Colleton Academy v. Hoover Universal

Citation666 S.E.2d 247,379 S.C. 181
Decision Date25 August 2008
Docket NumberNo. 26535.,26535.
PartiesCOLLETON PREPARATORY ACADEMY, INC., Plaintiff, v. HOOVER UNIVERSAL, INC., Defendant.
CourtUnited States State Supreme Court of South Carolina

Charles Hiram Williams, II, of Williams & Williams, of Orangeburg, for Plaintiff.

Charles J. Baker, III, of Buist, Moore, Smythe & McGee, of Charleston; and Richard Kenneth Wray and Casey L. Westover, both of Reed Smith, of Chicago, IL, for Defendant.

C. Mitchell Brown and William C. Wood, Jr., of Nelson Mullins Riley & Scarborough, of Columbia, for Amicus Curiae Product Liability Advisory Council, Inc.

Saunders M. Bridges, Jr., of Aiken, Bridges, Nunn, Elliott & Tyler, of Florence, for Amicus Curiae Beazer Fast Food, Inc. and Osmose, Inc.

Justice BEATTY.

We accepted two questions certified by the United States District Court for South Carolina pursuant to Rule 228, SCACR. The questions involve recovery in tort in light of the economic loss doctrine and recovery under the South Carolina Unfair Trade Practices Act (UTPA) for a remote user. After careful consideration, we answer the first question "no," and "yes." We answer the second question, "yes."

FACTS

Plaintiff Colleton Preparatory Academy is a private school in Walterboro, South Carolina.1 The roof of Plaintiff's administration building was constructed in 1972, and the building's roof truss system contained wood treated with "Fire-X," a fire retardant manufactured by Defendant Hoover's predecessor. In 2002, Plaintiff discovered the fire retardant treated (FRT) wood was deteriorating, causing failure of numerous chord and web members, corrosion to the metal truss connection plates, deterioration of the roof sheathing, and loss of strength of structural wood members. The deterioration of the FRT wood caused structural problems which would eventually lead to truss failure and partial or full roof collapse. The majority of the roof trusses and sheathing had failed or were about to fail, the roof framing and sheathing were substantially impaired, and the truss system had to be replaced for safety reasons.

Plaintiff filed an action in the United States District Court for the District of South Carolina against Defendant seeking damages caused by the deterioration of the wood under theories of negligence, reckless/gross negligence, and violation of the UTPA. Defendant failed to answer and was held in default. The district court denied the motion to set aside the default and made the following findings: (1) Defendant's product was defective and unreasonably dangerous for its foreseeable use because of the structural lumber's propensity to lose strength; (2) Defendant was negligent or reckless in advertising and marketing the FRT lumber to building code officials, architects, truss manufacturers, and end users when it knew or should have known the product was defective or unsuitable for use under foreseeable conditions; (3) Defendant failed to provide adequate updates and warnings; (4) Defendant admitted by its default and evidence introduced at the damages hearing supported a conclusion that the FRT lumber posed a serious risk of bodily harm; (5) Defendant admitted by its default, and evidence introduced at the damages hearing supported a conclusion, that it had a duty to insure the product met or exceeded industry standards and it violated that duty by manufacturing and selling a product that was unreasonably dangerous; (6) for purposes of the UTPA, Defendant's actions were unfair, capable of repetition, and injurious to the public, and Defendant knew the FRT lumber was unsuitable for its advertised use and it resulted in damages to Plaintiff; and (7) although there is no evidence that Plaintiff dealt directly with Defendant, Defendant admitted by its default that it marketed the product to end users when it knew or should have known it was defective and unsuitable for use under foreseeable conditions in roofing systems.

After a bench trial, the district court awarded Plaintiff $871,619.15 in damages under the UTPA claim to cover the cost of repairs to the roof trusses and temporary classroom expenses.2 The district court held that the economic loss rule barred Plaintiff from recovering under a negligence theory because the FRT wood was causing damage only to itself and not to persons or property. After both parties filed for reconsideration, the district court filed an order on January 31, 2006, requesting certification of questions regarding exceptions to the economic loss doctrine and the necessity of privity in a UTPA claim. After considering the motions for reconsideration and Plaintiff's motion to amend the order of certification, the district court issued an order on February 27, 2007, modifying the January 31, 2006 order to include the current version of the two certified questions. This Court accepted the certified questions.

STANDARD OF REVIEW

In answering a certified question raising a novel question of law, the Court is free to decide the question based on its assessment of which answer and reasoning would best comport with the law and public policies of the state as well as the Court's sense of law, justice, and right. McCullough v. Goodrich & Pennington Mortgage Fund, Inc., 373 S.C. 43, 47, 644 S.E.2d 43, 46 (2007); Howell v. United States Fid. & Guar. Ins. Co., 370 S.C. 505, 508, 636 S.E.2d 626, 627 (2006); Peagler v. USAA Ins. Co., 368 S.C. 153, 157, 628 S.E.2d 475, 477 (2006).

CERTIFIED QUESTIONS

(1) Can the user of a defective product recover in tort when only the product itself has been injured and when the product either violated generally accepted industry standards or posed a serious risk of bodily harm?

(2) Can a plaintiff who used but did not purchase a product directly from the defendant and nonetheless suffered a loss as a result of the defendant's unfair or deceptive acts obtain relief under the South Carolina Unfair Trade Practices Act?

DISCUSSION
I. Economic Loss Doctrine

The first certified question does not specifically mention the economic loss doctrine. However, it is clear from the district court's order and language used in the question that the district court seeks clarification regarding whether the legal duties3 to conform to industry standards and to avoid creating a serious risk of bodily harm found in Kennedy v. Columbia Lumber & Manufacturing Company, 299 S.C. 335, 384 S.E.2d 730 (1989), are limited to the residential housing arena or whether they have wider application.

Initially, we note that in Kennedy, this Court held "a cause of action in negligence will be available where a builder has violated a legal duty, no matter the type of resulting damage. The `economic loss' rule will still apply where duties are created solely by contract. In that situation, no cause of action in negligence will lie." Kennedy, 299 S.C. at 347, 384 S.E.2d at 737; see Dorrell v. South Carolina Dep't of Transp., 361 S.C. 312, 318, 605 S.E.2d 12, 15 (2004) (noting paving company's contract with the State did not limit its liability in negligence to third parties because the common law duty of due care existed outside of the contract).

The purpose of the economic loss rule is to define the line between tort and contract recovery. Kennedy, 299 S.C. at 345, 384 S.E.2d at 736 ("This rule exists to assist in determining whether contract or tort theories are applicable to a given case."). The economic loss rule generally provides there is no tort liability for a defective product if the product damages only itself. Id. at 341, 384 S.E.2d at 734. "Where a purchaser's expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only `economic' losses." Id. at 345, 384 S.E.2d at 736. However, where a defective product harms other property or causes physical injury, the losses are more than merely economic, the economic loss rule is inapplicable, and a remedy lies in either tort or contract. Id.; Kershaw County Bd. of Educ. v. United States Gypsum Co., 302 S.C. 390, 393, 396 S.E.2d 369, 371 (1990) (finding the economic loss doctrine did not bar recovery in an asbestos case because the defective product caused harm to "other property," including the rest of the building).4

This Court has continually expressed uneasiness with the economic loss doctrine. The majority view of the doctrine employs a legal framework that focuses on consequence not action.5 We have said that this framework generates difficulties. As a result, we partially rejected the rule in the residential home building context, leaving it viable in situations where a builder violates only a contractual duty. Kennedy, 299 S.C. at 344, 384 S.E.2d at 736; Kershaw, 302 S.C. at 393, 396 S.E.2d at 371. Although the economic loss rule bars tort recovery where duties are created solely by contract, we have long recognized tort actions for purely economic losses as a result of a breach of a special legal duty outside the contract. See Tommy L. Griffin Plumbing & Heating v. Jordan, Jones & Goulding, Inc., 320 S.C. 49, 55, 463 S.E.2d 85, 88-89 (1995) (finding design professionals, including engineers, may have a duty separate and distinct from contractual duties such that the economic loss doctrine would not prohibit a tort action); Beachwalk Villas Condo. Ass'n v. Martin, 305 S.C. 144, 146-47, 406 S.E.2d 372, 374 (1991) (finding a special duty for architects); Kennedy, 299 S.C. at 347, 384 S.E.2d at 738 (finding builders owe three legal duties to home buyers beyond the contract); Lloyd v. Walters, 276 S.C. 223, 226, 277 S.E.2d 888, 889 (1981) (finding an attorney liable for economic loss to a corporate shareholder when attorney breached a duty to the corporation); Georganne Apparel v. Todd, 303 S.C. 87, 92, 399 S.E.2d 16, 18-19 (Ct.App.1990) (dismissing an accountant malpractice case for failure to prosecute); but see McCullough v. Goodrich & Pennington Mortgage Fund, Inc., ...

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