Kouba v. Northland Indus., Inc.

583 S.W.3d 857

Gilbert KOUBA, Individually and as Representative of the Estate of Audrey Kouba, Karen Williams and Curtis Kouba, Appellants

v.NORTHLAND INDUSTRIES, INC. d/b/a Magnum Fitness, JHTNA Manufacturing, L.L.C., and Johnson Health Tech North America, Inc., Appellees

NO. 01-18-00252-CV

Court of Appeals of Texas, Houston (1st Dist.).

Opinion issued August 13, 2019

Gordon Goodman, Justice

A gym-goer died after sustaining injuries from falling off a treadmill that allegedly "unexpectedly changed speeds." Her surviving spouse and adult children sued the treadmill's manufacturer, the entity that purchased the manufacturer's assets before the gym-goer fell, that asset purchaser's parent company, and other parties not before us in this appeal. They pleaded several theories and sought recovery for their damages and for the gym-goer's pain, anguish, medical expenses, and funeral and burial expenses.

Their claims included a cause of action against the asset purchaser and its parent for breach of the implied warranty of merchantability for the treadmill. That claim is based on provisions of the asset-purchase agreement under which the manufacturer sold its assets, and transferred certain liabilities, to the asset purchaser.

The trial court granted summary judgment against the plaintiffs on all claims against the manufacturer, asset purchaser, and asset purchaser's parent company and severed the rest of the suit, which involved the other defendants not before us. The severance made the summary judgment a final judgment as between the plaintiffs and the manufacturer, the asset purchaser, and its parent.

The plaintiffs appeal, contending that (1) the purchaser assumed liability in the asset-purchase agreement for the implied warranty of merchantability that arose out of the manufacturer's sale of the treadmill to the gym and (2) the purchaser's parent company is vicariously liable for the implied warranty under either a joint-enterprise theory or terms of the asset purchase agreement providing that the parent would guarantee the purchaser's performance and obligations under the agreement.

In response, the manufacturer, asset purchaser, and its parent contend that certain other provisions of the agreement demonstrate that the asset purchaser did not agree to assume any liability for the implied warranty and that the implied warranty cannot arise out of the written warranty for the treadmill but only out of a contract for its sale, which is not present in the asset-purchase agreement. We affirm in part and reverse and remand in part.

Background

Appellee Northland Industries, Inc., d/b/a Magnum Fitness, manufactured and sold treadmills. It sold a treadmill to a gym that Audrey Kouba later visited. One day while using the treadmill, she fell, striking her head. She later died due to her injuries from the fall.

Before her fall, Magnum Fitness sold its assets to JHTNA Manufacturing, L.L.C. ("JHTNA"). JHTNA purchased the assets, and assumed certain of Magnum Fitness's liabilities, under an asset-purchase agreement (the "Agreement"). Also in the Agreement, JHTNA's parent company, Johnson Health Tech North America, Inc. ("Johnson Health"), agreed to guarantee JHTNA's performance of and obligations under the Agreement.

JHTNA agreed to assume certain of Magnum Fitness's liabilities under the following provisions:

2.5 Assumption of Liabilities. Subject to the terms and conditions set forth herein at the Closing [JHTNA] shall assume and agree to pay, honor and discharge when due only the liabilities and obligations of [Magnum Fitness] specifically identified below relating to the Assets existing at or arising on or after the Closing Date (collectively, the "Assumed Liabilities"):

....

2.5.6. any Product Warranty Claim solely with respect to claims arising with respect to and during the time periods set forth in the written warranties of [Magnum Fitness] attached hereto on Schedules 3.1.17(a)(i) and 3.1.17(a)(ii).¹

Schedule 3.1.17(a)(i) of the Agreement includes a "Commercial Treadmill Warranty," which provides:

Magnum warrants to the ORIGINAL purchaser that their treadmill will be free from defects for the time periods listed in this form. Magnum will repair or replace the defective part, at Magnum's option, during the warranty period. Parts will be shipped free of charge within the USA.

 Lifetime   Frame
  3 years    Parts. Electronics, including motor, motor controller, all
             PCB's. Mechanical components
  2 years    Deck and running bell
  1 year     Labor

The Warranty concludes, "There are no additional warranties; either expressed or implied, arising out of the sale or this product other than those contained herein. Warranty is only for the repair or replacement of the product." The Agreement provides that Wisconsin law governs its validity, interpretation, and effect.

After Audrey Kouba's death, her surviving spouse and her two adult children—Appellants Gilbert Kouba, individually and as representative of her estate; Karen Williams; and Curtis Kouba (collectively, "Kouba")—sued Magnum Fitness, JHTNA, and Johnson Health (collectively, the "JHT Defendants"); the gym; and others. They alleged several causes of action against the JHT Defendants, including negligence, strict liability, and breach of the implied warranty of merchantability for the treadmill. They pleaded that Texas Business & Commerce Code section 2.314, which is part of Texas's enactment of the Uniform Commercial Code, gave rise to the applicable implied warranty.

The JHT Defendants moved for summary judgment on all claims against them. They contended that the Commercial Treadmill Warranty gave rise only to certain express warranties, and those only to the gym as the treadmill's original purchaser. Therefore, they argued, JHTNA assumed no implied warranty of merchantability for the treadmill under the Agreement. They also contended that provisions of the Agreement excluding any liability to JHTNA for "product liability claims" meant that JHTNA did not assume the implied warranty of merchantability.

In response to the motion for summary judgment, Kouba contended that (1) JHTNA assumed liability for the implied warranty of merchantability arising out of the sale of the treadmill to the gym under the Agreement and either Texas or Wisconsin law; (2) nothing in the Agreement waived the implied warranty of merchantability; (3) JHTNA is liable for the implied warranty of merchantability notwithstanding the lack of any privity of contract between it and Kouba; and (4) Johnson Health is liable for the implied warranty too either because it engaged in a joint enterprise with its subsidiary, JHTNA, or because it agreed in the Agreement to guarantee JHTNA's performance and obligations under the Agreement.

The trial court granted a complete summary judgment in the JHT Defendants' favor. It then severed the claims against the JHT Defendants from the rest of the suit, making the summary judgment a final judgment as between Kouba and the JHT Defendants.

Analysis

Kouba challenges the trial court's conclusion that JHTNA is not liable for any implied warranty of merchantability relating to the treadmill. In both the summary-judgment briefing and the briefing on appeal, Kouba's contentions are based solely on the cause of action for breach of the implied warranty of merchantability, ignoring the other causes of action dismissed by the summary judgment.

Kouba's only arguments for Johnson Health's liability are vicarious-liability arguments that depend on JHTNA's predicate liability. Thus, if JHTNA did not assume any liability for the implied warranty, then its parent, Johnson Health, is not liable on that claim either.

We consider the relevant portions of the Agreement and the law on the implied warranty of merchantability to review Kouba's challenge to the summary judgment.

I. Choice of law

The Agreement provides that Wisconsin law governs its validity, interpretation, and effect. Neither Kouba nor the JHT Defendants dispute the choice-of-law provision's validity, nor do they argue that Wisconsin law bears no reasonable relationship to the underlying facts.² We will therefore apply Wisconsin law to questions arising from interpretation of the Agreement. See DBHL, Inc. v. Moen Inc. , 312 S.W.3d 631, 635–36 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) ; Lockheed Martin Corp. v. Gordon , 16 S.W.3d 127, 133–34 (Tex. App.—Houston [1st Dist.] 2000, pet. denied).

II. Summary judgment concerning successor liability by contractual assumption of claims

The majority rule for successor liability arising out of an asset purchase is that an entity purchasing only the assets of another business is generally not subject to liability for harm caused by defective products sold commercially by the former owner of the assets. See Lockheed Martin , 16 S.W.3d at 134 ; Columbia Propane, L.P. v. Wis. Gas Co. , 261 Wis.2d 70, 661 N.W.2d 776, 784, 786 (2003) (citing Lockheed Martin ). Both Texas and Wisconsin law follow this majority rule. See Lockheed Martin , 16 S.W.3d at 134–35 ; Columbia Propane , 661 N.W.2d at 784. The rule is subject to four exceptions, only one of which applies here:³ when purchasing the assets, the purchaser may agree to assume liabilities. See Lockheed Martin , 16 S.W.3d at 134 ; Columbia Propane , 661 N.W.2d at 784.⁴ Therefore, to support summary dismissal of Kouba's cause of action for breach of the implied warranty of merchantability, the JHT Defendants' motion and evidence must establish as a matter of law that JHTNA did not assume liability for the implied warranty under the Agreement.

A. Standard of review and applicable law

We review summary judgments de novo.

Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding , 289 S.W.3d 844, 848 (Tex. 2009).⁵ Under the standard for a traditional summary judgment, the movant must show that no genuine issue of material fact exists and that he or she is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c) ; DBHL , 312 S.W.3d at...