PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

MICHAEL REDMAN,

Plaintiff-Appellee,

v.

JOHN D. BRUSH AND COMPANY, d/b/a

Sentry Group, Incorporated, No. 95-3215

Defendant-Appellant,

and

VALUE-TIQUE, INCORPORATED,

Defendant.

Appeal from the United States District Court

for the Western District of Virginia, at Big Stone Gap.

Glen M. Williams, Senior District Judge.

(CA-91-207-B)

Argued: December 5, 1996

Decided: April 28, 1997

Before WILKINS and LUTTIG, Circuit Judges, and BUTZNER,

Senior Circuit Judge.

_________________________________________________________________

Reversed by published opinion. Senior Judge Butzner wrote the opinion, in which Judge Wilkins and Judge Luttig joined.

_________________________________________________________________

COUNSEL

ARGUED: Laura Ellyn Wilson, PENN, STUART, ESKRIDGE &

JONES, Abingdon, Virginia, for Appellant. Terry Gene Kilgore, KIL-
GORE & BAKER, Gate City, Virginia, for Appellee. ON BRIEF: D.

Gregory Baker, KILGORE & BAKER, Gate City, Virginia, for

Appellee.

_________________________________________________________________

OPINION

BUTZNER, Senior Circuit Judge:

In this products liability suit, John D. Brush and Company (Sentry), the manufacturer of Sentry safes, seeks review of a jury award

entered in favor of Michael Redman. Redman brought the suit after

his coin collection, which was locked inside his Sentry safe, was

stolen. At the conclusion of trial, the jury awarded Redman the value

of the coin collection based on its finding that the loss resulted from

the safe's negligent design. Because the evidence was legally insufficient to establish Sentry's liability for the loss, we reverse.

This is a diversity case and Redman's loss occurred in Virginia.

Accordingly, Virginia law controls the substantive legal issues.

Alevromagiros v. Hechinger Co., 993 F.2d 417, 420 (4th Cir. 1993).

I

Redman purchased a Sentry Supreme Safe, Model #5570, from a

retailer, which traded under the name of Value-Tique, after noticing

the safe in magazine advertisements. The retailer arranged for Sentry

to ship Redman's safe, which was delivered in February 1987. Redman stored his coin collection in the safe. In December 1989, while

Redman and his family were away for three days, a burglar broke into

Redman's home and stole his coin collection. Upon his return, Redman found that the safe, which had a combination lock, had been

forced open. On the floor near the safe were a 12" pry bar, a screw

driver, a hammer, and the safe's dial and handle.

In December 1991, Redman filed this action against Sentry and

Value-Tique to recover the value of the coin collection. The complaint asserted claims for breach of warranty, negligent failure to

warn of a dangerous condition, and negligent design or manufacture.

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Early on, Value-Tique was dismissed from the suit for lack of personal jurisdiction.

Subsequently, Sentry filed a motion for summary judgment. Ruling

on the motion, the district court dismissed the warranty claim because

the statute of limitations had elapsed and, alternatively, because Sentry had effectively disclaimed all liability for consequential damages.

The court also dismissed the negligent design claim because Redman

had not presented any evidence to show that the safe was defective.

The court did not, however, dismiss the failure to warn claim.

After several months of pretrial preparation, Sentry filed a second

motion for summary judgment. In response, Redman asked the court

to reconsider its earlier dismissal of the negligent design claim. Acting on these motions, the court changed two of its previous rulings.

First, the court reinstated the design claim because Redman had

retained an expert who, Redman said, would testify that the safe was

negligently designed. Second, the court dismissed the failure to warn

claim, finding that Redman could not sustain the claim under Virginia

law because the safe was not a dangerous product. The court also held

that Redman's claim was not barred by Virginia's economic loss rule.

As a result of these rulings, the district court then held that the case

would be tried on the sole issue whether Sentry negligently designed

and manufactured the safe. Redman has not appealed any of the

orders that adversely affected him.

After the jury returned a verdict in Redman's favor, Sentry

renewed its motion for judgment as a matter of law because, in its

view, Redman had failed to prove the elements of his claim. The district court denied the motion and entered judgment based on the jury's

verdict. See Redman v. Sentry Group, Inc., 907 F. Supp. 180

(W.D.Va. 1995). Sentry appealed.

II

Sentry asserts on appeal that the district court erred in several evidentiary rulings and by denying its motion for judgment as a matter

of law. Under Federal Rule of Civil Procedure 50, the moving party

is entitled to prevail on a motion for judgment as a matter of law if,

after a full hearing, the evidence is legally insufficient to allow a rea-

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sonable jury to find in favor of the other party. With that standard in

mind, we review the district court's denial of such a motion de novo.

Brown v. CSX Transp., Inc., 18 F.3d 245, 248 (4th Cir. 1994). We

review evidentiary rulings for abuse of discretion.

In order to sustain a products liability claim for negligent design

under Virginia law, "the plaintiff must prove that the product contained a defect which rendered it unreasonably dangerous for ordinary

or foreseeable use." Alevromagiros, 993 F.2d at 420. Although Virginia law requires manufacturers to make reasonably safe products, it

does not require them to adopt the safest conceivable design. Austin

v. Clark Equipment Co., 48 F.3d 833, 837 (4th Cir. 1995). Instead,

manufacturers are required to design products that meet prevailing

safety standards at the time the product is made. Sexton v. Bell Helmets, Inc., 926 F.2d 331, 336-37 (4th Cir. 1991). When deciding

whether a product's design meets those standards, a court should consider whether the product fails to satisfy applicable industry standards, applicable government standards, or reasonable consumer

expectations. Alevromagiros, 993 F.2d at 420.

III

We turn first to the contested evidentiary rulings. At the outset of

the trial, Sentry moved to exclude two of Redman's exhibits. Over

Sentry's objection, the district court permitted Redman to introduce

a Value-Tique advertisement that appeared in a magazine called Coin

World three years after Redman bought his safe. The advertisement

described the pictured Sentry safe as "burglar deterrent" and "fire

resistant." As justification for introducing the advertisement, Redman

claimed that he relied on similar advertisements when he bought his

safe. The district court allowed Redman to introduce the advertisement because the safe had been advertised "for burglary purposes."

The advertisement should not have been allowed in evidence. The

most obvious problem with the advertisement is that it depicts a different model safe from the one Redman purchased. An even more

important difficulty with the admission of the advertisement is that

the evidence does not link Sentry to the representation of burglar

deterrence that appears in the advertisement. The evidence shows

only that Redman ordered the safe from Value-Tique and Sentry

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shipped the safe direct from the factory. According to the best recollection of its witness, Sentry did not place any advertisements in Coin

World in 1986 or 1987. In addition, Redman produced no evidence

to show that Sentry authorized Value-Tique to describe a Sentry safe

as "burglar deterrent." Later during the trial, Redman testified that no

one from Sentry told him the safe was "burglar deterrent," and he

admitted that he had not produced any advertisements that Sentry had

placed in a coin magazine.

The second exhibit that Sentry's counsel challenged was a copy of

the warranty that accompanied the safe. Partially overruling the objection of Sentry's counsel, the district court allowed Redman to introduce a sentence from the warranty for impeachment purposes. The

sentence reads: "Your safe is built to protect against fire and petty

theft, but if properly installed and used will provide a degree of protection against burglary." The district court admitted the warranty

statement for impeachment because, in the words of the district court,

Sentry's expert "has said they do not make burglary proof safes."

The trouble with the district court's ruling is simply that the warranty was not contrary to the testimony of Sentry's witness. After

explaining the standards of Underwriters Laboratories (UL) for burglar resistance, Sentry's expert testified that Sentry does not make

burglar resistant safes and that the safe in question was not designed

to meet a UL burglary resistance standard; instead, it met a UL fire

resistance standard, and it could not be redesigned to meet a burglar

resistance standard. He also testified that the safe offered a degree of

burglary protection because it has a lock and bolt work that would

require some degree of force to enter for anyone who did not know

the combination. His testimony was consistent with the warranty,

which described the safe as providing "a degree of protection against

burglary." Consequently, the warranty did not impeach Sentry's

expert. It simply served to confuse the jury by reminding them that

Sentry had given a warranty when, in fact, the district court had dismissed Redman's cause of action on the warranty. Although the district court explained to the jury that the warranty itself was not an

issue, the jury's prejudicial confusion was made evident by a question

they asked about the meaning of "petty theft," a term mentioned in the

warranty. The court responded to the jury's question by explaining

that the term was not relevant. Nevertheless, the question and answer

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suggest that the jury was using the statement in the warranty for more

than impeachment purposes, especially since it did not impeach Sentry's expert. The warranty should not have been admitted into evidence, and under the circumstances the district court erred by

allowing the introduction of the statement for impeachment purposes.

In addition to the Value-Tique advertisement and the warranty

statement, Sentry challenges the admissibility of the expert testimony

offered by Redman. Redman called as his expert a metallurgic engineer, who undoubtedly qualified to testify about the properties and

characteristics of metal. In preparation for trial, he conducted what he

called a failure analysis on the safe. Through this analysis, he learned

what materials the safe was made of and how those materials were

assembled. He also reached the conclusion that the burglar broke into

the safe by prying open the door using the pry bar later found next

to the safe. Based on his findings, he opined that, although the safe

was fire resistant, it was not burglar deterrent.

The problem with the admissibility of that conclusion is that Redman's expert was not qualified to testify about industry standards. He

had never before analyzed a safe, engaged in the manufacture or

design of safes, or received any training regarding safes. Even more

importantly, he was not personally familiar with the standards and rating systems for fire protection capacity and burglary protection capacity used in the safe industry. He acknowledged that his only

knowledge of safes was acquired in preparation for this trial through

discussions he had initiated with people who sold, distributed, or

repaired safes. In fact, he admitted he used the term "burglar deterrent" only because it appeared in the advertisements placed by ValueTique.

In order to reach the conclusion that Redman's safe was not "burglar deterrent," the expert relied on the hearsay of store personnel to

ascertain the meaning of "burglar deterrent," that is, to ascertain the

meaning of what he believed to be an applicable industry standard.

Redman did not call those employees as witnesses, nor did he attempt

to qualify them as experts.

Federal Rule of Evidence 703 permits the admission of expert

opinion testimony even though the expert has relied on evidence that

 6
is inadmissible. But the rule has a proviso as important as the rule's

statement regarding admissibility. The opinion is admissible only if

the expert has relied on information of a kind reasonably relied on by

experts in the field. In this case, an expert in the relevant field would

be familiar with the design and manufacture of safes and the industry

standards regarding safes. There is no proof and no reason to believe

that such an expert would rely on conversations with store personnel

to identify a standard of burglar protection capacity. Thus, Redman's

expert should not have been permitted to rely on the inadmissible

hearsay of the store personnel for the purpose of establishing a purported industry standard. See United States v. Trong Cuong, 18 F.3d

1132, 1143-44 (4th Cir. 1994); Thomas J. Kline, Inc. v. Lorillard,

Inc., 878 F.2d 791, 799 (4th Cir. 1989).

Other than the inadmissible hearsay, Redman's expert presented no

evidence of an industry standard for "burglar deterrent" safes. In the

absence of an industry standard for burglar deterrence, it would be

speculative and misleading for the expert to opine that the safe did not

meet that undefined standard. Cf. Alevromagiros , 993 F.2d at 421

(rejecting expert testimony that amounts to mere"subjective opinion"

because "[l]ike the Fifth Circuit, we are unprepared to agree that `it

is so if an expert says it is so.'" [citation omitted]). Under these circumstances, it was error to permit Redman's expert to testify that the

safe was not "burglar deterrent." It was proper, however, to admit the

expert's testimony about matters relating to his metallurgic expertise,

such as his discussion of how the safe was constructed, the salient

properties of the safe's component materials, and how he thinks the

burglar forced open the door.

IV

Next we examine whether the remaining evidence was sufficient to

show a deviation from applicable industry safety standards. We conclude that it was insufficient.

Redman's expert testified that, in his opinion, the safe fell below

the industry standard for "burglar deterrent" safes. As we have discussed, however, he was not qualified to testify about industry standards because his only knowledge of the subject derived from an

inappropriate source. Since he was not qualified to testify about

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industry standards, he also was not qualified to offer an opinion about

whether the safe met those standards. For that reason, the competent

portions of his testimony do not demonstrate that the safe failed to

meet an industry standard.

Sentry offered the testimony of its design engineering manager

who is a mechanical engineer with 13 years of design experience in

the safe industry. Without objection he was offered as an expert on

the design and manufacture of safes. He testified that there are two

classifications of safes in the industry--fire resistant and burglar

resistant. He further testified that the safe in question is designed primarily for fire protection and that it meets UL standards for two-hour

fire resistance. He added that, because the safe is equipped with a

locking mechanism, it provides some measure of burglar protection,

although it does not meet any specific burglar resistance standard. He

also testified that safe construction involves a tradeoff between fire

resistance and burglar resistance because the materials that enhance

burglar resistance reduce fire resistance. He testified that when he

examined the safe, he was not furnished the handle to the locking

mechanism. Without the handle, he was unable to say how it was

removed, but he believed the handle was removed before the thief

broke into the safe by using a pry bar on the door.

The district court concluded that, because Sentry's expert acknowledged that Redman's safe did not qualify for a burglar resistance rating, it fell below industry standards. To reach this conclusion, the

court created its own standard. Throughout its opinion, it refers to

"burglar deterrent/burglar resistant" safes. See Redman, 907 F. Supp.

at 183-84. However, neither expert testified that such a standard

exists, and no evidence of such a standard was introduced. The phrase

"burglar deterrent" originated in Value-Tique's advertisement, which,

as shown in Part III, was inadmissible.

The problem with the court's reasoning is that nothing in the record

establishes that industry standards require a so-called "burglary deterrent" safe to qualify for a burglar resistance rating. Although the district court did not recognize a difference between"burglar resistant"

safes and "burglar deterrent" safes, Sentry's expert--the only witness

qualified to testify about industry standards--was careful to draw that

distinction. According to Sentry's expert, the burglar resistance rating

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system is used by the industry to measure burglar protection capacity.

He did not testify about the existence of an industry standard for burglar deterrence. Viewed properly, the testimony of Sentry's expert

does not establish that Redman's safe failed to meet an applicable

industry standard.

Furthermore, Redman did not offer any evidence to establish that

an industry standard required the safe at issue, which was designed

to resist fires, to provide a defined level of burglary protection. In

fact, he did not even present evidence to show that industry standards

require a safe designed to be burglar resistant to qualify for a minimum burglar resistance rating. Neither expert suggested that safes

designed for fire resistance are required to carry an industry rating for

burglar resistance, nor did they say whether other fire resistant safes

on the market provide more burglar protection than the safe in question. In short, the evidence did not establish that the safe fell below

any applicable industry standard. Neither party referred to any government standards.

We also note that neither Value-Tique, through its advertising

description, nor Redman's expert could create a standard, such as

"burglar deterrent," against which Sentry's alleged negligence is to be

measured. Applying Virginia law, we have held that a company cannot create a particularized standard to measure negligence in the products liability context. See Hottle v. Beech Aircraft Corp., 47 F.3d 106,

108-10 (4th Cir. 1995).

V

Redman may satisfy his burden of establishing that the safe

included an unreasonably dangerous defect if he can show that it

deviated from reasonable consumer expectations. This avenue is open

to him even though he has failed to prove that the safe did not meet

industry or government standards. Alevromagiros , 993 F.2d at 420.

Consumer expectations are used to gauge whether a product design

is defective because those expectations reveal how society "balances

known risks and dangers [inherent in a product design] against the

feasibility and practicability of applying any given technology" to

enhance product safety. Sexton, 926 F.2d at 337. Requiring manufacturers to meet reasonable consumer expectations ensures that their

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products are required to meet minimum standards deemed appropriate

by society, even when those societal standards demand safer products

than government or industry standards. Id. at 336-37. In Virginia, a

plaintiff can establish reasonable consumer expectations through "`evidence of actual industry practices, . . . published literature, and from

direct evidence of what reasonable purchasers considered defective.'"

Alevromagiros, 993 F.2d at 420-21 (quoting Sexton). These types of

evidence are probative when they establish what society demands or

expects from a product. Sexton, 926 F.2d at 337.

Redman presented no evidence to show that reasonable consumers

expect all safes to provide a minimum amount of burglary protection.

Instead, he contends that a reasonable consumer would have expected

the particular safe he purchased to provide more burglary protection

than it did. The reason he offers is that this particular safe was marketed as "burglar-deterrent" and Sentry indicated that it would provide

"a degree of protection against burglary."

Redman's argument misses the mark. There is no doubt that the

safe did, in fact, provide some degree of burglary protection. The safe

was heavy, included a locking mechanism, and appeared secure.

These features, by themselves, would deter some burglars. In addition, the fact that the burglars needed to break into the safe by removing the handle and dial, and by using a pry bar, indicates that it

provided some measure of burglary protection. Redman was unable

to say how long the burglar worked to break into the safe. But the job

obviously was not done easily or quickly. In addition to removing the

handle and the dial, the evidence showed that the burglar used the pry

bar at various places on the safe before hitting upon the five spots that

forced the door. The pertinent question then is whether reasonable

consumers would consider a "burglar-deterrent" safe defective

because it did not provide more burglar protection than Redman's

safe.

Redman's evidence did not establish how much burglary protection

reasonable consumers would expect from a burglar-deterrent safe.

The only evidence he offered on this point was his own testimony. He

testified that, based on the advertisement, the warranty statement, and

the safe's appearance, he expected more protection than the safe provided. Redman's subjective expectations are insufficient to establish

 10
what degree of protection or deterrence society expects from a safe.

See Alevromagiros, 993 F.2d at 421.

Furthermore, the evidence disclosed that the industry practice is to

manufacture safes that qualify for either a fire resistance or a burglar

resistance rating, but not both. The reason, according to the unrebutted testimony of Sentry's expert, is that it is not feasible, practically

or economically, to enhance the burglar resistance of safes like Redman's without diminishing their capacity to protect against fire. The

safe Redman purchased carried a UL rating for fire resistance. In light

of the industry practice, it would be unreasonable for a safe like Redman's, which expressly carried a fire resistance rating, to be considered defective because it did not carry a burglar resistance rating as

well. Finally, Redman introduced no published literature revealing

consumer expectations.

VI

There is also a problem with Redman's claim for damages. He

measures his damages by the value of the stolen coin collection. But

this damage is an economic loss that Redman cannot recover in a negligence action.

The evidence disclosed that there is no privity of contract between

Redman and Sentry. Moreover, Redman's claim on Sentry's warranty

was barred by the statute of limitations and by Sentry's lawful exclusion of recovery for consequential damages. The question then arises

whether Redman can recover the loss of his coins by bringing an

action in tort to bypass Sentry's exclusion of consequential damages.

The answer is that Virginia would not permit circumvention of its

warranty law in a case like this one.

In Virginia, the economic loss rule applies in negligence suits.

Sensenbrenner v. Rust, Orling, & Neale, Architects, Inc., 236 Va.

419, 423, 374 S.E.2d 55, 57 (1988). According to the rule, a plaintiff

who is not in privity of contract with the defendant cannot maintain

an action for negligence, such as a product liability suit, based on

purely economic losses. See Sensenbrenner, 236 Va. at 422-23, 374

S.E.2d at 56-57. This rule remains in force notwithstanding the statutory abolition of the privity requirement in negligence actions for

 11
injury to persons and damage to property. See Va. Code Ann. § 8.01-

223. This statute is in derogation of the common law and has no

application to claims of economic loss. Sensenbrenner, 236 Va. at

423, 374 S.E.2d at 56-57.

The applicability of the economic loss rule depends on the type of

loss suffered by the plaintiff. The Virginia Supreme Court has noted

with approval that "most jurisdictions equate economic losses . . .

with disappointed economic expectations." Sensenbrenner, 236 Va. at

423, 374 S.E.2d at 57. According to the court, "[t]his is clearly the

prevailing rule where damage is claimed because goods purchased

fail to meet some standard of quality." 236 Va. at 423, 374 S.E.2d at

57. In other words, an economic loss is a loss that flows from the failure of the product to perform as expected.

Virginia law permits a manufacturer to tailor both the warranty

protection offered with a product and the remedies available for

breach of warranty. See Va. Code §§ 8.2-316, 8.2-719. As a result, the

extent of liability and the remedies available in a warranty action are

often quite different from the remedies available in tort. By precluding recovery of economic losses in actions for tort, the economic loss

rule preserves the balance of rights and remedies established by warranty law. See Sensenbrenner, 236 Va. at 423, 374 S.E.2d at 57.

Redman argues that the economic loss rule does not preclude tort

recovery in this case. In his view, whenever a plaintiff seeks to

recover a loss involving physical harm to property other than the

product itself, the economic loss rule is inapplicable. Applying this

reasoning, he argues that the loss of his coin collection constitutes

damage to other property that can be recovered in tort. The essence

of Redman's claim is that the safe did not meet his expectations of

burglar deterrence and burglary protection.

If the safe did not meet Redman's expectations, his remedy is

defined by Sentry's warranty, which the court determined was inapplicable because of the statute of limitations and the exclusion of consequential damages. This analysis is consistent with Virginia Supreme

Court precedent. In Sensenbrenner, the court made it clear that the

distinction between economic losses and injuries to property is linked

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to the difference between products liability tort actions and contract

or warranty actions:

The controlling policy consideration underlying tort law is

the safety of persons and property--the protection of persons and property from losses resulting from injury. The

controlling policy consideration underlying the law of contracts is the protection of expectations bargained for. If that

distinction is kept in mind, the damages claimed in a particular case may more readily be classified between claims for

injuries to persons or property on one hand and economic

losses on the other.

Sensenbrenner, 236 Va. at 425, 374 S.E.2d at 58.

Other courts have reached the same conclusion. For example, when

roofing material fails to serve its intended function, damage to the

underlying roof and the contents of the building may constitute mere

economic loss. Jones & Laughlin Steel Corp. v. Johns-Manville Sales

Corp., 626 F.2d 280 (3d Cir. 1980). In addition, the consequential

loss of safeguarded property caused by the failure of an alarm system

to function has been held to be purely economic loss. Fireman's Fund

American Ins. Co. v. Burns Electronic Security Services, 417 N.E.2d

131 (Ill. 1981) (burglar alarm); Arell's Fine Jewelers, Inc. v. Honeywell, Inc., 566 N.Y.S.2d 505 (N.Y. App. Div. 1991) (burglar alarm);

see also Nelson v. Todd, 426 N.W.2d 120 (Iowa 1988) (holding that

meat spoilage caused by failure of meat preservative to prevent harm

constituted economic loss). In each of these cases, warranty law, not

tort law, controlled the plaintiff's rights.

In light of the previous discussion, it is clear that Redman's loss is

properly classified as economic. The essence of Redman's claim is

that he suffered a loss because the safe did not function at the level

he expected. Although his claim is based on harm to property other

than the safe itself, his loss arose because the safe did not protect the

coin collection from burglars in accordance with his expectations.

Under these circumstances, the extent of Sentry's liability for Redman's loss is controlled by Sentry's warranty. Redman is not permitted to circumvent Sentry's warranty simply by alleging a negligence

claim.

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VII

Redman has failed to present evidence demonstrating that the safe

violated industry standards, government standards, or reasonable consumer expectations. His claim for damages is legally insufficient

because it is an economic loss that cannot be recovered in a tort action

based on negligent design.

REVERSED

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