MDU Resources Group v. W.R. Grace and Co.

• Decision Date: 24 March 1994
• Docket Number: No. 92-2794,92-2794
• Citation: 14 F.3d 1274
• Parties: Prod.Liab.Rep.(CCH)P. 13,761 MDU RESOURCES GROUP, doing business as Montana-Dakota Utilities Co., Inc., Appellant, v. W.R. GRACE AND COMPANY, and W.R. Grace and Company--Conn., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1274

14 F.3d 1274

Prod.Liab.Rep.(CCH)P. 13,761

MDU RESOURCES GROUP, doing business as Montana-Dakota Utilities Co., Inc., Appellant, v. W.R. GRACE AND COMPANY, and W.R. Grace and Company--Conn., Appellees.

No. 92-2794.

United States Court of Appeals Eighth Circuit.

Submitted Oct. 11, 1993.

Decided Jan. 27, 1994.

Rehearing and Suggestion for Rehearing En Banc Denied March

24, 1994. ^*

Daniel A. Speights, Hampton, SC, argued (Steven C. Lian, Minot, ND, and Jon M. Arnston, Fargo, ND, on the brief), for appellant.

Hugh V. Plunkett III, Minneapolis, MN, argued (John C. Childs and Allen W. Hinderaker, Minneapolis, MN, and Steven A. Storslee, Bismarck, ND, on the brief), for appellees.

Before RICHARD S. ARNOLD, Chief Judge, WOLLMAN and LOKEN, Circuit Judges.

RICHARD S. ARNOLD, Chief Judge.

The appellant in this asbestos-removal case, MDU Resources Group, d/b/a Montana Dakota Utilities Co. (MDU), sued W.R. Grace & Co. (Grace) in 1990, two years after MDU learned that the Grace-manufactured fireproofing installed in its building in September of 1968 was releasing harmful asbestos fibers. After an eight-week trial, the jury returned a special verdict in favor of Grace on all of MDU's theories of liability. MDU now argues that several errors occurred at trial. First, MDU argues that the District Court used the wrong measuring point to determine when the statute of limitations began to run and, in so doing, misapplied North Dakota's discovery rule. Second, MDU argues that the District Court improperly excluded pieces of evidence MDU needed to establish key elements of its case-in-chief. Third, MDU argues that the District Court incorrectly instructed the jury on strict liability because it failed to instruct that state-of-the-art is no defense to a strict-liability claim. Finally, MDU argues that the District Court's permissive conduct towards Grace during the trial resulted in a proceeding that was fundamentally unfair. We agree with some of these contentions and now reverse.

I.

Since the trial of this case was lengthy and complicated, we will present only the facts and portions of the trial relevant to the issues presented in this appeal. In 1967 and 1968, MDU completed construction of its five-story general office building in Bismarck, North Dakota. In 1968, Monokote fireproofing, manufactured by Grace, was sprayed on the structural steel and decking of the building. The application was completed by September of that year. At the time of installation, Grace was aware that the Monokote fireproofing contained asbestos. MDU, however, was not aware of this fact until September of 1980, when Health Department tests revealed that the Monokote contained 15-25% asbestos. The Health Department report also stated that the asbestos was "apparently intact" and that there were "no employee overexposure hazards." Nonetheless, the Department recommended that MDU investigate carefully removing the material, because the Monokote eventually would begin to deteriorate and would then pose a health hazard. Although MDU received conflicting information from a subsequent test in 1985, the original test's results were corroborated in 1987, and both parties agree that MDU was aware of its asbestos problem as early as 1980.

MDU first learned that the asbestos in the Monokote was releasing fibers and contaminating its building in early 1988. A report from HTI Engineering showed that the building had been contaminated. Subsequent tests confirmed this and found an average of more than 78 billion asbestos fibers per square foot on horizontal surfaces below the fireproofing. This number of fibers created asbestos levels in the air from 490 to 110,000 times normal, meaning that the asbestos needed to be removed immediately to protect the health of MDU workers. MDU brought this suit in 1990 to obtain the costs of removal.

MDU sued under a number of different theories: negligence, strict liability, failure to warn, and breach of warranty. Grace mounted a two-fold defense. It argued first, that the statute of limitations had run on MDU's claims, and second, that MDU had suffered no harm from the asbestos Monokote. At trial, MDU argued that Grace was aware of the inherent dangers of asbestos, that Grace knew that Monokote contained asbestos, and that, prior to 1968, Grace had a readily-available alternative, Cellufloc. ¹

Grace told the jury in its opening statement that it took the asbestos out of Monokote in 1973, but claimed that a non-asbestos substitute was not available before 1968. Transcript (Tr.) 57, 3425-28. In order to prove that an alternative substance was available, MDU offered into evidence, among other things, a 1943 trademark for Cellufloc that tended to show that Cellufloc had been available before 1968. The District Court excluded this evidence because the trademark did not demonstrate the efficacy of the product. Tr. 2823.

MDU also sought to introduce a one-page document from Grace's insurance carrier to Grace's Safety Administrator entitled "Asbestosis." The document, plaintiff's exhibit P-83A, summarized a 1966 article published by the American Insurance Association on the relationship between asbestos exposure and cancer. P-83A discussed the health risks inherent in fitting, cutting, and removing asbestos materials in buildings. MDU offered the document at trial to show that Grace knew, before September 1968, that asbestos was harmful to human health. While recognizing that the summary was highly probative and relevant, the Court ultimately excluded P-83A on the grounds that an improper foundation had been laid. The Court concluded that MDU had not established that Grace received the document before September of 1968. ²

In addition to the evidentiary issues, MDU also disputes the District Court's permissive treatment of Grace's cross-examination strategy. In pre-trial conference, MDU requested that the District Court confine Grace's cross-examination of MDU's witnesses to the scope of direct. The District Court gave MDU that assurance. At trial, however, the Court allowed Grace to ask MDU's witnesses leading questions that were designed to establish Grace's statute-of-limitations defense. Although MDU objected to this practice, the Court continued to allow it. At one point, during MDU's case-in-chief, the Court prodded MDU to question its witness regarding Grace's statute-of-limitations defense. Tr. 2397. MDU also alleges that several other occurrences at trial tainted the proceedings with a fundamental unfairness. ³

Finally, two of the Court's instructions to the jury are challenged. First, the District Court instructed the jury that in order to find in favor of Grace on its statute-of-limitations defense, it must find that MDU knew or with the exercise of reasonable care should have known

1. That the Monokote fireproofing installed in certain areas of MDU's General Office Building contained asbestos;

2. That the asbestos-containing Monokote in MDU's General Office Building might pose a hazard; and

3. That the defendants were possibly liable.

Jury Instruction Number 27. The District Court further instructed that Grace had to prove these elements by a preponderance of the evidence.

Second, before the Court gave its strict-liability instruction, MDU requested that the Court include an instruction that it is no defense to strict liability that the product was state-of-the-art. Because the District Court had told the jury that such evidence was a valid defense to a negligence claim, MDU wanted the negative instruction included in the strict-liability instruction for clarity. Grace contended that MDU was not entitled to such an instruction. Although the District Court agreed that MDU's proposed language correctly stated North Dakota law, it declined to give the instruction. The jury returned a verdict in favor of Grace.

II.

A.

This Court will not reverse on the basis of jury instructions if they, "as a whole, adequately and sufficiently state the law applicable to the case." Sterkel v. Fruehauf Corp., 975 F.2d 528, 531 (8th Cir.1992). We review the District Court's determinations of law de novo. Because the District Court's jury instructions on the statute of limitations failed to state the law adequately and sufficiently as to when discovery of asbestos triggers the running of the statute of limitations, we are unable to affirm this judgment for the defendant Grace on the basis of its limitations defense.

Under North Dakota law, the statute of limitations for a cause of action based on asbestos contamination is six years. N.D.Cent.Code Sec. 28-01-16 (1991). To determine the point at which any statute of limitations begins to run, North Dakota applies the discovery rule. Wall v. Lewis, 366 N.W.2d 471, 473 (N.D.1985) (legal malpractice); Iverson v. Lancaster, 158 N.W.2d 507 (N.D.1968) (medical malpractice). Originally adopted for medical-malpractice claims, North Dakota applied this rule to asbestos cases in Hebron Public School District No. 13 v. U.S. Gypsum Co., 475 N.W.2d 120, 126 (N.D.1991) (certified question answered): "a cause of action, or claim for relief does not accrue until the aggrieved party discovers the facts which constitute the basis for its cause of action or claim for relief...."

Grace argues that Hebron stands for the proposition that discovery of the presence of asbestos equals discovery of the facts which constitute the basis for MDU's cause of action. Therefore, they argue, MDU knew of its cause of action in 1980 and filed its claim long after the statute of limitations had begun to run. MDU contends that, under North Dakota's economic-loss doctrine, it could not have brought suit until it could show its building had been "injured" by the asbestos; therefore, the "facts which constitute the basis for its cause of action" were not known until MDU discovered the asbestos contamination in 1988. The District Court instructed the jury based on Grace's theory of the statute of...