Arriaga v. CitiCapital Commercial Corporation

November 3, 2008, Fifth District Court of Appeal, Cite as 2008 SOS 6046

Finance Lessor Found Not Liable for Employee’s Injury

Guillermo Arriaga was an employee of Orepark Hardwood Products, who injured his finger in a glue machine because a portion of the guard was removed by AVP, the machine seller. Orepak Hardwood Products bought the glue spreading and coating machine from AVP.

Formerly, the machine was leased to AVP, Ltd and JLA Credit Corporation through a finance lease under Commercial Code section 10103 (a)(7).

The lease stated that JLA, as lessor, was “not a dealer or manufacturer of the machine, whose size, design, capacity, description, and manufacture were selected by lessee-AVP”. It also designated Klor Machinery, Inc. as the machine’s supplier.

JLA ordered the machine from Klor, and took title to the machine, paid for it, and leased it to AVP.

However, near the expiration of the lease term, AVP sold the machine to Orepak, which also took the title and assumed the remaining obligation under the lease, payable to CitiCapital Commercial Corporation, JLA’s successor in interest.

Because of his injuries, Arriaga sued the manufacturer, Klor, AVP, and CitiCapital for strict liability, negligence, and breach of warranty related to his injuries.

In response, CitiCapital successfully moved for summary judgment.

During trial, the court held that strict liability was inapplicable based on the following grounds:

• CitiCapital did not manufacture or assemble the machine
• There was no negligence since there was no duty to inspect or test for defects prior to sale. Similarly, under the circumstances, no implied warranties applied.

As a result, Arriaga petitioned for a review of the trial court’s decision.

In review, the Fifth District Court of Appeal upheld the decision based on the following grounds:

• That CitiCapital merely provided the financing and was not involved in the direct chain of distribution
• CitiCapital had neither the opportunity nor the expertise to inspect the machine to discover defects
• the machine’s sale to Orepak did not carry an implied warranty of merchantability.

Further, the appeals court held that holding CitiCapital strictly liable “would not enhance the machine’s safety, maximize protection to Arriaga, or apportion costs among the defendants”.

The Fifth Appellate District therefore affirmed the judgment, which held that a finance lessor of a manufacturing machine was not liable for those injuries in strict liability, negligence, or breach of implied warranty of merchantability.