be drawn.
Grand Labs., Inc. v. Midcon Labs., 32 F.3d 1277, 1280 (8th Cir. 1994).
Applying this standard to the record, we find that there was clearly
sufficient evidence to support a jury's determination that Quality had an
independent duty to warn Sherlock's employer of defects in the chitterling
cleaning machine.
Relying on testimony from Quality's own officers and employees, the
jury could reasonably have inferred that in 1983 Quality was probably the
sole remaining manufacturer in the world of chitterling cleaning machines.
Further, it appeared that Quality was by far the most easily accessible,
if not the only, supplier of replacement parts for the Strickler
chitterling cleaning machine. Indeed, this state of affairs contributed
to Quality's decision to purchase the rights to assemble the machine, as
Quality's president testified that an "attractive" feature of the
transaction was the fact that Strickler was going out of business and
Quality would thus be able to "step into [Strickler's] shoes" vis a vis the
predecessor corporation's customers. Consequently, one could justifiably
conclude that Quality perceived it to be economically advantageous to
foster relationships with Strickler's customers; for, through these
associations Quality would have the opportunity not only to peddle
replacement parts, but to one day possibly benefit from the sale of new
machines to a clientele with apparently no other viable source for a needed
product. To be sure, Quality did benefit in the instant case, having sold
replacement parts to Monfort on twenty-four separate occasions.
Under these circumstances, it would have been wholly
8
appropriate for the jury to deem the nexus between Quality and Monfort as
adequate to justify imposing upon Quality a duty to warn of dangers
connected with the chitterling cleaning machine. Significantly, Quality
knew of the design defect present in the Strickler machines, it knew that
Monfort utilized an old style machine, and it knew the location of the
machine. Still, Quality did not take the relatively easy steps that would
have sufficed to notify Monfort of the known danger. Because the facts and
reasonable inferences adduced at trial would, at minimum, allow reasonable
jurors to differ as to whether Quality acquired an independent duty to warn
Monfort, we feel that the district court correctly refused to grant the
renewed motion for judgment as a matter of law.
III. CONCLUSION
The district court properly apprised the jury of the law applicable
to a successor corporation's independent duty to warn, and there was
sufficient evidence to support a verdict on this claim. We therefore
affirm the district court's entry of judgment awarding Sherlock $133,801.86
in damages.
Affirmed.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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