City of Gary ex rel. King v. Smith & Wesson Corp.

• Decision Date: 23 December 2003
• Docket Number: No. 45S03-0301-CV-36.,45S03-0301-CV-36.
• Parties: CITY OF GARY, Indiana, by its Mayor, Scott L. KING, Appellant (Plaintiff below), v. SMITH & WESSON CORP., et al., Appellees (Defendants below).
• Court: Indiana Supreme Court

801 N.E.2d 1222

CITY OF GARY, Indiana, by its Mayor, Scott L. KING, Appellant (Plaintiff below), v. SMITH & WESSON CORP., et al., Appellees (Defendants below).

No. 45S03-0301-CV-36.

Supreme Court of Indiana.

December 23, 2003.

James B. Meyer, Lukas I. Cohen, W. Anthony Walker, Gary, IN, Dennis A. Henigan, Brian J. Siebel, Daniel R. Vice, Washington, DC, Attorneys for Appellant.

James P. Dorr, Sarah L. Olson, Chicago, IL, Terence M. Austgen, Elizabeth M. Bezak, Munster, IN, Kenneth D. Reed, John P. Reed, Hammond, IN, John E. Hughes, Merrillville, IN, Stephen E. Scheele Highland, IN, Ihor A. Woloshanski, Merrillville, IN, Attorneys for Appellees.

ON PETITION TO TRANSFER FROM THE INDIANA COURT OF APPEALS, NO. 45A03-0105-CV-155.

BOEHM, Justice.

The City of Gary sued for injunctive relief and money damages for the harm it alleges is caused by the unlawful marketing and distribution of handguns. The City alleges claims for public nuisance and negligence against manufacturers, wholesalers, and distributors of these products. We hold that the City's complaint states a claim against certain sales practices of all defendants. We also hold that the City's negligent design claim states a claim against the manufacturer-defendants.

Factual and Procedural Background

In September 1999, the City filed this action in state court against a number of participants at various stages in the manufacture and distribution of handguns. After an amended complaint disposed of some defendants, the remaining named defendants are eleven manufacturers,¹ one wholesaler,² and five retailers.³ The City has also named multiple John Doe defendants in all three categories.

The complaint alleges that manufacturers of handguns typically sell to "distributors" who resell at wholesale to "dealers" who in turn sell at retail to the general public. Some categories of persons are prohibited by law from purchasing guns, and all dealer-defendants are alleged to have knowingly sold to illegal buyers through intermediaries in "straw purchases". Specifically, three dealers, Cash America, Ameri-Pawn, and Blythe's Sporting Goods, are alleged to have engaged in straw purchases that were the subject of a "sting" operation conducted by the Gary police department against suspected violators of the gun distribution laws. The police employed a variety of techniques in these operations. In general, an undercover officer first told a dealer's salesperson that he could not lawfully purchase a gun, for example, because he had no license or had been convicted of a felony, and a second undercover officer then made a purchase with the clerk's knowledge that the gun would be given to the first. Some other practices of dealers are also alleged to generate illegal purchases. These include failure by some dealers to obtain the required information for background checks required by federal law, sales of a number of guns to the same person, and intentional "diversion" of guns by some dealers to illegal purchasers.

The City alleges that the manufacturers know of these illegal retail sales of handguns, and know that a small percentage of dealers, including the dealer-defendants here, account for a large portion of illegally obtained handguns. The City alleges the manufacturers and distributors have the ability to change the distribution system to prevent these unlawful sales but have intentionally failed to do so.

The City alleges that these and other practices generate substantial additional cost to the public in general and the City in particular. Possession of unlawfully purchased guns is claimed to contribute to crime that requires expenditure of public resources in addition to the obvious harm to the victims. The complaint alleges that seventy murders with handguns took place in Gary in 1997, and another fifty-four in 1998. From 1997 through 2000, 2,136 handguns used in crimes were recovered. Of these, 764 were sold through dealers who are defendants in this suit. The City also asserts that harm is suffered by the City at the time of the sale of an illegal handgun because these unlawful sales generate additional requirements to investigate and prosecute the violations of law.

In addition to challenging the distribution practice of the defendants, the City also alleges negligent design of the handguns by the manufacturers that contributes to these injuries. Finally, the City alleges that the manufacturers engage in deceptive advertising of their product by asserting that a gun in the home offers additional safety for the occupants when in fact the contrary is the case.

Count I of the complaint alleges that these facts support a claim for public nuisance. Count II asserts a claim for negligence in distribution of guns and Count III presents a claim for their negligent design. All Counts request compensatory and punitive damages and injunctive relief. The trial court granted a motion by all defendants to dismiss both counts for failure to state a claim.⁴ The City appealed and the Court of Appeals affirmed the dismissal of the negligence count as to all defendants. Dismissal of the claim for public nuisance was affirmed as to the manufacturers and distributors, but the Court of Appeals concluded that the complaint stated a claim for public nuisance as to the dealers to the extent it alleged that they engaged in "straw purchases." City of Gary v. Smith & Wesson Corp., 776 N.E.2d 368, 389 (Ind.Ct.App.2002). We granted transfer.

The standard of review for a motion to dismiss is well settled. A complaint may not be dismissed for failure to state a claim unless it is clear on the face of the complaint that the complaining party is not entitled to relief. City of New Haven v. Reichhart, 748 N.E.2d 374, 377 (Ind.2001). Because this comes to us as a review of a dismissal of the City's complaint for failure to state a claim, we accept the allegations of the complaint as true for purposes of this motion. It remains for trial whether the City can establish the facts it alleges. We view the pleadings in the light most favorable to the City as the nonmoving party and draw every reasonable inference in favor of it. Id.

I. Public Nuisance

The City asserts that public nuisance is an independent cause of action and that any business unreasonably and unnecessarily operating in a dangerous manner can constitute a nuisance. It contends that its allegations against the defendants meet that standard.

A. Public Nuisance as an Unreasonable Interference with a Public Right

The essence of the City's claim is that handgun manufacturers, distributors, and dealers conduct their business in a manner that unreasonably interferes with public rights in the City of Gary, and therefore have created a public nuisance. In addressing this contention all parties to the lawsuit look to the Restatement (Second) of Torts section 821B, which defines a public nuisance as "an unreasonable interference with a right common to the general public." Indiana nuisance law is grounded in a statute enacted in 1881, and now appearing at Indiana Code section 32-30-6-6.⁵ It reads:

Whatever is:

(1) injurious to health;

(2) indecent;

(3) offensive to the senses; or

(4) an obstruction to the free use of property;

so as essentially to interfere with the comfortable enjoyment of life or property, is a nuisance, and the subject of an action.

The Indiana statute, unlike the Restatement and most common law formulations of public nuisance, makes no explicit mention of the "reasonableness" of the conduct that is alleged to constitute a nuisance. However, the language of the statute is very broad, and if read literally would create a cause of action for many activities not actionable as nuisances at common law and not generally viewed as improper even though they produce, at least to some extent, one or more of the effects listed in the statute. In recognition of this practical reality, over the intervening 122 years, Indiana courts have consistently referred to the common law reasonableness standard in applying the Indiana nuisance statute. Indeed, in 1881, the year of the statute's enactment, this Court referred to the need to avoid "unnecessary" inconvenience or annoyance to others. Owen v. Phillips, 73 Ind. 284 (1881), was a private nuisance case by adjoining property owners seeking to have a mill declared a nuisance. This Court pointed out the need to balance the usefulness of the activity against the harm to others in evaluating a claim of nuisance:

We approve, in its fullest extent, the doctrine, that in some localities a business will be considered a nuisance, while it would not be so in others. But wherever the mill or factory may be located, whatever its surroundings, property owners of the vicinity have a right to require that it shall be properly managed, conducted with ordinary care and proper regard for the rights of others, and in such a way as that no unnecessary inconvenience or annoyance shall be caused them.

Id. at 295-96.

More recently, in addressing a nuisance claim based on an alleged hazardous use of real property, this Court adopted a more modern formulation of essentially the same concept. A public nuisance was described as an activity "reasonably and naturally calculated to injure the general public":

Not every dangerous agency is a nuisance, and we believe it can be said generally that an instrumentality maintained upon private premises may only be said to be a nuisance upon the ground that it is calculated to produce personal injuries when it is of such character, and so maintained, that it is reasonably and naturally calculated to injure the general public or strangers who may come upon the premises.

Town of Kirklin v. Everman, 217 Ind. 683, 688, 28 N.E.2d 73, 75 (1940). In addition, several Indiana Court of Appeals decisions, including that of the Court of Appeals in this case, have adopted the Restatement's formulation of a nuisance as an "unreasonable" interference with common or...