Dakota Gasification Co. v. Pascoe Bldg. Systems, a Div. of Amcord, Inc., 95-2548

• Decision Date: 01 August 1996
• Docket Number: No. 95-2548,95-2548
• Citation: 91 F.3d 1094
• Parties: 30 UCC Rep.Serv.2d 411, Prod.Liab.Rep. (CCH) P 14,700 DAKOTA GASIFICATION COMPANY, Appellant, v. PASCOE BUILDING SYSTEMS, A DIVISION OF AMCORD, INC.; Del Con, Inc., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1094

91 F.3d 1094

30 UCC Rep.Serv.2d 411, Prod.Liab.Rep. (CCH) P 14,700

DAKOTA GASIFICATION COMPANY, Appellant, v. PASCOE BUILDING SYSTEMS, A DIVISION OF AMCORD, INC.; Del

Con, Inc., Appellees.

No. 95-2548.

United States Court of Appeals,

Eighth Circuit.

Submitted Dec. 15, 1995.

Decided Aug. 1, 1996.

Thomas G. Mattson, Minneapolis, MN, argued (David A. Engen and William L. Norine, on the brief), for appellant.

Mart Daniel Vogel, Fargo, ND, argued (C. Nicholas Vogel, on the brief), for appellee.

Before McMILLIAN and BEAM, Circuit Judges, and PERRY, ^* District Judge.

PERRY, District Judge.

Dakota Gasification Company ("Dakota") appeals from the district court's ¹ order granting summary judgment in favor of Pascoe Building Systems ("Pascoe"). The district court ruled that the economic loss doctrine prevented Dakota from availing itself of tort remedies when structural steel beams used in an oxygen plant provided on a "turnkey basis" failed. We affirm the district court's grant of summary judgment in favor of Pascoe.

I.

The facts involved in this case are substantially uncontested. In 1977, several pipeline companies formed the ANG Coal Gasification Company ("ANG"). ANG contracted with Kaiser Engineers, Inc., who in turn contracted with its wholly-owned subsidiary, Henry J. Kaiser Company ("Kaiser"), for construction of a federally guaranteed $2 billion synthetic natural gas production plant north of Beulah, North Dakota. The plant was to be one of the largest synthetic fuel plants in the world and the only one of its kind in the United States. The plans in part called for the construction of an air separation plant ("oxygen plant") to produce the oxygen which, along with coal and steam, was one of the raw materials used in the production of synthetic natural gas.

Kaiser subcontracted with Lotepro Corporation ("Lotepro") to provide the labor, material, and equipment needed to furnish ANG with a fully functioning oxygen plant on a turnkey basis. The oxygen plant was to produce the 3,100 tons of oxygen per day needed for the production of synthetic fuel. The contract, which had an effective date of April 29, 1981, provided that "Sub-Contractor hereby guarantees the Work against defects in material and workmanship ... for a period of one (1) year after the date of acceptance ..."

In the same agreement, Lotepro subcontracted with Del Con, Inc., ("Del Con") to furnish the pre-engineered metal building that would enclose the oxygen plant. On February 16, 1982, Del Con entered into a "proposal and contract" with appellee Pascoe Building Systems to supply the structural steel for the 130' X 325' X 60' building, and Del Con agreed to pay Pascoe $382,974 in return. Section 16 of the Del Con/Pascoe contract provides:

Seller warrants only that its products are free from defects in materials and workmanship on the date of shipment from its plant. Seller's obligation under thiswarranty shall be limited to repairing or replacing (but not dismantling or installing) such products which prove to be thus defective within one (1) year from the date of the original shipment by Seller and which Seller's examination shall disclose to be thus defective. Any products so repaired or replaced as provided herein shall be subject to warranty only for the remainder of the time applicable to the original warranty period.

....

THERE ARE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH EXTEND BEYOND THE DESCRIPTION ON THE FACE OF THIS AGREEMENT, INCLUDING ANY WARRANTIES OF MERCHANTABILITY, AND SELLER SHALL NOT BE RESPONSIBLE FOR ANY INDIRECT OR CONSEQUENTIAL DAMAGES (SUCH AS DAMAGES TO THE CONTENTS OR FURNISHINGS IN ANY BUILDINGS) OR ANY LOSS OF ANY KIND WHATSOEVER.

Pascoe shipped structural components such as steel rafters, columns, and purlins to the plant site during the summer of 1982. During the construction process Kaiser and others conducted weld inspections and discovered defective welds on some of the Pascoe materials. After negotiations among the various parties, Pascoe welded hundreds of steel plates over various deficient welds at its own expense to correct the problem. Final inspection of the weld repairs was completed in March of 1983. The oxygen plant was tested in 1984. On June 5, 1985, after Kaiser inspected the plant on behalf of ANG and agreed that it met the specifications of the contract, Lotepro received a certificate of completion and acceptance from Kaiser. The Lotepro warranty expired one year later.

In 1986, after ANG defaulted on construction loans guaranteed by the U.S. Government, the Department of Energy foreclosed and took possession of the entire synthetic fuel plant. In an October 7, 1988, asset purchase agreement, the government sold the $3 billion plant to Dakota Gasification for less than $100 million and an agreement that Dakota would give up a certain percentage of the plant's profits. Dakota's contract to purchase the plant stated that the plant assets were being purchased " 'AS IS, WHERE IS,' WITHOUT WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT WARRANTY AGAINST INFRINGEMENT, WARRANTY OF MERCHANTABILITY AND WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE."

On January 12, 1991, more than eight years after Pascoe had supplied its materials for construction of the oxygen plant, a part of the oxygen plant's roof collapsed under the weight of ice and snow, causing damage to various items within the plant. Although the collapse caused significant damage to property, it did not cause any personal injuries. The district court assumed that the collapse was caused by a faulty weld; the parties agree that this weld was not discovered during the 1983 repair of defective welds.

On July 22, 1992, Dakota and its insurance company, Industrial Risk Insurers ("IRI"), filed a complaint against Lotepro, Pascoe, Kaiser, Del Con, and others in the United States District Court for the District of North Dakota alleging negligence, strict liability, breaches of express and implied warranty, and parent and successor corporation liability. On May 17, 1995, the district court entered summary judgment against Dakota on all its claims. Dakota has settled its claims against Lotepro and is currently pursuing claims solely against Pascoe.

II.

We review the entry of summary judgment de novo under the same standard that governed the district court's decision. Lenhardt v. Basic Inst. of Technology, Inc., 55 F.3d 377, 379 (8th Cir.1995). The judgment will be affirmed if the record shows that there is no genuine issue of material fact and that the prevailing party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Maitland v. University of Minnesota, 43 F.3d 357, 360 (8th Cir.1994).

The district court held that the "economic loss doctrine" barred any tort claims, because the only physical damage was to the product itself and because Dakota, as the owner, was limited to its bargained-for warranty remedy. Although appellant agrees that North Dakota law recognizes the economic loss doctrine, it argues that the North Dakota courts would not apply that doctrine in the instant case, because the contract here did not involve a "sale of goods" and because "other property" was damaged by the defective Pascoe product.

We must apply the law of North Dakota to this case. Although the North Dakota Supreme Court adopted the economic loss doctrine in Cooperative Power Association v. Westinghouse Electric Corporation, 493 N.W.2d 661 (N.D.1992), it has not answered the precise questions raised here. The job of a federal court in such a situation is, of course, to attempt to ascertain how the state court would decide the issue. We review such determinations by the trial court de novo. See Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 1220-21, 113 L.Ed.2d 190 (1991).

A.

Dakota first argues that no sale of goods under the Uniform Commercial Code was involved here, and that therefore the economic-loss doctrine cannot apply. The Uniform Commercial Code states that " '[g]oods' means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale...." N.D. Cent.Code § 41-02-05(2) (1995); see also Robertson Cos., Inc. v. Kenner, 311 N.W.2d 194, 200 (N.D.1981). The structural components provided by Pascoe--steel columns, purlins, and rafters--constitute goods under the UCC, and the contract's repeated reference to the structural steel components as "products" supports this finding. See Environmental Elements Corp. v. Mayer Pollock Steel Corp., 497 F.Supp. 58, 63 (D.Md.1980) (treating fabricated columns as goods for purposes of the UCC); Robertson, 311 N.W.2d at 194 (holding that the term "goods" should be construed broadly so as to carry out the underlying purpose of the UCC).

Dakota contends that Pascoe's subsequent weld repairs constituted a contract for services, and that its claim that Pascoe was negligent in performing these services is not governed by the UCC. Section 16 of the Del Con/Pascoe contract states that "Seller's obligation under this warranty shall be limited to repairing or replacing ... such products which prove to be ... defective within one (1) year from the date of the original shipment by Seller...." Following discovery of the defective welds, Pascoe and the other parties established a protocol concerning the necessary repairs, and Pascoe completed the repairs at its own cost and in accordance with the preexisting contract. There was no separate contract for services.

The Supreme Court of North Dakota has held that,

[i]n contracts involving both a sale of goods and a rendition of services, if the predominant factor, the thrust, the purpose reasonably stated is the sale of the goods with the rendition of services incidentally involved, the contract is for a sale of goods and the Uniform Commercial Code is applicable....

Robertson, 311 N.W.2d at 199; see also Air Heaters, Inc. v. Johnson Elec., Inc., 258 N.W.2d 649, 652 (N.D...