Minnesota Min. and Mfg. Co. v. Nishika Ltd.

Decision Date30 October 1997
Docket NumberNo. 94-1124,94-1124
Citation953 S.W.2d 733
Parties33 UCC Rep.Serv.2d 817, 41 Tex. Sup. Ct. J. 14 MINNESOTA MINING AND MANUFACTURING COMPANY, Petitioner, v. NISHIKA LTD., Lentec Corporation, American 3D Ltd., and Nishika Manufacturing (H.K.) Ltd., Respondents.
CourtTexas Supreme Court

Jo Ben Whittenburg, Gilbert I. Low, Beaumont, Harry M. Reasoner, Page I. Austin, Marie R. Yeates, Margaret C. Ling, Penelope E. Nicholson, Sandra Garza Rodriguez, Richard L. Flowers, Jr., Houston, Robbi B. Hull, Austin, for Petitioner.

Mary Kathryn Sammons, Randall W. Wilson, James B. Sales, Roger Townsend, Jennifer Brunch Hogan, Houston, Walter Humphrey, Thomas A. Thomas, Beaumont, Stephen D. Susman, Dallas, William Hawkland, Baton Rouge, LA, Richard Speidel, Chicago, IL, William Powers, Jr., Pamela Stanton Baron, Austin, for Respondents.

GONZALEZ, Justice, delivered the opinion for a unanimous Court.

This is a breach of warranty case. Four companies involved in the three-dimensional photography industry sued Minnesota Mining and Manufacturing Company (3M) in a Texas trial court. The companies--Nishika Manufacturing (H.K.) Limited, American 3D (H.K.) Limited, LenTec Corporation, and Nishika Limited (collectively "the Nishika Plaintiffs")--alleged that 3M breached express and implied warranties, causing each business to lose profits. A jury agreed and returned findings favorable to the plaintiffs. Applying Minnesota law, the trial court rendered a lump-sum damages award in their favor. The court of appeals affirmed in all relevant respects. 885 S.W.2d 603. On rehearing, we granted the application for writ of error.

After oral argument, this Court concluded that Minnesota law governs this case, but that no controlling precedent existed on an essential question of Minnesota law. Accordingly, we issued a per curiam opinion certifying two questions to the Supreme Court of Minnesota. We inquired (1) whether a plaintiff who never used, purchased, or otherwise acquired goods from the seller could recover lost profits unaccompanied by physical injury or property damage, and (2) whether the Nishika Plaintiffs could recover damages jointly as a single economic unit. 955 S.W.2d 853, 858 (Tex.1996) (per curiam). Minnesota's high court accepted certification and answered both questions negatively. Minnesota Mining & Mfg. Co. v. Nishika Ltd., 565 N.W.2d 16, 23 (Minn.1997). We now apply that decision to dispose of this appeal. We reverse the court of appeals' judgment, render judgment that Nishika Manufacturing and American 3D take nothing, and remand the balance of the case for a new trial. 1

I. CHOICE OF LAW

In its briefs and at oral argument, 3M contended that the trial court erred by applying Minnesota law. We rejected this argument in our previous opinion, but deferred explaining our decision until the Minnesota Supreme Court answered our certified questions. 955 S.W.2d at 857-58. When evaluating choice-of-law issues in contractual disputes, we consider the facts of the case under the "most significant relationship" test set forth in section 188 of the Restatement (Second) of Conflicts of Laws. See Maxus Exploration Co. v. Moran Bros., Inc., 817 S.W.2d 50, 53 (Tex.1991); DeSantis v. Wackenhut, 793 S.W.2d 670, 679 (Tex.1990), cert. denied, 498 U.S. 1048, 111 S.Ct. 755, 112 L.Ed.2d 775 (1991); Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex.1984). We apply that test here to fully explain the reasons for our conclusion that Minnesota law applies.

Under section 188 of the Restatement, we determine contractual rights and duties by the law of the state with the most significant relationship to the transaction and the parties. RESTATEMENT (SECOND) OF CONFLICTS OF LAWS § 188(1) (1971). When, as here, the parties have not expressly chosen the applicable law, we consider the following contacts in determining which law governs their controversy:

(a) the place of contracting;

(b) the place of negotiation;

(c) the place of performance;

(d) the location of the contract's subject matter; and

(e) the parties' domicile, residence, nationality, place of incorporation, and place of business.

Id. § 188(2).

As the Court noted previously, 955 S.W.2d at 856, this case involves contacts in at least seven jurisdictions: Minnesota, Nevada, Oklahoma, Georgia, Pennsylvania, Texas, and Italy. Minnesota is 3M's domicile and its principal place of business. Two of the plaintiffs, Nishika Limited and American 3D, are based in Nevada. To support its contention on appeal that the trial court should have applied Nevada law, 3M points to only one other contact linking this case with Nevada: that Nevada is the state where Nishika Limited used the new emulsion to develop the 3-D photographs.

Although the Nevada contacts of domicile and product use are meaningful, 3M's argument ignores other quality contacts Minnesota had with this transaction. For example, the parties negotiated and entered into this agreement in Minnesota. The initial meeting at which the parties formed their business relationship took place in Minnesota, as did several follow-up meetings. No face-to-face negotiations occurred in Nevada. Moreover, 3M at least partially performed the contract in Minnesota by developing, producing, and testing the backcoat sauce there. These Minnesota contacts are significant because of their relevance to domestic warranty law and the policies underlying that law. See RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188(2) (1971); see also WEINTRAUB, COMMENTARY ON THE CONFLICT OF LAWS § 7.3D (1986). Its status as the place of negotiation and the place of performance favors Minnesota as the state whose law should apply. See RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188(3) (1971).

We must also evaluate these contacts in the context of certain policy factors listed in section 6 of the Restatement. Maxus Exploration, 817 S.W.2d at 53; see RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188(1) (1971). These principles are:

(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,

(d) the protection of justified expectations,

(e) the basic policies underlying the particular field of law,

(f) certainty, predictability and uniformity of result, and

(g) ease in the determination and application of the law to be applied.

RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 6(2) (1971). However, policy analysis is difficult in this case because few of these factors guide us in a discernible way. For example, Texas's relevant policies bear little on this case. Unlike Minnesota and Nevada, Texas has not adopted one of the alternatives that section 2-318 of the Uniform Commercial Code presents. See U.C.C. § 2-318 permanent editorial board note; Stallworth, An Analysis of Warranty Claims Instituted by Non-Privity Plaintiffs in Jurisdictions That Have Adopted Uniform Commercial Code Section 2-318 (Alternative A), 20 PEPP.L.REV. 1215, 1229 (1993). Rather, the Texas Legislature has left the issue of "whether anyone other than a buyer may take advantage of an express or implied warranty ... to the courts for their determination." TEX.BUS. & COM.CODE § 2.318.

Similarly, we are unable to discern a significant difference between the respective policies of Minnesota and Nevada on this issue. Of the American Law Institute's three suggested versions of section 2-318, Nevada has adopted Alternative A, and Minnesota has adopted Alternative C. Before the Minnesota Supreme Court's decision on our certified questions, it was unclear whether applying Alternative C, as opposed to Alternative A, would be outcome determinative. But even if Minnesota law holds product manufacturers to a higher warranty standard than Nevada law, both states have attempted to strike a fair balance between the competing interests of manufacturers and consumers. In this case, a manufacturer domiciled in Minnesota allegedly inflicted economic injury on two Nevada consumers and two consumers from other locales. We cannot say that Minnesota's policy, even if different, overrides Nevada's in this area. Under these circumstances, we give greater weight to other factors, such as the place of contracting, negotiation, and performance.

The parties' justified expectations weigh in favor of Minnesota. The dealings between 3M and the Nishika Plaintiffs spanned several states, and the parties did not bargain outright for the law to be applied if a legal dispute arose between them. As noted previously, 3M engaged in several rounds of negotiations, entered into a contract, and performed at least part of the agreement in Minnesota. Although the Nishika Plaintiffs sued 3M in Texas, they just as easily could have sued in Minnesota, 3M's home state. Given the relative importance of the Minnesota contacts, all parties could have anticipated that suit would be brought in Minnesota and that Minnesota law would govern. 3M has not established any reasonable expectation that Nevada law would control this litigation.

For these reasons, we concluded that Minnesota has the most significant relationship to this transaction and these parties. Accordingly, we rejected 3M's argument that the court of appeals erred by affirming the trial court's judgment on this issue. 955 S.W.2d at 856.

II. LIABILITY UNDER MINNESOTA LAW

We consider next the extent to which the Nishika Plaintiffs may recover damages under Minnesota's version of Uniform Commercial Code section 2-318. That statute provides:

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.

MINN.STAT.ANN. § 336.2-318 (Supp.1997).

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