Stafford v. International Harvester Co.

• Citation: 668 F.2d 142
• Decision Date: 31 December 1981
• Docket Number: No. 92,D,92
• Parties: 32 UCC Rep.Serv. 1331 Edward M. STAFFORD and Peggie Ann Stafford, Plaintiffs-Appellants, v. INTERNATIONAL HARVESTER COMPANY and Eastco Truck Sales, Inc., Defendants-Appellees. ocket 81-7198.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 142

668 F.2d 142

32 UCC Rep.Serv. 1331

Edward M. STAFFORD and Peggie Ann Stafford, Plaintiffs-Appellants, v. INTERNATIONAL HARVESTER COMPANY and Eastco Truck Sales Inc., Defendants-Appellees.

No. 92, Docket 81-7198.

United States Court of Appeals Second Circuit.

Argued Sept. 16, 1981.

Decided Dec. 31, 1981.

Henry R. Simon, New York City (Meryl Shapiro, New York City, of counsel), for plaintiffs-appellants Stafford.

John A. Schultz, New York City (MacCarthy, Schultz & Mulholland, Ellin Mulholland and David B. Hamm, New York City, of counsel), for defendant-appellee International Harvester Co.

Arthur N. Seiff, New York City (Corcoran, Amabile & Cowin, Charles F. McGuire, Brooklyn, N. Y., of counsel), for defendant-appellee Eastco Truck Sales, Inc.

Before OAKES and MESKILL, Circuit Judges, and BLUMENFELD, District Judge. ^*

BLUMENFELD, District Judge:

This case involves an action by appellant Edward M. Stafford for damages resulting from injuries to person and property sustained in an accident caused by an alleged defect in a tractor truck manufactured by the appellee International Harvester Company (International Harvester) and repaired by the appellee Eastco Truck Sales, Inc. (Eastco). Appellant Peggie Ann Stafford, the wife of Edward Stafford, seeks damages for the loss of the services of her husband. The action is based on theories of negligence, breach of implied and express warranties and strict liability. Appellants are residents of New Jersey, appellee International Harvester is a Delaware corporation not having its principal place of business in New York and appellee Eastco is a New York corporation with its principal place of business in New York. Federal jurisdiction is based on diversity of citizenship, 28 U.S.C. § 1332.

On August 15, 1974, Edward Stafford purchased secondhand a tractor truck manufactured by International Harvester. The appellants allege that this truck was under recall by the manufacturer because of a possible defect in the steering mechanism. On or about November 5, 1974, while the appellant was operating the truck in New York, the steering mechanism failed causing a collision. The truck was subsequently towed to Eastco's place of business and repaired. Eastco is alleged to be a franchisee of International Harvester and to have known that the truck was under recall at the time it replaced the steering mechanism. On December 16, 1974, the steering mechanism again failed causing an accident in Pennsylvania in which the appellant sustained severe and permanent personal injuries. This second accident is the basis of this litigation.

The district court dismissed the appellants' complaint against Eastco insofar as it was grounded on breach of warranty and strict liability because it found that the transaction between Eastco and the appellant was predominately a service contract for repairs and not a sale of goods. Judge Mishler concluded that under the laws of both New York and Pennsylvania a transaction cannot be the basis of a warranty or strict liability cause of action where services predominate and the sale of goods is only incidental to the repair or other service.

The district court also granted both defendants' motions for summary judgment on the ground that the lawsuit was untimely, having been commenced more than two years after the accident occurred in Pennsylvania. The court concluded that a two-year limitations period, relating to actions for injury to persons or property in Pennsylvania, Act of 1895, June 24, P.L. 236, § 2 and Act of 1713, March 27, 1 Sm.L. 76, § 1, 42 Pa.Cons.Stat.Ann. § 5524, was applicable to this cause of action rather than the three-year period which would apply under the law of New York, N.Y.C.P.L.R. § 214(4), (5).

The Pennsylvania statute of limitations was applied because the New York "borrowing statute" provides that if a cause of action accrues outside New York in favor of a non-resident, a New York court will apply the statute of limitations of the state where the cause of action accrued if to do so would bar the action. N.Y.C.P.L.R. § 202. ¹ Judge Mishler concluded that the cause of action accrued in Pennsylvania because, for purposes of the borrowing statute, a "place of injury" test should determine where the cause of action accrued. He rejected the appellants' argument that the modern line of New York cases, applying a "center of gravity" approach to determine what substantive law applies in a choice of law situation, should be applied to determine where a cause of action accrues for purposes of New York's borrowing statute. Since the Pennsylvania limitations period was shorter than the New York period and would bar the actions, Judge Mishler held that it governed under the borrowing statute and barred all of the appellants' causes of action.

Judge Mishler also concluded that Pennsylvania's tolling statute was of no benefit to the appellants because, at the time this action came into being, neither defendant was subject to the tolling provision. In pertinent part Pennsylvania's tolling statute reads:

the defendant ... who shall have become non-resident of the state after said cause of action shall have arisen, shall not have the benefit of any statute of this state for the limitations of actions during the period of such residence without the state.

12 Pa.Cons.Stat.Ann. § 40, 1895, May 22, P.L. 112, § 1 (Repealed 1978, April 28, P.L. 202, No. 53, § 2(a), effective June 27, 1978). Since it is conceded by all parties that the appellee Eastco never was a resident of Pennsylvania, the district court concluded that the statute was not tolled as to Eastco. ² The court also concluded that the limitations period was not tolled as to International Harvester because it has always been subject to the jurisdiction of Pennsylvania and therefore never became a non-resident within the meaning of that statute.

The appellants seek reversal of the judgment below on two grounds. First, they argue that the district court erred in dismissing their warranty and strict liability actions against Eastco because its finding that the transaction between the appellant and Eastco was predominately a service contract was contrary to the facts and proofs in the record. Second, they contend that the district court erred in holding that New York's borrowing statute required the application of Pennsylvania's two-year statute of limitations, therefore barring plaintiffs' claims. Their principal contention is that the court below should have followed the holding of Martin v. Julius Dierck Equipment Co., 52 App.Div.2d 463, 384 N.Y.S.2d 479 (2d Dept. 1976), aff'd on other grounds, 43 N.Y.2d 583, 403 N.Y.S.2d 185, 374 N.E.2d 97 (1978), which applied the "grouping of contacts" or "center of gravity" approach governing substantive choice of law questions to determine where a cause of action accrues for purposes of the borrowing statute. This approach would require the district court to conclude that the action accrued in New York because, in appellants' view, New York has the most significant interest in and contact with the subject matter of this litigation. Appellants argue that since the action accrued in New York the borrowing statute did not apply and New York's three-year limitations period would govern these actions.

I. Dismissal of the Warranty and Strict Liability Actions Against Eastco

The appellants argue that the court below erred in dismissing the warranty and strict liability actions against Eastco on the grounds that the transaction with Eastco was predominately a service contract, not a sale of goods such as is required to sustain such an action. They contend that the district court erred in its finding of fact concerning the character of the transaction, not that the court made any mistake in the legal standards it applied.

The court below clearly applied the proper rules of law in its analysis of the warranty and strict liability actions against Eastco. Judge Mishler held that both New York and Pennsylvania will not sustain a claim founded in implied warranty or strict liability if the transaction was predominately a service contract with only an incidental transfer of goods.

The law of New York on the question of whether a strict products liability action can be sustained in the case of a hybrid sales and service contract is well established. The leading case of Perlmutter v. Beth David Hospital, 308 N.Y. 100, 123 N.E.2d 792 (1954), established the principle that strict liability actions cannot be maintained where the transaction is predominately a service contract despite the existence of elements of a sale. Id. The appellants argue that the Perlmutter rationale is limited to the facts of that case which involved the sale of blood as part of the provision of health services by a hospital. However, Perlmutter has been extended by the New York courts to all transactions where service predominates. See Milau Associates v. North Ave. Development Corp., 42 N.Y.2d 482, 398 N.Y.S.2d 882, 368 N.E.2d 1247 (1977). Although "(i)n a proper case, a hybrid service-sale transaction can give rise to a cause of action for breach of warranty or strict products liability if the sales aspect of the transaction predominates and the service aspect is merely incidental," Nickel v. Hyster Company, 97 Misc.2d 770, 773, 412 N.Y.S.2d 273, 276 (Sup.Ct., Suffolk Co. 1978), such a result has only been seen in cases where a retail seller provided some incidental services in connection with the sale, Jackson v. Melvey, 56 A.D.2d 836, 392 N.Y.S.2d 312, 314 (2d Dept. 1977). Judicial consideration of this issue has been analyzed in the same manner in Pennsylvania. See Berkebile v. Brantly Helicopter Corp., 462 Pa. 83, 337 A.2d 893, 898 (1975) (doctrine of strict liability applies only to sellers of defective products); DeMatteo v. White, 233 Pa.Super. 339, 336 A.2d 355, 358 (1975) (contract for construction of home does not constitute a sale of goods despite...