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Owners Insurance Co. v. Alabama Powersport Auction, LLC

United States District Court, N.D. Alabama, Northeastern Division

May 28, 2015

OWNERS INSURANCE COMPANY, Plaintiff,
v.
ALABAMA POWERSPORT AUCTION, LLC, and JAMES WIESE, as natural father of Matthew Hunter Wiese, deceased, Defendants.

MEMORANDUM OPINION AND ORDERS

LYNWOOD SMITH, District Judge.

Plaintiff, Owners Insurance Company, seeks a judgment declaring that it has no duty to either defend or indemnify defendant Alabama Powersport Auction, LLC, for claims asserted against that entity by defendant James Wiese in the lawsuit pending in the Circuit Court of Limestone County, Alabama, as Civil Action No. 10-CV-900146, and styled " James Wiese, as natural Father of Matthew Hunter Wiese, a Minor, Deceased v. Alabama Powersport Auction, LLC. "[1] The action presently is before the court on cross-motions for summary judgment filed by Owners Insurance Company and James Wiese.[2] Following consideration of the pleadings, briefs, evidentiary submissions, and oral arguments of counsel, this court concludes that Owners's motion should be denied, and Weise's motion should be granted in part and denied in part.

I. FACTUAL BACKGROUND

The following facts are not disputed.[3] The Alabama Supreme Court found in an opinion entered on an interlocutory appeal from the underlying state-court action that defendant Alabama Powersport Auction, LLC ("APA"), was an entity engaged in the business of selling at auction

various consumer goods including, but not limited to, go-carts [.] APA regularly auctioned motorcycles and golf carts, among other recreational vehicles. In fact, the word "Powersport" in APA's name was because "the main things that [APA] sold were four-wheelers, boats, motorcycles, that type of thing." Generally, all the goods APA sold were on consignment to APA from the owners of the goods; the owners of the goods agreed to pay APA a commission of 10% to 15% of the price APA was able to acquire at auction from a purchaser of the goods.

Alabama Powersport Auction, LLC v. Wiese, 143 So.3d 713, 714 (Ala. 2013) (plurality opinion) (first alteration supplied, second alteration in original).

Defendant James Wiese attended an auction conducted by APA on August 27, 2005, and purchased a Model 3206 "Yerf Dog Go-Cart" that had been consigned to APA by non-party "FF Acquisition Corp., doing business as Flexible Flyer." However, "Wiese was not aware that FF Acquisition had manufactured the go cart." Id. at 714-15.[4]

Soon after purchasing the go-cart, Wiese discovered that the engine would not operate for more than a few minutes at a time. After several failed attempts to repair the go-cart, Wiese stored the go-cart in his garage for almost two years. In September 2007, Wiese repaired the go-cart. On September 17, 2007, [James Wiese's minor son, Matthew Hunter Wiese, ] was riding the go-cart and had an accident in which Matthew hit his head on the ground causing a brain injury that resulted in his death on March 6, 2010[, some two years and five months later].

Id. at 715 (alterations supplied).

James Wiese commenced a wrongful death action in the Circuit Court for Limestone County, Alabama, on August 19, 2010.[5] By that date, however, FF Acquisition Corp., doing business as Flexible Flyer, had sought bankruptcy protection.[6] Consequently, Wiese's claims were asserted against only APA.

Wiese's amended state-court complaint contained two counts. Count One was based on Alabama's Wrongful Death statutes, Ala. Code §§ 6-5-391 and 6-5-410 (1975), [7] and alleged that the wrongful act giving rise to the cause of action[8] was APA's breach of an implied warranty of merchantability that arose from the sale of the go-cart.[9] See, e.g., Ala. Code § 7-2-314 (1975).[10]

Count Two of the amended complaint also asserted a claim for breach of an implied warranty of merchantability independent of Weise's wrongful-death claim, and sought compensatory damages. Specifically, Weise alleged that APA

is liable for the injuries and damages sustained by Plaintiff's decedent based on a breach of the implied warranty of merchantability.
18. The Plaintiff claims compensatory damages for the injuries suffered by the Plaintiff's decedent, Matthew Hunter Wiese, between the time of his injury and his death pursuant to Benefield v. Aquaslide N' Drive Corp., 406 So.2d 873 (Ala. 1981).[11]
19. Defendant's breach proximately caused the Plaintiff's decedent, Matthew Hunter Wiese, a Minor, to suffer the following injuries and damages, to-wit:
(a) Plaintiff's decedent suffered permanent physical injuries;
(b) Plaintiff's decedent suffered physical pain and mental
anguish; and (c) Plaintiff's decedent has been caused to incur medical, doctor and drug expenses in the treatment of his injuries[.]

Doc. no. 20-7 (State Court Complaint and Amended Complaint), at ECF 8 (footnote and alteration supplied).

APA's motion for summary judgment on both counts of Weise's amended complaint was denied by the state trial court. APA's petition for interlocutory appeal from the trial court's adverse ruling was granted by the Alabama Supreme Court, which unanimously concluded that "a breach of warranty claim cannot be maintained under Alabama's wrongful-death statute." Alabama Powersport, 143 So.3d at 716.[12] Consequently, the Court reversed the trial court's denial of summary judgment on the claim alleged in Count One of Wiese's amended complaint, and remanded the case with directions to dismiss the wrongful-death claim. Id. at 720.

On the other hand, a majority of the members of the State's highest court affirmed the trial judge's denial of summary judgment on the claim alleged in Count Two, but could not agree upon the rationale for doing so.[13] The plurality opinion held that an auctioneer (such as APA) selling consigned goods on behalf of another (here, FF Acquisition Corp. d/b/a Flexible Flyer) may be held liable as "a merchant-seller" under Alabama Code § 7-2-314 for breach of an implied warranty of merchantability, [14] if the auctioneer failed to disclose the principal for whom it sold the goods. See id. at 720, 723-24 (plurality opinion). The considerations that framed the plurality's analysis were stated as follows:

An implied warranty of merchantability exists only if there is a "seller, " as that term is defined in § 7-2-103, Ala. Code 1975, who is a "merchant with respect to goods of that kind." § 7-2-314(1), Ala. Code 1975. Section 7-2-103(1)(d) defines a "seller" as "a person who sells or contracts to sell goods"; [and] § 7-2-104(1), Ala.Code 1975, defines "merchant" as follows:
"Merchant' means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill."
It is well settled that under Alabama law an auctioneer may be considered a merchant under Alabama's version of the UCC. See Bradford v. Northwest Alabama Livestock Ass'n, 379 So.2d 609, 611 (Ala. Civ. App. 1980) (holding that a livestock auctioneer was a merchant because it "was in the business of selling cattle to prospective buyers and had been so engaged for a number of years and held itself out as having the knowledge and skill to conduct such sales"). However, the parties have not directed this Court's attention to any Alabama precedent concerning whether an auctioneer selling goods on behalf of a consignor - and, thus, not holding title to the goods being sold, see Bischoff v. Thomasson, 400 So.2d 359 (Ala. 1981) (noting that a consignee does not hold title to the goods consigned to it by a consignor; title passes from the consignor to the buyer) - may be considered a seller under Alabama's version of the UCC and held liable as a merchant-seller for a breach of an implied warranty of merchantability.

Alabama Powersport, 143 So.3d at 721 (alteration and emphasis supplied). Addressing that question of first impression under Alabama law, the plurality found the rationale for the decision of the Tenth Circuit Court of Appeals in Powers v. Coffeyville Livestock Sales Co., 665 F.2d 311 (10th Cir. 1981), to be persuasive. The opinion in that case turned upon Kansas's version of the Uniform Commercial Code, which is identical to Alabama's enactment, and held that:

"Under traditional agency law, an agent [such as an auctioneer selling goods on consignment for another] is liable as if it were the principal when the agent acts for an undisclosed principal. This rule applies whether the agent holds itself out as principal or only as agent but does not disclose the identity of its principal. Bruce v. Smith, 204 Kan. 473, 464 P.2d 224 (1970); Restatement (Second) of Agency §§ 321-22 (1958). Applying this common law rule to auctioneers, courts in other jurisdictions have held that an auctioneer is liable as a seller if the auctioneer fails to disclose to the buyer the identity of the principal. E.g., Universal C.I.T. Credit Corp. v. State Farm Mutual Automobile Insurance Co., 493 S.W.2d 385, 390 (Mo.Ct.App. 1973); Itoh v. Kimi Sales, Ltd., 74 Misc.2d 402, 345 N.Y.S.2d 416, 420 (Civ. Ct. N.Y. 1973); Hagen v. Brzozowski, 336 S.W.2d 213, 215-16 (Tex.Civ.App. 1960). The UCC did not alter the common law application of agency principles to sales made by an auctioneer. See Kan. Stat. Ann. § 84-1-103. We believe the Kansas courts would hold that an auctioneer who fails to disclose the identity of its principal and who regularly auctions merchandise of a particular kind is, with regard to those goods, a merchant seller within the coverage of section 84-2-314."

Alabama Powersport, 143 So.3d at 722-23 (quoting Powers, 665 F.2d at 312-13) (alteration supplied, footnote omitted).[15]

Based upon the common-law agency principles recited in the foregoing opinion, as well as those set forth by the Alabama Supreme Court in Abercrombie v. Nashville Auto Auction, Inc., 541 So.2d 516, 518 (Ala. 1989) (observing that an auctioneer may be liable as a seller under Ala. Code § 7-2-312 for a breach of the warranty of title if the auctioneer fails to disclose to the buyer the identity of the principal), the plurality opinion on interlocutory appeal from the underlying state court action held that "an auctioneer may be held liable as a merchant-seller for the implied warranty of merchantability under § 7-2-314 if the auctioneer fails to disclose the principal for whom the auctioneer is selling the goods." Alabama Powersport, 143 So.3d at 723-24.[16] Cf., e.g., Welch v. Mitchell, 351 So.2d 911, 915 (Ala. Civ. App. 1977) (holding that "an auctioneer who acts for a disclosed principal will not be deemed liable for a defect in the title of the property sold") (emphasis supplied). The present action followed.

II. DISCUSSION

Owners founded the jurisdiction of this court upon the parties' complete diversity of citizenship and the requisite amount in controversy. See doc. no. 1 (Federal Complaint) ¶¶ 1-5; 28 U.S.C. § 1332.[17] Consequently, considerations of comity and the Erie doctrine compel this court to apply state substantive law, and federal procedural and evidentiary rules. Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938); see also, e.g., Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, ...


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