Bennett v. Ford Motor Co.

• Decision Date: 07 November 2002
• Docket Number: No. CIV.A.9:02-2201-08.,CIV.A.9:02-2201-08.
• Citation: 236 F.Supp.2d 558
• Parties: Hal B. BENNETT, individually and on behalf of all others similarly situated, Plaintiff, v. FORD MOTOR COMPANY, Defendant.
• Court: U.S. District Court — District of South Carolina

236 F.Supp.2d 558

Hal B. BENNETT, individually and on behalf of all others similarly situated, Plaintiff, v. FORD MOTOR COMPANY, Defendant.

No. CIV.A.9:02-2201-08.

United States District Court, D. South Carolina, Beaufort Division.

November 7, 2002.

Jack D. Simrill, Hilton Heal Island, SC, for plaintiff.

Kelly J. Riordan, O'Melveny and Myers LLP, Washington, DC, Deirdre Michelle Shelton-MCCool, Nelson Mullins Riley and Scarborough, Charleston, SC, Joel Haywood Smith, Nelson Mullins Riley and Scarborough, Columbia, SC, for defendant.

ORDER

BLATT, Senior District Judge.

INTRODUCTION

The Plaintiff's cause of action alleges generally that all 1993 Ford Thunderbird automobiles contain a defective engine gasket. The Defendant removed the action to this Court on both federal question and diversity of citizenship grounds, and simultaneously moved to dismiss. The Plaintiff filed a motion to remand. This Court held a hearing by telephone on September 5, 2002, at which the Court found that the Plaintiff had alleged a federal cause of action for negligent failure to recall, and ordered subsequent briefing on the motion to dismiss. A written order memorializing this hearing was entered on September 6, 2002.

This matter came before the Court on October 31, 2002, for a second telephone hearing on the Plaintiff's motion to reconsider the order of September 6, and on the Defendant's supplemented motion to dismiss the amended complaint. For the reasons stated at the hearing and clarified below, the motion to reconsider is denied, the "negligent failure to recall" cause of action is dismissed, and this Court, having dismissed the only federal question cause of action and having rejected the Defendant's arguments for original jurisdiction based upon diversity of citizenship, declines to exercise its supplemental jurisdiction over the remaining negligent design, negligent failure to disclose defects and breach of implied warranty causes of action.

DISCUSSION

The "Economic Loss" Rule

The Court takes this opportunity to clarify and expand upon its decision not to exercise supplemental jurisdiction over the remaining state law causes of action. The central focus of the remaining negligence claims is that the "economic loss" rule bars any tort recovery.

The rule states that an action will not lie in tort for a product defect without a claim of injury to the person or other property of the plaintiff. If the only damage is diminution in the value of the product itself, the plaintiff's remedy lies in contract, whether the loss results from inferior quality of the product, its unfitness for an intended use, its deterioration, or its destruction by reason of the defect.

See Carolina Winds v. Joe Harden Builder, 297 S.C. 74, 374 S.E.2d 897, 901 (S.C.App.1988) (giving the general rule), overruled by Kennedy v. Columbia Lumber & Mfg. Co., 299 S.C. 335, 384 S.E.2d 730, 736-37 (1989). As noted at hearing, over the years its scope has been eroded in several areas. The Plaintiff here has argued that the economic loss rule is not applicable in this particular factual situation. After much debate and research, it is this Court's considered opinion that it is not in a position to offer an expansion of the existing law, as the Plaintiff asserts in this case, but rather that this is a matter better left to the state courts.

The Fourth Circuit first explored the economic loss rule (without naming it as such) under South Carolina statutory law and the Restatement (Second) of Torts § 402A in a series of cases in the mid-1980s. In Purvis v. Consolidated Energy Prods. Co., 674 F.2d 217, 222-23 (4th Cir. 1982), the court reasoned that "[w]hen a loss results from mere product ineffectiveness, it is the law of contracts and commercial transactions, rather than strict products liability, which fixes responsibility for the loss" (citations omitted). In 2000 Watermark Assn. v. Celotex Corp., 784 F.2d 1183, 1187 (4th Cir.1986), the court found that South Carolina case law (namely Gray v. Southern Facilities, Inc., 256 S.C. 558, 183 S.E.2d 438 (S.C.1971)) supported a holding that "a negligence action cannot be maintained for an intangible economic loss." The United States Supreme Court, applying federal admiralty law, gave great support to the general rule in East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986), when it found that "a manufacturer in a commercial relationship has no duty under either a negligence or a strict products-liability theory to prevent a product from injuring itself." Finding the Supreme Court's holding in East River "persuasive," the Fourth Circuit later found that "tort principles were simply inapplicable" to claims "simply of economic loss caused by the product's self-destruction." Laurens Elec. Co-Op v. Altec Indus., 889 F.2d 1323, 1325-26 (4th Cir.1989).

However, the Fourth Circuit shortly distinguished the general rule in Greenville v. W.R. Grace & Co., 827 F.2d 975, 977-84 (4th Cir.1987), holding, after lengthy discussion, that the installation of Monokote, a fireproofing product containing asbestos fibers, "endanger[s] the lives and health of the building's occupants." Id. at 978. "We think that the South Carolina courts would be willing to extend tort liability to the manufacturer whose product threatens a substantial and unreasonable risk of harm by releasing toxic substances into the environment, thereby causing damage to the property owner who has installed the harmful product in his building." Id.

The first South Carolina state court exception to the economic loss rule came with the Kennedy decision in 1989, in which the South Carolina Supreme Court reversed a Court of Appeals decision regarding the scope of the rule. In Kennedy, the court recognized that "a violation of a building code violates a legal duty for which a builder can be held liable in tort for proximately-caused damages," and that there is a "legal duty" on builders "to undertake construction commensurate with industry standards." 384 S.E.2d at 737. Based on these non-contractual duties, the court concluded that "any builder who violates such a duty should justly be held accountable for the losses that his breach caused, whether they be physical harm or the diminution of the value of the house." Id.

The South Carolina Supreme Court noted its "difficulty" with the economic loss rule in Kershaw Cty. Bd. of Educ. v. U.S. Gypsum, 302 S.C. 390, 396 S.E.2d 369 (1990), but did not need to further discuss the rule as the plaintiffs had alleged damage to "other property." Shortly thereafter, the court extended the Kennedy decision to include tort claims against architects in Beachwalk Villas v. Martin, 305 S.C. 144, 406 S.E.2d 372, 374 (1991). The court noted that the Kennedy decision limited the economic loss rule to "those cases where duties are created solely by contract." Id. n. 1. "Thus, a cause of action in negligence would be available where a builder has violated a legal duty, no matter the type of resulting damage." Id. n. 1. The court eventually concluded that expansion of this exception to include architects "is a logical expansion of our law to provide protection for homebuyers." Id. at 474, 384 S.E.2d 730.

This Court (Columbia Division) undertook a lengthy analysis of the economic loss rule in Myrtle Beach Pipeline Corp. v. Emerson Elec. Co., 843 F.Supp. 1027, 1048-55 (D.S.C.1993). Noting that prior cases involving the economic loss rule pertained to "sophisticated parties to a commercial transaction" who have "negotiated a contract," the court found no tort liability for specially-made commercial products which turned out to be defective, causing a large fuel leak and subsequent clean-up. Id. at 1053-54. The court reasoned that principles of contract law applied to such a situation, and that "if Myrtle Beach could bring its tort action the Uniform Commercial Code would be totally eviscerated, and the action of the General Assembly of South Carolina in enacting it would be rendered nugatory." Id. at 1054-55.

This same year, the Court (Charleston Division) held in SCE & G v. Westinghouse Elec. Co., 826 F.Supp. 1549, 1555-57 (D.S.C.1993), that potential (but not actual) radioactive leakage from a faulty power plant was not sufficient to excuse the economic loss rule, distinguishing the Greenville decision of 1987. The court dismissed the plaintiffs' negligent design and manufacture causes of action, "which can be remedied in contract." Id. at 1556. The court also dismissed the negligent misrepresentation cause of action under the economic loss doctrine. Id. at 1557. The Westinghouse Elec. decision was cited by the Eastern District of Louisiana to bar recovery from Ford Motor Co. for alleged latent defects in automobile paint, of which Ford allegedly knew and concealed. See In re Ford Motor Co. Vehicle Paint Litig., 1996 WL 426548, at *2-3 (E.D.La. July 30, 1996). The Ford Motor Co. court, however, refused to dismiss the plaintiffs' allegations of fraud, "in the absence of authority requiring the application of the economic loss rule" in such a situation. Id. at *9.

The reasoning in Kennedy was further expanded to include "design professionals" such as engineers in Tommy L. Griffin Plumbing & Heating v. Jordan, Jones & Goulding, Inc., 320 S.C. 49, 463 S.E.2d 85, 87-88 (1995). The court recognized, citing a number of cases nationwide, that "[i]n the last few years, a growing number of states have refused to apply the `economic loss' rule to actions against design professionals when there is a `special relationship' between the design professional and the contractor." Id. at 87. The question, thus, is not whether the damages are physical or economic. Rather the question of whether the plaintiff may maintain a tort action for purely economic loss turns on the determination of the source of the duty plaintiff claims the defendant owed. Id. at 88. "In most instances, a negligence...