Opinion ID: 202101
Heading Depth: 2
Heading Rank: 2

Heading: Lockheed's Tort Claims

Text: 10 The parties agree that New Hampshire law governs this case. The district court found that, under New Hampshire law, Lockheed's tort claims were barred by what is known as the economic loss rule. Under the economic loss rule, a party generally may not recover in tort for economic loss. We begin by discussing how the New Hampshire courts have defined economic loss and applied the economic loss rule. 11 The New Hampshire Supreme Court has defined economic loss as the diminution in the value of a product because it is inferior in quality, Ellis v. Robert C. Morris, Inc., 128 N.H. 358, 513 A.2d 951, 954 (N.H.1986)(internal quotation marks omitted), overruled on other grounds by Lempke v. Dagenais, 130 N.H. 782, 547 A.2d 290, 297-98 (1988), and that loss resulting from the failure of the product to perform to the level expected by the buyer[, which] is commonly measured by the cost of repairing or replacing the product, Lempke, 547 A.2d at 296. The New Hampshire Supreme Court has also stated that [w]hen a defective product accidentally causes harm to persons or property, the resulting harm is treated as personal injury or property damage. But when damage occurs to the inferior product itself... the harm is characterized as economic loss. Ellis, 513 A.2d at 954. 5 The New Hampshire Supreme Court has also noted that [i]t is clear that the majority of courts do not allow economic loss recovery in tort, but that economic loss is recoverable in contract, Lempke, 547 A.2d at 296, and that a party usually may not recover damages for economic loss via a tort claim. See Border Brook Terrace Condo. Ass'n v. Gladstone, 137 N.H. 11, 622 A.2d 1248, 1253 (1993). The district court found that the flooding was caused by a malfunction of the anechoic chamber and that the only thing damaged was the chamber itself. The district court therefore concluded that Lockheed suffered only economic loss and could not recover on its negligence or strict liability claims. 12 Lockheed argues that, under New Hampshire law, the economic loss rule does not bar tort actions where a defect actually poses an affirmative risk of harm to persons or property. Lockheed would have us look to how the damage occurred and, if we find that the defect or accident posed an affirmative risk to persons or property, find that its tort claims are not barred by the economic loss rule. 6 However, we see nothing in the New Hampshire cases dealing with economic loss indicating that, when determining whether or not loss is economic, the New Hampshire courts would inquire into the risk posed by an accident or defect in a product. Instead, the New Hampshire cases are clear that when a product harms only itself, the loss is economic and may not be recovered in tort. For example, in a recent New Hampshire Supreme Court case, the court stated that `[w]hen a defective product accidentally causes harm to persons or property [ other than the defective product itself ], the resulting harm is treated as personal injury or property damage.' Kelleher v. Lumber, 891 A.2d 477, 494 (2005) (quoting Ellis, 513 A.2d at 954)(alteration in original)(emphasis added). The court went out of its way to add the phrase other than the defective product itself, which was not present in Ellis. The implication of this statement is that, when a defective product accidentally causes harm to itself, that harm is not treated as personal injury or property damage but is instead treated as economic loss, which is not recoverable in tort. The New Hampshire Supreme Court has therefore clearly rejected the logic behind Lockheed's argument. 13 We also think that this approach comports with the policies behind several fundamental tenets of contract and tort law. Lockheed argues that the purpose of the economic loss doctrine is to distinguish between a product that fails to perform as promised and a product whose defect poses an actual risk of injury or damage, and that the dividing line between tort and contract should not hinge on the fortuity of what happened to be damaged. To our knowledge, the New Hampshire courts have not explicitly addressed these arguments. However, the United States Supreme Court has done so in East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986). In East River, an admiralty case, the Court discussed the merits of the majority view of the economic loss doctrine — that damage to a product caused by that product is economic loss and not recoverable in tort — as well as the view argued by Lockheed — that the economic loss doctrine should turn on the affirmative risk posed by the defective product. In rejecting the position advocated by Lockheed, the Court stated that such a position, which essentially turn[s] on the degree of risk, [is] too indeterminate to enable manufacturers easily to structure their business behavior. Id. at 870, 106 S.Ct. 2295. The Court also stated that 14 [t]he distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss is not arbitrary and does not rest on the luck of one plaintiff in having an accident causing physical injury. The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products. When a product injures only itself the reasons for imposing tort duty are weak and those for leaving the party to its contractual remedies are strong. 15 Id. at 871, 106 S.Ct. 2295 (citation and internal quotation marks omitted). 7 As the Court noted, [e]ven when the harm to the product itself occurs through an abrupt, accident-like event, 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. 8 Id. at 870, 106 S.Ct. 2295. 16 Further, Lockheed's position would eviscerate the line between tort and contract and would allow tort, in many ways, to swallow up contract law. As the Supreme Court noted in East River, [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, 106 S.Ct. 2295 (citation omitted). Lockheed's view would lead to just that result. It would allow any party who suffered damage as a result of a product's malfunction to bring a tort claim by asserting that the malfunction occurred in a way that might have harmed another person or property, regardless of whether any other person or property was actually harmed. We think the better approach is to look at what in fact happened, not what could have happened. 17 In sum, it is clear from the New Hampshire cases, especially Kelleher, the New Hampshire Supreme Court's most recent case regarding the economic loss rule, that New Hampshire has adopted the majority view of the economic loss rule which the Supreme Court discussed in East River. Therefore, if the flooding caused by the allegedly defective sprinkler systems damaged only the product itself, then the economic loss rule prohibits Lockheed from recovery on its tort claims. 18 We turn now to address whether the flooding damaged only the product itself. Lockheed makes two arguments regarding this issue. First, it argues that the fire suppression system and the anechoic chamber were different products, and that the defect in the fire suppression therefore damaged another product — the anechoic chamber. However, as Rantec points out, the parties' contract for the anechoic chamber included the fire suppression system as a component part of the chamber, not a separate product. As part of the contract, the parties included a document entitled Tapered Anechoic Chamber, Compact Range Chamber Technical Specification. Paragraph 1.0 of this document, entitled Introduction, stated that [t]his document provides specification information for a tapered anechoic chamber.... Paragraph 2.0, entitled Tapered Anechoic Chamber and Control Room, stated that [t]he specification is for a tapered anechoic chamber to be used as a general purpose facility for RCS test and antenna pattern measurements.... The contractor will design, fabricate, and test the chamber, including all HVAC, fire detection and suppression utilities. From these provisions, it is clear that the fire suppression system was a component part of the anechoic chamber according to the technical specifications for the chamber agreed upon by the parties. The anechoic chamber and fire suppression system are therefore properly regarded as a single unit. As the Supreme Court noted in East River, [s]ince all but the very simplest of machines have component parts, [a contrary] holding would require a finding of property damage in virtually every case where a product damages itself. 476 U.S. at 867, 106 S.Ct. 2295 (internal quotation marks and citation omitted). 19 Lockheed's second argument is that there were in fact other items in the chamber when it was flooded: a pedestal and positioning system. However, as Rantec points out, Lockheed never mentioned these items in its complaint and never amended its complaint to include these items. 9 Lockheed attempts to get around this issue by arguing that, under the Federal Rules of Civil Procedure's notice pleading standard, it was not required to itemize its damages in the complaint. Lockheed also argues that the complaint, fairly read, gave notice to Rantec that these other items were in the chamber. We disagree for several reasons. First, while the Federal Rules of Civil Procedure require only notice pleading, there is nothing in the complaint that would put Rantec on notice that Lockheed was claiming anything other than damage to the chamber itself. A review of the complaint reveals no mention of other items in the chamber. Instead, the complaint repeats several times that plaintiff's anechoic chambers were doused with water and severely damaged. Lockheed also specified that the anechoic foam and sub-flooring in the chamber was damaged. Nothing in the complaint provides the slightest indication that there were other items in the chamber or that Lockheed suffered damage to anything other than the chamber itself. We see no reason to allow Lockheed to claim damage to other items when it never bothered to mention or even hint toward damage to anything beyond the anechoic chamber itself in the complaint. 20 Second, in reviewing the New Hampshire cases dealing with the economic loss doctrine, it is clear that the New Hampshire courts have looked to the complaint to determine whether the damages claimed by a plaintiff were economic loss. See Border Brook Terrace Condo. Ass'n, 622 A.2d at 1253 (looking to the plaintiffs' writ in determining whether plaintiffs suffered only economic loss); Ellis, 513 A.2d at 954 (The plaintiffs' claim does not involve property damage per se. Rather, the writ alleges economic loss resulting from the defendant's failure to properly perform a contractual obligation.)(emphasis added). 10 Although it is not controlling under the Federal Rules of Civil Procedure, we find the approach of the New Hampshire courts instructive. Because Lockheed failed to give any indication in its complaint that it was alleging damage to anything other than the anechoic chamber, we will not consider alleged damage to the pedestal and positioning system in this appeal.