Kosters v. Seven-Up Co., SEVEN-UP

• Citation: 595 F.2d 347
• Decision Date: 26 March 1979
• Docket Number: SEVEN-UP,No. 76-2527,76-2527
• Parties: Sharon Proos KOSTERS, Plaintiff-Appellee, v. TheCOMPANY, Defendant & Third Party Plaintiff-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

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595 F.2d 347 Sharon Proos KOSTERS, Plaintiff-Appellee,
v.
The SEVEN-UP COMPANY, Defendant & Third Party Plaintiff-Appellant. No. 76-2527. United States Court of Appeals,
Sixth Circuit. Argued April 17, 1978.
Decided March 26, 1979.

Page 349

William R. DeVries, Wheeler, Upham, Bryant & Uhl, Geoffrey L. Gillis, Grand Rapids, Mich., for defendant & third party plaintiff-appellant.

Michael J. Roberts, Rhoades, McKee & Boer, Grand Rapids, Mich., for plaintiff-appellee.

Before EDWARDS, Chief Judge, and CELEBREZZE and MERRITT, Circuit Judges.

MERRITT, Circuit Judge.

During the past two decades, franchising has become a common means of marketing products and services, but our legal system has not yet settled the principles that define the liabilities of franchisors for injuries sustained by customers of their franchisees. This diversity case requires us to interpret the theories of tort and contract liability which Michigan law allows a jury to consider when deciding whether an injured purchaser is entitled to recover against the franchisor of a product.

I. STATEMENT OF THE CASE

The defendant, the Seven-Up Company, appeals from a $150,000 jury verdict awarded for injuries caused by an exploding 7-Up bottle. The plaintiff removed a cardboard carton containing six bottles of 7-Up from a

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grocery shelf, put it under her arm and headed for the check-out counter of the grocery store. She was blinded in one eye when a bottle slipped out of the carton, fell on the floor and exploded, causing a piece of glass to strike her eye as she looked down. The 7-Up carton was a so-called "over-the-crown" or "neck-thru" carton designed to be held from the top and made without a strip on the sides of the carton which would prevent a bottle from slipping out if held underneath.

The carton was designed and manufactured by Olinkraft, Inc. Olinkraft sold it to the Brooks Bottling Company, a franchisee of the defendant, Seven-Up Company. Seven-Up retains the right to approve the design of articles used by the bottler, including cartons. The franchise agreement between Seven-Up and the Brooks Bottling Company requires that "cases, bottles, and crowns used for 7-Up will be of a type . . . and design approved by the 7-Up Company," and "any advertising . . . material . . . must be approved by the 7-Up Company before its use by the bottler."

Using an extract provided by Seven-Up, Brooks produced the beverage and poured it into bottles. After securing Seven-Up's approval of the design under the franchise agreement, Brooks packaged the bottles in cartons selected and purchased by Brooks from various carton manufacturers, including Olinkraft. Brooks then sold cartons of 7-Up to stores in some 52 Michigan counties, including Meijers Thrifty Acres Store in Holland, Michigan, where the plaintiff picked up the carton and carried it under her arm toward the checkout counter. Plaintiff settled her claims against the bottler, the carton manufacturer and the grocer for $30,000.

Seven-Up denied liability, insisting its approval of the cartons was only of the "graphics" and for the purpose of assuring that its trademark was properly displayed. It filed a third-party complaint against the bottler, the carton manufacturer and the grocer for indemnity or contribution if plaintiff were successful against Seven-Up. Upon stipulation, the grocer was subsequently dismissed. At the beginning of trial, the District Court severed Seven-Up's third-party complaint against the bottler and the carton manufacturer.

The District Judge submitted the case to the jury on five related theories of product liability a negligence theory, three strict liability theories and one contract theory:

1. Negligence. Plaintiff may recover from a franchisor for negligence without regard to privity.

2. "Implied Warranty." Plaintiff may recover from a franchisor for "breach of implied warranty of fitness" if the product in question, the 7-Up carton, was defective." ¹

3. "Inherently Dangerous." Plaintiff may recover if the jury finds that 7-Up "bottles are inherently dangerous" and that the franchisor failed to warn the consumer of the danger. ²

4. "Opportunity to Change Design." Plaintiff may recover for an injury resulting from the design of a product (the 7-Up carton) if the franchisor did not

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exercise an "opportunity to avoid causing injuries" by altering the design of the product. ³

5. Contract. Plaintiff may recover as a third-party beneficiary of the franchise agreement between 7-Up and the bottler. ⁴

We do not know which of these theories the jury accepted because it returned a general verdict. On appeal, Seven-Up argues that all of the theories are wrong except negligence. We begin our consideration of this diversity case by acknowledging that the views of an experienced District Judge on questions concerning the law of the state in which he sits are entitled to great respect.

II. THE LIABILITY ISSUES

A. Implied Warranty

Under Michigan law, privity in products liability cases is now unnecessary. ⁵ The jury may find a supplier of products liable, depending on the level of his awareness of the risk of harm, for negligence or for breach of an implied warranty of fitness, or both, when he distributes a "defective" product, whether manufactured by himself or another. ⁶ A product, may be "defective" because of a mistake in manufacture ⁷ or an unsafe design. ⁸ Whether a product is defective is normally a jury question. ⁹ The District Court allowed the jury to find that these liabilities of a supplier also apply to the franchisor, although in this case the Seven-Up Company did not manufacture, supply or require its franchisee to use the "neck-thru" carton.

Michigan appellate courts have not had the occasion to consider these principles in the context of franchising. ¹⁰ It appears to be a new question not generally considered

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in other jurisdictions. ¹¹ The franchise system is a method of selling products and services identified by a particular trade name which may be associated with a patent, a trade secret, a particular product design or management expertise. The franchisee usually purchases some products from the franchisor in this case, the 7-Up syrup and makes royalty payments on the basis of units sold, in exchange for the right to offer products for sale under the trademark. The franchise agreement establishes the relationship between the parties and usually regulates the quality of the product, sales territory, the advertising and other details; and it usually requires that certain supplies be purchased from the franchisor. ¹²

Seven-Up Company concedes that a franchisor, like a manufacturer or supplier, may be liable to the consumer for its own negligence, without regard to privity, under the doctrine of MacPherson v. Buick Motor Co. ¹³ Seven-Up contends, however, that it does not carry the liabilities of a supplier when it did not supply the product and that other theories of strict tort liability do not apply. Liability may not be laid on the basis of implied warranty, it says, when the franchisor did not manufacture, handle, design or require the use of the particular product. The precise question before us here is whether Michigan's principles of "strict accountability" ¹⁴ for breach of implied warranty extend to a franchisor who retains the right of control over the product (the carton) and...