Opinion ID: 3012319
Heading Depth: 3
Heading Rank: 1

Heading: Commercial Entities

Text: Appellants contend that the district court’s dismissal of their claims under the economic loss doctrine was improper because the doctrine applies only to transactions between commercial enterprises. Ford maintains that the district court’s holding not only was correct, but was consistent with Pennsylvania state court decisions recognizing that the economic loss doctrine extends to transactions involving individual consumers. Appellants first argue that the district court’s holding is inconsistent with the seminal opinions on the economic 16 loss doctrine because these decisions specifically speak of transactions between commercial entities. See East River, 476 U.S. at 871, 106 S.Ct. at 2302 (manufacturer in a commercial relationship); Duquesne Light, 66 F.3d at 620 (sophisticated business entities); REM Coal, 563 A.2d at 134 (commercial enterprises); Indus. Unif. Rental Co., Inc. v. Int’l Harvester Co., 463 A.2d 1085, 1093 (Pa. Super. Ct. 1983) (commercial enterprises). Appellants’ argument is unavailing, however, for although the courts in these cases limited their discussions to the circumstances presented therein -- namely to transactions that happened to arise between two businesses -- these opinions do not indicate that the doctrine should not be applied to transactions involving noncommercial entities. Moreover, appellants do not offer authority specifically holding that the economic loss doctrine should not apply to transactions between manufacturers and noncommercial consumers. In light of the Supreme Court of Pennsylvania’s silence on the issue, the district court relied on the Pennsylvania Superior Court’s decision in Jones v. General Motors Corp., 631 A.2d 665 (Pa. Super. Ct. 1993), to predict how the Supreme Court of Pennsylvania would resolve the matter. As in this case, the plaintiffs in Jones were individual consumers suing an automobile manufacturer for defective components in their vehicle, which in Jones caused a fire that destroyed their truck. See id. at 665. The superior court applied the economic loss doctrine to the plaintiffs’ strict liability claim, holding that we find that the rationale behind REM Coal is equally applicable to disputes involving claims brought by individuals. Id. at 666. The court explained that [r]egardless of whether a consumer is a commercial entity or an individual, a manufacturer’s warranty as to the quality of its product is a bargained for condition of sale, the effect of which must not be undermined. Id. Appellants urge us to disregard Jones because it was a panel decision that cannot, by law, overrule the ‘commercial entity’ requirement of REM Coal , an en banc decision. Br. of Appellants at 22 (citing Larthey v. Bland, 532 A.2d 456, 459 (Pa. Super. Ct. 1987)). The superior court’s decision in Jones, however, did notoverrule REM 17 Coal in any manner: as explained above, the REM Coal court addressed the legal issue in the context of the facts of that particular case and never explicitly stated that the doctrine should not be applied to disputes between manufacturers and noncommercial parties. Even more importantly, appellants misinterpret REM Coal as including a commercial entity requirement, for the court specifically reserved on whether the doctrine applies only to commercial enterprises. See REM Coal, 563 A.2d at 134 n.4 (Since the case sub judice involves a dispute between commercial enterprises, as did East River and Aloe Coal, we need not and do not decide any questions regarding disputes between non-commercial parties.). Appellants’ position that we should ignore Jones is at odds with our responsibility to give significant weight to state appellate court decisions that may provide insight into how the state supreme court would settle the issue. U.S. Underwriters, 80 F.3d at 93. Moreover, as Ford points out, Jones is not the only Pennsylvania decision applying the economic loss doctrine to commercial and noncommercial purchasers alike. See, e.g., Fasig v. Security-Conn. Life Ins. Co., 41 Pa. D. & C. 4th 494, 502-03 (Ct. Com. Pl. of Wayne County 1999); Buck v. Ford Motor Co., No. AR 97-6895, Pittsburgh Legal J., March 1999, at 83 (Ct. Com. Pl. of Allegheny County, Pa. Oct. 14, 1998). Therefore, even if courts rarely have cited Jones since it was issued eight years ago, the decision is still more predictive of how the Supreme Court of Pennsylvania would rule than the lack of cases presented by appellants in support of their position. Accordingly, as it was required to do, the district court correctly gave proper regard to Jones in predicting that the Supreme Court of Pennsylvania would hold that the economic loss doctrine extends to individual consumers. Appellants also criticize Jones as beinginconsistent with the purpose and rationale of the doctrine. Br. of Appellants at 22-23. They argue that East River and REM Coal applied the doctrine to contractual relationships between commercial entities because the sophisticated business enterprises in those cases not only understood the risks involved in negotiating the terms of the manufacturer’s liability, but also possessed comparable bargaining power 18 that enabled them to enter into fair, arms-length agreements. See id. at 17-18. Appellants insist that the underlying conditions present in East River and REM Coal do not exist in transactions between ordinary consumers and large corporations. See id. at 18. They explain that in commercial relationships between consumers and car manufacturers, the consumers lack bargaining power and are effectively powerless in negotiating the terms of a car’s warranty. See id. Thus, to the extent that appellants were unable to enter into informed, arms-length negotiations with Ford over the terms of their warranties, appellants contend that the district court should not have applied the economic loss doctrine to their fraud and statutory claims. Although car purchasers -- whether ordinary consumers or businesses -- may be unable to negotiate the specific details of their automobile warranties, or may be able to select among only limited options, purchasers certainly do not lack bargaining power. Purchasers have the freedom to chose a less expensive car with a limited warranty or a more expensive car with a longer-term warranty, and they often have the option of buying an extended warranty. Moreover, purchasers may select among cars of various manufacturers and consider the differences in warranties in making their choice. Indeed, manufacturers may and do advertise the advantage of their own warranties. And as the Supreme Court stated in East River, [w]hile giving recognition to the manufacturer’s bargain, warranty law sufficiently protects the purchaser by allowing it to obtain the benefit of its bargain. The expectation damages available in warranty for purely economic loss give a plaintiff the full benefit of its bargain by compensating for foregone business opportunities. East River , 476 U.S. at 873, 106 S.Ct. at 2303 (internal citation omitted). Furthermore, appellants’ proposal to differentiate between ordinary consumers and commercial entities would prove to be difficult to apply in practice. First, as alluded to above, businesses purchasing automobiles -- or any massproduced product, for that matter -- may have no greater ability to negotiate the specific terms of a warranty than ordinary consumers. Second, a plaintiff ’s sophistication cannot be assumed simply because it is a business or 19 corporation as distinguished from an individual consumer. Finally, if courts seek to avoid such baseless assumptions by engaging in case-by-case, fact-intensive inquires to determine the plaintiff ’s level of sophistication, they will be drawn into the type of difficult line-drawing process that can only yield inconsistent results. REM Coal, 563 A.2d at 132-33. At bottom, not only do Pennsylvania state court decisions indicate that the Supreme Court of Pennsylvania likely would apply the economic loss doctrine to transactions involving ordinary consumers, but drawing a distinction between commercial and noncommercial plaintiffs would be entirely impracticable. Therefore, we conclude that the district court properly held that the doctrine applies to transactions between manufacturers and ordinary consumers.