Lumbard, Chief Judge, and Friendly and Feinberg, Circuit Judges.
While driving his station wagon in Rutland, Vermont, Robert W. Borg rammed into the rear of a vehicle operated by appellee Albert J. Wasik, injuring both Wasik and his automobile. Wasik sued Borg, a resident of Maryland, in the United States District Court for the District of Vermont, basing jurisdiction on diversity of citizenship. Borg served a third-party complaint on appellant Ford Motor Company, alleging that the accident was due to a dangerous defect in the design or manufacture of the automobile, which had caused it to accelerate suddenly. Ford answered, denying Borg's claims and alleging his contributory negligence. Ford also filed an answer to Wasik's original complaint, denying knowledge of the facts of the accident. Trial was held in the summer of 1969 before the late Ernest W. Gibson, J., and a jury, which found that Ford -- but not Borg -- was liable to Wasik. Damages were assessed at $8,700, and judgment was entered in that amount. On Ford's appeal, we affirm.
The jury indicated by its verdict that it believed that Borg was free from negligence, and that the accident was caused exclusively by a defect in the design or manufacture of his vehicle. Ford contends that it was improper to hold it directly liable to Wasik because Ford was a mere third-party defendant whose liability was contingent on the liability of Borg, for whom the jury found. In another age this argument might have been persuasive, but appellant has ignored two vital factors which we consider dispositive -- the course of the proceedings below and the Federal Rules of Civil Procedure. While it would doubtless have been better if appellee Wasik had amended his complaint to include a claim against Ford once it became obvious that a major theory of recovery was to be Ford's liability as manufacturer of a defective product, Wasik's failure to do so does not require reversal.
Rule 14(a) specifically contemplates that
The plaintiff may assert any claim against the third-party defendant arising out of the transaction or occurrence that is the subject matter of the plaintiff's claim against the third-party plaintiff * * *.
When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues. * * *
Borg's complaint put Ford on notice that it would be called to account for alleged defects in its product leading to the accident. Throughout the trial, Ford was apparently treated by counsel and the trial judge as a defendant subject to direct liability. The trial record makes it clear that Ford had the opportunity to, and did, litigate all the factual issues essential to the jury verdict, particularly Borg's claim that the throttle cable on his Ford vehicle was in a "runaway condition." All the issues were raised, either by Wasik's pleadings or by Borg's. And it is also evident that counsel for Wasik early sought the benefit of Borg's theory of the accident. Borg was cross-examined as part of Wasik's main case; Wasik's counsel encouraged Borg to describe his non-negligent operation of the vehicle both before and after its sudden "take off." Appellant cross-examined both Wasik and Borg during this early stage of the trial. Had the parties not understood that Ford could be held directly liable to appellee, this tactic of Wasik would hardly be explicable; if the jury were to find, as it ultimately did, that Borg had not been negligent and that the vehicle had been defective, appellee could recover only from Ford, if at all. We see no reason to treat issues which were fully litigated as if they had not been litigated, where no prejudice to appellant has been suggested or is apparent from the record.*fn1 Under these circumstances, we do not think it was error for the trial judge to treat appellant as a defendant potentially subject to primary liability. See Falls Industries, Inc. v. Consolidated Chemical Industries, Inc., 258 F.2d 277, 283-287 (5th Cir. 1958); 3 J. Moore, Federal Practice para. 15.13.
Appellant also argues that the trial judge misstated the law of Vermont concerning the strict liability of the seller of a product. Judge Gibson charged the jury as follows:
The special liability of a seller in this type of case and as applicable to this case * * * is as follows:
If Ford Motor sells an automobile in a defective condition, unreasonably dangerous to the user or innocent bystander or his property, it is subject to liability for physical harm thereby caused to said innocent bystander or to his property, if Ford is engaged in the business of selling automobiles, this applies to manufacturers and retailers similarly, and the car is expected to, and does reach the user or innocent bystander without substantial change in the condition in which it is sold.
The judge's unstated premise was that the scope of strict liability in this diversity case is determined by the law of the place of injury rather than by the law of the place of sale, which was apparently Maryland. This was correct. Cf. George v. Douglas Aircraft Co., 332 F.2d 73, 76-77 (2d Cir.), cert. denied, 379 U.S. 904, 85 S. Ct. 193, 13 L. Ed. 2d 177 (1964). The controversial element of the charge is that it accepts the Restatement (Second) of Torts § 402A as the law of Vermont, and moreover, concludes that the rule of strict liability applies in Vermont to innocent bystanders, notwithstanding the neutral caveat and commentary which accompanies that section. Restatement (Second) of Torts § 402A, at 348, 356-57 (1965).*fn2 This is an advanced doctrine for any court to adopt, particularly for a federal court applying state law which has not yet fully crystallized. However, it is by no means an unusual position. Since adoption of section 402A by the American Law Institute, several courts have extended it to afford recovery to injured bystanders.*fn3 We agree with the district judge's estimate of the likely development of law in the courts of Vermont.*fn4 Indeed, we reached a strikingly similar conclusion in Deveny v. Rheem Manufacturing Co., 319 F.2d 124 (2d Cir. 1963), and subsequent developments in Vermont, both judicial and legislative, tend to support the position we took in that case.
The plaintiff in Deveny, a summer guest in her aunt's home, was injured by an exploding water heater. The court considered Judge Gibson's charge on the issue of breach of ...