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Marchan v. John Miller Farms, Inc.

United States District Court, D. North Dakota, Eastern Division

December 11, 2018

VALERIA CRUZ MARCHAN, RICARDO EMANUEL PEREZ Plaintiffs,
v.
JOHN MILLER FARMS, INC., CRARY INDUSTRIES, INC., d/b/a NORTH VALLEY EQUIPMENT, HARRISTON-MAYO LLC, d/b/a MAYO MANUFACTURING COMPANY, TERRAMARC INDUSTRIES, INC., and KRG CAPITAL PARTNERS, LLC. Defendants.

          MEMORANDUM OF DECISION

          WILLIAM G. YOUNG, D.J. [1]

         This is a serious and complex products liability action now nearing trial. The Plaintiffs (collectively “Marchan”) have sued a variety of defendants. A rough schematic of the relevant corporate relationships between and among the manufacturer (on the right) and the retailer (on the left) follows:

         (Image Omitted)

         Having heard a number of different motions for summary judgment, the Court denied them all on October 4, 2018 due to the existence of genuine issues of fact for the jury. This explanation of the Court's action suffices here notwithstanding the exhortation in Federal Rule of Civil Procedure 56(a) to provide a more detailed explication for even a denial of a motion for summary judgment. See United States v. Massachusetts, 781 F.Supp.2d 1, 19-20 (D. Mass. 2011); Federal Trade Comm'n v. D-Link Sys., Inc., No. 17-cv-00039-JD, 2018 U.S. Dist. LEXIS 199023, at *1-3 (N.D. Cal. Nov. 5, 2018).

         Two issues, however, warrant more extended analysis and the Court takes them up in turn.

         A. Indemnity Claim of the Seller

         Crary asserted in its crossclaim that, contractually and under the common law, TerraMarc and KRG were required to indemnify it. Crary Answer Crossclaims 8-9, ¶¶ 25-36, ECF No. 72. KRG and TerraMarc moved for summary judgment on Crary's crossclaims. KRG Mot. Summ. J. Crossclaims 1, ECF No. 94; TerraMarc Mot. Summ. J. Crossclaims 1, ECF No. 96. Crary settled with the Plaintiffs prior to the June 1, 2018 motion session. During the motion session, Crary asserted that despite its recent settlement with the Plaintiffs, it was remaining a party in the case because it was entitled to statutory indemnification from the manufacturer, Harriston-Mayo or KRG. Crary argued that a seller is entitled to indemnity even if the manufacturer is found not liable.

         According to section 28-01.3-05 of the North Dakota Century Code, a seller has a right to indemnity against a manufacturer:

If a product liability action is commenced against a seller, and it is alleged that a product was defectively designed, contained defectively manufactured parts, had insufficient safety guards, or had inaccurate or insufficient warning; that such condition existed when the product left the control of the manufacturer; that the seller has not substantially altered the product; and that the defective condition or lack of safety guards or adequate warnings caused the injury or damage complained of; the manufacturer from whom the product was acquired by the seller must be required to assume the cost of defense of the action, and any liability that may be imposed on the seller. The obligation to assume the seller's cost of defense should also extend to an action in which the manufacturer and seller are ultimately found not liable.

N.D. Cent. Code § 28-01.3-05 (emphasis supplied). Crary argues that it maintains its indemnity right even if the manufacturer is found not liable. Crary Mem. Opp'n KRG and Terramarc Mot. Summ. J. 5-8 (“Crary's Opp'n”), ECF No. 113. It bases its argument on the provision's last sentence which says: “[t]he obligation to assume the seller's cost of defense should also extend to an action in which the manufacturer and seller are ultimately found not liable.” N.D. Cent. Code § 28-01.3-05; Crary's Opp'n 7.

         The North Dakota Supreme Court previously had taken a different approach to this issue. See Kaylor v. Iseman Mobile Homes, 369 N.W.2d 101, 104 (N.D. 1985); Winkler v. Gilmore & Tatge Mfg. Co., 334 N.W.2d 837, 841 (N.D. 1983). In Winkler, the North Dakota Supreme Court interpreted section 28-01.1-07, the former indemnity provision, which was the same as the present statute but did not include the last sentence. 334 N.W.2d at 838-42. There, the court determined that “the intent of § 28-01.1-07, NDCC [was] to allow indemnity in those cases where only the manufacturer is found liable and the seller is absolved.” Id. at 841. In Kaylor, the North Dakota Supreme Court reaffirmed its holding in Winkler, emphasizing that it would be “absurd” for the North Dakota Century Code to allow indemnity in cases where the manufacturer was found not liable. 369 N.W.2d at 104 (quoting Winkler, 334 N.W.2d at 841).

         Today's section 28-01.3-05 provides for a result different than that in Winkler and Kaylor. When “the provisions of a statute differ from previous case law, the statute prevails.” Bornsen v. Pragotrade, LLC, 804 N.W.2d 55, 61 (N.D. 2011) (quoting Vandall v. Trinity Hosps., 676 N.W.2d 88, 93 (N.D. 2004)). Thus, section 28-01.3-05 abrogated section 28-01.1-07 and the case law interpreting it.

         Since there appear to be no cases analyzing section 28-01.3-05, the proper interpretation of the statute is a matter of first impression for the Court.[2] The legislature made clear that there was an “urgent need for additional legislation to establish clear and predictable rules with respect to certain matters relating to products liability actions.” N.D. Cent. Code § 28-01.3-07.

         The question, then, is whether Crary has any right to indemnity after settling with Marchan, regardless of whether the manufacturer is found liable. The general rule is that “an indemnitee who settles a claim before judgment must prove that it was not a volunteer, but was actually liable, in order to recover indemnity.” Grinnell Mut. Reinsurance Co. v. Center Mut. Ins. Co., 658 N.W.2d 363, 378 (N.D. 2003); see also 42 C.J.S. Indemnity § 46 (1991); 41 Am. Jur. 2d Indemnity § 46 (1995). A good faith settlement, however, “is entitled to indemnity, or subrogation, even though it develops that he in fact had no interest to protect.” Grinnell, 658 N.W.2d at 378 (quoting Aetna Life & Cas. Co. v. Ford Motor Co., Cal.Rptr. 852, 854 (Ct. App. 1975)). There is no indemnity “to one who has paid voluntarily.” 42 C.J.S. Indemnity § 46. Thus, Crary must show at trial that its payment was not that of a volunteer. Id.

         In addition, KRG and Terramarc argue that Crary is a manufacturer under North Dakota law. KRG Reply 4-6, ECF No. 120; TerraMarc Reply 3-4, ECF No. 121. The parties do not dispute that Harriston Mayo manufactured and North Valley Equipment sold the conveyor while both were subsidiaries of TerraMarc. Id. North Dakota Century Code section 28-01.3-01 provides that a “seller of a product who is owned in whole or significant part by the manufacturer, or owns, in whole or significant part, the manufacturer” is treated as a manufacturer. To be shielded from liability, Crary must show that it should be treated solely as a seller. N.D. Cent. Code § 28-01.3-04(1). Therefore, Crary's right to indemnity here is not a foregone conclusion and the issue ought be decided at trial.

         B. Piercing the Corporate Veil: Who Decides - Jury or Judge?

         Because the manufacturer appears to be defunct, as a practical matter Marchan will need to pierce the corporate veil and reach its owner, KRG Capital Partners LLC, in order to obtain any substantial recovery.

         Who will decide this important question? The Supreme Court of North Dakota commits the issue to the judge under North Dakota law. Watts v. Magic 2 x 52 Mgmt., Inc., 816 N.W.2d 770, 772-75 (N.D. 2012). Neither the United States Supreme Court nor the Eighth Circuit has addressed this issue. The first federal circuit court to address it was the Fifth Circuit. As far back as 1980, it had held that the issue of veil piercing was for the jury. FMC Fin. Corp. v. Murphee, 632 F.2d 413, 421 n.5 (5th Circ. 1980) (observing that “whether a judge or jury decides an issue is one of federal law, with no Erie analysis problems.”). In 1991, after an exhaustive historical analysis, the Second Circuit likewise held that the jury must decide, Wm. Passalacqua Builders v. Resnick Developers, 933 F.2d 131, 135-37 (2d Cir. 1991), and the First Circuit, citing Passalacqua -- as have all federal cases on point after its issuance -- followed suit in Crane v. Green & Freedman Baking Co., 134 F.3d 17, 22 (1st Circ. 1998).[3] Only the Seventh Circuit goes the other way. International Fin. Servs. Corp. v. Chromas Techs. Can., Inc., 356 F.3d 731, 738 (7th Cir. 2004). Who's right?

         This Court holds that the jury must decide the veil-piercing issue.

         While the jurisprudence of North Dakota is well developed, see Watts v. Magic 2 x 52 Mgmt., 816 N.W.2d at 772; Coughlin Construction Co. v. Nu-Tec Indus., Inc., 755 N.W.2d 867, 870 (N.D. 2008); Intercept Corp. v. Calima Financial, LLC, 741 N.W.2d 209, 213 (N.D. 2007); Axtmann v. Chillemi, 740 N.W.2d 838, 843 (N.D. 2007); Jablonsky v. Klemm, 377 N.W.2d 560, 565 (N.D. 1985); Hilzendager v. Skwarok, 335 N.W.2d 768, 772 (N.D. 1983), these cases, ultimately dependent on the Constitution of North Dakota, are of no moment here as this federal case depends on the Seventh Amendment to the United States Constitution. See Byrd v. Blue Ridge Rural Elec. Co-op., Inc., 356 U.S. 525, 531 (1958); Full Spectrum Software, Inc. v. Forte Antomation Sys., 858 F.3d 666, 677-78 (1st Cir. 2017) (Barron, J.) (holding that the Seventh Amendment requires a jury trial in federal court for cases under the Massachusetts consumer protection statute, even if no jury is required in state courts for the same).

         The Jury Trial Clause of the Seventh Amendment provides that "[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved." U.S. Const. amend. VII (emphasis supplied). The phrase "suits at common law" refers not only to causes of action that existed in 1791, when the Seventh Amendment was adopted, but also to new causes of action created by statute, as long as those statutes "create[] legal rights and remedies, enforceable in an action for damages in the ordinary courts of law." Curtis v. Loether, 415 U.S. 189, 194 (1974). To determine whether a statute "creates ...


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