Lee v. AK Steel Corp., et al
Filing
210
ORDER granting #148 Motion for Summary Judgment and granting in part and denying in part #151 Motion for Summary Judgment - Signed by District Judge Louise Wood Flanagan on 07/16/2015. (Baker, C.)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
NO. 5:13-CV-826-FL
LARRY WINSLOWE LEE and SUSAN
PROVOST LEE,
Plaintiffs,
v.
CERTAINTEED CORPORATION;
FORMOSA PLASTICS CORPORATION
U.S.A., sued individually and as parent,
alter ego and successor-in-interest to J-M
Manufacturing Company and to J-M A/C
Pipe Corporation; GENUINE PARTS
COMPANY, d/b/a National Automotive
Parts Association (a/k/a NAPA); J-M
MANUFACTURING COMPANY, INC.,
sued individually and as parent and alter
ego to J-M A/C Pipe Corporation;
KAWASAKI MOTORS CORP., U.S.A.;
METROPOLITAN LIFE INSURANCE
COMPANY; PNEUMO ABEX LLC, sued
individually and as successor-in-interest to
Abex Corporation and as succesor-ininterest to American Brakeblok; and
YAMAHA MOTOR CORPORATION,
U.S.A.;
Defendants.
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ORDER
This case, originally brought against 23 defendants where the eight above-captioned now
remain, comes before the court on motions premised on Rule 56 of the Federal Rules of Civil
Procedure separately filed March 10, 2015, on behalf of defendants J-M Manufacturing
Company, Inc. (“JMM”) (DE 151) and Formosa Plastics Corporation U.S.A. (“Formosa”) (DE
148). The issues raised are ripe for consideration. For the reasons explained, the court grants
defendant Formosa’s summary judgment motion, dismissing it from the case, and grants in part
and denies in part the partial summary judgment motion of defendant JMM.
STATEMENT OF THE CASE
Plaintiffs, residents of Wake County, North Carolina, complain of personal injury and
loss of consortium, where plaintiff Larry Winslowe Lee (“Larry Lee”) was diagnosed with
mesothelioma on or about September 13, 2013. Plaintiffs allege that his condition resulted from
exposure to asbestos during his employment as mechanics’ helper, maintenance laborer,
inspector, construction worker, and salesman, in addition to automotive maintenance work
performed on his own personal vehicles and those of his family.
Plaintiffs bring a total of eight claims for relief entitling them, it is alleged, to recover
actual and punitive damages, lost wages and special damages. Five claims are asserted against
all defendants with the exception of defendant Metropolitan Life Insurance Company
(“MetLife”). With respect to claims against all defendants excluding Metlife, defendants are
alleged to have: 1) acted negligently in putting asbestos or asbestos-containing products into
interstate commerce (First Cause); 2) breached implied warranties that asbestos materials were
of good and merchantable quality and fit for their intended use (Second Cause); 3) acted
willfully and wantonly in exposing plaintiff Larry Lee to asbestos (Third Cause); 4) committed
false representation and fraud regarding the dangers of asbestos exposure to plaintiff Larry Lee
(Fourth Cause)1; and failed to warn plaintiff Larry Lee of the dangers associated with asbestos
exposure (Fifth Cause). In a separate claim, defendant MetLife is alleged to have engaged in a
1
Plaintiffs’ claim for false representation and fraud has been dismissed against defendants Kawasaki Motors Corp.,
U.S.A. (“Kawasaki”), JMM, Formosa, and Genuine Parts Company (“Genuine Parts”). April 11, 2014 Order (DE 105);
January 26, 2015 Order (DE 131); March 10, 2015 Order (DE 141).
2
conspiracy and to be liable for punitive damages, where, it is asserted, Metlife aided and abetted
the negligence and marketing of asbestos-containing products (Sixth Cause).
Defendants
Formosa and JMM are also the subject of a separate claim premised on conspiracy and punitive
damages liability for the manufacture and sale of asbestos-containing products (Seventh Cause).
Plaintiff Susan Provost Lee (“Susan Lee”) seeks also to recover for her loss of consortium
(Eighth Cause).
Defendants deny liability. As noted, a number of defendants have been dismissed from
the case.2 Four of the remaining eight defendants have moved in some fashion for summary
judgment.
Defendant JMM’s motion is one for partial summary judgment.
With reliance on
plaintiff Larry Lee’s deposition, the deposition of his son, Robert Lee, and order of the United
States Bankruptcy Court for the Southern District of New York, as clarified, concerning
disposition of certain assets in Chapter 11 proceeding involving Johns-Manville Sales
Corporation, Johns-Manville Corporation, and Manville Corporation (collectively, “JohnsManville”), together with the asset purchase and sale agreement therein referenced, it moves for
judgment in its favor on any attempt to hold it liable for plaintiff Larry Lee’s alleged work with
and around asbestos-cement pipe manufactured by Johns-Manville and plaintiffs’ claims for
punitive damages. Defendant Formosa seeks entry of judgment in its favor on all claims against
it, with reliance on plaintiff Larry Lee’s deposition and its responses to plaintiffs’
2
These include: AK Steel Corp.; Briggs & Stratton Corporation; Clow Valve Company; Dana Companies, LLC; Deere
& Company; Eckler’s Corvette; Ford Motor Company; Grinnell LLC; Hajoca Corporation; Hammer & Steel, Inc.;
Honeywell International, Inc.; McWane, Inc.; Pfizer, Inc.; Special Electric Company, Inc.; and Union Carbide
Corporation.
3
interrogatories.
In mounting a vigorous defense, plaintiffs rely on a host of evidentiary
materials.3
Defendant Genuine Parts seeks partial summary judgment on plaintiffs’ third cause of
action premised on alleged willful and wanton conduct.
Defendant Pneumo Abex LLC
(“Pneumo”) seeks to join in these motions by defendants JMM, Formosa, and Genuine Parts.4
The court will address in successive order(s) defendant Pneumo’s stance, which plaintiffs
characterize as an improper motion, as well as the partial summary judgment motion filed by
Genuine Parts.
Also remaining to be addressed is defendant JMM’s motion to strike and for protective
order regarding one of the exhibits relied upon by plaintiffs in defense of its motion, which
defendant contends is protected by attorney-client privilege, should be stricken from the court’s
file, and returned or destroyed by plaintiffs. Without minimizing the significance of the issues
therein raised, where no reference is made to that exhibit in deciding JMM’s partial summary
judgment motion, the court need not now address its motion to strike and for protective order, on
which separate order will issue. The court now turns its attention to the motions of defendants
JMM and Formosa squarely before it.
3
In their replies, defendants JMM and Formosa each lob the same objection in a footnote to all of plaintiffs’ exhibits,
“to the extent such exhibits are not admissible at trial and therefore not properly before the Court on [JMM’s]
[Formosa’s] motion for summary judgment.” (JMM Reply, 2 n. 1) (DE 173); (Formosa Reply, 1 n.2) (DE 174).
Because neither defendant has developed specific argument directed towards a particular exhibit, for purposes of the
court’s consideration of their respective motions, these objections are overruled.
4
In a one sentence “Notice of Joinder” filed the day after expiration of the deadline for filing any motion for summary
judgment, defendant Pneumo recites its “adopt[ion] [of] the Motions for Full and Partial Summary Judgment, and
Memoranda in Support, filed by other Defendants in this matter, whether they remain in the case at trial or not, and to
the extent those Motions are not inconsistent with Pneumo Abex LLC’s position and defenses in this case.” (Notice,
1) (DE 156).
4
FACTUAL BACKGROUND
Due to considerable overlap in the allegations and evidence against defendants JMM and
Formosa, the court consolidates its discussion of the relevant, uncontested facts below.
A.
Defendants’ Organization and Operations
Defendant Formosa manufactures chemical plastic raw materials. (Alice Nightingale
(“Nightingale”) Dep., 8:5-6) (DE 166-10).5 Defendant JMM manufactures products including
pipes made from polyvinyl chloride (“PVC”), polyethylene (“PE”), and high-density
polyethylene (“HDPE”). (James Reichert (“Reichert”) Dep., 14:12-16) (DE 164-1).6
From February 1984 through October 2005, defendant Formosa was the parent of
defendant JMM. (Nightingale Dep. 10:6-10). It became sole shareholder of defendant JMM in
1984. (Nightingale Dep. 10:8-13, 24:21-26:1).
Defendant JMM came into existence in 1983, when it obtained assets previously held by
Johns-Manville. (Asset Purchase & Sale Agreement, Art. I, § 1.1) (DE 158-8); (Reichert Dep.,
16:19-24; 17:8-10; 21:19-22:1; 27:19-28:5). In particular, defendant JMM obtained the PVC
pipe division of Johns-Manville. (Asset Purchase & Sale Agreement, Art. I, § 1.1); (Reichert
Dep., 16:19-24). In addition to PVC pipe, Johns-Manville also produced asbestos cement pipe,
also known as “transite” or “A/C” pipe. (Reichert Dep., 14:22-15:5).
The asbestos cement pipe division of Johns-Manville was sold to J-M A/C Pipe
Company (“JMAC”). (Reichert Dep., 16:22-24). A Dun & Bradstreet Report from October 31,
5
Deposition of Nightingale was taken October 6, 2011, in another case. Nightingale testified as the corporate secretary
and assistant vice president for the legal division of defendant Formosa, and Formosa’s corporate representative.
(Nightingale Dep. 7:15-21; 8:11-14).
6
Deposition of Reichert was taken September 14, 2011, in another case. Reichert testified as the manager of services
at JMM’s plant in Stockton, California, and as JMM’s corporate representative. (Reichert Dep., 12:1-23).
5
1985, states that JMAC’s stock “is reportedly 100% owned by Frontier Corp, Liberia and is
controlled by FormosaPlasticsGrouop [sic], Taipei, Taiwan.” (DE 166-17).
Defendant JMM and JMAC produced a “J-M Policy and Procedure Manual” in April
1986 which defined “J-M” as “[t]he Company, includ[ing] J-M Manufacturing Co., Inc. and J-M
A/C Pipe Corporation.” (J-M Policy & Proc. Manual, § 102.5) (DE 166-13). The J-M Policy
and Procedure Manual further provides that
J-M is part of Formosa-USA, which in turn is associated with the Formosa Plastic
Group. Formosa Plastic Group consists of Nan Ya Plastics, Formosa Plastic
Corporation and Formosa Chemical & Fiber; and thirteen other companies as well
as Ming-Chi Institute of Technology and Chang Gung Memorial Hospital
Foundation. The leadership for FPG is provided by Chairman Y.C. Wang and his
family.
(Id., § 104.3).
In the course of obtaining Johns-Manville’s PVC pipe division, defendant JMM also
obtained Johns-Manville’s plants in Denison, Texas, and Stockton, California. (Asset Purchase
& Sale Agreement, Art. I, § 1.1(A)); (Reichert Dep., 27:19-28:5). JMAC operated out of the
Denison and Stockton plants along with defendant JMM. (Reichert Dep., 17:18-23; 27:19-22).
Under Johns-Manville, the Denison and Stockton plants had manufactured PVC pipe and
asbestos cement pipe. (Id. 12:24-13:22; 14:22-15:5). The plants continued to manufacture both
types of pipe after the turnover, with defendant JMM producing PVC pipe and JMAC producing
asbestos cement pipe. (Id., 16:2-6; 17:20-18:6; 26:4-22; 28:1-8); (Def’s. Resp. to Interrogs., 8,
10) (DE 164-2). Although defendant JMM did not manufacture asbestos cement pipe, it did sell
the asbestos cement pipe manufactured by JMAC. (Reichert Dep., 15:8; 18:17-19:4); (Def’s.
Resp. to Interrogs. 8) (DE 164-2). JMM also provided purchased raw materials and health and
safety services for JMAC employees. (Reichert Dep., 19:5-21).
6
When defendant JMM obtained the Denison plant, tens of thousands of pieces of asbestos
cement or transite pipe remained in inventory. (Lewis Armstrong (“Armstrong”) Decl., ¶ 7) (DE
164-9).7 The Johns-Manville pipe became intermingled with newly manufactured JMAC pipe.
(Id., ¶ 8). Furthermore, even after 1983 the asbestos cement pipe produced by JMAC and sold
by JMM continued to bear the names of “Johns-Manville” and “J-M”. (Id., ¶ 5); (Armstrong
Dep. 31:18-22) (DE 164-10).8 JMAC ceased production of the asbestos cement pipe at the
Stockton plant in 1987, and at the Denison plant in 1988. (Def’s. Resp. to Interrogs., 10).
As noted above, Nightingale, corporate secretary and assistant vice president for
Formosa’s legal division, testified in another case in 2011. Plaintiffs rely on that deposition
wherein Nightingale identified a number of persons who had worked for defendant JMM and/or
JMAC “up through 1988,” and who also had worked for defendant Formosa. (Nightingale Dep.,
48:11-21). Y.C. Wang (“Wang”), chief executive officer of JMM from 1983 to at least 1986,
was also chairman of the board of directors at Formosa “at some point” before 1988 and
extending until at least 1988.
(Nightingale Dep., 49:20-50:6); (J-M Policy and Procedure
Manual, § 104.3); (Lists Officers & Directors of JMM and JMAC) (DE 166-14). Wang was the
first stock owner in JMAC. (Memo. & Stock Certificate) (DE 166-16).
W. Wong (“Wong”), a director at Formosa “at some point prior to 1988,” was also
president of JMAC and defendant JMM from 1984 to at least 1986 (Nightingale Dep., 53:9-5414); (Lists of Officers & Directors of JMM & JMAC). Mas Kuo (“Kuo”), treasurer of JMAC
and defendant JMM from 1984-1985, had also been an employee of defendant Formosa,
although Nightingale did not specify his position at Formosa. (Nightingale Dep., 54:15-55:5);
7
Armstrong worked at the Denison plant at the time of the ownership turnover in 1983. (Armstrong Decl., ¶ 2).
8
Defendant JMM asserts the pipe it sold “was never labeled ‘Johns-Manville.’ ” (Memo. In Supp., 5) (DE 158).
However, it cites to no evidence in the record to support this assertion.
7
(Lists of Officers & Directors of JMM & JMAC). Charles McAuliffe (“McAuliffe”) was a
director at JMAC from 1982-1983, vice president at defendant JMM in 1984, and general
counsel for defendant Formosa from approximately 1982-1991. (Nightingale Dep. 55:17-56:19);
(Lists of Officers & Directors of JMM & JMAC). Peter Pan (“Pan”) was vice president of
defendant JMM from 1983-1984 and acting secretary of JMAC in 1983, and a Formosa
employee “before 1988,” although Nightingale did not specify his title. (Nightingale Dep.,
50:18-51:5) (Certificate of Corporate Resolutions Designating Mercantile Nat’l Bank at Dallas
as Depository and Granting Authorizations) (DE 166-19).
Richard Chi (“Chi”), who had “at some point before 1988” been president of Formosa,
was president of defendant JMM and JMAC from 1983-1984. (Nightingale Dep., 50:7-16);
(Lists of Officers & Directors of JMM & JMAC). He had authority to sign checks on a JMAC
bank account in 1983. (JMAC Account Card for Mercantile Nat’l) (DE 166-20). Andrew Yu
(“Yu”), secretary of JMAC from 1983 to at least 1986, and a JMAC director those same years,
had also been employed in the sales department of Formosa “at some point prior to 1988.”
(Nightingale Dep., 52:25-53:6); (Lists of Officers & Directors of JMM & JMAC); (Consent of
Directors of JMM in Lieu of Meeting) (DE 166-18). Yu’s signature appears on an operations
management agreement dated December 30, 1986, whereby defendant JMM and JMAC agreed
to “use the same sets of manpower, facilities, and systems belonging to [defendant JMM].”
(Operations Mgmt. Agreement, 1) (DE 166-7). Defendant JMAC agreed “to be charged by
[defendant JMM] the necessary costs and expenses,” of its use. (Id.). When the operations
management agreement was renewed the following year, it was signed by Yu and Homer Hsieh
(“Hsieh”), treasurer at defendant JMM and JMAC in 1986.
(1987 Operations Mgmt.
Agreement) (DE 166-21) (Nightingale Dep. 55:6-14) (Lists of Officers & Directors of JMM &
8
JMAC). Hsieh had also worked in the purchasing department at Formosa. (Nightingale Dep.
55:14-16).
In 1983, the board of directors of JMAC created a California executive committee and
empowered it to
undertake and assume all powers authorized by law to manage and effectuate
policy of the full Board of Directors to achieve the following goals: (A) The
taking of all actions necessary and proper to fulfill all Corporate obligations and
rights under the purchase and sales agreement under which the assets of this
corporation were originally purchased; and, (B) the taking of all actions required
to meet the obligations to employees of this corporation to provide for their
general welfare; and, (C) The taking of all actions to the full limit of the law
which will establish a smooth, profitable and efficient corporate operations during
this period of the early years of the company’s history.
(Special Action of the Bd. of Directors) (DE 166-22). Chi and Yu were named to the committee.
In February 1983, defendants JMM and Formosa, together with JMAC, entered into a coborrower agreement with Bank of America that governed the terms of loans made from a $10
million joint line of credit. (Co-Borrower Agreement) (DE 166-25). The companies agreed that
“their obligation for repayment [of the loan] is joint and several.” (Id.). Wang signed on behalf
of defendant JMM and JMAC. (Id.). The following year, a letter from Bank of America to
defendant JMM and JMAC announced the availability of a $10 million line of credit to both
companies, referencing as “support” a “[c]ontinuing guaranty executed by Chairman Y.C. Wang,
Chairman of Formosa Plastic Corp., the parent company, plus promissory note and coborrower
agreement cosigned by Formosa Plastic Corp. and J-M Manufacturing/J-M A/C Pipe Corp.”
(Sept. 1984 Bank of Am. Letter) (DE 166-26). Another letter to Wang in October 1985 offered
to extend the lines of credit to JMAC, and Wang accepted. (Oct. 1985 Bank of Am. Letter) (DE
166-27). In November 1985, the line of credit to defendant JMM and JMAC was increased to
$15 million, again with reference to a guaranty from defendant Formosa and Wang, along with
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reference to a cross-guarantee of defendant JMM and JMAC. (Nov. 1985 Bank of Am. Letter)
(DE 166-28).
Nightingale testified that defendant Formosa “did not get involved too much [with
JMM’s] daily activities.” (Nightingale Dep. 22:7-9). Formosa did, however, receive monthly
performance reports for defendant JMM and filed consolidated tax statements with defendant
JMM. (Nightingale Dep. 22:10-21).
Defendant Formosa has acknowledged that, at the time JMAC was manufacturing
asbestos cement pipe and defendant JMM was selling the pipe, “it was widely acknowledged
that asbestos was a very dangerous material.” (Nightingale Dep., 18:25-19:12). It has also
admitted that it has “always known” that PVC pipe “is much safer than asbestos-containing
pipe.” (Id., 21:9-16). Defendant JMM’s internal correspondence from April 12 and 19, 1983,
indicates that Wang and the executive vice president of Formosa Plastics Group of Taiwan
visited the Stockton and Denison plants in April 1983. (JMM Internal Correspondence, April
12, 1983 and April 19, 1983) (DE 166-29). Internal correspondence further indicates that Wang
again visited in 1988. (JMM Internal Correspondence, January 28, 1988) (DE 166-30).
In June of 1986, Yu, JMAC director and secretary, who, as noted above, was a Formosa
sales department employee at some point prior to 1988, sent an internal memo requesting an
analysis as to “how we can start to move all excess AC pipe inventory right away.” (JMM
Internal Correspondence, June 13, 1986) (DE 166-37). At the time of the instruction, the United
States Environmental Protection Agency (“EPA”) was contemplating a ban on asbestos.
(Reichert Dep., 144:9-12).
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B.
Larry Lee’s Alleged Exposures
Plaintiff Larry Lee began working around asbestos cement pipe while working for a
construction company in Fort Pierce, Florida from 1973 to 1976. (Larry Lee Dep. Vol. I, 51:110) (DE 164-4). In 1981, he took a job in Pompano Beach, Florida, as a salesman with
Underground Supply Company (“Underground Supply”), a company which distributed pipes,
among other materials. (Id., 61:11-15; 70:13-25). The pipes included asbestos cement pipe
from Johns-Manville. (Id., 71:1-7).
In the course of his job, plaintiff Larry Lee was sometimes present when asbestos cement
pipe was being installed, sawed and cut.
(Id., 72:10-22).
He estimated to being present
“probably hundreds of times” in such cases, often within four to five feet. (Id., 73:20-23; 74:1316). Conditions were “[d]usty and dirty and wind-blown.” (Id., 74:6-9). He alleged that dust
would fall on his clothes and face, and that he breathed the dust. (Id., 74:19-75:7).
In 1985, plaintiff Larry Lee moved to Raleigh, North Carolina, for purposes of
employment with Davis Water and Waste Supply (“Davis”). (Id., 76:23-77:3). He continued
selling asbestos cement pipe, with the predominant brand being pipe from defendant JMM. (Id.,
77:12-22). He was present while workers sawed the asbestos pipe sold by defendant JMM, and
testified that cutting of this pipe created “the same conditions” as those created in his earlier
exposures with Underground Supply. (Id., 79:4-80:5). Plaintiff Larry Lee estimated to being
around workers cutting defendant JMM’s pipe “50, 75 times maybe.” (Id., 80:14-15). Lee was
also exposed to dust from asbestos cement pipes at Davis’s distribution facility, when the pipes
“would fall and bust and we would have to clean it up.” (Id., 86:1-14). This included pipe sold
by defendant JMM. (Id., 86:24-87:6). In the first part of his deposition, plaintiff Larry Lee
testified that Davis ceased using asbestos cement pipe “somewhere around ‘88 or 1990,” but in
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concluding part, plaintiff testified that he would set the final date of use in 1987. (Id., 84:2085:6); (Larry Lee Dep., Vol. II, 273:13-19) (DE 158-4).
Plaintiff Larry Lee was diagnosed with mesothelioma in September 2013, while resident
in Hillsborough, North Carolina, where he has lived for the past 22 years. (Larry Lee Dep., Vol.
I, 9:9-18, 11:8-14, 109:18-24); (Report of Edwin C. Holstein, M.D., M.S., 6) (DE 164-6).
Plaintiff’s medical expert, John Maddox, M.D. (“Maddox”) has attributed plaintiff Larry Lee’s
mesothelioma to asbestos, including exposures from asbestos cement pipe. (Maddox Report, 5,
28) (DE 164-7, 164-8).
DISCUSSION
A.
Standard of Review
Summary judgment is appropriate where “the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a). This standard is met when “a reasonable jury can reach only one conclusion
based on the evidence,” or when “the verdict in favor of the non-moving party would necessarily
be based on speculation.” Myrick v. Prime Ins. Syndicate, Inc., 395 F.3d 485, 489 (4th Cir.
2005). On the other hand, when “the evidence as a whole is susceptible of more than one
reasonable inference, a jury issue is created,” and summary judgment should be denied. Id. at
489-90.
Summary judgment is not a vehicle for the court to weigh the evidence and determine the
truth of the matter, but rather contemplates whether a genuine issue exists for trial. Anderson v.
Liberty Lobby, 477 U.S. 242, 249 (1986). In making this determination, the court must view the
inferences drawn from the underlying facts in the light most favorable to the nonmoving party.
United States v. Diebold, Inc., 369 U.S. 654, 655 (1962). Nevertheless, such inferences “must
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still be within the range of reasonable probability” and the court should issue summary judgment
“when the necessary inference is so tenuous that it rests merely upon speculation and
conjecture.” Lovelace v. Sherwin-Williams Co., 681 F.2d 230, 241 (4th Cir. 1982) (quoting
Ford Motor Co. v. McDavid, 259 F.2d 261, 266 (4th Cir. 1958)). Only disputes between the
parties over facts that might affect the outcome of the case properly preclude the entry of
summary judgment. Anderson, 477 U.S. at 247–48. Accordingly, the court must examine the
materiality and the genuineness of the alleged fact issues in ruling on this motion. Id. at 248–49.
The party seeking summary judgment bears the initial burden of demonstrating the
absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). Once the moving party has met its burden, the nonmoving party then must affirmatively
demonstrate with specific evidence that there exists a genuine issue of material fact requiring
trial. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986).
B.
Analysis
1.
JMM
Defendant JMM seeks partial summary judgment to the extent plaintiffs’ claims relate to
exposures from Johns-Manville pipes. Defendant argues that it is entitled to summary judgment
“on any attempt by Plaintiffs to impute liability to [defendant JMM] for Johns-Manville A/C
pipe.” (Memo. In Supp., 9) (DE 158). Defendant JMM asserts that “[p]laintiffs cannot impute
on to J-MM any pre 1983 [sic] exposure that Plaintiff may have experienced attributable to
Johns-Manville A/C pipe.” (Id.). Defendant JMM contends that it did not assume any of JohnsManville’s liabilities, and therefore cannot be held liable.
In response, plaintiffs state that they “do not contend that JMM bears liability for JohnsManville A/C pipe, except to the extent that JMM sold this product after it took over Johns13
Manville’s A/C pipe operations in 1983.” (Pls’. Resp., 12) (DE 164). Plaintiffs point to the
deposition and declaration of Armstrong who, as noted above, was an employee at the Denison
plant from 1960 until 1987. Armstrong testified that defendant JMM continued to sell JohnsManville asbestos cement pipe, and continued to use the “Johns-Manville” stencils to label some
pipe it produced after 1983.
A party may be held liable for negligence based on a defective product in its “inspection
or sale of the product.” Ruffin v. Shaw Indus., Inc., 149 F.3d 294, 301 (4th Cir. 1998) (citing
Driver v. Burlington Aviation, Inc., 110 N.C.App. 519, 527 (1993); Jolley v. General Motors
Corporation, 55 N.C.App. 383, 385 (1982)). Such party may also be liable for breach of
warranty in the sale of a product, see id. at 301, as well as failure to provide adequate warning or
instruction in connection with the manufacture or sale of a product, see N.C. Gen. Stat. § 99B-5.
It is thus clear that a party may be held liable for sales of a product, even if it was not the
product’s original manufacturer.
Defendant JMM asserts the absence of a genuine issue solely as to the fact of liability for
sales of Johns-Manville pipe, based on imputed liability for Johns-Manville’s actions. It did not
challenge plaintiffs’ evidence with respect to defendant JMM’s own actions. Plaintiffs have
come forward with evidence regarding defendant JMM’s continued sale of pipes produced by
Johns-Manville and continued practice of using the labels “Johns-Manville” and “J-M,” thereby
providing specific evidence demonstrating that it is not seeking to impute liability, but rather to
assign liability for defendant JMM’s own actions. This is sufficient to meet the burden set by
defendant JMM’s motion and to demonstrate a genuine issue of fact as to whether this defendant
14
has post-1983 liability for sales of pipe produced by or bearing the label of Johns-Manville.9 See
Matsushita, 475 U.S. at 586–87. To the extent defendant JMM seeks summary judgment on
claims against it on the basis of a lack of liability for plaintiff’s exposures to Johns-Manville
pipe after 1983, this motion is denied.
On the other hand, plaintiffs have not provided specific evidence demonstrating a
genuine issue of material fact as to claims against defendant JMM for plaintiff Larry Lee’s pre1983 exposures, and have clarified that they do not seek to assign liability for such exposures.
Accordingly, in this part defendant JMM’s motion is allowed.
Defendant JMM also moved originally for summary judgment on plaintiffs’ punitive
damages claims, arguing that Florida law should apply to plaintiffs’ claims and that such
damages are not recoverable under Florida’s Asbestos and Silica Compensation Fairness Act.
Fla. Stat. § 774.207(1). As noted, in its reply defendant JMM states that it “is no longer seeking
the application of Florida law for [plaintiffs’ punitive damages] claim” on the basis of plaintiffs’
clarification that they do not contend JMM has any liability for Johns-Manville pipe except to
the extent it sold this asbestos containing product after it took over Johns-Manville’s pipe
operations. (Reply, 2) (DE 173). Defendant JMM further provides that it “withdraws its
individual argument for punitive damages based on the Florida Asbestos and Silica
Compensation Fairness Act.” Id. Because defendant JMM’s motion for summary judgment on
plaintiffs’ punitive damages claim is solely based on the argument that Florida law applies,
where defendant JMM’s reply includes withdrawal of that part of its motion for summary
judgment, in this part JMM’s motion is denied as moot.
9
Defendant JMM appears to concede this point in its reply, stating that the issue on which it moved for summary
judgment “is not in dispute.” (Reply, 1-2) (DE 173).
15
Although defendant JMM maintains that “Florida law may still apply to some of
Plaintiffs’ other claims in this action,” it concedes that, “[b]ecause J-MM did not move for
summary judgment on those claims . . . the Court need not rule on that issue at this time.” (Id., 2
n. 2). Where plaintiffs assert that North Carolina law applies, and where defendant JMM does
not assert that the court must resolve choice of law issues at this time, the court does not reach
the question of which state’s law applies to plaintiffs’ claims against defendant JMM.
2.
Formosa10
Plaintiffs respond to defendant’s motion by asserting what they do not try to do in this
case, that is pierce the corporate veil of Formosa or hold it vicariously liable based on defendant
JMM’s asserted negligent acts; “[r]ather, Plaintiffs are pursuing two theories of liability based on
Formosa’s own conduct and on its relationship and involvement with JMAC.” (Resp. 2) (DE
166). Plaintiffs seek to show that defendant Formosa aided and abetted or engaged in a “concert
of action” with defendant JMM and JMAC in negligently manufacturing and selling asbestos
cement pipe, and engaged in a joint enterprise with JMAC to profit from the sales of asbestos
cement pipe. Plaintiffs however allege in their complaint that defendant Formosa was the alter
ego of defendant JMM and JMAC, and engaged in a conspiracy with defendant JMM and
JMAC. (Comp. ¶¶ 10, 77-78) (DE 1). The court addresses below plaintiffs’ theories of liability
in this order: 1) “alter ego”; 2) joint enterprise and related joint venture; 3) aiding and abetting or
concert of action; and 4) conspiracy.
10
Defendant Formosa urged in support of its motion that the law of Florida should be applied. However, as with
defendant JMM, in its reply defendant Formosa puts that argument to the side with statement that “Formosa is no longer
seeking the application of Florida law...” (Reply, 1 n. 1) (DE 174). Thus, both parties agree that North Carolina law
applies to the claims against defendant Formosa. “Where the parties have agreed to the application of the forum law,
their consent concludes the choice of law inquiry.” Cosey v. Prudential Ins. Co. of Am., 735 F.3d 161, 169 n. 7 (4th Cir.
2013) (quoting Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130, 134 (2d Cir. 1997) (brackets omitted)).
Accordingly, the following analysis applies North Carolina law.
16
a.
“Alter Ego” Theory
When a “corporation is so operated that it is a mere instrumentality or alter ego of the
sole or dominant shareholder and a shield for his activities in violation of the declared public
policy or statute of the State, the corporate entity will be disregarded and the corporation and the
shareholder treated as one and the same person, it being immaterial whether the sole or dominant
shareholder is an individual or another corporation.” Henderson v. Sec. Mortg. & Fin. Co., 273
N.C. 253, 260 (1968). Thus, “alter ego” theory, also referred to in North Carolina as the “mere
instrumentality” theory, is used as a means of “piercing the corporate veil” in order to assign
liability for a corporation’s acts or obligations to a shareholder or parent corporation. See id.;
see also Glenn v. Wagner, 313 N.C. 450, 455-56 (1985) (describing circumstances in which it is
proper to “pierce the corporate veil,” noting Henderson’s discussion of “alter ego” theory, and
holding that “[i]t is sufficient [to pierce the veil] where . . . one affiliated corporation is
dominated by another to the extent that the dominated corporation has no separate mind, will or
identity of its own.”).
“Piercing the corporate veil is a drastic remedy and should be invoked only in an extreme
case where necessary to serve the ends of justice.” Best Cartage, Inc. v. Stonewall Packaging,
LLC, 219 N.C. App. 429, 439 (2012) (quoting Dorton v. Dorton, 77 N.C. App. 667, 672 (1985))
(quotation marks omitted); see also In re Cnty. Green Ltd. P’ship, 604 F.2d 289, 292 (4th Cir.
1979) (“[T]he decision to pierce a corporate veil and expose those behind the corporation to
liability is one that is to be taken reluctantly and cautiously.”). “The facts that corporations have
common officers, occupy common offices, and to a certain extent transact business for each
other do not make the one corporation liable for the action of the other, except upon established
17
legal principles.” B-W Acceptance Corp. v. Spencer, 268 N.C. 1, 8 (1966) (quoting 19 Am. Jur.
2d, Corporations, § 717).
Although plaintiffs alleged in their complaint that defendant Formosa was the “alter ego”
of defendant JMM and JMAC, plaintiffs’ response in opposition to this defendant’s motion for
summary judgment includes assertion that “[p]laintiffs do not seek to pierce the corporate veil.”
(Pls’. Resp., 2). Accordingly, plaintiffs have abandoned this theory, failing to carry their burden
to show a genuine issue of material fact as to its application. In this part, to the extent plaintiffs’
claims rest on this theory, defendant Formosa’s motion for summary judgment is allowed.
b.
Joint Enterprise
Plaintiffs assert in their response that defendant Formosa is liable on “joint enterprise”
theory. “A joint enterprise is an alliance between two or more people in pursuit of a common
purpose such that negligence of one participant may be imputed to another.” Slaughter v.
Slaughter, 93 N.C. App. 717, 720 (1989) (citing McAdams v. Blue, 3 N.C. App. 169, 173
(1968)). The term has often been used interchangeably with the terms “joint adventure” and
“joint venture,” though the rules and elements applicable to these terms are distinct. See, e.g.,
Harper v. Seaboard A.L.R. Co., 211 N.C. 398, 402 (1937) (using terms interchangeably); see
also McAdams v. Blue, 3 N.C. App. 169, 172-73 (1968); 46 Am. Jur. 2d Joint Ventures § 4.
The basic difference between a joint venture and a joint enterprise is that the former
generally involves a business relationship, while the latter does not. See 46 Am. Jur. 2d Joint
Ventures § 4; see also McAdams, 3 N.C. App. at 172 (explaining that the term “joint enterprise”
is “normally employed, not with reference to a business relationship comparable to a partnership,
but by way of representing merely a unity of persons in the pursuit of a common purpose.”). It
would thus appear that the present facts implicate a joint venture rather than a joint enterprise.
18
The court nevertheless provides analysis for both theories, starting below with the joint
enterprise theory that plaintiffs expressly advance.
In North Carolina, joint enterprise liability primarily developed in the context of motor
vehicle accidents, where the plaintiff attempted to assign liability to a party other than the driver
of a car, such as a co-owner or occupant. See Rushing v. Polk, 258 N.C. 256, 262-63 (1962);
James v. Atl. & E. Carolina R. Co., 233 N.C. 591, 597 (1951); Albritton v. Hill, 190 N.C. 429,
431-32 (1925). It has, however, been applied to other circumstances. See Keith v. Wilder, 241
N.C. 672, 676 (1955) (approving jury instruction on joint enterprise in case involving fraudulent
representation in sale of timber). Under a joint enterprise theory, the negligence of one party
may be imputed to another when “there is a community of interest in the objects or purposes of
the undertaking,” and “an equal right to direct and govern the movement of each other with
respect thereto.” James, 233 N.C. at 598.
The complaint in this case includes no allegations that defendant Formosa was engaged
in a joint enterprise with defendant JMM or JMAC. Although it is alleged that defendant
Formosa was a “successor-in-interest,” plaintiffs did not allege a community of interest with
respect to asbestos containing products, nor that both companies had equal rights to direct the
other’s movements.
The Federal Rules of Civil Procedure require “a short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a). “Even though the requirements
for pleading a proper complaint are substantially aimed at assuring that the defendant be given
adequate notice of the nature of a claim being made against him, they also provide criteria for
defining issues for trial.” Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir.2009). A properly
pleaded complaint provides to an opponent “illumination as to the substantive theory under
19
which [plaintiff] [i]s proceeding, which is the function of the pleadings under the Federal Rules.”
Atl. Purchasers, Inc. v. Aircraft Sales, Inc., 705 F.2d 712, 717 (4th Cir.1983) (citation, ellipsis
and quotation marks omitted) (quoting Holt Civic Club v. City of Tuscaloosa, 439 U.S. 60, 66
(1978)).
Accordingly, a case may not proceed to trial on “an unpleaded theory of recovery”
without “express or implied consent of the parties.” Pinkley, Inc. v. City of Frederick, Md., 191
F.3d 394, 401 (4th Cir.1999); McLeod v. Stevens, 617 F.2d 1038, 1040 (4th Cir.1980). Further,
“a court will not imply consent to try a claim merely because evidence relevant to a properly
pleaded issue incidentally tends to establish an unpleaded claim.” Quillen v. Int’l Playtex, Inc.,
789 F.2d 1041, 1044 (4th Cir.1986). Rather, a party must amend the complaint, or the parties
must “constructively amend the complaint” by, for example, “agreeing . . . to litigate fully an
issue not raised in the original pleadings,” or by addressing a theory of liability “in their
summary judgment briefs.” Interstate Petroleum Corp. v. Morgan, 249 F.3d 215, 227 (4th
Cir.2001) (quotations omitted); see also Whitaker v. T.J. Snow Co., 151 F.3d 661, 663 (7th
Cir.1998) (explaining that “[b]ecause both parties squarely addressed the strict liability theory in
their summary judgment briefs, the complaint was constructively amended to include that
claim”). Constructive amendment through summary judgment briefing generally occurs when
the moving party addresses a theory of liability – a plaintiff may not amend his complaint
through arguments in his brief in opposition to a motion. See Cloaninger v. McDevitt, 555 F.3d
324, 336 (4th Cir. 2009); see also Harris v. Reston Hosp. Ctr., 523 F. App’x 938, 947 (4th Cir.
2013).
Defendant Formosa has not implicitly consented to amendment of plaintiffs’ complaint to
incorporate “joint enterprise” theory, but, rather, has challenged this theory as improperly
20
pleaded. For the reasons explained above, the court agrees that plaintiffs failed properly to plead
defendant Formosa’s liability based on “joint enterprise” theory. Thus, they cannot assert the
theory as a means to avoid summary judgment.
Even if the court was to allow plaintiffs to raise this theory now, their evidence fails to
support the theory. Plaintiffs’ evidence does not show that the companies had an “equal right to
direct and govern the movement of each other” for purposes of showing joint enterprise liability.
Plaintiffs point to the fact that Yu, an employee of defendant Formosa at some point before
1988, also signed an operating agreement with defendant JMM on behalf of JMAC. They also
note that Chi, who had been president of Formosa at some point, had the power to sign checks
for JMAC. In addition, plaintiffs point to Chi and Yu’s placements on JMAC’s California
executive committee, and the statement in the J-M Policy and Procedure Manual that JMAC and
defendant JMM were “part of” defendant Formosa.
These facts are insufficient to satisfy the “equal right to direct” element of “joint
enterprise” liability. The fact that some of defendant Formosa’s officers were also officers of
JMAC and had power to conduct certain business transactions does not give defendant Formosa
itself the right to direct defendant JMM or JMAC’s activities. See B-W Acceptance, 268 N.C. at
8 (distinguishing between corporations that “have common officers, occupy common offices,
and to a certain extent transact business for each other” from a corporation which “exercises
actual control over another.”). It is not even clear that Chi and Yu were employees of defendant
Formosa at the same time that they filled their respective roles with JMAC. The statement that
plaintiffs rely upon from the J-M Policy and Procedure Manual establishes little more than an
ordinary parent-subsidiary relationships among defendant Formosa, defendant JMM, and JMAC.
21
Furthermore, the cited evidence supports only a one-way relationship, in which defendant
Formosa was the directing party. This does not show a “joint enterprise.”
For all these reasons, the court grants summary judgment on plaintiffs’ theory of “joint
enterprise” liability.
c.
Joint Venture
A joint venture is
an association of persons with intent, by way of contract, express or implied, to
engage in and carry out a single business adventure for joint profit, for which
purpose they combine their efforts, property, money, skill, and knowledge, but
without creating a partnership in the legal or technical sense of the term.
Pike v. Wachovia Bank & Trust Co., 274 N.C. 1, 8 (1968) (quoting In re Simpson, 222 F. Supp.
904, 909 (M.D.N.C. 1963)). The term is synonymous with “joint adventure.” Id. Like a joint
enterprise, a joint venture may be used to impute liability from one member of the undertaking to
another. See id., at 10-11; see also Rhoney v. Fele, 134 N.C. App. 614, 620 (1999). Essential
elements include 1) “an agreement, express or implied, to carry out a single business venture
with joint sharing of the profits,” and (2) “an equal right of control of the means employed to
carry out the venture.” Synovus Bank v. Coleman, 887 F. Supp. 2d 659, 670 (W.D.N.C. 2012)
(quoting Southeastern Shelter Corp. v. BTU, Inc., 154 N.C. App. 321, 326 (2002)); Volumetrics
Med. Imaging, Inc. v. ATL Ultrasound, Inc., 243 F. Supp. 2d 386, 403 (M.D.N.C. 2003) (same);
see also Cheape v. Town of Chapel Hill, 320 N.C. 549, 562 (1987) (requiring “each joint
venturer [to] stand in the relation of principal, as well as agent, as to each of the other
coventurers.”) (quoting 46 Am. Jur. 2d Joint Ventures § 1).
Summary judgment must be granted on this theory for reasons similar to those that
foreclosed plaintiffs’ joint enterprise theory. First, plaintiffs do not adequately plead this theory.
22
Second, as explained above, plaintiffs fail to raise a genuine issue that the three companies each
had an “equal right of control” over the venture. Third, there is no genuine issue that defendant
Formosa shared in the profits of the actual sale and manufacture of asbestos cement pipes;
rather, its interest was in the values of its assets as a parent company and shareholder of
defendant JMM and JMAC. Courts have found such interest insufficient to establish a joint
venture. See Wood v. McDonald’s Corp., 166 N.C. App. 48, 61 (2004) (holding that 50%
shareholder of company did not share in profits).11 Thus, summary judgment must also be
granted, to the extent plaintiffs assert “joint venture” liability.
d.
Aiding and Abetting or Concert of Action
Plaintiffs’ assertion of an aiding and abetting or concert of action theory of liability rests
on a case from the North Carolina Court of Appeals, Stetser v. TAP Pharm. Prods. Inc., 165 N.C.
App. 1, 20 (2004). See (Resp., 21). There the court quoted from the Restatement (Second) of
Torts, § 876 (1979) (hereinafter “Section 876”), which describes a theory of liability for
“Persons Acting in Concert,” as follows:
For harm resulting to a third person from the tortious conduct of another, one is
subject to liability if he
(a) does a tortious act in concert with the other or pursuant to a common design
with him, or
(b) knows that the other’s conduct constitutes a breach of duty and gives
substantial assistance or encouragement to the other so to conduct himself, or
11
See also Servicios Especiales Al Comercio Exterior v. Johnson Controls, Inc., 791 F. Supp. 2d 626, 636-37 (E.D. Wis.
2011) (finding parent’s stock ownership “simply too generic” to establish joint enterprise); Zwicki v. Superior Mach.
Co. of S.C., 2002 WL 34365098, at *8 (D. Minn. 2002) (“Under Minnesota law, plaintiffs may not use theories of joint
venture or joint enterprise to attribute a corporation’s liability to its shareholders or its parent corporation.”); In re
Silicone Gel Breast Implants Prods. Liab. Litig., 887 F. Supp. 1455, 1462 (N.D. Ala. 1995) (“As a general proposition,
the fact that an entity is a corporation precludes a finding that it is a partnership or a joint venture or a finding that its
stockholders constitute partners or joint venturers.”); St. Joseph Hosp. v. Wolff, 94 S.W. 3d 513, 527-28 (Tex. 2003)
(distinguishing “common business purpose” and “common pecuniary interest” from “community of pecuniary interest”
for purposes of establishing “joint enterprise” liability).
23
(c) gives substantial assistance to the other in accomplishing a tortious result and
his own conduct, separately considered, constitutes a breach of duty to the third
person.
Stetser, 165 N.C. App. at 19-20 (quoting Section 876).
The court in Stetser went on to conclude that the North Carolina Supreme Court had
“adopted this section of the Restatement as it applied to the negligence of joint tortfeasors.” Id.
at 20 (citing Boykin v. Bennett, 253 N.C. 725 (1961)). Stetser considered an appeal from a trial
court order certifying plaintiffs’ class action suit for inflating prescription drug prices, which was
brought against the corporate owners of the drug manufacturers, the corporate owner of a
company that marketed a treatment system, and others. Id. at 4-5. At issue in the case was
whether the law of North Carolina materially differed from the law of other states, in order to
determine whether application of North Carolina law violated the rights of defendants and outof-state plaintiffs. Id. at 12, 14. Thus, review of the lower court’s decision did not actually
consider whether the allegations or evidence established any claims, but, rather, the decision to
certify the class. See id. at 14-27.
Where the basis of plaintiffs’ aiding and abetting or concert of action theory ultimately
rests on Section 876, the court will first consider whether and to what extent this represents the
law of North Carolina.
i.
Section 876 in North Carolina Law
In applying the law of the state of North Carolina, the court must treat decisions of the
North Carolina Supreme Court as binding, and “depart[ ] from an intermediate court’s fully
reasoned holding as to state law only if convinced that the state’s highest court would not follow
that holding.” See Iodice v. United States, 289 F.3d 270, 274-75 (4th Cir. 2002) (quoting
24
Assicurazioni Generali, S.p.A. v. Neil, 160 F.3d 997, 1003 (4th Cir. 1998)) (quotation marks
omitted).
Notwithstanding the court’s holding in Stetser, the place of Section 876 in North Carolina
law is somewhat unclear. “Except as specifically adopted in [North Carolina], the Restatement
should not be viewed as determinative of North Carolina law.” Hedrick v. Rains, 344 N.C. 729,
729 (1996). The North Carolina Supreme Court case which Stetser cited as adopting Section
876 involved the death of an automobile passenger resulting from a crash during an automobile
race on a public highway. Boykin, 253 N.C. at 726. In Boykin, the North Carolina Supreme
Court considered whether those who raced motor vehicles on a public highway engaged in
“independent” acts, or whether their acts were “joint and concurrent” for the purpose of
establishing liability. Id. at 728. To answer this question, the court reviewed and summarized
treatises and case law from a number of other jurisdictions, including a case from Connecticut.
Id. at 728-731, 731 (citing Carney v. De Wees, 136 Conn. 256, 70 A.2d 142 (1949)). In
summarizing Carney, the court quoted from a section of the Connecticut opinion that, in turn,
quoted section 876(b) and related comment. Boykin, 253 N.C. at 731. Specifically, the court
held that
For harm resulting to a third person from the tortious conduct of another, a person
is liable if he knows that the other’s conduct constitutes a breach of duty and
gives substantial assistance or encouragement to the other so to conduct himself.
If the encouragement or assistance is a substantial factor in causing the resulting
tort, the one giving it is himself a tort-feasor and is responsible for the
consequences of the other’s act.
Id. (quoting Carney, 136 Conn. at 262, 70 A.2d at 145-46) (ellipsis and quotation marks
omitted).
25
The court in Boykin went on to note that the racing of motor vehicles on a street or
highway violated North Carolina law, N.C. Gen. Stat. § 20-141.3(a) and (b), and thus was
negligence per se. Id. at 731. It held that “[t]he primary negligence involved is the race itself.
All who willfully participate in speed competition between motor vehicles on a public highway
are jointly and concurrently negligent and, if damage to one not involved in the race proximately
results from it, all participants are liable.” Id. at 731-32.
In Blow v. Shaughnessy, 88 N.C. App. 484 (1988), the court stated that Boykin had
“approved [Section 876’s] position involving the negligence of joint tort feasors,” and relied on
that case, along with federal securities law cases, to hold that North Carolina would recognize an
action for aiding and abetting a breach of fiduciary duties. Id. at 489-92. Blow involved
allegations that an investment advisor was defrauding plaintiffs, and that defendants continued to
execute trades and provide market information to the investment advisor with knowledge that he
was committing fraud. Id. at 492.
To the extent Blow relied on federal law, however, the United States Supreme Court
subsequently undermined that court’s rationale in Central Bank of Denver v. First Interstate
Bank of Denver, 511 U.S. 164, 177-78 (1994), holding that federal securities laws did not
prohibit aiding and abetting. Consequently, Blow no longer is valid precedent. Bottom v.
Bailey, ___ N.C. ___, 767 S.E. 2d 883, 889 (2014). Whether a claim for aiding and abetting a
breach of fiduciary duty is valid under North Carolina law remains an open question. Id., ___
N.C. ___, 767 S.E. 2d at 889 (declining to address whether such claim exists, because complaint
failed to include proper allegations in support); see In re Bostic Constr., Inc., 435 B.R. 46, 66
(Bankr. M.D.N.C. 2010) (“It is not even clear that North Carolina recognizes a cause of action
for aiding and abetting breach of fiduciary duty.”). Nevertheless, that part of the decision noting
26
the adoption of Section 876 has not been specifically overruled, and the case provides some
support for finding Section 876 to be the adopted law of North Carolina, at least in certain
circumstances.
In another case, McMillan v. Mahoney, 99 N.C. App. 448, 451 (1990), the North
Carolina Court of Appeals considered whether a complaint had sufficiently alleged a claim for
relief in pleading that defendants had engaged in a “concerted action.” The complaint alleged
that the two defendants were firing air rifles near the plaintiffs’ home, that either one or the other
had fired in a negligent, careless and reckless manner, and that plaintiff suffered injury as a
result. Id. at 450. The court quoted subsections (b) and (c) of Section 876, and noted an
illustration from the Restatement involving two individuals negligently shooting across a public
road, where liability was assigned to shooter A even though shooter B’s bullet was actually the
one that struck plaintiff. Id. at 451-52. The court also referred to the law of several other
jurisdictions finding liability in similar circumstances of simultaneously firing a weapon. Id. at
452. The court ultimately held that, “[a]lthough the complaint does not contain the words
‘acting in concert,’ we believe that under the recognized tort theories discussed above the
complaint alleges facts sufficient to give defendants notice of the theory under which plaintiffs
are proceeding.” Id. at 453.
More recent decisions from North Carolina’s intermediate court indicate a desire to limit
the scope of Section 876. In Hinson v. Jarvis, 190 N.C. App. 607 (2008), a case which followed
Stetser, the court considered an accident caused when the driver of a vehicle allegedly suffered a
seizure. Id. at 608-09. Plaintiffs sued the wife of the driver, alleging that she breached her duty
by traveling with the driver despite knowing that he had suffered from such seizures. Id. at 610.
The court noted that the North Carolina Court of Appeals had “cited [section 876] three times
27
but has never explicitly adopted it.” Id. at 611. It also characterized Boykin’s treatment of
Section 876 with more reservation than prior decisions, as follows: “[o]ur Supreme Court has
cited Connecticut law, which quoted an older but substantially similar version of section 876, but
has also not expressly adopted Restatement (Second) of Torts § 876.” Id. at 611-12. The court
then distinguished the facts under consideration from those at issue other cases applying Section
876. It distinguished Boykin because the evidence failed to show “substantial encouragement to
breach a duty of care,” but rather indicated that defendant was “only complicit in her husband’s
breach of ordinary care.” Id. at 612. Blow was distinguished because the case “did not involve
any fiduciary relationship between [the driver] and plaintiffs.” Id. at 612, n. 2. The court also
distinguished McMillan because “there are no factual issues as to whether [the driver] or
defendant caused the accident,” explaining that defendant did not “aid[ ] her husband’s
negligence by interfering with his ability to drive so that the exact cause of the accident could
not be known.” Id. at 613. The court expressly declined “to extend liability under section 876 of
the Restatement of Torts to a third person whose conduct did not fall below an ordinary standard
of care or involve an issue as to which person was the cause of the harm alleged.” Id.
More recently, in Wilcox v. City of Asheville, 222 N.C. App. 285 (2012), the court relied
on McMillan and its quotation of Section 876 to find that summary judgment should not be
granted when the evidence showed that the defendants were both shooting recklessly at a vehicle
in which plaintiff was a passenger. Id. at 297.
Finally, an unpublished case, North Carolina II, LP v. Branch Banking & Trust Co., No.
COA12-898, 2012 WL 6597764 (N.C. Ct. App. Dec. 12, 2012), arose from a dispute between a
real estate developing company, a construction company, and the bank that was the construction
company’s largest lender and creditor. Id. at *1. The construction company filed lien claims
28
alleging that the real estate company owed it over $2 million in damages, but subsequently went
bankrupt. Id. The construction company’s claim was then assigned to the bank. Id. Plaintiffs
sued the bank, claiming the construction company had slandered its title, and that the bank aided
and abetted the slander by continuing to pursue the construction company’s action, despite the
fact that, based on reports provided by the construction company, the bank knew or should have
known that the amounts claimed in the liens were excessive. Id. The North Carolina Court of
Appeals quoted Hinson for the proposition that it had “only adopted Section 876 in limited
circumstances . . . as it is applied to the negligence of joint tortfeasors.” Id. at *2. The court
found the case more analogous to Hinson than other cases applying Section 876. Id. In doing
so, it found that the defendant bank’s action “occurred after [the construction company’s]
alleged tort,” and that the actions alleged were “more closely aligned with complicit action than
with incitement.” Id. Finding no case law applying Section 876 under the circumstances
presented, the court affirmed the trial court’s order dismissing the complaint. Id.
These authorities support that Section 876 has indeed been recognized as North Carolina
law by the state’s intermediate court, but that court is reluctant to extend it to factual scenarios
outside of those specifically provided in the Restatement or in established case law. Finding no
clear reason to conclude that the state’s highest court would not hold the same, this court follows
suit.
ii.
Application of Section 876
Federal courts are to tread carefully when asked to extend state tort law to new scenarios.
See Broussard v. Meineke Disc. Muffler Shops, Inc., 155 F.3d 331, 348 (4th Cir. 1998) (“As a
federal court exercising concurrent jurisdiction over this important question of state law we are
most unwilling to extend North Carolina tort law farther than any North Carolina court has been
29
willing to go.”). The facts of the instant case are quite different from any of those addressed in
North Carolina case law or the Restatement itself. This court is not aware of any court which
has found Section 876 satisfied in circumstances such as those presented here. Especially in
light of the reluctance that the North Carolina Court of Appeals has expressed in applying
Section 876 to new situations, these considerations counsel the undersigned to proceed with
caution in consideration of whether any of Section 876’s alternative clauses are met by the
instant facts.
Plaintiffs do not specify the precise clause of Section 876 under which they advance their
claims. The court will therefore analyze each in turn. As noted, clause (a) applies when a party
“does a tortious act in concert with the other or pursuant to a common design with him.”
Restatement (Second) of Torts § 876(a). Comment on clause (a) provides that “[p]arties are
acting in concert when they act in accordance with an agreement to cooperate in a particular line
of conduct or to accomplish a particular result.” Id., cmt. a. “The agreement need not be
expressed in words and may be implied and understood to exist from the conduct itself.” Id.
Further, “it is essential that the conduct of the actor be in itself tortious. One who innocently,
rightfully and carefully does an act that has the effect of furthering the tortious conduct or
cooperating in the tortious design of another is not for that reason subject to liability.” Id., cmt.
c.
Plaintiffs fail to establish a genuine issue as to applicability of clause (a). Plaintiffs’
argument in support of their concert of action or aiding and abetting claim relies on the
following evidence: 1) Wang’s position as the initial stockholder at the time that JMAC
purchased asbestos cement pipe operations from Johns-Manville; 2) Yu’s instruction in June of
1986 that JMM salesmen should sell off the asbestos pipe inventory as soon as possible; 3) other
30
Formosa employees worked for JMAC and defendant JMM; 4) the admission of Nightingale,
defendant Formosa’s corporate representative, that, at the time JMM was selling asbestos pipe
and defendant JMAC was manufacturing asbestos pipe, “it was widely acknowledged that
asbestos was a very dangerous material” (Nightingale Dep., 18:25-19:12); 5) Nightingale’s
acknowledgment that, at the time of these operations, defendant Formosa knew that PVC pipe
was “much safer than asbestos-containing pipe”
(Id., 21:9-16); 6) defendant Formosa’s
execution of the co-borrower agreement with Bank of America and subsequent guarantees for
JMAC’s line of credit, ranging from $10-15 million; and 7) the visits of defendant Formosa’s
officers to the Denison and Stockton plants in April 1983 and early 1988.
With respect to Wang’s status as an initial JMAC shareholder, Yu’s internal
correspondence, and the general matter that Formosa employees worked for defendant JMM and
JMAC, this evidence does not support an aiding and abetting claim against defendant Formosa.
A principal is typically responsible to third parties for injuries resulting from his agent’s acts
only when those acts are “committed during the existence of the agency and within the scope of
the agent’s actual or apparent authority from the principal.” See Johnson v. Schultz, 364 N.C.
90, 94 (2010). This principle is applicable in the corporate context, where “[t]he general rule is
well established that a corporation is liable for the torts and wrongful acts or omissions of its
agents or employees acting within the scope of their authority or the course of their
employment.” Raper v. McCrory-McLellan Corp., 259 N.C. 199, 205 (1963). Similarly, it is a
“well settled” principle that, in order to impute the knowledge of a director to a corporation, the
director “must have acquired the knowledge officially as a member of the board and in the
course of business as director or for the purpose of being communicated by him to the board.”
Anthony v. Jeffress, 172 N.C. 378, 381 (N.C. 1916). Likewise,
31
a corporation is not bound by the action or chargeable with the knowledge of its
officers, with respect to a transaction, in which such officer is acting in his own
behalf or in the behalf of another corporation of which he is also an officer. Only
that knowledge which its officer acquires while acting in its behalf, and which it
is his duty to communicate to it, is imputed by the law to a corporation.
Cheek v. Squires, 200 N.C. 661, 670-71 (N.C. 1931); see also Phoenix Sav. & Loan, Inc. v.
Aetna Cas. & Sur. Co., 381 F.2d 245, 250 (4th Cir. 1967) (“The general rule is that the
knowledge of an officer of the corporation obtained while acting outside the scope of his official
duties . . . is not, merely because of his office, to be imputed to the corporation.”). Plaintiffs fail
to raise a genuine issue as to whether Wang, Yu, or other persons were acting in the scope of
their actual or apparent authority or the course of their employments for defendant Formosa
when they performed the actions alleged. Their acts and knowledge from these transactions are
not binding or imputed to defendant Formosa.
This leaves evidence that defendant Formosa acted as the guarantor on credit extended to
defendant JMM and JMAC, that defendant Formosa’s representatives visited the Stockton and
Denison plants, that defendant Formosa had a general knowledge of the hazards of asbestos and
that it knew asbestos cement pipes were more dangerous than PVC pipes. The precise nature of
the allegedly “tortious act” which was performed “in concert” or “pursuant to a common design”
is unclear from this evidence, and plaintiffs fail to offer necessary clarification. Moreover, this
court has not located any case in or outside North Carolina finding that such conduct is “in itself
tortious,” as Section 876 requires and as the state’s own cases indicate to be necessary. See
Restatement (Second) § 876, cmt. c; see also Boykin, at 731-32 (holding that drivers’ acts of
racing in vehicles were negligent per se); Wilcox, 222 N.C. App. at 297 (holding evidence
sufficient to survive summary judgment when it showed both defendants were shooting
recklessly at a vehicle in which plaintiff was passenger); McMillan, 99 N.C. App. at 451-52
32
(complaint adequately states cause of action where each defendant commits negligent act of
shooting); Hinson, 190 N.C. App. at 613 (requiring third person’s conduct to “fall below an
ordinary standard of care.”).
The court is also cognizant of cases which have declined to pierce the corporate veil
based on a parent company’s status as a loan guarantor, among other facts. Kramer Motors, Inc.
v. British Leyland, Ltd., 628 F.2d 1175, 1177 (9th Cir. 1980); Calvert v. Huckins, 875 F. Supp.
674, 679 (E.D. Cal. 1995); United States v. Bliss, 108 F.R.D. 127, 131-32 (E.D. Mo. 1985);
Akzona Inc. v. E.I. Du Pont De Nemours & Co., 607 F. Supp. 227, 237-38 (D. Del. 1984); see
also Vitol, S.A. v. Primerose Shipping Co. Ltd., 708 F.3d 527, 546 (4th Cir. 2013) (“The mere
extension of a line of credit from one corporate entity to another, however, does not create a
reasonable belief of alter ego.”). Particularly on the facts of this case, the court is loathe to
permit plaintiffs to use Section 876 as a means around established law, implicitly flouting the
stringent test for piercing the corporate veil. To the extent plaintiffs proceed under clause (a),
summary judgment is granted.
Clause (b) applies to situations where the party “knows that the other’s conduct
constitutes a breach of duty and gives substantial assistance or encouragement to the other so to
conduct himself.” Commentary provides that the rule applies “whether or not the other knows
his act is tortious.” Restatement (Second of Torts) § 876, cmt. d. Courts have recognized that
Section 876(b) thus consists of two elements: “(1) knowledge that the primary party’s conduct is
a breach of duty and (2) substantial assistance or encouragement to the primary party in carrying
out the tortious act.” Aetna Cas. & Sur. Co. v. Leahey Const. Co., 219 F.3d 519, 533 (6th Cir.
2000) (quoting Andonian v. A.C. & S., Inc., 97 Ohio App. 3d 572, 647 N.E. 2d 190, 191-92
(1994)).
33
The evidence is insufficient to establish either the requisite knowledge or the substantial
assistance prong. First, a general awareness that a material may be dangerous or that products
made from different materials may be safer is insufficient to demonstrate affirmative knowledge
that a party is breaching a duty by selling or manufacturing products made from that material.
For example, the presence of a safer alternative is but one of the points to be considered under
North Carolina law regarding “inadequate design or formulation” claims. See N.C. Gen. Stat. §
99B-6. The failure to adopt such an alternative design must be “unreasonable,” or else the
product at issue must be designed so unreasonably “that a reasonable person, aware of the
relevant facts, would not use or consume a product of this design.” Id. § 99B-6(a). Further, the
manufacturer must have “acted unreasonably in designing or formulating the product,” taking
into account such factors as the “nature and magnitude of the risks of harm,” “likely awareness
of product users . . . of those risks of harm,” “[t]he extent to which the design or formulation
conformed to any applicable government standard,” the “utility of the product,” and “[t]he
technical, economic, and practical feasibility of using an alternative design or formulation at the
time of manufacture.” Id. at § 99B-6(a) and (b). Plaintiffs fail to point to evidence which raises
a genuine issue of material fact linking a general awareness of the dangers of asbestos or
asbestos pipes with an affirmative knowledge that defendant JMM and JMAC were acting
unreasonably and breaching a duty in their design, manufacture and sale of asbestos cement
pipe.
Plaintiffs have also failed to point to evidence which raises a genuine issue of material
fact that defendant Formosa provided substantial assistance. The only evidence of support
specifically attributable to defendant Formosa is that it assisted defendant JMM and JMAC with
obtaining a line of credit. While that line of credit does indeed appear substantial, there are
34
insufficient facts regarding how that credit was used (if it was used at all), in addition to a lack of
evidence of defendant Formosa’s knowledge as to how the credit would be used, to create a
genuine issue of material fact on this element of liability.
Finally, clause (c) of Section 876 assigns concert of action liability when a party “gives
substantial assistance to the other in accomplishing a tortious result and his own conduct,
separately considered, constitutes a breach of duty to the third person.” This clause applies to
situations where “one personally participates in causing a particular result in accordance with an
agreement with another.”
Restatement (Second) of Torts § 876, cmt. e. In contrast to clause
(b), clause (c) applies “irrespective of [the defendant’s] knowledge that his act or the act of the
other is tortious.” Id. Commentary further provides the example that “each of a number of
trespassers who are jointly excavating a short ditch is liable for the entire harm done by the
ditch, although each reasonably believes that he is not trespassing.” Id.
For the reasons explained above, plaintiffs’ evidence is insufficient to create a genuine
issue of material fact with respect to whether defendant Formosa provided substantial assistance
to defendant JMM or JMAC. Furthermore, the evidence is insufficient to show that defendant
Formosa’s conduct, separately considered, constituted a breach of duty to a third person. The
court thus grants summary judgment with respect to plaintiffs’ claims against defendant
Formosa, also to the extent they rest on clause (c) of Section 876.
Accordingly, plaintiffs having failed to demonstrate a genuine issue of material fact with
respect to each of Section 876’s clauses, the court grants summary judgment on plaintiffs’ claims
against defendant Formosa, to the extent they rely on aiding and abetting or concert of action
theories.
35
e.
Conspiracy
“A conspiracy is an agreement between two or more persons to commit an unlawful act
or to do a lawful act in an unlawful manner.” Evans v. Star GMC Sales & Serv., Inc., 268 N.C.
544, 546 (1966); Burton v. Dixon, 259 N.C. 473, 476 (1963). North Carolina does not recognize
an action for civil conspiracy in itself. Shope v. Boyer, 268 N.C. 401, 405 (1966). However,
conspiracy may be used to “associate the defendants together” for the purposes of imputing the
conduct of one defendant to another. See id. “If a conspiracy is formed and an overt act,
causing damage, is committed by any one or more of the conspirators in furtherance of the
conspiracy, all of the conspirators are liable.” Burton, 259 N.C. at 476.
Defendant Formosa has moved for summary judgment on plaintiffs’ claims to the extent
they rest on a theory of conspiracy, arguing that plaintiffs’ evidence fails to establish the
requisite relationship between defendant Formosa, defendant JMM and/or JMAC.
Plaintiffs do
not address how the evidence comports with North Carolina law on conspiracy, outside of
relying on Section 876. Accordingly, the court grants summary judgment on the conspiracy
claim as well.
Summary judgment having been granted on each of plaintiffs’ alleged theories of liability
against defendant Formosa, the court dismisses the case against it.
CONCLUSION
In accordance with the foregoing, the court GRANTS in part, and DENIES in part the
motions now before it. For the reasons given:
1.
Summary judgment is GRANTED for defendant JMM regarding plaintiffs’
claims to the extent they arise from pre-1983 exposures to Johns-Manville
asbestos cement pipe. It is DENIED to the extent defendant JMM seeks summary
36
judgment on claims for exposures to Johns-Manville pipe after 1983. It is also
DENIED as MOOT to the extent defendant JMM seeks summary judgment on
punitive damages claims against it.
2.
Summary judgment is GRANTED for defendant Formosa. This defendant is
hereby DISMISSED from the case.
There remain now two dispositive motions for the court to take up and consider, that is
defendant Genuine Parts’s partial summary judgment motion and the asserted motion by
Pneumo. Upon their disposition, by which time the parties’ expert discovery shall be completed
pursuant to the court’s amended case management order, (DE 163), defendants Certainteed
Corporation, Genuine Parts, JMM, Kawasaki, Metropolitan Life, Pneumo if remaining, and
Yamaha shall have 60 days to file any motions raising issues pursuant to Federal Rules of
Evidence 702, 703, or 705, Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), Kumho
Tire Co. v. Carmichael, 526 U.S. 137 (1999) or similar case law. Going forward, the caption of
the case shall reflect the dismissal of defendant Formosa.
SO ORDERED, this the 16th day of July, 2015.
_____________________________
LOUISE W. FLANAGAN
United States District Judge
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