Hofherr v. Dart Industries, Inc.

• Decision Date: 05 August 1988
• Docket Number: No. 87-1644,87-1644
• Citation: 853 F.2d 259
• Parties: Prod.Liab.Rep.(CCH)P 11,878 Jane W. HOFHERR and Robert A. Hofherr, Plaintiffs-Appellants, v. DART INDUSTRIES, INC., Defendant-Appellee, and Eli Lilly & Company, Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 259

853 F.2d 259

Prod.Liab.Rep.(CCH)P 11,878

Jane W. HOFHERR and Robert A. Hofherr, Plaintiffs-Appellants, v. DART INDUSTRIES, INC., Defendant-Appellee and Eli Lilly & Company, Defendant.

No. 87-1644.

United States Court of Appeals Fourth Circuit.

Argued Dec. 3, 1987.

Decided Aug. 5, 1988.

Michelle Adrien Parfitt (Peter T. Enslein, Peter T. Nicholl, Ashcraft & Gerel, James F. Rosner, Whiteford, Taylor & Preston, on brief) for plaintiffs-appellants.

A. Edward Grashof (Sheila Moeller Fessler, Winthrop, Stimson, Putnam & Roberts, Thomas J. Wohlgemuth, Smith & Wohlgemuth, on brief) for defendant-appellee.

Before WIDENER and CHAPMAN, Circuit Judges, and HAYNSWORTH, Senior Circuit Judge.

WIDENER, Circuit Judge:

Plaintiffs, Jane and Robert Hofherr, appeal from a directed verdict entered against them in this diversity action. The Hofherrs instituted this products liability case against Dart Industries, Inc. (Dart) and Eli Lilly & Company (Lilly) for injuries suffered by Mrs. Hofherr allegedly as a result of her mother's ingestion of the drug diethylstilbestrol (DES) while pregnant. ¹ During the trial, the plaintiffs settled with Lilly. Prior to the conclusion of the Hofherr's case in chief, the district court granted a directed verdict in Dart's favor on the grounds that the Hofherrs had failed to present sufficient evidence to permit a jury to find liability. We agree with the district court and we affirm.

Jane Hofherr's mother, Doris Wiles, took the drug DES while she was pregnant with Jane in 1959. Her physician, Dr. Robert Tunney, prescribed DES as a precaution to prevent a possible miscarriage. Mrs. Wiles took the drug for approximately 30 weeks during her pregnancy. Jane Hofherr was born on February 10, 1960. Twenty-three years later, Jane was diagnosed as suffering from permanent gynecological injuries allegedly as a result of her prenatal exposure to DES which allegedly resulted in her infertility.

Mrs. Wiles testified that she purchased the DES tablets from Tennant's Professional Pharmacy located in Baltimore, Maryland. Tennant's was a locally and independently owned franchise of the Rexall Drugstore chain. ² Mrs. Wiles also testified that she remembers the DES tablets to have been shiny red hard coated tablets, a little smaller than an aspirin tablet. While Rexall did produce DES during the relevant time frame and supplied it to franchise stores, it is uncontroverted that Rexall did not produce DES in a red tablet form. There also exists no record of Tennant's Pharmacy purchasing DES or any other prescription drug from Rexall. Thus, while plaintiffs have proven that the DES responsible for Mrs. Hofherr's injuries was purchased from Tennant's Pharmacy, it is undisputed that the drug was actually manufactured by a pharmaceutical company other than Rexall.

As this case arises under diversity jurisdiction, the law of Maryland applies. Erie RR Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1983). The plaintiffs seek to hold Dart liable for Mrs. Hofherr's injuries on two theories of liability. First, they contend that Tennant's was either an express or apparent agent of Rexall, thus Rexall was responsible for Tennant's sale of the non-Rexall DES to Mrs. Wiles. Second, since Rexall was a manufacturer of DES, it had a non-delegable duty to warn its franchisees of the potential dangers of DES irrespective of whether the franchisees were agents of Rexall. In any event, plaintiffs argue, Rexall had a duty to warn physicians of the side effects of the drug, and this was not done. Prior to the completion of the Hofherrs' case in chief, the district court rejected plaintiffs' arguments and directed a verdict on the grounds that the Hofherrs had not presented sufficient evidence to let the issue of liability go to a jury. ³

Plaintiffs' theory of recovery, in short, is that, since Tennant's sold the DES to Mrs. Wiles and if Tennant's was Rexall's agent, then Rexall had a duty to warn physicians and franchisees of the dangers of the drug, even if Rexall had not manufactured the DES pills in question.

As an alternate theory, plaintiffs argue that Rexall had a non-delegable duty to warn of the dangers of the drug.

"The standard for granting a directed verdict requires a court to view the evidence in the light most favorable to the non-moving party and draw every legitimate inference in favor of that party; having treated the adjudicatory facts in this fashion, the court must determine whether a reasonable trier of fact could draw only one conclusion from the evidence." Smithy Braedon Co. v. Hadid, 825 F.2d 787, 790 (4th Cir.1987). If there is but one reasonable conclusion under the applicable law, a directed verdict under Fed.R.Civ.P. 50(a) is proper. Brady v. Southern R. Co., 320 U.S. 476, 479-80, 64 S.Ct. 232, 234-35, 88 L.Ed. 239 (1943). Conversely, where reasonable minds can differ, the court cannot direct the verdict. In light of that standard of review, we must analyze plaintiffs' theories of liability.

Under Maryland law, three elements must be proved in order to establish an express agency. First, the agent must be subject to the principal's right of control. Second, the agent must have a duty to act primarily for the benefit of the principal. Finally, the agent must hold the power to alter the legal relationships of the principal. Schear v. Motel Management Corp., 61 Md.App. 670, 487 A.2d 1240, 1248-49 (1985). The Maryland courts as well as the district court in the instant case have stressed the importance of the first element, control. Schear, 487 A.2d at 1248-49. The burden of proving the existence of an agency relationship is upon the party who seeks to rely upon it. P. Flanigan & Sons, Inc. v. Childs, 251 Md. 646, 655, 248 A.2d 473, 478 (1968). A critical issue is intent of the parties which may be inferred by the agreements entered into and the actions of the parties. Ramsburg v. Sykes, 221 Md. 438, 158 A.2d 106, 108 (1960). In this case, the evidence relied upon by the plaintiffs to establish agency consisted of the sample franchise contract ⁴ and the deposition of John Secrist, a former employee of Rexall.

The agreement at issue is little more than an agreement for Tennant's to sell Rexall products at retail. It does give Rexall some leverage with respect to the marketing of Rexall products, however, that leverage being primarily the threat of franchise revocation for contract violation. The Secrist testimony can be taken to support this as well. What is missing, however, is any evidence of control by Rexall over Tennant's marketing of prescription drugs of other manufacturers. Indeed, the evidence is that Tennant's marketed prescription drugs, including DES, only of other manufacturers. Nor is there any evidence indicating that Rexall could or did exercise any control over the day to day operations of Tennant's Pharmacy. The plaintiffs liken the instant case to Drexel v. Union Prescription Center, Inc., 582 F.2d 781 (3rd Cir.1978). In Drexel, the court held that whether a pharmacy was the agent of the franchisor was a jury question. The agreement at issue in Drexel, however, was a highly detailed contract which allowed the franchisor to control the day to day operations and manner of doing business of the franchisee. That type of day to day control over management details is absent here. Thus, there is not sufficient evidence, even with the inferences in plaintiffs' favor, for a jury to conclude that Rexall controlled Tennant's Pharmacy sufficiently to create an express agency.

With respect to apparent agency, the result is just as clear. Under Maryland law, two elements are necessary in order to establish an apparent agency. First, the principal must by its acts and conduct hold out the alleged agent as being authorized to act in the...