American Signal Companyv.All American Semiconductor

United States District Court, N.D. Georgia, Atlanta DivisionJan 19, 2006
Civil Action No. 1:05-cv-2200-GET (N.D. Ga. Jan. 19, 2006)

Civil Action No. 1:05-cv-2200-GET.

January 19, 2006


ORDER


G. TIDWELL, Senior District Judge

The above-styled matter is presently before the court on:

(1) Unity Microelectronics' motion to dismiss [docket no. 7];

(2) All American Semiconductor's motion for partial judgment on the pleadings [docket no. 16];

(3) plaintiff's motion for leave to file an amended complaint [docket no. 41];

(4) plaintiff's motion for oral argument on the pending motions [docket no. 47].

Plaintiff filed the instant action an June 22, 2005 in the Superior Court of Fulton County, asserting claims arising from a defective product manufactured by Unity Microelectronics ("Unity") and distributed by All American Semiconductor ("All American"), On August 24, 2005, All American removed the action to federal court pursuant to 28 U.S.C. § 1441, alleging diversity jurisdiction under 28 U.S.C. § 1332. On August 30, 2005, All American filed its answer to plaintiff's complaint, a cross-claim against Unity and a counter-claim against plaintiff. On September 1, 2005, Unity filed its Joinder in and Consent to Removal.

Plaintiff manufactures and sells lighted programmable signs, and alleges that several Light Emitting Diodes ("LEDs") manufactured by Unity, which it purchased from All American and used in constructing its signs, were defective. Plaintiff asserts claims against Unity for breach of implied warranty of merchantability, negligent design and manufacture, strict liability and a third party beneficiary claim under Unity's contract with All American. Unity filed a motion to dismiss on September 1, 2005. Plaintiff asserts claims against All American for breach of contract and negligent distribution. All American filed a motion for judgment on the pleadings on September 20, 2005. Plaintiff filed a motion for leave to amend its complaint on December 12, 2005. At the court's request, the parties filed supplemental briefs: plaintiff filed its brief on January 3, 2006, and defendants filed their briefs on January 9, 2006. Plaintiff filed a motion for oral argument on the pending motions on January 12, 2006.

Motion for Oral Argument

In its motion for oral argument, plaintiff does nod explain why oral argument would be helpful or necessary. "Motions will be decided by the court without oral hearing, unless a hearing is ordered by the court." LR 7.1E, NDGa. After reviewing the motions, the court finds that oral argument is not necessary to further explain the positions of the parties or the applicable law. Accordingly, plaintiff's motion for oral argument [docket no. 47] is hereby DENIED.

Motion for Leave to Amend

In plaintiff's motion for leave to amend its complaint, filed after Unity filed its motion to dismiss and All American filed its motion for judgment on the pleadings, plaintiff states that defendants do not oppose the amendment, and that the amendment does not affect either defendant's motion. However, after this court's initial review of the proposed amended complaint, it requested that the parties file supplemental briefs regarding the effect of the changes in plaintiff's amended complaint on Unity's motion to dismiss and All American's motion for judgment on the pleadings. In the supplemental briefs, defendants withdrew their consent.

Standard

Pursuant to Rule 15 of the Federal Rules of Civil Procedure, the plaintiff may amend its pleading once as a matter of course before a responsive pleading is served and otherwise only by leave of the court. Fed.R.Civ.P. 15(a). Under Rule 1 5, leave of court to file such amended pleadings "shall be freely given when justice so requires." This decision is within the sound discretion of the trial court. See Jameson v. Arrow Co., 75 F.3d 1528, 1534 (11th Cir. 1996). The United States Supreme Court has expressly held that absent undue delay, bad faith, dilatory motive, or other inappropriate conduct, the court should allow leave to amend the relevant pleadings. Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227 (1962).

Discussion

Both defendants have already filed answers. Accordingly, plaintiff may only amend its complaint with leave of the court. Plaintiff contends that it seeks to amend the complaint in order to resolve an error in the identification of model numbers of the faulty LEDs and correct an allegation concerning LEDs returned for credit. Further, plaintiff contends that if the changes to the complaint inadvertently worked a substantive change affecting defendants' motions, the court should grant leave to file the amended complaint because cases should be decided on the merits. Having read and considered plaintiff's motion to amend, as well as the supplemental briefs filed by the parties, the court finds that there has been no bad faith or other inappropriate conduct, nor will there be undue prejudice or delay by granting plaintiff's motion. Accordingly, plaintiff's motion for leave to amend the complaint [docket no. 41] is hereby GRANTED. The subsequent discussion of Unity's motion to dismiss and All American's motion for judgment on the pleadings is based on allegations contained in the amended complaint and plaintiff's explanation of those allegations in its supplemental brief.

Motion to Dismiss

Plaintiff asserts claims of breach of implied warranty of merchantability, negligent design and manufacture, strict liability, and third party beneficiary contract claims against Unity. Unity argues that each must be dismissed for failure to state a claim under Rule 12(b)(6).

Standard

A motion to dismiss under Rule 12(b)(6) attacks the legal sufficiency of the complaint. It is viewed with disfavor and rarely granted. See e.g., Int'l Erectors, Inc. v. Wilhoit Steel Erectors Rental Serv., 400 F.2d 465, 471 (5th Cir. 1968). A complaint should not be dismissed for failure to state a claim unless the plaintiff can prove no set of facts entitling him to relief. Hishon v. King Spaldina, 467 U.S. 69, 73, 104 S. Ct. 2229 (1984); Pataula Elec. Membership Corp. v. Whitworth, 951 F.2d 1238, 1240 (11th Cir. 1992). The court is to presume true all of the complaint's allegations and make all reasonable inferences in favor of the plaintiff. Duke v. Cleland, 5 F.3d 1399, 1402 (11th Cir. 1993). The rules require nothing more than "a short and plain statement" that will give the defendant fair notice of the claims and the grounds upon which they are based. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99 (1957).

Discussion

Unity argues that plaintiff cannot state a claim under Georgia law for any of its asserted causes of action. The court will address arguments concerning each claim in turn.

First, Unity contends that plaintiff's breach of implied warranty claim fails as a matter of law because there is no contractual relationship between the parties. Plaintiff alleges that an implied warranty to provide functioning LEDs arose by Unity's prior three year provision to plaintiff of working LEDs meeting plaintiff's technical specifications. However, plaintiff cites no law creating an implied warranty between manufacturer and purchaser of its product from a distributor based on a past history of direct purchase from the manufacturer. The Georgia code provisions cited by plaintiff do not support its contention, but rather explain the construction of multiple cumulative warranties. See O.C.G.A. § 11-2-317(a), (b).

Further, Georgia law specifically excludes a warranty action from arising from plaintiff's purchase of LEDs by requiring privity for a warranty action and holding that a sale does not create privity between the ultimate purchaser and manufacturer.

"[T]his state has recognized the necessity of privity between the parties where a plaintiff-purchaser . . . brings an action based on warranty. That is, if a defendant is not the seller to the plaintiff-purchaser, the plaintiff as the ultimate purchaser cannot recover on the implied or express warranty, if any, arising out of the prior sale by the defendant to the original purchaser. from whom plaintiff purchased the product."
Evershine Products Inc. v. Schmitt, 130 Ga. App. 34, 35 (1973).

Plaintiff does not allege that Unity directly sold plaintiff the failed LEDs. Because there is no privity created by sale, and no other contract between Unity and All American, plaintiff's claim for breach of implied warranty fails as a matter of law.

Secondly, Unity contends that plaintiff's tort claims for negligent design and manufacture and strict liability fail to state a claim under the economic loss rule. "The economic loss rule prevents recovery in tort when a defective product has resulted in the loss of value or use of the thing sold, or the cost of repairing it [but] does not prevent a tort action to recover for injury to other property." Flintkote Co. v. bravo Corp., 678 F.2d 942, 948 (11th Cir. 1982). Unity argues that the allegedly defective LEDs did not damage other property, and therefore the economic loss rule bars plaintiff's claims. Plaintiff asserts that "other property" was damaged by the failed LEDs: the light boards in which the LEDs were installed.

Plaintiff's amended complaint alleges that the LED failure "effectively destroyed" the light boards. Plaintiff explains in its supplemental response that the boards were "effectively destroyed" because "it is more expensive to replace continually failing LEDs in a Light Board than to simply replace the Light Board." Plaintiff contends that "effective" destruction of other property is sufficient to avoid the economic loss rule. However, the economic loss rule specifically requires physical damage to other property in order to avoid its application. "Where there is no physical damage, and the only loss is a pecuniary one, through loss of the value or use of the thing sold, or the cost of repairing it, courts have adhered to the rule." Id. at 946 (requiring physical damage to avoid application of rule to negligence claim); see also Busbee v. Chrysler Corp., 240 Ga. App. 664, 666 (1999) (requiring physical damage to avoid application to negligence and strict liability claims). Because plaintiff does not allege any physical damage to property other than the LEDs, the economic loss rule precludes its tort claims.

Finally, Unity contends that plaintiff fails to state a claim as a third party beneficiary under the contract between Unity and All American. Plaintiff contends that the contract existed exclusively to permit All American to provide a specific model of LED to plaintiff. Under Georgia law, "for a third party to have standing to enforce a contract it must clearly appear from the contract that it was intended for his benefit. The mere fact that he would benefit from performance of the agreement is not alone sufficient." Scott v. Mamari Corp., 242 Ga. App. 455, 457 (2400). The intention must be shown on the face of the contract.Id. Plaintiff cites no provision from the contract mentioning plaintiff, and alleges only that it was a "known third party beneficiary" of the contract. Because plaintiff alleges no facts from which the court could find an intent by Unity and All American to benefit plaintiff, plaintiff cannot sustain a claim as third party beneficiary.

Accordingly, and for all the aforementioned reasons, Unity's motion to dismiss [docket no. 7] is hereby GRANTED.

Partial Motion for Judgment on the Pleadings

Plaintiff asserts claims of breach of contract and negligent distribution against All American. All American's motion for judgment on the pleadings concerns plaintiff's claim of negligent distribution only. Although All American offered evidence in its supplemental brief, the court declines to consider that evidence and convert the motion to one for summary judgment.

Standard

"Judgment on the pleadings is proper when no issues of material fact exist and the moving party is entitled to judgment as a matter of law based on the substance of the pleadings and any judicially noticed facts." Andrx Pharm., Inc. v. Elan. Corp., PLC, 421 F.3d 1227, 1232-1233 (11th Cir. 2005). The court must accept the facts in the complaint as true, and view them in the light most favorable to the nonmoving party. Hawthorne v. Mac Adjustment Inc., 140 F.3d 1367, 1370 (11th Cir. 1998). It must appear beyond a doubt that plaintiff can prove no set of facts entitling him to relief. Id.

Discussion

All American argues that plaintiff's negligence claim fails as a matter of law under the economic loss rule, or, in the alternative, because All American did not owe plaintiff a duty of care. The parties' arguments mirror the arguments between plaintiff and Unity discussed above, except that plaintiff's response to the motion for judgment on the pleadings contained an argument that the LEDs were "permanently installed" in the light boards requiring replacement of the entire board, which suggests physical damage to the boards. However, as discussed above, plaintiff's subsequently filed supplemental response explains that the light boards were "effectively destroyed" because the cost to replace a light board was less than the cost to remove defective LEDs and replace them. Accordingly, for the same reasons the economic loss rule applied to Unity's claims, the rule applies to plaintiff's claim of negligent distribution against All American. All American's partial motion for judgment on the pleadings [docket no. 25] is GRANTED.

Summary

(1) Unity Microelectronics' motion to dismiss [docket no. 7] is hereby GRANTED;

(2) All American Semiconductor's motion for partial judgment on the pleadings [docket no. 16] is hereby GRANTED;

(3) plaintiff's motion for leave to file an amended complaint [docket no. 41] is hereby GRANTED;

(4) plaintiff's motion for oral argument on the pending motions [docket no. 47] is hereby DENIED.

SO ORDERED.