Opinion
2:99CV00503TC
April 26, 2004
ORDER
This action stems from a fire that destroyed the home of the Plaintiffs, Timothy and Debra Tabor. The Tabors claim that a malfunctioning food dehydrator caused the fire. In 1997, Defendants the Metal Ware Corporation and Newco. of Two Rivers, Inc. (collectively "Defendants" unless otherwise specified) purchased the assets of Nesco/American Harvest Corp. ("American Harvest"), the company that the Tabors allege made the defective food dehydrator. The Tabors' insurance company, Plaintiff Farmers Insurance Group ("Farmers"), filed a separate subrogation action that was later consolidated into this case. The Defendants have filed a motion for summary judgment seeking dismissal of the Tabors' "failure to warn" claim.
For the reasons set forth below, the court denies Defendants' motion.
Discussion
I. Legal Standard.
Under Federal Rule of Civil Procedure 56, a court may enter summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'" Fed.R.Civ.P. 56(c);see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-51 (1986); Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998).
II. Duty to Warn.
In paragraph 72 of their original complaint and paragraph 74 of their amended complaint, the Tabors allege a strict liability cause of action based on Section 402 A of the Restatement (Second) of Torts. Section 402A establishes strict liability for defective products, and comments j and k to § 402A provide a duty to warn of the defects:
j. Directions or warning. In order to prevent the product from being unreasonably dangerous, the seller may be required to give directions or warning, on the container, as to its use. The seller may reasonably assume that those with common allergies, as for example to eggs or strawberries, will be aware of them, and he is not required to warn against them. Where, however, the product contains an ingredient to which a substantial number of the population are allergic, and the ingredient is one whose danger is not generally known, or if known is one which the consumer would reasonably not expect to find in the product, the seller is required to give warning against it, if he has knowledge, or by the application of reasonable, developed human skill and foresight should have knowledge, of the presence of the ingredient and the danger.
There are some products which, in the present state of human knowledge, are quite incapable of being made safe for their intended and ordinary use. . . . Such a product, properly prepared, and accompanied by proper directions and warning, is not defective, nor is it unreasonably dangerous. . . . The seller of such products, again with the qualification that they are properly prepared and marketed, and proper warning is given, where the situation calls for it, is not to be held to strict liability for unfortunate consequences attending their use, merely because he has undertaken to supply the public with an apparently useful and desirable product, attended with a known but apparently reasonable risk.
Restatement (Second) of Torts § 402A Comments j and k (1965). Utah has adopted 402A, comments j and k, and the duty to warn.Grundberg v. Upjohn Co., 813 P.2d 89, 91-92 (Utah 1991) (recognizing duty to warn under Section 402A and comment k); House v. Armour of America, Inc., 886 P.2d 542, 547 (Utah Ct.App. 1994 (recognizing a duty to warn under Section 402A and comment j).
Defendants challenge the Tabors' failure to warn claim on two grounds. First, they argue that the Tabors have not adequately pled a violation of the duty to warn. Second, Defendants argue that Utah law does not recognize a duty to warn applicable to successor corporations, which they are here.
A. Did the Plaintiffs Adequately Plead a Duty to Warn Claim?
The Tabors adequately alleged a strict liability cause of action based on § 402A in paragraph 72 of their original complaint, and in paragraph 74 of their amended complaint: "Defendants are liable, under a strict liability cause of action arising from the general principles of Section 402A of the Restatement of Torts (Second), for the physical harm caused to Plaintiffs and their property." (Comp. at ¶ 72; Am. Comp. at ¶ 74.)
Additionally, Farmers Third Amended Complaint explicitly alleges Metal Ware's and Newco's failure to warn of the potential dangers stemming from defects in the food dehydrator. (Farmer's Third Am. Comp. at ¶ 17.) This complaint also alleges the failure to warn implicitly many times, (Id. at ¶¶ 19, 29, 36, 37, 43, 62, 66, 73, and 74.) These allegations are adequate to put Defendants on notice of a § 402A duty to warn claim. "To state a claim under Fed R. Civ. P. 8(a)(2), the plaintiff must offer "'a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." United Steelworkers of Am. v. Oregon Steel Mills, Inc., 322 F.3d 1222, 1228 (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957) (quoting Fed.R.Civ.P. 8(a)(2))). Rule 8's requirements are "de minimis." Id. (citing Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 104 (1998)), Here, Plaintiffs cited and made a strict liability claim under § 402A in their complaints, and specifically complained that the defendants sold the defective dehydrator "without warning of its defects or dangers." (Farmers' Third Am. Comp. at ¶ 17.)
B. Does Utah Law Recognize a Duty to Warn Applicable to Successor Corporations?
It appears that no Utah court has ruled on this specific issue. But there is guidance from the Tenth Circuit in Florom v. Elliott Mfg., 867 F.2d 570 (10th Cir. 1989). The Florom court, applying Colorado law, held that the duty to warn did apply to successor corporations if certain conditions were met. Significantly, it appears that even though Colorado courts had adopted § 402A and the duty to warn, the Colorado courts had not spoken on the question of whether a duty to warn would apply to a successor corporation. Florom, 867 F.2d at 576-77, The Tenth Circuit did not appear to view this as an obstacle. Instead, using case law from other jurisdictions, the court held that a jury could find in plaintiff's favor on a claim of failure to warn.
The court's research shows that many jurisdictions have placed a duty to warn obligation on successor corporations: Patton v. TIC United Corp., 77 F.3d 1235, 1240 (10 Cir. 1996) (In Kansas, "'successor entity' bearing no corporate relationship to the original manufacturer may incur a duty to warn if it has knowledge of the defective condition of the predecessor's product, and has a 'more than casual' relationship with the customers of the predecessor entity that is an 'economic benefit' to the successor,") (quoting Stratton v. Garvey Int'l. Inc., 676 P.2d 1290, 1294 (1984)); Garcia v. Coe Mfg. Co., 933 P.2d 243, 250 (KM. 1997) ("Such a duty [to warn] arises only when there is a nexus between the successor corporation, its predecessor's customers, and the allegedly defective product"); Rothstein v. Tennessee Gas Pipeline Co., 696 N.Y.S.2d 528, 531 (N.Y. app. Div. 1999) (duty to warn "may be imposed on a successor corporation that maintains sufficient links to the purchaser of products manufactured by its predecessor") (quotations and citations omitted).
Accordingly, the court concludes that Utah law would impose a duty to warn on a successor corporation.
However, that does not end the enquiry. The next question is whether under the particular facts of this case, it is appropriate to impose such a duty on the Defendants, Under traditional tort principles, the existence of the duty to warn is not dependent on the terms of the asset purchase agreement between American Harvest and Defendants. Leannais v. Cincinnati, Inc., 565 F.2d 437, 441-42 (7th Cir. 1977). Moreover, succession alone does not impose a duty to warn the predecessor's customers of recently-discovered defects. Gee v. Tenneco, Inc., 615 F.2d 857, 866 (9th Cir. 1980). Rather, for such a duty to arise, it must flow from the relationship between the successor corporation and the customers of the predecessor corporation. Polius v. Clark Equipment Co., 802 F.2d 75, 84 (3rd Cir. 1986); Mozingo v. Correct Manufacturing Corp., 752 F.2d 168, 177 and n. 12 (5th Cir. 1985); Travis v. Harris Corp., 565 F.2d 443, 448-49 (7th Cir. 1977). The court inFlorom explained how a court must analyze the relationship:
The court must look at factors such as the succession to service contracts, coverage of the particular machine by a contract, service of that machine by the successor, and the successor's knowledge of the defect and of the machine owner's location.Florom v. Elliott Mfg., 867 F.2d 570, 577 (10th Cir. 1989) (citing Polius, 802 F.2d at 84; Mozingo, 752 F.2d at 177; Travis, 565 F.2d at 449). In Florom, the court found it significant that the successor corporation took over the predecessor corporation's service contracts and provided service and parts to the defective product at issue, a crane. Id. The court held that these facts, together with the fact that the parties disputed whether the successor corporation had knowledge of the defect, precluded summary judgment.
In this case, there is evidence of a continuing relation between Defendants and American Harvest's customers. First, and perhaps most significantly, there is evidence that the Defendants knew before purchasing the assets of American Harvest of problems with the food dehydrator and also that the U.S. Consumer Product Safety Commission ("USCPSC") had issued a recall for the food hydrator because of fire danger. (Shopko's Mem. in Opp. at Exs. J, M, N and Q; Tabors' Mem. in Opp. at 4; Id., Ex, F at 40, 42 (deposition of Wesley Drumm, President of Metal Ware).) Second, Defendants, after acquiring American Harvest's assets, employed American Harvest's co-founder Dave Dornbush and his partner Chad Erickson. (Tabors' Mem. in Supp., Ex. S.). Third, after the asset purchase, Defendants continued to use the business arrangement of American Harvest by using American Harvest's customers — retail outlets — to sell Defendants' products. (Shopko's Mem. in Opp. at Exs. H, I.) Defendants contacted these retailers, informed them of the purchase of American Harvest, and further informed them that existing warranties or consumer returns would be handled by the new company. (Id. at Exs. F, J.) Fourth, Defendants used the same service centers used by American Harvest to handle warranty returns, (Id. at Ex. G.) Defendants contacted these service representatives used by American Harvest, asked them to enter new service agreements with Defendants, and told them to use the same service manuals and price lists used previously during their service agreements with American Harvest. (Id.)
Finally, Defendants knew that American Harvest had followed the USCPSC's course of action to target end purchasers for whom neither American Harvest nor its customers (retailers) had no record of purchase and could not identify. (Tabors' Mem. in Opp., Ex. P.) To inform these unidentified end purchasers of the recall, American Harvest advised its customers to post notices throughout their retail stores and "in the general media," such as "press release[s]" and newspapers. Further, Defendants knew that the USCPSC "request[ed]" that American Harvest continue its corrective actions to inform end purchasers until "as many products as possible have been removed from the marketplace," (Id. at Ex. T.)
Accordingly, under the circumstances of this case, it appears that the relationship between Defendants and American Harvest's customers was sufficient to impose a duty to warn on Defendants.
Based on the foregoing, Metal Ware's and Newco's Motion is DENIED.
SO ORDERED.