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Nelson v. F. W. Woolworth Co.

April 25, 1986

TELINA NELSON, A MINOR, BY GEORGE A. SENTENEY, GUARDIAN AD LITEM, GERALD NELSON AND SHERRY NELSON, PLAINTIFFS
v.
F. W. WOOLWORTH COMPANY AND TRAVELERS INSURANCE COMPANY, DEFENDANTS-THIRD PARTY PLAINTIFFS-APPELLANTS AND BUNNAN TONG AND COMPANY, LTD., THIRD PARTY DEFENDANT-APPELLEE



Appeal from the United States District Court for the Western District of Wisconsin. No. 81 C 643-John C. Shabaz, Judge.

Author: Cudahy

Before BAUER, CUDAHY and FLAUM, Circuit Judges.

CUDAHY, Circuit Judge. F. W. Woolworth Co. ("Woolworth") ordered a shirt through Bunnan Tong Co. ("Bunnan Tong") that ignited and injured one of the plaintiffs. This diversity case concerns whether Woolworth or Bunnan Tong should bear the costs of settlement for those injuries. The District Court for the Western District of Wisconsin found that Bunnan Tong was not liable for any of the plaintiffs' claims against Woolworth. Woolworth appeals, contending that the district court ignored the indemnity agreement between the parties. We affirm.

On October 28, 1978, four-year-old Telina Nelson was severely injured when she ignited a flannel shirt she was wearing with a butane lighter. The shirt had been purchased from defendant-third party plaintiff-appellant F. W. Woolworth Co. at its Rice Lake, Wisconsin store. The shirt was manufactured in Hong Kong. Bunnan Tong was Woolworth's purchasing agent in Hong Kong and had helped Woolworth secure a manufacturer there. The two companies had done business for over 40 years.

Telina Nelson's shirt was one of 4,000 dozen that Woolworth had ordered through Bunnan Tong in 1976. As part of that deal Woolworth had sent its buying representative to Hong Kong to select the fabric and arrange for the specifications, such as the labeling and packaging of the shirts. Woolworth's specifications also required that two sample shirts be sent to the United States for testing for compliance with federal and company flammability requirements. The shirts were found in compliance.

The 1966 contract between Woolworth and Bunnan Tong, which was renewed in 1976, contained an indemnity provision which specified that Bunnan Tong:

In addition, the 1976 purchase order contained a second indemnification clause which provided:

In accepting this order, shipper (or seller) agrees to indemnify, save harmless and defend F. W. Woolworth Company against any claim or action involving this merchandise or arising out of its sale or possession by F. W. Woolworth Company and against any loss or damage or expense incurred by F. W. Woolworth Company in connection therewith.

In June 1982, Nelson through her guardian brought suit against Woolworth and Bunnan Tong, along with Park Industries Inc., the manufacturer of the butane lighter, and United Garment Manufacturing Company, the manufacturer of the shirt. The suit alleged that both the lighter and the shirt were made with design defects that made the products unreasonably dangerous. Woolworth filed a cross-claim against Bunnan Tong and asked Bunnan Tong to assume its defense pursuant to the indemnity agreement. Although making no allegations of Woolworth's negligence, Bunnan Tong refused.

Bunnan Tong also refused two later tenders of Woolworth's defense. Woolworth eventually settled with plaintiffs for $1.3 million, while Bunnan Tong settled for $7,500. Woolworth continued to try to recoup the amount of the settlement and costs from Bunnan Tong. Woolworth moved for summary judgment. The district court denied this motion because Bunnan Tong contended that the fact of Woolworth's possible negligence remained in dispute. At the time the motion was made, Bunnan Tong argued before the court that, "To the extent that it is found that the certain garment was not in compliance with local standards for flame retarded garments, then F. W. Woolworth must share some of the blame with the parents." (Excerpts from November 14, 1984 hearing, Appellants' Appendix at 144).

The case eventually went to a bench trial. Woolworth presented two fabric experts who testified that the flannel met stringent national and company standards. Bunnan Tong presented no independent testimony of its own but offered a deposition summary of plaintiffs' expert, Robert Johnson, who stated that the product was unsafe and failed to provide adequate warning of its flammability.

The court found for Bunnan Tong. In reaching its conclusion, the court noted that Johnson's deposition illustrated how Woolworth might potentially have been at fault. Johnson had stated, inter alia, that the shirt burned with intense heat and flame retardants, and carried no warning label. Thus, the court held that "the potential liability to the plaintiffs faced by Woolworth asks this court to reverse the district court's ruling. We find the district court's finding supportable as well as fair in light of the evidence before it and therefore affirm.

I.

Looking solely at the indemnity provisions in the buying agreement and purchase order, Woolworth contends that "BUNNAN TONG did not agree to indemnify WOOLWORTH simply for claims caused by BUNNAN TONG. BUNNAN TONG agreed to hold harmless and defend WOOLWORTH from any claims from anyone involving any aspect of the merchandise as long as they were not caused by WOOLWORTH's negligence." (Appellant's Brief at 25-26). Woolworth also argues that in agreeing to these provisions, Bunnan Tong assumed the burden for paying for claims unless it could prove Woolworth's fault or negligence. While Bunnan tong told the court that Woolworth may have shared the blame with Telina Nelson's parents for her injuries, Woolworth notes that Bunnan Tong offered no independent testimony demonstrating fault. Therefore, Woolworth concludes, its summary judgment ...


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