2-J Corporation v. Tice

Opinions of the United

1997 Decisions States Court of Appeals

for the Third Circuit

10-2-1997

2-J Corporation v. Tice

Precedential or Non-Precedential:

Docket

96-1943

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Recommended Citation

"2-J Corporation v. Tice" (1997). 1997 Decisions. Paper 236.

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Filed October 2, 1997

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

NO. 96-1943

2-J CORPORATION

t/a DR. FEELGOODE'S,

Appellant

v.

WILLIAM E. TICE, III,

t/a TICE CONSTRUCTION COMPANY;

JEWELL BUILDING SYSTEMS, INC.

On Appeal From the United States District Court

For the Eastern District of Pennsylvania

(D.C. Civil Action No. 96-cv-00090)

Argued: May 8, 1997

BEFORE: STAPLETON and LEWIS, Circuit Judges, and

WALLS,* District Judge

(Opinion Filed October 2, 1997)

Stephen A. Cozen (Argued)

Richard C. Bennett

Deborah M. Minkoff

Cozen and O'Connor

The Atrium

1900 Market Street

Philadelphia, PA 19103

Attorneys for Appellant

_________________________________________________________________

*Hon. William H. Walls, U.S. District Judge for the District of New

Jersey, sitting by designation.

John C. McNamara (Argued)

Butler & McNamara

1700 Market Street

Suite 2630

Philadelphia, PA 19103

Attorney for Appellee

OPINION OF THE COURT

STAPLETON, Circuit Judge:

We are here asked to resolve whether under Pennsylvania

law a commercial purchaser of a pre-engineered warehouse

may recover in tort from the manufacturer of the

warehouse for damage caused to its contents when the

warehouse collapsed. The district court concluded that the

Supreme Court of Pennsylvania would interpret the

economic loss doctrine as barring tort recovery in these

circumstances. We will reverse the district court's grant of

summary judgment for the manufacturer and remand for

further proceedings.

I.

Plaintiff-appellant 2-J Corporation is a New Jersey

corporation engaged in retail sales of spas, swimming pools,

and other recreational equipment. In 1987, 2-J hired

defendant William E. Tice, III, to construct a building in

Bethlehem, Pennsylvania that would serve as a warehouse

and provide showroom space for 2-J's inventory. Tice then

contracted with defendant-appellee Jewell Building

Systems, a North Carolina corporation, to purchase a pre-

engineered steel structure to be constructed by Tice on

2-J's premises. Jewell calls its product a "building in a

box"; it sent Tice the materials necessary to construct the

warehouse and a design plan that Tice followed in erecting

the structure. Tice completed construction of the Jewell

warehouse for 2-J in December 1987.

2-J used the warehouse until January 17, 1994, when

the supports for the roof assembly failed, causing a

catastrophic collapse of the warehouse's roof and exterior

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walls. The warehouse was destroyed. Inventory and other

items that 2-J was storing in the warehouse at the time of

the collapse were also destroyed. Unfortunately for 2-J, the

five-year warranty on the warehouse had expired over a

year earlier in November 1992.

Seeking to recover damages for loss of the contents of the

warehouse, 2-J initiated this action. It asserted negligence

and strict products liability tort claims against Jewell as

well as a breach of contract claim based on the warranty.

Jewell moved for summary judgment, arguing that tort

recovery was barred by the economic loss doctrine, which

limits the availability of tort remedies in favor of contract

law among commercial parties when products fail to

perform as expected. With respect to 2-J's contract claim,

Jewell urged that summary judgment was appropriate

because the warranty had expired by the time the

warehouse collapsed. The district court agreed with Jewell

on both points and granted summary judgment. See 2-J

Corp. v. Tice, 926 F. Supp. 55 (E.D. Pa. 1996).

2-J's complaint had also pled claims against Tice. These

claims were still pending before the district court following

its ruling on Jewell's summary judgment motion. On

September 19, 1996, the parties agreed voluntarily by

stipulation that all claims against Tice would be dismissed.

The district court entered an order dismissing the claims

against Tice on November 25, 1996.

2-J filed a notice of appeal on October 16, 1996, seeking

review only of the district court's decision to grant Jewell

summary judgment on the tort claims. Since there was no

final, appealable order until November 25, 1996, 2-J's

notice of appeal was premature. However, "a premature

appeal taken from an order which is not final but which is

followed by an order that is final may be regarded as an

appeal from the final order in the absence of a showing of

prejudice to the other party." Richerson v. Jones, 551 F.2d

918, 922 (3d Cir. 1977) (emphasis omitted); see also

Dowling v. City of Philadelphia, 855 F.2d 136, 138 (3d Cir.

1988). Jewell does not argue that it was prejudiced in any

respect by 2-J's premature notice of appeal. Thus, that

notice became timely upon entry of the district court's order

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dismissing the claims against Tice, and we have jurisdiction

to resolve this appeal. See 28 U.S.C. S 1291.1

II.

We exercise plenary review over the district court's grant

of summary judgment and over its interpretation of state

law. See Blasband v. Rales, 971 F.2d 1034, 1040 (3d Cir.

1992); Compagnie des Bauxites de Guinee v. Ins. Co. of

North America, 724 F.2d 369, 371 (3d Cir. 1983). Summary

judgment is appropriate only if the record shows no

genuine issue of material fact and the moving party is

entitled to judgment as a matter of law. See Fed. R. Civ. P.

56(c).

Our task is to predict what the Pennsylvania Supreme

Court would do if presented with this case. See U.S.

Underwriters Ins. Co. v. Liberty Mutual Ins. Co., 80 F.3d 90,

93 (3d Cir. 1996). "In attempting to forecast state law, we

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 quotation marks omitted). "In the absence of

guidance from the state's highest court, we are to consider

decisions of the state's intermediate appellate courts for

assistance in predicting how the state's highest court would

rule." Gares v. Willingboro Township, 90 F.3d 720, 725 (3d

Cir. 1996).

III.

2-J seeks to recover in tort for damage caused to its

inventory and other items that were being stored in the

warehouse at the time the warehouse collapsed. The

district court predicted that the Supreme Court of

Pennsylvania would interpret the economic loss doctrine as

barring 2-J's tort claims. We conclude that the

_________________________________________________________________

1. The district court had jurisdiction over this diversity action pursuant

to 28 U.S.C. S 1332(a).

4

Pennsylvania Supreme Court would not apply the economic

loss doctrine to bar recovery in this case.

As it originally developed, the economic loss doctrine

provided that no cause of action could be maintained in

tort for negligence or strict liability where the only injury

was "economic loss"--that is, loss that is neither physical

injury nor damage to tangible property. See, e.g., Aikens v.

Baltimore & Ohio R.R. Co., 501 A.2d 277, 279 (Pa. Super.

1985); see also J.G. Kassab v. Central Soya, 246 A.2d 848,

854 n.7 (Pa. 1968), overruled on other grounds, AM/PM

Franchise Ass'n v. Atlantic Richfield Co., 584 A.2d 915 (Pa.

1990). The quintessential economic loss was lost profits.

When a product purchased by a commercial entity failed to

perform, that entity's business could be disrupted, resulting

in loss of customers, sales, and profits. The economic loss

doctrine precluded recovery in tort from the product's

manufacturer for these purely economic damages.

In East River Steamship Corp. v. Transamerica Delaval,

Inc., 476 U.S. 858 (1986), the Supreme Court interpreted

the economic loss doctrine in the context of federal

admiralty law as barring recovery in tort to a commercial

buyer for damage a product does to itself. The plaintiff, a

time-charterer of a supertanker, sued the manufacturer of

the supertanker's turbines in tort to recover for damages

suffered as a result of the turbines' malfunctioning. The

only damage alleged was to the turbines themselves. The

Court viewed the case as requiring it to determine whether

a duty should be imposed on manufacturers to protect

against commercial products injuring themselves, or

whether, instead, this was a matter best left to the parties'

agreements and the realm of contract. The Court decided

that tort recovery should not be available for harm a

product causes to itself. "Obviously, damage to a product

itself has certain attributes of a products-liability claim.

But the injury suffered--the failure of the product to

function properly--is the essence of a warranty action,

through which a contracting party can seek to recoup the

benefit of its bargain." Id. at 867-68. In the course of

reaching this conclusion, the East River Court reaffirmed

that a tort remedy remained available for damage to all

"other property." Id. at 820.

5

East River constitutes an expansion of the economic loss

doctrine because it precludes recovery for what is clearly

physical damage to property, i.e., damage to the product

itself. See Saratoga Fishing Co. v. J.M. Martinac & Co., ___

U.S. ___, 117 S. Ct. 1783, 1786 (1997). The damage to the

product is conceptually distinct from the lost profits that

may follow as a consequence of the product's failure.

However, the majority of jurisdictions that have considered

the question have adopted the reasoning of East River and

now deem damage a product causes to itself to be economic

loss, non-recoverable in tort. See generally Christopher S.

D'Angelo, The Economic Loss Doctrine, 26 U. Tol. L. Rev.

591, 595 (1995).

In the instant case, the district court expanded the

economic loss doctrine still further. It held that recovery is

also barred for damage to property that foreseeably may be

injured if the defective product fails. The court was

convinced that such property is effectively "integrated" with

the defective product, so that damage to that property is

tantamount to damage to the product itself. We do not

believe the Pennsylvania Supreme Court would adopt this

expansion of the economic loss doctrine.

We have previously predicted that the Pennsylvania

Supreme Court would follow the East River approach to the

economic loss doctrine. See, e.g., Duquesne Light Co. v.

Westinghouse Elec. Corp., 66 F.3d 604, 618-21 (3d Cir.

1995); King v. Hilton-Davis, 855 F.2d 1047, 1051 (3d Cir.

1988). The Pennsylvania Superior Court has made the

same prediction. See, e.g., REM Coal Co. v. Clark Equip. Co.,

563 A.2d 128, 132 (Pa. Super. 1989).

An essential aspect of the East River economic loss

doctrine is that while tort recovery is barred for damage a

product causes to itself, such recovery is available for

damage the failing product causes to "other property." See

476 U.S. at 867, 870. Pennsylvania Superior Court cases

applying East River have explicitly recognized that the

economic loss doctrine permits a tort claim for damage to

such other property. See, e.g., REM Coal, 563 A.2d at 129.

"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

6

to be the best way to allocate the risk of unsafe products

and to encourage safer manufacture and design." Id.

East River provides little guidance on how a court should

distinguish between damage to "the product," for which tort

recovery is barred by the economic loss doctrine, and

damage to "other property," for which tort recovery remains

available. More recently, however, the Supreme Court has

instructed on how that distinction should be drawn. In

Saratoga Fishing Co. v. J.M. Martinac & Co., ___ U.S. ___,

117 S. Ct. 1783 (1997), the plaintiff was the second

user/owner of a fishing vessel which had, during the

plaintiff's ownership, caught fire, flooded, and sunk, all as

a result of a defective hydraulic system. When the initial

user/owner had purchased the vessel, it had not been

equipped for use as a fishing vessel. The initial user/owner

had added extra equipment to make the vessel adequate for

this purpose. The question the Court addressed was

whether the added equipment was part of the "product

itself" or "other property." Id. at 1785. The Court held that

the added equipment was "other property" and that the

economic loss doctrine did not preclude the second

user/owner from recovering in tort from the vessel's

manufacturer for damage to that equipment.

In reaching its conclusion in Saratoga Fishing, the Court

indicated that, for purposes of applying the economic loss

doctrine, "the product" is no more and no less than

whatever the manufacturer placed in the stream of

commerce by selling it to the initial user:

When a Manufacturer places an item in the stream of

commerce by selling it to an Initial User, that item is

the "product itself" under East River. Items added to

the product by the Initial User are therefore "other

property," and the Initial User's sale of the product to

a Subsequent User does not change these

characterizations.

Id. at 1786. Thus, in the case before it, the product was the

vessel as sold by the manufacturer to the initial user. Since

the equipment added by the initial user was not part of "the

product itself," but instead "other property," a tort remedy

was available with respect to the damaged equipment.

7

The Saratoga Fishing Court started with the proposition

that general tort and contract law applicable in the context

of commercial sales2 characterizes as "other property" both

property added to a defective product by the initial

user/owner as well as property used by the initial

user/owner in connection with the defective product. It

gave three examples: A.J. Decoster Co. v. Westinghouse

Elec. Corp., 634 A.2d 1330 (Md. 1994) (owner of chicken

farm recovered for chickens killed when the chicken house

ventilator system failed); United Airlines, Inc. v. CEI

Industries of Ill., 499 N.E.2d 558 (Ill. 1986) (warehouse

owner recovered for damages to a building caused by a

defective roof installed by the defendant); and Nicor Supply

Ships Assoc. v. General Motors Corp., 876 F.2d 501 (5th Cir.

1989) (ship charterer who added expensive seismic

equipment to ship recovered for its loss in fire caused by a

defective engine). Moreover, the Court noted that the

respondents in Saratoga Fishing acknowledged that "had

the ship remained in the hands of the Initial User, the loss

of the added equipment could have been recovered in tort."

Id. at 1787.

The remainder of the Court's analysis in Saratoga Fishing

was advanced in support of the proposition that this result

should be no different--i.e., the manufacturer should have

no greater immunity with respect to foreseeable damage--

as a result of the fortuity that a resale occurred before the

defective product caused injury. That analysis ultimately

established the time of sale to the initial user as the critical

point for determining whether added features are part of

"the product itself" or "other property."3

_________________________________________________________________

2. Saratoga Fishing, like East River , is an admiralty case. The general

maritime law applied by the Court is, as it indicated, "an `amalgam of

traditional common-law rules, modifications of those rules, and newly

created rules' drawn from both state and federal sources." Saratoga

Fishing, 117 S. Ct. at 1786 (quoting East River). The Court accordingly

looked to the general law of tort and contract applicable to commercial

sales.

3. The Court indicated that the time of sale to the initial user was also

the critical one for resolving a related, but distinct, issue--whether in

a

suit against the supplier of a defective component part incorporated into

a product sold to the plaintiff, "the product itself" is limited to the

8

In our case, we are not concerned with whether features

added to a product after the sale to the initial user become

a part of the "product itself." We are concerned only with

whether property becomes a part of the product itself solely

because, after the sale to the initial user, it is foreseeably

utilized in connection with the owner's use of the product.

Nevertheless, it seems apparent to us that if thefishing

equipment foreseeably added to the ship by the initial user

in Saratoga Fishing did not become a part of the "product

itself," it necessarily follows that the inventory foreseeably

stored by the initial user in the warehouse here did not

become a part of the warehouse itself. Accordingly, we

believe that the district court's "integration" theory in this

case is inconsistent with Saratoga Fishing and that it

follows a fortiori from the holding in Saratoga Fishing that

2-J can recover for the loss of its inventory and other

property stored in its warehouse. For the same reasons we

have predicted that the Supreme Court of Pennsylvania

would find East River persuasive, we conclude that it would

find Saratoga Fishing persuasive as well and allow a tort

recovery in this case.4

_________________________________________________________________

component supplied by the defendant. The Court recognized the

prevailing rule to be that "the product itself" includes all components

added before the sale to the initial user. Id. at 1788. We so held in King

v. Hilton-Davis, 855 F.2d 1047, 1051-52 (3d Cir. 1988), when we

concluded that the bargain struck in the transaction with the initial user

"determines his or her economic loss and whether he or she has been

injured beyond that loss."

4. We are aware that a number of courts in addition to the district court

we are reviewing have ruled that the economic loss doctrine bars tort

recovery where the "other property" damaged was always likely to have

been injured upon the failure of "the product" itself. See, e.g., Dakota

Gasification Co. v. Pascoe Bldg. Systems, 91 F.3d 1094, 1099 (8th Cir.

1996) (applying North Dakota law); Detroit Edison Co. v. NABCO, Inc., 35

F.3d 236 (6th Cir. 1994)(applying Michigan law); Wellsboro Hotel Co. v.

Prins, 894 F. Supp 170 (M.D. Pa. 1995)(applying Pennsylvania law);

Hartford Fire Ins. Co. v. Huls America, Inc., 893 F. Supp. 465, 469

(E.D. Pa. 1995)(applying Pennsylvania law); Neibarger v. Universal

Cooperatives, Inc., 486 N.W.2d 612 (Mich. 1992)(applying Michigan law).

However, it is also true that numerous courts have rejected this

expansion of the economic loss doctrine. See, e.g., Saratoga Fishing Co.

9

Jewell contends that it is improper to view this case as

turning on the issue of whether the contents of the

warehouse are "the product" or "other property" for

purposes of the economic loss doctrine. Indeed, it

acknowledges that 2-J's inventory is not "the product" as

normally understood. It insists, however, that the relevant

issue presented is "one of delineating the proper spheres of

the law of tort and warranty law." Br. at 9. Jewell chooses

simply to ignore, however, the fact that East River and

Saratoga Fishing, after considering the appropriate

functions of tort and contract recovery, concluded in the

context of commercial transactions that the proper line to

be drawn between the spheres of tort and warranty law is

the line between damage to "the product" and damage to

"other property." As we have indicated, we are confident

that the Supreme Court of Pennsylvania would accept the

rationale of East River and Saratoga Fishing.

IV.

Because we conclude that the Pennsylvania Supreme

Court would not interpret its economic loss doctrine as

barring recovery in tort for damage the collapsing

warehouse caused to contents stored within it, we hold that

summary judgment should not have been granted to Jewell.

Thus, we will reverse the district court and remand for

further proceedings in which 2-J may press its negligence

and strict liability claims to recover for damage to its "other

property."

_________________________________________________________________

v. Marco Seattle Inc., 69 F.3d 1432, 1445 (9th Cir. 1995), aff'd on other

grounds, ___ U.S. ___, 117 S. Ct. 1783 (1997); Alliance Imaging, Inc. v.

Picker Int'l Inc., 1993 WL 76209 (E.D. Pa. 1993); Jet Plastica Industries,

Inc. v. Goodson Polymers, Inc., 1992 WL 17207 (E.D. Pa. 1992). We find

the latter cases more persuasive, and, particularly after Saratoga

Fishing, we are confident that the Pennsylvania Supreme Court would

not conclude that the economic loss doctrine precludes recovery for

damage to the contents of a warehouse when the warehouse collapses.

10

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

11