Ace American Insurance Company v. AERCO International, Inc. et al

Filing 43

MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that Defendant AERCO's Motion for Judgment on the Pleadings (Doc. 36 ) is DENIED. Signed by District Judge John A. Ross on 7/19/2021. (LNJ)

Case: 4:20-cv-01347-JAR Doc. #: 43 Filed: 07/19/21 Page: 1 of 9 PageID #: 701

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
ACE AMERICAN INSURANCE CO.,
Plaintiff,
v.
AERCO INTERNATIONAL, INC., and
BLACKMORE AND GLUNT, INC.,
Defendants.

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No. 4:20-CV-01347-JAR

MEMORANDUM AND ORDER
This matter is before the Court on Defendant AERCO International, Inc.’s (“AERCO”)
Motion for Judgment on the Pleadings. (Doc. 36). The motion is fully briefed and ready for
disposition. For the reasons discussed below, the motion will be denied.
I.

BACKGROUND
This Court has previously summarized the relevant background facts in this case:
Plaintiff ACE American Insurance Company (“ACE”) is the assignee of a joint
venture (“JV”) between Walsh Construction Company II, LLC and Alberici
Constructors, Inc. (Doc. 1 at ¶ 1). As alleged in Plaintiff’s Complaint, the United
States Department of Veterans Affairs awarded the JV a contract to construct a
medical clinic (“Clinic”) at the Jefferson Barracks complex (“Jefferson Barracks”)
in St. Louis, Missouri. (Id. at ¶¶ 8-10). The JV purchased two AERCO Model B+II
WaterWizard water heaters for installation at the Clinic. (Id. at ¶¶ 11-13).
Defendant Blackmore & Glunt, Inc. (“B&G”) delivered, inspected, and started up
the water heaters on or about March 9, 2018. (Id. at ¶¶ 13, 15). DeLuca Plumbing,
LLC, a subcontractor of the JV, installed the water heaters. (Id. at ¶ 14).
On June 16, 2018, at approximately 2:00 A.M., the JV’s project manager received
a call informing him that it was “raining inside the clinic.” (Id. at ¶ 22). The
manager discovered that an electronically controlled release valve on the AERCO
water heater was discharging hot water, causing substantial damage to the property.
(Id. at ¶¶ 23-24). After another malfunction a few months later, Defendants agreed
to replace the defective heater under warranty. (Id. at ¶¶ 26-30). ACE, as insurer of

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the JV, paid out $3,999,770.92 for losses in connection with the June 26, 2018
flooding. (Doc. 32 at 1-2).
On September 25, 2020, ACE filed suit in this Court against AERCO and B&G seeking
this subrogated amount and other uninsured losses pursuant to the following counts: Product
Liability (Count I); Negligence (Count II); Breach of Warranty (Count III). (Doc. 1). AERCO
moved for judgment on the pleadings on the grounds that, at the time Jefferson Barracks became
a federal enclave, Missouri law did not recognize such claims against a remote product
manufacturer. (Docs. 16-17). This Court held that Jefferson Barracks became a federal enclave in
1892 and proceeded to dismiss Counts I and III with prejudice because the JV’s “lack of
contractual privity with AERCO precludes any claim for product liability or breach of warranty
under Missouri law as it existed in 1892.” (Doc. 32 at 12). As to Plaintiff’s negligence claim, this
Court granted Plaintiff leave to amend its complaint because “there is a genuine dispute as to the
relationship between AERCO and B&G.” Id. at 11. Plaintiff timely filed a First Amended
Complaint (“FAC”) alleging negligence and vicarious liability against AERCO. (Doc. 33 at ¶¶ 4765). On April 15, 2021, AERCO filed the instant motion for judgment on the pleadings seeking
dismissal of Count II of the First Amended Complaint. (Doc. 36).
II.

LEGAL STANDARD
In deciding a motion for judgment on the pleadings under Fed. R. Civ. P. 12(c), the Court

“accept[s] all facts pled by the nonmoving party as true and draw[s] all reasonable inferences
from the facts in favor of the nonmovant.” Waldron v. Boeing Co., 388 F.3d 591, 593 (8th Cir.
2004) (citations omitted). This is a “strict standard, as ‘judgment on the pleadings is not properly
granted unless the moving party has clearly established that no material issue of fact remains to
be resolved and the party is entitled to judgment as a matter of law.’” Unite Here Local 74 v.

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Pinnacle Entm’t, Inc., No. 4:10-CV-00747 ERW, 2011 WL 65934, at *2 (E.D. Mo. Jan. 10,
2011) (quoting United States v. Any and All Radio Station Transmission Equip., 207 F.3d 458,
462 (8th Cir. 2000)); see also Stewart v. City of St. Louis, No. 4:04-CV-885 RWS, 2006 WL
389837, at *1 (E.D. Mo. Feb. 17, 2006) (citation omitted) (“The motion for judgment on the
pleadings only has utility when all material allegations of fact are admitted or not controverted in
the pleadings and only questions of law remain to be decided by the district court.”). Ultimately,
a motion for judgment on the pleadings is governed by the same standard as a motion to dismiss
under Fed. R. Civ. P. 12(b)(6). See Clemmons v. Crawford, 585 F.3d 1119, 1124 (8th Cir. 2009).
III.

DISCUSSION
The federal enclave doctrine provides that “when an area in a State becomes a federal

enclave, only the [state] law in effect at the time of the transfer of jurisdiction continues in force
as surrogate federal law.” Parker Drilling Mgmt. Servs., Ltd. v. Newton 139 S. Ct. 1881, 1890
(2019) (internal quotations omitted); see also U.S. Const., Art. I, § 8, cl. 17 (the “Enclave
Clause”). This Court previously held that Jefferson Barracks became a federal enclave in 1892
when the Missouri General Assembly expressly ceded exclusive jurisdiction to the United States.
(Doc. 32 at 3-6). Accordingly, the question before this Court is whether, accepting facts alleged
in the FAC as true and drawing all reasonable inferences in Plaintiff’s favor, Plaintiff has stated a
plausible claim against AERCO for negligence under 1892 Missouri law.
A. Relationship Between the Parties
AERCO designs, manufacturers, and distributes hot water heating equipment, including
the Model B+II WaterWizards at issue in this case. (Doc. 33 at ¶ 11). AERCO and B&G are
parties to a Sales Representative Agreement (the “Agreement”), executed February 6, 2017,

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pursuant to which AERCO appointed B&G as its exclusive sales representative in a territory
including Missouri. (Doc. 36-2 at § 1). 1 Under the terms of the Agreement, B&G promised to
“exercise its best efforts to promote the sale, validate proper installation & start-up and provide
post sale support to AERCO customers and products sold by [B&G].” (Id. at § 3). B&G would
“[b]e responsible for the supervision and documentation of the installation and start-up” of the
AERCO products it sold. (Id. at § 3(f)). B&G received a commission from AERCO for each sale
(Id. at § 11), but customer orders would be directed to AERCO, subject to AERCO’s acceptance,
and invoiced by AERCO. (Id. at § 7). AERCO also agreed that it would provide B&G various
sources of information and accept B&G sales personnel at its headquarters for training in the
application, sale, and servicing of AERCO products. (Id. at § 4).
Section 12 of the Agreement attempts to explicitly delineate the legal relationship
between AERCO and B&G:
It is hereby expressly understood and agreed that [B&G] is strictly an independent
contractor who has the right to inform the public that it represents AERCO for the
solicitation of business as provided herein. No relationship of master and servant
or of employer and employee now exists between AERCO and [B&G], or
between AERCO and [B&G’s] sub-contractors, agents or employees, if any, or is
so created by this Agreement, and AERCO shall exercise no control over the
activities and operations of [B&G] except as specifically covered by this
Agreement.
Nothing in this Agreement shall constitute [B&G] as a general agent of AERCO,
and in no event shall [B&G] have the authority to act for or to commit AERCO in
1
AERCO attached the Agreement to its Answer to the FAC. (Doc. 34-1). The FAC makes multiple references to
AERCO and B&G’s obligations under the Agreement. (Doc. 33 at ¶¶ 12, 18, 48-52). This Court agrees with AERCO
that the Agreement is accordingly embraced by the pleadings and may be considered on this motion. See Mickelson
v. Cty. of Ramsey, 823 F.3d 918, 923 (8th Cir. 2016) (“We may consider materials that necessarily are embraced by
the pleadings.”).

Plaintiff does not argue that the FAC fails to embrace the Agreement. But Plaintiff notes that they based their FAC on
a 2012 Sales Representative Agreement (the “2012 Agreement”) produced by B&G in discovery. (Doc. 37 at 2 n.3;
Doc. 37-3 at 6-31). Because both parties have briefed this motion by reference to the Agreement, which is substantially
similar to the 2012 Agreement, this Court will proceed under the assumption that the Agreement was operable at the
time of the alleged negligent acts.

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any matter, cause, or thing whatever without the prior written consent of AERCO
either hereunder or otherwise, or to use AERCO’s name in any way not
specifically authorized by this Agreement.
As alleged in the FAC, B&G delivered the two AERCO Model B+II WaterWizard water
heaters to the Clinic for installation. (Doc. 33 at ¶ 13). Dennis Hischke, an agent, servant, or
employee of B&G, inspected and started up the water heaters on or about March 9, 2018. (Id. at
¶ 15). Throughout the FAC, Plaintiff alleges that various actions concerning the servicing and
ultimate replacement of the water heaters were performed by both AERCO and B&G. (Id. at ¶¶
27-29, 32). The precise nature of the relationship between the JV, B&G, and AERCO is critical
to resolution of Plaintiff’s negligence claim.
B. Applying 1892 Missouri Law
“Actions for negligence are for breaches of duty.” Huset v. J.I. Case Threshing Mach.
Co., 120 F. 865, 867 (8th Cir. 1903). The breadth of duties owed by product manufacturers has
substantially expanded since 1892. See generally David G. Owen, The Evolution of Products
Liability Law, 26 REV. LITIG. 955, 962 (2007). As the Eighth Circuit noted in Huset, decided in
1903, the “general rule is that a contractor, manufacturer, or vendor is not liable to third parties
who have no contractual relations with him for negligence in the construction, manufacture, or
sale of the articles he handles.” Huset, 120 F. 865 at 867-68 (citations omitted); see also Gordon
v. Livingston, 12 Mo.App. 267, 273 (Mo. Ct. App. 1882) (“There would be no bounds of actions
and litigious intricacies, if the ill effects of the negligence of men could be followed down the
chain of results to the final effect.”). Per Huset, it would initially appear that AERCO
successfully insulated itself from liability for any negligence by executing customer orders
through B&G, its exclusive sales representative.

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When conceiving of remote product manufacturers’ duties, however, Missouri courts
consistently presumed that the manufacturer lacked any relationship with the victim or further
control over the equipment at issue. See Heizer v. Kingsland & Douglass Mfg. Co., 19 S.W. 630,
632 (Mo. 1892). Losee v. Clute, approvingly cited by the Missouri Supreme Court in Heizer, is
particularly instructive as it concerns a malfunctioning boiler. 51 N.Y. 494 (N.Y. Ct. App. 1873).
In Losee, the manufacturer sold a boiler to Saratoga Paper Company; the boiler exploded, and
nearby property owners who suffered damages sued the manufacturer. The New York Court of
Appeals upheld dismissal of the manufacturer on the grounds that they “contracted with
[Saratoga Paper Company], and did what was done by them for it and to its satisfaction, and
when the boiler was accepted they ceased to have any further control over it or its management,
and all responsibility for what was subsequently done with it devolved upon the company and
those having charge of it.” Id. at 496. In the independent contractor context, the Missouri
Supreme Court noted that the hirer is insulated from liability because they “parted with the
whole control over the work and workmen.” Morgan v. Bowman, 22 Mo. 538, 549 (1856); see
also Roddy v. Missouri Pac. Ry. Co., 104 Mo. 234 (1891) (emphasis added) (“It is now well
established that the employer of a contractor is not responsible for the negligence of the
contractor or his servants in case the contractor is given entire freedom in the use of means to
accomplish the result.”).
In Horner v. Nicholson, however, the Missouri Supreme Court considered a suit against a
building owner for damages caused by a falling wall. 56 Mo. 220 (1874). The owner blamed an
employee of a contractor for the incident. The court affirmed the jury’s verdict against the
owner, noting that “if defendant’s plans of re-building, as recommended by his architect,
required the use of materials and structures that were unsafe, his responsibility, for any injury

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accruing by reason of such plans, was not transferred to the contractors.” Id. at 222; see also
Lancaster v. Connecticut Mut. Life. Ins. Co., 92 Mo. 460 (1887) (“If the negligence which
produced the injury was not in the workmanship, or the materials to be furnished by the
contractors, but in the plans and specifications, then the defendant cannot be relieved from
liability, or shift the responsibility to the contractors.”).
Under late nineteenth century Missouri tort law, manufacturers owed no duty to end users
or unforeseeable victims of their products with whom they lacked contractual privity, provided
that the manufacturer (1) ceased exercising control over the product and (2) had not specifically
limited a contractor to the plans and specifications at issue (among other exceptions not relevant
here). In short, there are some factual scenarios under which a product manufacturer could be
held liable for negligence despite the use of a sales representative as a contractual intermediary.
Given the limited facts available at this juncture, this Court cannot say that AERCO escapes
liability for negligence as a matter of law.
As discussed above, AERCO may have retained some control over customer orders
pursuant to the Agreement. (Doc. 36-2 at § 7). AERCO made various product publications
available to B&G and may have trained B&G personnel. (Id. at § 4). The Agreement provides
that AERCO would “provide formal submittals ‘for approval’ and/or ‘record’ of any certified
drawings which are a stipulated requirement of any customer’s orders.” (Id.). Plaintiff
specifically claims in the FAC that Hischke utilized a boilerplate AERCO form to ensure proper
installation of the water heaters, a key allegation. (Doc. 33 at ¶ 16). Plaintiff further alleges that
both AERCO and B&G agreed to replace the water heater under warranty (Id. at ¶ 32), which is
consistent with the terms of the Agreement. (Doc. 36-2 at § 7). Accepting all facts in the FAC as
true and drawing all reasonable inferences in Plaintiff’s favor, AERCO did not simply place its

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product in the chain of commerce and “cease to have further control over it and its
management.” Losee, 51 N.Y. at 496.
AERCO offers two arguments which supposedly establish absolute defenses to Plaintiff’s
negligence claim. First, AERCO contends that it cannot be held liable for Hischke’s negligence
because Hischke could only serve one master in B&G, his employer. There is precedent
supporting AERCO’s claim. See Clark’s Adm’x v. Hannibal & St. J.R. Co., 36 Mo. 202, 218
(1865) (citation omitted) (“The principle of respondeat superior, in such case applies to the subcontractor only; as between him and . . . his employees, the relation of master and servant exists
and it ceases with him. There cannot be but one responsible master for the same servant, and
where that relation ceases, the liability ceases also.”).
This Court lacks meaningful information regarding the cause(s) of the water heater
malfunction. This creates a genuine issue of material fact, as it is not apparent to this Court that
all fault can be thrust upon Hischke. In the FAC, Plaintiff alleges that AERCO knew the water
heater was defective and made misrepresentations regarding the installation process. (Doc. 33 at
¶¶ 54-58). AERCO makes essentially the same argument as the defendant in Horner – it cannot
be held liable for the negligence of a contractor’s employee. But Horner and other cases cited
above make perfectly clear that AERCO can potentially be held liable depending on the
particular factual circumstances. The fact that Hischke can only serve one master does not
mandate judgment on the pleadings as to Plaintiff’s negligence claim against AERCO.
Second, AERCO claims that the Agreement clearly establishes B&G’s role as an
independent contractor and disavows any general agency relationship. (Doc. 36-2 at § 12). See
Fink v. Missouri Furnace Co., 10 Mo. App. 61, 65 (Mo. Ct. App. 1881) (“Upon this question the
contract between the defendant and the immediate actor must generally speak with conclusive

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force.”). This Court has determined, however, that B&G’s status as an independent contractor
does not necessarily preclude holding AERCO liable for negligence. As the Missouri Supreme
Court explained in Brannock v. Elmore, where evidence “tends to prove that the negligence
which caused the injury was the result of executing the work in the manner contemplated by the
parties in making the agreement . . . defendant cannot relieve himself of liability or shift
responsibility to the contractor.” 21 S.W. 451, 453 (Mo. 1893) (internal quotation omitted).
Plaintiff has plausibly alleged that “AERCO is liable because it controlled the methods and
manner of work.” (Doc. 37 at 10).
Under 1892 Missouri law, product manufacturers could only be held liable for injuries to
third parties with whom they lacked privity in limited circumstances. Plaintiff argues that
AERCO controlled the manner and means of B&G’s sale and installation of the water heaters,
and it was AERCO’s negligence in the course of exercising such control that resulted in the
damages at issue. As the Missouri Supreme Court explained in Horner, the evidence in cases like
these “is very contradictory, somewhat obscure, and consists very much of opinions of architects,
mechanics and workmen, who differ very much in regard to the causes of the disasters. There is
no question of law involved.” 56 Mo. at 225-26. At this early stage of litigation and given the
limited facts at hand, judgment as a matter of law is not warranted.
Accordingly,
IT IS HEREBY ORDERED that Defendant AERCO’s Motion for Judgment on the
Pleadings (Doc. 36) is DENIED.
Dated this 19th day of July, 2021.

________________________________
JOHN A. ROSS
UNITED STATES DISTRICT JUDGE

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