### 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 t his diversity action, Quality Control Equipment Compan y ("Quality") appeals the district cour t'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 packin g 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 Cro ssfield v. Quality Control Equip. Co. , 2 1 F.3d 701 (8th Cir. 1993). Because the factual recitation in Crossfield provides a detailed o verview 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 Stri ckler-DeMoss Manufacturing, Inc. ("Strickler") the patent rights for chitterling cleaning machines that , until that time, Strickler had assembled. As part of the exchange, Qualit y also acquired certain inventory, such as pattern s and jigs, that Strickler had used to service and manufacture the machines. Quality obtained th e patents so that it could manufacture, sell, and supply machines an d replac ement parts to meat processing plants. Shortly after th e transaction, Strickler ceased to exist as a corporate entity.

For approximately two years, Quality built chitterling cleanin g machines identical in design to those manufactur ed by Strickler. In 1985, though, Quality becam e concerned about potential problems in the machines

co nstructed 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 th e device's cutting blades. Conseq uently, to reduce the risk of entanglement, Quality added safet y features to the desig n of its chitterling cleaning machine. These design changes included extending the length of a shiel d over the chain and pipes at the machine's intake end, adding kill switches to automatically stop th e machine if the shieldwere raised, and straightening the machine's feeder tubes.

### 3 Monfort p ossessed an old style chitterling cleaning machine that it had bough t from Strickler sometime prior to 1978. In 1984, Monfor t 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 o f inv oices, Quality was aware that Monfort utilized an old style machine ; still, no Quality employee had ever visited Monf ort's plant in St. Joseph. Import antly, Quality did not notify Monfort about the safety hazard s associated with the use of the cleaning apparatus. On June 14, 1988, whil e working at Monfort's St. Joseph facility, Sherlock had a large portion of her right hand severe d when the old style machine entangled her appendage and pulled it into the cutting blade inside the mechanism.

She rlock subsequently initiated this diversity negligence action , based on Missouri law, against Quality. After the district judg e instructed the jury t hat Quality, if found to be a "functional successor" of Str ickler, could under some circumstances be liable for negligen t failure to warn, the venire returned a verdict in Sherlock's favor. The distric t judge thereafter denied Quality's motion for a new trial an d 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 th e distri ct court in its jury instructions improperly confused the lega l theor ies relevant to this case. Also, Quality contends that there wa s insufficient evidence to support the jury's verdict.

II. DISCUSSION

A. The Jury Instructions

Sherlock's theory of recovery was based exclusively on a successo r 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.").
4 prede cessor's products. Quality maintains that the district court , 3 thro ugh its jury instructions, impermissibly interjected into the cas e elements of Missouri's law governing a successor corporation's liability for its predecessor's torts. We review a district court's formulation of juryinstructions for an abuse of discretion and will not reverse if the instructions, taken as a whole, fairly and adequ ately submitted the issues in th e case to the jury. Transport Ins. Co. v. Chrysler Corp. , 71 F.3 d 720, 723 (8th Cir. 1995).

Thi s court is by now intimately acquainted with the theory o f corporate successor l iability as applied in Missouri, having had numerous opportunities to review this body of law. We previously summarized th e 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 li able for the debts and liabilities of the transferor, except: ( 1) where the purchaser expressly or impliedly agrees to assume such debts; (2) where the transactio n amounts to a consolidation or merger of the corporation; (3) where the purchasing corporation i s merely a continuation of the selling corporation; or (4) where the transaction is entered into fraudulently in ord er to escape liability for such debts.

Wallace v. Dorsey Trailers Southeast, Inc. , 849 F.2d 341, 343 (8th Cir

. 1988)(emphasis omitte d)(quoting Brockmann v. O'Neill , 565 S.W.2d 796, 798 (Mo. C t. App. 1978)). Because Missouri's intermediate appellate court s have thus far been unwilling to adopt more "modern" and expansiv e interp retations of the four rather narrow traditional exceptions, it i s typically somewhat di fficult 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

. Americ an Standard, Inc. , 847 S.W.2d 488, 492-93 (Mo. Ct. App

. 199 3)(refusing to depart from restrictive construction of traditiona l exceptions); Young v. Fulton Iron Works Co. , 709 S.W.2d 927, 940-41 (Mo. Ct. App. 1986)(same).

Nonethele ss, a successor corporation may also be liable for its own tortious failure to warn its predecessor's customers of a defect in th e predeces sor's product. Unlike a cause of action alleging corporat e 4

succes sor liability, which necessarily focuses on the "nature of th e transaction" between the corporate transferor and its transferee, Tucker

v. Paxson Mach. Co. , 645 F.2d 620, 622 (8th Cir. 1981), liability for an ind ependent failure to warn depends upon the nature of the relationshi p between the successor and the predecessor's customers. Florum v. Elliott Mfg. , 867 F.2d 570, 5 77 (10th Cir. 1989). "For the most part such a duty [to warn] has been imposed where the relation is of some actual o r potent ial economic advantage to the defendant, and the expected benefi t 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 re lationship sufficient to justify foisting a duty to warn of known dangers on the successor corporation, the court s 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 machin e 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

### 6

own er of that machine." Id . While these factors are indisputabl y important, and in man y cases dispositive, we remain mindful that they are merely useful tools which provide guidance in resolving the ultimat e inquiry: whether there is an adequate nexus bet ween the successor and the predecessor's custome rs. 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 co ntinuing relationship between the successor and th e predec essor's customers for the benefit of the successor

. Hen ce, rather than relying only on the four specific factor s above, which are not exhaustive in establishing a n exus between the successor and its predecessor's customers sufficient t o jus tlyimpose an independent duty to warn upon notice o f 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 th e preexisting customer is sufficient to create a duty to warn has bee n upon the actual or potential economic advantage to th e successor corporation.

15 Wi lliam M. Fletcher, Fletcher Cyclopedia of the Law of Privat e Corporations § 7123.08 (perm. ed. rev. vol. 1990).

In t he present case, we do not agree that the district cour t improperly included within its jury instructions elements relevant only to corpor ate successor liability. In essence, Quality solely bases thi s allegation of error o n the district court's use of the phrase "functional successor" in its cha rge. While we acknowledge that this term appears to be uni que 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 cor rect 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 juryto examine the relationship between Quality and Monfort. Moreover, the court correctly stated that Quality would ha ve a "duty of care to give adequa te warning" only if it knew of the dangerous condition an d 5 "maint ain[ed], on a regular basis, contact with purchasers of equipmen t from t he original seller, through a service contract or comparabl e relationship." Given these facts, we conclude that the district cour t fair lyand adequately submitted to the jury the issue of a successo r corporation's independent duty to warn.

B. Sufficiency of the Evidence

Qu alitymaintains that, because there was insufficient evidence t o suppor t Sherlock's claim, the district court committed error when i t refused to grant the company's renewed motion for judgment as a matter of law. When reviewing a district court's denial o f a motion for judgment as a matter of law, we must:

### 8 (1) resolve direct factual conflicts in favor of th e nonmovant; (2) assume as true all facts supporting the nonmova nt which the evidence tended to prove; (3) give the nonmovant th e benefit of all reasonable inferences; and (4) affirm the denial of th e motion if the evidence s o 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)

. Appl ying this standard to the record, we find that there was clearl y sufficient evidence to support a jury's determin ation that Quality had an independent duty to warn Sherlock's employer of defects in the chitterling cleaning machine.

Relying o n 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 chit terling cleaning machines. Further, it appeared that Quality was by far the most easily accessible, if not the only, supplier of replacement parts for the Strickle r chitterling cleaning machine. Indeed, this state of affairs contributed to Quality's decision to purchase the rights to assemble the machine, as Qua lity's president testified that an "attractive" feature of th e transactio n was the fact that Strickler was going out of business an d Quality would thus be able to "step into [Strickler's] shoes" vis a vis th e predecessor corporati on's customers. Consequently, one could justifiably conclu de that Quality perceived it to be economically advantageous t o foster relationships with Strickler's customers; for, through thes e associ ations Quality would have the opportunity not only to peddl e replaceme nt parts, but to one day possibly benefit from the sale of ne w machines to a clientele with apparently no other viable source for a neede d 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 j ury to deem the nexus between Quality and Monfort as adequate to justify imposing upon Quality a duty to warn of danger s connected with the chitterling cleaning machine. Significantly, Quality knew of the design de fect present in the Strickler machines, it knew that Monfort utilized an old style machine, and it knew the location of th e machine. Still, Quality did not take the relati vely easy steps that would have sufficed to notify Monfort of the known danger. Because the facts an d reasonable inferences adduced at trial would, at minimum, allow reasonable jurors to differ as to whether Quality acquired an independent duty to war n Monfort, we feel that the district court correctly refused to grant th e renewed motion for judgment as a matter of law.

III. CONCLUSION

The distr ict court properly apprised the jury of the law applicable to a successor corporation's independent duty to warn, and there wa s sufficient evidence to support a verdict on this claim. We therefor e affirm the district court's entry of judgment awarding Sherlock $133,801.8 6 in damages.

Affirmed.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.