Court Opinion

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Opinions of the United
1997 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

10-2-1997

2-J Corporation v. Tice
Precedential or Non-Precedential:

Docket
96-1943

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1997

Recommended Citation
"2-J Corporation v. Tice" (1997). 1997 Decisions. Paper 236.
http://digitalcommons.law.villanova.edu/thirdcircuit_1997/236

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Filed October 2, 1997

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

NO. 96-1943

2-J CORPORATION
t/a DR. FEELGOODE'S,
       Appellant

v.

WILLIAM E. TICE, III,
t/a TICE CONSTRUCTION COMPANY;
JEWELL BUILDING SYSTEMS, INC.

On Appeal From the United States District Court
For the Eastern District of Pennsylvania
(D.C. Civil Action No. 96-cv-00090)

Argued: May 8, 1997

BEFORE: STAPLETON and LEWIS, Circuit Judges, and
WALLS,* District Judge

(Opinion Filed October 2, 1997)

       Stephen A. Cozen (Argued)
       Richard C. Bennett
       Deborah M. Minkoff
       Cozen and O'Connor
       The Atrium
       1900 Market Street
       Philadelphia, PA 19103
        Attorneys for Appellant
_________________________________________________________________

*Hon. William H. Walls, U.S. District Judge for the District of New
Jersey, sitting by designation.

       John C. McNamara (Argued)
       Butler & McNamara
       1700 Market Street
       Suite 2630
       Philadelphia, PA 19103
        Attorney for Appellee

OPINION OF THE COURT
STAPLETON, Circuit Judge:

We are here asked to resolve whether under Pennsylvania
law a commercial purchaser of a pre-engineered warehouse
may recover in tort from the manufacturer of the
warehouse for damage caused to its contents when the
warehouse collapsed. The district court concluded that the
Supreme Court of Pennsylvania would interpret the
economic loss doctrine as barring tort recovery in these
circumstances. We will reverse the district court's grant of
summary judgment for the manufacturer and remand for
further proceedings.

I.

Plaintiff-appellant 2-J Corporation is a New Jersey
corporation engaged in retail sales of spas, swimming pools,
and other recreational equipment. In 1987, 2-J hired
defendant William E. Tice, III, to construct a building in
Bethlehem, Pennsylvania that would serve as a warehouse
and provide showroom space for 2-J's inventory. Tice then
contracted with defendant-appellee Jewell Building
Systems, a North Carolina corporation, to purchase a pre-
engineered steel structure to be constructed by Tice on
2-J's premises. Jewell calls its product a "building in a
box"; it sent Tice the materials necessary to construct the
warehouse and a design plan that Tice followed in erecting
the structure. Tice completed construction of the Jewell
warehouse for 2-J in December 1987.

2-J used the warehouse until January 17, 1994, when
the supports for the roof assembly failed, causing a
catastrophic collapse of the warehouse's roof and exterior

                                2

walls. The warehouse was destroyed. Inventory and other
items that 2-J was storing in the warehouse at the time of
the collapse were also destroyed. Unfortunately for 2-J, the
five-year warranty on the warehouse had expired over a
year earlier in November 1992.

Seeking to recover damages for loss of the contents of the
warehouse, 2-J initiated this action. It asserted negligence
and strict products liability tort claims against Jewell as
well as a breach of contract claim based on the warranty.
Jewell moved for summary judgment, arguing that tort
recovery was barred by the economic loss doctrine, which
limits the availability of tort remedies in favor of contract
law among commercial parties when products fail to
perform as expected. With respect to 2-J's contract claim,
Jewell urged that summary judgment was appropriate
because the warranty had expired by the time the
warehouse collapsed. The district court agreed with Jewell
on both points and granted summary judgment. See 2-J
Corp. v. Tice, 926 F. Supp. 55 (E.D. Pa. 1996).

2-J's complaint had also pled claims against Tice. These
claims were still pending before the district court following
its ruling on Jewell's summary judgment motion. On
September 19, 1996, the parties agreed voluntarily by
stipulation that all claims against Tice would be dismissed.
The district court entered an order dismissing the claims
against Tice on November 25, 1996.

2-J filed a notice of appeal on October 16, 1996, seeking
review only of the district court's decision to grant Jewell
summary judgment on the tort claims. Since there was no
final, appealable order until November 25, 1996, 2-J's
notice of appeal was premature. However, "a premature
appeal taken from an order which is not final but which is
followed by an order that is final may be regarded as an
appeal from the final order in the absence of a showing of
prejudice to the other party." Richerson v. Jones, 551 F.2d
918, 922 (3d Cir. 1977) (emphasis omitted); see also
Dowling v. City of Philadelphia, 855 F.2d 136, 138 (3d Cir.
1988). Jewell does not argue that it was prejudiced in any
respect by 2-J's premature notice of appeal. Thus, that
notice became timely upon entry of the district court's order

                                3

dismissing the claims against Tice, and we have jurisdiction
to resolve this appeal. See 28 U.S.C. S 1291.1

II.

We exercise plenary review over the district court's grant
of summary judgment and over its interpretation of state
law. See Blasband v. Rales, 971 F.2d 1034, 1040 (3d Cir.
1992); Compagnie des Bauxites de Guinee v. Ins. Co. of
North America, 724 F.2d 369, 371 (3d Cir. 1983). Summary
judgment is appropriate only if the record shows no
genuine issue of material fact and the moving party is
entitled to judgment as a matter of law. See Fed. R. Civ. P.
56(c).

Our task is to predict what the Pennsylvania Supreme
Court would do if presented with this case. See U.S.
Underwriters Ins. Co. v. Liberty Mutual Ins. Co., 80 F.3d 90,
93 (3d Cir. 1996). "In attempting to forecast state law, we
must consider relevant state precedents, analogous
decisions, considered dicta, scholarly works, and any other
reliable data tending convincingly to show how the highest
court in the state would decide the issue at hand." Aloe
Coal Co. v. Clark Equipment Co., 816 F.2d 110, 117 (3d Cir.
1987) (internal quotation marks omitted). "In the absence of
guidance from the state's highest court, we are to consider
decisions of the state's intermediate appellate courts for
assistance in predicting how the state's highest court would
rule." Gares v. Willingboro Township, 90 F.3d 720, 725 (3d
Cir. 1996).

III.

2-J seeks to recover in tort for damage caused to its
inventory and other items that were being stored in the
warehouse at the time the warehouse collapsed. The
district court predicted that the Supreme Court of
Pennsylvania would interpret the economic loss doctrine as
barring 2-J's tort claims. We conclude that the
_________________________________________________________________

1. The district court had jurisdiction over this diversity action pursuant
to 28 U.S.C. S 1332(a).

                                4

Pennsylvania Supreme Court would not apply the economic
loss doctrine to bar recovery in this case.

As it originally developed, the economic loss doctrine
provided that no cause of action could be maintained in
tort for negligence or strict liability where the only injury
was "economic loss"--that is, loss that is neither physical
injury nor damage to tangible property. See, e.g., Aikens v.
Baltimore & Ohio R.R. Co., 501 A.2d 277, 279 (Pa. Super.
1985); see also J.G. Kassab v. Central Soya, 246 A.2d 848,
854 n.7 (Pa. 1968), overruled on other grounds, AM/PM
Franchise Ass'n v. Atlantic Richfield Co., 584 A.2d 915 (Pa.
1990). The quintessential economic loss was lost profits.
When a product purchased by a commercial entity failed to
perform, that entity's business could be disrupted, resulting
in loss of customers, sales, and profits. The economic loss
doctrine precluded recovery in tort from the product's
manufacturer for these purely economic damages.

In East River Steamship Corp. v. Transamerica Delaval,
Inc., 476 U.S. 858 (1986), the Supreme Court interpreted
the economic loss doctrine in the context of federal
admiralty law as barring recovery in tort to a commercial
buyer for damage a product does to itself. The plaintiff, a
time-charterer of a supertanker, sued the manufacturer of
the supertanker's turbines in tort to recover for damages
suffered as a result of the turbines' malfunctioning. The
only damage alleged was to the turbines themselves. The
Court viewed the case as requiring it to determine whether
a duty should be imposed on manufacturers to protect
against commercial products injuring themselves, or
whether, instead, this was a matter best left to the parties'
agreements and the realm of contract. The Court decided
that tort recovery should not be available for harm a
product causes to itself. "Obviously, damage to a product
itself has certain attributes of a products-liability claim.
But the injury suffered--the failure of the product to
function properly--is the essence of a warranty action,
through which a contracting party can seek to recoup the
benefit of its bargain." Id. at 867-68. In the course of
reaching this conclusion, the East River Court reaffirmed
that a tort remedy remained available for damage to all
"other property." Id. at 820.

                                5

East River constitutes an expansion of the economic loss
doctrine because it precludes recovery for what is clearly
physical damage to property, i.e., damage to the product
itself. See Saratoga Fishing Co. v. J.M. Martinac & Co., ___
U.S. ___, 117 S. Ct. 1783, 1786 (1997). The damage to the
product is conceptually distinct from the lost profits that
may follow as a consequence of the product's failure.
However, the majority of jurisdictions that have considered
the question have adopted the reasoning of East River and
now deem damage a product causes to itself to be economic
loss, non-recoverable in tort. See generally Christopher S.
D'Angelo, The Economic Loss Doctrine, 26 U. Tol. L. Rev.
591, 595 (1995).

In the instant case, the district court expanded the
economic loss doctrine still further. It held that recovery is
also barred for damage to property that foreseeably may be
injured if the defective product fails. The court was
convinced that such property is effectively "integrated" with
the defective product, so that damage to that property is
tantamount to damage to the product itself. We do not
believe the Pennsylvania Supreme Court would adopt this
expansion of the economic loss doctrine.

We have previously predicted that the Pennsylvania
Supreme Court would follow the East River approach to the
economic loss doctrine. See, e.g., Duquesne Light Co. v.
Westinghouse Elec. Corp., 66 F.3d 604, 618-21 (3d Cir.
1995); King v. Hilton-Davis, 855 F.2d 1047, 1051 (3d Cir.
1988). The Pennsylvania Superior Court has made the
same prediction. See, e.g., REM Coal Co. v. Clark Equip. Co.,
563 A.2d 128, 132 (Pa. Super. 1989).

An essential aspect of the East River economic loss
doctrine is that while tort recovery is barred for damage a
product causes to itself, such recovery is available for
damage the failing product causes to "other property." See
476 U.S. at 867, 870. Pennsylvania Superior Court cases
applying East River have explicitly recognized that the
economic loss doctrine permits a tort claim for damage to
such other property. See, e.g., REM Coal, 563 A.2d at 129.
"Tort product liability theories impose responsibility on the
supplier of a defective product whenever it causes personal
injury or damage to other property because this is deemed

                                6

to be the best way to allocate the risk of unsafe products
and to encourage safer manufacture and design." Id.

East River provides little guidance on how a court should
distinguish between damage to "the product," for which tort
recovery is barred by the economic loss doctrine, and
damage to "other property," for which tort recovery remains
available. More recently, however, the Supreme Court has
instructed on how that distinction should be drawn. In
Saratoga Fishing Co. v. J.M. Martinac & Co., ___ U.S. ___,
117 S. Ct. 1783 (1997), the plaintiff was the second
user/owner of a fishing vessel which had, during the
plaintiff's ownership, caught fire, flooded, and sunk, all as
a result of a defective hydraulic system. When the initial
user/owner had purchased the vessel, it had not been
equipped for use as a fishing vessel. The initial user/owner
had added extra equipment to make the vessel adequate for
this purpose. The question the Court addressed was
whether the added equipment was part of the "product
itself" or "other property." Id. at 1785. The Court held that
the added equipment was "other property" and that the
economic loss doctrine did not preclude the second
user/owner from recovering in tort from the vessel's
manufacturer for damage to that equipment.

In reaching its conclusion in Saratoga Fishing, the Court
indicated that, for purposes of applying the economic loss
doctrine, "the product" is no more and no less than
whatever the manufacturer placed in the stream of
commerce by selling it to the initial user:

       When a Manufacturer places an item in the stream of
       commerce by selling it to an Initial User, that item is
       the "product itself" under East River. Items added to
       the product by the Initial User are therefore "other
       property," and the Initial User's sale of the product to
       a Subsequent User does not change these
       characterizations.
Id. at 1786. Thus, in the case before it, the product was the
vessel as sold by the manufacturer to the initial user. Since
the equipment added by the initial user was not part of "the
product itself," but instead "other property," a tort remedy
was available with respect to the damaged equipment.

                                7

The Saratoga Fishing Court started with the proposition
that general tort and contract law applicable in the context
of commercial sales2 characterizes as "other property" both
property added to a defective product by the initial
user/owner as well as property used by the initial
user/owner in connection with the defective product. It
gave three examples: A.J. Decoster Co. v. Westinghouse
Elec. Corp., 634 A.2d 1330 (Md. 1994) (owner of chicken
farm recovered for chickens killed when the chicken house
ventilator system failed); United Airlines, Inc. v. CEI
Industries of Ill., 499 N.E.2d 558 (Ill. 1986) (warehouse
owner recovered for damages to a building caused by a
defective roof installed by the defendant); and Nicor Supply
Ships Assoc. v. General Motors Corp., 876 F.2d 501 (5th Cir.
1989) (ship charterer who added expensive seismic
equipment to ship recovered for its loss in fire caused by a
defective engine). Moreover, the Court noted that the
respondents in Saratoga Fishing acknowledged that "had
the ship remained in the hands of the Initial User, the loss
of the added equipment could have been recovered in tort."
Id. at 1787.

The remainder of the Court's analysis in Saratoga Fishing
was advanced in support of the proposition that this result
should be no different--i.e., the manufacturer should have
no greater immunity with respect to foreseeable damage--
as a result of the fortuity that a resale occurred before the
defective product caused injury. That analysis ultimately
established the time of sale to the initial user as the critical
point for determining whether added features are part of
"the product itself" or "other property."3
_________________________________________________________________

2. Saratoga Fishing, like East River , is an admiralty case. The general
maritime law applied by the Court is, as it indicated, "an `amalgam of
traditional common-law rules, modifications of those rules, and newly
created rules' drawn from both state and federal sources." Saratoga
Fishing, 117 S. Ct. at 1786 (quoting East River). The Court accordingly
looked to the general law of tort and contract applicable to commercial
sales.

3. The Court indicated that the time of sale to the initial user was also
the critical one for resolving a related, but distinct, issue--whether in
a
suit against the supplier of a defective component part incorporated into
a product sold to the plaintiff, "the product itself" is limited to the

                                8

In our case, we are not concerned with whether features
added to a product after the sale to the initial user become
a part of the "product itself." We are concerned only with
whether property becomes a part of the product itself solely
because, after the sale to the initial user, it is foreseeably
utilized in connection with the owner's use of the product.
Nevertheless, it seems apparent to us that if thefishing
equipment foreseeably added to the ship by the initial user
in Saratoga Fishing did not become a part of the "product
itself," it necessarily follows that the inventory foreseeably
stored by the initial user in the warehouse here did not
become a part of the warehouse itself. Accordingly, we
believe that the district court's "integration" theory in this
case is inconsistent with Saratoga Fishing and that it
follows a fortiori from the holding in Saratoga Fishing that
2-J can recover for the loss of its inventory and other
property stored in its warehouse. For the same reasons we
have predicted that the Supreme Court of Pennsylvania
would find East River persuasive, we conclude that it would
find Saratoga Fishing persuasive as well and allow a tort
recovery in this case.4
_________________________________________________________________

component supplied by the defendant. The Court recognized the
prevailing rule to be that "the product itself" includes all components
added before the sale to the initial user. Id. at 1788. We so held in King
v. Hilton-Davis, 855 F.2d 1047, 1051-52 (3d Cir. 1988), when we
concluded that the bargain struck in the transaction with the initial user
"determines his or her economic loss and whether he or she has been
injured beyond that loss."

4. We are aware that a number of courts in addition to the district court
we are reviewing have ruled that the economic loss doctrine bars tort
recovery where the "other property" damaged was always likely to have
been injured upon the failure of "the product" itself. See, e.g., Dakota
Gasification Co. v. Pascoe Bldg. Systems, 91 F.3d 1094, 1099 (8th Cir.
1996) (applying North Dakota law); Detroit Edison Co. v. NABCO, Inc., 35
F.3d 236 (6th Cir. 1994)(applying Michigan law); Wellsboro Hotel Co. v.
Prins, 894 F. Supp 170 (M.D. Pa. 1995)(applying Pennsylvania law);
Hartford Fire Ins. Co. v. Huls America, Inc., 893 F. Supp. 465, 469
(E.D. Pa. 1995)(applying Pennsylvania law); Neibarger v. Universal
Cooperatives, Inc., 486 N.W.2d 612 (Mich. 1992)(applying Michigan law).
However, it is also true that numerous courts have rejected this
expansion of the economic loss doctrine. See, e.g., Saratoga Fishing Co.

                                9
Jewell contends that it is improper to view this case as
turning on the issue of whether the contents of the
warehouse are "the product" or "other property" for
purposes of the economic loss doctrine. Indeed, it
acknowledges that 2-J's inventory is not "the product" as
normally understood. It insists, however, that the relevant
issue presented is "one of delineating the proper spheres of
the law of tort and warranty law." Br. at 9. Jewell chooses
simply to ignore, however, the fact that East River and
Saratoga Fishing, after considering the appropriate
functions of tort and contract recovery, concluded in the
context of commercial transactions that the proper line to
be drawn between the spheres of tort and warranty law is
the line between damage to "the product" and damage to
"other property." As we have indicated, we are confident
that the Supreme Court of Pennsylvania would accept the
rationale of East River and Saratoga Fishing.

IV.

Because we conclude that the Pennsylvania Supreme
Court would not interpret its economic loss doctrine as
barring recovery in tort for damage the collapsing
warehouse caused to contents stored within it, we hold that
summary judgment should not have been granted to Jewell.
Thus, we will reverse the district court and remand for
further proceedings in which 2-J may press its negligence
and strict liability claims to recover for damage to its "other
property."
_________________________________________________________________

v. Marco Seattle Inc., 69 F.3d 1432, 1445 (9th Cir. 1995), aff'd on other
grounds, ___ U.S. ___, 117 S. Ct. 1783 (1997); Alliance Imaging, Inc. v.
Picker Int'l Inc., 1993 WL 76209 (E.D. Pa. 1993); Jet Plastica Industries,
Inc. v. Goodson Polymers, Inc., 1992 WL 17207 (E.D. Pa. 1992). We find
the latter cases more persuasive, and, particularly after Saratoga
Fishing, we are confident that the Pennsylvania Supreme Court would
not conclude that the economic loss doctrine precludes recovery for
damage to the contents of a warehouse when the warehouse collapses.

                                10

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                                11