Court Opinion

ID: 2688826
Source: CourtListenerOpinion
Date Created: 2014-08-01 14:52:55.398639+00
Date Added: 2024-06-11T13:17:55.148478
License: Public Domain

FILED BY CLERK
                                                                        DEC 22 2010
                             IN THE COURT OF APPEALS                     COURT OF APPEALS
                                                                           DIVISION TWO
                                 STATE OF ARIZONA
                                   DIVISION TWO

MIIDAS GREENHOUSES, LLC, an                      )   2 CA-CV 2010-0073
Arizona limited liability company;               )   DEPARTMENT B
INVERNADEROS SANTA FE, S.A. DE C.V.,             )
a Mexican corporation,                           )   OPINION
                                                 )
                        Plaintiffs/Appellants,   )
                                                 )
                   v.                            )
                                                 )
GLOBAL HORTICULTURAL, INC., a                    )
Canadian corporation and BERGER GROUP            )
LTD., aka GROUPE BERGER, LTD., a                 )
Canadian corporation,                            )
                                                 )
                    Defendants/Appellees.        )
                                                 )

      APPEAL FROM THE SUPERIOR COURT OF SANTA CRUZ COUNTY

                                  Cause No. CV2005323

                             Honorable James A. Soto, Judge

                             VACATED AND REMANDED

Waterfall, Economidis, Caldwell, Hanshaw
 & Villamana, P.C.
 By D. Michael Mandig and Corey B. Larson                                       Tucson
                                                     Attorneys for Plaintiffs/Appellants

Goering, Roberts, Rubin, Brogna, Enos
 & Treadwell-Rubin, P.C.
 By Scott Goering and Elizabeth L. Warner                                     Tucson
                                                     Attorneys for Defendant/Appellee
                                                                    Berger Group, Ltd.
Hazlett Law Firm
 By Carl E. Hazlett                                                              Tucson
                                                         Attorney for Defendant/Appellee
                                                                Global Horticultural, Inc.

K E L L Y, Judge.

¶1            In this appeal from the trial court‟s grant of summary judgment in favor of

Global Horticultural Inc. and Berger Group Ltd., appellants Miidas Greenhouses and

Invernaderos Santa Fe argue the court erred in concluding the economic loss rule barred

their tort claims in this action. We agree and therefore vacate the court‟s judgment.

                                       Background

¶2            “On appeal from a grant of summary judgment, we view all facts and

reasonable inferences therefrom in the light most favorable to the party against whom

judgment was entered.” Bothell v. Two Point Acres, Inc., 192 Ariz. 313, ¶ 2, 965 P.2d
47, 49 (App. 1998). In 2003, Miidas Greenhouses, which sells products grown by

Invernaderos Santa Fe, S.A. de C.V., (collectively “Miidas”) purchased 720 bales of peat

moss from Global Horticultural Inc.1 The peat moss was produced by Berger Group Ltd.

Before the purchase, Demetrio Crisantes, who owns Invernaderos and is chief operating

officer of Miidas, had met with a man named Benedictus Blom, president of Global, who

informed him that Global could get Miidas a better price on peat moss than its current

       1
        Global purchased the peat moss through a Canadian distributer,
Specialties/Spécialités Robert Legault Inc. Legault was dismissed from the case for lack
of personal jurisdiction.

                                             2
supplier. Blom had visited Miidas‟s facility and seen its operation, and he was aware of

Miidas‟s intended use for the peat moss.

¶3            Miidas had used peat moss produced by Berger for several seasons leading

up to September 2003. But, the peat moss purchased in 2003 was a different type than

Miidas had used in the past. No one at Miidas, however, was aware that the 2003 peat

moss was different. A few days after seeds were planted in the peat moss, they had not

sprouted as they should have. Some plants sprouted, but they were deformed and “started

drying out.” All of Miidas‟s seeds and resulting crops were lost. Subsequent tests of the

peat moss shipped to Miidas determined that it was “too acidic for vegetable seed

germination and cultivation of seedlings” and was “hydrophobic, meaning that it lacked

the native moisture content to enable it to absorb water.”

¶4            Miidas then brought the instant action against Global and Berger, in which

it asserted two contract claims against Global and product liability and negligent

misrepresentation claims against both Global and Berger. Global filed a motion for

summary judgment, arguing Miidas‟s tort claims were barred by the economic loss rule

and Berger joined in that motion. The trial court agreed with Global and Berger that the

economic loss rule barred Miidas‟s tort claims and granted their motion. After the court

denied Miidas‟s motion for a new trial, it found no just reason for delay pursuant to Rule

54(b), Ariz. R. Civ. P., and entered judgment in favor of Global and Berger on Miidas‟s

tort claims. This appeal followed.2

       2
      Noting “the trial court‟s use of language pursuant to Ariz. R. Civ. P. 54(b) in the
judgment may not have been appropriate due to the voluntary dismissal without prejudice
                                             3
                                         Discussion

¶5            In several related arguments, Miidas argues the trial court erred in finding

its tort-based claims were barred by the economic loss rule and in granting summary

judgment in favor of Berger and Global on that basis. Summary judgment is proper when

“there is no genuine issue as to any material fact and . . . the moving party is entitled to a

judgment as a matter of law.” Ariz. R. Civ. P. 56(c)(1). A court should grant summary

judgment “if the facts produced in support of the claim or defense have so little probative

value, given the quantum of evidence required, that reasonable people could not agree

with the conclusion advanced by the proponent of the claim or defense.” Orme Sch. v.

Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990). “On appeal from a summary

judgment, we must determine de novo whether there are any genuine issues of material

fact and whether the trial court erred in applying the law.” Bothell, 192 Ariz. 313, ¶ 8,
965 P.2d at 50. And, we review de novo whether the trial court properly applied the

economic loss doctrine. Flagstaff Affordable Hous. Ltd. P’ship v. Design Alliance, Inc.,

223 Ariz. 320, ¶ 9, 223 P.3d 664, 666 (2010).

¶6            “[T]he economic loss doctrine . . . precludes tort recovery for [economic]

losses absent personal injury or damage to other property” and “limit[s] a contracting

party to contractual remedies for the recovery of economic losses unaccompanied by

physical injury to persons or other property.” Id. ¶¶ 9, 12. Miidas argues the trial court

of appellee Global Horticultural‟s counterclaim against appellant Miidas Greenhouses,”
we ordered supplemental briefing on this court‟s jurisdiction of this matter. Global
advised that the counterclaim “has already been adjudicated” in a Canadian court, thereby
resolving our concerns about the finality of the judgment.
                                              4
erred in applying the economic loss rule in this case because the Berger peat moss it

purchased from Global “damaged seeds and seedlings,” which constituted “other

property.” It maintains that its seeds, which it did not purchase from Global “did not

cease to be[] other property when they were placed in . . . the peat moss,” but remained

other property that was damaged by the appellees‟ product. Because the alleged defect in

the peat moss did not result simply in the loss of the peat moss itself, but rather in the loss

of Miidas‟s seeds and seedlings, it contends the economic loss rule does not apply.

¶7            First, we must address Berger‟s and Global‟s claims that Miidas failed to

allege damage to its seeds. Berger and Global maintain that Miidas “never . . . disclosed

that [it] sought recovery for the cost of seeds,” did not “claim damages for recovery for

the damaged seeds” in its complaint, and “seek[s] to recover the benefit of an allegedly

breached bargain . . . and lost profits.” In its complaint, however, Miidas alleged damage

to its seeds several times. And, it disclosed several documents for use at trial related to

the costs of the seeds and its “[c]ost[s] of production,” which presumably would include

seed costs. Cf. Hayden Bus. Ctr. Condos. Ass’n v. Pegasus Dev. Corp., 209 Ariz. 511,

¶ 29, 105 P.3d 157, 162 (App. 2005) (imposing economic loss rule where, inter alia,

plaintiff “did not disclose any harm to personal property or personal injury” in disclosure

statement or elsewhere), disapproved on other grounds by Lofts at Fillmore Condo. Ass’n

v. Reliance Commercial Constr., Inc., 218 Ariz. 574, n.3, 190 P.3d 733, 736 n.3 (2008).

And, contrary to Global‟s and Berger‟s allegations that its prayer for relief specified only

its lost profits, Miidas requested “compensatory damages in an amount to be proven at

trial, but in no event less than 3.2 million dollars US.” This request can be read to

                                              5
encompass not only lost profits, but the lost seeds for which damage was alleged

elsewhere in the complaint. Thus, we determine Miidas adequately pled damage to

“other property.”

¶8             We now turn to the question of whether or not the economic loss rule

should apply here. In Flagstaff, 223 Ariz. 320, ¶ 14, 223 P.3d at 667, our supreme court

summarized the policy bases for the application of the economic loss rule it had set forth

in Salt River Project Agricultural Improvement & Power District v. Westinghouse

Electric Corp., 143 Ariz. 368, 694 P.2d 198 (1984). It explained that different policies

are served by tort and contract law and that those policies should serve as the bases for

determining when a party should be entitled to seek tort remedies and when the party

should be limited to contract remedies. Flagstaff, 223 Ariz. 320, ¶¶ 14, 24, 223 P.3d at

667, 669.

               Strict liability promotes product safety and spreads the costs
               of accidents. Contract law, in contrast, seeks to preserve
               freedom of contract and to promote the free flow of
               commerce. These goals are best served by allowing the
               parties to specify the consequences of a breach of their
               agreement. Accordingly, “[w]hen a defect renders a product
               substandard or unable to perform the functions for which it
               was manufactured, the purchaser‟s remedy for disappointed
               commercial expectations is through contract law.”

Id. (citations omitted, alteration in Flagstaff ), quoting Salt River, 143 Ariz. at 376, 694

P.2d at 206.

¶9             Pursuant to our supreme court‟s dictates in Salt River, in determining

whether tort law or contract law should be applied in a products liability case, we must

keep these competing policies in mind and consider three factors: “1) the nature of the

                                             6
product defect, 2) the manner in which the loss occurred, and 3) the type(s) of loss or

damage that resulted.” 143 Ariz. at 376, 380, 694 P.2d at 206, 210. Miidas argues that

“Flagstaff signals that Salt River‟s three-part test will soon no longer be the law in

Arizona products cases.”       Although we acknowledge the Flagstaff court‟s negative

comments about the Salt River test, we agree with Global that despite these comments,

Flagstaff did not overrule Salt River.       And, so long as our supreme court has not

overruled its decision in Salt River, we are bound to follow it. See Keovorabouth v.

Indus. Comm’n, 222 Ariz. 378, ¶ 19, 214 P.3d 1019, 1024 (App. 2009).

¶10           We turn then to the first of the Salt River factors, the nature of the product‟s

defect.

              The gist of a products liability tort case is not that the plaintiff
              failed to receive the quality of product he expected, but that
              the plaintiff has been exposed, through a hazardous product,
              to an unreasonable risk of injury to his person or property. On
              the other hand, contract law, which protects expectation
              interests, provides the appropriate set of rules when an
              individual wishes a product to perform a certain task in a
              certain way, or expects or desires a product of a particular
              quality so that it is fit for ordinary use.

Salt River, 143 Ariz. at 377, 694 P.2d at 207, quoting Pa. Glass Sand Corp. v. Caterpillar

Tractor Co., 652 F.2d 1165, 1169 (3d Cir. 1981). Thus, “[w]here the potential for danger

to person or property is absent, tort principles need not be invoked because the safety

incentive policy of tort liability is not implicated.” Id.

                                               7
¶11           As Miidas contends, the peat moss here “pos[ed] an unreasonable risk of

harm to seeds and seedlings.”3 Berger contends, however, that “[i]t is more than a stretch

for [Miidas] to attempt to characterize this case as one involving an unsafe, dangerous

product, capable of causing harmful or accidental injuries to the public.” Likewise,

Global asserts that “[p]eat moss is simply not hazardous.” But, although the peat moss

clearly did not pose a “danger” to persons or property as an explosion or large fire would,

it was dangerous to the seeds that were placed in it because it destroyed them. And,

nothing in Salt River limits the application of tort law to cases in which the safety of

human beings or large items of property is at risk.

¶12           Next we consider the “manner in which the loss occurred.” Id. at 377, 694
P.2d at 207. This factor “will not often be determinative,” but may be relevant in

particular cases. Id. In Salt River, our supreme court explained that the test set forth

therein must be applied in the context of the facts of each case in order to determine

whether “the facts preponderate in favor of the application of tort law or commercial law

. . . or a combination of the two.” Id. at 380, 694 P.2d at 210. Likewise, in Flagstaff, the

court noted distinctions between the products liability and construction defect contexts.

223 Ariz. 320, ¶¶ 17, 24, 223 P.2d at 668, 669. In this case‟s particular commercial

context, we do not find this factor particularly helpful to our analysis.

       3
        Whether a product is “defective and unreasonably dangerous” is a question of fact
for a jury. Times Mirror Co. v. Sisk, 122 Ariz. 174, 178-79, 593 P.2d 924, 928-29 (App.
1978). Because we are reviewing a grant of summary judgment, and must view the facts
in the light most favorable to Miidas, we presume the peat moss was defective for
purposes of this decision. See Bothell, 192 Ariz. 313, ¶ 2, 965 P.2d at 49.
                                              8
¶13           We note, however, that although courts have typically focused on whether

an “accident” has occurred in deciding whether a tort remedy is appropriate, our supreme

court pointed out that “adherence to the safety incentive policy of strict tort liability may

demand that certain losses be recoverable in tort even though only the result, and not the

process, may be described as an accident or calamity.” Id. at 377, 694 P.2d at 207. Here,

as Miidas argues, the peat moss caused “widespread germination failures” and “[i]f

germination occurred at all, only deformed and unproductive seedlings emerged.” Berger

and Global argue this suggests the peat moss simply failed to perform as expected and

“there was no sudden calamity,” but that instead Miidas‟s “[p]lants allegedly failed to

grow or were stunted in their growth over time.” “A product may[, however,] pose an

unreasonable danger to its user, even though no sudden accident has occurred.” Id.

¶14           Likewise, we do not consider it dispositive that the peat moss failed to

perform as expected, because when a product causes unintended damage to a plaintiff‟s

other property, that will almost always be true. The appropriate focus instead is on the

fact that the damage caused by the peat moss was calamitous to the seeds. And, as

Miidas pointed out at oral argument, the peat moss here did not simply fail to meet

Miidas‟s expectation that it would improve the seeds‟ germination rate.           Rather, it

destroyed the seeds so that they failed to germinate altogether.

¶15           Finally, we must consider the type of damage sustained. Id. at 378, 694

P.2d at 208. The Salt River court set forth five hypothetical scenarios to illustrate

situations in which the economic loss rule might apply. Id. The first of these scenarios

involved a defect that caused the product at issue to malfunction and to destroy the

                                             9
turbine which it controlled. Id. The court stated that “[b]y unanimous authority . . . the

property damage . . . [was] recoverable in a strict tort liability action. The defect was

unreasonably dangerous to person or property and caused accidental damage to other

property.” Id. The court then went on to discuss other situations in which a defective

product had created a risk of harm but did not actually harm persons or other property,

and ultimately rejected a rule that was “a blanket disallowance of tort recovery for

economic losses.” Id. at 378-79, 694 P.2d at 208-09; see also Flagstaff, 223 Ariz. 320,

¶ 17, 223 P.3d at 668.

¶16           Quoting from Salt River, Miidas argues “[w]here economic loss is

accompanied by physical damage to person or other property . . . the parties‟ interests

generally will be realized best by the imposition of strict tort liability.” 143 Ariz. at 379,

694 P.2d at 209. Global, in contrast, also quoting from Salt River, contends that “if the

only loss is non-accidental and to the product itself, or is of a consequential nature, the

remedies under the [Uniform Commercial Code (UCC)] will govern and other tort

theories will be unavailable.” 143 Ariz. at 379-80, 694 P.2d at 209-10.          And, it

maintains, “[i]f the property damage alleged would already be compensated by an award

of lost profits, the existence of that damage is not relevant.”

¶17           We find no support in Salt River for the proposition that damage to other

property becomes irrelevant if an award of lost profits also may be made. Indeed, Salt

River itself involved UCC claims as well as tort claims. Id. at 374, 694 P.2d at 204.

And, although Salt River does state that contract law will apply if the only loss sustained

by the plaintiff is “of a consequential nature,” it does not so limit a plaintiff when both

                                              10
consequential damages and damages to other property are claimed. Id. at 379-80, 694
P.2d at 209-10. Indeed, “[t]he characterization of a claim as harm to other property may

trigger liability not only for the harm to physical property but also for incidental

economic loss.” Restatement (Third) Torts (Products Liability) § 21 cmt. e (1998).

¶18           Our supreme court in Salt River did not reject the idea that tort law should

apply when other property is damaged, nor did it rule that tort law should not apply when

a plaintiff‟s primary damages were economic, as Global and Berger essentially suggest.

Rather the Salt River court adopted a narrow version of the economic loss rule, which

allows a plaintiff to proceed in tort even absent damage to persons or other property. See

Flagstaff, 223 Ariz. 320, ¶¶ 15-16, 223 P.3d at 667-68 (explaining that Salt River rejected

economic loss rule under which tort law would not apply absent “damage to other

property or personal injury” and adopted “narrower” approach that would allow tort

recovery even absent such damage where product was unreasonably dangerous and loss

occurred suddenly or accidentally).

¶19           In sum, the peat moss at issue here damaged Miidas‟s seeds, which were

purchased from another supplier and were property clearly separate from the allegedly

defective product. Cf. Arrow Leasing Corp. v. Cummins Ariz. Diesel, Inc., 136 Ariz. 444,

448-49, 666 P.2d 544, 548-49 (App. 1983) (noting tort recovery may lie when component

part damages another component part if components purchased separately or from

different suppliers). Thus, the third factor of the Salt River test, as well as the first two,

supports a conclusion that the economic loss rule should not be applied in this case. The

                                             11
trial court therefore erred in determining the rule applied and in granting summary

judgment in favor of Berger and Global.

¶20              Our conclusion that the economic loss rule does not apply in this instance is

supported by decisions in several other states. In Kawamata Farms, Inc. v. United Agri

Products, 948 P.2d 1055, 1094-95 (Haw. 1997), for example, the court concluded the

economic loss rule did not apply; the plaintiffs had alleged not just the loss of the

defective agricultural fungicides at issue, but “their farm crops, i.e., the Plaintiffs‟ „other

property.‟” Likewise, a Florida court determined the economic loss rule did not apply

where a plaintiff‟s tomato crop had been damaged by defective fungicides. E.I. DuPont

de Nemours & Co. v. Finks Farms, 656 So. 2d 171, 172 (Fla. Dist. Ct. App. 1995). And,

an Iowa court reached a similar result in a case involving a plaintiff who had received the

wrong drum on his planter. Manning v. Int’l Harvester Co., 381 N.W.2d 376, 378-79

(Iowa Ct. App. 1985). As a result of the bad drum, the plaintiff

                 was directly damaged because his crop was not as large as it
                 should have been. Simply because the damage is measured in
                 terms of potential sale of the crop if it had grown as it should
                 does not automatically mean that the damage is economic.
                 Damages for loss of cattle would also be measured in terms of
                 the amount of money they would have brought if sold for
                 slaughter.

Id. at 379. The court therefore concluded the plaintiff had sustained property damage and

not purely economic losses. Id. Although these states do not employ the Salt River test

adopted in Arizona, we find their reasoning and conclusions sound and helpful to our

analysis here.

                                               12
¶21           Miidas also contends “the economic loss doctrine does not apply where . . .

the parties did not contract.” And, therefore, it maintains the rule should not be applied

to its claims against Berger because there was no contract between them. Miidas bases

this argument on the following language in Flagstaff:

              The principal function of the economic loss doctrine, in our
              view, is to encourage private ordering of economic
              relationships and to uphold the expectations of the parties by
              limiting a plaintiff to contractual remedies for loss of the
              benefit of the bargain. These concerns are not implicated
              when the plaintiff lacks privity and cannot pursue contractual
              remedies. . . .

                     Rather than rely on the economic loss doctrine to
              preclude tort claims by non-contracting parties, courts should
              instead focus on whether the applicable substantive law
              allows liability in the particular context.

223 Ariz. 320, ¶ 38, 223 P.3d at 671. Berger and Global contend, however, that this rule

is limited to the construction defect context in which it arose.       Because we have

determined the economic loss rule does not apply in this case, regardless of whether the

parties had a contract, we need not decide whether the rule applies to non-contracting

parties in the products liability context.

¶22           Finally, the parties disagree as to whether the economic loss rule should

apply to Miidas‟s claim for negligent misrepresentation. Relying on Apollo Group, Inc.

v. Avnet, Inc., 58 F.3d 477 (9th Cir. 1995), the trial court determined the rule should

apply and it precluded Miidas‟s claim. Our supreme court since has cited that case as one

of those in which “courts have reached conflicting conclusions regarding the application

of the [economic loss] doctrine under Arizona law,” although it did not expressly

                                             13
disapprove it. Flagstaff, 223 Ariz. 320, ¶ 10, 223 P.3d at 666. In any event, even if we

accepted Berger‟s and Global‟s assertions that “there is no exception to the economic loss

rule recognized in Arizona regarding negligent misrepresentation,” or that the claim is

“essentially [a] product liability claim[]” subject to Salt River, the claim still would not

be barred by the economic loss rule for the reasons explained above. Therefore, we need

not decide whether the rule applies to such a claim in the first instance.

                                        Disposition

¶23           The judgment of the trial court is vacated and the matter is remanded for

further proceedings consistent with this decision.

                                              /s/ Virginia C. Kelly
                                              VIRGINIA C. KELLY, Judge

CONCURRING:

/s/ Garye L. Vásquez
GARYE L. VÁSQUEZ, Presiding Judge

/s/ Peter J. Eckerstrom
PETER J. ECKERSTROM, Judge

                                             14