Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-14-01853/USCOURTS-ca8-14-01853-0/pdf.json

Parties Involved:
Arena Holdings Charitable, LLC
Appellant
HB Sound & Light, Inc.
Not Party
Harman Professional, Inc.
Appellee
Impulse Group LLC
Not Party
Impulse Group, Inc.
Not Party
ON Semiconductor Corporation
Appellee
RE Arena, Inc.
Appellant

Document Text:

United States Court of Appeals

For the Eighth Circuit

___________________________

No. 14-1853

___________________________

Arena Holdings Charitable, LLC, a Delaware limited liability company; RE Arena,

Inc., a Nevada foreign corporation

lllllllllllllllllllll Plaintiffs - Appellants

v.

Harman Professional, Inc.

lllllllllllllllllllll DefendantThird Party Plaintiff - Appellee

v.

.

Impulse Group, Inc.; Impulse Group LLC; HB Sound & Light, Inc.

lllllllllllllllllllllThird Party Defendants

ON Semiconductor Corporation

lllllllllllllllllllllThird Party Defendant - Appellee

____________

Appeal from United States District Court 

for the District of North Dakota - Bismarck

____________

 Submitted: November 12, 2014

 Filed: May 7, 2015

____________

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Before RILEY, Chief Judge, BEAM and GRUENDER, Circuit Judges.

____________

BEAM, Circuit Judge.

Arena Holdings Charitable, LLC, and RE Arena, Inc. ("Arena Holdings")

appeal the district court's grant of summary judgment in favor of Harman 1

Professional in thistort claimarising out of a fire that occurred at the Ralph Engelstad

Arena in Grand Forks, North Dakota. We affirm.

I. BACKGROUND

The facts involved in this case as described by the district court are uncontested

on appeal. This matter arises from a fire that occurred at the Ralph Engelstad Arena

on July 3, 2011. Arena Holdings alleges the fire started when a Crown Macro-Tech

5002VZ amplifier produced a direct current to a speaker that spread to adjoining

speakers located in the catwalk area of the Engelstad Arena. Harman Professional is

the manufacturer of the alleged defective amplifier, and Impulse Group installed the

sound reinforcement system at the Engelstad Arena when it was originally built, and

so installed the amplifier as well. 

The fire caused approximately $5 million of damage throughout the Engelstad

Arena, including damage to the building and fixtures, as well as damage to personal

property. The fire directly damaged the arena structure and equipment in the vicinity

of the amplifier and speakers. The presence of smoke and soot throughout the

Engelstad Arena after the fire caused additional damage. Arena Holdings initiated

this action against Harman alleging negligence, strict liability and post-sale failure-toThe Honorable Daniel L. Hovland, United StatesDistrictJudge for the District 1

of North Dakota.

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warn claims. Harman then filed a third-party complaint against Impulse Group, and

others. The district court granted Harman's motion for summary judgment, finding

that the economic loss doctrine precluded Arena Holdings from recovering tort

damages.

II. DISCUSSION

We review the district court's grant of summary judgment de novo. Torgerson

v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011). Summary judgment is

proper "if the pleadings, the discovery and disclosure materials on file, and any

affidavits show that there is no genuine issue as to any material fact and that the

movant is entitled to judgment as a matter of law." Id. (quotation omitted).

A. Economic Loss Doctrine

Under the economic loss doctrine in North Dakota, economic loss resulting

fromdamage to a defective product, as distinguished fromdamage to persons or other

property, may be recovered in a cause of action sounding in contract, but not in tort. 

Leno v. K & L Homes, Inc., 803 N.W.2d 543, 550 (N.D. 2011). "The economic loss

doctrine distinguishes between bargain expectation interests, which are protected

under contract law, and safety interests, which are protected under tort law." Steiner

v. Ford Motor Co., 606 N.W.2d 881, 885 (N.D. 2000). North Dakota has yet to

directly rule on the issue presented here–whether, or to what extent, redress can be

sought in tort where there is injury not only to the defective product but also to other

property. 

In 1996, this circuit had occasion to predict how North Dakota would analyze

this very subject in Dakota Gasification Co. v. Pascoe Building Systems and held that

the North Dakota Supreme Court would likely conclude "that the economic loss

doctrine extends to preclude liability in tort for physical damage to other nearby

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property of commercial purchasers who could foresee such risks at the time of

purchase." 91 F.3d 1094, 1101 (8th Cir. 1996). The facts and circumstances of

Dakota Gasification as they relate to the contracting parties in this case are nearly

identical. 

In Dakota Gasification, the predecessor to the owner of a large coal gasification

plant contracted for the construction of a federally guaranteed $2 billion synthetic

natural gas production plant, which was to be "one of the largest synthetic fuel plants

in the world and the only one of its kind in the United States." Id. at 1096. In part,

the plans called for the construction of an oxygen plant, which was to be housed in

a separate steel building but still within the larger plant. Id. Down a chain of

subcontractors involved in the overall project, none of whomdirectly contracted with

the Dakota Gasification plaintiff, one subcontractor that was to furnish the preengineered metal building that would enclose the oxygen plant contracted with

Defendant Pascoe Building Systems who furnished the structural steel for the

building. Id. 

During the construction process in DakotaGasification,several defectivewelds

were discovered on some of the Pascoe materials and Pascoe repaired them. Id. The

building was ultimately accepted after construction was completed. Id. However,

eight years later, the roof of the building collapsed, causing damage to the steel

building as well as parts of the oxygen plant contained within. Id. at 1097. The

owner of the gasification plant sued Pascoe, among others, seeking to recover

damages. Id. On appeal of an adverse summary judgment ruling in favor of Pascoe,

the Eighth Circuit predicted that North Dakota would take the "modern,"

foreseeability approach to the economic loss doctrine. Id. at 1100-01. Applying this

approach, this court held that because damage to the other property in the physical

proximity of the oxygen plant was foreseeable and within the contemplation of the

parties when the oxygen plant was built, the economic loss doctrine precluded

recovery. Id. at 1101.

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Arena Holdings contends that Dakota Gasification missed the mark, pointing

to a Supreme Court decision in 1997, see Saratoga Fishing Co. v. J.M. Martinac &

Co., 520 U.S. 875 (1997), as well as the Restatement (Third) of Torts: Products

Liability § 21, which both take a different approach to the economic loss doctrine. 

Arena Holdings essentially urges this court to define a more bright line rule–that

physical damage to anything other than the product itself would be considered

damage to "other property" and therefore subject to suit in tort. This, they argue, is

more in line with the Supreme Court's articulation in Saratoga Fishing and is most

likely the avenue North Dakota would travel. 

In Saratoga Fishing, the Court addressed the limits on the damages that a tort

plaintiff can recover for physical damage to property caused by a defective product. 

520 U.S. at 876. The admiralty case involved a defectively designed hydraulic

system in a fishing vessel, and the specific issue was whether equipment that had

been added on by the boat's initial owner after its purchase fromthe manufacturer was

"other property" such that its loss could be recovered in tort. Id. at 877-78. The ship

itself constituted the original property. Id. at 877. Applying and building upon its

previous decision in East River S.S. Corp. v. Transamerica Delaval Inc., 476 U.S. 858

(1986), the Court determined that equipment added to a product after manufacture is

not part of the original property, and in fact is "other property," and compensation for

damage to this other property can be recovered in tort. Id. at 879, 881. 

Arena Holdings also alleges that the most recent version of the Restatement of

Torts adoptsthe Saratoga Fishing approach asto whether damagesto "other property"

due to a defective product can be recovered in tort. Restatement (Third) of Torts:

Products Liability Ch. 4, Topic 3, § 21 cmt. e ("A defective product that causes harm

to property other than the defective product itself is governed by the rules of this

Restatement. What constitutes harmto other property rather than harmto the product

itself may be difficult to determine."). According to Arena Holdings, the Court's

position in Saratoga Fishing (bolstered by the Restatement) provides a reason for us

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to distance ourselves from the Dakota Gasification decision. At bottom, though,

Saratoga Fishing is inapposite in the instant analysis primarily because it does not

construe North Dakota law, as we are bound to do, but rather was an admiralty case

and thus does not address the heart of the matter we now face. 

The North Dakota Supreme Court has rarely spoken of the economic loss

doctrine subsequent to Dakota Gasification, and as relevant to the specific question

before us today, has only done so in dicta. Arena Holdings cites this dicta, however,

in support of its position on appeal. In Clarys v. Ford Motor Co., 592 N.W.2d 573

(N.D. 1999), the plaintiff sought to recover in tort for the loss of a used van that was

destroyed by fire due to a defective ignition switch. Id. at 573. Damage to "other

property" was not at issue in the case. In dicta, however, the Supreme Court of North

Dakota stated that there was a distinction between damage to the product and damage

to "other property" and that this distinction was not without consequence under the

public policy of North Dakota. Id. at 574-75. The court cited the Restatement

(Third) of Torts, and noted that while the economic loss doctrine should preclude tort

recovery for damage to the defective product itself, when the defective product causes

damage to persons or other property, tort law would apply. Id. at 578-79; see also

Steiner, 606 N.W.2d at 884 (applying the economic loss doctrine in a case where the

only damage was to the defective product, a car, and quoting the language from

Clarys distinguishing the situation from when the defective product causes damage

to persons or other property). The ultimate holding in Clarys, however, only clarified

that the economic loss doctrine applies equally in commercial and consumer contexts

alike, as that was the "sole" issue raised. Clarys, 592 N.W.2d at 574, 579. 

Importantly, Clarys did not discuss the rationale underlying the economic loss

doctrine in the context of discerning the definition of "other property" and where the

line falls between "[t]he separate and distinct functions served by tort and contract

law." Id. at 575. 

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While we acknowledge that some doubt concerning the issue at hand is raised

by North Dakota's subsequent discussion of the economic loss doctrine, Clarys and

Steiner do not stand as decisive legal authority sufficient to conclude that North

Dakota would shun the foreseeability approach advanced in Dakota Gasification. It

still remains that North Dakota has specifically discerned the very critical distinction

that exists between contract and tort and the balance achieved by limiting liability so

that one does not subsume the other. Too, this dicta could be interpreted differently. 

It is not axiomatic that North Dakota's later discussion points to a rejection of the

foreseeability approach to the economic loss doctrine. Clarys acknowledges that the

economic loss doctrine protects the purchaser's expectation of receiving the

bargained-for product, and that the comprehensive framework available in contract

compensates consumers when a product fails to fulfill a purchaser's economic

expectations. Clarys, 592 N.W.2d at 576. "'Tort principles more adequately address

the creation of an unreasonable risk of harm when a person or other property sustains

accidental or unexpected injury.'" Id. (quoting Alloway v. Gen. Marine Indus., 695

A.2d 264, 268-69 (N.J. 1997)). "The economic lossrule isthe fundamental boundary

between contract law, which is designed to enforce the expectancy interests of the

parties, and tort law, which imposes a duty of reasonable care and thereby encourages

citizens to avoid causing physical harm to others." Id. (internal quotation omitted). 

These analyses discussed in Clarys parallel that of the foreseeability approach used

when discussing damage to "other property," and it is thus not certain that if faced

with the very issue of how to define "other property" in light of those considerations,

North Dakota would not follow suit and apply the foreseeability approach. 

Barring tort claims where a plaintiff seeks economic damages for foreseeable

losses for which the plaintiff could have contractually allocated risk is admittedly no

longer a "modern trend" as we described in 1996. Dakota Gasification, 91 F.3d at

1099. However, neither is it an antiquated or disfavored approach. In fact, the Third

Circuit recently discussed the split in authority regarding the meaning of "other

property" in the context of the economic loss doctrine and deduced that:

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[t]he majority of jurisdictions employ some variation of a test under

which tort remedies are unavailable for property damage experienced by

the owner where the damage was a foreseeable result of a defect at the

time the parties contractually determined their respective exposure to

risk, regardless whether the damage was to the "goods" themselves or

to "other property."

Travelers Indem. Co. v. Dammann & Co., 594 F.3d 238, 250 (3d Cir. 2010) (internal

quotation omitted) (predicting the course New Jersey would take on the matter and

collecting cases employing the foreseeability approach as opposed to those applying

a more bright line approach). 

The similarities between the instant case and Dakota Gasification, in the end,

dictate the result. No matter our independent inquiry today, and because North

Dakota has yet to speak on the matter, we follow the precedent established in Dakota

Gasification. 

2

Although our circuit has never specificallydetermined the binding effect

of a state law determination by a prior panel, other circuits defer to prior

panel decisions absent a subsequent state court decision or statutory

amendment that makes the prior federal opinion clearly wrong. This

provides us with an additional basis for our holding. 

AIG Centennial Ins. Co. v. Fraley-Landers, 450 F.3d 761, 767-68 (8th Cir. 2006)

(alteration, citations and internal quotation omitted). "Absent an intervening opinion

Exercising our sound discretion, and because nothing has transpired in North 2

Dakota since this court's Dakota Gasification prediction that would alter an analysis

of the matter, we decline Arena Holding's request to certify a question to the North

Dakota Supreme Court pursuant to Rule 47 of the North Dakota Rules of Appellate

Procedure. Babinski v. Am. Family Ins. Group, 569 F.3d 349, 353 (8th Cir. 2009)

("Whether a federal court should certify a question to a state court is a matter of

discretion." (quotation omitted)). 

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by a [North Dakota] court, [Dakota Gasification] controls this appeal." Washington

v. Countrywide Home Loans, Inc., 747 F.3d 955, 958 (8th Cir.), cert. denied, 135 S.

Ct. 307 (2014); see also Huffman v. Credit Union of Texas, 758 F.3d 963, 966 (8th

Cir. 2014) (holding that "we are bound by our [prior panel] decision" concerning the

meaning of state law). 

B. Foreseeability

Arena Holdings alternatively argues that even if we do not retreat from Dakota

Gasification's foreseeability approach, the economic loss doctrine does not bar

recovery because nothing about the specific accident itself wasforeseeable, and there

was no evidence that the parties anticipated or negotiated about the possibility ofsuch

an occurrence. We agree with the district court that the existence of the

indemnification and warranty clauses here inform the outcome in this case, although

that is not always true in each analysis. Arena Holdings would have us look at the

contractual clauses here to see if, in fact, the damage at issue is "covered" and that if

not, then these tort actions may proceed. However, this argument runs wholly

contrary to the very purpose of the economic loss doctrine. 

One basis for the economic loss doctrine is the resistance to the usurpation of

contract law by tort law. Clarys, 592 N.W.2d at 577. Followed to its logical

conclusion, Arena Holdings' argument would lead to contrary consequences. "The

availability of a tort remedy in a case such asthis would encourage buyerslike [Arena

Holdings] to forgo contractual protection in exchange for a lesser purchase price . . . 

[and s]uch an approach would yield results that conflict with the economic loss

doctrine's very purpose." Travelers, 594 F.3d at 249; see also Dakota Gasification,

91 F.3d at 1100 ("A contrary holding would yield results that conflict with the

economic loss doctrine's purpose, as recognized by the North Dakota Supreme Court

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. . . [and a]llowing tort remedies in a case such as this would perversely encourage

contractors to 'bargain' for no warranty or insurance protection in exchange for a

reduced purchase price, because they could rely on tort remedies astheir 'warranty.'"). 

Evidence of bargaining or negotiation, or the lack thereof, is not necessarily

part of the foreseeability analysis. Yet, contrary to Arena Holdings' arguments, the

existence of indemnification and warranty clauses on these facts evinces an ability to

negotiate and to provide for the allocation of risk and the limitation of liability in this

very area, which supportsthe foreseeable approach discussed in Dakota Gasification. 

Travelers, 594 F.3d at 249;see also Dakota Gasification, 91 F.3d at 1100 (noting that

the agreement entered into between the parties evinced an intent by the parties to

evaluate the risks and liabilities that potentially would follow if the materials failed

to perform and noted that the "language demonstrate[d] that the damage which

occurred here was well within the contemplation of the parties."). It was foreseeable

to the contracting parties that a defect in an amplifier or the sound system as a whole

could lead to fire and resulting damage. This was not beyond contemplation. Dakota

Gasification, 91 F.3d at 1099. Under the foreseeability analysis set out in Dakota

Gasification, these damages are thus not recoverable in tort. Id. at 1099-1101.

III. CONCLUSION 

For the reasons discussed herein, we affirm the district court's grant of

summary judgment in this matter. 

RILEY, Chief Judge, dissenting.

Because (1) the North Dakota Supreme Court has approved tort recovery for

damage to “other property” and directed its state courts away from the foreseeability

approach we erroneously predicted twenty years ago in Dakota Gasification Co. v.

Pascoe Building Systems, 91 F.3d 1094 (8th Cir. 1996), and (2) even if Dakota

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Gasification states the relevant test, it would not control the facts of this case, I

dissent.3

I. North Dakota Law

“The economic loss doctrine recognizes the distinction between the bargain

expectation interests protected by contract law under the Uniform Commercial Code

and the safety interests protected by tort law.” Clarys v. Ford Motor Co., 592 N.W.2d

573, 578 (N.D. 1999). “‘[I]t prevents tort law from altering the allocation of costs

and risks negotiated by the parties’” by “‘den[ying] a remedy in tort to a party whose

complaint is rooted in disappointed contractual or commercial expectations.’” 

Dannix Painting, LLC v. Sherwin-Williams Co., 732 F.3d 902, 906 (8th Cir. 2013)

(quoting Marvin Lumber & Cedar Co. v. PPG Indus., Inc., 223 F.3d 873, 882 (8th

Cir. 2000), and Mut. Serv. Cas. Ins. Co. v. Elizabeth State Bank, 265 F.3d 601, 615

(7th Cir. 2001)).

In 1992, the North Dakota Supreme Court held, “[A] manufacturer of a

machine sold in a commercial transaction may not be held liable in negligence or

strict liability for economic loss caused by a failure of a component part of the

machine which causes damage to the machine only.” Coop. Power Ass’n v.

Westinghouse Elec. Corp., 493 N.W.2d 661, 667 (N.D. 1992). In doing so, the North

Dakota Supreme Court adopted the economic loss doctrine as announced in East

River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1986), agreeing

with East River that the economic loss doctrine is necessary to preserve the

distinction between tort liability—which flows fromthe responsibility and capability

of a manufacturer to ensure the safety of its products—and contract liability—which

flows from “losses [that] essentially relate to the benefit of the bargain between

Under the principles of Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), it is 3

axiomatic that “[a]s a federal court, our role in diversity casesisto interpretstate law,

not to fashion it” or “expand [it] in ways not foreshadowed by state precedent.” 

Kingman v. Dillard’s, Inc., 643 F.3d 607, 615 (8th Cir. 2011) (quotations omitted). 

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business entities.” Coop. Power, 493 N.W.2d at 664-65, 667. The court in

Cooperative Power recognized that because “the rules of negligence and strict

liability for damage to property other than the product itself and for personal injury

adequately protect [society’s] interest [in safe products] and provide manufacturers

with incentive to produce safe products,” economic loss to the product itself is

recoverable only under contract and warranty principles. Id. at 665.

Four years later, we decided Dakota Gasification. “Although there [wa]s no

North Dakota case directly on point” deciding whether the economic loss doctrine

applied to property other than the product itself, we thought North Dakota would

follow “the modern trend in many jurisdictions . . . that tort remedies are unavailable

for property damage experienced by the owner where the damage was a foreseeable

result of a defect at the time the parties contractually determined their respective

exposure to risk, regardless whether the damage was to the ‘goods’ themselves or to

‘other property.’” Dakota Gasification, 91 F.3d at 1099. We thus extended North

Dakota’s economic loss doctrine and predicted the state’s supreme court would apply

the doctrine to all property damage that could foreseeably result from a defect rather

than rely upon a distinction between the purchased product and other property. See

id.

The majority here perpetuates thisflawed prediction because the North Dakota

Supreme Court has not directly contradicted Dakota Gasification. “While we are

loath to reject the considered judgment of a prior panel decision of our court, our task

is to apply state law.” Marvin Lumber, 223 F.3d at 883. Because it is not federal law

we apply, we must utilize all “‘relevant state precedent, analogous decisions,

considered dicta, and any other reliable data’” to anticipate how the state’s highest

court would decide this case. Ashley Cnty., Ark. v. Pfizer, Inc., 552 F.3d 659, 665

(8th Cir. 2009) (quoting In re W. Iowa Limestone, Inc., 538 F.3d 858, 866 (8th Cir.

2008)). We cannot blithely look past the North Dakota Supreme Court’s recent

statements by adhering to a prediction based on a decades-old legal landscape. See,

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e.g., Holden Farms, Inc. v. Hog Slat, Inc., 347 F.3d 1055, 1066-67 (8th Cir. 2003)

(giving a non-binding intermediate state court decision controlling weight over our

earlier panel decision given the absence of “data suggesting the [state] Supreme Court

would disagree with the” intermediate state court’s decision).

A. “Modern Trend” of Foreseeability

The unstable foundation upon which we built our position in Dakota

Gasification has eroded over time. In Dakota Gasification, we relied primarily on a

“modern trend in many jurisdictions” which we found consistent with the general

rationale underlying Cooperative Power’s adoption of the economic loss doctrine. 

See Dakota Gasification, 91 F.3d at 1099. Shortly after our decision, that trend lost

its momentum. In 1997, the United States Supreme Court explained that East

River—the primary authority for the North Dakota Supreme Court in Cooperative

Power—“held that an admiralty tort plaintiff cannot recover for the physical damage

the defective product causes to the ‘product itself’; but the plaintiff can recover for

physical damage the product causes to ‘other property.’” Saratoga Fishing Co. v.

J.M. Martinac & Co., 520 U.S. 875, 877 (1997) (emphasis added). The Supreme

Court rejected the idea that “tort recovery for damage to . . . other property” could be

precluded by “the mere possibility” that a product’s manufacturer and initial

purchaser could have negotiated a contract term apportioning potential loss for other

property. Id. at 882. Soon after, the American Law Institute published the

Restatement (Third) of Torts (Restatement), which employs an economic loss rule

permitting recovery in tort for “harm to . . . the plaintiff’s property other than the

defective product itself.” Restatement (Third) of Torts: Product Liability § 21(c)

(1998); see also id. cmt. e. Dakota Gasification’s “modern trend” stalled.

The majority acknowledges the Restatement and Saratoga Fishing but

dismisses “Saratoga Fishing [a]s inapposite in the instant analysis primarily because

it does not construe North Dakota law . . . but rather was an admiralty case and thus

does not address the heart of the matter we now face.” Ante at 5-6. This distinction

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ignores (1) the Restatement (which obviously applies outside admiralty), and (2) the

fact that North Dakota derived its economic loss doctrine from East River, an

admiralty law case. See Coop. Power, 493 N.W.2d at 664-67. The majority accepts

Saratoga Fishing as “[a]pplying and building upon . . . East River,” ante at 5, the very

case North Dakota expressly followed. See Coop. Power, 493 N.W.2d at 667.

The foreseeability approach’s earlier momentum, upon which we relied in

Dakota Gasification, has since dissipated against the contrary views of the economic

loss doctrine. See, e.g., 2-J Corp. v. Tice, 126 F.3d 539, 544 n.4 (3d Cir. 1997)

(noting the disagreement asto whether “the economic loss doctrine barstort recovery

where the ‘other property’ damaged was always likely to have been injured upon the

failure of ‘the product’ itself” and finding “more persuasive” the casesrejecting “this

expansion ofthe economic loss doctrine”); Lesiak v. Cent. ValleyAg Coop., Inc., 808

N.W.2d 67, 84-85 (Neb. 2012) (per curiam) (rejecting the foreseeability approach

because it “precludestort recovery based on the mere possibility that the parties could

have included a contract term dealing with the occurrence of the damage at issue”);

Grams v. Milk Prods., Inc., 699 N.W.2d 167, 180 (Wis. 2005) (Abrahamson, C.J.,

dissenting)(reasoning that with a foreseeability threshold, Wisconsin’s economic loss

doctrine has become “a swelling globule on the [state’s]legal landscape” akin to “the

ever-expanding, all-consuming alien life form portrayed in the 1958 B-movie classic

The Blob”). 

B. Recent Statements by the North Dakota Supreme Court

Since Dakota Gasification, the North Dakota Supreme Court unquestionably

has shown it adheres to the dichotomy between the product itself and other property. 

In 1999, the North Dakota Supreme Court “consider[ed] for the first time whether the

economic loss doctrine should be applied to consumers” in addition to commercial

purchasers. Clarys, 592 N.W.2d at 575. The Clarys court found the economic loss

doctrine applied to consumer transactions, reasoning, “When a defective product

causes damage to itself, only the consumer’s product expectations are infringed, and

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those interests are protected under contract principles found within the remedies

provided by the U.C.C.” Id. at 576 (emphasis added). Throughout its discussion, the

Clarys court reaffirmed its agreement with East River and reiterated that contract

liability isfor damage to “the product itself” while indicating tort liability is available

for damage to “other property.” Id. at 574-75, 577, 578-79. The court explained:

When a defective product causes damage to persons or other property,

the interest at stake is health and safety . . . . Those safety interests are

protected under tort law, which allows recovery by injured plaintiffs

against a seller or manufacturer of an unreasonably dangerous defective

product. When, however, a product is defective and damages only itself,

the interest at stake is the purchaser’s expectation of receiving the

bargained-for product. That interest is protected by the remedies

provided under Article 2 of the Uniform Commercial Code.

Id. at 578-79 (emphasis added) (citation omitted); see also id. at 577-78 (interpreting

North Dakota’s Tort Reform Act of 1993 to permit “tort actions . . . when a defective

product causes damage to persons or other property,” but not “when only the

defective product has been damaged”).

TheClarys court expressly agreed with the drafters ofthe Restatement “that the

Uniform Commercial Code, not product liability tort law, governs actions of persons

seeking redress for damages when the injury is confined to the defective product

itself, and neither persons nor other property are damaged.” Id. at 578. In

announcing its agreement with the Restatement, the court emphasized that its

approach permits recovery in a product liability suit for harmto “‘property other than

the defective product itself,’” but not for harm “to the defective product itself.” Id.

(emphasis in original) (quoting Restatement (Third) of Torts: Product Liability

§ 21(c)).

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Since Clarys, the North Dakota Supreme Court has only twice addressed the

economic loss doctrine, and in both instances, it reiterated the distinction between the

product itself and other damaged property. See Leno v. K & L Homes, Inc., 803

N.W.2d 543, 550 (N.D. 2011) (“[U]nder the economic loss doctrine in North Dakota,

‘economic loss resulting from damage to a defective product, as distinguished from

damage to other property or persons, may be recovered in a cause of action for breach

of warranty or contract, but not in a tort action.’” (quoting Steiner v. Ford Motor Co.,

606 N.W.2d 881, 884 (N.D. 2000))); Steiner, 606 N.W.2d at 884 (“‘[D]amage to

persons or other property . . . [is] protected under tort law.’” (quoting Clarys, 592

N.W.2d at 578)).

Themajority dismisses these indications of North Dakota law, disregarding the

discussion in Clarys as “dicta.” Ante at 6-7. However, the signals in Clarys are more

than just fleeting comments or unassuming word choices. The North Dakota Supreme

Court’s statements about “other property” represent an important part of the careful

weighing and molding that went into the court’s understanding and description of

how best to balance contract law with tort. “[C]onsidered dicta” such asthis provides

crucial insight into the North Dakota Supreme Court’s thinking, Ashley Cnty., 552

F.3d at 665, particularly when that same court cites and repeats the point in later

cases, see, e.g., Leno, 803 N.W.2d at 550; Steiner, 606 N.W.2d at 884. 

The majority notes the North Dakota Supreme Court’s later cases do not

expressly “point[] to a rejection of the foreseeability approach” advanced in Dakota

Gasification. Ante at 7. While the majority may fit Dakota Gasification’s

foreseeability approach within portions of Clarys’s general discussion of the role and

underpinnings of the economic loss doctrine, the majority does not justify Dakota

Gasification’s outright disregard for the product/other property analysis in light ofthe

North Dakota Supreme Court’s recent decisions favoring such a distinction. Compare

Dakota Gasification, 91 F.3d at 1099, 1101 (applying its foreseeability rule to

preclude tort recovery “regardless whether the damage wasto the ‘goods’ themselves

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or to ‘other property’” (emphasis added)), with Clarys, 592 N.W.2d at 578

(explaining tort law protects “damage to persons or other property”).

I share the majority’s respect for our prior panel’s opinion. But time proved

our prediction wrong, and the prediction should now give way to our obligation to

apply North Dakota law in the way described by the highest court of that state. I

believe North Dakota would not ask whether the harm was foreseeable but whether

the harm occurred to “other property.”

II. Foreseeability Under Dakota Gasification

Even accepting Dakota Gasification’s test as controlling, that case does not

preclude Arena Holdings’s tort recovery under the summary judgment standard. See

Fed. R. Civ. P. 56(a) (requiring summary judgment only where “the movant shows

that there is no genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law”).

As “‘the fundamental boundary between contract law . . . and tort law,’” Clarys,

592 N.W.2d at 576 (quoting Casa Clara Condo. Ass’n v. Charley Toppino & Sons,

Inc., 620 So. 2d 1244, 1246 (Fla. 1993)), the economic loss doctrine retains the

delicate task of balancing the competing policy interests of both areas of the

law—not just resisting “the usurpation of contract law by tort law,” ante at 9 (citing

Clarys, 592 N.W.2d at 577). The majority’s foreseeability analysis does not account

for the two primary circumstances that led the panel in Dakota Gasification to find

the harm in that case foreseeable. Both circumstances are noticeably absent here.

First, in Dakota Gasification, the foreseeability inquiry was whether damage

to a plant and its contents was a foreseeable result of defects in “structural

components such assteel rafters, columns, and purlins,” which were used in building

the plant. Dakota Gasification, 91 F.3d at 1096-97, 1100. Such harm is nearly per

se foreseeable when the potential defect lies in the plant’s structural components

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because the components’ ability to hold up the building and protect its contentsisthe

primary motivation for purchasing such materials. Our discussion of foreseeability

in Dakota Gasification made special note of this fact on more than one occasion. See

id. at 1100 (reasoning, in discussing our adoption of the foreseeability approach, that

“it is difficult to imagine a scenario in which the natural consequence of an installed

structural component’s failure would be damage only to the structural component

itself without any damage to the surrounding property”); id. (assessing foreseeability

and analogizing the case to a Sixth Circuit decision because in both cases, “the

defective structural components caused great damage to surrounding property”). In

this case, it is not clear whether fire safety was a reason for purchasing Harman’s

amplifiers, and unlike the dangers of collapsing structural components, the bargainedfor function of an amplifier normally would not entail an inherent danger of 

widespread fire damage and put these risks “within the scope of bargaining” as a

matter of law. Grams, 699 N.W.2d at 175.

Second, in Dakota Gasification we looked to one other fact in assessing

foreseeability: A limitation of liability provision in the purchase contract for the steel

components stating, “SELLER SHALL NOT BE RESPONSIBLE FOR . . .

DAMAGES TO THE CONTENTS OR FURNISHINGS IN ANY BUILDING.” 

Dakota Gasification, 91 F.3d at 1100. That contract specifically allocated the risk of

defects in the product harming the building’s furnishings and contents. See id.

(reasoning that “[t]his language demonstrates that the damage which occurred here

was well within the contemplation of the parties” (emphasis added)). 

But Harman relies on language declaring, 

YOU ARE NOT ENTITLED TO RECOVER FROM US . . . ANY

DAMAGE TO ANOTHER PRODUCT OR PRODUCTS RESULTING

FROM . . . A DEFECT [IN THE PURCHASED PRODUCT].

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This disclaimer acknowledges that an amplifier defect might damage “another

product,” but this statement is far too vague to give any sense that the fire and smoke

damage here was one of the allocated risks considered during the bargaining.

Foreseeability of harm generally “is a question of fact for the jury, unless the

facts are such that reasonable minds could not differ.” Barsness v. Gen. Diesel &

Equip. Co., 383 N.W.2d 840, 843 (N.D. 1986); accord Haugenoe v. Workforce Safety

& Ins., 748 N.W.2d 378, 387 (N.D. 2008); see also Foremost Farms USA Coop. v.

Performance Process, Inc., 726 N.W.2d 289, 297 (Wis. Ct. App. 2006) (considering

foreseeability, as used in the economic loss doctrine, a “factual question”). In Dakota

Gasification, the structural nature of the defect made the resulting damage a practical

inevitability, a fact reflected by a limitation of liability clause specifically addressing

damage to the building’s furnishings and contents. 

Before granting summary judgment to Harman, I would require a similarly

undeniable indication of foreseeability. Harman’s evidence here—(1) the user

manual shipped with the amplifier, which referenced at one point the possibility of

speakers overheating and warned at another point against the increased risk of fire

should the amplifier be exposed to rain or moisture; (2) knowledge by the initial

purchasing subcontractor that amplifiers could (but rarely did) cause fires; and

(3) Arena Holdings’s implementation of technical fire-safety specifications for

contractors working on the arena project—is not so clear. On this evidence, the firerisk of an amplifier defect might be foreseeable enough to bring the risk within the

purview of the bargaining process, but that question is not beyond reasonable dispute

and thus should be left to a jury.

III. Conclusion

Because I disagree that Dakota Gasification governs, I would return this case

to the district court to address the economic loss doctrine under a dichotomy between

the product itself and other property. Even applying Dakota Gasification, I would

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still remand because there are material factual disputes precluding summary

judgment.

______________________________

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