Dow Chemical Corp. v. Weevil-Cide Co., Inc., WEEVIL-CIDE

Citation897 F.2d 481
Decision Date28 February 1990
Docket NumberNo. 88-2045,WEEVIL-CIDE,88-2045
Parties29 Fed. R. Evid. Serv. 1394 The DOW CHEMICAL CORPORATION, Plaintiff-Appellee, v.COMPANY, INC.; Research Products Company; Hartford Accident & Indemnity Company, Defendants-Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

William H. Sanders, Sr., Blackwell Sanders Matheny Weary & Lombardi, Kansas City, Mo. (James D. Griffin, Blackwell Sanders Matheny Weary & Lombardi, Kansas City, Mo., Keith Martin and Bruce Keplinger, Payne & Jones, Overland Park, Kan., with him on the briefs), for defendants-appellants.

Kevin T. Van Wart, Kirkland & Ellis, Chicago, Ill. (David M. Bernick, Michael R. Powers, Kirkland & Ellis, Chicago, Ill Before MOORE, McWILLIAMS, and ANDERSON, Circuit Judges.

Roger Stanton and Steven Leben, Stinson, Mag & Fizzell, Overland Park, Kan., with him on the briefs), for plaintiff-appellee.

STEPHEN H. ANDERSON, Circuit Judge.

Plaintiff-appellee Dow Chemical Corporation ("Dow") prevailed in the United States District Court for the District of Kansas on its claim against defendant-appellants Weevil-Cide Company and Research Products Company (collectively "Research Products" 1) for equitable subrogation, and on its claim against defendant-appellant Hartford Accident and Indemnity Company ("Hartford") for tortious interference with a prospective contractual relation. We reverse both judgments.

BACKGROUND

For many years, Research Products marketed a grain fumigant containing carbon tetrachloride and carbon disulfide known as Weevil-Cide, which was manufactured for it by Dow. R.Vol. III at 132; R.Vol. V at 424-25. Dow also produced and distributed its own brands of carbon tetrachloride-carbon disulfide fumigant. R.Vol. III at 96.

Robert Kauther and Ardell Nordrum were exposed to carbon tetrachloride-carbon disulfide fumigants when they worked at a Wisconsin grain elevator. R.Vol. V at 536-37; R.Vol. VI at 720. Both came to suffer severe neurological disorders which forced them to retire. R.Vol. IV at 287-88. In October 1978, Kauther and Nordrum each filed suit against Dow and Research Products alleging inadequate warnings about the effects of exposure to Weevil-Cide.

Research Products' insurer, Hartford, assumed its defense and retained Harry Sauthoff, with whom Hartford had a longstanding relationship. R.Vol. IV at 272-77. Soon after discovery began, Sauthoff advised Hartford that the plaintiffs had a strong case, and that the best course would be for Research Products and Dow to contribute equally to a settlement. See Addendum to Brief of Appellee at Tab 8, p. 5. As discovery progressed, Sauthoff emphatically advised Hartford to settle rather than go to trial. See id. at Tab 9, p. 5, at Tab 12, p. 6.

When the settlement negotiations began, however, Hartford directed Sauthoff not to participate, purportedly because of uncertainty as to whether or not Hartford had a policy in effect when Kauther and Nordrum were harmed. Dow contends that this coverage question was a sham designed to make Dow pay the entire settlement. In any event, Dow settled with Kauther and Nordrum in April 1984 for more than four million dollars, R.Vol. IV at 347; R.Vol. V at 450-51, which Kauther and Nordrum's attorney considered sufficient to cover the claims against both Dow and Research Products, R.Vol. V at 504, 507. While the settlement was "with Dow Chemical Company, but not with the Research Products or Weevil-Cide defendants," Addendum to Brief of Appellee at Tab 25, p. 2, the suits were dismissed as to both Dow and Research Products. Stipulation and Order for Dismissal, May 2, 1984, Addendum to Brief of Appellee at Tab 17, p. 4.

In April 1985, Dow sued Research Products for equitable subrogation of the amount paid to the grain workers. The complaint was amended to allege that Hartford tortiously interfered with Dow's prospective economic advantage when it instructed Sauthoff not to settle. The jury awarded Dow $2.334 million on its subrogation claim, and seven hundred seventy-eight thousand dollars in actual damages and $2.25 million in punitive damages on the tortious interference claim.

DISCUSSION
I. EQUITABLE SUBROGATION
A. Statute of Limitations

A federal court hearing a diversity action applies the statute of limitations which would be applied by a court of the forum state, Kitchens v. Bryan County Nat'l Bank, 825 F.2d 248, 254-55 (10th Cir.1987), even when the action is brought under the law of a different state. Warner v. Auberge Gray Rocks Inn, 827 F.2d 938, 939-40 (3d Cir.1987); Crosson v. Conlee, 745 F.2d 896, 902 (4th Cir.1984), cert. denied, 470 U.S. 1054, 105 S.Ct. 1759, 84 L.Ed.2d 822 (1985). Kansas courts apply the limitations period of the state where the claim arose, so this action is controlled by the Wisconsin statute of limitations, as interpreted by the courts of Wisconsin. Kan.Stat.Ann. Sec. 60-516 (1983); see Green v. Kensinger, 199 Kan. 220, 429 P.2d 95, 98-99 (1967).

The trial court analogized subrogation to contribution and equitable indemnification, and held that Dow's complaint was timely because the claim did not accrue until the payment was made. Memorandum and Order, Dec. 1, 1987, R.Vol. I at Tab 122, pp. 7-8; Memorandum and Order, June 2, 1988, R.Vol. II at Tab 184, pp. 8-9. Unlike these causes of action, however, the claim of a subrogation plaintiff, or subrogee, "is not a separate cause of action from the right held by the subrogor," Wilmot v. Racine County, 136 Wis.2d 57, 400 N.W.2d 917, 919 (1987), but is derivative of the underlying claim which the subrogor held against the subrogation defendant. "[A] subrogee is one who steps into the shoes of the subrogor to the extent it has made payment as a result of the actionable event." Id. "The extent of the new right created in favor of the subrogee is measured by the original right in the subrogor." Waukesha County v. Johnson, 107 Wis.2d 155, 320 N.W.2d 1, 3 (Ct.App.1982).

Because the subrogee's rights against the subrogation defendant are only as great as the subrogor's rights against that defendant, an equitable subrogation claim must be brought within the time the subrogor would have been required to bring its claim. In effect, then, the subrogation cause of action arises at the same time, and is governed by the same statute of limitations, as the underlying claim. See, e.g., Fidelity & Deposit Co. v. Smith, 730 F.2d 1026, 1034 (5th Cir.1984); United States v. Bureau of Rev., 217 F.Supp. 849, 852-53 (D.N.M.1963); Bickerstaff v. Ellis, 204 Ga. 734, 51 S.E.2d 821, 824 (1949); Federal Kemper Ins. Co. v. Isaacson, 145 Mich.App. 179, 377 N.W.2d 379, 381 (1985); Sheppard v. State Farm Mut. Auto. Ins. Co., 496 S.W.2d 216, 218 (Tex.Civ.App.1973). But see Pennwalt Corp. v. Metropolitan Sanitary Dist., 368 F.Supp. 972, 980 (N.D.Ill.1973). Subrogation must be distinguished in this respect from contribution and equitable indemnification. Commercial Union Assur. Co. v. City of San Jose, 127 Cal.App.3d 730, 179 Cal.Rptr. 814, 817 (1982); Aetna Cas. & Sur. Co. v. Windsor, 353 A.2d 684, 686 (D.C.Ct.App.1976); Fishel's Fine Furniture v. Rice Food Market, 474 S.W.2d 539, 541 (Tex.Civ.App.1971). Therefore, the trial court misapplied the statute of limitations.

Research Products, which was entitled to assert "such defenses as were available against the subrogors," Employers Ins. Co. v. Sheedy, 42 Wis.2d 161, 166 N.W.2d 220, 222 (1969); accord American Standard Ins. Co. v. Cleveland, 124 Wis.2d 258, 369 N.W.2d 168, 171 (Ct.App.1985), also argued at trial that Kauther and Nordrum's claims were not timely filed, but the trial court refused to instruct the jury on the issue. This decision had the effect of withdrawing the question from the jury, so the standard of review is the same as that used to review a directed verdict or a judgment notwithstanding the verdict: " ' "whether there [was] evidence upon which the jury could properly [have found] a verdict for [Research Products]." ' " Mackey v. Burke, 751 F.2d 322, 325 (10th Cir.1984) (quoting Hurd v. American Hoist & Derrick Co., 734 F.2d 495, 499 (10th Cir.1984) (quoting 9 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2524, at 543 (1971))).

Under Wisconsin law, a tort claim arises when "the plaintiff discovers, or in the exercise of reasonable diligence should have discovered, not only the fact of injury but also that the injury was probably caused by defendant's conduct or product." Borello v. United States Oil Co., 130 Wis.2d 397, 388 N.W.2d 140, 146 (1986). Kauther and Nordrum's claims, which were governed by a three-year limitations period, Wis.Stat.Ann. Sec. 893.54 (West 1983), were filed in October 1978, so the question is whether or not the jury could have found that the grain workers knew or should have known of a cause-and-effect relationship between Weevil-Cide and their neurological problems before October 1975.

Ardell Nordrum testified to the following conversation he had with his family physician no later than 1972:

"A.... I did realize [Weevil-Cide] was dangerous because ... when my hands sleep feeling [sic] ... I took the contents on the side of that pail up to him, and ... I showed him that card and I said what does that stuff do to a person's body. And he turned around to a little desk there about four inches wide, ten inches long and puttered a little bit and he turned around, where did you use that stuff. I said we put it in the grain to kill weevils. And he says well, don't ever breathe it."

R.Vol. VI at 712-13.

In addition, two of Research Products' medical experts testified that carbon disulfide poisoning would have been diagnosable by a reasonably competent physician before October 1975. R.Vol. VI at 667-68; R.Vol. VII at 844-45.

Dow presented evidence that the condition was not discoverable before October 1975. For example, the twelve local doctors who examined the grain workers could not diagnose their illness. R.Vol. V at 470. The first...

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