Vernet v. Serrano-Torres

• Decision Date: 21 May 2009
• Docket Number: No. 07-2699.,07-2699.
• Parties: Ruth VERNET; Frank Vernet; Conjugal Partnership Vernet-Vernet; Alexander Vernet; David Vernet, Plaintiffs, Appellants, v. José SERRANO-TORRES; Cooperativa De Seguros Múltiples; Ford Motor Company; Blue Water Palmas, Ltd., Defendants, ICN Pharmaceuticals Dutch Holdings B.V., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

566 F.3d 254

Ruth VERNET; Frank Vernet; Conjugal Partnership Vernet-Vernet; Alexander Vernet; David Vernet, Plaintiffs, Appellants, v. José SERRANO-TORRES; Cooperativa De Seguros Múltiples; Ford Motor Company; Blue Water Palmas, Ltd., Defendants ICN Pharmaceuticals Dutch Holdings B.V., Defendant, Appellee.

No. 07-2699.

United States Court of Appeals, First Circuit.

Heard December 5, 2008.

Decided May 21, 2009.

Jorge M. Suro-Ballester, for appellants.

Luis G. Martínez-Lloréns, with whom Luis Martínez Lloréns Law Offices, P.S.C., was on brief for appellee.

Before TORRUELLA, STAHL, and HOWARD, Circuit Judges.

TORRUELLA, Circuit Judge.

This action arises from a car accident that occurred after a Christmas party held by defendant-appellee ICN Pharmaceuticals ("ICN") for its employees. The party was held at Palmas del Mar resort complex ("Blue Water Palmas"). José Serrano Torres ("Serrano"), an employee of ICN, allegedly left the party legally drunk and crashed into plaintiff-appellant Ruth Vernet's vehicle in a residential area in Palmas del Mar. Plaintiff-appellants¹ ("plaintiffs") claim that under Articles 1802 and 1803 of the Civil Code of Puerto Rico, ICN is liable for the physical and economic injuries that she suffered as a result of the car accident.² ICN moved to dismiss the complaint and the district court granted ICN's motion. It relied on the Supreme Court of Puerto Rico's decision in López v. Porrata Doria to dismiss the plaintiffs' Article 1802 claim. See 2006 TSPR 149, 2006 WL 2873349 (P.R.2006) (certified translation provided by parties). The district court dismissed plaintiffs' Article 1803 claim by concluding that Serrano was not acting within the scope of his employment when the accident occurred.

After careful consideration we affirm the district court's ruling with respect to plaintiffs' Article 1802 claim, but reverse and remand to the district court with respect to plaintiffs' Article 1803 claim.

I. Background

In their second amended complaint, plaintiffs allege the following facts relevant to the instant case. On the afternoon of December 17, 1999, ICN sponsored a Christmas party held at Blue Water Palmas in Humacao, Puerto Rico. Plaintiffs maintain that one of ICN's objectives in having the party was "to develop and enhance ICN's business relationship with clients and others." Plaintiffs point out that although ICN decided that alcohol would be served at the party, the company failed to "circulate to its employees a written memorandum instructing them not to drink alcohol in excess." Further, plaintiffs claim that ICN "did not create a committee among its employees to be on the lookout during the party for its employees and other attendees that might be having too much to drink."

Serrano, an employee of ICN, drank liquor provided by ICN at the party. He left the party that afternoon intoxicated and proceeded to drive his vehicle. As a result of his condition, which was beyond the legal limit permissible to drive a vehicle, Serrano's automobile struck a car driven by Vernet, causing her multiple physical and economic injuries. An officer present at the scene after the accident concluded that Serrano caused the accident.

Plaintiffs brought suit against ICN, as well as other defendants,³ claiming that ICN was negligent in failing to control its employees' alcohol consumption at the company activity, and in not foreseeing that Serrano's condition could endanger third parties such as Vernet. Specifically, plaintiffs claimed that from the facts alleged in the second amended complaint, ICN was liable under Article 1802 for failing to implement reasonable measures to control the amount of alcohol available to its employees during a work-related activity and to control the behavior of its employees during a work-related activity. Also, plaintiffs claimed that ICN was liable under Article 1803 due to the fact that Serrano, its employee, became intoxicated at and during the course of his employment with alcoholic beverages provided by and paid for by his employer.

ICN responded to plaintiffs' claims by filing a second motion to dismiss. As to plaintiffs' Article 1802 claim, ICN contended that in López, the Puerto Rico Supreme Court recognized limited dram-shop liability applicable only to commercial establishments in the business of selling alcoholic beverages.⁴ Furthermore, ICN argued that even if López were applicable to business hosts such as itself, the Puerto Rico Supreme Court explicitly ruled that its decision would only have prospective effects. Thus, because López was issued after Serrano's car accident, ICN asserted that it should not face liability.

Regarding plaintiffs' Article 1803 claim, ICN argued that plaintiffs' settlement with Serrano legally extinguished any possible vicarious liability on the part of ICN because any such liability was contingent upon the existence of Serrano's primary liability, which no longer existed by virtue of the settlement. ICN further argued that plaintiffs' claim under Article 1803 would nevertheless fail on the merits because Serrano was not acting within the scope of his employment when the accident occurred.

The district court ruled in favor of ICN and dismissed the complaint. Plaintiffs appeal the district court's ruling.

II. Discussion

A. Standard of Review

We apply de novo review to a district court's grant of a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Díaz-Ramos v. Hyundai Motor Co., 501 F.3d 12, 15 (1st Cir.2007). "[W]e, like the district court, must assume the truth of all well-plead facts and give the plaintiff[s] the benefit of all reasonable inferences therefrom." Ruiz v. Bally Total Fitness Holding Corp., 496 F.3d 1, 5 (1st Cir.2007). In this respect, to survive a motion to dismiss, a complaint must establish "a plausible entitlement to relief." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 559, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

B. Applicable Law

In diversity cases, such as the present one, state law controls the substantive outcome. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Univ. Emergency Med. Found. v. Rapier Invs., Ltd., 197 F.3d 18, 19 n. 1 (1st Cir.1999). In dismissing the complaint against ICN, the district court correctly ruled that the substantive law of Puerto Rico favors ICN with respect to plaintiffs' Article 1802 claim. However, we disagree with the district court's ruling regarding plaintiffs' Article 1803 claim.

1. Article 1802 and López

A brief review of López supports our conclusion that the district court acted correctly in dismissing plaintiffs' Article 1802 claim. See generally López, Certified Translation.⁵ López involved an action against a commercial establishment pursuant to Puerto Rico's negligence statute, contained in Article 1802 of the Civil Code. Id. at **1-2. In López, Ricardo Calderón and Rafael Lugo-Porrata met some friends at a local bar. Id. at *3. Allegedly, Lugo-Porrata, even though he was visibly intoxicated, was served alcoholic beverages at a pub. See id. at **3, 5. Later that evening, both Calderón and Lugo-Porrata left the bar and decided to go drag racing, during which Lugo-Porrata, the driver, lost control of the vehicle and crashed. Id. at *4. As a result of the crash, Lugo-Porrata was killed and Calderón was severely injured. Id. Calderón and his parents sued the bar claiming that it was negligent in serving Lugo-Porrata alcohol when he was visibly intoxicated and its employee knew or should have known that he was going to drive a car. Id. at **4-5.

The specific issue before the court was whether, pursuant to Article 1802, a commercial establishment could be held liable "for supplying alcoholic beverages to a person that is visibly intoxicated and who afterward causes damages while driving an automobile under the influence of alcohol." Id. at * *1-2. The court concluded that commercial establishments could be held liable, yet stressed that its ruling would only have "prospective effects." Id. at *2. In its analysis, the López court stated that despite public policy pronouncements acknowledging the dangers posed by intoxicated drivers, no specific legislation dealt with the controversy in that case. Thus, the court reasoned that it must apply general Puerto Rico tort law principles under Article 1802, noting that the provisions of Article 1802 "must be interpreted expansively." Id. at *7 (emphasis in original).

To "enrich [its] analysis," id. at *16, the court turned to comparative law sources in common law jurisdictions in the United States which have faced similar situations. In looking at jurisdictions in the United States, the court remarked that several courts were now "imposing liability [on] those who sold alcoholic beverages to intoxicated ... persons who subsequently caused injury." Id. at *17 (emphasis in original deleted). The court then pointed to dram-shop legislation in the United States directed at public commercial establishments, especially bars and restaurants. Id. at **19 & n. 8. The court stated that many of these laws were passed in part to incentivize commercial vendors of alcoholic beverages to behave responsibly. Id. at *19.

In view of these decisions and its prior case law, the court reasoned that those who irresponsibly sell alcoholic beverages with knowledge of the risk it creates "violate[] the general duty of correctness and prudence" and do so "in clear disregard of the safety of others." Id. at *26. The court further noted that "the granting of a license is a privilege, not a right" and that "[w]hoever profits from an activity that puts at risk the health and life of individuals has the obligation to act prudently and diligently." Id.

The court thus concluded that under Article 1802 it was "clearly appropriate" to impose liability on commercial vendors who provide alcoholic beverages to "visibly intoxicated" individuals who then cause harm to third parties by...