The HONORABLE HOWARD F. SACHS, Senior United States 1

District Judge for the Western District of Missouri.

 

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

("Quality") appeals the district court's entry of judgment awarding Diana 1

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
 For ease of identification, we will throughout this opinion 2

refer to the corporation as Monfort.

2

now known as Monfort Pork. See Crossfield v. Quality Control Equip. Co.,

2

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.
3

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
 This case is thus fundamentally different from Crossfield,

3

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.").

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predecessor's products. Quality maintains that the district court,

3

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
 In Tucker v. Paxson Mach. Co., 645 F.2d 620, 626 (8th Cir. 4

1981), we implicitly acknowledged that Missouri would recognize a

successor corporation's independent duty to warn.

5

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. Unlike a cause of action alleging corporate

4

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 purchasercorporation; and (4) the purchaser-corporation's knowledge of defects and

of the location or
6

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
 At oral argument, the parties stipulated that the district 5

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.

7

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 condition and

5

"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:
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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
9

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.