754 F.2d 1212 (5th Cir. 1985), 84-2488, Galindo v. Precision American Corp.

Docket Nº:84-2488
Citation:754 F.2d 1212
Party Name:Moises GALINDO, Plaintiff-Appellant, v. PRECISION AMERICAN CORP., et al., Defendants, Georgia Pacific Corporation, Defendant-Appellee.
Case Date:March 11, 1985
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 1212

754 F.2d 1212 (5th Cir. 1985)

Moises GALINDO, Plaintiff-Appellant,

v.

PRECISION AMERICAN CORP., et al., Defendants,

Georgia Pacific Corporation, Defendant-Appellee.

No. 84-2488

United States Court of Appeals, Fifth Circuit

March 11, 1985

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[Copyrighted Material Omitted]

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Washington & Randle, Sarnie A. Randle, Jr., Houston, Tex., for plaintiff-appellant.

Robert A. Rowland, III, Houston, Tex., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Texas.

Before RUBIN, RANDALL and TATE, Circuit Judges.

RANDALL, Circuit Judge:

Georgia-Pacific Corporation operates a large number of sawmills and manufacturing plants. In 1978, Georgia-Pacific sold an obsolete sawmill trimmer from its plant in El Dorado, Arkansas, to a used equipment dealer. The trimmer was eventually sold to Moises Galindo's employer and was involved in an accident in which Galindo was severely injured. This appeal presents the question whether, by virtue of the 1978 sale and other sales of used equipment, Georgia-Pacific is "engaged in the business of selling" such equipment for purposes of the doctrine of strict liability for product defects under section 402A of the Restatement (Second) of Torts. We conclude from the record before us that unresolved questions of fact preclude an answer to that question at this point in the litigation. Accordingly, we vacate the summary judgment in favor of Georgia-Pacific.

I.

Background

The few facts that have been developed thus far are not in dispute. Moises Galindo (Galindo) worked for Middlebrook Lumber Company (Middlebrook) at a sawmill in Nacogdoches, Texas. On August 21, 1980, he suffered severe injuries while operating a sawmill trimmer. Galindo alleges that the defective condition of the trimmer caused his injuries. Following the accident, he filed this diversity lawsuit for damages under Texas law against several parties that he claims manufactured or marketed the allegedly defective trimmer.

Galindo's complaint alleges that Georgia-Pacific Corporation (Georgia-Pacific) once owned the trimmer that caused his injuries. According to the first amended complaint, Georgia-Pacific sold the trimmer to defendant Modern Iron Works, Inc., (Modern Iron Works) who in turn sold it to Middlebrook. It is undisputed that from 1960 to 1978 Georgia-Pacific in fact owned a trimmer similar to the one involved in Galindo's accident. Georgia-Pacific 1 purchased a new trimmer in 1960 and used it at its El Dorado, Arkansas, plant until 1978. In

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1978, the trimmer was sold to Vincent Rice (Rice). If Georgia-Pacific's trimmer is the one involved in Galindo's accident, Rice must have sold it to Modern Iron Works who in turn sold it to Middlebrook. 2

Georgia-Pacific moved for summary judgment on the ground that, even if it sold the trimmer involved in Galindo's accident, and even if the trimmer is defective, Georgia-Pacific is not liable for Galindo's injuries because Georgia-Pacific is not engaged in the business of selling sawmill trimmers. According to the motion for summary judgment, Georgia-Pacific's sale of the trimmer was an isolated, "occasional" sale upon which strict liability may not be premised.

The district court granted summary judgment on the strength of an affidavit from Georgia-Pacific which avers that Georgia-Pacific "is not in the business of selling trimmers." The affidavit establishes that Georgia-Pacific sold the trimmer to Rice in 1978 because it was no longer needed in the operation of the Arkansas plant. The affidavit also establishes, however, that sale to equipment dealers and other parties is one of three ways that Georgia-Pacific regularly disposes of equipment that is no longer needed at its various plants and sawmills; Georgia-Pacific also sometimes "scraps" used equipment or transfers it to other places within the corporation.

Galindo opposed the motion for summary judgment on the ground that Georgia-Pacific's affidavit itself establishes that the company is engaged in the business of selling trimmers and other used sawmill equipment. The affidavit demonstrates, in Galindo's view, that sale of used equipment is a regular means of disposition. Answers to interrogatories reveal that Georgia-Pacific operates more than 240 plants and mills around the world. From this, Galindo argued that Georgia-Pacific's sales of used equipment are extensive enough to constitute a "business" in which Georgia-Pacific is "engaged." 3

Noting the absence of relevant Texas caselaw, the district court made an "Erie guess" that

the Texas courts, when the question is considered, will determine that sales of depreciated owner-user equipment, even when such sales are quite numerous, will not remove the seller from the category of "occasional seller" [and place him in the category of one "engaged in the business of selling"] ..., if the sales are of equipment used by the seller in its business and not otherwise any part of a line of products or goods sold by the seller in its ordinary course of business.

(Emphasis supplied.) Since Georgia-Pacific uses sawmill trimmers in its business to produce a "line of products," which consists of building materials, pulp, paper, packaging, chemicals, and plastics, the district court granted summary judgment for Georgia-Pacific. 4

On appeal, Galindo argues, not only that the district court erred in finding Georgia-Pacific to be an occasional seller, but that we should reverse with directions to enter a partial summary judgment that Georgia-Pacific is engaged in the business of selling for strict liability purposes. 5

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This argument is based on a liberal reading of Georgia-Pacific's affidavit to assert that the company "usually" disposes of used equipment by sale, together with an inference, from Georgia-Pacific's corporate size, that such sales are quite numerous. Georgia-Pacific argues, on the other hand, that the affidavit cannot reasonably be construed as an admission that Georgia-Pacific "usually" sells its retired equipment; moreover, Galindo cannot rely on an unsubstantiated inference from Georgia-Pacific's size alone that used equipment sales are numerous. Finally, Georgia-Pacific argues that the district court correctly determined that the Texas Supreme Court would hold that a seller of depreciated equipment used to produce goods, the production and sale of which constitute the seller's primary business, is not engaged in the business of selling such equipment.

II.

Summary Judgment

Texas substantive law, of course, governs this diversity suit. See Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Rule 56, Fed.R.Civ.P., however, governs the propriety of summary judgment. Summary judgment "may be granted only if it appears from pleadings, depositions, admissions and affidavits, considered in the light most favorable to the non-moving party, that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." United States v. An Article of Drug, 725 F.2d 976, 984 (5th Cir.1984). Georgia-Pacific, as the moving party, had the burden to show that no genuine issue of material fact exists. Id. If Georgia-Pacific successfully discharged this burden, the burden shifted to Galindo to "counter [Georgia-Pacific's] affidavits with opposing affidavits or other competent evidence setting forth specific facts to show that there is a genuine issue of material fact for trial." Id. at 984-85. If the burden shifted, Galindo could not demonstrate a fact issue by "resting on the mere allegations of [his] pleadings." Russell v. Harrison, 736 F.2d 283, 287 (5th Cir.1984). In fact, unsupported allegations or affidavits setting forth "ultimate or conclusory facts and conclusions of law" are insufficient to either support or defeat a motion for summary judgment. C. Wright, A. Miller & M. Kane, Federal Practice and Procedure: Civil 2d Sec. 2738 (1983). Moreover, the district court was obliged to resolve all reasonable factual inferences from the record in favor of Galindo, the nonmovant. See Hodges v. Exxon Corp., 727 F.2d 450, 452 (5th Cir.1984). We are governed by the same principles on appeal. See Russell v. Harrison, 736 F.2d at 287. With these principles in mind, we turn to a review of the law governing the substantive issue raised by Georgia-Pacific's motion, followed by a review of the summary judgment proof.

III.

Texas Law of Strict Liability

Texas has adopted section 402A of the Restatement (Second) of Torts. 6 See McKisson v. Sales Affiliates, Inc., 416 S.W.2d 787 (Tex.1967). Section 402A imposes liability, without regard to privity of contract or the degree of care exercised by the defendant, on those who sell defective products that are unreasonably dangerous. Liability only attaches, however, if the seller

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"is engaged in the business of selling" the product that causes harm. Comment f to section 402A 7 makes clear that strict liability for product defects does not apply to "the occasional seller ... who is not engaged in that activity as a part of his business." Comment f does not, however, create a test of easy application for distinguishing the occasional seller from one engaged in the business of selling. Our research confirms the district court's conclusion that Texas courts have yet to address this distinction in detail. Unfortunately, the absence of a definitive answer from the Texas courts or...

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