Petition — Dando Enterprises, Ltd. v. Pritchett

L RODAK, N.,

In the Supreme Court of the United States

OCTOBER TERM, 1977

No. 77 —1 4 0 8

DANDO ENTERPRISES, LTD.,

Petitioner, ~-

vs.

JOSEPH H. PRITCHETT, et al.,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

GLENN McCann

STEPHEN MANZ

JAMES WELSH

KNIPMEYER, McCann, FIsH & SMITH

1800 Power & Light Building

Kansas City, Missouri 64105

Attorneys for Dando Enterprises,

Ltd.

E. L. Munpenwat, Inc., 926 Cherry Street, Kansas City, Mo. 64106, (816) 421-8080

INDEX

Opinions Below

Jurisdiction

Questions Presented pe

Statutory Provisions

Statement of the Case

Reasons for Granting Writ

Conclusion 16

Appendix —

Opinion of the United States Court of Appeals for

the Eighth Circuit filed December 7, 1977 . A-1

Order of the United States Court of Appeals for

the Eighth Circuit dated January 18, 1978 ........A-26

Order of the United States Court of Appeals for

the Eighth Circuit dated January 30, 1978 -A-27

Order of the United States Court of Appeals for

the Eighth Circuit dated March 9, 1978 A-29

Appendix B—

Memorandum Opinion and Judgment of the

United States District Court for the Western

District of Missouri, Southern Division, dated

August 19, 1976 B-1

Judgment of the United States District Court for

the Western District of Missouri, Southern Di-

vision, in Cause No. 3122 dated September 16,

1976 B-19

Co fF WO WY WH —

II

TABLE OF CASES

Continental Insurance Co. v. Sabine Towing Co., Inc.,

117 F.2d 694 (Sth Cir. 1941) 10, 13

Coryell v. Phipps, 317 U.S. 406, 63 S. Ct. 291, 87 L. Ed.

n 2, 9, 11

Empire Sea Foods, Inc. v. Anderson, 398 F.2d 204

(5th Cir. 1968), cert. denied, 393 U.S. 983, 89 S. Ct.

449, 21 L. Ed. 2d 444 : 10

Gibboney v. Wright, 517 F.2d 1054 (5th Cir. 1975) — 10

Holloway Concrete Products Co. v. Beltz-Beatty, Inc.,

Lee eee 10

In Re Pan Oceanic Tankers Corp., 332 F. Supp. 313

. K 10

Rautbord v. Ehnamm, 190 F.2d 533 (7th Cir. 1951) — 14

Ree v. Brooks, 329 F.2d 35 (4th Cir. 1964) 15

The Chickie, 54 F. Supp. 19, 21 (W.D. Pa. 1942), aff’d

in part and rev’d in part, 141 F.2d 80 (3rd Cir. 1944) 15

The 84-H, 296 F. 427 (2nd Cir. 1923), cert. denied, 264

U.S. 596, 44 S. Ct. 454, 68 L. Ed. 867 14

L 3, 6, 7, 9, 11, 13, 15, 16

In the Supreme Court of the United States

OCTOBER TERM, 1977

No.

IN THE MATTER OF THE COMPLAINT OF REC-

REATION UNLIMITED, INC. (NOW DANDO EN-

TERPRISES, LTD.), OWNER OF A 1971 CLASSIC

170 MOTORBOAT NO. 17071681, MISSOURI REGIS-

TRY NO. MO 4164 GG, FOR EXONERATION FROM

OR LIMITATION OF LIABILITY.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

TO THE HONORABLE, THE CHIEF JUSTICE AND AS-

SOCIATE JUSTICES OF THE SUPREME COURT

OF THE UNITED STATES:

Dando Enterprises, Ltd., the Petitioner herein, prays

that a Writ of Certiorari issue to review the judgment

of the United States Court of Appeals for the Eighth

Circuit entered in the above-entitled cause on December

7, 1977 as modified by that Court’s Order dated January

30, 1978.

OPINIONS BELOW

The Opinion of the United States Court of Appeals

for the Eighth Circuit is reported at 568 F.2d 570 (8th Cir.

1978) and is printed in Appendix A hereto, infra, page A-1.

2

The Memorandum Opinion and Judgment of the United

States District Court for the Western District of Missouri,

Southern Division, is unreported but is printed in Appen-

dix B hereto, infra, page B-1. The Judgment of the United

States District Court for the Western District of Missouri,

Southern Division, is printed in Appendix B hereto, infra,

page B-19.

JURISDICTION

The Judgment of the United States Court of Appeals

for the Eighth Circuit (Appendix A, infra, page A-1) was

entered on December 7, 1977. A timely Petition for Re-

hearing resulted in that Court’s Order of January 30, 1978

(Appendix A, infra, page A-27). The jurisdiction of

the Supreme Court is invoked pursuant to 28 U.S.C.

§1254(1).

QUESTIONS PRESENTED

I

Whether the decision of the United States Court of

Appeals is in conflict with a decision of this Court on

the same subject in that it denied the petition for limitation

of liability, without a search within the managerial hier-

archy of the corporate vessel owner for actual knowledge

or privity, as required by Coryell v. Phipps, 317 U.S. 406,

68 S. Ct. 291, 87 L. Ed. 363 (1943).

II

Whether the decision of the United States Court of

Appeals is in conflict with decisions of this Court and

other circuits of the United States Courts of Appeals in

3

that it denied a vessel owner's petition for limitation of

liability pursuant to 46 U.S.C. 3183 (a), without a finding

concerning the privity or knowledge of the owner of the

vessel, but based solely upon the finding that the owner

was engaged in a joint enterprise with the party who

negligently entrusted the vessel to a youthful and inex-

perienced operator.

III

Whether the decision is in conflict with the decisions

of this Court and other circuits of the United States Court

of Appeals in that it determined that a joint enterprise

between the owner of a vessel and another who negligently

entrusted that vessel to a youthful and inexperienced oper-

ator would, standing alone, supply the “privity or knowl-

edge” required to deny the owner’s petition for limitation

of liability under 46 U.S.C. §183(a).

STATUTORY PROVISIONS

This case involves 46 U.S.C. §183(a) which provides:

“The liability of the owner of any vessel, whether

American or foreign, for any embezzlement, loss or

destruction by any person of any property, goods or

merchandise shipped or put on board of such vessel,

or for any loss, damage or injury by collision, or

for any act, matter or thing, loss, damage or forfeiture,

done, occasioned or incurred, without the privity or

knowledge of such owner or owners, shall not, except

in the cases provided for in sub-section (b) of this

Section, exceed the amount or value of the interest

in such owner in such vessel, and her freight then

pending.”

STATEMENT OF THE CASE

A. The Facts

This matter arises out of the collision of two motor-

boats on August 7, 1971 on Lake Table Rock in Stone

County, Missouri. This lake was formed of the damming

of the James River, a navigable waterway. Both boats

involved in the accident were docked at the Kimberling

Cove Marina. One of the boats was a 17 foot Yellow

Classic, operated by Scott Clifton, and the other boat was

a 16 foot inboard-outboard operated by Margaret Ann

Pritchett. At the time of the accident each boat was

occupied by four persons.

The accident occurred shortly after dark. The boat

operated by Clifton was returning to the marina and the

Pritchett boat, having left the marina, was headed for the

main body of the Lake. The boats approached each other

on a collision course. Upon impact, the bow of the Clifton

boat cut through the Pritchett boat. As a result of the

accident, Margaret Ann Pritchett received serious and dis-

abling injuries. Mike Oldham, a passenger in the Pritchett

boat, was also injured.

Kimberling Cove, Inc. operated a marina on the shore-

line of Lake Table Rock. The marina activities of Kim-

berling Cove, Inc. included the storage of private boats,

boat repair facilities, a public fuel dock and the rental

of pleasure boats, including the Yellow Classic 17 foot

motorboat operated by Scott Clifton on the night of the

accident. Several dockhands were employed at the marina

during the summer of 1971, including Scott Clifton. His

duties included opening; and closing the marina, fueling

and renting boats, seliing merchandise, providing cus-

tomers with diverse services, instructing them in the oper-

ation of rental boats and moving the boats to cover in

the event of a storm or catastrophy. He was regularly

responsible for locking up the dockhouse at night. The

dockhouse was located on the fuel dock and contained

the keys to all boats located at the marina, including

the rental boats. To perform these duties, Scott Clifton,

as well as the other dockhands employed by Kimberling

Cove, Inc., were given a set of keys to the marina facil-

ities, including the dockhouse, and thus had access to all

keys to the boats docked at the marina.

As a fringe benefit dockhands were allowed to use

the rental boats without paying rental charges; but the

policy of Kimberling Cove was to require permission,

usually from the marina manager, John Hillman, before

such use. On the evening of the accident, Scott Clifton,

without permission, used his key to the dockhouse to ob-

tain the keys to the Classic motorboat and removed the

boat from its slip next to the fuel dock.

The Yellow Classic boat involved in this accident was

owned by Petitioner, Dando Enterprises, Inc. (which at the

time of the collision was known as Recreation Unlimited,

Inc.) It was furnished to Kimberling Cove, Inc. for rental

to the public under an arrangement in which the rental

proceeds were divided, 40% to Recreation Unlimited, Inc.

and 60% to Kimberling Cove, Inc. There were four boats

in this rental agreement including the Classic involved in

the accident. Although these were being rented to the

public by Kimberling Cove, Inc., these boats, nevertheless,

remained in the inventory of Recreation Unlimited, Inc.

and were available for demonstration and sale by Recrea-

tion. Recreation had no control over the boat rental opera-

tions of Kimberling nor over the boats themselves other

than to remove a boat from rental service if sold.

Charles J. Dando and his wife were the majority stock-

holders in Kimberling Cove, Inc. and the sole stockholders

in Recreation Unlimited, Inc. Frank Clifton, father of

Scott Clifton, was a vice-president in both corporations,

but solely on the payroll of Recreation Unlimited, Inc.

His duties were to supervise the day to day operations

of Recreation Unlimited, Inc. He did, however, oversee

the manager of the marina, John Hillman, whenever

Dando, the president of Kimberling Cove, Inc., was absent.

At all times pertinent, the marina manager was John Hill-

man, an employee of Kimberling Cove, Inc.

B. The Proceedings

On September 16, 1971, Civil Action No. 2792 was

filed by Mr. and Mrs. Joseph Pritchett for derivative dam-

ages arising out of the personal injuries suffered by their

minor daughter, Margaret Ann Pritchett, in the collision

of the motorboats.

Within the time pe ied by 46 U.S.C. §183(a), Rec-

reation Unlimited, Inc. petitioned the United States District

Court for the Western District of Missouri for limitation

of liability within the provisions of 46 U.S.C. §183(a)

in Civil Action No. 3122. With its Petition, Recreation

Unlimited, Inc. tendered into the Court $3,500.00, the stipu-

lated value of the Classic boat. Mike Oldham, a minor

injuries, alleging negligent entrustment by Recreation to

Scott Clifton. Oldham’s parents also filed a claim for

their derivative damages. Margaret Ann Pritchett filed

of

of active negligence on Recreation’s part. Her parents

filed a similar Answer-Counterclaim.

7

On June 3, 1975, Civil Action No. 75 CV 341-S was

filed by Margaret Ann Pritchett for her personal injuries

suffered in the motorboat collision.

All three actions were consolidated and the trial was to

the Court without a jury. In Civil Action No. 2792 and

No. 75 CV 341-S, Scott Clifton, the minor operator of the

motorboat owned by Recreation Unlimited, Inc., was dis-

missed as a defendant; the remaining defendants being

Kimberling Cove, Inc. (the marina operator and the renter

of the motorboat owned by Recreation Unlimited, Inc.),

Recreation Unlimited, Inc. and Charles J. Dando (holder

of the government lease of the property on which both

Kimberling Cove, Inc. and Recreation Unlimited, Inc.

were located).

On August 19, 1976 the District Court filed its Memo-

randum Opinion and Judgment entering its Final Judg-

ment on September 16, 1976. The Court found that

Kimberling Cove negligently entrusted the boat to Scott

Clifton, and judgments were entered against the last

board of directors of Kimberling, in their capacity as

trustees winding up the corporation’s business. Damages

were assessed at $400,000.00 in favor of Margaret Ann

Pritchett. Mr. and Mrs. Pritchett were awarded medical

expenses ($25,783.34) and the value of their boat ($2,900.-

00) along with a pre-judgment interest. Damages for

Mike Oldham’s physical injuries were assessed at $10,000.-

00; an award was made for $3,675.00 plus pre-judgment

interest for medical expenses to his parents. With regard

to Recreation Unlimited, Inc., the Court concluded that

there was no joint enterprise between it and Kimberling

and, therefore, held that there was no joint liability with

Kimberling. Referring specifically to Civil Action No.

3122, pursuant to 46 U.S.C. §183(a), Recreation’s liability

was limited to the value of its boat ($3,500.00) and that

8

amount was divided proportionately among the Pritchetts

and Oldhams. No liability was imposed on Charles J.

Dando.

Plaintiffs Pritchett, claimants Oldham and defendant

Kimberling Cove, Inc. appealed. Consolidated Appeals

Nos. 76-1912, 76-1913 and 76-2014 were submitted to the

United States Court of Appeals for the Eighth Circuit on

June 16, 1977 and the Court’s Opinion was filed on Decem-

ber 7, 1977. In its Opinion the Eighth Circuit affirmed

the District Court’s finding of negligent entrustment with

resulting liability on Kimberling Cove, Inc.; reversed the

District Court’s holding on the issue of joint enterprise,

and held Recreation Unlimited, Inc. jointly liable with

Kimberling Cove, Inc.; denied Recreation’s petition for

limitation of liability based on Recreation’s vicarious

liability for the acts or omissions of Kimberling; and

affirmed the District Court’s holding that operating the

marina did not involve an unreasonable risk of harm to

others and its finding of no liability on the part of Charles

Dando.

Thereafter, Dando Enterprises, formerly Recreation,

petitioned the United States Court of Appeals for the

Eighth Circuit for a rehearing and filed its suggestion

for a hearing by that Court en banc. The Court declined

to hear the matter en banc or to rehear this matter but

pursuant to the Petition for Rehearing issued its Order

dated January 30, 1978 modifying the Court’s Opinion.

See infra Appendix A, pages A-26 and A-27.

REASONS FOR GRANTING THE WRIT

Certiorari Should Be Granted to Resolve the Conflict

Between the Decision of the Court Below and Decisions

on the Same Federal Question of This Court, in Par-

ticular Coryell v. Phipps, Infra, and of Other Circuits

of the United States Court of Appeals.

The federal question presented arises in the inter-

pretation of the Limitation of Liability Act, 46 U.S.C.

§183(a). That Section in pertinent part provides as

follows:

Section 183. Amount of liability; loss of the life or

bodily injury; privity imputed to owner; “seagoing

vessel”

(a) The liability of the owner of any vessel,

whether American or foreign, for any embezzlement,

loss, or destruction by any person of any property,

goods, or merchandise shipped or put on board of

any such vessel, or for any loss, damage, or injury

by collision, or for any act, matter, or thing, loss,

damage, or forfeiture, done, occasioned, or incurred,

without the privity or knowledge of such owner or

owners, shall not, except in the cases provided for in

sub-section (b) of this Section, exceed the amount

or value of the interest of such owner in such vessel,

and her freight then pending.

Petitioner herein contends that this Court in Coryell

v. Phipps, 317 U.S. 406, 68 S. Ct. 291 87 L. Ed. 363 (1943),

interpreted the Limitation of Liability Act to require a

search of the managerial hierarchy of a corporate vessel

owner and a finding of actual fault or neglect within the

corporation before the owner will be denied the benefits of

10

the statute. The court below denied Recreation Unlimited,

Inc. the benefits of the statute without such a determina-

tion.

The fundamental purpose of the Limitation of Liability

Act is to encourage development of American merchant

shipping by limiting the vessel owner’s liability for dam-

ages, arising from maritime disasters, occasioned without

his privity or knowledge, to the value of his investment.

In Re Pan Oceanic Tankers Corp., 332 F. Supp. 313 (D.C.

N.Y. 1971). Although the purpose of the Act is to en-

courage commercial shipping activity, the owners of plea-

sure craft are entitled to avail themselves of the statute

and limit their liability in accordance with the statute.

Gibboney v. Wright, 517 F.2d 1054 (5th Cir. 1975).

It was the intention of Congress to relieve shipowners

from the consequences of all imputable culpability by

reason of the acts of their agents or servants, or of third

persons, but not to curtail their responsibility for their

own willful or negligent acts. Continental Insurunce Co.

v. Sabine Towing Co., Inc., 117 F.2d 694 (5th Cir. 1941).

Thus, the phrase “privity and knowledge”, as used in the

Limitation of Liability Act, is a term of art meaning

complicity in the fault that caused the accident. Empire

Sea Foods, Inc. v. Anderson, 398 F.2d 204 (5th Cir. 1968),

cert. denied, 393 U.S. 983, 89 S. Ct. 449, 21 L. Ed. 2d 444.

When an agent or servant of an owner negligently injures

another in operation of the vessel, the ordinary rules of

respondeat superior do not apply; the owner of the vessel

is entitled to have his liability limited to the value of the

vessel if the loss was occasioned without his privity or

knowledge. Holloway Concrete Products Co. v. Beltz-

Beatty, Inc., 293 F.2d 474 (5th Cir. 1961).

Where, as in the case at bar, the owner of a vessel is

a corporation, this Court has held ‘that the “privity or

11

knowledge” of an executive officer, manager or superin-

tendent, whose scope of authority includes supervision

over the phase of the business out of which the injury or

loss occurred, is the “privity or knowledge” of the cor-

porate owner. Coryell v. Phipps, supra. Therefore, when

the corporate owner of a vessel seeks to limit its liability,

the limitation can be defeated only if an executive officer,

manager or superintendent, whose scope of authority in-

cludes supervision over the phase of the business out of

which the loss or injury occurred, has personal cognizance

of, or participates in, the fault or negligence which causes

the loss or injury. In short, there must be some culpability

within the managing personnel of the corporation, charge-

able to the corporation, to preclude the corporate owner's

limitation of liability. Thus, there is the search, described

by the late Justice Douglas in Coryell v. Phipps, supra, to

see where in the managerial hierarchy the fault lies.

In the opinion below (by the Honorable Jack R. Miller,

United States Court of Customs and Patent Appeals, sitting

by designation), the Court did not engage in the search for

fault in the managerial hierarchy of Recreation Unlimited,

Tne, that would supply the “privity or knowledge” required

to deny the petition for limitation of liability under 46

US.C, §183(a). Rather, it based its denial solely upon the

existence of a joint enterprise between Kimberling Cove,

Inc. and Recreation Unlimited, Inc. and the imputed or

vicarious liability flowing therefrom. In that Court's opin-

ion, with reference to the issue of joint enterprise and its

effect on Recreation’s petition for limitation of liability, the

Court held as follows:

“Pritchetts and Oldhams predicate liability of

Recreation on their contention that it was engaged in

the joint enterprise with Kimberling, particularly in

the leasing of motorboats, including the Classic. Such

12

a relationship would, if established, supply the privity

or knowledge required to deny limitation of Recrea-

tion’s liability under 46 U.S.C. §183(a), quoted ear-

lier.” (Appendix A at page A-16).

After a review of the evidence concerning the joint

enterprise issue, the Court concluded as follows:

“As explained by the Restatement, the term ‘joint

enterprise’ includes a partnership, but it is broader

and extends to a cooperative undertaking to carry out

a small number of activities or objectives, or even a

single one, entered into by members of the group

under such circumstances that all have a voice in di-

recting the conduct of the enterprise. Each is consid-

ered the agent or servant of the others, so that the act

of any member within the scope of the enterprise is

charged vicariously against the rest. Thus, when the

negligence of a member of a joint enterprise (acting

within the scope of the enterprise) causes harm to a

third person, such negligence is imputed to all other

members, who become mutually liable.

“In view of the foregoing, we hold that the District

Court erred in failing to conclude that the relationship

between Recreation and Kimberling involving the mo-

torboats constituted a joint enterprise.”

“Also we are satisfied that the negligent entrust-

ment by Kimberling clearly falls within the scope of

the joint enterprise involving the rental motorboats,

so that Recreation is jointly liable with Kimberling for

the resulting darm to appellants and cannot assert a

limitation of liability under 46 U.S.C. $183. Obviously

the joint enterprise entailed the use of the dockhouse

keys, and it was from such use by Scott Clifton that

entrustment of the Classic motorboat arose.” (Cita-

13

tions and footnotes omitted.) (Emphasis supplied.)

Appendix A, pages A-18-19, A-20 and A-20).

It is clear from the portions of the Opinion set forth

above that the Court assumed that if a joint enterprise

existed between Recreation and Kimberling, then, as a

matter of law, based on vicarious or imputed fault, Recrea-

tion was not entitled to limit its liability in accordance with

46 U.S.C. §183(a). Petitioner herein respectfully submits

that the finding by the court below of a joint venture be-

tween Kimberling and Recreation is not dispositive of the

issue concerning Recreation’s petition to limit liability.

The court below correctly states that when the negli-

gence of a member of a joint enterprise (acting within the

scope of the enterprise) causes harm to a third person, such

negligence is imputed to all other members, who become

mutually liable (Appendix A, page A-19). The point upon

which this petition turns is that the liability of Recreation

for the negligent entrustment of the Classic boat to Scott

Clifton by Kimberling Cove, Inc. is imputed to it by reason

of the joint enterprise and does not arise out of any active

negligence on its part. The liability of Recreation for the

negligent entrustment by Kimberling is solely the vicarious

liability arising by operation of law as a member of the

alleged joint enterprise.

Contrary to decisions of other circuits of the United

States Court of Appeals, the court below erroneously held

the imputed liability of Recreation could not be limited

in accordance with 46 U.S.C. §183(a). Illustrative of the

conflict is Continental Insurance Co., Inc. v. Sabine Towing

Co., Inc., supra, where the Court held:

It was the intention of Congress to relieve shipowners

from the consequences of all imputable culpability by

reason of the acts or their agents or servants, or of

14

third persons, but not to curtail their responsibility

for their own willful or negligent acts. (117 F.2d at

700). (Emphasis supplied.)

In an attempt to implement this Congressional intent,

the courts have construed the words “privity or knowl-

edge” as found in the statute as follows:

The privity or knowledge must be actual and not

merely constructive. It involves a personal participa-

tion of the owner in some fault or act of negligence

causing or contributing to the injury suffered. There

must be some fault or negligence on his part or in

which he in some way participates. Rautbord v.

Ehnamm, 190 F.2d 533, 537 (7th Cir. 1951) quoting The

84-H, 296 F. 427 (2nd Cir. 1923), cert. denied, 264 U.S.

596, 44 S. Ct. 454, 68 L. Ed. 867.

In the case of Rautbord v. Ehnamm, supra, the 7th Cir-

cuit adopted the rationale of the 2nd Circuit in The 84-H,

supra, quoting that case as follows:

The whole doctrine of limitation of liability pre-

supposes that a liability exists which is to be limited.

If no liability exists there is nothing to limit. And

in a proceeding to limit liability two duties are

imposed upon the court. The first is to ascertain

whether any liability exists. If it is found to exist,

the second duty arises, which is to ascertain whether

the loss or damage was occasioned without the “privity

or knowledge” of the owner of the ship. If no liability

is found to exist, the absence of all liability is to be

decreed, and there the matter ends. If, on the other

hand, liability is found and loss or damage is shown,

and was not occasioned or incurred with “privity or

knowledge” of the shipowner, the limitation of liability

should be decreed. 190 F.2d at 537.

15

See also The Chickie, 54 F. Supp. 19, 21 (W.D. Pa.

1942), aff'd in part and rev’d in part, 141 F.2d 80 (3rd

Cir. 1944), in which the District Court held that the

negligence of one partner would not prevent the limitation

of liability of another partner who was without knowledge

and privity of the negligence of his partner. The later

holding of the Third Circuit did not reach this point as

it disposed of the personal liability of the partners, holding

the action was wholly “in rem”.

Petitioner submits that while imputed knowledge may

be sufficient to preclude exoneration from liability, it is

not sufficient to preclude limitation of liability under 46

U.S.C. §183(a) without the additional finding that the

owner, or, as here, someone in the managerial hierarchy

of the corporate owner, participated in the fault or act of

negligence causing or contributing to the injury suffered.

In the case of Roe v. Brooks, 329 F.2d 35 (4th Cir.

1964), a case bearing a striking resemblance on the facts

to the one at bar, the Fourth Circuit reversed the trial

court’s finding that the owners of a motorboat and the

operators of a marina were not engaged in a joint venture.

However, that court did not hold that the existence of a

joint venture, per se, denied the owners of the motorboat

the right to limit their liability under 46 U.S.C. §183(a)

as the Eighth Circuit has done in the instant case. Rather,

having found a joint venture between the owners of a

motorboat and the operators of a marina, the court went

on to find that the owners knew that the operators of the

boat (the marina operators) did not have licenses required

for the operation of the motorboat. Thus, the court con-

cluded, by directly entrusting the boat to an unlicensed

crew, the boat owners had actual knowledge of the un-

seaworthiness of the motorboat and were not entitled to

limit their liability.

16

Petitioner respectfully suggests to the Court that the

decision by the United States Court of Appeals for the

Eighth Circuit denying Recreation Unlimited, Inc’s petition

for limitation of liability, without a determination of the

privity or knowledge of Recreation Unlimited, Inc., but

based solely upon the imputed negligence of a joint ven-

turer is in conflict with the provisions of 46 U.S.C. §183(a)

and the body of case law interpreting that statute. Peti-

tioner respectfully submits that insofar as the opinion of

the United States Court of Appeals for the Eighth Circuit

would be authority for the denial of limitation of liability

to shipowners based upon vicarious or imputed liability of

the shipowners, without a finding of actual privity or

knowledge of the shipowner, such a decision involves a

question of exceptional importance, marking a departure

from the judicially determined intent of Congress, such as

to merit a review by this Court.

CONCLUSION

WHEREFORE, Petitioners respectfully pray that a

Writ of Certiorari be granted. )

KNIPMEYER, McCann, FisH & SMITH

By GLENN McCann

By STEPHEN D. MANz

By JAMES WELSH

1800 Power & Light Building

Kansas City, Missouri 64105

816/221-9500

Attorneys for Dando Enterprises,

Inc.

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 76-1912

No. 76-1913

No. 76-2014

Joseph H. Pritchett and Vivian M. Pritchett,

Plaintiffs-Appellees,

and

Margaret Ann Pritchett, Plaintiff-Appellee,

V.

Kimberling Cove, Inc., Defendant-Appellant,

and

Dando Enterprises, Ltd. and Charles J. Dando,

Defendants-Appellees,

sie

In the Matter of the Complaint of Recreation Unlimited,

Inc. (now Dando Enterprises, Ltd.), owner of a 1971 Classic

170 Motorboat, No. 17071681, Missouri Registry No. MO

4164 GG, for Exoneration From or Limitation of Liability,

Appellee,

Joseph H. Pritchett, Vivian M. Pritchett, Margaret Ann

Pritchett, Charles J. Oldham, Roma M. Oldham,

and Mike Oldham, Appellants.

Appeals from the United States District Court

for the Western District of Missouri.

A-2

Submitted: June 16, 1977

Filed: December 7, 1977

Before MATTHES, Senior Circujt Judge, BRIGHT, Cir-

cuit Judge, and MILLER, Judge.“

MILLER, Judge.

This group of consolidated appeals is from the judgment

of the district court (opinion unpublished)“ The cases

arose out of a tragic collision between two motorboats on

Lake Tablerock in Missouri shortly after dark on August

7, 1971.

THE CASES

Civil Action No. 2792

(Involving Appeal Nos. 76-1913

and 76-2014)?

This was commenced by Mr. and Mrs. Joseph Pritchett,

the parents of Margaret Ann Pritchett, the seriously in-

jured minor operator of a boat owned by her parents, for

medical expenses incurred for Margaret Ann Pritchett, loss

of services, and damages to their boat. The sole defendant

was the minor driver of the other boat, Scott Clifton.

By subsequent amendments, Recreation Unlimited,

Inc. (Recreation), whose name was subsequently changed

»The Honorable Jack R. Miller, United States Court of Cus-

toms and Patent Appeals, sitting by designation.

1. The Honorable William R. Collinson, District Ju‘ge for

the Western District of Missouri, entered final judgment on Sep-

tember 16, 1976. a

2. and Mrs. Joseph Pritchett — Se holding

no e gb of lereation in Appeal No

76-1913; berling appealed the adverse 22

in 76-2014.

A-3

to Dando Enterprises, Ltd., Kimberling Cove, Inc. (Kim-

berling), and Charles J. Dando (Dando), president of both

corporations, were added as defendants.’ Kimberling was

added on the theory that it negligently entrusted to Scott

Clifton the motorboat he was driving, which was docked

at a marina owned by Kimberling. Recreation was added

on the theory that the marina, including the motorboat

(which it owned and which was under a rental-sharing

arrangement with Kimberling) was operated as a joint

by public authority and which involved an unreasonable

risk of harm to others; thus, he was subject to liability

for physical harm caused by the negligence of the said

corporations.

Before trial, Scott Clifton was dismissed by plaintiffs

as a defendant.

Civil Action No. 3122

(Appeal No. 76-1912)

This was filed by Recreation to limit its liability.

without its knowledge or consent; also, that since the boat

was being operated on navigable waters of the United

States at the time of the accident, 46 U.S. C. 55 183-

A-4

189 applied.“ It tendered $3,500.00 (the alleged value of

the Recreation boat) with the court.

Mike Oldham, a minor who was a passenger in the

Pritchett boat, and his parents filed an answer and claim

for damages resulting from personal injuries, alleging neg-

ligent entrustment by Recreation to Clifton. His parents

also filed a claim for their derivative damages.

Margaret Ann Pritchett filed an answer-counterclaim,

alleging a number of grounds of active negligence on

Recreation’s part. Her parents filed a similar answer-

counterclaim.

Civil Action No. 74 CV 341-S

(Involving Appeal Nos. 76-1913)

and 76-20 14).

This was filed by Margaret Ann Pritchett against Scott

Clifton, Kimberling, Recreation, and Dando. The alleged

bases of liability were the same as those in Civil Action

No. 2792, supra, brought by Mr. and Mrs. Pritchett.

4. 46 U.S.C. § 183(a) provides:

The liability of the owner of any vessel, whether Ameri-

can or foreign, for any embezzlement, loss, or destruction by

rr

vessel, or for any loss, damage, or

This statute applies even though

S See Gi v. Wright, 517 F.2d 1054, 1057 (5th

.

F

f

A-5

DISTRICT COURT PROCEEDINGS

The foregoing actions were consolidated, and a bifur-

cated trial, without a jury, was held on the issue of liabil-

ity and damages. The court found that Kimberling neg-

ligently entrusted the boat to Scott Clifton, and judgments

were entered against the last directors of Kimberling, in

their capacity as trustees winding up the corporation’s

business. Damages were assessed at $400,000.00 in favor

of Margaret Ann Pritchett. Mr. and Mrs. Pritchett were

awarded medical expenses ($25,783.34) and the value of

their boat ($2,900.00) along with prejudgment interest.

Damages for Mike Oldham’s physical injuries were assessed

at $10,000.00, and an award was made for $3,675.00, plus

prejudgment interest, for medical expenses.

Regarding Recreation, the court concluded that there

was no joint enterprise between it and Kimberling and,

therefore, held that there was no joint liability with Kim-

berling. Under 46 U.S.C. § 183(a), Recreation’s liability

was limited to the value of its boat, and the award was

divided among the Pritchetts and the Oldhams.

The court also concluded that operating the marina

did not involve an unreasonable risk of harm to others

under a franchise granted by public authority; therefore,

no liability was imposed on Dando.

FACTS

Kimberling Cove Marina, owned and operated by Kim-

berling, is on the shoreline of a large cove on Lake Table-

rock in Stone County, Missouri. Both boats involved in

the accident were docked there. Scott Clifton was operat-

ing a yellow Classic 17 foot motorboat, and Margaret Ann

Pritchett was operating a 16 foot motorboat. Both boats

were powered by large inboard-outboard engines, 140 and

155 horsepower respectively, and were capable of speeds

A-6

of about 45 miles per hour. Scctt Clifton, who had turned

fifteen just two days before the accident, was accompanied

by a friend and two girls. There were also two couples

in the Pritchett boat.

The boat driven by Clifton had been out on the lake

and was returning to the marina. The Pritchett boat

had left the marina for the main body of the lake. The

boats approached each other on a collision course. Upon

impact, the bow of the Clifton boat cut through the

Pritchett boat. The trial court found:

The evidence as to navigation lights was disputed.

Similarly, the evidence as to the speed of the two

boats was contested.

The evidence established that the pilot of a boat

approaching a lighted marina at night has much more

difficulty seeing the navigation lights of a boat be-

tween him and the marina, than observing similar

lights against an unlighted background, and reduced

speed is necessary.

The court further found that there was no negligence

or fault in the operation of the Pritchett boat.

Margaret Ann Pritchett received serious and disabling

injuries, including a cerebral mass lesion on the left, a

shift of the brain midline to the right, and a fracture

of the skull. She also received several severe lacerations

to muscles and nerve trunks. She was unconscious and

in critical condition for many days and was not able to

support her own life systems for over two months. Her

left eye had to be removed; the right side of her face

remains completely paralyzed. She has learned to walk

without a cane, albeit with a wide base gait. She has

permanent brain damage, which affects her gait, her vision

in the right eye, her ability to speak, and causes headaches,

A-7

insomnia, and memory difficulties, which make it difficult

for her to learn. Mike Oldham received an injury to

his nose, mouth, forehead, and left eyelid requiring four

operations.

The marina activities included storage of private boats,

boat repair facilities, a fuel dock, and rental of pleasure

boats. Several dockhands were employed at the marina

during the summer of 1971, including Scott Clifton, who

was the youngest. His duties included opening and closing

the marina, fueling and renting boats, selling merchandise,

providing customers with services, instructing them in the

operation of rental boats, and protecting the boats in event

of a storm or catastrophe. He was regularly responsible

for locking up the dockhouse at night. This was located

on the fuel dock and contained keys to all boats docked

at the marina, including the rental boats. To perform

his duties, Scott Clifton was given a set of keys to the

marina facilities, including the dockhouse, and thus had

access to all of the boats.

As a fringe benefit, dockhands were allowed to use

the rental boats without paying rental charges; but the

policy of Kimberling was to require permission, usually

from the marina manager, before such use. On the night

of the accident, Scott Clifton, without permission, took

the Classic motorboat from its slip "ext to the fuel dock

by using his key to the dockhouse to obtain the key to

the Classic that was kept there.

During the period in which the accident occurred,

Recreation was not only selling boats but furnishing boats

to the marina for rental by Kimberling. The rental pro-

ceeds were divided forty percent to Recreation and sixty

percent to Kimberling. There were four boats in the

1971 rental arrangement, including the Classic involved

in the accident. Although these were being rented by

A-8

Kimberling to the public, they, nevertheless, remained on

the inventory of Recreation and were available for demon-

stration and sale by Recreation.

OPINION

There are three major issues: (1) whether the district

court correctly found that Kimberling negligently en-

trusted the Classic motorboat to Scott Clifton; (2) whether

the district court erred in holding that Recreation was

not conducting a joint enterprise with Kimberling which

would have made Recreation jointly liable with Kimberling

for negligent entrustment; and (3) whether Dando is liable

for the activities of Kimberling and Recreation under the

legal theory earlier discussed under Civil Action No. 2792.

(1) Negligent Entrustment Issue

The liability of all defendants below is dependent upon

whether Kimberling negligently entrusted the Classic mo-

toroboat to Scott Clifton.“ Pritchetts and Oldhams base

6. The district court co held that admiralty law was

applicable since the tort on navigable waters in and

controlled by the United States. Nevertheless, the court, after

considering the applicable law of Missouri and of other jurisdic-

tions, applied the doctrine of negligent entrustment. We are

satisfied that the district court was correct. In St. Hilaire Moye

v. Henderson, 496 F.2d 973, 980 (8th Cir.), cert. denied, 419 U.S.

884 (1974), this court said:

A federal court sit in admiralty does not sit as a

diversity court; therefore, is not a case “where state sub-

stantive law must be ascertained and applied.” Rather, ad-

miralty suits are re federal substantive and pro-

cedural law. However, a al court sitting in admiralty

need not “invariably refuse: to recognize and enforce «lis

bility which the State has established in dealing with a

maritime subject. On the con there are numerous in-

stances in which the general m time law hes been modi-

fied or supplemented by state action admiralty

courts may apply state law by express or implied reference

or when the federal law of admiralty is incomplete. This

Supreme Court has sustained the application of state laws

which broaden the scope of beyond the general

maritime standard. [Citations omitted}

— 4 — —

A- 9

their argument on this point upon Restatement (Second)

of Torts § 390 (1965), which provides:

§ 390. Chattel for Use by Person Known to be In-

competent

One who supplies directly or through a third person

a chattel for the use of another whom the supplier

knows or has reason to know to be likely because

of his youth, inexperience, or otherwise, to use it in

a manner involving unreasonable risk of physical harm

to himself and others whom the supplier should ex-

pect to share in or be endangered by its use, is subject

to liability for physical harm resulting to them.

This section of the Restatement was adopted in Stafford

v. Far-Go Van Lines, Inc., 485 S.W.2d 481 (Mo. App. 1972),

and was cited with favor by the Missouri Supreme Court

in Bell v. Green, 423 S.W.2d 724, 732 (Mo. 1968) (en

banc). Accord, Collins v. Arkansas Cement Co., 453 F.2d

512, 514 (8th Cir. 1972) (Arkansas law).

The district court found “as a fact, under all the facts

and evidence in this case, that the defendant Kimberling

Cove, Inc. negligently entrusted this boat to Scott Clifton.”

It concluded, as a matter of law, that Kimberling was

subject to liability for the physical harm suffered by the

plaintiffs." Considering the entire record before us, we

hold that the district court’s finding is not clearly errone-

ous. Indeed, we would add to the district court’s reasons

that turning over what, in our view, appears to have

been an excessive amount of responsibility (i. e., for opening

and closing what Dando described as “the largest marina

sania meter inexperience and th ＋ *

mpetency you to operate an

—2 5 a * factual question, a t a statute.

Ritchie v. Burton, 292 S w.2d 599, 606 (Mo. nee. 1956), and cases

cited in note 4 therein.

A-10

on a fresh water lake in the Western United States,”

maintaining 168 rental storage slips, 3 gas slips, 13 ski

boats, and 50 fishing boats for rent to the public in addi-

tion to the boats carried on Recreation’s inventory) to

a boy scarcely fifteen years of age was prima facie negli-

gent entrustment.

Four elements of proof are necessary to establish negli-

gent entrustment under Missouri law: (1) entrustment

of a chattel (directly or through a third party) to another;

(2) likelihood that the person to whom the chattel is

entrusted will, due to his youth, inexperience, or otherwise,

use the chattel in a manner involving an unreasonable

risk of harm to himself and others; (3) knowledge of

the entrustor (actual or imputed) of such likelihood; and

(4) proximate cause of the harm to the plaintiff by the

negligence of the entrustor. Evans v. Allen Auto Rental,

3 S. W. 2d , No. 59887 (Mo. September 12, 1977)

Kimberling, through the marina manager and with

the knowledge of Frank Clifton (Scott’s father), who was

the vice president of Kimberling and exercised overall

supervision of the marina, entrusted Scott Clifton with

a key to the dockhouse, where keys to approximately 175

boats at the marina were kept. On the night of the colli-

sion, Scott Clifton obtained a key to the Classic motor-

boat from the dockhouse by using the key entrusted to

him. Thus, there was an effective entrustment to Scott

Clifton of the Classic motorboat.’

8. It was Recreation’s intent that Scott Clifton use the

keys to its rental boats kept in the dockhouse to move the boats in

case of a storm or catastrophe and to demonstrate the operation

of the rental boats to customers. Also, it was expected that he

A-11

With regard to whether, under the circumstances,

there was a likelihood, due to his youth and inexperience,

that Scott Clifton’s use of the powerful and fast Classic

motorboat would involve an unreasonable risk of harm,“

we note that he had been permitted to operate the rental

motorboats only during daylight hours and had not oper-

ated a motorboat prior to this particular summer. Indeed,

it appears that he had operated these boats on only about

ten previous occasions. Defendants point out that he in-

structed customers in the operation of the rental boats,

but the evidence indicates that this instruction was only

of the most rudimentary nature, such as how to start

and operate the boat. Thus, the district court’s finding

that “his experience in operating boats of this nature was

very limited” is well supported. It should also be noted

that Scott Clifton became 15 years of age only three days

before the accident. The district court emphasized that

Scott Clifton’s very poor school record“ indicated either

“an inferior learning ability” or “an attitude of inattention

and nonapplication of his mental [faculties],” and de-

clared:

But, in addition to this, his youth and inexperience

in the operation of powerful boats of this kind, com-

bined with the natural inclinations of boys of this

age to “show off” and to travel at maximum speeds

whenever possible, would in themselves supply the

likelihood of unreasonable risk of physical harm from

his operation of this boat, especially at night.

q tality can become dangerous

. A nondangerous instrumen

when placed in the hands of an t or 2

person. See Dinger v. Burham, 360 Mo. , 228 S.W.2d 696, 699

1950); Thomasson v. Winsett, 310 S.W.2d 33, 36 (Mo. App. 1958);

itchie v. Burton, supra.

10. His school grades showed, that, of the last 55 grades,

he had received 23 D’s and 22 Fs.

A-12

For these reasons we are persuaded that, in the hands

of Scott Clifton after dark, the powerful and fast Classic

motorboat was a dangerous instrument likely to cause

an unreasonable risk of harm not only to him but to

others as well. Evans v. Allen Auto Rental, supra.

On the question of whether Kimberling knew, or had

reason to know, that Scott Clifton would likely operate

a rental motorboat in a manner involving an unreasonable

risk of harm," the district court found that Kimberling

had reason to have such knowledge, namely: the knowl-

edge possessed by the marina manager and by its vice

president (Scott Clifton’s father) concerning Scott’s very

young age, poor school record, little training in safe oper-

11. We agree that Kimberling can only be liable for negli-

gent entrustment if Scott Clifton was negligently operating the

motorboat at the time of the accident. However, we do not agree

with the contention that the district court made no finding on

Scott Clifton’s negligence. Although there was no specific find-

ing of his negligence, the opinion clearly shows that his negli-

gence was basic to the district court’s decision. As this court

said in Finney v. Arkansas Bd. of Correction, 505 F.2d 194, 212

n.16 (8th Cir. 1974):

Findings of fact by the district court. . are not juris-

dictional in an appellate court. An appellate court may

render a decision in their absence if it feels that it is in a

position to do so. It is in a position to do so when... the

record itself sufficiently informs the court of the basis for

— re decision on the material issue . . [Citations

0

See generally 9 C. Wright & A. Miller, Federal Practice and Pro-

cedure Civil § 2577 at 699-700 (1971).

A-13

ation of the motorboats and no training whatsoever in

their operation at night, and “very limited” experience.

As stated by the district court, there is common knowledge

of the “natural inclinations of teenage boys to impress

their teenage friends and to run fast, powerful boats... .”

Restatement (Second) of Torts § 390, comment b.,

indicates that liability will be imposed if the supplier (Kim-

berling) had reason to know that the other party (Scott

Clifton) would use the chattel (motorboat) dangerously

because he was incompetent or because he lacked necessary

training and experience:

[Liability is based upon the rule .. that the actor

may not assume that human beings will conduct them-

selves properly if the facts which are known or should

be known to him should make him realize that they

are unlikely to do so. Thus, one who supplies a chattel

for the use of another who knows its exact character

and condition is not entitled to assume that the other

will use it safely if the supplier knows or has reason

to know that such other is likely to use it dangerously,

as where [1] the other belongs to a class which is

notoriously incompetent to use the chattel safely, or

[2] lacks the training and experience necessary for

such use, or [3] the supplier knows that the other

has on other occasions so acted that the supplier should

realize that the chattel is likely to be dangerously

used, or [4] that the other, though otherwise capable

of using the chattel safely, has a propensity or fixed

purpose to misuse it. [Emphasis added. ]

See Stafford v. Far-Go Van Lines, Inc., supra; Boland

v. Love, 222 F.2d 27 (D.C. Cir. 1955). Kimberling argues

that its knowledge of Scott Clifton’s inexperience and

youth is insufficient to charge it with knowledge of the

likelihood that he would use the motorboat dangerously.

A-14

It emphasizes his trustworthiness displayed on the job,

the lack of a showing of his propensity to misuse motor-

boats, and the lack of evidence of his reckless operation

of boats on prior occasions. However, these points, though

relevant, do not cover all four bases for liability listed

in the Restatement quoted above.

It is also argued that for Kimberling to be liable,

there must be a finding that it, through its agents, con-

sented to Scott Clifton’s use of the motorboat on the night

of the accident; that his consent must have been expressed

or, at least, shown by a pattern of conduct from which

consent could be inferred.”

Although it was the policy of Kimberling that 3

employees obtain permission before using the rental motor-

boats, and although there is no evidence showing that

Scott Clifton had ever been given permission to operate

any of those boats at night, he had complete access to

the keys to them at all times; also, he admitted at trial

that he did not recall any prohibition against using them

at night.!“ Obviously, Kimberling’s policy was not an

adequate safeguard against use of the dockhouse key to

12. Kimberling cites comment a. to section 308 of the Re-

statement:

The words “under the control of the actor” are used to

indicate that the third person is entitled to possess or use

the thing or engage in the activity only by the consent of

the actor, and that the actor has reason to believe that by

withholding consent he can prevent the third person from

using the thing or engaging in the activity.

We note that section 308 is referred to in comment b. to section

390, quoted in part earlier in this opinion.

13. The evidence discloses that Scott Clifton and the same

young people who accompanied him at the time of the accident

had used the Classic motorboat without

before the accident. Although the ct court found that

had never been given permission to use the boat

only evidence on the point (Scott Clifton’s own testimony) in-

dicates that he was never denied permission.

2

Fe

*

A-15

gain access to the rental motorboats. Moreover, permission

has a negative, as well as an affirmative, connotation.

“The absence of a prohibition against an expected or fore-

seeable or natural use may be strongly indicative that

such use is permissible.” Kemp v. MFA Mutual Insurance

Co., 468 S.W.2d 700, 705 (Mo. App. 1971), and cases cited

therein. The record here discloses a pattern of conduct

wherein permission was always granted when a boat was

not needed for rental or when the employee was not sched-

uled to work.“

In Pierce v. Standow, 163 Cal. App. 2d 286, 329 P.2d

44 (1958), cited with approval in Stafford v. Far-Go Van

Lines, Inc., supra at 488, a mother had specifically forbid-

den her 17 year old son to drive, but, nevertheless, gave

him the key while he waited in the car after school. The

court, holding the mother liable for negligent entrustment,

said (329 P.2d at 45):

The admitted fact that appellant daily entrusted to

her son the keys . . thus putting it in his power

to drive the car at will is, in our judgment, sufficient

to support the inference . . . that she impliedly con-

sented to his doing so.

Accord, Elkinton v. California State Auto Ass’n, 173 Cal.

App. 2d 338, 343 P.2d 396 (1959). The facts supporting

a finding of implied consen are even stronger in the

instant cases.

Accordingly, we hold that the district court correctly

concluded that Kimberling was liable for the harm suffered

A-16

(2) Joint Enterprise Issue

Pritchetts and Oldhams predicate liability of Recrea-

tion on their contention that it was engaged in a joint

enterprise with Kimberling, particularly in the leasing of

motorboats, including the Classic. Such a relationship

would, if established, supply the “privity or knowledge”

required to deny limitation of Recreation’s liability under

46 U.S.C. § 183(a), quoted earlier. The district court

concluded, as a matter of law, that the relationship between

Recreation and Kimberling did not constitute a joint enter-

prise, so that Recreation was not jointly liable with Kim-

berling.*®

Kimberling was originally incorporated to operate the

marina under an assignment to it of a sublease that had

been approved by the Corps of Engineers, which controlled

the shoreline of the lake. Its stock was offered to the pub-

lic, and at the time of the accident there were 120 stock-

holders. These included appellee Dando and his wife who

owned seventy-two percent of the stock, having purchased

it in July 1969, after which Dando became president of

Kimberling. Some six months later, Recreation, which had

been incorporated in April 1969, with its stock wholly

owned by Dando, established an office on the marina fuel

dock. By April 1971 Recreation had constructed a building

and showroom on private property near the marina. Kim-

berling’s rental under the sublease included a percentage

of the sales of boats and marina equipment. To reduce this

15. Recreation contends that the district court’s findings

relating to the issue of joint enterprise are factual and, thus,

cannot be set aside unless clearly erroneous. However, the con-

.

clusion w.

A-17

rental, Dando had the sales of boats and marine equip-

ment transferred from Kimberling to Recreation.“

Although the records of Kimberling and Recreation

were kept separately and accounts were maintained be-

tween them, there is persuasive evidence of a joint enter-

prise relationship between the two corporations. Frank

Clifton, father of Scott Clifton, was vice president of both,

but solely on the payroil of Recreation; he occasionally

oversaw the work of John Hillman, Kimberling’s marina

manager, and, at the time of the accident, performed gen-

eral office duties for Kimberling that included slip rentals

and dealings with suppliers, creditors, and debtors. A

Coralee Patrick was secretary and treasurer for each cor-

poration, and records for both corporations were maintained

at the same desk in the Recreation office. Dando per-

formed services as president of each corporation but was

paid by neither.“ Hillman was paid by Kimberling, but

he demonstrated Recreation’s boats to prospective pur-

chasers and collected accounts receivable owed both Rec-

reation and Kimberling on the same invoice.

There was a similar informal intermingling of the ser-

vices of the dockhands, including Scott Clifton, by the two

corporations. A George Katz worked for and was paid by

Recreation, but he cut the grass and picked up trash on

Kimberling’s land. Immediately prior to going on Recrea-

tion’s payroll, he was paid by Kimberling for these ser-

vices. The only difference he noticed was that one check

came from one corporation and the next from another.

Scott Clifton’s functions were similarly divided between the

two corporations. He had been paid by Recreation until

16. A- Ee Gee

— attempted (unsuccessfully) to

a — — Chewmaneditiieds

A-18

two or three days before the accident, when he was trans-

ferred from Recreation’s payroll to the payroll of Kim-

berling. However, he had been working on the fuel dock

for Kimberling since June.“ Thus, while employed by

Recreation, he was performing the functions and receiving

the fr ige benefits (e.g., free use of the rental boats) of an

employee of Kimberling. Even on the day of the accident,

while on Kimberling’s payroll, he was waxing one of

Recreation’s boats in the Recreation building.

In addition to the informal intermingling of services

of employees, the two corporations were jointly promoted.

They had the same advertising logo on their stationery,

the same telephone numbers, and the same post office box

at Kimberling City; they had a joint sign at the edge of

the property, and each had a sign on the Recreation

building. As a result, they created a public impression

that they were closely related. It was for this reason that

the Corps of Engineers audited the books of Recreation

which, except for this relationship with Kimberling, could

not have been considered a party to the sublease that

had been approved by the district engineer.

As explained by the Restatement,’ the term “joint

enterprise” includes a partnership, but it is broader and

extends to a cooperative undertaking to carry out a small

number of activities or objectives, or even a single one,

entered into by members of the group under such circum-

stances that all have a voice in directing the conduct of

the enterprise. Each is considered the agent or servant

18. Confusion over his relationship to the two corporations

A yy AAS. which he said he only

worked for Recreation for a week or yet the bookkeeper

testified that he was transferred to Kimberling’s payroll only a

few days before the accident on August 7.

19. Restatement (Second) of Torts § 491 (1965) and com-

ment b. thereto.

A-19

of the others, so that the act of any member within the

scope of the enterprise is charged vicariously against the

rest. Thus, when the megligence of a member of a joint

enterprise (acting within the scor= of the enterprise)

causes harm to a third person, such negligence is imputed

to all other members, who become mutually liable. Rowe

v. Brooks, 329 F.2d 35 (4th Cir. 1964); Hamilton v. Slover,

440 S.W.2d 947, 952 (Mo. 1969), citing Restatement (Sec-

ond) of Torts § 491 favorably.

The district court described the arrangement involving

the rental motorboats, under which Kimberling received

sixty percent of the rental income and Recreation forty per-

cent, as a “plain, straight-forward business transaction.“

Although we agree with this characterization, we disagree

with the court’s conclusion that the two corporations were

not engaged in a joint enterprise—at least insofar as the

rental motorboat operation was concerned. All parties rec-

ognize that there was an agreement, albeit oral and im-

precise. Whatever the terms, they were flexible. For

example, the number and type of motorboats were not

constant during the boating season. Significantly, Recrea-

tion did not treat the rental motorboats as under Kim-

berling’s sole control. Instead, they were maintained on

Recreation’s sales inventory, and Recreation at all times

had full power to substitute, demonstrate, and sell them.

It appears that they were used for pleasure by Recrea-

20. ‘The caly other findings in the district court's eplaten

that relate to the joint enterprise issue were:

There is no evidence that there was any disregard of the

separate corporate entities of these corporations by their

common officers and directors. The records of each corpo-

ration were kept separately and accounts were maintained

yay om pny Bh mee ED, ~ Ay d

as or separate,

— we Reta gp ve businesses of these two

—

A-20

tion’s employees (including Scott Clifton when he was on

Recreation’s payroll).

In view of the foregoing, we hold that the district

court erred in failing to conclude that the relationship be-

tween Recreation and Kimberling involving the rental

motorboats constituted a joint enterprise.”

Also, we are satisfield that the negligent entrustment

by Kimberling clearly falls within the scope of the joint

enterprise involving the rental motorboats, so that Recre-

ation is jointly liable with Kimberling for the resulting

harm to appellants and cannot assert limitation of liability

under 46 U.S.C. § 183. Obviously the joint enterprise en-

tailed use of the dockhouse key to obtain access to the

rental motorboat keys, and it was from such use by Scott

Clifton that entrustment of the Classic motorboat arose.”

(3) Issue of Dando’s Liability

Appellants argue that Dando is the holder of a fran-

chise granted by public authority which involves an un-

reasonable risk of harm to others, so that he is subject to

21. Recreation argues that “mere sharing of proceeds or

of the other.

22. Recreation is also chargeable with knowledge that such

entrustment was negligent for, as in the case of Kimberling, it

ys

to impress their friends running powerful motorboats

27 See Great Atlantic & Pacific Tea Co. v.

Brasileiro, 159 F.2d 661, 665 (2d Cir.), cert. 331 U.S. 836

1947); In re Theisen, 349 F . 137, 740 (E.D.N.Y. 1972);

eal v. Chicago B. & Q. R.R., 285 S.W. 482, 487 (Mo. 1926).

A-21

liability for physical harm caused by the negligence of

Kimberling and Recreation which carried out the fran-

chised activity.“ They cite the Restatement (Second) of

Torts § 428 (1965):

§ 428. Contractor’s Negligence in Doing Work Which

Cannot Lawfully be Done Except Under a

Franchise Granted to His Employer

An individual or a corporation carrying on an activ-

ity which can be lawfully carried on only under a

franchise granted by public authority and which in-

volves an unreasonable risk of harm to others, is sub-

ject to liability for physical harm caused to such others

by the negligence of a contractor employed to do work

in carrying out the activity.

This theory of liability has long been recognized in Mis-

souri. Williamson v. Southwestern Bell Telephone Co.,

265 S.W.2d 354, 357 (Mo. 1954); Virgil v. Riss & Co., 241

S.W.2d 96, 99 (Mo. App. 1951).

The district court, in analyzing the applicability of

Restatement § 428, expressed its belief that a lease of land

with the permission and authority to operate a marina

could not be classified as a “franchise.” Moreover, not-

ing that the Restatement, as well as the case law, quali-

fies “franchise” as one “which involves an unreasonable

risk of harm to others,” it held that “[t]here is no evi-

dence from which this Court could find that the activity

of operating a marina involves any unreasonable risk of

harm to others so that even if the sublease could be found

to be a ‘franchise granted by public authority,’ the prin-

ciple of law stated in the Restatement would stili not ap-

ply.”

23. Missouri law applies to this issue since there is no ap-

plicable admiralty rule. St. Hilaire Moye v. Henderson, supra.

A-22

Thus, the controlling issue is whether operation of the

marina involved an “unreasonable risk of harm.“ Com-

ment a. to Restatement § 428 discloses that the activities

covered involve the use of instrumentalities “which are

peculiarly dangerous unless carefully operated.” The con-

cept of “peculiar risk” appears in Restatement § 416 and

is defined in Comment d. as follows:

A “peculiar risk” is a risk differing from the common

risks to which persons in general are commonly sub-

jected by the ordinary forms of negligence which are

usual in the community. It must involve some spe-

cial hazard resulting from the nature of the work

done, which calls for special precautions. (See § 413,

Comment b.)

Comment b. to Restatement § 413 further contributes to

an understanding of “peculiar risk”:

This Section is concerned with special risks, pe-

culiar to the work to be done, and arising out of its

character, or out of the place where it is to be done,

against which a reasonable man would recognize the

necessity of taking special precautions. The situation

is one in which a risk is created which is not a normal,

routine matter of customary human activity, such as

24. Our disposition of this issue makes it unnecessary to

resolve a hotly contested issue of whether Dando or Kimberling

owned the sublease under which the marina was operated.

— This comment contains the following illuminating ex-

ample:

Thus if a contractor is emplo to transport the employer’s

goods by truck over the public highway, the employer is

not liable for the contractor's failure to inspect the brakes

on his truck, or for his driving in excess of the speed limit,

because the risk is in no way a peculiar one, and only an

ordinary precaution is called for. But if the contractor is

employed to transport giant logs weighing

the highway, the employer will be subject to liability for

the contractor's failure to take special precautions to anchor

them on his trucks.

A-23

driving an automobile, but is rather a special danger

to those in the vicinity, arising out of the particular

situation created, and calling for special precautions.

The Missouri courts are in substantial agreement with

the Restatement, holding that the activity must involve

an inherent risk of harm which arises out of the nature

or character of the work done. In Southwestern Bell Tel-

ephone Co. v. Rawlings Manufacturing Co., 359 S.W.2d 393,

398 (Mo. App. 1962), the court said:

There is an exception to this where the work,«during

its progress, creates a peculiar risk of bodily harm to

others unless special precautions are taken. If the

risk is such that it should be recognized by the em-

ployer and personal injury results to a third party by

reason of the contractor’s failure to take necessary

precautions, then the nondelegable duty is imposed

and the employer held liable. Stubblefield v. Federal

Reserve Bank of St. Louis, 356 Mo. 1018, 204 S.W.2d

718 [1947].

In Boulch v. John B. Gutmann Construction Co., 366

S.W.2d 21, 31 (Mo. App. 1963), the court observed:

The hauling of dirt in trucks, if done carefully and

without negligence on the part of the hauler, is not

work which in itself is inherently dangerous. If the

contractor directs the subcontractor to perform an act

which is intrinsically dangerous to others the general

contractor cannot escape liability for injuries that may

occur. In such cases the injury flows from the doing

of the act as its natural consequence, and not from

the manner in which it is done. Salmon v. Kansas

City, 241 Mo. 14, 145 S.W. 16 [1912].

See Underwood v. Crosby, 447 S.W.2d 566, 568 (Mo. 1969)

(en banc).

A-24

Pritchetts and Oldhams argue the applicability of Re-

statement § 428, saying that—

the construction of the marina, the locating of the

marina storage facilities in close proximity in the cove

and the collection of the keys to all of the boats in a

central location [were acts which! . . substantially

increased the risk of harm from unauthorized uses of

the boats and required special precautions. Those

acts are the acts that result in the “peculiar” risk con-

stituting the “unreasonable risk of harm.”

We cannot agree that such acts are “intrinsically dan-

gerous.” Appellants have not cited any case in which

similar activities have been held to constitute an unrea-

sonable risk of harm. Indeed, almost all of the cases have

involved railroads and other common carriers, such as trac-

tor trailers which transport goods over the public high-

ways, where the “peculiar” risk is obvious.“ We see no

practical difference in the risk of harm involved in oper-

ating a marina and that involved in operating an automo-

bile service station and garage, where autos are fueled,

repaired, and stored. Such “risk” is no more than what

26. Appellants cite American Transit Lines v. Smith, 246

F.2d 86 (6th Cir.), cert. denied, 355 U.S. 889 (1957) (applying

Ohio law), for the proposition that the use of motor by

common curriess on the highway is o (pesos stat under Be"

the highway.” This misses the basis of the court’s holding—

3 of an accident involving a large

tr 0

Clearly, the risk of harm inherent in operating a large tractor

trailer on the public highways is not comparable to the risk of

harm involved in the operation of a marina which services,

rents, and stores pleasure boats for the public. Nor is the risk

here involved comparable to that involved in Union Elec. Co. v.

Pacific Indemn. Co., 422 S.W.2d 87 (Mo. App. 1967), where the

defendant maintained 2400 volt over uninsulated power dis-

tribution lines. Compare Restatement ( ) on Torts § 416,

Comment d., supra note 25. The district court recognized that the

cases cited — appellants concerned common carriers operating

under a t.

A-25

is to be expected in the everyday life of a community.

Accordingly, we agree with the district court on this is-

sue.

Summary

In summary, we (1) affirm the district court’s finding

of negligent entrustment, which results in liability on the

part of Kimberling, (2) reverse the district court’s hold-

ing on the joint enterprise issue, which results in Recre-

ation’s joint liability with Kimberling, and (3) affirm the

district court’s holding that operating the marina did not

involve an unreasonable risk of harm to others under a

franchise granted by public authority, so that there is no

liability running to Dando. We assess costs one-third to

Kimberling, one-third to Recreation, and one-third to

Pritchetts.

Affirmed in part and reversed in part.

A true copy.

Attest:

Clerk, U.S. Court of Appeals, Eighth Circuit.

A26

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

September Term, 1977

76-1912

Recreation Unlimited, Inc.,

Appellee,

vs.

Mike Oldham, et al.,

Appellants.

76-1913

Joseph H. Pritchett, et al.,

Appellants,

VS.

Kimberlingz Cove, Inc., etc., et al.,

Appellees.

Appeals from the United States District Court for the

Western District of Missouri

The Court having considered petition for rehearing

en banc filed by counsel for appellees Recreation Un-

limited, Inc. and Dando Enterprises, Ltd., etc. and, being

fully advised in the premises, it is ordered that the peti-

tion for rehearing en banc be, and it is hereby, denied.

January 18, 1978

A-27

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 76-1912

No. 76-1913

No. 76-2014

Joseph H. Pritchett and Vivian M. Pritchett,

Plaintiffs-Appellees,

and

Margaret Ann Pritchett, Plaintiff-Appellee,

v.

Kimberling Cove, Inc., Defendant-Appellant,

and

Dando Enterprises, Ltd. and Charles J. Dando,

Defendants-Appellees,

and

In the Matter of the Complaint of Recreation Unlimited,

Inc. (now Dando Enterprises, Ltd.), owner of a 1971

Classic 170 Motorboat, No. 17071681, Missouri Registry

No. MO 4164 GG, for Exoneration From or Limitation

of Liability, Appellee,

Joseph H. Pritchett, Vivian M. Pritchett, Margaret Ann

Pritchett, Charles J. Oldham, Roma M. Oldham, and

Mike Oldham, Appellants.

Appeals from the United States District Court for the

Western District of Missouri.

A-28

ORDER

Having considered the petition for rehearing of Dando

Enterprises, Ltd. (formerly Recreation Unlimited, Inc.),

it is ordered that the petition be denied except as follows:

(1) The court’s opinion is modified to correct two er-

rors deemed nonprejudicial, thus:

(a) in line 2 on page 11, insert after “marina”

the following: in Dando’s absence”

(b) in line 1 of footnote 8 on page 11, change

“Recreation’s” to “Kimberling’s”

(2) It is ordered that Civil Action No. 2792 be re-

manded to the district court for reconsideration

of the cross claims of the corporations, consistent

with our opinion, and the district court is further

directed to enter an appropriate order or judgment

thereon.

JANUARY 30, 1978

A-29

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

September Term, 1977

No. 76-1912

Recreation Unlimited, Inc., Appellee,

vs.

John H. Pritchett and Vivian M. Pritchett,

vs.

Mike Oldham, Charles J. Oldham, Roma M. Oldham,

Appellants.

No. 76-1913

Joseph H. Pritchett and Vivian M. Pritchett,

Appellants,

vs.

Kimberling Cove, Inc., a corporation and Dando Enter-

prises, Ltd., formerly known as Recreation Unlimited, Inc.,

and Charles J. Dando, Appellees.

Margaret Ann Pritchett, Appellant,

vs.

Kimberling Cove, Inc., a corporation Dando Enterprises,

Ltd., and Charles J. Dando, Appellees.

Dando Enterprises, Ltd., formerly known as Recreation

Unlimited, Inc., Appellee,

vs.

John H. Pritchett, Vivian M. Pritchett, and

Margaret Ann Pritchett, Appellants,

Mike Oldham, Charles J. Oldham, Roma M. Oldham.

—_

A-30

No. 76-2014

Joseph H. Pritchett and Vivian M. Pritchett, Appellees,

Margaret Ann Pritchett, Appellee,

vs.

Kimberling Cove, Inc., Appellant,

Dando Enterprises, Ltd., formerly known as Recreation

Unlimited, Inc., and Charles J. Dando.

Appeals from the United States District Court for the

Western District of Missouri.

On motion of Recreation Unlimited, Inc., it is now

here ordered that the issuance of the mandate herein be,

and the same is hereby, stayed for a period of thirty days

from this date. If within that time there is filed with

the Clerk of this Court a certificate of the Clerk of the

Supreme Court of the United States that a petition for

writ of certiorari has been filed, the stay hereby granted

shall continue until the final disposition of the case by

the Supreme Court.

March 9, 1978

B-1

APPENDIX B

IN THE UNITED STATES DISTRICT COURT FOR THE

WESTERN DISTRICT OF MISSOURI

SOUTHERN DIVISION

Civil Action

No. 2792

JOSEPH H. PRITCHETT and VIVIAN M. PRITCHETT,

Plaintiffs,

vs.

SCOTT CLIFTON, a minor, et al., Defendants.

No. 74CV341-S

MARGARET ANN PRITCHETT, Plaintiff,

VS.

SCOTT CLIFTON, a minor, et al., Defendants.

Civil Action

No. 3122

In the Matter of the Complaint of RECREATION UN-

LIMITED, INC., owner of a 1971 Classic 170 Motorboat,

No. 17071681, Missouri Registry No. MO 4164 GG, for

Exoneration from or Limitation of Liability.

MEMORANDUM OPINION AND JUDGMENT

(Filed August 19, 1976)

This group of consolidated cases arose out of a serious

and tragic collision between two motor boats, at night,

on Lake Tablerock, August 7, 1971. The first suit was

filed by Mr. and Mrs. Joseph Pritchett, the parents of

B-2

Margaret Pritchett, the seriously injured minor operator

of one boat, for medical expenses and loss of service.

The sole defendant was the minor driver of the other

boat, Scott Clifton. By subsequent amendments two

corporations, Recreation Unlimited, Inc. and Kimberling

Cove, Inc., and an individual, Charles J. Dandc (president

of both corporate defendants) were added as defendants.

Thereafter, Recreation Unlimited, Inc. filed case No.

3122 “for Exoneration from or Limitation of Liability,” al-

leging that it was the owner of the boat driven by Clifton;

that it was being driven without Recreation’s knowledge or

consent; that the boat was being operated on navigable

waters of the United States at the time of the accident;

and praying that, under the provisions of 46 U.S.C. §§ 183

to 189, all parties having claims be enjoined from processing

any suits and be required to file such claims in this action.

Recreation tendered $3,500.00 (the alleged value of the

boat) into court.

Mike Oldham, a minor, and his parents, filed an an-

swer and claim for damages in this second suit, alleging

negligent entrustment by plaintiff to Clifton. Oldham was

a passenger in the Pritchett boat.

Margaret Ann Pritchett filed an answer-claim in this

suit, alleging a number of grounds of active negligence on

plaintiff’s part. Her parents filed a similar answer-claim.

Margaret Ann Pritchett then filed a suit against Scott

Clifton, Kimberling Cove, Inc., Dando Enterprises, Ltd. (for-

merly known as Recreation Unlimited, Inc.) and Charles

J. Dando. In this case the plaintiff alleged that the ac-

cident occurred on navigable waters of the United States.

In the first case mentioned the two corporate defen-

dants each filed a cross-claim against the other alleging lia-

bility in the event of a judgment against the cross-claimant.

B-3

Before trial Scott Clifton was dismissed by plaintiffs

as a defendant in the two cases in which he was so named.

A very complete pretrial order was drafted by all the

parties containing stipulations of fact, stipulations of factual

issues, and stipulations of issues of law.

Possibly due to a misunderstanding, the Court con-

cluded after a number of pretrial conferences, that only

the plaintiffs insisted on the right to a jury trial, and that

all the other parties contended that all claims arose under

admiralty law, with the consequent rule of comparative neg-

ligence, rather than contributory negligence, being appli-

cable, and no right to a jury trial. The plaintiff conceded

this point on the eve of trial and the Court announced it

would try the case without a jury. The defendant Dando

objected, claiming that a factual issue still existed as to

whether the accident occurred on navigable waters of the

United States. The defendant Dando, in his capacity as

president of the corporate defendants, had stated, in an-

swer to interrogatories, that the accident occurred on

navigable waters. On the eve of trial, however, the attor-

neys representing him in his individual capacity demanded

a jury trial, contending that the waters involved were not

navigable. Because all of the witnesses on liability and

damages (some from a considerable distance) were present,

and no witnesses had been subpoenaed on the navigability

question, the Court tried liability and damages first, then

set a later hearing with ample time for the parties to appear,

on the navigability issue.

A number of witnesses were heard and exhibits intro-

duced on this second issue. The Court finds that the White

River, the impoundment of which created Tablerock Lake,

has been used as a navigable stream for commerce at least

as far toward its headwaters as the mouth of James River,

since long before the Civil War and as recently as the

B-4

1930’s. The early settlers of the White River and James

River Valleys came up the river in keel boats. The same

type of boats were used for many years to transport trade

goods and crops. Tie rafts utilized the river to transport

ties to the railroad at Branson, Missouri, after it was built

well into this century.

Since the place of the accident which is the subject

of this litigation is many miles downstream from the mouth

of James River, this lake, at least at this point, undoubtedly

constitutes navigable waters of the United States.

It is well established that a lake formed by impound-

ment of waters of a navigable river then constitutes navig-

able waters of the United States within the jurisdictional

provision of Article III, Section 2, Clause 1, of the United

States Constitution. United States v. Appalachian Elec.

Power Co., 311 U.S. 377 (1940); Loc-Wood Boat & Motors,

Inc. v. Rockwell, 245 F.2d 306 (8th Cir. 1957).

The rafting of logs has been held to meet the test of

navigability. The Montello, 20 Wall. 430 (U.S. 1874); Wis-

consin Public Service Corp. v. Federal Power Commission,

147 F.2d 743 (7th Cir. 1945); Wisconsin v. Federal Power

Commission, 214 F. 2d 334 (7th Cir. 1954).

Basically, the claims of Margaret Ann Pritchett, a

minor, and of her parents, and the claim of Mike Oldham,

a minor, and his parents, all against Recreation Unlimited,

Inc. are at issue in case No. 3122, the suit brought by Rec-

reation to limit liability to the value of the boat and cargo.

The claims of Margaret Ann Pritchett against Kim-

berling Cove, Inc. and Charles J. Dando are at issue in case

No. 75CV341-S, and the claims of her parents against the

two corporations and Dando are at issue in case No. 2792.

Since all of these claims arose out of the same accident,

they were consolidated for trial.

B-5

THE ACCIDENT

Kimberling Cove Marina is on the shore line of a large

cove on Tablerock Lake. Both boats involved in the ac-

cident were docked, during the boating season, at this

marina. Both boats were powered by “inboard-outboard”

engines, the horsepower being 155 for the Pritchett boat

and 140 for the Clifton boat. Both were capable of speeds

above 45 miles an hour. They were both primarily designed

for pleasure riding and towing water skiers.

The accident occurred shortly after dark. The Clifton

boat had been out on the lake and was returning to the

marina. The Pritchett boat had left the marina and was

approaching the main body of the lake.

In both boats the helmsman’s seat was on the right

side of the front seat, located in the front of the passenger

compartment. In the Pritchett boat the two passengers

in the rear seat faced the rear.

The boats approached each other on a collision course.

The passenger seated beside the driver in the Pritchett boat

saw the Clifton boat an instant before the collision, ap-

proaching from the starboard bow, and shouted a warning.

Miss Pritchet: swung the boat to the left, too late, and

the bow of the Clifton boat cut through the Pritchett boat

in the immediate area in which the Pritchett girl was seated,

in other words, on the starboard side of the boat nearer

the bow than the stern. The Pritchett boat was salvaged

and the pictures show that the impact had been severe.

The evidence as to navigation lights was disputed.

Similarly, the evidence as to the speed of the two boats

was contested.

The evidence established that the pilot of a boat ap-

proaching a lighted marina at night has much more dif-

ficulty seeing the navigation lights of a boat between him

—----™ *

B-6

and the marina, than observing similar lights against an

unlighted background, and reduced speed is necessary.

The Court further finds that there was no negligence or

fault in the operation of the Pritchett boat.

DAMAGES

The plaintiff Margaret Ann Pritchett received serious

and disabling injuries in this accident, including a cere-

bral mass lesion on the left, a shift of the brain midline

to the right and a fracture of the skull. In addition to the

crushing head injuries, she received several severe lacer-

ations to muscles and nerve trunks. She was unconscious

and in critical condition in the hospital for many days and

was not able to support her own life systems until October

17, 1971.

Her left eye had to be removed. She now wears a

prosthetic eye and the right side of her face remains com-

pletely paralyzed. At the time of the trial, she had learned

to walk without a cane, which she had been required to

use for some time, but has a wide base gait, which is

caused by brain damage and is permanent. The paralysis

of one side of her face is not noticeably disfiguring when

the face is in repose, but gross distortion is seen when

speaking or smiling, since the paralyzed side of her face

remains immobile.

She has permanent brain damage, which not only af-

fects her gait but causes headaches and insomnia and mem-

ory difficulties, which make it difficult for her to learn.

She only has 50% function of her right eye, due either to

the brain injury or the nerve damage which causes the

paralysis on that side of her face. As a result of this ac-

cident her vocal cords were damaged, and prior to the

accident she was taking private voice lessons and had a

very exceptional and promising singing voice. Before the

B-7

accident she was very active physically, and participated

in many outdoor sports, which she will never be able to

participate in again. She is now 23 years of age and these

disabilities are unquestionably permanent. The Court as-

sesses the plaintiff Margaret Ann Pritchett’s damages from

the injuries received in this accident at $400,000.00.

It is stipulated that Mr. and Mrs. Joseph Pritchett,

the parents of Margaret Ann Pritchett, who was 18 years

old at the time of this accident, expended the sum of

$25,783.34 for medical expenses for their minor daughter,

and further stipulated that the reasonable damages for the

destruction of their boat was $2,900.00. The Court finds

that prejudgment interest should be awarded on the sum

of $2,900.00 from the date of the accident and that pre-

judgment interest should be awarded on the medical ex-

penses computed by taking the average date between

January 1, 1972 to June 1, 1976.

The plaintiff Mike Oldham received an injury to his

nose, mouth and forehead and left eyelid. He had surgery

on the nose and eyelid and was hospitalized for about a

week after the accident. The fall after the accident he

played football and was on the wrestling team of his

school, wearing a special nose brace in these sports. How-

ever, his nose gradually closed up and he had had a sec-

ond operation in 1972 and a third operation in 1973 for

repairs on the nose to make his breathing less difficult.

His plastic surgeon has recommended a fourth operation

on the nose. The Court assesses the plaintiff Mike Old-

ham’s damages from his physical injuries at $10,000.00.

His parents established medical expenses to them of

$3,175.00 to date and the necessity of spending an addi-

tional $500.00 for the fourth nose operation recommended

by his doctor. The Court, therefore assesses the damages

of the Oldham parents at. 33,675.00 with prejudgment in-

terest based on the average date from the date of the ac-

cident to the date of this judgment.

B-8

LIABILITY OF THE PARTIES

The three defendants charged with liability to the

plaintiffs in this case are the two corporations, Kimber-

ling Cove, Inc. and Recreation Unlimited, Inc., and Charles

J. Dando in his individual capacity. The facts as to the

relationship between these parties are as follows:

Kimberling Cove Marina, Inc. was incorporated for

the express purpose of operating a marina on Tablerock

Lake, and originally had a large number of stockholders.

The United States Government owns the entire shore line

of this lake and this property is administered by the Corps

of Engineers. The Corps of Engineers leases part of this

shore line for the express purpose of operating boat docks

and marinas. In 1963 a prime lease agreement was en-

tered into by some people named Powers and the Corps

of Engineers for shore line property, which included the

present location of the Kimberling Cove Marina. In 1964

a sublease, approved by the District Engineer, was en-

tered into by certain individuals for the operation of the

marine facilities. A subsequent assignee of this sublease

incorporated Kimberling Cove Marina, Inc. and an assign-

ment of the sublease to this corporation was approved by

the District Engineer. The stock of Kimberling Cove, Inc.

was offered for public purchase and at the time of this

accident there were 120 shareholders.

On July 30, 1969 the defendant Dando and wife pur-

chased the majority interest in this corporation. Mr.

Dando became president. In July of 1970 the corporation

borrowed $40,009.00 from the Small Business Administra-

tion, conveying a security interest in the corporation’s

sublease as part of the security for the loan. Shortly after

this loan, around September 1, 1970, the Corps of En-

gineers, as part of a national policy, renegotiated all leases

of this nature offering the lessees more advantageous rent-

B-9

als in order to make these marina operations more prof-

itable. In this case the Corps required the prime lessee

to renegotiate the sublease in order to share the increased

profits with the sublessee. The sublease that was rene-

gcvated named Mr. Dando, individually, as sublessee. This

sublease contained a provision that the sublease could be

assigned.

There was no release or cancellation of the former

sublease to the corporation, and, under the terms of the

security agreement, it could not be cancelled or assigned

without the permission of the Small Business Administra-

tion. There is no question that, after the sublease was

executed, the operations of the marina continued exactly

as they had before, that is, as the business and property

of the corporation, with the full knowledge and approval

of the Corps of Engineers. There was a great deal of

documentary evidence that the Corps of Engineers con-

tinued to refer to the subleessee as Kimberling Cove, In-

corporated. For example, a policy of liability insurance

(required by the sublease) in the name of the corpora-

tion was approved by the Corps, and the Corps audited

the monthly statements of gross income which were signed

by the corporation as sublessee. The title to all the per-

sonal property of the marina was in the corporation and

was also pledged as security for the Small Business Ad-

ministration loan to that corporation.

After Dando became president of the corporation, he

determined to expand the business by sale of boats and

marine equipment. However, his rental under the sub-

lease was based on gross sales, which meant that he would

have to pay a percentage of the sales price on these items

as rent under the sublease. To avoid this, Dando incor-

porated Recreation Unlimited and that corporation built

a large building very close to the marina but on private

*

B-10

property. This building contained a showroom for the

boats and accessories and also apartments. Dando and his

wife were the sole stockholders in this corporation and

he was also president of it. Frank Clifton, the father of

Scott Clifton, was vice president of both corporations but

solely on the payroll of Recreation Unlimited. He did,

however, oversee the manager of the marina whenever

Mr. Dando was absent.

The boat driven by Scott Clifton at the time of the

accident was owned by Recreation Unlimited, being part

of its inventory held for sale. However, this boat was

docked at the marina dock for rental use. Kimberling Cove

rented the boat under an arrangement whereby it paid 60%

of the rentals to Recreation Unlimited.

The business records of both corporations were in the

same office in the Recreation Unlimited building and one

bookkeeper handled all the books for both corporations.

The plaintiffs’ contentions as to liability of each of

these three defendants are based upon the following con-

tentions:

1. The plaintiff charges Kimberling Cove, Inc. with

negligent entrustment of the boat to Scott Clifton, who,

because of his youth and inexperience, the defendant knew

would be likely to use it in a manner involving unreason-

able risk of physical harm to others whom the corporation

should expect to be endangered by its use. This principle

of liability is found in section 390, Restatement of the Law

of Torts 2d. The facts on this issue are that Scott Clifton

was employed in the summer of 1971 to work on the marina

docks. He became 15 years of age three days before the

accident. He had never operated boats of this type prior

to that summer but did operate this particular boat to some

extent and did instruct persons who rented the boat on

B-11

how to start it and operate it. There is no evidence that

he was ever instructed in any manner in night operation

of the boat or was ever given permission to operate it at

night. There is no evidence from which the Court could

find that he was either a skillful, well - instructed operator

or that he had been a reckless or careless or incompetent

operator on the previous occasions he had operated the

boat. It is obvious that his experience in operating boats

of this nature was very limited.

2. Plaintiff contends that Recreation Unlimited is li-

able on the theory that the operation of the marina and the

renting of the boat was a joint enterprise of these two cor-

porations, based on the facts that they had common of-

ficers, common offices and the close physical proximity of

their physical facilities.

3. The plaintiff alleges that the defendant Dando is

individually liable for the alleged negligent acts of the de-

fendant Kimberling Cove under the principle found in Re-

statement of Torts 2d, section 428, which reads as follows:

“An individual or corporation carrying on an activity

which can be lawfully carried on only under a fran-

chise granted by public authority and which involves

an unreasonable risk of harm to others, is subject to

liability for physical harm caused to such others by

the negligence of the contractor employed to do work

in carrying out the activity.”

Before determining the liability of each of these three

defendants under the above theories of law and the facts

of this case, it is necessary to determine what law governs.

Fortunately, the Court of Appeals of this Circuit has di-

rectly passed upon this question in the case of St. Hilaire

Moye v. Henderson, 496 F.2d 973 (8th Cir. 1974). In that

case the court held that the principle of liability for negli-

B-12

gent entrustment was applicable in an admiralty case. Tte

court said at I. c. 980:

“A Federal Court sitting in admiralty does not sit ss

a diversity court; therefore, this is not a case ‘where

state substantive law must be ascertained and appliec.’

_.. rather, admiralty suits are governed by fedenl

substantive and procedural law... However, a Fel-

eral Court sitting in admiralty need not ‘invariaby

refuse to recognize and enforce a liability which tle

state has established in dealing with a maritime su-

ject. On the contrary, there are numerous instances

in which the general maritime law has been modified

or supplemented by state action.’ .. Thus, admiraly

courts may apply state law by express or implied re-

erence or when the Federal law of admiralty is incon-

plete. .. The Supreme Court has sustained tie

application of state laws which broaden the scope of

liability beyond the general maritime standards.

“However, state law may not be applied by a

Federal Court if it would defeat or narrow any sw-

stantial admiralty rights of recovery, either as creatd

by Federal legislation or as defined by interpretive

decisions of the Federal Court.. In addition, stae

law may not be applied to ‘contravene an act of

Congress, to prejudice the characteristic features of

the maritime law or to disrupt the harmony it strives

to bring to international and interstate relationship.’

.. Even if state law does not contravene an estib-

lished. principle of admiralty, it may be deemed pe-

empted if it is in direct contravention of the unifir-

mity of the Admiralty Law in some crucial respec.”

Missouri follows this principle of negligent entrut-

ment as shown in the case of Stafford v. Far-Go Van Livres,

Inc., 485 S.W.2d 481 (K.C. Mo. App. 1972). That cse

B-13

directly approved section 390 Restatement Torts 2d set

out above. The Stafford case also cited with approval

the cases of Boland v. Love, 222 F.2d 27 (D.C. Cir. 1955),

and Pierce v. Standow, 329 P.2d 44 (Cal. App. 1958).

Both of the latter cases are cases in which the defendant

owner of an automobile did not authorize the use of the

vehicle, and, in fact, had forbidden the use of the vehicle

in the Pierce case but nevertheless entrusted the driver

with the keys making it possible for him to operate the

vehicle.

These cases are very close in point to the instant case.

In this case Scott Clifton was permitted on several occa-

sions, possibly as many as ten, to operate this powerful,

fast boat, during daylight hours, while still 14 years of

age. He had never been given permission to operate it at

night, and, in fact, on the afternoon prior to the accident

had been denied permission to operate it. However, he

was entrusted with the key to unlock the boat house in

which the keys to this boat and other rental boats were

kept. Common knowledge of the natural inclinations of

teenage boys to impress their teenage friends and to run

fast, powerful boats convinces this Court that this con-

stitutes an entrustment of the boat to Scott Clifon. The

quesion, then, is whether his employer, who entrusted him

with this key, knew, or had reason to know, that Scott

Clifton, because of his youth, inexperience or otherwise,

was likely to use it in a manner involving unreasonable

risk of physical harm to others. The evidence showed that

Scott Clifton, at the age of 14, had a very poor school

record, having failed many subjects. This was a fact

undoubtedly known by his father, who was the vice pres-

ident of Kimberling Cove. This record would indicate,

in itself, that he either had an inferior learning ability

or that he had an attitude of inattention and nonapplica-

tion of his mental facilities. But, in addition to this, his

B-14

youth and inexperience in the operation of powerful boats

of this kind, combined with the natural inclinations of boys

of this age to “show off and to travel at maximum speeds

whenever possible, would in themselves supply the likeli-

hood of unreasonable risk of physical harm from his opera-

tion of this boat, especially at night. The Court finds

as a fact, under all the facts and evidence in this case,

that the defendant Kimberling Cove, Inc. negligently en-

trusted this boat to Scott Clifton and, as a matter of law,

is subject to liability for the physical harm suffered by

these plaintiffs.

The plaintiff seeks to predicate the liability of the

defendant Recreation Unlimited, Inc. on the theory that

it was engaged in a joint enterprise with Kimberling Cove,

Inc. in the operation of the marina, and more especially

in the leasing of the boat in question. Most of the evidence

on the joint enterprise theory is set out above. There is no

evidence that there was any disregard of the separate

corporate entities of these corporations by their common

officers and directors. The records of each corporation

were kept separately and accounts were maintained be-

tween them. There was obviously no ulterior motive such

as fraud or deception in the operation of the two separate,

independent, and noncompetitive businesses of these two

companies. The arrangement for using this boat as a

rental boat was a plain, straight-forward business trans-

action. Kimberling Cove docked the boat and rented it

by the hour to customers who wanted a powerful speed

boat for water skiing or sightseeing. It paid 60% of the

gross rentals received to the owner of the boat, which

presumably had the boat available for demonstration and

sale to a prospective purchaser. The Court finds, as a

mater of law, that this arrangement did not constitute a

joint enterprise 2nd that Recreation Unlimited, Inc. is not

jointly liable for the negligent entrustment of the boat.

B-15

The Court finds the issue of limitation of liability under

admiralty law in favor of Recreation Unlimited, Inc. and

will enter a judgment against it for the stipulated value

of the boat, which has been tendered into court.

This leaves the question of the liability of the indi-

vidual defendant under plaintiffs’ theory that Mr. Dando

was the holder of a “franchise granted by public authority

and which involves an unreasonable risk of harm to others”

and is, therefore, subject to liability for physical harm

caused to others by the negligence of the contractor em-

ployed to do work in carrying out the activity, as ex-

pressed in section 428 of Restatement Torts 2d set out

above.

The alleged franchise is a sublease which was ap-

proved by the Corps of Engineers. It was shown from

the evidence that the Corps of Engineers controls and

limits the number of marinas located on Tablerock Lake

through its ownership of the entire shore line. Unau-

thorized persons who attempt to build a marina on the

shore line and engage in any of the ordinary operations

of a marina, such as renting boats or renting dock space

for boats or selling bait, are criminally prosecuted. Of

course, all of these activities (excepting renting dock

space) can be carried on by individuals on private prop-

erty within a few hunded feet of the lake without re-

striction. The authorized marinas are located within a

few miles of each other and operate competitively. This

Court does not believe that a lease of land with the per-

mission and authority to operate a marina could be clas-

sified as a franchise. However, the principle set out in

the Restatement qualifies the word “franchise” by stat-

ing that it must be an activity “which involves an unrea-

sonable risk of harm to others.” There is no evidence

from which this Court could find that the activity of oper-

B-16

ating a marina involves any unreasonable risk of harm

to others so that even if the sublease could be found to

be a “franchise granted by public authority,” the princi-

ple of law stated in the Restatement would still not apply.

All of the cases cited to this Court applying this theory

are concerned with common carriers, either railroads or

trucks operating under ICC or PSC permit.

Under the evidence in this case, the Court does not

have to pass on the complex question of whether or not

the sublease was still in the name of Kimberling Cove,

Inc. because it had never been cancelled, or whether or

not Kimberling Cove was still the sublessee because the

Corps of Engineers had continually recognized it as the

sublessee after the execution of the new sublease to Mr.

Dando. The Court finds as a matter of law that the sub-

lease did not constitute a “franchise granted by public

authority which involved an unreasonable risk of harm to

others” and, therefore, will enter judgment in favor of de-

fendant Dando in this action.

At the trial of this case it developed that the corpo-

rate charter of Kimberling Cove, Inc. had been forfeited

during the pendency of this action. A showing was made

of the names of the last officers and directors in office

when the forfeiture occurred. Upon inquiry from the

Court, it developed that the attorneys representing Kim-

berling Cove, Inc. in this trial had been employed by the

liability insurance carrier whieh covered that corporation

at the time of this mishap. These attorneys stated that

they had advised the last officers of the corporation of

their right to employ counsel to assist in the defense of

this case, and, in fact, they had urged them to do so, but

had no response. There is no question, however, that they

knew of the pendency of this action.

B-17

Missouri Civil Rule 52.13(e) provides that when a

corporation has been sued and served with process or has

appeared while in being, and is thereafter dissolved or its

charter forfeited (the exact facts of this case):

“The action shall not be affected thereby and any

judgment obtained shall have the effect of a judg-

ment against the directors and officers in office when

any such dissolution or forfeiture occurs, in their rep-

resentative capacity, although they were not joined

in the action.”

Under this clear rule and the undisputed facts as estab-

lished in the record, the judgment against Kimberling

Cove, Inc. should be a judgment against these officers and

directors in their representative capacity.

The defendants raised the issue of contributory or

comparative negligence on the part of the plaintiff Mar-

garet Ann Pritchett and stressed her youth as part of this

contention. As set out above, the Court found her with-

out fault in this accident. The Court further finds that

she became 18 years of age the day after the accident;

that she had had an automobile driver’s license for two

years and was an experienced and competent driver; and

that she had had experience in operating boats of this na-

ture for over three years. There was absolutely no evi-

dence that she had been anything but a careful pilot of

the speed boat. The Court finds as a matter of law that

the plaintiff Margaret Ann Pritchett was not guilty of

any negligence of any type in the operation of her parents

boat at the time of this accident and further finds that

there was no negligent entrustment of the boat to her by

her parents.

In view of the above. findings, the corporate cross-

claims will be dismissed.

EEE

B-18

Counsel for plaintiffs are directed to prepare a form

of final judgment and submit it to the Court, with copies

to opposing counsel within ten days from this date.

/s/ Wm. R. Collinson

District Judge

Dated: 8/19/76

B-19

IN THE UNITED STATES DISTRICT COURT FOR THE

WESTERN DISTRICT OF MISSOURI

SOUTHERN DIVISION

Civil Action No. 3122

In the Matter of the Complaint of RECREATION UN-

LIMITED, INC., owner of a 1971 Classic 170 Motorboat,

No. 17071681, Missouri Registry No. MO 4164 GG,

for Exoneration from or Limitation of Liability.

JUDGMENT

(Filed September 16, 1976)

The Court having found that Recreation Unlimited,

Inc. is entitled to limit its liability under 46 U.S.C. §§ 183

to 189, and the parties having agreed that the value of

the 1971 Classic 170 motorboat was Three Thousand Five

Hundred ($3,500.00) Dollars, which amount was deposited

herein in the form of a surety bond issued by The Fidelity

and Casualty Company of New York, as Surety, the Court

does hereby award Claimants Joseph H. Pritchett and

Vivian M. Pritchett the sum of TWO HUNDRED SIX-

TY-ONE Dollars and TWENTY-EIGHT Cents ($261.28),

awards Claimant Margaret Ann Pritchett the sum of

THREE THOUSAND ONE HUNDRED TWENTY-SEVEN

Dollars and EIGHTY-EIGHT Cents ($3,127.88), awards

Claimant Mike Oldham the sum of SEVENTY-EIGHT Dol-

lars and NINETEEN Cents ($78.19) and awards Claim-

ants Charles J. Oldham and Roma M. Oldham the sum of

THIRTY-TWO Dollars and SIXTY-FIVE Cents ($32.65),

the amounts awarded aggregating THREE THOUSAND

FIVE HUNDRED ($3,500.00) Dollars, and Recreation Un-

limited, Inc. or its said Surety is ordered to pay the said

amounts as awarded. Judgment is hereby entered in

B-20

favor of the said Claimants in the indicated amounts

against Recreation Unlimited, Inc.

All costs herein are taxed against Recreation Unlim-

ited, Inc.

Upon payment of costs and the filing of Receipts show-

ing payment of the amounts awarded, the said Surety shall

be discharged.

Done this 16th day of September, 1976.

s, Wm. R. Collinson

William R. Collinson

District Judge

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