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Leon v. Caterpillar Industrial

November 8, 1995






Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 92 C 21--James T. Moody, Judge.

Before WOOD, COFFEY and KANNE, Circuit Judges.

COFFEY, Circuit Judge.



Cristobal and Maria Leon, citizens of the state of Indiana, filed a civil action, 28 U.S.C. sec. 1332(a) (diversity), against Caterpillar Industrial, Inc., *fn1 a Delaware corporation with its principal place of business in the State of Illinois. Leon and his wife sought damages for injuries incurred while he was operating a Caterpillar forklift at the East Chicago, Indiana plant of Inland Steel ("Inland"), a manufacturer of steel. The plaintiffs' claims were based on strict products liability, negligence, and breach of express and implied warranty. *fn2 The parties agreed that Indiana substantive law governed.

At the pre-trial conference, the parties agreed upon an order in which Leon stipulated to drop his warranty claims. The case was tried before a jury and at the close of the evidence, Caterpillar made a motion for a directed verdict. The court granted the defendant's motion in part, dismissing the strict liability claim concerning the deadman's switch *fn3 on the forklift, and after the close of testimony, during the jury instruction conference, Leon requested that the court dismiss his negligence claims against Caterpillar, while his remaining claims based on strict products liability, alleging defects in the forklift's gear shift and parking brake, were presented to the jury. The jury returned a verdict in favor of Caterpillar and Leon appeals. We AFFIRM.


Calumet Lift Truck, an authorized Caterpillar dealer, is incorporated in the state of Illinois, is owned and operated by Emil Aloia, and sells and services forklifts, including those manufactured by Caterpillar. The Calumet dealership is operated independently, is not a subsidiary of Caterpillar, and its relationship with Caterpillar is set forth in the Caterpillar Dealer Sales and Service Agreement, which reads in part as follows:

No Agency Relationship. It is the intention of the parties that the relationship existing between them shall be that of independent contractors and vendor and vendee; that nothing herein contained or done pursuant hereto shall constitute Dealer a franchisee or agent of Company for any purpose whatever, and that all acts and things done and to be done by dealer pursuant to the provisions hereof or done by dealer in anticipation of this agreement, unless expressly otherwise provided herein, shall be at dealer's own expense and cost.

Calumet purchases equipment and products from Caterpillar and other manufacturers to resell to its customers, and the prices it pays for the Caterpillar products are calculated based on the quantity of goods purchased. Calumet receives volume discounts on Caterpillar products purchased, as specified in the sales agreement which provides that "sales by [Caterpillar] to [Calumet] shall be made at the prices and discounts specified by company from time to time." Caterpillar exercises no control over the prices Calumet charges its customers. *fn4

The Calumet Lift dealership is a company separate and distinct from Caterpillar as evidenced by the fact that Caterpillar has no interest, financial or otherwise, in Calumet, nor does it share in the revenue, profits or losses of Calumet, much less does it have the authority to exercise any control over the day to day operations of Calumet. The only exceptions are that: (1) Calumet is required to "maintain a suitable place or places of business at the points shown in Exhibit A [of the agreement] to provide adequate sources of products and mechanical service for the products in the service territory [set forth] . . . . The location of any additional places of business and the relocation or abandonment of any existing places of business may only be made with the consent of [Caterpillar];" and (2) if Calumet violates any provision of agreement, such as by failing to live up to its "parts and service responsibilities and performance," Caterpillar has reserved the right to terminate the agreement. As part of its contract, Caterpillar reimburses Calumet for warranty work performed on the Caterpillar units, as well as providing that representatives from Calumet must visit those who purchase Caterpillar products from time to time.

Calumet commenced selling forklifts to Inland in 1983, and after a short hiatus, renewed its sales relationship with Calumet in 1987. Caterpillar met with Inland representatives in 1987 to discuss the possibility of increasing Inland's use of Caterpillar equipment and services. Inland informed Caterpillar that it had purchased products from Calumet from 1983 to 1986, but terminated the relationship because it was not pleased with Calumet's warranty repair service, and was no longer interested in continuing the business relationship because of a problem with the Calumet representative assigned to the Inland account (Mr. Toft).

When Caterpillar learned of Inland's dissatisfaction with Calumet, they spoke with Aloia and thereafter, Toft was discharged and a new representative, Mr. Adams, was assigned the account. Adams met with Inland representatives over the course of a few months, smoothed over the troubled waters, and Inland re-instituted its business relationship.

In late 1987, Inland purchased twelve Caterpillar V90E forklifts from Calumet. As with every forklift Inland purchased since 1974, Inland required that they be equipped with a deadman's switch. *fn5 Caterpillar neither manufactured nor installed such a device, so Calumet, relying upon a suggestion from Inland, decided to install a deadman's switch manufactured by Hyster, a Caterpillar competitor. *fn6 At the same time, because Inland had received complaints about the contour of the Caterpillar seats from its employees, Inland requested that the forklifts be equipped with bucket seats, so Calumet replaced the Caterpillar seats with a seat manufactured by Hyster.

Calumet assembled and installed the deadman's switch and seat for the Inland units, combining the Hyster seat and the switch with the Modular Control valve, without any input or assistance, much less direction from Caterpillar. Although Caterpillar was aware that Inland's specifications included a deadman's switch and that Calumet modified the forklift units in order that it might comply with the specs, *fn7 it did not inspect the modified forklifts after the alterations were completed and ready for delivery. In 1987, Calumet delivered the twelve forklift trucks to Inland and in 1988, Calumet delivered two additional forklifts to Inland, which were the model Leon was operating when injured. The forklift unit which injured Leon was delivered to Inland six months before the accident, and it was equipped with Hyster's deadman's switch and foam contoured seat. Caterpillar was not consulted when these forklift trucks were altered to include the deadman's devices.

The facts surrounding Leon's accident are uncontested. Since 1986, Leon was classified at Inland as a furnace helper and was assigned to work in the Number Four Basic Oxygen Furnace building ("4BOF"), tending the two operating blast furnaces. One of his primary tasks was to use the forklift to empty the "spark box." *fn8 In emptying the spark box container, a furnace helper positions the forklift in front of the furnace, dismounts the unit to open the doors of the spark box, remounts the vehicle, retrieves the container from the furnace and empties it into a steel residue receptacle, positioned away from the furnace. Thereafter, the operator returns the container to its proper position in the furnace. On January 23, 1990, while Leon was completing the process of emptying and returning the container to the furnace, the accident occurred.

After backing up the forklift approximately ten to twenty feet, Leon raised himself from the seat and dismounted, which should have served to operate the deadman's switch and disengage the transmission gears, but they failed to disengage and as a result, the gear was not transferred into the neutral position. At the time of the accident, Leon was standing on the floor between the furnace and the forklift, facing the furnace, with his back to the unit, when the forklift suddenly lurched forward, striking Leon in the back, and pinning him against a steel column, causing injury to his back and ribs. *fn9

David Dixon, one of Leon's co-workers and also a furnace helper, observed Leon closing the spark box and described the incident as follows:

[Leon] was walking away, it was like the machine just lunged forward and the tires spun a little bit, went forward a little bit, and it kind of like started to bunny hop on the rails or the roughness of the floor itself, and started going towards [Leon].

So, I yelled--I yelled as soon as the machine started moving, but then when I seen it veering toward him, I jumped off my machine and ran toward him, yelling toward him. And finally, I guess he did hear me, because he turned around just in time to see it--what was happening.

Leon's version of the events was that just prior to the accident, before he dismounted the unit, he had manually shifted the vehicle's transmission into neutral and applied the parking brake, as he was taught to do in Inland's thirteen hour vehicle operation safety training course. He stated that he failed to turn off the ignition, or lower the forks to the ground level, *fn10 in an attempt to save time. James Bradley, the manager of the steel making operation, testified that it would have taken Leon but one or two seconds to lower the forks.

At the request of Inland, Tom Newton, one of its mechanics, inspected the forklift some two hours after the accident, and observed that "the seat . . . showed an appearance of exposure to heat. The upholstery was blistered. The foam had hardened and collapsed. . . . Because of the exposure to the heat, the seat itself had compressed and was . . . activating the switch all the time." Thus, when an operator rose from the seat, the transmission remained engaged and the forklift remained operational.

George Bingley, a professional engineer who owns a design consulting business *fn11 in Kankakee, Illinois, testified as an expert for the plaintiff. He concurred with Newton that the foam in the seat had "deteriorated to the extent that it caused the switch not to react to the operator leaving the seat." Bingley further stated that the "deterioration was a hardening . . . such that the foam had lost its resilience and would stay in a particular position and not really bounce back."

At the close of the evidence, Caterpillar moved for Judgment as a Matter of Law (Directed Verdict) pursuant to Federal Rule of Civil Procedure 50(a). *fn12 The court denied the motion, but stated:

However, in this case, there is no evidence of agency. Therefore, regardless of whether the seat and deadman's switch were defective, the Defendant did not place them in the stream of commerce, and the Defendant is therefore not responsible for the defective condition under either theory of strict liability or negligence.

Therefore, Plaintiff is prohibited from arguing failure to warn of effects of heat on seat, failure to monitor and supervise those modifications to the forklift that's involved in the case, and the defective deadman's switch.

Also, Plaintiff cannot argue to the jury that this forklift was defective because it did not come from Defendant's factory with a deadman's switch upon the seat.

Also, the Defendant is prohibited from arguing that the defective deadman switch and seat caused this accident. In other words, the Defendant cannot argue that Aloia's modification of the seat by installing the Hyster seat and deadman's switch was a modification of this forklift that caused the accident.

After the judge announced his decision concerning the motion for a directed verdict, the plaintiff argued that the forklift was defective for the following reasons: *fn13 (1) the gear shift lever should have been located in a different position so as to make it impossible for an operator to knock it into gear when dismounting; (2) the forklift should have had a parking brake interlock system to deactivate the transmission and shift it into neutral when the parking brake was applied, even if the brake was not properly functioning; (3) the forklift should have been equipped with a parking brake dump valve which would also place the transmission in neutral when the parking brake was activated; and (4) a light should have been installed on the forklift indicating when the parking brake was out of adjustment. The jury returned a verdict in Caterpillar's favor, finding that the forklift was not defective when it entered the stream of commerce under any of the four theories presented by the plaintiffs. Leon appeals.


Leon, the plaintiff, claims that the district court erred when it: (1) found as a matter of law that Calumet was not an agent of Caterpillar; (2) determined as a matter of law that Caterpillar was not liable for any defects in the deadman's switch and seat under a product liability theory because Caterpillar was not responsible for placing the deadman's switch and seat into the stream of commerce; and (3) instructed the jury that it ...

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