Of the Eighth Circuit, sitting by designation. *

United States Court of Appeals

For the First Circuit

No. 05-2501

ISLA NENA AIR SERVICES, INC.;

SAN JUAN JET CHARTER, INC.,

Plaintiffs, Appellants,

v.

CESSNA AIRCRAFT COMPANY;

PRATT & WHITNEY CANADA CORP.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Raymond L. Acosta, U.S. Senior District Judge]

Before

Boudin, Chief Judge,

Torruella, Circuit Judge,

and Hansen, Senior Circuit Judge. *

Lawrence D. Goodman, with whom Luis Del Valle-Emmanuelli,

García & Fernández Law Office, Juan A. López-Conway, and Devine

Goodman Pallot & Wells, P.A. were on brief, for appellants.

James M. Derr, with whom Bruce J. McGiverin were on brief, for

appellee Cessna Aircraft Company.

Kathleen M. O'Connor, with whom Thornton, Davis & Fein, P.A.,

A.J. Bennazar-Zequeira, José R. García-Pérez and Bufete Bennazar,

C.S.P. were on brief, for appellee Pratt & Whitney Canada Corp.

May 31, 2006
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TORRUELLA, Circuit Judge. Plaintiffs-Appellants Isla

Nena Air Services, Inc. and its successor in interest San Juan Jet

Charter, Inc. (hereinafter "Isla Nena") brought suit against

defendants-appellees Cessna Aircraft Company ("Cessna") and Pratt

& Whitney Canada Corporation ("PWC") in the United States District

Court for the District of Puerto Rico. The complaint alleged

claims arising from an airplane crash near Culebra, an island

municipality of Puerto Rico. Isla Nena now appeals from the

district court's dismissal of its complaint for failure to state a

claim upon which relief may be granted. After careful review, we

affirm the judgment of the district court.

I.

Isla Nena is a Puerto Rico corporation that operates a

short-haul commercial airline in Puerto Rico. Cessna is a Kansas

corporation that designs, manufactures, and sells aircraft. PWC is

a Canadian corporation that designs, manufactures, and sells

aircraft engines. On November 26, 2001, Isla Nena purchased a new

Cessna 208B (the "Aircraft") from Cessna and took delivery at

Cessna's factory delivery center in Wichita, Kansas. The Aircraft

was powered by a PWC engine.

On August 30, 2003, the Aircraft was carrying nine

passengers and a pilot from Fajardo, a city on the northeast coast

of Puerto Rico, to Culebra, an island municipality of Puerto Rico

approximately twenty miles east of Fajardo. About five miles west
 The complaint also alleged as defendants a John Doe, Jane Doe, 1

River Doe, and Insurance Companies A, B, and C.

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of the Culebra airport at an altitude of 2500 feet, in clear

weather, the engine failed and the Aircraft lost power. The pilot

was able to glide the Aircraft toward Flamenco Beach near Culebra

and performed a controlled emergency water landing just off the

beach. Following the landing, the pilot assisted all of the

passengers -- none of whom were seriously injured -- to shore. The

Aircraft suffered major damage to all of its components and the

engine was destroyed.

After the accident, the National Transportation Safety

Board ("NTSB") conducted an investigation. The NTSB determined

that certain rivets installed around an engine inlet duct were

either fractured or corroded. After the NTSB examined the engine,

it was shipped back to PWC. PWC examined the engine's component

parts and found that the damage to the engine was consistent with

ingestion of a foreign object. Isla Nena's theory is that the

rivets were defectively designed or installed, causing them to

break off, and that the rest of the engine failed when it ingested

one of the broken rivets.

On September 20, 2004, Isla Nena filed a six-count

complaint against Cessna and PWC in the United States District 1

Court for the District of Puerto Rico. The complaint asserted

diversity jurisdiction and contained claims for strict liability
 The complaint also asserted a direct claim against Insurance 2

Companies A, B, and C (Count V), and a claim for indemnity for any

claims brought by the Aircraft's passengers (Count VI). Neither

count is part of this appeal.

 The parties do not appear to dispute whether Isla Nena has 3

claimed damages for only economic loss -- that is, to the Aircraft

itself.

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(Counts I and II) and negligence (Counts III and IV). The 2

complaint sought to recover damages for loss of value to the

Aircraft and engine, cost to repair the Aircraft and engine, loss

of use of the Aircraft, and lost profits.

On November 12, 2004, PWC filed a motion to dismiss

Counts I-IV pursuant to Rule 12(b)(6) of the Federal Rules of Civil

Procedure. Cessna joined the motion. The motion argued that,

despite the fact that the complaint asserted diversity

jurisdiction, federal admiralty jurisdiction and substantive

admiralty law applied. Federal admiralty law has adopted the

"economic loss rule." Under the economic loss rule as articulated

by the United States Supreme Court, a party generally may not

recover damages in tort if a defective product damages only itself.

See E. River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S.

858, 876 (1986). Because the Aircraft damaged only itself, the

motion argued that Isla Nena's claims were barred by the economic

loss rule. In the alternative, the motion argued that Puerto Rico

substantive law would also apply the economic loss rule. Isla 3

Nena opposed the motion, arguing that admiralty jurisdiction did
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not apply and that the economic loss rule did not apply under

Puerto Rico law. In January 2005, the parties filed replies and

sur-replies. On March 16, 2005, an initial scheduling conference

was held and the issues raised in the motions were discussed.

Simultaneous supplemental briefs were filed on April 11, 2005, and

simultaneous supplemental responses were filed on April 22, 2005.

On July 11, 2005, Isla Nena filed a motion for leave to supplement

the record, arguing for the first time that, even if federal

admiralty jurisdiction applied, under the Puerto Rico Dock and

Harbor Act the court was bound to apply Puerto Rico law.

On August 9, 2005, the district court granted the motion

to dismiss. The court found that admiralty jurisdiction applied

and therefore that Isla Nena's tort claims were barred by the

economic loss rule. The court also found that, even if Puerto Rico

law applied, the result would be the same because Puerto Rico law

would follow the economic loss rule. Finally, the court denied

Isla Nena's motion to supplement but stated that, even if it were

to allow the motion, the economic loss rule would still apply. The

court therefore entered partial judgment with respect to Counts IIV. Thereafter, Isla Nena agreed to drop Counts V and VI, and the

partial judgment was modified to a final judgment on August 30,

2005. Isla Nena has timely appealed.
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II.

A. Standard of Review

We review a district court's decision to grant a Rule

12(b)(6) motion to dismiss de novo, taking as true the well-pleaded

facts in the complaint. Vistamar, Inc. v. Fagundo-Fagundo, 430

F.3d 66, 69 (1st Cir. 2005).

B. The Economic Loss Rule

Under the economic loss rule, a party generally may not

recover in tort when a defective product harms only the product

itself (instead of a person or other property). See, e.g., East

River, 476 U.S. at 867-68; Lockheed Martin Corp. v. RFI Supply,

Inc., 440 F.3d 549, 552-53 (1st Cir. 2006) (applying New Hampshire

law); Restatement (Third) of Torts: Prod. Liab. § 21, comment d

(1998). Under the formulation of the rule that the majority of

courts have adopted, a party may not recover in tort "[e]ven when

the harm to the product itself occurs through an abrupt, accidentlike event." East River, 476 U.S. at 870.

East River is an admiralty case; therefore, if we were to

apply federal admiralty law, Isla Nena's claims would be barred by

the economic loss rule, as it is undisputed that the defect in the

Aircraft caused damage to the Aircraft and nothing else. However,

the instant case presents an unresolved question as to whether

admiralty jurisdiction should apply, and the Supreme Court's

precedents on this issue have not been entirely clear. If the
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economic loss rule applies under Puerto Rico law, we need not reach

the question of admiralty jurisdiction and could leave that issue

aside for the Court to clarify at a later date. Because we find

that Puerto Rico courts would apply the economic loss rule, we

affirm the judgment of the district court and do not address

whether admiralty jurisdiction should apply.

C. Puerto Rico Law and the Economic Loss Rule

The Puerto Rico Supreme Court has not directly addressed

whether the economic loss rule is applicable under Puerto Rico law.

We therefore "look to analogous state court decisions, persuasive

adjudications by courts of the states, learned treatises, and

public policy considerations . . . in order to make an informed

prophecy of how the Puerto Rico Supreme Court would rule." PérezTrujillo v. Volvo Car Corp., 137 F.3d 50, 55 (1st Cir.

1998)(quoting Rodríguez-Surís v. Montesinos, 123 F.3d 10, 13 (1st

Cir. 1997))(brackets and internal quotation marks omitted).

Article 1802 of Puerto Rico's Civil Code, 31 P.R. Laws

Ann. § 5141, provides for a right of action stemming from a

person's negligence. Although neither Article 1802 nor any other

provision of the Civil Code has explicitly incorporated the

doctrine of strict liability, it is well-settled that Puerto Rico

courts have adopted that doctrine under Article 1802. See Guevara

v. Dorsey Labs., Inc., 845 F.2d 364, 365 (1st Cir. 1988)(stating

that, under Article 1802, "the Supreme Court of Puerto Rico has
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developed a strict liability standard for manufacturers of

defective products"); Rivera-Santana v. Superior Packaging, Inc.,

132 P.R. Dec. 115, 126, 1992 P.R.-Eng. 754830, 1992 WL 754830

(1992). We begin by discussing Article 1802 and the economic loss

rule.

1. Article 1802 and the Economic Loss Rule

Article 1802 provides that "[a] person who by an act or

omission causes damage to another party through fault or negligence

shall be obliged to repair the damage so done." 31 P.R. Laws Ann.

§ 5141. After careful consideration, we believe that the Puerto

Rico Supreme Court would rule that the economic loss rule bars an

action under Article 1802 where a defective product harms only

itself.

We addressed an issue similar to the present one in

Betancourt v. W.D. Schock Corp., 907 F.2d 1251 (1st Cir. 1990). In

that case, a plaintiff found a serious defect in a sailboat he had

purchased and sued the manufacturer. The plaintiff sued in both

tort and contract under Puerto Rico law, seeking damages for his

investment in the boat, upkeep of the boat, and alleged pain and

mental anguish he suffered because the boat did not work properly.

We held that the plaintiff could not assert a tort claim because

"Puerto Rico's negligence statute, [31 P.R. Laws Ann. § 5141], does

not apply in the context of a commercial transaction." Id. at 1255

(citing Stainless Steel & Metal Mfg. v. Sacal V.I., Inc., 452 F.
-9-

Supp. 1073, 1081 (D.P.R. 1978)); see also Nieves Domenech v. Dymax

Corp., 952 F. Supp. 57, 65 (D.P.R. 1996). We also stated that the

plaintiff could not re-label what was in essence a warranty action

as a tort action. In support of this point, we quoted from East

River:

Even when the harm to the product itself

occurs through an abrupt, accident-like event,

the resulting loss . . . is essentially the

failure of the purchaser to receive the

benefit of its bargain . . . . [A]

manufacturer in a commercial relationship has

no duty under either a negligence or strict

products-liability theory to prevent a product

from injuring itself.

Betancourt, 907 F.2d at 1255 (quoting East River, 476 U.S. at 870-

72).

The instant case presents basically the same situation as

Betancourt. However, Isla Nena argues that our decision in

Betancourt misapprehended Puerto Rico law because Puerto Rico law

"does not preclude claims for strict liability or negligence simply

because a warranty claim is not available or not pursued." Isla

Nena argues that, under the doctrine of concurrence of actions, a

party may elect which cause of action to bring if the party has a

choice between valid contract and tort claims. Isla Nena relies

principally on two cases in support of its argument: Márquez v.

Torres Campos, 111 P.R. Dec. 854 (1982) (official English

translation: No. R-79-101, slip op. (P.R. Jan. 18, 1982)), and
 Although Ramos Lozada has not yet been included in the Official 4

Translations of the Opinions of the Supreme Court of Puerto Rico,

the parties have provided an official English translation. When we

cite to specific pages of the case, we are referring to the pages

of the translation provided by the parties.

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Ramos Lozada v. Orientalist Rattan Furniture, Inc., 130 P.R. Dec.

712 (1992). We discuss each in turn. 4

In Márquez -- which we discussed in Betancourt -- the

defendant sold the plaintiff cattle that had tuberculosis and

failed to tell the plaintiff that the cattle had been quarantined.

As a result, the plaintiff's farm was put under quarantine and the

plaintiff suffered damage to other cattle and farm animals. The

plaintiff brought suit, and the defendant claimed that the suit was

barred by a statute of limitations governing suits for hidden

product defects. The Puerto Rico Supreme Court ruled that "the

action of warranty for hidden defects does not by itself exclude

other actions that may lie under the special circumstances of the

case." Id. at 1094. The court eventually held that the suit could

be brought under a theory of contractual deceit, as opposed to

warranty, and that a longer limitation period applied. In support

of this holding, the court emphasized that

plaintiff's cause of action arises, not from

the objective fact of the defect in the object

of the contract, which is what gives life to

an action of warranty, but from a subjective

circumstance provoked by the defendant's

deceitful action which resulted in damages

that go beyond the defect in the object of the

contract and which is thus outside the frame

of the concept of warranty.
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Id. at 1105 (emphasis added). Unlike the plaintiff in Márquez,

Isla Nena's claims rest solely upon "the objective fact of the

defect in the object of the contract." Id. Further, the damages

that resulted from the defect did not go beyond the defect in the

object of the contract; they were limited to the product itself.

In other words, the damages that Isla Nena seeks are squarely

inside "the frame of the concept of warranty." Id. We thus find

that Márquez is unhelpful to Isla Nena's case.

Isla Nena also argues that our holding in Betancourt has

been undermined by Ramos Lozada, which was decided two years after

Betancourt. In that case, some leased property was destroyed

following a fire that was attributable to the lessee's negligence.

The lessor sued under a theory of breach of contract (the lease

agreement), which had a longer statute of limitations than an

action under Article 1802. However, because the lessor's theory

was that the fire was the result of the lessee's negligence, the

trial court held that Article 1802 -- along with its statute of

limitations -- applied and dismissed the action as untimely. On

appeal, the Puerto Rico Supreme Court reversed. The court held

that "a claim for noncontractual damages resulting from the breach

of a contract lies if the act that caused the damage constitutes a

breach of a general duty not to injure anyone and, at the same

time, a breach of contract." Ramos Lozada, 130 P.R. Dec. 712 at

*8. However, the court also emphasized that an action for breach
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of contract only lies "when the damage suffered arises exclusively

as a consequence of the breach of an obligation specifically agreed

upon, which damage would not occur without the existence of a

contract." Id.

After careful consideration, we do not think that Ramos

Lozada changes the result we reached in Betancourt. We base this

conclusion on several factors. First, Ramos Lozada involved a

lessor-lessee relationship. It did not involve a commercial

transaction, and we see nothing in the case to indicate that the

Puerto Rico Supreme Court intended to replace the general rule that

Article 1802 does not apply in commercial transactions.

Second, Ramos Lozada in no way implicated the economic

loss rule, which is a rule peculiar to the law of products

liability and applies only where a defective product harms itself.

Ramos Lozada holds only that if a party has valid claims stemming

from both tort and contract, that party may choose under which

theory to bring her claims. However, the argument in this case is

that Isla Nena does not have a valid tort claim due to the economic

loss rule. Ramos Lozada never addressed this particular point --

what it means to have a valid tort claim in the product liability

context -- and for good reason, since the case involved a lessorlessee relationship and did not implicate the economic loss rule.

In other words, in Ramos-Lozada, the injury arose not from a defect

in the leased property but from the lessee's negligence. There is
 If Isla Nena were arguing that the appellees' alleged negligence 5

breached a contract or warranty and also caused damage to other

property besides the defective product, Isla Nena would potentially

have valid contract and tort claims and could, under the doctrine

of concurrence of actions, choose whether to proceed in contract or

tort.

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simply no indication that the Puerto Rico Supreme Court intended to

apply Ramos Lozada in the products liability context or intended to

make a pronouncement on the economic loss rule or our decision in

Betancourt, even though it must have been aware of that decision.5

Third, Ramos-Lozada emphasized that a party may not

choose whether to proceed in contract or tort "when the damage

suffered exclusively arises as a consequence of the breach of an

obligation specifically agreed upon, which damage would not occur

without the existence of a contract." Id.; see also Nieves

Domenech, 952 F. Supp. at 66 (explaining that, under Ramos Lozada,

in order to bring a negligence claim based on a contractual

relationship, the "general duty not to act negligently must arise

out of conditions separate from the parties' contract. If a

plaintiff's damages arise exclusively from a defendant's alleged

breach of contract, the plaintiff does not have a separate cause of

action for negligence") (emphasis added) (internal citations

omitted). In the instant case, assuming Isla Nena's claims are

true, the damage suffered -- harm to the product contracted for --

arose exclusively as a consequence of a breach of contract.

Further, the damages would not have occurred without the existence
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of a contract. Therefore, even assuming that the Puerto Rico

Supreme Court intended Ramos Lozada to apply in the present

context, Isla Nena still would not have any valid claims under

Article 1802.

We also think that application of the economic loss rule

is in accord with the policies underlying contract and tort law,

which the United States Supreme Court has extensively discussed in

East River. Although East River is an admiralty case, and its

decision is therefore not controlling in determining Puerto Rico

law, we think the policy rationales explained by the Court

logically apply to the decision we reach today. See Lockheed

Martin, 440 F.3d at 553-54 (applying the policy rationales in East

River to a case involving New Hampshire law after finding that New

Hampshire had adopted the economic loss doctrine). First, the

damages suffered by Isla Nena in this case are essentially those

for which the law of warranty is best suited. In East River, the

Court stated that, where a malfunctioning product harms only

itself, "the resulting loss due to repair costs, decreased value,

and lost profits is essentially the failure of the purchaser to

receive the benefit of its bargain -- traditionally the core

concern of contract law." 476 U.S. at 870. Second, commercial

transactions such as the one involved in this case "generally [do]

not involve large disparities of bargaining power." Id. at 873.

The law of warranty is therefore particularly well-suited to govern
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such commercial controversies because "[t]he manufacturer can

restrict its liability . . . by disclaiming warranties or limiting

remedies. In exchange, the purchaser pays less for the product."

Id. (internal citations omitted). We think this particular policy

concern helps explain the general rule in Puerto Rico that Article

1802 does not apply in commercial transactions. Finally, the

application of the economic loss rule in this context prevents the

erasure of the line between tort law and contract law. As the

Court explained, "[p]roducts liability grew out of a public policy

judgment that people need more protection from dangerous products

than is afforded by the law of warranty. It is clear, however,

that if this development were allowed to progress too far, contract

law would drown in a sea of tort." Id. at 866 (internal citations

omitted).

In conclusion, we see nothing in Ramos Lozada to indicate

an intention to set aside our holding in Betancourt or to provide

for the application of Article 1802 in commercial transactions.

Further, even if we were to read Ramos Lozada that broadly, it

would be of no use to Isla Nena because the damages claimed arose

entirely from the parties' contractual relationship and would not

have occurred apart from the parties' contract. We therefore find

that, under Puerto Rico law, Isla Nena's claims are barred by the

economic loss rule. See Torres-Mas v. Carver Boat Corp., 233 F.

Supp. 2d 253, 255-56 (D.P.R. 2002)(stating that, where plaintiff
 We have stated that "[t]he Supreme Court of Puerto Rico has made 6

clear that the common law of the United States is not controlling,

when filling gaps in the civil law system." See Guevara, 845 F.2d

at 366. However, in Guevara we also noted that "when faced with a

lack of authority, it may be appropriate to search for relevant

principles in the common law." Id. (internal citations omitted).

We then went on to state that "[s]ince the [Puerto Rico] Supreme

Court has freely taken from common law decisions in developing the

concept of strict liability, and since the principles we find there

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alleged damages for defects in a boat, "[t]here are no allegations

. . . regarding specific damages or injuries to plaintiff which

would intimate either an action in torts or a products liability

suit") (citing Betancourt, 907 F.2d at 1254).

2. Strict Liability

Although the previous section applies to both Isla Nena's

negligence and strict liability claims, there are additional

reasons -- that do not apply to Isla Nena's negligence claims -- to

find that the economic loss rule bars Isla Nena's strict liability

claims due to the history and evolution of the doctrine of strict

liability in Puerto Rico. We address these briefly.

As we stated above, the doctrine of strict liability is

found nowhere in Puerto Rico's Civil Code. Instead, the doctrine

has been adopted by the Puerto Rico courts under principles flowing

from Article 1802. Guevara, 845 F.2d at 365. In adopting the

strict liability doctrine, the Puerto Rico courts have relied upon

United States common law product liability principles "to fill a

gap in our body of laws." Rivera-Santana, 132 P.R. Dec. at 126

n.4, 1992 P.R.-Eng. 754830 n.4. In particular, the Puerto Rico 6
are useful and persuasive, we believe the Supreme Court of Puerto

Rico would follow essentially the same path we follow today." Id.

We follow that same course today.

 In East River, the United States Supreme Court cited to and 7

discussed Seely with approval and also noted that Seely represented

the majority view on the economic loss rule. East River, 476 U.S.

at 868.

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Supreme Court has consistently relied upon the precedent of the

California Supreme Court for its strict liability jurisprudence.

Collazo-Santiago v. Toyota Motor Corp., 149 F.3d 23, 25 (1st Cir.

1998). We think this background provides additional reasons to

find that the Puerto Rico courts would apply the economic loss rule

to Isla Nena's strict liability claims.

First, one of the seminal cases setting forth the

economic loss rule is from the California Supreme Court. In Seely

v. White Motor Co., 403 P.2d 145, 150-51 (Cal. 1965), the

California Supreme Court held that a party could not recover in

tort -- under either negligence or strict liability theories -- if

a defective product damaged only itself. Since the Puerto Rico 7

Supreme Court has borrowed much of its strict liability

jurisprudence from the California Supreme Court, we think it likely

that the court would also incorporate this portion of the

California Supreme Court's strict liability jurisprudence. Second,

it is undisputed that the vast majority of courts have adopted the

economic loss rule in some form. See, e.g., Lockheed Martin Corp.,

440 F.3d at 553 n.6 (noting that "the majority of courts have held
 Isla Nena cites to several cases that, it argues, indicate that 8

the Puerto Rico courts would not adopt the economic loss rule in

cases involving strict liability. These cases are easily

distinguishable from the present case. For example, Isla Nena

relies on In Re Dupont-Benlate Litig., 877 F. Supp. 779 (D.P.R.

1995). However, as appellees point out, that case did not involve

a defective product causing injury only to itself. Rather, the

case involved a claim that a defect in a fungicide caused damage to

other property (plaintiffs' crops). Id. at 782. Thus, the

district court's discussion of strict liability and "economic loss"

is inapposite to the instant case because "economic loss" as used

by the Dupont-Benlate court clearly referred to "injury to property

besides the defective product," as opposed to "injury to the

defective product itself."

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that a party may not recover in tort when a product's malfunction

damages only the product itself"). Given the fact that the Puerto

Rico Supreme Court has relied on United States common law in

formulating its strict liability jurisprudence, we think it likely

that the court would also adopt the majority view as to the

economic loss rule.

In sum, the majority common law view, including the view

of the California Supreme Court, is that a party may not recover in

strict liability if a product's defect damages only the product

itself. Given the Puerto Rico Supreme Court's general reliance on

United States common law strict liability principles and its

specific reliance on California Supreme Court precedent -- and

absent any indication to the contrary -- we think it clear that the

Puerto Rico Supreme Court would hold that the economic loss rule

bars Isla Nena's strict liability claims.8
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III.

For the foregoing reasons, the judgment of the district

court is affirmed.