Gilbert Kouba, Individually and as Representative of the Estate of Audrey Kouba, Karen Williams and Curtis Kouba v. Northland Industries, Inc. D/B/A Magnum Fitness , JHTNA Manufacturing, L.L.C., and Johsnon Health Tech North America, Inc. ( 2019 )

Opinion issued August 13, 2019
In The
Court of Appeals
For The
First District of Texas
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NO. 01-18-00252-CV
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GILBERT KOUBA, INDIVIDUALLY AND AS REPRESENTATIVE OF
THE ESTATE OF AUDREY KOUBA, KAREN WILLIAMS AND CURTIS
KOUBA, Appellants
V.
NORTHLAND INDUSTRIES, INC. D/B/A MAGNUM FITNESS, JHTNA
MANUFACTURING, L.L.C., AND JOHNSON HEALTH TECH NORTH
AMERICA, INC., Appellees
On Appeal from the 25th District Court
Colorado County, Texas
Trial Court Case No. 241329-A
DISSENTING OPINION
Because I believe that the terms of the Asset Purchase Agreement
(“Agreement”) expressly exclude from the scope of the liabilities that JHTNA
contractually assumed any liability for appellants’ claim for breach of the implied
warranty of merchantability, I respectfully dissent.
The Agreement states that JHTNA agreed to assume “only” the “specifically
identified” liabilities and obligations, as follows:
2.5 Assumption of Liabilities. Subject to the terms and conditions
set forth herein at the Closing [JHTNA] shall assume and agree
to pay, honor and discharge when due only the liabilities and
obligations of [Magnum] specifically identified below relating
to the Assets existing at or arising on or after the Closing Date
(collectively, the “Assumed Liabilities”):
(Emphasis added.) As pertinent here, JHTNA agreed to assume product warranty
claims “solely” as set forth in the “written warranties” attached in Schedule
3.1.17(a)(1), as follows:
2.5.6. [A]ny Product Warranty Claim solely with respect to claims
arising with respect to and during the time periods set forth in
the written warranties of [Magnum] attached hereto on
Schedules 3.1.17(a)(i) and 3.1.17(a)(ii) . . . .
(Emphasis added.)1
Schedule 3.1.17(a)(i), “Commercial Treadmill Warranty,” provides:
Magnum warrants to the ORIGINAL purchaser that their treadmill
will be free from defects for the time periods listed in this form.
Magnum will repair or replace the defective part, at Magnum’s
option, during the warranty period . . . .
1
We note that Schedule 3.1.17(a)(ii), “Special Product Warranties,” states “None.”
2
....
There are no additional warranties; either expressed or implied,
arising out of the sale or [sic] this product other than those contained
herein. Warranty is only for the repair or replacement of the
product. No additional coverage to any consequential damages
arising from the use or non-use of this product.
(Emphasis added.) Thus, JHTNA “specifically” assumed Magnum’s obligation
“only” to “repair or replace” defective parts or the product itself, i.e., the treadmill.
Section 2.6 of the Agreement expressly excludes, notwithstanding
Section 2.5 or any other provision, schedule, exhibit, or disclosure, any assumption
by JHTNA of “any liability relating to product liability claims,” as follows:
2.6 Excluded Liabilities. Notwithstanding the provisions of
Section 2.5 or any other provision hereof or any schedule or
exhibit hereto and regardless of any disclosure to [JHTNA],
[JHTNA] shall not assume any liabilities, obligations or
commitments of [Magnum] relating to or arising out of the
operation of the Business or the ownership of the Assets prior
to the Closing, including, but not limited to, any liability
relating to product liability claims, other than the Assumed
Liabilities (the “Excluded Liabilities”).
(Emphasis added.) Although Section 2.6 excludes “Assumed Liabilities,” again,
such include only parts and product replacement. That JHTNA did not assume
Magnum’s liability for product liability claims, or any claim relating to,
notwithstanding any other term, is supported by Section 6.2, which also provides:
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
CONTRARY, NOTHING IN THIS AGREEMENT OR ANY OF THE
TRANSACTION DOCUMENTS SHALL CAUSE, OR BE CONSTRUED
TO CAUSE, THE ASSUMPTION OF ANY OBLIGATION FOR
PRODUCT LIABILITY CLAIMS BY [JHTNA].
3
The record reflects that appellants did not seek damages for repair or
replacement of parts or products. Rather, they sought damages for personal injury
and death resulting from Magnum’s allegedly defective “design” of the treadmill
and “failure to warn” of unexpected speed changes. The Agreement defines
“claims for bodily injury (including death) and property damage occurring after the
Closing Date [July 30, 2012] in connection with products sold by [Magnum] prior
to [that date],” as here, as “each a ‘Product Liability Claim.’” Thus, appellants
allege product liability claims. Defining appellants’ claims as product liability
claims also comports with the laws of both Texas and Wisconsin.2
2
Appellants, in their live petition, relied on Texas law in asserting multiple product
liability theories, including breach of implied warranty. On appeal, appellants
again assert that Texas law governs the nature of their claims. Texas law defines
“any action against a manufacturer or seller for recovery of damages arising out of
personal injury, death, or property damage allegedly caused by a defective product
whether the action is based in strict tort liability, strict products liability,
negligence, . . . breach of express or implied warranty, or any other theory or
combination of theories,” as a “[p]roducts liability action.” TEX. CIV. PRAC. &
REM. CODE § 82.001 (emphasis added); see JCW Elec. v. Garza, 257 S.W.3d 701,
705 (Tex. 2008) (“[A] claim for implied warranty is one basis for a products
liability claim.”); see also id. at 704–05 (“[C]onceptually, the breach of an implied
warranty can either be in contract or in tort. . . . The precise nature of the claim is
ordinarily identified by examining the damages alleged: when the damages are
purely economic, the claim sounds in contract . . . ; but a breach of an implied
warranty claim alleging damages for death or personal injury sounds in tort[.]”).
Further, the Wisconsin Supreme Court has held that “it is inappropriate to bring an
action for breach of warranty where a tort remedy is sought.” Karnes v. C. R.
Bard, Inc., No. 18-CV-931-WMC, 2019 WL 1639807, at *7 (W.D. Wis. Apr. 16,
2019) (quoting Austin v. Ford Motor Co., 273 N.W.2d 233, 240 (Wis. 1979))
(“[W]here an action is brought in tort but denominated as breach of implied
warranty, the cause of action may be maintained if sufficient facts are alleged to
4
Sections 2.6 and 6.2 of the Agreement expressly exclude, notwithstanding
any other provision, schedule, exhibit, or disclosure, any assumption by JHTNA of
“any liability relating to product liability claims,” as appellants assert. Even if
another provision of the Agreement could be read to suggest that Magnum may
have been subject to other warranties under applicable laws, Sections 2.6 and 6.2
expressly relegate such language and define the scope of the liability that JHTNA
contractually agreed to assume.
I believe that the Agreement, read as a whole, reflects that JHTNA did not
assume liability, under a theory of breach of implied warranty, for claims seeking
damages for personal injury or death resulting from alleged defects in the products
that Magnum manufactured and sold prior to the closing date of the Agreement,
i.e., product liability claims. It cannot be true that, in order to assert a valid
product liability claim under the Agreement, one must also allege property
damage. That is an absurd result. See Kourosh Hemyari v. Stephens, 355 S.W.3d
623, 626 (Tex. 2011) (“[U]nder general rules of construction we avoid strictly
construing an instrument’s language if it would lead to absurd results.”); Star
Direct, Inc. v. Dal Pra, 767 N.W.2d 898, 913 (Wis. 2009) (“[W]e must interpret
[contracts] reasonably so as to avoid absurd results . . . .”).
state a claim for strict liability in tort but the warranty action as such should be
dismissed.”).
5
Accordingly, I dissent. I would affirm the summary judgment granted in
favor of JHTNA and Johnson Health.
Sherry Radack
Chief Justice
Panel consists of Chief Justice Radack and Justices Goodman and Countiss.
Radack, C.J., dissenting in part.
6