El= DEPUTY CLERK BY 

### 140 Nev.,Advance Opinion 5q IN THE SUPREME COURT OF THE STATE OF NEVADA

No. 86320 

# FRED
SEP 19 2024

EL ETH BROWN CL SUP, E CO T 

### HI-TECH AGGREGATE, LLC, Appellant, vs. PAVESTONE, LLC, A FOREIGN LIMITED LIABILITY CORPORATION AUTHORIZED TO DO BUSINESSIN NEVADA, Respondent.

Appeal from a district court amended judgment following a bench trial in a contract and tort action. Eighth Judicial District Court, Clark County;Mark R. Denton, Judge.

Affirmed inpart and reversed inpart.

Dennett Winspear, LLP, and Ryan L. Dennett and Matthew A. Sarnoski, LasVegas, for Appellant. Lipson Neilson P.C. and J. William Ebert, Las Vegas: Smith, Currie & Hancock LLP and Ronald G. Robey, LasVegas, for Respondent.

BEFORE THE SUPREME COURT, STIGLICH, PICKERING, and PARRAGUIRRE, JJ.

SUPREME COURT OF NEVADA
O 017,\ 

### 2,4i- 345191

### OPINION

By the Court, STIGLICH, J.:

In this opinion, we reach the issues ofwhat level of knowledge
a supplier must have to be held liable for breach ofthe warranty offitness for a particular purpose and whether the economic loss doctrine precludes reliefonnegligence andproducts liabilityclaims. Here, Hi-TechAggregate, LLC, supplied Pavestone, LLC, with aggregate, which Pavestone used to manufacture pavers. After receiving customer complaints of efflorescence developingon the pavers, Pavestone sued Hi-Tech under contract and torts theories, including breach of warranty and products liability. The district court ruled for Pavestone on both claims.

In determining that Hi-Tech's sale of aggregate to Pavestone carried with it an implied warranty of fitness for a particular purpose because Hi-Tech had reason to know of Pavestone's intended usage for the goods it purchased, we adopt the reasoning of Uniform Commercial Code § 2-315 official comment 1 that a buyer does not need to prove a seller's actual knowledge where the seller had reason to know of the product's intended purpose. Similarly, in holding that Pavestone was excused from failing to test the aggregate for the defect, we adopt UCC § 2-316 comment 8, which statesthat a warranty is not excluded when there is a latent defect in the goods and a simple examination would not reveal the latent defect.

We reverse the district court, however, as to its determination that the economic loss doctrine does not bar Pavestone's noncontractual claims. In so doing, we take this opportunity to reiterate that the economic lossdoctrine appliesonly whenthe damageistotheproductitself, not when there is damage to other property. Here, we hold that the economic loss doctrine precludes Pavestone's noncontractual claims because Pavestone

SUPREME COURT

OF NEVADA (0) 1947A 2

### did not provide sufficient facts toshow there was damage to property other

than the product itself. Accordingly, we affirm in part and reverse in part. FACTS Hi-Tech operates a rnining and processing operation. It sells gravel and sand,known asaggregate.Pavestone manufacturespaversused to construct sidewalks and driveways. In 2019, Pavestone purchased aggregate from Hi-Tech to make into pavers. The arrangement was informal. Pavestone would call Hi-Tech to order, and Hi-Tech would send
a written invoice in response. Pavestone would send trucks to pick up the aggregate and then would test the aggregate'sparticle size. It never tested any other attribute ofthe aggregate. Pavestone's only specification to HiTech was for "washed alluvial aggregate," which comes from the bottom of
ariverbed. Eachinvoicecontainedonlyonelinethatreadeither"Pavestone sand,""masonry sand,"or "mortar sand."

InDecember 201.9, Pavestonebegan to receive complaintsfrom customersthat their driveways and sidewalkshad developed an "unsightly crust" on the surface of the pavers. Some rocks and landscaping adjacent tothe driveways alsodevelopedthiscrust. In response, Pavestone replaced the defective pavers with its existinginventory. When Pavestone received
more complaints from customers about the efflorescence on the pavers, it investigated its production process and determined that the cause of the efflorescence was sodium carbonate in Hi-Tech's aggregate that nianifested when the pavers became wet. At the time, no one in the industry tested aggregatefor sodium carbonate, which is whyPavestone had not tested for it earlier. Furthermore, the sodium ions were not visible to the naked eye and would not have been spotted without a test. Because Hi-Tech was its only supplier of aggregate at the time, Pavestone identified Hi-Tech's aggregate asthe cause ofthe defect and switched suppliers.
SUPREME COURT

OF NEVADA (0, 947A Tt7v

e > 

### 3Pavestone filed a complaint against Hi-Tech alleging

negligence, products liability, breach of contract, and breach ofwarranty.1 The district court conducted a two-day bench trial and found for Pavestone
on its claims for breach of the warranty offitness for a particular purpose andproducts liability. Hi-Tech appeals. DISCUSSION Standard ofreview

We review de novo a district court's legal conclusions following
a bench trial. Wells Fargo Bank, N.A. v. Radecki, 134 Nev. 619, 621, 426 P.3d 593, 596 (2018). "[W]e will not overturn the district court's findings of fact unless they are clearly erroneous or not supported by substantial evidence." Yount v. Criswell Radovan, LLC, 136 Nev. 409, 414, 469 P.3d 167, 171 (2020) (internal quotation marks omitted). "Substantial evidence is evidence that a reasonable mind might accept as adequate to support a conclusion." Whiternaine v. Aniskovich, 124 Nev. 302, 308, 183 P.3d 137, 141(2008). Hi-Tech's sale carried with it an implied warranty offitness for aparticular purpose Hi-Tech argues that it did not know of Pavestone's particular purpose because it did not know that Pavestone needed a sodium-free aggregate due to its particular paver-manufacturing process, which it argues falls beyond the scope of any warranty. It further argues that even ifit knew ofthe particular purpose, this alleged knowledge was not enough

1We do not reach the negligence claim because neither party alleges that the district court erred by not addressing the negligence claim. See Douglas Disposal, Inc. v. Wee Haul, LLC, 123 Nev. 552, 557 n.6, 170 P.3d 508, 512 n.6 (2007) ("Thedistrictcourt did not addressthisissue. Therefore, we need not reachthe issue.").

4to hold it liable because Pavestone must prove that Hi-Tech "participated

in the selection ofthe product for that particular purpose."

Pavestone counters that the evidence demonstrated a breach of the implied warranty offitness for a particular purpose. It argues that HiTech knew theparticular purpose for which its aggregate wasintended and that the evidence showed that Pavestone relied on Hi-Tech because Pavestone had no role in selectingthe aggregate.

The Uniform Commercial Code (UCC) is codified in NRS Chapter 104. In Nevada, two impliedwarrantieson salesofgoods governed by the UCC exist. Long v. Flanigan Warehouse Co., 79 Nev. 241, 245, 382 P.2d 399, 402 (1963). These are the warranty of merchantability and the warranty offitness for a particular purpose, id., and both are implied as a matter oflawintoeverycontract forthe sale ofgoodsunder the UCC, unless disclaimed in writing. NRS 104.2314(1). Relevant here, NRS 104.2315 governs the implied warranty of fitness for a particular purpose. This warranty applies when "the seller at the time of contracting has reason to know any particular purpose for which the goods are required" and "the buyer is relyingonthe seller's skillorjudgmentto select or furnish suitable goods." NRS 104.2315.

Comment 2 of UCC § 2-315, the analog of NRS 104.2315, explains that a particular purpose is different from an ordinary purpose in that the goods have a "specific use by the buyer which is peculiar to the nature ofhisbusiness." U.C.C. § 2-315 cmt. 2;see Edelstein v.Bank ofN.Y. Mellon, 128 Nev. 505, 523, 286 P.3d 249, 261(2012) (relyingon UCC official comments as persuasive authority). A buyer does not have to prove a seller's actual knowledge ofthe particular purpose for which the goods are

5intended wherethe sellerhad reason to knowthe intendedpurpose. U.C.C.

§ 2-315 cmt. 1.

And buyer reliance exists, for instance, when a buyer relies on thejudgment and selection ofthe seller. Mohasco Indus., Inc. v.Anderson Halverson Corp., 90 Nev. 114, 119, 520 P.24:1 234, 236 (1974). There is no buyer reliance, however, when the buyer uses its ownjudgment, makes its
own selection, or supplies the seller with its own specifications. Id. For example, inMohasco, thiscourtheldthatthere wasnobuyer reliance where thebuyer ofallegedlydefective carpet specified "thetype andlengthofyarn, weight per square yard, type of weave, color[,] and pattern" and the manufacturer providedprecisely what the buyer requested. Id. at 116. 520 P.2d at 234-35. Consequently, this court concluded that a warranty of fitness could not be implied under the circumstances. Id. at 119, 520 P.2d at 236. We conclude that the district court properly found that Pavestone's purchase carried with it an implied warranty of fitness of a particular purpose and that Hi-Tech knew of Pavestone's intended usage. Pavestone intended to use the aggregate it bought from Hi-Tech to make pavers for driveways and sidewalks. Pavestone needed to prove only that Hi-Techhad reasontoknowthe intendedpurpose, andthe districtcourt did not err in concluding it did because there is substantial evidence in the record showing that Hi-Tech knew that the aggregate was to be made into pavers for driveways. Specifically, Blaine J. Rees, the owner and manager ofHi-Tech, testified that he knew that Hi-Tech was supplyingaggregate for
use in pavers, although he did not know the process, and that he knew the pavers were used for driveways. Furthermore, the district court found that the aggregate wasnot suitable for use aspaversbecause the excess sodium

6

### content wasaestheticallyunsuitable for drivewaysandsidewalks. Because

Hi-Tech knew that thepavers were to be used for driveways, it had reason toknowtheimportance ofappearance in the paver-manufacturingprocess.

There is also substantial evidence showing that Pavestone relied on Hi-Tech's skill or judgment to select the aggregate. Pavestone allowed Hi-Tech topick the specifications ofthe aggregate, trustingthat it would be suitable for its use. Unlike in Mohasco where the respondent askedforyarnwithparticular specifications, Pavestonedidnotprovide any specifications except for washed alluvial sand. The record contains testimony that there were no "discussionsbetween Pavestone and Hi-Tech about requirements for the sand aside from particle size." Asthere was no written contract, Pavestone would call Rees to order, and Hi-Tech would sendaninvoice. OthertestimonyestablishedthatPavestonewouldrequest washed alluvial aggregate, and invoices introduced into evidence stated that Pavestone ordered "Pavestone sand," "masonry sand," or "mortar sand." Pavestone did not specifythe chemical composition, level ofsodium carbonate, or mining process. Thus, there is substantial evidence that Pavestone relied on Hi-Tech's skill and judgment in selecting appropriate aggregate. Furthermore, the district court's determination that Hi-Tech breached the implied warranty is supported by substantial evidence. The record shows that the aggregate was not fit for its particular purpose becausetheexcesssodiumcausedanefflorescencethatrendereditdefective for use in thepaver industry.

7Hi-Tech, however, asserts it had a defense to Pavestone's

implied-warranty claim due to Pavestone's failure to test the aggregate for anything other than particle size. Sellers have a defense for a buyer's failure to detect a defect if the buyer examines the goods before entering into a contract with the seller or refuses to examine the goods. NRS 104.2316(3)(b). In that case, "there is no implied warranty with regard to any defects" that would have been revealed to the buyer through such an examination. 

### Id. In contrast, a "professionalbuyer examining a product in his field will be held to have assumed the risk as to all defects which a professional in the field ought to observe." U.C.C. § 2-316 cmt. 8. A failure to notice obvious defects cannot excuse the buyer, but the buyer would be excused when there is an examination in circumstances that do not permit
a certain type oftestingandthe examination failstoidentifythe defect that could onlybe ascertainedbythattype oftesting. 

### Id. Abuyerisalsoexcused when thereis a latent defect and a simple examination would not revealthe latent defect. 

### Id.

Pavestone conceded it only tested the particle size of the sand and not the sodium content. A witness for Pavestone testified that neither Pavestone nor any other industry peer, however, traditionally tested for sodium content. Furthermore, because sodium ions are invisible to the naked eye, neither Pavestone nor Hi-Tech could have noticed the sodium without chemically testing the aggregate. Therefore, the defect in the aggregate was latent. Because the excess sodium content constituted a latent defect that could not have been observed with a simple examination, Pavestone wasexcused from anobligationtoinspectthe aggregate, andthis defect falls within the scope ofthe implied warranty offitness.

SUPREME COURT

OF NEVADA

it )1 I,)47A 8Accordingly, because Hi-Tech knew Pavestone's particular

purpose forthe aggregate and Pavestone relied onHi-Tech inpurchasingit, the sale ofthe aggregate contained an implied warrantyoffitness. Because the defective aggregate caused a financial loss that was not excused by a defense, the district court did not err in concluding that Hi-Tech breached the implied warranty offitness for a particular purpose. Theeconornic loss doctrineprecludes Pavestone's noncontractual claims

Turning to Pavestone's tort claims, Hi-Tech argues that the economic loss doctrine bars Pavestone's products liability claims because the evidence presented fails to illustrate either noneconomic injuries or property damage. It also argues that even if these claims were not precluded, the district court's finding that there was a product defect is not supported by substantial evidence. Pavestone counters that the economic loss doctrine does not bar its products liability claim because the district court founddamage topropertybeyondthe aggregate and pavers. It argues that substantial evidence supports the district court's finding ofdamage to other property and that Hi-Tech failed to refute that the aggregate caused damage to other property.

"The economic loss doctrine is a judicially created rule that primarily emanates from products liability jurisprudence" and bars "unintentional tort actions when the plaintiff seeks to recover purely economic losses." Terracon Consultants W., Inc. v. Mandalay Resort Grp., 125 Nev. 66, 72-73, 206 P.3d 81, 85-86 (2009) (internal quotation marks omitted). Apurelyeconomiclossis alossofvalue, such as "thecost ofrepair and replacement of a defective product," "without any claim of personal injuryor damagetoother property." Callowcty v. CityofReno, 116 Nev. 250, 257, 993 P.2d 1259, 1263 (2000) (internal quotation marks omitted), superseded by statute on other grounds as stated in Olson v. Richard, 120
9Nev. 240, 243, 89 P.3d 31, 32-33 (2004). The policybehindthe economicloss

doctrine is that when there is no personal injury or property damage, "remedies are properly addressed through contract law." Terracon, 125 Nev. at 79, 206 P.3d at 90.

To determine whether the economic loss doctrine applies, we consider whether there are allegations of personal injury or damage to property other than the product itself. When products contain multiple components that make up an integrated whole, we do not consider damage to the component parts to be damage to other property, but rather only damage to the product itself. See Calloway, 116 Nev. at 262, 993 P.2d at 1267 (holding that "component parts of a product cannot cause 'other property damage' compensable in tort"). For instance, the engine of an airplane isa component ofan airplane, soiftheengine explodesandinjures the airplane, the airplane injured itselfand there are only economic losses. Calloway, 116 Nev. at 264, 993 P.2d at 1268. In Calloway, we concluded thatthe economiclossdoctrinebarredclaimswhere aheatingandplumbing system damaged an apartment building, reasoning that the building "injured itself." Id. at 263-64, 993 P.2d at 1268 (internal quotation marks omitted). Comment e to Section 21ofthe Third Restatement ofTorts also articulates this rule, stating "when the product or system is deemed to be
an integrated whole, courts treat such damage as harm to the product itself," and when this occurs, the damage is "excluded from the coverage of this Restatement." Restatement (Third) of Torts: Prod. Liab. § 21 cmt. e (1998).

SUPREME COURT

OF NEVADA

(0i 1947A 10In Wausau Tile, Inc. v. County Concrete Corp., the Wisconsin

Supreme Court appliedthisrule in a factually similar scenario. 593N.W.2d 445, 452-53 (Wis. 1999). There, a company that manufactured and sold pavers for walkways asserted various contract and tort claims against its cement andaggregate supplierswhenthepavers expanded andcracked. Id. at 449. The Wisconsin Supreme Court concluded that any damage to the pavers constituted solely economic loss because the pavers were integrated systems consisting of several components, including cement. Id. at 453. The court concluded that even third parties' claims of "damage to the property adjoining the pavers" did not allege "any personal injury or property damages" on the appellant's part. Id. at 454. Therefore, the economic loss doctrine barred the negligence and strict liability tort claims. Id. at 460. "The Restatement (Second) of Torts [§] 402A governs strict product liability." Rivera v. PhilipMorris, 125 Nev. 185, 193, 209 P.3d. 271, 276 (2009). It provides that

(1) [o]ne who sells any product in a defective condition unreasonably dangerous to the user or consumer to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if (a) the seller is engaged in the business of selling such aproduct, and (b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold. Restatement (Second) ofTorts § 402A(1) (1965). To prove a strict liability claim, the plaintiff must demonstrate that "[(1)] the product had a defect which rendered it unreasonably dangerous, [(2)] the defect existed at the time the product left the manufacturer, and [(3)] the defect caused the

SUPREME COURT

OF NEVADA
I, 1947A 11plaintiffs injury." Fyssakis v. Knight Equip. Corp., 108 Nev. 212, 214, 826

P.2d 570, 571 (1992).

We hold that the economic loss doctrine precludes Pavestone's tort claims because there is insufficient evidence of damage to property other than the product itself. Pavestone alleges two types of property damage: (1) to the driveways and sidewalks and (2) to the landscaping adjacenttothe driveway. Here, the damagetothe drivewaysand sidewalks is the type of damage barred by the economic loss doctrine. Because the defective aggregate is a component of the paver, which is a component of the driveway or sidewalk, the driveways and sidewalks are integrated systems. Any damage to the driveway or sidewalk, therefore, is the aggregate and paver injuring itself. Consequently, any claim to remove or repair damage to a driveway or sidewalk is only a claim for economic loss. See Terracon, 125 Nev. at 69, 206 P.3d at 83 (explaining that the cost of repair and replacement for a defective product is purely economic loss).

Unlike the driveways and sidewalks, however, the landscaping adjacent to the driveway is not a part of the driveway. The aggregate and pavers do not make up the components ofthe landscaping, which consist of rocks and plants. Pavestone, however, does not support its argument that damage to the surrounding landscaping caused it an injury and therefore alleges only economic damages. Pavestone alleged below that it "removed and replaced" the defective pavers, but it failed to present evidence of alleged damage to other property, including the landscaping. Pavestone's expert witness offered little insight into the alleged damage, simply stating that the rock on the sides of the driveway turned white. The photographs Pavestone entered into evidence show that the rocks adjacent to the sidewalk are discolored. but Pavestone did not demonstrate whether the

SUPREME COURT

OF NEVADA 12 I()) I947A

vtaiM -;.•, ; '4"

### discoloration was due to the defective aggregate and, if so, what was

required to fix the damage. Furthermore, the district court's finding of damage to "other property," is not supported by substantial evidence. Absent evidence that other property was damaged, Pavestone's damages
were purely economic loss, and the economic loss doctrine precludes Pavestone'stort claims, includingitsproductsliabilityclaim. CONCLUSION Theimpliedwarrantyoffitnessfor aparticularpurpose applies notjustwhena sellerhadactualknowledgeofthebuyer'sintendedpurpose but also in cases in which the seller had reason to know ofthe particular purpose. Furthermore, a warranty is not excluded when there is a latent defect in the goods that a simple examination would not detect. Additionally, the economic loss doctrine precludes torts claims where the only damage was to the product itself. Here, we conclude that Hi-Tech's sale ofgoods carried with it an implied warranty offitness for a particular purpose because Hi-Tech knew of the particular purpose of the aggregate and Pavestone relied on Hi-Tech's skill and judgment. Hi-Tech then breachedthewarrantywhenitprovided Pavestonewith a product unfit for commercial paving. Pavestone is excused from not identifying the defect because it was latent and could not have been detected with a simple examination. We also conclude that the economic loss doctrine precludes Pavestone's noncontractual claims because Pavestone did not provide sufficient evidence of other property damage. In so holding, we reiterate

SUPREME COURT

OF NEVADA
(0) 19,17A 

### 13

1,112116k .'

### that the economic loss doctrine bars tort claims in cases in which there is

no personalinjury or property damage. Accordingly, we affirm the district court'sjudgment astoPavestone'swarrantyclaim butreverseitsjudgment regardingPavestone'sproductsliabilityclaims.

Stiglich

We concur:
Pickering

Parraguirre

SUPREME COURT

OF NEVADA
) I947A 

### 14