Court Opinion

ID: 160362
Source: CourtListenerOpinion
Date Created: 2010-08-14 06:43:29+00
Date Added: 2024-06-11T15:04:19.998222
License: Public Domain

F I L E D
                                                                 United States Court of Appeals
                                                                         Tenth Circuit
                 UNITED STATES COURT OF APPEALS                          NOV 7 2000

                                 TENTH CIRCUIT                      PATRICK FISHER
                                                                             Clerk

 FALCON BELTING, INC., an Oklahoma
 corporation,

          Plaintiff-Appellant,

 v.                                                       No. 99-6236
                                                   (D.C. No. CIV-96-2011-T)
 RTP COMPANY, a Minnesota corporation,                  (W. Dist. Okla.)
 also known as RTP INTERNATIONALS,
 INC., and MILLER WASTE MILLS, a
 Minnesota corporation,

          Defendants-Appellees.

                          ORDER AND JUDGMENT *

Before SEYMOUR, Chief Judge, ALARCÓN, ** and BALDOCK, Circuit Judges.

      Falcon Belting, Inc. (Falcon), a manufacturer of plastic conveyor belts,

brought this diversity action against Miller Waste Mills, Inc., d/b/a RTP Company

      *
       This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

       The Honorable Arthur L. Alarcón, Circuit Judge, United States Court of
      **

Appeals for the Ninth Circuit, sitting by designation.
(RTP), a manufacturer of plastic pellets used in the production of molded plastic

equipment, alleging claims for breach of express and implied warranty, fraud,

misrepresentation, negligence, contribution, indemnity, and punitive damages.

Falcon had purchased plastic pellets from RTP for use in the manufacture of a

food processing belt for Frito Lay, Inc. The belt ultimately failed, resulting in the

loss of thousands of bags of Frito Lay chips. After Falcon and its insurer settled

with Frito Lay, Falcon brought this action to recover amounts expended in the

settlement and additional damages. The district court granted summary judgment

for RTP, holding that Falcon’s tort claims were barred under Minnesota’s

economic loss statute, that the terms of sale included a term barring Falcon’s

recovery of consequential damages, 1 and that Falcon was not entitled to

indemnification or contribution. We reverse and remand for further proceedings. 2

      We turn first to the district court’s determination that Falcon’s tort claims

were barred by the state’s economic loss doctrine. Under Minnesota law:

            Economic loss that arises from a sale of goods that is due to
      damage to tangible property other than the goods sold may be
      recovered in tort as well as in contract, but economic loss that arises
      from a sale of goods between parties who are each merchants in
      goods of the kind is not recoverable in tort.

      1
        The district court concluded that under Oklahoma’s choice-of-law rules,
Minnesota law applies to the first two issues. Falcon does not assert this ruling as
error on appeal.
      2
        We have jurisdiction over this appeal because the district court issued a
Fed. R. Civ. P. 54(b) certification.

                                         -2-
M INN . S TAT . A NN . § 604.10 (a) (West 2000). The district court ruled that

although Falcon was not an actual dealer in the plastics supplied by RTP, it was

nonetheless a merchant in goods of the kind on the basis of its specialized

knowledge in the purchase and use of plastics. The court then held that because

Falcon and RTP were both merchants in goods of the kind, Falcon’s claim for

damages to property other than the plastic pellets was barred by the Minnesota

statute. In so holding, the court relied on Regents of the Univ. of Minn. v. Chief

Indus., Inc., 106 F.3d 1409 (8th Cir. 1997). There, the Eighth Circuit addressed

the circumstances in which a party is considered to be a merchant in goods of the

kind under Minnesota law, and construed that definition broadly to include both

those who deal in the goods and those with specialized knowledge of the goods.

Id. at 1411. The dissent in Regents disagreed with the majority’s broad

construction, pointing to language in state case law to the effect that parties are

merchants in goods of the kind only where the parties to the sale are dealers in the

same goods. Id. at 1413 (Lay, Circuit Judge, dissenting).

      Two events occurred while the instant case was pending on appeal which

are relevant to the district court’s holding that Falcon’s tort claims are barred.

First, in 1998, the Minnesota legislature amended section 604.10 by adding

subsection (e), which states that “[t]his section shall not be interpreted to bar tort

causes of action based upon fraud or fraudulent or intentional misrepresentation

                                          -3-
or limit remedies for those actions.” M INN . S TAT . A NN . § 604.10 (e) (West 2000).

The legislature further provided that subsection (e) was intended to clarify, rather

than to change, the original intent of section 604.10, see 1998 Minn. Laws 1st

Sp., c. 2, § 2, and that subsection (e) was applicable to actions pending on or

commenced on or after April 23, 1998, id. § 4. Falcon’s tort claims were pending

appeal on April 23, 1998, and its complaint states claims of fraud and

misrepresentation. Accordingly, under the operation of section 604.10 (e), those

tort claims are not barred.

      Moreover, in Jennie-O Foods, Inc. v. Safe-Glo Prods. Corp., 582 N.W.2d
576 (Minn. Ct. App. 1998), the Minnesota Court of Appeals rejected the broad

construction of “merchants in goods of the kind” adopted by the majority in

Regents and instead found “persuasive . . . the well-reasoned dissent,” drawing on

Lloyd F. Smith Co. v. Den-Tal-Ez, Inc., 491 N.W.2d 11 (Minn. 1992). Jennie-O

Foods, 582 N.W.2d at 579. In so doing, the Minnesota court expressly

disapproved of holding that a party is a merchant in goods of the kind on the basis

of specialized knowledge. See id. at 578-79. The district court’s conclusion that

Falcon was a merchant in goods of the kind so as to bar its tort claims is contrary

to Jennie-O Foods. “In the absence of a state supreme court ruling, a federal court

must follow an intermediate state court decision unless other authority convinces

the federal court that the state supreme court would decide otherwise.” See

                                          -4-
Lowell Staats Mining Co. v. Pioneer Uravan, Inc., 878 F.2d 1259. 1269 (10th Cir.

1989). We are not persuaded the Minnesota Supreme Court would decide this

issue differently than the Minnesota Court of Appeals did in Jennie-O Foods,

particularly given the supreme court’s prior opinion in Den-Tal-Ez. Accordingly,

we reverse the grant of summary judgment on this issue.

      We address the following issues briefly in the event that they may be

relevant on remand. First, we deal with Falcon’s argument that a limitation on

consequential damages was unconscionable under M INN . S TAT . A NN . § 336.2-719

because it was not part of the original contract. This provision was contained in

an acknowledgment form sent by RTP after Falcon had ordered goods, and in

invoices shipped with the goods. The district court rejected Falcon’s argument

upon concluding Falcon had offered no evidence that this provision was not

presented at the time of contract formation. Our review of the record indicates to

the contrary that Falcon supported its argument below that RTP was attempting to

limit remedies after the contract had been made, see App. vol. II, at 337, by

pointing to evidence from Falcon’s president that the limitation provision was

contrary to RTP’s previous advisements, see id. at 358. In view of this evidence,

as well as evidence that the contract was formed by a course of dealing and the

undisputed fact that the limitation was sent to Falcon after it had ordered goods,

we believe that a fact issue exists as to the time of contract formation and thus as

                                         -5-
to whether the limitation was part of the original contract. 3 Summary judgment

was therefore not proper on this issue.

      In addition, the district court held that Falcon was not entitled to either

contribution or indemnification. The court’s ruling was based on two grounds: its

conclusion that Falcon’s tort claims were barred; and its conclusion that because

Falcon had denied liability in its settlement with Frito Lay, it could not make the

requisite showing that it and RTP were jointly and severally liable. In so doing,

the court focused only on Falcon’s claim for contribution and did not specifically

address its claim for indemnification.

      Because Falcon’s tort claims may now go forward under Minnesota law, the

first basis for the district court’s ruling is no longer valid. Moreover, Oklahoma

law allows a party to make a claim for contribution while at the same time

denying all liability. 4 See Stotts v. Church of Jesus Christ of Latter Day Saints,

      3
         We note that Falcon’s claim that the limitation of remedies was not part of
the contract presents a variation of the battle of the forms addressed in the
Uniform Commercial Code at M INN . S TAT . A NN . § 336.2-207 (West 2000). Under
that provision, additional terms contained in a written confirmation become part
of a contract between merchants unless “[t]hey materially alter it.” Id. § 336.2-
207(2)(b); see also TRWL Fin. Est. v. Select Int’l, Inc., 527 N.W.2d 573, 578-79
(Minn. Ct. App. 1995). Minnesota law provides that whether an additional term
materially alters an agreement is a question of fact to be resolved on a case-by-
case basis, and that an agreement is materially altered “if an addition would
‘result in surprise or hardship if incorporated without express awareness by the
other party.’” Id. at 579.
      4
        The district court applied Oklahoma law to Falcon’s claims for indemnity
and/or contribution. Falcon argues on appeal that the court erred in failing to

                                          -6-
882 P.2d 1106, 1107-08 (Okla. Ct. App. 1994). In addition the Minnesota

Supreme Court “has, on equitable principles, allowed contribution in certain cases

despite the absence of common liability.” Blomgren v. Marshall Mgmt. Servs.,

Inc., 483 N.W.2d 504, 506 n.2 (Minn. Ct. App. 1992) (citing Lambertson v.

Cincinnati Corp., 257 N.W.2d 679, 688 (Minn. 1977). Consequently, we are not

persuaded that a party’s unadjudicated denial of liability contained in a settlement

agreement is a sufficient basis for denying that party’s claim for contribution on

summary judgment under either Oklahoma or Minnesota law.

      We also conclude that summary judgment was not proper on Falcon’s

indemnification claim. In Oklahoma, “[a] right to implied indemnity may arise

out of a contractual or a special relationship between parties and from equitable

considerations.” Daugherty v. Farmers Coop. Ass’n, 790 P.2d 1118, 1120 (Okla.

Ct. App. 1989).

             While Oklahoma does not have a statutorily unrestricted right
      of contribution among joint tort feasors, it does recognize a lenient
      exception granting a right of indemnity when one who is only
      constructively liable to an injured party and who is in no manner
      responsible for harm is compelled to pay damages because of the
      tortious act of another.

Cent. Nat’l Bank of Poteau v. McDaniel, 734 P.2d 1314, 1316 (Okla. Ct. App.

apply Minnesota law, while RTP contends that Falcon has waived this argument
by failing to properly present it below. As we discuss above, we are convinced
that summary judgment was improper under the law of either state.

                                         -7-
1986). Minnesota law is to the same effect. See Rice Lake Contracting Corp. v.

Rust Env’t & Infrastructure, Inc., 616 N.W.2d 288, 291 (Minn. Ct. App. 2000)

(“A right of indemnity arises when a party seeking indemnity has incurred

liability due to a breach of a duty owed to it by the one sought to be charged, and

such a duty may arise by reason of a contractual obligation.”); Blomgren, 483
N.W.2d at 506 (“A claimant may recover indemnity . . . [w]here the one seeking

indemnity has incurred liability because of a breach of duty owed to him by the

one sought to be charged.”). Here, a contractual relationship existed between

Falcon and RTP, and Falcon contends that it paid damages for harm caused by

RTP’s breach. These allegations, which find some support in the record, are

sufficient to survive summary judgment at this stage in the proceedings.

      We REVERSE and REMAND for further proceedings in light of this order

and judgment.

                                        ENTERED FOR THE COURT

                                        Stephanie K. Seymour
                                        Chief Judge

                                         -8-