holding that a retailer may be held liable under a strict liability theory for injuries from defective products sold by that retailerSummary of this case from Arndt v. Johnson & Johnson
Argued November 11, 1986
Decided December 19, 1986
Appeal from the Appellate Division of the Supreme Court in the Third Judicial Department, John G. Connor, J.
Fred J. Hutchison for third-party defendant-appellant-respondent. H. Neal Conolly and Michael J. Hutter for defendant and third-party plaintiff-respondent-appellant. Donald W. Boyajian for third-party defendant-respondent.
A corporation that sold a machine previously used in its own production as surplus property was not liable to remote purchasers either in strict products liability or in negligence, for injuries allegedly resulting from a defect in the machine, and should have been awarded summary judgment dismissing the complaint.
On February 26, 1978, plaintiff's son, employed in his father's business (Ardex Corporation), injured his hand while cleaning the rollers of a high-speed, three-roll grinding mill. The mill had been manufactured and sold by Charles Ross Son Company, Inc. to the Missile and Space Department of General Electric Corporation in January 1962 for approximately $4,000. When General Electric purchased the mill, at its request the manufacturer added both a safety switch, which if tripped would bring the rollers to a stop, and a removable feed hopper, which permitted larger quantities of material to be fed into the mill and acted incidentally as a housing guard. Claimants' theory is that both of these added features made the mill safer to use.
The safety switch did not become a mandatory part of the machine until 1975, following promulgation of standards by the American National Standards Institute, Inc. There is no evidence that the removable feed hopper ever became mandatory.
In June 1973, more than 11 years after its purchase of the mill, General Electric determined that the machine was no longer needed in its own production and included it as part of a sale of its surplus property, conducted with a sale of Government-owned surplus. There followed a series of transfers, ending some four years later with the mill back in production, in the hands of Ardex.
At the surplus sale in June 1973 — the second surplus sale of the year — several hundred lots were offered, some of them items of equipment, some of them hardware and metals sold by weight. General Electric held two or three sales of its surplus equipment a year; there is no evidence that General Electric derived any profit from such sales. The terms of the June 1973 sale were "As Is, Where Is", and bidders were invited to inspect the property beforehand. The invitations to bid stated: "Seller makes no warranty, express or implied, as to quantity, quality, weight, size, character or description of any of the surplus property covered by this invitation." The only indication that the June 1973 sale — or any surplus sale — received publicity is the following incomplete statement in a General Electric memorandum relating to "Government Owned Surplus": "will be taken to advertise the sale through the various medias available, such as newspapers, trade magazines, trade papers, etc."
The mill — apparently the only piece of equipment of its kind in the sale — was sold to Semco Equipment Company (not a party to this action) for $35. Whether or not the machine was sold as scrap metal is disputed by the parties, General Electric in its affidavits and testimony stating its understanding that the machine was to be scrapped and reduced to molten metal. There is no evidence as to whether the mill was in operable condition when it was sold by General Electric. At all events, several weeks after General Electric's surplus sale, Semco resold the mill to Commercial, a dealer in new and used machinery, for $150. Commercial, in turn, sold the machine in February 1974 to K.M. Equipment Corporation, another dealer in new and used machinery, which purchased it together with two other mills for $850 under the name East Bay Industries, as a joint venture with Alex Zeeve and Company. Zeeve and East Bay owned the machine for approximately two years, during which time they reconditioned and rebuilt it to its original specifications by regrinding the rollers, recutting the gears, refitting the end plates, cleaning and painting. In April 1976, the machine was sold to Ardex, where it was installed by Charles W. Ashline Plumbing Heating Inc. in 1977. At the time the mill was received by K.M., it had neither the safety switch nor the feed hopper.
Following his son's accident, plaintiff asserted claims in strict products liability, negligence and breach of warranty against Ross, the manufacturer, and K.M., the seller. K.M. then commenced a third-party action against Zeeve, Commercial, Ardex and General Electric; Ardex and Zeeve asserted cross claims for contribution and indemnity against General Electric; Zeeve impleaded East Bay; East Bay and K.M. impleaded Ashline. Upon the completion of discovery, General Electric sought summary judgment claiming that it did not sell the machine in the ordinary course of business and therefore owed no duty to plaintiff. Both lower courts granted the motion on this basis as to the strict liability claims, but denied summary judgment as to the negligence claims, finding issues of fact as to foreseeability that the machine would again be used in production. Special Term granted General Electric summary judgment on the breach of warranty claim because there was no privity of contract between the parties and because the sale was on an "as is" basis (Martin v Dierck Equip. Co., 43 N.Y.2d 583), and that ruling was not appealed. The Appellate Division granted General Electric, K.M. and East Bay leave to appeal to this court.
The issues before us are whether the Appellate Division correctly granted summary judgment dismissing the strict liability claims against General Electric, and whether it correctly denied summary judgment as to the negligence claims. We conclude that the claims against General Electric should have been dismissed in their entirety.
Turning first to the strict liability claims, a product may be defective by reason of a manufacturing flaw, improper design or failure to warn (see, Voss v Black Decker Mfg. Co., 59 N.Y.2d 102, 106-107; Robinson v Reed-Prentice, 49 N.Y.2d 471, 478-479; see also, Lopez v Precision Papers, 67 N.Y.2d 871).
Manufacturers of defective products may be held strictly liable for injury caused by their products, regardless of privity, foreseeability or due care (Voss v Black Decker Mfg. Co., 59 N.Y.2d 102, 106, supra; Codling v Paglia, 32 N.Y.2d 330, 342; see also, PJI 2:141). Imposition of this onerous liability rests largely on considerations of public policy (Victorson v Bock Laundry Mach. Co., 37 N.Y.2d 395, 401; see also, Restatement [Second] of Torts § 402 A comment c; Prosser and Keeton, Torts § 98 [5th ed]). Given the increased complexity of modern products and modern production methods, most often only the manufacturer "can fairly be said to know and to understand when an article is suitably designed and safely made for its intended purpose"; by the same token, the manufacturer most often "alone has the practical opportunity, as well as a considerable incentive, to turn out useful, attractive, but safe products." (Codling v Paglia, 32 N.Y.2d 330, 340, 341, supra; see also, Caprara v Chrysler Corp., 52 N.Y.2d 114, 123; Micallef v Miehle Co., 39 N.Y.2d 376, 383.)
Policy considerations have also been advanced for the imposition of strict liability on certain sellers, such as retailers and distributors of allegedly defective products. Where products are sold in the normal course of business, sellers, by reason of their continuing relationships with manufacturers, are most often in a position to exert pressure for the improved safety of products and can recover increased costs within their commercial dealings, or through contribution or indemnification in litigation; additionally, by marketing the products as a regular part of their business such sellers may be said to have assumed a special responsibility to the public, which has come to expect them to stand behind their goods (see, Mead v Warner Pruyn Div., 57 A.D.2d 340; Kirby v Rouselle Corp., 108 Misc.2d 291; Vandermark v Ford Motor Co., 61 Cal.2d 256, 391 P.2d 168; see also, Restatement [Second] of Torts § 402 A comment c).
But not every seller is subject to strict liability. The policy considerations that have been advanced to justify the imposition of strict liability on manufacturers and sellers in the normal course of business obviously lack applicability in the case of a party who is not engaged in the sale of the product in issue as a regular part of its business. (See, Restatement [Second] of Torts § 402 A, comment f, concluding: "This Section is also not intended to apply to sales of the stock of merchants out of the usual course of business, such as execution sales, bankruptcy sales, bulk sales, and the like.") The casual or occasional seller of a product does not undertake the special responsibility for public safety assumed by those in the business of regularly supplying those products, nor is there the corollary element of forced reliance on that undertaking by purchasers of such goods. As a practical matter, the occasional seller has neither the opportunity, nor the incentive, nor the protection of the manufacturer or seller who puts that product into the stream of commerce as a normal part of its business, and the public consumer does not have the same expectation when it buys from such a seller. We recognized, for example, in Gobhai v KLM Royal Dutch Airlines ( 57 N.Y.2d 839, affg 85 A.D.2d 566), in affirming the grant of summary judgment to an airline defendant sued in strict liability for allegedly defective slippers given a passenger, that where distribution of an allegedly defective product is incidental to defendant's regular business the principles of strict products liability have no relevance.
Both Special Term and the Appellate Division correctly concluded that strict liability was inapposite because there was no showing that General Electric was regularly engaged in the business of selling the equipment in issue. As in Gobhai (supra), the sale of the mill — indeed the surplus sale itself — was wholly incidental to the regular business of General Electric and, as such, not governed by the policy considerations underlying the imposition of strict liability. In reaching the conclusion as a matter of law that strict liability does not apply here, we cannot ignore the undisputed circumstances of the sale. The machine was being sold after more than 11 years in production. The sale was on an "As Is — Where Is" basis, purchasers were invited to inspect the property before buying and denied any warranties, and the price was $35, less than 1% of General ELectric's own purchase price for the equipment more than a decade earlier.
Claimants assert that there is a question of fact whether General Electric was in reality in the regular business of a second-hand equipment dealer, relying on Galindo v Precision Am. Corp. ( 754 F.2d 1212). In that case, however, there was evidence that the seller of the subject sawmill trimmer operated more than 240 sawmills and plants and regularly sold its used sawmill equipment to dealers (see also, Jordan v Sunnyslope Appliance Propane Plumbing Supplies Co., 135 Ariz. 309, 660 P.2d 1236); there was no evidence of any special conditions of sale such as were present here.
Even if we were to recognize that liability might be imposed in a case such as hypothesized in Galindo (supra) — i.e., regular, periodic dispositions of sawmill equipment, a division devoted to selling that equipment, widespread advertising, and substantial revenues from that activity (id., at p 1219) — this record contains no such facts. There is no basis in the undisputed facts before us to support an inference that General Electric, in incidentally disposing of the mill at a surplus equipment sale in the manner it did, undertook any special responsibility to the public for product safety, or was perceived by the public as having done so, or was better able to spread any loss caused by such defective products, making it more equitable to impose such loss on the seller (see, Galindo v Precision Am. Corp., 754 F.2d 1212, 1218, supra; see generally, When is Person "Engaged in the Business" for Purposes of Doctrine of Strict Liability, Ann., 99 ALR3d 671; Prosser and Keeton, Torts § 100 [5th ed]). While we recognize that more than the single or isolated sale of a jam jar, a pound of sugar or an automobile described in the Restatement (Restatement [Second] of Torts § 402 A comment f) is at issue here, still the principle is the same whether an individual, or an airline, or a huge corporation disposing of its surplus equipment in an occasional sale is involved: there is no basis in public policy for the imposition of strict liability, and summary judgment was correctly granted.
The same result should follow as to the negligence issue.
Claimants begin their analysis with a contention that, though it sold the mill in a surplus sale, General Electric should have foreseen that the machine might be returned to production. We have, however, several times made clear that a determination of negligence — i.e., breach of duty — must begin with consideration of the duty owed, which is a matter of policy, rather than with the issue of foreseeability (see, De Angelis v Lutheran Med. Center, 58 N.Y.2d 1053; Pulka v Edelman, 40 N.Y.2d 781). At most, the duty of a casual or occasional seller would be to warn the person to whom the product is supplied of known defects that are not obvious or readily discernible (see, Copp v Corning Glass Works, 114 A.D.2d 144; see also, Restatement [Second] of Torts § 388). This orbit of duty is consistent with the recognition that, unlike the manufacturer (see, Schumacher v Shear Co., 59 N.Y.2d 239 [successor to manufacturer]; Micallef v Miehle Co., 39 N.Y.2d 376, supra [manufacturer]) or the seller of a product in the normal course of business, the occasional seller is not part of the regular commercial network for that product. General Electric breached no duty to claimants by its alleged failure to warn of the absence of the safety switch and feed hopper.
Accordingly, the order should be modified, with costs to third-party defendant General Electric, by granting summary judgment to General Electric dismissing the negligence claims asserted against it and, as so modified, affirmed. The certified question should be answered in the affirmative.
Judges MEYER, SIMONS, TITONE and HANCOCK, JR., concur with Judge KAYE; Judge ALEXANDER dissents and votes to modify the order by denying summary judgment to General Electric as to the strict products liability claims asserted against it and, as so modified, to affirm in a separate opinion; Chief Judge WACHTLER taking no part.
Order modified, with costs to third-party defendant General Electric, by granting summary judgment to General Electric dismissing the negligence claims asserted against it and, as so modified, affirmed. Question certified answered in the affirmative.
On the record presented in this case, I cannot agree that General Electric has established as a matter of law that it is not engaged in the business of selling used industrial machinery so as to warrant summary judgment on the strict products liability claim. Nor can I agree that General Electric has established its entitlement to judgment as a matter of law on the negligence claim. Accordingly, I respectfully dissent.
Strict products liability applies to a seller of a product in a defective condition provided that the seller is engaged in the business of selling such product (see, Restatement [Second] of Torts § 402 A; see generally, Voss v Black Decker Mfg. Co., 59 N.Y.2d 102, 106-107; Robinson v Reed-Prentice, 49 N.Y.2d 471, 478). Although it is not necessary "that the seller be engaged solely in the business of selling such products", strict products liability does not apply to "the occasional seller * * * who is not engaged in that activity as a part of his business" (Restatement [Second] of Torts § 402 A comment f). In distinguishing between the occasional or casual seller, to which strict products liability does not apply, and the seller who is engaged in a business other than its primary business, to which strict products liability does apply, the Restatement provides two examples. In regard to the former, the illustrations given are that of a housewife who, on one occasion, sells to her neighbor a jar of jam or sugar and an owner of an automobile, who on one occasion, sells it to his neighbor. In contrast, the example provided to illustrate the latter principle is that of a motion picture theater that sells popcorn or ice cream either for consumption on the premises or in packages to be taken home. Even though the concession stand is incidental to the primary business of the movie theater, strict liability obtains. Although the distinction is one that is not easily applied, the crucial factor distinguishing the two categories would appear to be the number of items sold and the frequency of sales (see, Galindo v Precision Am. Corp., 754 F.2d 1212, 1219).
Viewing the evidence in the light most favorable to the party opposing the motion for summary judgment, as we must (see, Robinson v Strong Mem. Hosp., 98 A.D.2d 976, quoting Goldstein v County of Monroe, 77 A.D.2d 232, 236), it is apparent that General Electric has not established that in respect to its sale of used industrial equipment it is a casual or occasional seller akin to an ordinary individual who makes an isolated sale. At the very least, this record demonstrates the existence of a genuine issue of fact as to whether General Electric is in fact engaged in the business of selling used industrial equipment.
General Electric, through its manager of policies and procedure in its reentry systems department, frequently conducts sales of used equipment where up to 300 "lots" of equipment are sold. Each "lot" may contain several pieces of equipment, most of which are identified by manufacturer and style number. The lots are specifically arranged to "stimulate competitive bidding". Moreover, the sales are extensively advertised by the use of media sources such as newspapers, trade magazines and trade papers. Additionally, invitations are mailed to numerous prospective bidders and all the property that is offered for sale is available for inspection and examination prior to bidding. Moreover, the mill that is the subject of this litigation was identified by the name of its manufacturer, information that would be irrelevant, if as contended by General Electric, it was sold for scrap metal, a circumstance in which the weight rather than the manufacturer would be relevant. The record demonstrates that the mill was fully operable and functional when sold and that this sale was pursuant to a company policy to sell operable machines when they were no longer needed.
There is scarce, if any, support in the record for the conclusion of the majority that the mill involved in this case is "the only piece of equipment of its kind in the sale" (majority opn, at p 93). A complete list of the items offered in this particular sale does not appear in the record before us although the partial list provided includes numerous pieces of industrial equipment such as a "flexowriter with tape punch", a "hydraulic pump" and a "key punch machine".
The conclusion is inescapable here that General Electric does not fall into the category of "occasional or casual seller" exempt from strict products liability. The evidence indicates that General Electric conducts a systematic profit-making scheme of selling hundreds if not thousands of pieces of used industrial machinery each year. The majority apparently relies on the fact that General Electric is a "huge corporation" (majority opn, at p 97) and concludes that their sales of used equipment therefore do not constitute a substantial portion of the corporation's activities. This reliance is misplaced and the conclusion deriving therefrom, unwarranted. Surely, a dealer in used machinery that conducts frequent sales of hundreds of pieces of machinery is not excluded from the imposition of strict products liability. Similarly, the fact that General Electric engages in numerous commercial activities other than the sale of used machinery does not render those sales casual and occasional so as to shield General Electric from exposure to strict products liability. Indeed, comment f specifically indicates that it "is not necessary that the seller be engaged solely in the business of selling such products". Thus, just as a movie house that sells food for consumption at home is not excluded from strict products liability, General Electric, which systematically sells large quantities of used industrial machinery, should not be excluded.
The conclusion that General Electric is not a casual or occasional seller of used industrial machinery is fully supported by the policies underlying strict products liability. A basis for imposing strict liability on the seller of a defective product is that the seller has voluntarily assumed a special responsibility for product safety such that the public has the right to expect that the seller will stand behind the product (see, Restatement [Second] of Torts § 402 A comment c; Mead v Warner Pruyn Div., 57 A.D.2d 340; Galindo v Precision Am. Corp., 754 F.2d 1212, 1218, supra). Here, General Electric, by releasing a large quantity of used industrial equipment, including this operable machine, into the stream of commerce as part of a systematic profit-making scheme, may properly be held to have assumed the special responsibility for public safety such as that imposed upon all businesses selling products. It cannot be concluded on this record that the consuming public does not rely on General Electric to stand behind the products it sells for a profit just as the public relies on any seller of large quantities of used equipment. The proposition that vendors of used products are not able to exert pressure for improved safety of products on manufacturers is arguable at best (see, Jordan v Sunnyslope Appliance Propane Plumbing Supplies Co., 135 Ariz. 309, 660 P.2d 1236, 1240) and if accepted would preclude strict products liability claims against any dealer in used products. Finally, used product dealers, like any seller of defective products, can recover increased costs caused by their liability within their commercial dealings or through contribution or indemnification in litigation (Jordan v Sunnyslope Appliance Propane Plumbing Supplies Co., supra, at p 1242). Thus, the policies underlying strict products liability do not support excluding General Electric, a dealer in used industrial machinery, from being subject to a strict products liability claim (see, Galindo v Precision Am. Corp., 754 F.2d 1212, supra).
I conclude therefore, that under the facts and circumstances of this case and in light of the policies underlying strict products liability, General Electric was engaged in the business of selling the product that caused the harm and was not, in that respect, an "occasional or casual" seller.
The majority's reliance on Gobhai v KLM Royal Dutch Airlines ( 85 A.D.2d 566, affd 57 N.Y.2d 839), is misplaced. In affirming the grant of summary judgment to an airline defendant sued in strict liability for allegedly defective slippers given a passenger, the court relied on the undisputed fact that the defendant "did not manufacture, design or sell the alleged defective footwear" (85 A.D.2d, at p 567; emphasis supplied). That the distribution of the slippers was incidental to the basic service provided by the airline demonstrated that there had been no sale of the slippers — i.e., that the purchase of the airline ticket did not include the purchase of the slippers (see, 57 N.Y.2d, at p 841, Fuchsberg, J., dissenting [the majority opinion adopts an inadmissibly narrow definition of sale]). In this case, of course, there is no dispute that General Electric sold the allegedly defective product.
Turning to the negligence claim, the majority opinion determines, for policy reasons, that "the duty of a casual or occasional seller [is at most] to warn the person to whom the product is supplied of known defects that are not obvious or readily discernible" (majority opn, at p 97) and summarily concludes that "General Electric breached no duty" (at p 97). Whether or not the limited duty posited by the majority is warranted, it is inapplicable here where the record does not support the conclusion that General Electric is a "casual or occasional seller". Thus, I would affirm the determination of the Appellate Division that there is a factual issue concerning whether General Electric, the seller, breached its duty of reasonable care to the buyer and those within the foreseeable scope of risk (see, 116 A.D.2d 9, 12).