Herzfeld & Rubin, P.C.- Publications

Products Liability *Six Questions (and Answers) You May Have Missed* By Michael Hoenig - New York Law Journal - January 9, 2006	Print article

We start the year 2006 with six practical questions. Because they are a bit off the beaten path, the topics may not be foremost in the reader's mind. The answers are suggested in recent case law which may have been overlooked. Since this potpourri is plentiful and space here is limited, our discussion of each recent development necessarily must be somewhat brief.

Here are our six questions.

• Question (1). Sooner or later, attorneys run into contractual "forum selection clauses." Lawyers may have to draft them, negotiate them, enforce them or dispute them. The courts seem to respect these provisions for they vigorously effect the intent of the parties. How the clause is worded can make a whale of a difference. Assume the forum selection clause says the parties "hereby submit to the jurisdiction of the Courts of the State of Colorado and agree that the Courts of the State of Colorado shall be the exclusive forum for the resolution of any disputes." If the lawsuit were filed in a Colorado state court, could the defendant properly remove the case to a federal district court located in Colorado? Phrased differently, does the clause quoted above refer to geography (courts located in Colorado) or to sovereignty (state courts, to the exclusion of federal courts)?

• Question (2). Under Rule 30(e) of the Federal Rules of Civil Procedure, if requested by a deponent or a party, the person deposed has 30 days after notification by the court reporter that the transcript is available to review his or her transcript and to sign a statement setting forth any changes and the reasons for them. The reporter then indicates in the certificate whether such a review was requested and appends any changes during the period allowed. What happens if preparation of the errata sheet is within 30 days of the notification of transcript availability but actual certification comes later? Must the deponent's changes actually be transmitted to the court reporter within the 30-day period? Does the 30-day clock begin to run if the reporter notifies the lawyer rather than the deponent? And, if a violation occurs, can the opposing party have the deponent's changes struck as untimely?

• Question (3). Federal Rule of Civil Procedure 4(f) provides specified methods by which service of process upon foreign individuals or business entities outside the United States can be achieved or, as the rule puts it, "may be effected in a place not within any judicial district of the United States." If there is a treaty such as the Hague Service Convention, that's one way. If there is no internationally agreed means, the foreign country's mode of service, or the foreign authority's response to a letter rogatory or personal service in the foreign country can be used. Then rule 4(f)(3) provides the following: "by any other means not prohibited by international agreement as may be directed by the court." The question is whether any of these service scenarios allows service of process by e-mail? Would that be considered a reliable enough form of notice?

• Question (4). New York's CPLR 205(a) provides an additional six months to commence a new action where a plaintiff's prior, timely filed lawsuit was terminated without a judgment on the merits. Without this six-month "bonus," a terminated lawsuit could not be recommenced after expiration of the statute of limitations. The grace of an additional six months does not apply, however, to terminated actions brought about by a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant or a dismissal of the complaint for neglect to prosecute the action. On these, if the statute has run, the lawsuit is dead. Now, what happens if the plaintiff's action is dismissed because of a failure to comply with discovery orders? CPLR 205(a) says nothing about that. Does plaintiff get CPLR 205(a)'s additional six months? Would there be something wrong with that?

• Question (5). It is well-known that a negligent defendant may be liable to a member of a plaintiff's immediate family for his or her own emotional injuries sustained as a result of observing the serious injury or death of the close relative. The immediate family member has to be within the so-called "zone of danger" to recover. Liability for such traumatic observations was launched in the famous case of Bovsun v. Sanperi¹. There a wife and daughter were present when the father was crushed by a car as he stood on a parkway behind his disabled automobile. In a case called Trombetta v. Conkling,²however, the Court of Appeals rejected a Bovsun claim on behalf of a niece who saw her aunt run over by a tractor-trailer. Now, what if the Bovsun plaintiff is the grandmother? And what if she herself sustained injuries in the same accident that killed her grandson? And what if she had a significant emotional attachment to the infant? Can the grandmother recover for the emotional trauma of observing her grandchild's grisly death?

• Question (6). In Schumacher v. Richards Shear Co.,³ the New York Court of Appeals observed the "general rule" that "a corporation which acquires the assets of another is not liable for the torts of its predecessor." Four exceptions to that general rule were noted. In later years two additional exceptions, originating in decisions outside New York, have been discussed by the courts: the so-called "product line" exception and the "continuing enterprise" exception. Each of these involves the successor continuing either the product line or the business of the predecessor, thereby justifying to those courts embracing these exceptions the imposition of strict liability on the successor. A split in New York's Appellate Division departments over the "product line" exception has materialized. The Third Department adopts the exception but the First Department has rejected it. All this ferment concerns imposition of liability. Now to our question: If the "product line" exception is viable, can it also be used to fasten personal jurisdiction on a foreign company purchaser of assets? Does the successor inherit the jurisdictional status of the predecessor? Or is "product line" only a rule pertaining to liability?

Some Answers

• Answer (1) — Forum Selection Clause. An answer to question (1) is found in American Soda, LLP v. U.S. Filter Wastewater Group, Inc.,⁴ where the U.S. Court of Appeals for the Tenth Circuit held, as a matter of first impression in the circuit, that a forum clause saying, "submit to the jurisdiction of the Courts of the State of Colorado," meant the state courts and not the federal court sitting in Colorado. Whether U.S. district courts are courts "of" the various states in which they sit boils down to an issue of sovereignty versus geography. In opting for a meaning of "sovereignty," i.e., state courts alone, the Tenth Circuit was persuaded by some other decisions.

In the LFC Lessors case,⁵ the forum clause said, "the law, and in the courts of Massachusetts." The U.S. Court of Appeals for the First Circuit held "of" meant only the state courts because it was the only meaning that made sense in light of the phrase's parallel structure designating also the "law of Massachusetts." In the Dixon case,⁶ the forum clause referred to the "Courts of Texas." The U.S. Court of Appeals for the Fifth Circuit held that, although federal district courts may be "in" Texas, they are not "of" Texas and, thus, defendant had to defend the suit in the Texas state court system. Considered distinguishable were forum clauses requiring disputes to be brought "in courts in the state of Ohio";⁷ or "in Michigan courts";⁸ or in "New York courts";⁹ or a clause saying "litigation . . . shall be brought in Pinellas County."¹⁰ In each of these the terminology was deemed broad enough to include the federal court located in the geographic area. American Soda teaches that successful removal to federal court can turn on interpreting a word or two that the drafters of the forum clause may not even had in mind.

• Answer (2) — Deponent's Errata Sheet. A response to the question of the post-30-day errata sheet is found in Welsh v. R.W. Bradford Transportation.¹¹ Plaintiff was deposed on March 14. The transcript and errata sheets were sent to plaintiff's counsel on April 4. Counsel sent them to plaintiff on April 6 and plaintiff received them on April 7. Plaintiff completed the errata sheets on May 7 and faxed the corrections to her attorney on May 8. Plaintiff signed the certification under oath that she read the deposition with her changes on May 11. The court reporter received the errata sheets on June 8. Defendant moved to strike the deposition changes as untimely. The U.S. Magistrate Judge first had to decide whether notice to the lawyer was equivalent to the rule's required notice to the deponent. If it were, then the 30-day requirement in FRCP 30(e) and (f)(1) was triggered on April 4.

The answer was "yes." After analysis, the court held that notice to the lawyer by the court reporter was the most common and logical manner to follow through with a deponent. Even if the 30-day trigger were the deponent's actual receipt of the transcript, i.e., three days later on April 7, the 30-day period within which to make the changes and submit them to the reporter nevertheless had expired well before the reporter's receipt of the errata sheets on June 8. It was not enough for plaintiff to merely fill out an errata sheet and date it at the bottom on May 7. The "few [other] courts that have considered the issue have held that the changes must be submitted to the court reporter within the prescribed period."¹² The court in Welsh said that "the 30-day rule must be calculated from the date of notification to a deponent's lawyer — if there is one — and the date of the submission to the court reporter." Otherwise, there was potential for abuse. The court struck the plaintiff's errata sheet as untimely. The lesson to counsel obliged to protect the deponent's changes: remember the 30-day deadline and act promptly!

• Answer (3) — Service by E-Mail. Williams v. Advertising Sex LLC,¹³ holds that, in some circumstances, one can serve a foreign entity outside the United States by e-mail. In Williams, plaintiff sued 59 defendants for participating in a conspiracy to defame her. Some of the defendants were in Australia. Plaintiff moved under Rule 4(f)(3) of the Federal Rules of Civil Procedure for an order permitting service of process upon the Australian defendants by electronic mail, international registered mail and international standard mail. The court granted the motion. It held, in accord with the Ninth Circuit Rio Properties decision,¹⁴ that the three separate methods of effecting international service of process in Rule 4(f) "are equivalent to one another." In other words, Rule 4(f) "does not denote any hierarchy or preference of one method of service over another."

One of the three methods is in Rule 4(f)(3): "by other means not prohibited by international agreement as may be directed by the court." Once it is established that alternate service is warranted, the court can tailor a service of process that comports with constitutional notions of due process. The process service must apprise the interested parties of the pendency of the action and afford them an opportunity to respond. Only a handful of courts had allowed service by e-mail transmission. In this case the court found that plaintiff's proposal to use a Web site service which offers encrypted on-line delivery of documents and returns a digitally signed proof of delivery once the document has been received by the target e-mail, enhanced the reliability of electronic service. Under the circumstances, the court granted the motion.

New York Decisions

• Answer (4) — Discovery Failure Dismissal. In its Oct. 27 Andrea decision,¹⁵ New York's highest court held that a court's dismissal of a plaintiff's action for failure to comply with discovery orders is a dismissal "for neglect to prosecute the action" within the meaning of CPLR 205(a). This is one of CPLR 205(a)'s enumerated exclusions from a claimant getting the additional six-month grace period. Here, the facts surrounding the series of discovery defaults justified categorizing the dismissal as one based on a "neglect to prosecute." Further, said the Court, when a dismissal is based on such reasons, "it is not acceptable to permit plaintiffs to start all over again, after the statute of limitations has expired." CPLR 205(a)'s exclusion "was to assure that a dismissal for neglect to prosecute would be a serious sanction, not just a bump in the road." The Court also makes clear that "disregard of deadlines should not and will not be tolerated."

• Answer (5) — Grandmother's Emotional Trauma. Whether a grandmother is allowed a Bovsun emotional injury action for witnessing her grandchild's injury and death while in the zone of danger was a question confronted in Jun Chi Guan v. Tuscan Dairy Farms,¹⁶ a decision issued on Dec. 27 by the Appellate Division, Second Department. The court held that, consistent with prior precedent, Bovsun liability is a "narrow avenue" to a "very circumscribed right of recovery." Policy grounds dictated a narrow construction of the class, "immediate family." A grandson does not fall into that category. A dissenting Justice reasoned that a grandmother should be allowed the cause of action.

• Answer (6) — "Product Line" and Jurisdiction. In Semenetz v. Sherling and Walden Inc.,¹⁷ a boy was injured while using a sawmill made by corporation A. However, A's assets had been purchased by B, an Alabama corporation. Plaintiff sued B as a successor company claiming that the so-called "product line" exception to the general rule of nonliability operated to confer personal jurisdiction over B. The Appellate Division, Third Department, confirmed that it had embraced the "product line" exception while the First Department expressly rejected it. However, held the Third Department, the "product line" exception is a rule of liability, not one of personal jurisdiction. Thus, the successor ordinarily does not inherit the jurisdictional status of its predecessor. Accordingly, the action against B had to be dismissed on jurisdictional grounds.

On Dec. 20, however, the Court of Appeals granted review, so the final chapter is yet to be written. Given the split in the Appellate Division departments, it would appear that a threshold question could be the viability of the "product line" exception itself. If New York law rejects the exception, personal jurisdiction cannot be predicated on it. Conceivably, the state's high court could move to the jurisdictional issue by assuming the "product line" exception for argument's sake. But, given the departmental split and the critical corporate liability issue presented, grappling with the "product line" issue directly seems the Court's "cleaner" course. Leaving the departments at odds with each other prolongs uncertainty and only invites the issue to go up to the Court another day. No doubt, amicus curiae briefing should be considered by those interested in the outcome of this important case.

Michael Hoenig is a member of Herzfeld & Rubin

Endnotes:________________________________________________________________________________________________________

1. 61 NY2d 219 (1984).
2. 82 NY2d 549 (1993).
3. 59 NY2d 239 (1983).
4. 428 F.3d 921 (10th Cir. 2005).
5. LFC Lessors, Inc. v. Pac. Sewer Maint. Corp., 739 F2d 4, 6 (1st Cir. 1984).
6. Dixon v. TSE Int'l, Inc., 330 F3d 396, 398 (5th Cir. 2003).
7. Basicomputer Corp. v. Scott, 973 F2d 507, 510 (6th Cir. 1992) (clause did not exclude the federal court in Ohio).
8. Regis Assocs. v. Rank Hotels (Mgt.) Ltd., 894 F2d 193, 195 (6th Cir. 1990) ("Michigan Courts" includes federal courts).
9. City of N.Y. v. Pullman, Inc., 477 FSupp 438, 443 (SDNY 1979).
10. Carrano v. Harborside Healthcare Corp., 199 FRD 459, 462 (D. Conn. 2001) (phrase could mean state or federal court in that county).
11. 231 FRD 297 (N.D. Ill. 2005).
12. Welsh, 231 FRD at 301 (citing Rios v. Bigler, 67 F3d 1543, 1553 (10th Cir. 1995); Havey v. Tenneco, Inc., 2000 WL 198445 at *1 (N.D. Ill., Feb. 11, 2000)).
13. 2005 U.S. Dist. LEXIS 25670 (D.W. Va. Oct. 26, 2005).
14. Rio Properties, Inc. v. Rio Int'l Interlink, 284 F3d 1007, 1014-15 (9th Cir. 2002).
15. Andrea v. Arnone, Hedin, Casker, Kennedy and Drake, 2005 NY Slip Op 07862 (NY Ct. App. Oct. 27, 2005).
16. 2005 NY Slip Op 10100 (2nd Dept. Dec. 27, 2005).
17. 21 AD3d 1138, 2005 NY App. Div. LEXIS 8862 (3d Dept. 2005), appeal granted by N.Y. Ct. App, 2005 NY LEXIS 3419 (N.Y. Dec. 20, 2005).