Minnesota Min. and Mfg. Co. v. Nishika Ltd.
| Decision Date | 13 December 1996 |
| Docket Number | No. 94-1124,94-1124 |
| Citation | 955 S.W.2d 853 |
| Parties | 31 UCC Rep.Serv.2d 385, Prod.Liab.Rep. (CCH) P 14,847, 40 Tex. Sup. Ct. J. 154 MINNESOTA MINING AND MANUFACTURING COMPANY, Petitioner, v. NISHIKA LTD., Lentec Corporation, American 3D Ltd., and Nishika Manufacturing (H.K.) Ltd., Respondents. |
| Court | Texas Supreme Court |
Jo Ben Whittenburg, Beaumont, Harry M. Reasoner, Page I. Austin, Marie R. Yeates, Margaret C. Ling, Houston, Robbi B. Hull, Austin, Thomas Alexander, Houston, Gilbert I. Low, Beaumont, Carl A. Parker, Port Arthur, Russell J. Weintraub, Austin, Penelope E. Nicholson, Richard L. Flowers, Jr., Houston, for Petitioner.
Mary Kathryn Sammons, Randall W. Wilson, Houston, Walter Umphrey, Beaumont, Stephen D. Susman, Dallas, Thomas A. Thomas, Beaumont, James B. Sales, Roger Townsend, Houston, Jennifer Bruch Hogan, Houston, William Hawkland, Baton Rouge, LA, Richard Speidel, Chicago, IL, William Powers, Jr., Austin, for Respondents.
I. PRELIMINARY STATEMENT
This breach of warranty case involves a claim by four separate but related corporations to recover lost profits as a single economic unit. The corporations allege that a manufacturer's defective product injured each of them by destroying consumer confidence in the three-dimensional photography industry in which they were each participants in different roles. Based on favorable jury findings, the trial court rendered judgment allowing all plaintiffs to recover their combined lost profits as a result of the manufacturer's breach of express and implied warranties. The court of appeals reformed the judgment with respect to pre- and post-judgment interest, but affirmed in all other respects. Minnesota Mining & Mfg. Co. v. Nishika Ltd., 885 S.W.2d 603 (Tex.App.--Beaumont 1994, writ granted). We agree with the court of appeals that Minnesota law applies to this case. However, because the case turns on a novel issue of Minnesota law, we certify questions on our own motion to the Supreme Court of Minnesota before proceeding further. 1
II. STATEMENT OF THE CASE
We summarize the facts in the light most favorable to the jury's verdict. In 1988 James Bainbridge met with Minnesota Mining and Manufacturing Company (3M) officials at 3M's headquarters in St. Paul, Minnesota. Bainbridge sought 3M's assistance with a film development process to be used in a three-dimensional (3-D) photography system he planned to manufacture, market, and service through several independent corporations. At this meeting, Bainbridge informed 3M of his plans to invest millions of dollars in this venture. Bainbridge also informed 3M that the venture could not succeed without an effective film development process. By mid-1989, 3M had formulated a new, light-sensitive emulsion that it claimed would work well with the system Bainbridge had in mind. The parties understood that the emulsion would be used in combination with a special backcoat sauce 3M formulated to develop the 3-D photographs.
Along with fellow entrepreneur Daniel Fingarette, Bainbridge established an elaborate plan for managing the 3-D photography system at every stage. Fingarette owned 100 percent of the camera manufacturer, Quantronics Manufacturing (H.K.) Limited. Bainbridge owned 100 percent of three other corporations: the camera distributor, American 3D (H.K.) Limited, the printer designer, LenTec Corporation, and the printer, Nishika Limited. All told, these four corporations invested about $40 million in the system. More than $1 million of that investment involved Nishika Limited's purchase of the backcoat sauce and LenTec's purchase of the new emulsion from 3M. 3M manufactured a component of the backcoat sauce in Minnesota and shipped the component to Nishika Limited in Nevada, where it was mixed with other materials to complete the product. 3M sold the special emulsion, which it manufactured in Italy, to LenTec in Georgia. In turn, LenTec sold the emulsion to Nishika Limited, which mixed the emulsion with the completed backcoat sauce in Nevada to process the photographs.
By 1989, American 3D had sold more than 100,000 cameras, and public interest in 3-D photography was on the rise. Before the end of that year, however, significant problems became apparent with the film development process 3M had designed. The photographs faded badly a short time after processing, and many customers complained to Bainbridge about their poor quality. Unaware of the cause, Nishika Limited reprinted the photographs, but the reprints also faded. When Bainbridge confronted 3M about the problem, 3M assured him it would stand behind its products and find a solution. By early 1990, however, American 3D had suffered a significant downturn in sales, and the future of all the interrelated businesses had come into doubt.
Joined by certain individual distributors, American 3D, LenTec, Nishika Limited, and Nishika Manufacturing (H.K.) Limited 2 (collectively "the Nishika Plaintiffs") sued 3M in Jefferson County, Texas, alleging breach of express and implied warranties. The Nishika Plaintiffs contended that the new emulsion 3M developed specifically for their venture was incompatible with the backcoat sauce and that this defect caused the fading. The Nishika Plaintiffs further asserted that 3M's defective goods caused the public to lose confidence in their products and processing system, ultimately leading to the destruction of their business venture. The four independent companies sought lost profits as a single economic enterprise, even though 3M never dealt directly with or sold any products to either American 3D or Nishika Manufacturing.
Immediately before trial, the Nishika Plaintiffs filed a brief contending that Minnesota law should govern this case. The trial judge heard the parties' arguments at a pretrial hearing, but deferred ruling on the choice-of-law issue until several weeks after the trial began. The trial court ultimately agreed with the Nishika Plaintiffs that Minnesota had the most significant relationship to the transaction. The jury found that 3M breached express and implied warranties and that 3M's breach directly caused the harm suffered by each of the Nishika Plaintiffs. 3 The trial court submitted the following damages question to the jury:
What sum of money, if any, would fairly and reasonably compensate the plaintiffs for damages, if any, suffered as a direct and natural result of 3M's breach of warranty, if any? Answer in dollars and cents for each plaintiff, if any, and without any reduction for any percentage of fault or causation you might attribute to such plaintiff.
ANSWER:
Nishika/LenTec $______
[individual plaintiffs listed]
Elsewhere in the charge, the trial court instructed the jury that "the term 'Nishika/LenTec' as used in this Charge, [means] Nishika Ltd., LenTec Corp., American 3D Ltd., and Nishika Manufacturing (H.K.) Ltd." 3M made the following objection to the submission of this question:
[D]efendant objects to Question No. 13, which ... group[s] Nishika/LenTec as one of the plaintiffs in the damage question. In this respect, Defendant objects since there is evidence that some of the Nishika/LenTec plaintiffs may be entitled to recover on some theories and under some causes of action, whereas others cannot. And the submission as phrased will make it impossible for this Court to know which of the Nishika/LenTec plaintiffs the jury awarded damages to. And since there ... are some of the Nishika/LenTec plaintiffs that there is no evidence that they could recover the damages alleged by the plaintiffs, the question is improper as phrased and should be broken out as to each of the Nishika/LenTec plaintiffs.
The trial court overruled 3M's objection. Based on favorable jury findings, the trial court rendered judgment that the Nishika Plaintiffs recover $29,873,599 plus pre- and post-judgment interest from 3M. 4
At the court of appeals, 3M complained of the trial court's ruling on choice of law, its submission of the Nishika Plaintiffs as one economic unit in the jury charge, several evidentiary rulings, a supplemental jury instruction, and the award of interest on the judgment. The court of appeals examined each of 3M's contentions, but found reversible error only in the trial court's application of Minnesota law concerning pre-judgment interest. 885 S.W.2d at 633. After reforming the trial court's judgment solely with respect to interest, the court of appeals affirmed.
In a 1966 amendment, the drafters of the Uniform Commercial Code promulgated the current version of section 2-318, which governs express and implied warranties as they apply to parties not in privity with the seller. The amendment provides three alternative versions, which read as follows:
Alternative A
A seller's warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.
A seller's warranty whether express or implied extends to any natural person who may reasonably be expected to use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.
A seller's warranty whether express or implied extends to any person who may reasonably be expected to use, consume or be affected by the goods and who is injured by breach of the warranty. A seller may not exclude or limit the operation of this section with respect to injury to the person of an individual to whom the...
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