80 South Eighth Street Ltd. Partnership v. Carey-Canada, Inc., CAREY-CANAD

Decision Date26 June 1992
Docket NumberNo. C1-91-1427,CAREY-CANAD,INC,C1-91-1427
Citation486 N.W.2d 393
Parties, 18 UCC Rep.Serv.2d 69, Prod.Liab.Rep.(CCH)P. 13,222 80 SOUTH EIGHTH STREET LIMITED PARTNERSHIP; et al., Plaintiffs-Respondents, v., et al., Defendants, W.R. Grace Co., Defendant-Appellant.
CourtMinnesota Supreme Court

Syllabus by the Court

The economic loss doctrine does not bar the owner of a building with asbestos-containing fireproofing from suing the manufacturer of the fireproofing under the tort theories of negligence and strict liability for the costs of maintenance, removal and replacement of the fireproofing.

Hugh Plunkett, III, Thomas K. Berg, John C. Childs, Thomas J. Radio, Popham, Haik, Schnobrich & Kaufman, Ltd., Minneapolis, for appellant.

Lawrence A. Moloney, Timothy J. Dolan, Dawn L. Gagne, Doherty, Rumble & Butler, and R. Terri Mandel, O'Connor & Hannan, Minneapolis, for respondent.

Hubert H. Humphrey, III, Atty. Gen., Catherine F. Haukedahl, Asst. Atty. Gen., St. Paul, (for amicus curiae State of Minn.)

Heard, considered and decided by the court en banc.

KEITH, Chief Justice.

The Federal District Court of Minnesota has certified to this court three questions of law:

1. Whether the economic loss doctrine as set forth in Superwood Corp. v. Siempelkamp Corp., 311 N.W.2d 159 (Minn.1981), and Hapka v. Paquin Farms, 458 N.W.2d 683 (Minn.1990), bars the owner of a building with asbestos-containing fireproofing from suing the manufacturer of the fireproofing under the tort theories of negligence and strict liability for the costs of maintenance, removal and replacement of the fireproofing?

2. If the economic loss doctrine as set forth in Hapka would bar a building owner from suing the [asbestos-containing fireproofing] manufacturer in tort for negligence and strict liability claims, does Chapter 352 of the 1991 Minnesota Session Laws apply retroactively to a case initiated in 1988?

3. If Chapter 352 of the Minnesota Session Laws applies retroactively, does Minnesota law permit an owner of a building to sue the manufacturer of asbestos-containing fireproofing under the tort theories of negligence and strict liability for the costs of maintenance, removal and replacement of the fireproofing?

The context for the certified questions is the motion for summary judgment by asbestos manufacturer W.R. Grace ("Grace") on the issue of its liability in negligence and strict liability for the costs of maintenance, removal and replacement of its Monokote fireproofing in the IDS Center located in Minneapolis, Minnesota. For purposes of presenting the above-stated questions of law to this court, the federal district court deemed Grace, the appellant, and 80 South Eighth Street Limited Partnership ("80 South Eighth"), respondent.

The IDS Center, constructed in 1970-72, is 52 stories high and is comprised of four commercial buildings: a tower and annex which includes office, retail, and common space, a hotel, a Woolworth store and underground parking. The IDS Center is used on a daily basis by tenants who lease space in the building, by maintenance and administrative staff, and by the general public.

The original owners of the IDS Center sold the property to Oxford Development Minnesota, Inc. ("Oxford") in 1981. In February 1982, Oxford and the Bell System Trust ("Bell") formed a limited partnership, the 80 South Eighth Street Limited Partnership. Under the partnership agreement, the general partner, Oxford, transferred title to the IDS Center to the new partnership; Oxford and Bell each hold a fifty percent interest in 80 South Eighth.

Two types of asbestos-containing fireproofing, Firebar and Monokote, were used in the construction of the IDS Center. Firebar, manufactured by Carey Canadian Mines, Limited ("Carey"), and by the Celotex Corporation ("Celotex"), was used on the first few floors of the tower and the first few floors of the annex. Carey and Celotex declared bankruptcy in October, 1990, and are no longer parties to this suit. After problems arose with the Firebar fireproofing, the decision was made to install Monokote fireproofing, manufactured by Grace, in the balance of the tower and the annex, and in the Woolworth building.

In 1986 and 1987, the Illinois Institute of Technology was employed to conduct a full survey of all floors of the IDS Center. 80 South Eighth learned from this study that asbestos-containing fireproofing was on the beams and columns on all floors of the IDS Tower, all floors of the IDS annex, and both floors of the Woolworth building. 80 South Eighth also conducted tests which showed that Monokote, even when undisturbed, will release substantial numbers of asbestos fibers. In addition, 80 South Eighth has had to institute costly maintenance procedures to keep the ceiling tiles and light fixtures in the IDS Center free from asbestos fibers.

In 1988, 80 South Eighth brought suit against Grace for compensatory damages to cover the costs of maintenance, removal and replacement of the asbestos in the Center, for punitive damages, and for costs of that suit. 80 South Eighth claims that the original owners, architects, and general contractors had intended to avoid asbestos-containing fireproofing by selecting "cementitious" fireproofing and, were not aware that the Monokote installed in the IDS Center contained asbestos. 80 South Eighth does not seek damages for personal injuries and there are no allegations of personal injuries caused by the asbestos-containing fireproofing used in the building. There are also no allegations that the Monokote has failed to perform its fireproofing function. In defense, Grace denies that the mere presence of asbestos in the building constitutes a health risk. Grace also claims that the original owners and construction team specified Monokote fireproofing and were aware of the presence of asbestos in the fireproofing. Grace further asserts that 80 South Eighth knew that Monokote was asbestos-containing fireproofing when it acquired its interest in the IDS Center.

On August 1, 1991, the federal district court certified the above-stated questions and granted Grace's motion for summary judgment on express warranty, implied warranty of fitness for a particular purpose, misrepresentation and fraud, nuisance and restitution, and conspiracy and concert of action. The Federal court, however, denied Grace's motion for summary judgment on primary assumption of the risk; statute of limitations, Minn.Stat. Sec. 541.051 (1988); constitutionality of the revival statute, Minn.Stat. Sec. 541.22 (1988); and implied warranty of merchantability.

Because we answer the first certified question in the negative, we do not reach the other two questions. To answer the first question, we must examine the permissible overlap between tort and contract remedies available in Minnesota to commercial parties.

I.

Tort actions and contract actions protect different interests. Through a tort action, the duty of certain conduct is imposed by law and not necessarily by the will or intention of the parties. The duty may be owed to all those within the range of harm, or to a particular class of people. On the other hand, contract actions protect the interests in having promises performed. Contract obligations are imposed because of conduct of the parties manifesting consent, and are owed only to the specific parties named in the contract. See W. Prosser, Handbook of the Law of Torts Sec. 92 (4th ed. 1971).

The economic loss doctrine provides a balance between two conflicting societal goals: that of encouraging marketplace efficiency through the voluntary contractual allocation of economic risks with that of discouraging conduct that leads to physical harm. See Connaughton, Comment, Recovery for Risk Comes of Age: Asbestos in Schools and the Duty to Abate a Latent Environmental Hazard, 83 Nw.U.L.Rev. 512, 525-56 (1989).

Superwood Corp. v. Siempelkamp Corp., 311 N.W.2d 159 (Minn.1981), is the leading economic loss case in Minnesota. There, Superwood Corporation purchased a hot plate press from Siempelkamp Corporation. After 21 years of operation without problems, the press failed and could not be repaired. Superwood then brought suit under negligence and strict liability theories, as well as under contract and warranty theories, seeking damages for the press and for lost profits--all economic losses. We held, "[E]conomic losses that arise out of commercial transactions, except those involving personal injury or damage to other property, are not recoverable under the tort theories of negligence or strict products liability." Id. at 162. The underlying rationale of Superwood was the statutory scheme of the Uniform Commercial Code and the ability of commercial parties to bargain for risks of loss. We said, "To allow tort liability in commercial transactions would totally emasculate [the warranty] provisions of the U.C.C." Id.

Likewise, in Hapka v. Paquin Farms, 458 N.W.2d 683 (Minn.1990), property damages resulting from ring rot infected seed potatoes purchased from a seed potato farm were deemed to be economic loss. We said, "[T]he Uniform Commercial Code must control exclusively with respect to damages in a commercial transaction which involves property damage only * * *." Id. at 688. We noted that in its design, the Uniform Commercial Code "encourages negotiated agreements concerning all aspects of a commercial transaction including warranties, warranty disclaimers, and liability limitations." Id. We agree with Grace that if 80 South Eighth's alleged injuries constitute economic losses, then Hapka bars 80 South Eighth's tort claims.

Here, 80 South Eighth seeks recovery for costs of maintenance, removal and replacement of the asbestos-containing fireproofing. Such a claim appears to be economic loss as defined in Minneapolis Society of Fine Arts v. Parker-Klein Associates Architects, Inc., 354...

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