Arena Holdings Charitable, LLC v. Harman Prof'l, Inc.

• Decision Date: 07 May 2015
• Docket Number: No. 14–1853.,14–1853.
• Citation: 785 F.3d 292
• Parties: ARENA HOLDINGS CHARITABLE, LLC, a Delaware limited liability company; RE Arena, Inc., a Nevada foreign corporation, Plaintiffs–Appellants v. HARMAN PROFESSIONAL, INC., Third Party Plaintiff–Appellee v. Impulse Group, Inc.; Impulse Group LLC; HB Sound & Light, Inc., Third Party Defendants. ON Semiconductor Corporation, Third Party Defendant–Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

785 F.3d 292

ARENA HOLDINGS CHARITABLE, LLC, a Delaware limited liability company; RE Arena, Inc., a Nevada foreign corporation, Plaintiffs–Appellants
v.
HARMAN PROFESSIONAL, INC., Third Party Plaintiff–Appellee
v.
Impulse Group, Inc.; Impulse Group LLC; HB Sound & Light, Inc., Third Party Defendants.

ON Semiconductor Corporation, Third Party Defendant–Appellee.

No. 14–1853.

United States Court of Appeals, Eighth Circuit.

Submitted: Nov. 12, 2014.
Filed: May 7, 2015.

785 F.3d 292

Brad Breslau, argued (Richard Rardin, on the brief), Denver, CO, for Appellant.

Randall J. Bakke, argued (Bradley Neuman Wiederholt, on the brief), Bismarck, ND, for Appellee.

Before RILEY, Chief Judge, BEAM and GRUENDER, Circuit Judges.

Opinion

BEAM, Circuit Judge.

Arena Holdings Charitable, LLC, and RE Arena, Inc. (“Arena Holdings”) appeal the district court's¹ grant of summary

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judgment in favor of Harman Professional in this tort claim arising out of a fire that occurred at the Ralph Engelstad Arena in Grand Forks, North Dakota. We affirm.

I. BACKGROUND

The facts involved in this case as described by the district court are uncontested on appeal. This matter arises from a fire that occurred at the Ralph Engelstad Arena on July 3, 2011. Arena Holdings alleges the fire started when a Crown Macro–Tech 5002VZ amplifier produced a direct current to a speaker that spread to adjoining speakers located in the catwalk area of the Engelstad Arena. Harman Professional is the manufacturer of the alleged defective amplifier, and Impulse Group installed the sound reinforcement system at the Engelstad Arena when it was originally built, and so installed the amplifier as well.

The fire caused approximately $5 million of damage throughout the Engelstad Arena, including damage to the building and fixtures, as well as damage to personal property. The fire directly damaged the arena structure and equipment in the vicinity of the amplifier and speakers. The presence of smoke and soot throughout the Engelstad Arena after the fire caused additional damage. Arena Holdings initiated this action against Harman alleging negligence, strict liability and post-sale failure-to-warn claims. Harman then filed a third-party complaint against Impulse Group, and others. The district court granted Harman's motion for summary judgment, finding that the economic loss doctrine precluded Arena Holdings from recovering tort damages.

II. DISCUSSION

We review the district court's grant of summary judgment de novo. Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir.2011). Summary judgment is proper “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Id. (quotation omitted).

A. Economic Loss Doctrine

Under the economic loss doctrine in North Dakota, economic loss resulting from damage to a defective product, as distinguished from damage to persons or other property, may be recovered in a cause of action sounding in contract, but not in tort. Leno v. K & L Homes, Inc., 803 N.W.2d 543, 550 (N.D.2011). “The economic loss doctrine distinguishes between bargain expectation interests, which are protected under contract law, and safety interests, which are protected under tort law.” Steiner v. Ford Motor Co., 606 N.W.2d 881, 885 (N.D.2000). North Dakota has yet to directly rule on the issue presented here—whether, or to what extent, redress can be sought in tort where there is injury not only to the defective product but also to other property.

In 1996, this circuit had occasion to predict how North Dakota would analyze this very subject in Dakota Gasification Co. v. Pascoe Building Systems and held that the North Dakota Supreme Court would likely conclude “that the economic loss doctrine extends to preclude liability in tort for physical damage to other nearby property of commercial purchasers who could foresee such risks at the time of purchase.” 91 F.3d 1094, 1101 (8th Cir.1996). The facts and circumstances of Dakota Gasification as they relate to the contracting parties in this case are nearly identical.

In Dakota Gasification, the predecessor to the owner of a large coal gasification plant contracted for the construction of a

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federally guaranteed $2 billion synthetic natural gas production plant, which was to be “one of the largest synthetic fuel plants in the world and the only one of its kind in the United States.” Id. at 1096. In part, the plans called for the construction of an oxygen plant, which was to be housed in a separate steel building but still within the larger plant.Id. Down a chain of subcontractors involved in the overall project, none of whom directly contracted with the Dakota Gasification plaintiff, one subcontractor that was to furnish the pre-engineered metal building that would enclose the oxygen plant contracted with Defendant Pascoe Building Systems who furnished the structural steel for the building. Id.

During the construction process in Dakota Gasification, several defective welds were discovered on some of the Pascoe materials and Pascoe repaired them. Id. The building was ultimately accepted after construction was completed. Id. However, eight years later, the roof of the building collapsed, causing damage to the steel building as well as parts of the oxygen plant contained within. Id. at 1097. The owner of the gasification plant sued Pascoe, among others, seeking to recover damages. Id. On appeal of an adverse summary judgment ruling in favor of Pascoe, the Eighth Circuit predicted that North Dakota would take the “modern,” foreseeability approach to the economic loss doctrine. Id. at 1100–01. Applying this approach, this court held that because damage to the other property in the physical proximity of the oxygen plant was foreseeable and within the contemplation of the parties when the oxygen plant was built, the economic loss doctrine precluded recovery. Id. at 1101.

Arena Holdings contends that Dakota Gasification missed the mark, pointing to a Supreme Court decision in 1997, see Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875, 117 S.Ct. 1783, 138 L.Ed.2d 76 (1997), as well as the Restatement (Third) of Torts: Products Liability § 21, which both take a different approach to the economic loss doctrine. Arena Holdings essentially urges this court to define a more bright line rule—that physical damage to anything other than the product itself would be considered damage to “other property” and therefore subject to suit in tort. This, they argue, is more in line with the Supreme Court's articulation in Saratoga Fishing and is most likely the avenue North Dakota would travel.

In Saratoga Fishing, the Court addressed the limits on the damages that a tort plaintiff can recover for physical damage to property caused by a defective product. 520 U.S. at 876, 117 S.Ct. 1783. The admiralty case involved a defectively designed hydraulic system in a fishing vessel, and the specific issue was whether equipment that had been added on by the boat's initial owner after its purchase from the manufacturer was “other property” such that its loss could be recovered in tort. Id. at 877–78, 117 S.Ct. 1783. The ship itself constituted the original property. Id. at 877, 117 S.Ct. 1783. Applying and building upon its previous decision in East River S.S. Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986), the Court determined that equipment added to a product after manufacture is not part of the original property, and in fact is “other property,” and compensation for damage to this other property can be recovered in tort. Id. at 879, 881, 106 S.Ct. 2295.

Arena Holdings also alleges that the most recent version of the Restatement of Torts adopts the Saratoga Fishing approach as to whether damages to “other property” due to a defective product can be recovered in tort.

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Restatement (Third) of Torts: Products Liability Ch. 4, Topic 3, § 21 cmt. e (“A defective product that causes harm to property other than the defective product itself is governed by the rules of this Restatement. What constitutes harm to other property rather than harm to the product itself may be difficult to determine.”). According to Arena Holdings, the Court's position in Saratoga Fishing (bolstered by the Restatement) provides a reason for us to distance ourselves from the Dakota Gasification decision. At bottom, though, Saratoga Fishing is inapposite in the instant analysis primarily because it does not construe North Dakota law, as we are bound to do, but rather was an admiralty case and thus does not address the heart of the matter we now face.

The North Dakota Supreme Court has rarely spoken of the economic loss doctrine subsequent to Dakota Gasification, and as relevant to the specific question before us today, has only done so in dicta. Arena Holdings cites this dicta, however, in support of its position on appeal. In Clarys v. Ford Motor Co., 592...