Opinion
Civil Action No. 03-04345.
September 9, 2004
MEMORANDUM
In this products liability action, the plaintiff alleges that a defective helicopter engine valve damaged the helicopter and the engine itself, giving rise to contract and tort claims. Defendants have moved to dismiss the tort claims, arguing that the "Economic Loss Rule" bars tort claims when an object's allegedly defective part damages only the object itself. In applying this Rule, the Third Circuit has held that damage caused by a defective engine part to the engine itself cannot give rise to tort claims. That decision controls here. Accordingly, I dismiss the tort claims.
Background
Some years ago (the parties are unsure as to precisely when), Agrotors, a helicopter service business, purchased a Model Number 212 helicopter manufactured by defendant Bell Helicopter. N.T., August 18, 2004 at 5:1-5:17. The aircraft included an oil drain valve, part number 375C-8B, that was manufactured by defendant Auto Valve. The valve, which is located in the helicopter's engine, was replaced several times. N.T., August 18, 2004 at 17:15-17:17. Agrotors alleges that on August 29, 2000, it observed that the oil drain valve was loose due to worn screw threads. That same day, Agrotors purchased a replacement oil drain valve, part number 375C-8B, from Bell. The replacement oil drain valve was manufactured by Auto Valve and was the same as the original valve, but for design changes that Plaintiff claims damaged the helicopter.
Agrotors alleges that in June 2002 the Bell 212 helicopter malfunctioned: the design defect in the valve caused it to back out of its housing, leading to an oil leak that damaged the helicopter, engine, combining gearbox, and other parts of the aircraft.
Agrotors brings the following claims: strict liability against all defendants (Count I); breach of implied warranties of merchantability against all defendants (Count II); breach of implied warranty of fitness against all defendants (Count III); breach of express warranty against Bell (Count IV); negligence against Auto Valve (Count V); negligence against Bell (Count VI); misrepresentation against all defendants (Count VII); and gross negligence and willful misconduct against all defendants (Count VIII). Bell and Auto Valve have moved to dismiss, arguing that the Economic Loss Rule bars Counts I, V, VI, VII and VIII. In addition, Auto Valve moves to dismiss Agrotors' breach of warranty claims (Counts II and III) for lack of privity.
Summary Judgment Standards
Upon motion of any party, summary judgment is proper "if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). The moving party must initially show the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). In its review of the record, "the court must give the nonmoving party the benefit of all reasonable inferences." Sempier v. Johnson Higgins, 45 F.3d 724, 727 (3d Cir. 1995), cert. denied, 132 L. Ed. 2d 854, 115 S. Ct. 2611 (1995). An issue is material only if it could affect the result of the suit under governing law.Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). If, after viewing all reasonable inferences in favor of the non-moving party, the court determines that there is no genuine issue of material fact, summary judgment is appropriate. Celotex, 477 U.S. at 322; Wisniewski v. Johns-Manville Corp., 812 F.2d 81, 83 (3d Cir. 1987).
Here, the parties agree that the facts material to Defendants' summary judgment motions are undisputed. See Auto Valve's Brief at 1-4; Plaintiff's Brief at 3; Bell's Brief at 2-3; N.T., August 18, 2004 at 3:6-3:14.
Governing Law
In this diversity action, I am obligated to determine how the Pennsylvania Supreme Court would rule if presented with the issues raised in Defendants' Motion. 2-J Corporation v. Tice, 126 F.3d 539, 541 (3d Cir. 1997); see also U.S. Underwriters Ins. Co. v. Liberty Mutual Ins. Co., 80 F.3d 90, 93 (3d Cir. 1996). When predicting state law, federal courts "must consider relevant state precedents, analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand." Aloe Coal Co. v. Clark Equipment Co., 816 F.2d 110, 117 (3d Cir. 1987) (internal quotations omitted).
The Economic Loss Rule
The Third Circuit has held that Pennsylvania's Economic LossRule "prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows only from a contract."Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir. 1995); see also New York State Elec. Gas Corp. v. Westinghouse Elec. Corp., 387 Pa. Super. 537, 564 A.2d 919, 925 (Pa.Super. 1989); Blue Mountain Mushroom Co. v. Monterey Mushroom, 246 F. Supp. 2d 394, (E.D. Pa. 2002). Although the Economic Loss Rule originally applied only to product liability claims, it has since expanded to cover negligence claims. East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 871, 90 L. Ed. 2d 865, 106 S. Ct. 2295 (1986). The Rule has also been applied to the kind of intentional misrepresentation claim Agrotors brings here. See Werwinski v. Ford Motor Co., 286 F.3d 661, 680-81 (3d Cir. 2002) (noting that "[c]arving out an exception [to the economic loss rule] for intentional fraud would eliminate [a] check on liability and blur the boundaries between [tort and contract law], thus exposing manufacturers to substantially greater liability"). As explained by the Third Circuit, "[t]he economic loss doctrine is designed to `maintain the separate spheres of the law of contract and tort.'" Dusquesne, 66 F.3d. at 620 (quoting New York State Elec. Gas Corp. v. Westinghouse, Elec. Corp., 387 Pa. Super. 537, 564 A.2d 919, 925 (Pa. Super Ct. 1989)).
Pennsylvania courts have recognized that under the Economic Loss Rule, tort claims may not proceed unless they arise from damage to property other than the product alleged to be defective. See, e.g., REM Coal Co. v. Clark Equip. Co., 386 Pa. Super. 401, 563 A.2d 128, 129 (Pa.Super. 1989). "Tort product liability theories impose responsibility on the supplier of a defective product whenever it causes personal injury or damage to other property because this is deemed to be the best way to allocate the risk of unsafe products and to encourage safer manufacture and design." Id.
Agrotors has alleged that the defectively designed valve damaged other parts of the engine and helicopter. The key determination here is whether the helicopter and its engine are property other than the allegedly defective valve. The Third Circuit has prescribed the "object of the bargain" test in making such a determination. Under this test, property contemplated by the parties in consummating a sale — the "object" of their "bargain" — is not "other property" for purposes of the Economic Loss Rule. King v. Hilton-Davis, 855 F.2d 1047, 1051 (3d Cir. 1988). The Third Circuit has held that "every component that was the benefit of the bargain should be integrated into the product." Sea-Land Service, Inc. v. General Electric Co., 134 F.3d 149, 153 (3d Cir. 1998).
In Sea-Land, the Third Circuit considered whether a defective replacement part should be integrated into a boat's engine. Id. The plaintiff in Sea-Land — Sea-Land Service Inc. — purchased a vessel from U.S. Lines in 1988. The ship's service diesel generator was powered by a diesel engine manufactured by the defendant, General Electric Company. U.S. Lines had initially purchased the diesel engine in 1980. The engine contained both permanent parts and those that needed periodic replacement. In 1990, during the diesel engine's overhaul, Sea-Land replaced the engine's master connecting rods. The engine then failed twice, allegedly because one of the replacement rods was defective. Sea-Land sued GE, alleging that the defective rod had damaged the diesel engine. Sea-Land's complaint included claims for negligence, failure to warn, and defective product. The District Court dismissed Sea-Land's tort claims under the Economic Loss Rule. Sea-Land appealed.
In affirming the trial court, the Third Circuit focused on "whether replacement parts should be integrated into the engine whole or not." Id. at 153-54. Sea-Land argued that the rods it purchased in 1990 were the "products," and the previously purchased engine was "other property." Id. at 154. In Sea-Land's view, there were two separate bargains: one for the engine in 1988, and one for the connecting rods in 1990. Sea-Land thus reasoned that the damage to the engine constituted damage to "other property," as the defective rod itself was the "product" under the Economic Loss Rule.
The Third Circuit disagreed, holding that the benefit of U.S. Lines' bargain in 1980 was a fully-functioning engine, including parts that would be replaced over time. When Sea-Land subsequently purchased the vessel from U.S. Lines, the Court found that the product Sea-Land bargained for was also a functioning engine containing parts that would have to be replaced. Id. at 154. Accordingly, the Third Circuit held that when all of the components of a product are part of the bargain, those parts become integrated into one product. Id. (citing Saratoga Fishing Co. v. J.M. Martinac Co., 520 U.S. 875, 883-84 (1997)). The Court explained that "[s]ince all commercial parties are aware that replacement parts will be necessary, the integrated product should encompass those replacement parts when they are installed in the engine." Id.;see also Exxon Shipping Co. v. Pacific Resources, Inc., 835 F. Supp. 1195, 1201 (D. Haw. 1993) (when determining whether "other property" has been damaged, there is no distinction between a replacement part and the originally supplied components).
Like Sea-Land, Agrotors argues that a defective replacement part is a separate "product." As the Third Circuit observed, however: "[i]t is a common commercial practice for the parties to a transaction to contemplate the integration of replacement parts subsequent to a purchase." The Court refused to "deviate from the integrated product rule," as urged by Sea-Land (and now urged by Agrotors), "simply because the defective component happens to be a replacement part instead of the part originally supplied with the product." Sea-Land, 134 F.3d at 154.
Agrotors bargained for a functioning aircraft when it purchased the helicopter from Bell. Included within the helicopter were component parts, many of which would inevitably need replacement, including its oil drain valve. Agrotors did not bargain separately for that individual oil drain valve when it purchased the helicopter. If the replacement valve was defective, and that defect caused damage to the engine and the helicopter, then the helicopter itself was defective. If Agrotors was deprived of the benefit of its bargain by getting a defective helicopter, its remedy is based in contract, not tort.
Agrotors seeks to distinguish Sea-Land, arguing that it was an admiralty decision. Yet, there is nothing in the Third Circuit's opinion suggesting that the Court's reasoning was limited to admiralty lawsuits. On the contrary, the Third Circuit and Pennsylvania courts have relied on admiralty decisions in applying the Economic Loss Rule. See 2-J Corporation v. Tice, 126 F.3d 539 (3d Cir. 1997); Stonhard v. Advanced Glassfiber Yarns, Inc., 2001 WL 1807359 (C.P. Phila. 2001) (citing, with approval, the maritime law decision in Saratoga); Waterware v. Ametek/U.S. Gauge Div., 51 DC 4th 201, 2001 WL 1112975 (C.P. Phila. 2001) (basing its decision on Saratoga). The Third Circuit has also observed that general maritime law is "an amalgam of traditional common-law rules, modifications of those rules, and newly created rules drawn from both state and federal sources." Tice, 126 F.3d at 543 n. 2 (internal quotations omitted). Indeed, the cases Agrotors relies upon belie its seeming rejection of admiralty law. Id. (noting that admiralty cases such as Saratoga and East River are persuasive authority in deciding issues of tort and contract). Thus, Agrotors' arguments notwithstanding, the Third Circuit's application of the Economic Loss Rule in Sea-Land, an admiralty case, certainly controls here.
Under Sea-Land, Agrotors may not proceed with its tort claims against either defendant. Accordingly, I dismiss Agrotors claims for strict liability (Count I), negligence (Counts V and VI), misrepresentation (Count VII), and gross negligence and willful misconduct (Count VIII).
Lack of Privity
Auto Valve moves separately for summary judgment as to Counts II (breach of warranty) and III (breach of implied warranty), arguing these claims fail because Auto Valve has no contractual obligation to Agrotors. Pennsylvania courts have repeatedly held that a consumer, such as Agrotors, need not be in privity of contract with a product's manufacturer to sustain warranty claims directly against the manufacturer. See Flow International Corporation v. Hydrojet Services, Inc., 203 U.S. Dist. LEXIS 9820 (E.D. Pa. 2003); Spagnol Enters, Inc. v. Digital Equipment Corp., 390 Pa. Super. 372 (1989); Moscatiello v. Pittsburgh Contractors Equipment Co., 407 Pa. Super. 378 (1991). Accordingly, I deny Auto Valve's motion for summary judgment as to Counts II and III.
An appropriate order follows.
ORDER
AND NOW, this 9th day of September, 2004, upon consideration of Auto Valve's Motion for Partial Summary Judgment, Bell Helicopter's Motion for Summary Judgment, Agrotors' Response, and all related submissions, it is hereby ORDERED as follows:It is ORDERED that Auto Valve's motion as to Counts I, V, VII and VIII of Agrotors' Complaint is GRANTED. Counts I, V, VII and VIII are DISMISSED with prejudice.
It is ORDERED that Bell Helicopter's motion as to Counts I, VI, VII and VIII of Agrotors' Complaint is GRANTED. Counts I, VI, VII and VIII are DISMISSED with prejudice.
It is ORDERED that Auto Valve's motion as to Counts II and III is DENIED.