Flintkote Co. v. Dravo Corp.

• Citation: 678 F.2d 942
• Decision Date: 14 June 1982
• Docket Number: No. 81-7410,81-7410
• Parties: The FLINTKOTE COMPANY, Plaintiff-Appellant, v. DRAVO CORPORATION, Diamond Manufacturing Company, Inc. and B. F. Diamond Construction Company, Inc., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 942

678 F.2d 942

The FLINTKOTE COMPANY, Plaintiff-Appellant, v. DRAVO CORPORATION, Diamond Manufacturing Company, Inc. and B. F. Diamond Construction Company, Inc.,

Defendants-Appellees.

No. 81-7410.

United States Court of Appeals,

Eleventh Circuit.

June 14, 1982.

Neely, Player, Eichelberger, Hamilton, Hines & Welch, John W. Winborne, III, Atlanta, Ga., for plaintiff-appellant.

Porter, Davis & Saunders, J. Alexander Porter, Atlanta, Ga., for Dravo Corp.

Dan B. Wingate, Long, Weinberg, Ansley & Wheeler, Atlanta, Ga., for B. F. Diamond Const. Co.

Hurt, Richardson, Garner, Todd & Cadenhead, A. Paul Cadenhead, James H. Cox, Atlanta, Ga., for Diamond Mfg.

Appeal from the United States District Court for the Northern District of Georgia.

Before RONEY and KRAVITCH, Circuit Judges, and PITTMAN ^*, District Judge.

KRAVITCH, Circuit Judge:

Appellant, The Flintkote Company, appeals from the grant of summary judgment for the defendants, in which the district court held that under Georgia law appellant could not recover in tort for the economic losses allegedly suffered as a result of the defendants' negligent design, fabrication, assembly, erection, and inspection of a "travelling ship unloader." Flintkote argues that the district court erred in applying the economic loss rule to the facts in this case. We disagree and affirm.

A. Factual Background

In August of 1963, Flintkote entered into a rental agreement with the Savannah District Authority (SDA), in which the SDA agreed to acquire, develop and lease to Flintkote a facility to be used by Flintkote to manufacture gypsum wall board. The facility was to include a loading dock equipped with a "traveling ship unloader," a crane-like apparatus used to lift buckets of gypsum rock from the holds of cargo ships. In September of 1963, the SDA contracted with appellee Dravo Corporation to design and erect the unloader. Pursuant to the powers contained in the rental agreement with SDA, Flintkote served as SDA's agent in negotiating and executing the contract with Dravo. Dravo subcontracted some of the work to appellees Diamond Manufacturing Co. and B. F. Diamond Construction Co. The unloader was completed and accepted by the SDA and Flintkote, as its agent, prior to January 1, 1966. Flintkote operated the unloader continuously and without abnormal interruption from that time until April 28, 1978, when the rear downstream portal column of the unloader wrenched forward, twisting and bending not only the portal column, but also other structural members of the unloader. No personal injuries or damage to other property resulted from this incident; however, the unloader was rendered inoperable, necessitating significant repairs. The breakdown allegedly resulted from a defective gusset plate on the downstream portal column. The gusset plate was intended to redistribute the weight of the unloader's boom that rested on the downstream portal column to other structural members of the unloader; however, because the plate was cut and not rewelded during the erection of the unloader, the plate did not adequately serve its function, and the column eventually gave way under the weight of the boom. The defective gusset plate went unnoticed by Flintkote and appellees because a machinery house rested on top of it. Pursuant to its contractual obligations under the rental agreement with the SDA, Flintkote repaired the damaged unloader at a cost of approximately $252,000. Flintkote also expended a significant sum of money to obtain an alternative means to unload gypsum rock at the leased facility while the unloader was being repaired.

Appellant filed this diversity action in federal district court on June 26, 1979, seeking to recover for the cost of repairing the unloader and obtaining an alternative means of unloading the gypsum rock. Flintkote alleged that Dravo was negligent in the design, fabrication, and erection of the traveling ship unloader, that Dravo was negligent in the supervision and observation of the work of Diamond Construction and Diamond Manufacturing, that Diamond Construction was negligent in the assembly and erection of the unloader, and that Diamond Manufacturing was negligent in conducting various inspections of the completed unloader. The defendants moved for summary judgment on two grounds. First, they argued that the negligence action was barred by applicable statutes of limitations. Second, they asserted that under Georgia law, Flintkote could not recover for purely "economic losses" in a negligence action; such relief could be obtained only under the law of contract. The district court agreed with defendant's second contention and granted the defendants' motion for summary judgment, without considering whether the action was time barred. This appeal followed.

B. The Economic Loss Rule

Where federal jurisdiction is based on diversity of citizenship, the substantive law of the forum state applies. E.g., Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Green v. Edmands Co., 639 F.2d 286 (5th Cir. 1981). In determining the law of the state, federal courts must follow the decisions of the state's highest court, and in the absence of such decisions on an issue, must adhere to the decisions of the state's intermediate appellate courts unless there is some persuasive indication that the state's highest court would decide the issue otherwise. See West v. American Telephone & Telegraph, 311 U.S. 223, 61 S.Ct. 179, 85 L.Ed. 139 (1940); Allen v. A. G. Edward & Sons, Inc., 606 F.2d 84, 87 (5th Cir. 1979); Benante v. Allstate Insurance Co., 477 F.2d 553, 554 (5th Cir. 1973). "Only where no state court has decided the point in issue may a federal court make an educated guess as to how that state's supreme court would rule." Benante v. Allstate Insurance Co., 447 F.2d at 554. See Trail Builders Supply Co. v. Reagan, 409 F.2d 1059 (5th Cir. 1969). Here, the parties agree that Georgia law controls. Yet the application of the economic loss rule under Georgia law has never been addressed by the Georgia Supreme Court. Our task therefore is to carefully consider the decisions of the Georgia Court of Appeals to determine whether the district court properly concluded that the rule serves to bar appellant's negligence claims under the circumstances of this case.

In Long v. Jim Letts Oldsmobile, Inc., 135 Ga.App. 293, 217 S.E.2d 602 (1975), the Georgia Court of Appeals first articulated the Georgia economic loss rule. There, the plaintiff brought an action in tort against the manufacturer and seller of a new car for damages to the vehicle arising from defects in the engine. He alleged that the engine was running hot and that neither the seller nor the manufacturer corrected the problem. After twenty-two months of use, the engine was destroyed, and the plaintiff sold the car for less than half of its book value. The plaintiff sued on the grounds that General Motors negligently manufactured the automobile and that Jim Letts Oldsmobile negligently serviced it, and sought damages for the diminution in value of the car, cost of repairs, loss of use of the car while it was being repaired, time lost from work, and inconvenience.

In affirming the trial court's grant of summary judgment for defendants, the Court of Appeals first observed that under Georgia law it is well settled that misfeasance in the performance of a contractual duty may give rise to a tort action. 217 S.E.2d at 604. See Mauldin v. Sheffer, 113 Ga.App. 874, 879-880, 150 S.E.2d 150, 154 (1966). "But in such cases the injury to the plaintiff has been 'an independent injury over and above the mere disappointment of plaintiff's hope to receive his contracted for benefit.' Orkin Exterminating Co. v. Stevens, 130 Ga.App. 363, 366, 203 S.E.2d 587, 589. '(I)n order to maintain an action ex delicto because of a breach arising out of a contractual relation the breach must be shown to have been a breach of a duty imposed by law and not merely a duty imposed by the contract itself.' Mauldin v. Sheffer, 113 Ga.App. at 879-80, 150 S.E.2d at 154." 217 S.E.2d at 604. The court found that the duty of the manufacturer to produce a car that would not overheat and the seller to properly repair the car were duties which arose solely from the contract between the plaintiff and the defendants. Moreover, the court observed:

There may have been other duties owed by the defendants to Long, which arose independent of the contracts, such as the duty imposed on suppliers and repairmen of chattels to use reasonable care not to place in the hands of the consumer a "product which may reasonably be expected to be capable of inflicting substantial harm if it is defective." Prosser, Law of Torts, 4th Ed. (1971), p. 643. MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050. See Griffith v. Chevrolet Motor Division, 105 Ga.App. 588(1), 125 S.E.2d 525. However, Long's complaint does not assert that such a duty has been breached by the defendants, nor has he submitted any evidence that he has suffered "substantial harm" within the meaning of the products liability rule. The "harm" contemplated or the interest protected against by such rule is "bodily harm," injury to "life and limb," injury to others and damage to property other than the product itself. See, e.g., Griffith v. Chevrolet Motor Division, supra; Washburn, etc., Co. v. General Motors Corp., 90 Ga.App. 380, 83 S.E.2d 26; Moody v. Martin Motor Co., supra (76 Ga.App. 456, 46 S.E.2d 197). "(W)here there is no accident, and no physical damage, and the only loss is a pecuniary one, through loss of the value or use of the thing sold, or the cost of repairing it, the courts have adhered to the rule ... that purely economic interests are not entitled to protection against mere negligence, and so have denied the recovery." Prosser, Law of Torts, 4th Ed. (1971), p. 665.

Id. In the absence of an accident or other property damage, the court found that the plaintiff...