A federal appellate court has asked the New York Court of Appeals to resolve uncertainty over state law regarding separate questions of strict products liability and contracts.
In two cases in the last week, the 2nd U.S. Circuit Court of Appeals certified for decision what it called significant and unresolved questions of New York law.
The first came Friday in Jaramillo v. Weyerhaeuser, 07-0507-cv, a case where a worker was injured by a used industrial machine and sought to hold the former owner of the machine strictly liable.
Mario Miguel Jaramillo suffered a serious injury to his hand in 2002 while working at Yonkers, N.Y.-based Glenwood Universal Packaging and operating a machine called a Flexo Folder Gluer. The machine had been purchased by Weyerhaeuser second-hand in 1971 and used to manufacture cardboard boxes for 15 years before Weyerhaeuser sold it to Glenwood in 1986.
Southern District of New York Judge Naomi Reice Buchwald granted Weyerhaeuser's motion for summary judgment, and Jaramillo appealed.
Second Circuit Judges Richard Wesley, Debra Ann Livingston and, sitting by designation, Eastern District of New York Judge Brian Cogan, considered the appeal, with Livingston writing for the court.
Before the circuit, Weyerhaeuser claimed it could not be held strictly liable because it was merely a "casual" or "occasional" seller of Flexo Folder Gluers and not an "ordinary" or "regular" seller.
Although the number was disputed by the plaintiffs, Weyerhaeuser claimed it had sold only 19 of the machines over a 25-year period. There also was evidence that Weyerhaeuser sold the machine "as is" to Glenwood.
But other evidence showed that the company owned patents on technology used in the machines and had consulted with the manufacturer on safety issues, including how to make safer "open architecture" Gluers, ones that permit workers to move between operating sections in a safer manner. Jaramillo was injured using such an "open architecture" Gluer.
Jaramillo claimed the machine was defective when sold to Glenwood, and Weyerhaeuser should have added a safety mat or an interlocking gate.
Livingston said the leading New York case on the issue of regular versus occasional sellers is Sukljian v. Charles Ross & Son Co., 69 NY2d 89, 511 NYS2d 821 (1986). In Sukljian, the Court of Appeals upheld the dismissal of a suit against General Electric brought after the company purchased a grinding mill for $4,000, had the manufacturer install a safety switch and removable fee hopper, used the machine for 11 years and then sold it as surplus for $35 to a company where the worker was ultimately injured.
Jaramillo said his case was closer to Galindo v. Precision American Corp., 754 F.2d 1212 (1985), where the 5th Circuit said "there may well be circumstances in which, because of the number of sales or the extent of sales activities, a seller of depreciated equipment would fit squarely within the rationale for imposition of strict liability."
Saying the case was appropriate for certification, Livingston said the New York Court of Appeals, since Sukljian, "has not had the opportunity to address a case" like Galindo, where the company was only an occasional seller of sawmill equipment.
"Indeed, it remains an open question in New York whether strict products liability can attach itself to a regular seller of used goods at all, let alone companies like the one envisioned by the Galindo court," she wrote.
Livingston said that "extending strict products liability to companies like Weyerhaeuser raises concerns about the potentially deleterious effects on the market for used equipment, which not only helps companies dispose of obsolete assets in an efficient way, but also makes low-cost equipment available for smaller companies that otherwise might not be able to afford it."
LIABILITY FOR BONUS
The second case sent to the state Court of Appeals Tuesday was Israel v. Chabra, 06-1467-cv, where Michael and Steven Israel sued to recover a bonus for services rendered to AMC Computer Corp. that was personally guaranteed by AMC Chief Executive Officer Surinder "Sonny" Chabra.
Southern District Judge Denny Chin found Chabra liable for the debts and he ordered Chabra to pay the Israels $332,816 each and a total of $299,890 in attorney fees.
Chabra appealed to the 2nd Circuit, where the case was reviewed by Judges Guido Calabresi, Reena Raggi and Peter Hall.
Hall wrote that the issue was whether a post-guarantee agreement between AMC and the Israels to modify the bonus payment schedule discharged Chabra's obligations under the guarantee.
Complicating matters was the fact that Chabra signed the first amendment modifying the bonus payment schedule twice, in both his personal and corporate capacities, but only signed a second amendment once. Chabra argued that the sole signature was proof that he was acting solely in his corporate capacity.
"Unlike the district court, we find that this question cannot be answered by mere reference to the fact of the signature," Hall said. The circuit then found that Chabra did not agree to the second amendment by signing it.
But Hall said that "try though we have," the circuit could not reconcile two competing clauses.
The first, relied on by the Israels, is a consent clause which said Chabra's obligations under the guaranty "are absolute and unconditional irrespective of ... any change in the time manner or place of payment."
The second, relied on by Chabra, was a "writing requirement" stating that references to the "employment agreement shall mean the employment agreement immediately after the execution of Amendment No. 1 and shall not affect subsequent amendments to the Employer Agreement unless Guarantor has agreed in writing to such amendments."
Hall said the common law rule is that "where two clauses of the agreement are so totally repugnant to each other that they cannot stand together, the first of such clauses in the contract will be received and the subsequent one rejected."
The problem, he said, was that while the common law rule would lead to rejecting the writing requirement as secondary to the consent clause, "doing so would require us to disregard a private statute of frauds" created by New York General Obligation Law §15-301(1) to assure the authenticity of an amendment by requiring that a contractual modification be sealed with a "formal writing."
New York law, he said, "presumes that statutory law does not abrogate the common law unless it evinces a 'clear and specific legislative intent' to do so."
"We are unable to determine whether, in enacting §301(1), the New York State Legislature sought to abrogate the common law to the extent that the common law would give effect to a contractual provision at odds with the writing requirement," Hall said.
So the question sent to the Court of Appeals was: Does §301(1) "abrogate, in the case of a contract where the second of two irreconcilable provisions requires that any modifications to the agreement be made in writing, the common law rule that where two contractual provisions are irreconcilable, the one appearing first in the contract is to be given effect rather than the one appearing subsequent?"
The Israels were represented by Susan Nudelman of Dix Hills, N.Y. Chabra was represented by Howard W. Burns Jr.
In Jaramillo, Jaramillo was represented by James Alexander Burke of Larkin, Axelrod, Ingrassia & Tetenbaum in Newburgh, N.Y. Weyerhaeuser was represented by Kevin Burns of Goldberg Segalla in White Plains, N.Y.
The state Court of Appeals has accepted one case involving certified questions from the circuit this year and is weighing whether to accept another case aside from Jaramillo and Israel.