2008 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 8-18-2008 

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. HPG Intl Inc P r e c e de n t i al or N on-P r e c e de n t i al : N on-P r e c e de n t i al D ocke t N o . 07-2955

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J ul y25, 2008 B efore: M C K E E , F U E N T E S , and W E IS C i rcui tJudg es.

( O pi ni on Fi l ed: A ugus t18, 2008) OPI NI ON O F THE COURTT he part i es do notdi s put e thatK entuckyl aw governs t hi s cas e. 1 - 2 - FU E N T E S, C i r cui tJ udge: R ey ton C ed ar K n o ll , L L C (“R ey ton ”) a p p ea ls from the D istri ct C o u rt ’s fina l ord er, gr ant i ng H PG I nt ernat i onal , I nc. ’ s ( “H PG ”) m ot i on fors um m aryj udgm ent . R eyt on a rg u e s th a t th e D istric t C o u rt e rre d in p re d ictin g th a t th e K e n tu c k yS u p re m e C o u rt w o u ld appl yt he ec onom i c l os s doctr i ne w hi ch bar s R eyt on’ s r ecove r yundert or tl aw . Fi ndi ng t h a tt h e r e c o r d s u p p o r t s t h e Di s t r i c tCo u r t ’ s ru l i n g , we a f f i r m. T hr oughoutt he 1980' s and 1990' s , Z ami as Ser vi ces ( “Zam i as ”) devel oped, c o n s tr u c te d a n d o w n e d A s h la n d G a lle ri a M a ll ( “ th e M a ll” ) i n A s h la n d , K e n tu c k y . D u ri n g c o n s tr u c tio n , Z a m ia s h ir e d U n iv e rs a l R o o f in g a s th e ro o f

in g c o n tr a c t f

o r t h e M a ll. I n 1989, D ynami tN obel of A m er i ca, I nc. ( “D ynami t ”) , a pr edec es s orof H PG , pr ovi ded r oof m embra ne t o U ni ver s al R oofi ng fort he cons t ruct i on of t he M al l . H PG pr ovi ded Z ami as a 15- y earw arr antyfort he r oof t hatexpi r ed i n A ugus t2004. I n N ovember 2004, R eyt on, t he appe l l anti n t hi s m at t er , pur chas ed the M al l fr om Z ami as . A m ont h l at er , t he M a ll r o o f

s h a tte re d , re s u ltin g in e x te n s iv e p ro p e rt yd a m a g e . A s a r es ul tof t he pr oper t yl os s , R eyt on s ued H PG al l egi ng negl i gence and s t r i ct liab ili tyu n d e r K e n tu c k ylaw . R e y to n a lleg e d th a t th e ro o f sh a tter w a s c a u se d b yd e f e c ts 1 in th e ro o f

m e m b ra n e p ro v id e d b yD yn a m it. R e y to n c laim e d $ 1 .8 m ill io n in d a m a g e s to t he i nt er i orof t he M al l and $1. 2 m i l l i on t o r epl ace t he r oof. A ft erdi s covery , R eyt on fi l ed a mot i on fors um m aryj udgm ent , w hi ch the D i s t r i ctC our tdeni ed af t erconcl udi ngT h e “ ec o n o m ic l o ss d o ctri n e” is a j u d ici all ycre ated d o ctri n e tha t bars re co v ery 2 undert or tt heoryw hen the part i es coul d have c ont r act ed forl os s es , s uch as t hos e that occurr ed i n t hi s cas e. W e have j ur i s di ct i on under28 U . S. C . § 1291. T he D i s t r i ctC our texer ci s ed 3 ju ri s d ic tio n b a s e d o n d iv e rs ity o f c itiz e n s h ip p u rs u a n t to 2 8 U .S .C . § 1 3 3 2 . T he “de s t ruct i ve occ ur r ence t es t ” or“damagi ng eventt es t ”, as ci t ed byR eyt on, 4 al l ow s forr ecove r yundert or tt heoryi f t her e i s a des t ruct i ve occ ur r ence ( ordamagi ng event ) . See R eal E s t at e M kt g. v. Fr anz, 885 S. W . 2d 921, 926 ( K y . 1994) ( “w e do recogn i ze t hat t o recov er i n tor ton e cann ot pr ov e on l yt hat a defect exis t s; on e m ust fu rt h er p rov e a d am ag ing ev en t”). W e e x e rc ise p len a ryre v iew o v e r th e D istric t C o u rt’s g ra n t o f su m m a ryju d g m e n t, 5 a p p lyin g th e s a m e te s t a s re q u ir e d b yth e D is tr ic t C o u rt in th e irin itia l d e te rm in a tio n . C apr i o v. B el l A t l . Si cknes s & A cci dentPl an, 374 F. 3d 217, 220 ( 3d C i r . 2004) . T o gr ant s um m aryj udgm ent , t he D i s t r i ctC our tvi ew s t he fa ct s i n t he l i ghtm os tfavor abl e t o t he - 3 - t hatt he ec onom i c l os s doctr i ne barr ed r ecove r yi n t or tfort he l os s s us t ai ned t o t he r oof 2 an d to the interi o r of

the M all . S h o rt lythere af ter, in a s ep ara te op inion , the D istri ct C o u rt gr ant ed H PG ’ s m ot i on fors um m aryj udgm entaft erconcl udi ng t hatR eyt on al l eged no v i a b l e t h e o r y o f

r e c o v e r y. R eyt on appea l s , ar gui ng t hatt he D i s t r i ctC our terr ed i n gr ant i ng H PG ’ s m ot i on for s um m aryj udgm ent . Speci fi cal l y , R eyt on al l eges t hatK entuckyw oul d notadoptt he 3 economi c l os s doctr i ne and i ns t ead w oul d appl yt he “de s t ruct i ve occ ur r ence t es t ” or “damagi ng eventt es t . ” I n t he al t ernat i ve, i f t he ec onom i c l os s doctr i ne appl i es , R eyt on 4 ar gues t hatonl yt he r oof i s t he pr oductand ther efor e theyar e ent i t l ed t o r ecove rfor damage t o t he i nt er i orof t he mal l . A ddi t i onal l y , R eyt on has r eques t ed thatw e ce r t i fyt he ques t i on of w hetherK entuckyw oul d adoptt he ec onom i c l os s doctr i ne t o t he K entucky S u p re m e C o u rt. 5non- m ovi ng par t yand mustfi nd t hat“ther e i s no genui ne i s s ue as t o anym at er i al fac tand

the m o v ing p artyis en ti tl ed to jud g m en t as a m att er o f law . ” F ed . R . C iv. P. 56 (c); C elotex C o rp. v. C atrett , 4 7 7 U . S . 3 1 7 , 3 2 2 (19 8 6 ). - 4 - T h e p rim a ryiss u e p re se n ted o n a p p e a l is w h e th e r th e D istric t C o u rt c o rre c tly pr edi ct ed thatt he K entuckySupr eme C our tw oul d adoptt he ec onom i c l os s doctr i ne barr i ng R eyt on’ s r ecove r ybas ed on t or tt heory . W hi l e w e l ack a cl ears t at ement fr om t he K e n tu c k yS u p re m e C o u rt o n th e a d o p tio n o f th e e c o n o m ic lo ss iss u e , the re a re m u lti p le s our ces of per s uas i ve author i t yavai l abl e. I n M t . L ebanon Per s . C ar e H om e, I nc. v. H o o v e r U n iv e rsa l, In c ., 2 7 6 F .3 d 8 4 5 , 8 4 8 -4 9 (6 th C ir. 2 0 0 2 ), a c a se in v o lv in g a p ro p e rty l os s i n K entucky , t he Si xt h C i r cui tobs er ved thata maj or i tyof j ur i s di ct i ons and the w e ig h t o f

th e a c a d e m ic c o m m u n ityf a v o r a p p lica tio n o f

th e e c o n o m ic lo ss d o c trin e to b u sin e ss p u rc h a se s. In lig h t o f M t. L e b a n o n , w e a g re e w ith th e D istric t C o u rt th a t if K e n tu c k y ’s h ig h e st c o u rt w e re f a c e d w ith th e sa m e f

a c ts a s th e c a se b e f

o re u s, it w o u ld adoptand appl yt he ec onom i c l os s doctr i ne. T hus , w e w i l l aff i r m s ubs t ant i al l yfort he t hor ough and per s uas i ve r eas ons s t at ed byJ udge N eal on i n hi s deci s i on and add onl yt he foll ow i ng com m ents . H a v in g d e ter m in e d th a t th e K e n tu c k yS u p re m e C o u rt w o u ld a p p lyth e e c o n o m ic lo ss d o c trin e , the D istric t C o u rt id e n tifie d th e e n tire m a ll as th e p ro d u c t. B a se d o n h is r evi ew of M t . L ebanon, J udge N eal on concl uded that th e K e n tu c k yS u p re m e C o u rt w o u ld hol d t hatt he pr oductfort he ec onom i c l os s doctr i ne purpos es i ncl udes t he ent i r e uni tfor w h ich a p a rtyto a b u sin e ss tra n sa c tio n h a s th e a b ili tyto d istrib u te r isk b yc o n tra c t an d to- 5 -

i ns ur e aga i ns tl os s . I n M t . L ebanon, t he courtappl i ed the ec onom i c l os s doctr i ne t o an ent i r e nur s i ng hom e conc l udi ng t hatt he ec onom i c l os s doctr i ne “pe r m i t s r ecove r yfor d a m a g e s to p ro p e rtyo th e r th a n th e p ro d u c t p u rc h a se d b u t d e n ies re c o v e ryf o r d a m a g e s to t he pr oducti t s el f. ” I d. at849. T he courti dent i fi ed the ent i r e nur s i ng hom e as t he pr oduct becau se M t . L eban on had t he ab i l i t yt o all ocate r i sk con t ractuall yand / or i nsure against l os s w i t h r es pectt o t he ent i r e nur s i ng hom e. I d. at851. Si m i l ar l y , her e, R eyt on contr act ed fort he pur chas e of the M al l and coul d have a l l ocat ed thei rr i s k i n a contr actor i ns ur e aga i ns tl os s . T hus , w e agr ee w i t h t he D i s t r i ctC our tt hatt he M al l i s t he pr oduct t hatt he part i es contr act ed forand r ecove r yfordamage t o t he ent i r e mal l i s barr ed byt he economi c l os s doctr i ne. A l t ernat i vel y , R eyt on ar gues t hatt he K entuckySupr eme C our tw oul d adoptt he

“ d e stru c tiv e o c c u rre n c e ” o r “ d a m a g in g e v e n t” te st. T h e “ d e stru c tiv e o c c u rre n c e tes t” r efe r r ed t o byR eyt on, al l ow s forr ecove r yundert or tt heoryi f t her e i s a des t ruct i ve o cc u rren ce (or d am ag ing ev en t) . H av ing d eterm ined that the K en tuck yS u p rem e C o u rt w o u ld a p p lyth e e c o n o m ic lo ss d o c trin e , rec o v e ryin to rt is b a rre d in c lu d in g e c o n o m ic l os s es caus ed bya “de s t ruct i ve occ ur r ence . ” F in a lly , R e y to n h a s re q u e ste d c e rtific a tio n to th e K e n tu c k yS u p re m e C o u rt to d e te rm in e if

th e yw o u ld a p p ly th e e c o n o m ic lo s s d o c tr in e to th e f a c ts o f th is c a s e . B e c a u se w e a g re e w ith Ju d g e N e a lo n ’s a p p lica tio n o f M t. L e b a n o n , w e d isc e rn n o n e e d to r eques tcert i fi cat i on. M or eover , as J udge N eal on not ed i n hi s opi ni on, t he K entucky Supr eme C our tdecl i ned t o heara s i m i l arcert i fi cat i on r eques tbr oughti n B ow l i ng G r een- 6 -

M un. U t i l i t i es v. T hom ps on L um berC o. , 902 F. Supp. 134, 136 ( W . D . K y . 1995) and t her e i s no r eas on t o bel i eve i tw oul d gr antone her e. For t he for egoi ng r eas ons , w e af fi r m t he D i s t r i ctC our t ’ s fi nal or dergr ant i ng D efe ndantH PG ’ s m ot i on fors um m aryj udgm entand deny i ng cert i fi cat i on t o t he K e n tu c k yS u p re m e C o u rt.