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Playwell Toy, Inc. v. Bureau Veritas Consumer Products Services

September 28, 2007

PLAYWELL TOY, INC., AND KMART CORPORATION, PLAINTIFF,
v.
BUREAU VERITAS CONSUMER PRODUCTS SERVICES, INC., (F/K/A ACTS TESTING LABS, INC.), AND BUREAU VERITAS CONSUMER PRODUCTS SERVICES (HONG KONG) LTD. (F/K/A ACTS TESTING LABS (H.K.) LTD.), DEFENDANTS.



The opinion of the court was delivered by: John T. Curtin United States District Judge

INTRODUCTION

This is an action for contribution and/or indemnification. Plaintiff Playwell Toys, Inc., a corporation licensed and doing business in New York, manufactured a toy xylophone which was sold by plaintiff K-Mart, a Michigan corporation, at a retail outlet in the State of Nebraska. The toy was purchased for use in a day care center in that state, and an infant in Nebraska was seriously injured when she swallowed part of the toy. A Nebraska tort action, Mulford v. Rhyme and Reason Community Child Care, Inc., was brought by the infant's parents against Playwell, K-Mart and others, and was settled by the parties for $2 million. Defendants in this case were not defendants in the Nebraska case.

Plaintiffs now seek contribution and/or indemnification from defendants who are alleged to have tested the toy in question for safety and age appropriateness. Defendant Bureau Veritas Consumer Products Services, Inc. ("BVCPS") is a Massachusetts corporation licensed to do business in New York. Bureau Veritas Consumer Products Services (Hong Kong) Ltd. ("BVHK") is a foreign corporation located in Hong Kong. BVCPS has moved to dismiss the action pursuant to Rule 12(c), and plaintiffs have cross-moved for leave to amend the complaint.

BACKGROUND

Plaintiffs originally brought this action in New York State Supreme Court, Erie County, on August 19, 2003. It was removed to this court on September 18, 2003 (Item 1). In their complaint, plaintiffs allege that defendants are engaged in the business of testing toys to ensure their compliance with safety standards. Plaintiffs also allege that BVCPS is the parent company of BVHK, and that the two companies "held themselves out as a single global entity headquartered in Buffalo, New York." Complaint, ¶ 5. Plaintiffs allege that BVHK, acting as the "agent, department, alter-ego, and/or instrumentality" of BVCPS, tested the toy in question and determined that the toy was safe and appropriate for children six months of age and older. Complaint, ¶ 11. On or about August 20, 1997, Lindsay Mulford, a seven-month old infant in the care of the Rhyme and Reason Day Care Center in Kearney, Nebraska, swallowed a part of the toy and suffered serious and permanent injuries. Complaint, ¶ 13. The child's parents brought suit against the day care center, the hospital which operated the day care center, Playwell Toys and two related entities, and K-Mart. The insurer for the Playwell entities and K-Mart settled the suit with the infant's parents for approximately $2 million. Complaint, ¶ 15.

In this action, plaintiffs Playwell and K-Mart allege that they relied on the defendants' representations of safety and age appropriateness of the toy. They have pleaded three causes of action: (1) contribution "in accordance with article 14" of the New York Civil Practice Law and Rules ("CPLR"); (2) common law indemnification; and (3) contractual indemnification.

BVCPS filed its answer on October 8, 2003 (Item 6).*fn1 Following preliminary discovery, on November 9, 2004, BVCPS filed this motion to dismiss (Item 16). It argues that: (1) plaintiffs have alleged no negligence against BVCPS and that their allegations are insufficient to pierce the corporate veil; (2) Article 14 of the New York Civil Practice Law & Rules and section 15-108 of the New York General Obligations Law bar contribution claims by settling tortfeasors; (3) plaintiffs' contractual indemnity claim is insufficient because it sets forth no contractual provisions for indemnification between plaintiffs and BVCPS; and (4) the common law indemnity claim must fail because Playwell and K-Mart were alleged to have been actively negligent, not merely vicariously liable, in the underlying suit.

On February 11, 2005, plaintiffs filed their response to the motion to dismiss and a cross-motion for leave to amend the complaint to add the French parent company of BVCPS and BVHK (Item 24). In response to the motion to dismiss, plaintiffs argued that Nebraska law should apply to this action, and that Nebraska law does not bar contribution claims by settling tortfeasors. They also claim that they were merely passively negligent, in that they relied on the testing of the toy by defendants. Plaintiffs assert that they need additional discovery to determine the applicable contractual provisions in support of their contractual indemnity claim. Finally, plaintiffs contend that they have sufficiently alleged facts to pierce the corporate veil.

Defendant BVCPS filed a reply in support of its motion to dismiss and a response to the cross-motion on May 26, 2005 (Item 31). Plaintiffs filed a sur-reply in opposition to the motion and a reply in support of their cross-motion on June 17, 2005 (Item 35). Following receipt of these submissions, the court requested further briefing. The parties filed their supplemental briefs on October 31, 2005 (Items 39, 42). Oral argument was heard on December 12, 2005. The parties then submitted letter briefs on December 23, 2005 (Items 44, 45). Unsuccessful settlement negotiations followed. For the reasons that follow, the defendant's motion to dismiss is granted in part, and plaintiffs' cross-motion to amend is granted.

DISCUSSION

I. Choice of Law

In a case such as this, in which jurisdiction is based on diversity of citizenship, a federal court sitting in New York State must apply New York's choice of law rules. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Alderman v. Pan Am World Airways, 169 F.3d 99, 103 ( 2d Cir. 1999). Under New York law, the relevant analytical approach to choice of law issues is the "interest analysis." See Schultz v. Boy Scouts of Am., 480 N.E.2d 679 (N.Y. 1985). Pursuant to the interest analysis, "the law of the jurisdiction having the greatest interest in the litigation will be applied and . . . the facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict." Miller v. Miller, 237 N.E.2d 877, 879 (N.Y. 1968); Neumeier v. Kuehner, 286 N.E.2d 454, 457 (N.Y. 1972). Under this formulation, the significant contacts are the parties' domiciles and the site of the tort. See Schultz, 480 N.E.2d at 684. However, other significant contacts to consider are the state where the conduct causing the injury occurred and the state where the relationship between the parties is centered. Van Dyke v. Columbia Mach., Inc., 246 F. Supp. 2d 191, 193 (W.D.N.Y. 2003).

In Schultz v. Boy Scouts of Am., 480 N.E.2d 679, and Cooney v. Osgood Mach., Inc., 612 N.E.2d 277 (N.Y. 1993), the New York Court of Appeals recognized a distinction between laws that regulate primary conduct (such as standards of care) and those that allocate losses after the tort occurs (such as vicarious liability rules). If conflicting conduct-regulating laws are at issue, the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders. But if competing "postevent remedial rules" are at stake other factors are taken into consideration, chiefly the parties' domiciles. Cooney, 612 N.E.2d at 280; see also Schultz, 480 N.E.2d at 684-85.

Here, the law at issue relates to loss allocation. Cooney, 612 N.E.2d at 282 ("Contribution rules--as involved in the present case--are loss allocating, not conduct regulating."). The choice of law principles relating to a loss allocating rule were articulated by the Court of Appeals in Neumeier, 286 N.E.2d at 457-58. The Court of Appeals considered a conflict of laws among guest statutes (also considered loss allocating rules), and fashioned three rules to apply to cases in which loss allocating rules were in conflict.

The appropriate rule depends on the specific facts of the case and the respective domiciles of the parties.

The first Neumeier rule provides that "[w]here the conflicting rules at issue are loss allocating and the parties to the lawsuit share a common domicile, the loss allocation rule of the common domicile will apply." Padula v. Lilarn Props. Corp., 644 N.E.2d 1001, 1003 (N.Y. 1994); Neumeier, 286 N.E.2d at 457. "The second Neumeier rule addresses 'true' conflicts, where the parties are domiciled in different States and the local law favors the respective domiciliary . . . . In essence, then, the second Neumeier rule adopts a 'place of injury' test . . . ." Cooney, 612 N.E.2d at 281; see Neumeier, 286 N.E.2d at 457-58.

In a "split-domicile case," where the parties are domiciled in different states and the accident occurred in yet another state, the third Neumeier rule applies. ...


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