Court Opinion

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Opinions of the United
2000 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

10-17-2000

Kane v. BOC Group, Inc.
Precedential or Non-Precedential:

Docket 99-2035

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Recommended Citation
"Kane v. BOC Group, Inc." (2000). 2000 Decisions. Paper 223.
http://digitalcommons.law.villanova.edu/thirdcircuit_2000/223

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Filed October 17, 2000

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 99-2035

HELEN KANE

v.

THE BOC GROUP, INC.,

       Third Party Plaintiff

v.

QUALITY FOODS CO.,

       Third Party Defendant

       The BOC Group, Inc.,

       Appellant

Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 95-cv-03147)
District Judge: Honorable Anita B. Brody

Argued on August 2, 2000

Before: ALITO, ROTH and AMBRO, Circuit Judges

(Opinion filed October 17, 2000)
       Mark R. Rosen, Esquire (Argued)
       Barrack, Rodos & Bacine
       2001 Market Street
       2200 Two Commerce Square
       Philadelphia, PA 19103

       Anthony Watkins, Esquire
       Lisa A. Watkins, Esquire
       Mesirov, Gelman, Jaffe, Cramer &
        Jamieson
       1735 Market Street, 37th Floor
       Philadelphia, PA 19103-7598

        Attorneys for Appellant

       Audrey J. Copeland, Esquire
       Charles W. Craven, Esquire (Argued)
       Marshall, Dennehey, Warner,
        Coleman & Goggin
       1845 Walnut Street
       Philadelphia, PA 19103

       John L. Slimm, Esquire
       Marshall, Dennehey, Warner,
        Coleman & Goggin
       200 Lake Drive East
       Woodland Falls Corporate Park
       Suite 300
       Cherry Hill, NJ 08002

        Attorneys for Appellee

OPINION OF THE COURT

ROTH, Circuit Judge:

The BOC Group, Inc., leased a cryogenic screw auger to
Quality Foods Company under an agreement that Quality
Foods would provide a safe work place and protect its
employees against injury. Helen Kane, a Quality Foods
employee, was cleaning condensation from the ceiling in the
area of the screw auger when her right arm became
entangled in it. Her arm was trapped for nearly two hours
and was amputated as a result of the injury to it. The issue

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facing us in this appeal is whether the language of the lease
agreement was sufficient to make Quality Foods liable to
BOC for Quality Foods' breach of its contractual obligation
to provide a safe work place.

The District Court had jurisdiction of this case under 28
U.S.C. S 1332, and we have jurisdiction to review the
judgment of the District Court pursuant to 28 U.S.C.
S 1291.

For the reasons stated below, we will vacate thefinal
judgment and remand this case to the District Court for
further proceedings consistent with this opinion.

I. FACTS

On January 4, 1995, Helen Kane, a control technician for
Quality Foods Company, suffered the injury, which
necessitated the amputation of her arm. At the time of the
accident, Kane was working near the screw auger while its
lid was open. The proximity switch, which prevents the
machine from operating with the lid open, had been
bypassed and the rotating screw auger was exposed. The
machine was manufactured by Airco Industrial Gases, a
division of BOC, and was leased to Quality Foods on July
8, 1991, under an "Application Equipment Rental
Agreement." One of the provisions of the Agreement
imposed on Quality Foods the duty to safeguard its
workplace for its employees.

Kane received benefits for her injuries under the New
Jersey Workers' Compensation Act, N.J. Stat. Ann.
SS 34:15-1 et seq. (West 1988 & Supp. 1998). She then
brought an action against BOC for negligence, product
liability, and breach of warranty. BOC in turn filed a third-
party complaint against Quality Foods, alleging
indemnification and breach of contract to provide a safe
workplace.

Before trial, BOC settled with Kane for two million
dollars. Quality Foods then moved for summary judgment
and BOC moved for partial judgment. After oral argument,
the District Court granted Quality Foods' motion for
summary judgment against BOC on January 22, 1998.

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Kane v. BOC Group, Inc., No. 95-3147 (E.D. Pa. Jan. 22,
1998). The District Court held that the language of the
Agreement was insufficient as a matter of law to provide
BOC with a right of indemnification from Quality Foods.
The District Court did not, however, address BOC's breach
of contract claim.

Upon appeal by BOC, we affirmed the District Court's
decision regarding the express indemnification claim but
vacated the grant of summary judgment and remanded the
case for further consideration of BOC's breach of contract
claim. Kane v. BOC Group, Inc., No. 98-1152, slip op. at 7-
8 (3d Cir. Aug. 17, 1998). We also directed the District
Court to examine Port Authority of N.Y. & N.J. v. Honeywell
Protective Servs., 535 A.2d 974, 976 (N.J. Super. Ct. App.
Div. 1987), in relation to BOC's breach of contract claim.

On remand, the District Court again granted Quality
Foods' motion for summary judgment on BOC's third-party
complaint by a November 30, 1999, Memorandum and
Order. Kane v. BOC Group, Inc., No. 95-3147 (E.D. Pa. Nov.
30, 1999). Relying on New Jersey precedent, most notably
Honeywell and Mayer v. Fairlawn Jewish Center, 186 A.2d
274 (N.J. Sup. Ct. 1962), the District Court explained that
BOC's breach of contract claim could not withstand
summary judgment because "BOC can present no set of
facts that would establish that BOC could have been liable
to Kane for a claim that it could then recover from Quality
[Foods]." Id. at 11.

BOC now appeals to this court.

II. STANDARD OF REVIEW

We exercise plenary review of the District Court's grant of
summary judgment. See Sameric Corp. of Del., Inc. v. City
of Philadelphia, 142 F.3d 582, 590 (3d Cir. 1998). Because
subject matter jurisdiction is based on diversity of
citizenship, "we must apply the substantive law as decided
by the state's highest court." Travelers Indem. Co. v.
DiBartolo, 131 F.3d 343, 348 (3d Cir. 1997). Where there is
no controlling decision from the New Jersey Supreme
Court, we accord "significant weight" to applicable decisions

                                 4
of the lower courts of New Jersey in order to "forecast how
the Supreme Court would resolve the issue." Id.

III. DISCUSSION

The New Jersey cases of Port Authority of N.Y. & N.J. v.
Honeywell Protective Servs., 535 A.2d 974 (N.J. Super. Ct.
App. Div. 1987), and Mayer v. Fairlawn Jewish Center, 186
A.2d 274 (N.J. Sup. Ct. 1962), provide the standard under
which a third-party can recover against an employer based
upon the employer's breach of contract to provide a safe
workplace and to protect employees against injury. In
Honeywell, the Port Authority had contracted with
Honeywell to service its warehouse alarm system. Under
the contract, Honeywell was required to "exercise every
precaution to prevent injuries to persons and to design and
erect such barricades, ladders, scaffolding, fences and
railings . . . as may be necessary, desirable or proper." 535
A.2d at 976-77. A Honeywell employee was injured while
servicing the alarm system in a warehouse owned by the
Port Authority. The employee sued the Port Authority
alleging negligence in maintaining the building, and the
Port Authority, in turn, sued Honeywell for express
indemnification, implied indemnification, and breach of its
contractual obligation to protect the safety of its employees
in the performance of its work.

The New Jersey Superior Court, Appellate Division, found
that based on the language of the contract "there is a
potential contractual basis for a jury to find liability on the
part of Honeywell." Id. at 979. Putting to the side the
express and implied indemnification theories of recovery,1
the court recognized breach of contract as a viable claim
that was not barred by the Worker's Compensation Act:

       We are convinced that a rule allowing a third party to
       recover damages from an employer based upon the
       employer's breach of its agreement to safeguard its
_________________________________________________________________

1. The court found that the Port Authority could not maintain its claim
against Honeywell based on an express indemnification theory. The Port
Authority's claim based on an implied indemnification theory was
remanded.

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       employees from harm during the performance of the
       contract does no violence to the policy and purpose of
       the Workers' Compensation Act. The object of the
       exclusive-remedy provision is in no sense subverted by
       such an action.

Id. at 981.

As the Honeywell court explained, its holding was
informed by the New Jersey Supreme Court's decision in
Mayer v. Fairlawn Jewish Center. There, Mayer, an invitee
of the Fairlawn Jewish Center, brought an action for
negligence against the Center for injuries he suffered while
on its premises. Randall Construction was joined as
defendant because it was making repairs and alterations to
the Center's buildings at the time of Mayer's injury. The
Center filed a cross-claim against Randall seeking damages
for breach of contract. The contract between the Center and
Randall had provided: "The Contractor shall adequately
protect the work, adjacent property and the public, and
shall be responsible for any damage or injury due to his act
or neglect." 186 A.2d at 278. The trial court severed the
Center's cross-claim, and Mayer's action against the Center
and Randall proceeded to trial, resulting in the jury finding
that Mayer's accident was caused by the combined
negligence of the Center and Randall. The trial court
subsequently dismissed the cross-claim.

On appeal, the New Jersey Supreme Court held that
whether the Center could maintain a breach of contract
claim depended on the nature of its liability. According to
the court, the jury's finding that Mayer's injuries were
caused by the joint negligence of the Center and Randall
could mean liability was imposed on the Center for one of
the following reasons:

       1) because of Randall's violation of Center's
       nondelegable duty to Mayer, or 2) [it] arose from a
       conclusion that after actual or constructive notice of
       the unguarded areaway created by Randall, Center was
       guilty of Secondary negligence with respect thereto,
       that is, it failed to supply some physical protection or
       warning in order to avoid injury to its invitees, or 3) [it]
       resulted from a finding that Center was guilty of

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       independent Active negligence which concurred with
       that of Randall in producing the accident.

Id. at 282. According to the court, if the Center's liability
was based on secondary or passive negligence as illustrated
by the first two alternatives, then the Center would be
allowed to recover from Randall. If, however, the Center's
liability derived from independent active negligence of the
type illustrated in the third alternative, there could be no
recovery based on breach of contract. Id.

As the District Court noted, Honeywell and Mayer stand
for the proposition that "a contractee cannot recover any
damages against a contractor if the injuries sustained by
the employee were in part caused by the contractee's active
negligence." Kane v. BOC Group, Inc., No. 95-3147, slip op.
at 10 (E.D. Pa. Nov. 30, 1999). Applying this standard, the
District Court ruled that BOC could recover its settlement
costs from Quality Foods for breach of contract only if
BOC's fault could be characterized as passive or if BOC
faced no liability to Kane. The District Court rejected the
first possibility that BOC's liability was based on passive
negligence because it found that the nature of Kane's
claims dictated a finding of active fault. Id. at 13. The
second possibility, the District Court concluded, would not
help BOC because "[w]ithout facing any liability to the
original plaintiff, BOC settled a meritless claim, and
therefore would be precluded from recovering any of the
improper settlement from Quality [Foods]." Id. at 15. We
disagree with both conclusions drawn by the District Court.

The District Court, as well as the parties, made much of
the active/passive negligence or fault distinction used in
Honeywell and Mayer. But concepts such as these, which
are "constructed and labelled in order to accomplish what
is commonly agreed to be a just and equitable result, tend
nevertheless, like all legal fictions, to become increasingly
technical, continuously qualified, and ultimately more
formally categorical than substantively meaningful."
Doloughty v. Blanchard Construction Co., 352 A.2d 613, 619
(N.J. Super. Ct. Law Div. 1976). The concept of failure to
warn, for example, can take on the label of passive or active
negligence depending on the context. In Honeywell and
Mayer, failure to warn of danger created by another is a

                               7
breach of duty that constitutes, when compared with the
culpability of the party that created the danger in the first
place, passive fault. In a product liability setting, failure to
warn is a breach of duty for which a manufacturer would
be held liable based on its "active" negligence in
manufacturing a product that lacks adequate warning. See
e.g., Priolo v. Compacker, Inc., 728 A.2d 239, 247 (N.J.
Super. Ct. App. Div. 1999); Arcell v. Ashland Chem. Co.,
378 A.2d 53, 64 (N.J. Super. Ct. Law Div. 1977).

The lesson of Honeywell and Mayer, therefore, is not that
the result depends on the mere use of the terms"active" or
"passive" negligence or fault, but that we must look to the
reasoning that gives meaning to these words. Simply stated,
Honeywell and Mayer teach us to look to the contract and
determine whether the negligence, if any, of one party to
the contract [BOC] is the sort of act that the agreement
with the other party to the contract [Quality Foods] was
meant to cover. If BOC's negligence is the kind of conduct
beyond the scope of the undertaking contractually assumed
by the Quality Foods, then BOC cannot recover:

       The theme of the contract [to provide a safe working
       place] is that the contractor [here Quality Foods] will
       not perform . . . work in such negligent fashion as to
       create dangerous conditions on the premises and
       thereby expose third persons to harm. Protection of
       such persons against independent negligent acts of
       commission of the contractee [here BOC] must be
       considered beyond the scope of that undertaking in the
       absence of language establishing such a broad
       obligation.

Mayer, 186 A.2d at 281-82 (citations omitted).

BOC cannot, however, be held to ensure that Quality
Foods fulfills the obligations that the agreement by its very
terms assigns to Quality Foods. Thus, if BOC's negligence
consists merely of failing to discover and correct Quality
Food's own breach of contract to provide a safe working
place, BOC's negligence does not excuse Quality Foods'
breach and BOC may recover. See Ryan Stevedoring Co. v.
Pan-Atlantic S.S. Corp., 350 U.S. 124, 135 (1956) ("the
contractor, as the warrantor of its own services, cannot use

                               8
the [contractee's] failure to discover and correct the
contractor's own breach of warranty as a defense.").

Here, the Agreement between BOC and Quality Foods
imposed upon Quality Foods certain continuing duties to
safeguard the workplace for its employees, such as
operating the equipment in accordance with all applicable
laws and regulations, providing safe operating conditions,
and not altering the equipment in any way.2 If Kane's
injuries resulted from BOC's defective design or
manufacture of the conveyer, then BOC cannot recover on
a breach of contract theory from Quality Foods because
Quality Foods' obligation under the Agreement was limited
to providing a safe workplace for the use of the conveyor
and did not extend to assuring the safety of the conveyor as
designed and manufactured by BOC. If BOC employees
were the ones who in fact encouraged Quality Food
personnel to bypass the proximity switch in order to
operate the machine with the lid open, it would be BOC,
not Quality Foods, that had created the unsafe work place.
If, however, Kane's injuries resulted from Quality Foods'
own failure to provide a safe workplace--e.g., Quality Foods
altered the equipment, discarded warnings originally posted
by BOC, or did not instruct employees on the proper use of
the equipment--then under Honeywell and Mayer, Quality
Foods' actions or inactions would constitute a breach of
contract that can form a basis for BOC to recover from
Quality Foods.

We also reject the District Court's conclusion that BOC
cannot maintain a breach of contract action if Quality
_________________________________________________________________

2. The pertinent part of the Agreement read:

The Equipment shall be operated by User in strict conformity with all
applicable laws, ordinances, orders or regulations of all public
authorities, and the instructions furnished by [BOC]. The User shall
notify its employees, agents and subcontractors involved with the use,
operation and/or maintenance of the Equipment of[BOC]'s instructions
and the User shall be responsible for assuring that appropriate safety
procedures are followed by such individuals at all times. . . . User shall
keep the Equipment clean and in safe operating conditions at all times.
. . . The Equipment shall not be altered or changed by the User in any
way. . . . Agreement, P 3.

                               9
Foods were wholly at fault and BOC did not face any
liability to Kane. The District Court explained:"If Quality's
conduct were the cause of Kane's injuries and BOC did not
cause the harm, then BOC would not face any liability to
Kane at all. Without facing any liability to the original
plaintiff, BOC settled a meritless claim, and therefore,
would be precluded from recovering any of the improper
settlement from Quality." Kane, slip op. at 15. In reaching
this conclusion, the District Court relied on the standard
set out in Frank Martz Coach Co., Inc. v. Hudson Bus
Transp. Co. Inc., 44 A.2d 488, 481 (N.J. Sup. Ct. 1945)
(citing Popkin Bros., Inc. v. Volk's Tire Co. , 23 A.2d 162
(N.J. Sup. Ct. 1941), which provides that in order for an
indemnitee to recover from the indemnitor, he must show,
among other things, that the settlement was reasonable.
But this standard applies to recovery based on the theory
of indemnification, not breach of contract as BOC is here
asserting.

Both the Honeywell and Mayer decisions emphasized
that the breach of contract theory is a cause of action
separate from the theories of express or implied
indemnification. Thus in Honeywell, the court wrote about
the breach of contract theory: "Even without regard to the
theory of implied indemnification, there is a potential
contractual basis for a jury to find liability on the part of
Honeywell . . .." 535 A.2d at 980. And the court in Mayer
observed about the Center's breach of contract claim: "We
are not dealing here with a claim of express or implied
indemnity or restitution." 186 A.2d at 561. Even Martz,
from which the District Court cites the standard for
indemnification, recognized that recovery based on breach
of contract is different from recovery based on
indemnification. In Martz, the plaintiff 's complaint for
recovery of settlement money consisted of two counts--the
first was based on breach of contract and the second was
based on indemnity. Instead of treating the two counts
identically, as the District Court would have us do, the
court found against the plaintiff on the breach of contract
count because he had failed to prove a breach, not because
he had not met the indemnification standard that the court
applied to the second count. Id. at 489.

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The fact that BOC can recover on the breach of contract
theory what it is unable to recover on the theories of
express and implied indemnity does not change the
analysis. In Polidori v. Kordys, Puzio & Di Tomasso, AIA,
526 A.2d 230 (N.J. Super. Ct. App. Div. 1987), the court
faced the same objection. Its response is apt here:

       [T]he damages here are claimed to flow as a
       consequence of a breach of the contractual relationship
       between Polidori, Kordys, and Superior. This is an
       entirely separate and distinct cause of action from the
       contribution and indemnification counts of the
       complaint. What Kordys and Superior are arguing, in
       effect, is that because Polidori is precluded from
       recovery on one theory, he must be barred from
       recovery on all others. This is obviously incorrect. It is
       simply of no consequence that an award on the
       contract count of the complaint would have the effect
       of giving Polidori the recovery he could not obtain on
       the contribution and indemnification counts. This is a
       common result where a complaint alleges more than
       one theory of recovery.

Id. at 235.

Accordingly, we find that the District Court erred in
concluding that BOC's breach of contract claim was
insufficient as a matter of law.

IV.

For the foregoing reasons, we will vacate the final
judgment of November 30, 1999, and remand this case to
the District Court for further proceedings consistent with
this opinion.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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