Cinnaminson Tp. Bd. of Educ. v. US Gypsum Co.

• Decision Date: 16 December 1982
• Docket Number: Civ. No. 80-1842.
• Citation: 552 F. Supp. 855
• Parties: CINNAMINSON TOWNSHIP BOARD OF EDUCATION, Plaintiff, v. U.S. GYPSUM CO., "X, Y, Z, Companies," fictitious names for presently unidentified entities more fully described hereinbelow, and "John Doe Companies," fictitious names for presently unidentified entities more fully described hereinbelow, Defendants.
• Court: U.S. District Court — District of New Jersey

552 F. Supp. 855

CINNAMINSON TOWNSHIP BOARD OF EDUCATION, Plaintiff, v. U.S. GYPSUM CO., "X, Y, Z, Companies," fictitious names for presently unidentified entities more fully described hereinbelow, and "John Doe Companies," fictitious names for presently unidentified entities more fully described hereinbelow, Defendants.

Civ. No. 80-1842.

United States District Court, D. New Jersey.

December 14, 1982.

As Amended December 16, 1982.

Michael J. Vassalotti, Brown, Connery, Kulp, Wille, Purnell & Greene, Camden, N.J., for plaintiff.

William F. Keating, Capehart & Scatchard, P.A., Moorestown, N.J., Richard P. Brown, Jr., George E. Liberman, John G. Rainey, Jr., Morgan, Lewis & Bockius, Philadelphia, Pa., for defendant U.S. Gypsum Co.

OPINION

ANNE E. THOMPSON, District Judge.

This matter comes before the court upon motion by defendant United States Gypsum Co. "USG" for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. The motion presents the court with both interesting and rather novel issues of the doctrine of strict liability in tort.

The suit arises out of the construction of four schools by the Cinnaminson Township Board of Education "Board" or "Township" from 1959 through 1964. Plaintiff filed this suit on May 14, 1980 against USG and other manufacturers of acoustical plaster containing asbestos used in the ceilings of the four schools.¹ Once plaintiff discovered that the asbestos in the ceilings posed a health hazard, it had to remove the ceiling plaster at a cost in excess of one million dollars. The Board seeks to recover the cost of removal and replacement under theories of strict liability in tort, breach of warranty and negligence. Plaintiff has also brought a claim for punitive damages.

Defendant USG contends that it is entitled to summary judgment because:

1) If presented with the issue today, the Supreme Court of New Jersey would allow tort recovery only in products liability actions alleging personal injury or property damage, and not merely economic loss;

2) Plaintiff's warranty claims are barred by the statute of limitations;

3) Plaintiff's economic loss tort claims are barred by the statute of limitations 4) All claims are barred by the ten year statute of repose for actions arising out of deficiencies in the design or construction of improvements to real property; and

5) Plaintiff may not recover punitive damages in an action for economic loss.

Economic Loss and Strict Liability in Tort

The Supreme Court of New Jersey has long been a leader in the development of the doctrine of strict liability in tort. See, e.g., Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69 (1960). In Santor v. A & M Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965), the plaintiff had purchased defective carpeting manufactured by the defendant and sold by the third-party retailer. The Supreme Court of New Jersey affirmed the trial court's determination that the defendant had breached an implied warranty of fitness even though there was no privity between the purchaser and the manufacturer. Id. at 63, 207 A.2d 305. Although it may be termed dicta, the court stated that it seemed "important to observe ... that the manufacturer's liability may be cast in simpler form." Id. Plaintiff also possessed a cause of action founded in principles of strict liability in tort. Since "the great mass of the purchasing public has neither adequate knowledge nor sufficient opportunity to determine if articles bought or used are defective," the court determined that the manufacturer should be the one to bear the costs of harm caused by the defects in the products which they market. Id. at 64-65, 207 A.2d 305. Thus, even where there was no personal injury or property damage as a result of the defect in the product, but merely what has been termed "economic loss," the court applied the doctrine of strict liability in tort.

Defendant USG has asserted that the Supreme Court of New Jersey would not follow this dicta if squarely presented with the issue today. USG is correct in its contention that most courts have rejected Santor when economic loss alone is at stake. It is also true that in Jones & Laughlin Steel Corp. v. Johns-Manville Sales Corp., 626 F.2d 280 (3d Cir.1980) and Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165 (3d Cir.1981), the court rejected application of the Santor holding in construing Illinois and Pennsylvania law respectively.

The court's task, however, is to construe New Jersey law. As the United States Court of Appeals for the Third Circuit has recently reiterated, "`a federal court must be sensitive to the doctrinal trends of the state whose law it applies, and the policies which inform the prior adjudications by the state courts.'" Bruffett v. Warner Communications, Inc., 692 F.2d 910 at 918 (3d Cir.1982) (quotation omitted). Although the court is not bound by dicta or by lower court decisions in making its prediction of how the state's highest court would rule, the court must look to these and other statements of the state supreme court as indicia of how that court would decide the case. Glass Sand, supra, at 1167.

The court is not confident that the Supreme Court of New Jersey would abandon the Santor doctrine in the face of contrary court decisions. "One of the authentic obligations of federalism at the judicial level requires that we permit the state courts to decide whether and to what extent they will follow the emerging law." Bruffett, supra, at 920.

The New Jersey courts have repeatedly cited Santor for the proposition that damages for economic loss may be recoverable under a strict liability in tort theory. See, e.g., Herbstman v. Eastman Kodak Co., 68 N.J. 1, 7, 342 A.2d 181 (1975); Heavner v. Uniroyal, Inc., 63 N.J. 130, 147, 152, 305 A.2d 412 (1973). Accord, ICI Australia Ltd. v. Elliott Overseas Co., 551 F.Supp. 265 at 268 (D.N.J.1982). In Ramirez v. Amsted Industries, Inc., 86 N.J. 332, 350, 431 A.2d 811 (1981), the court noted that "the progressive character of New Jersey decisional law in the area of strict products liability is well known ... Suffice it to say that this Court has long recognized the significance of the social policy of risk-spreading in establishing the manufacturer's duty to the product user under the rapidly expanding principles of strict liability in tort." The court then cited statements from the Santor decision which formed the basis of the oft-quoted dicta. Id. at 350-51, 431 A.2d 811. Given the policy considerations informing the court's opinion in Santor which will be discussed in more detail later in this opinion, as well as the repeated citations of Santor in subsequent decisions, the court cannot sustain the summary judgment motion on this basis.

Statute of Limitations for Santor Cause of Action

The issue is whether, given the facts alleged in this complaint, the statute of limitations set forth in the Uniform Commercial Code, N.J.S.A. 12A:2-725 applies, or whether the general statute of limitations found at N.J.S.A. 2A:14-1 applies. If the court determines that the general statute of limitations is appropriate, it must then determine whether or not the discovery rule should apply to the facts of this case.

Section 2-725 has a four-year statute of limitations and applies to an action for breach of contract of sale. The cause of action accrues at the date of delivery with certain exceptions not applicable to the case at bar. The six-year period of limitations contained in 2A:14-1 may be subject to the discovery rule. For the following reasons, the court holds that the six-year period of 2A:14-1 applies and that the discovery rule may be applicable to this case.

In Heavner, supra, the court held that in an action between a purchaser of a product and the party from whom he bought the product, the general statute of limitations rather than the UCC four-year period was appropriate when the action involved personal injury or property damage. 63 N.J. at 154, 157, 305 A.2d 412. In a footnote, the court stated that it does "not reach the question whether N.J.S.A. 12A:2-725 applies to actions merely for loss-of-the-bargain or economic damage in the commercial sense." Id. at 157 n. 16, 305 A.2d 512. Defendant USG contends that the Supreme Court of New Jersey would apply section 2-725 to this case. The court cannot agree.

First, it is not entirely clear to the court that this case involves an economic loss situation as opposed to an instance of property damage. In Glass Sand, "economic loss" was defined as "`the diminution in the value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold.'" 652 F.2d at 1169 (quotation omitted). The Third Circuit noted that, in accordance with the warranty law underlying contracts, items most frequently sought as damages for such unsuitable products include the reduction in value caused by the defect, costs of repair or replacement, and loss of profits. Id.

It is not easy to draw a fine line between property damage and economic loss. "The line that is drawn usually depends on the nature of the defect and the manner in which the damage occurred." Id. For example, "defects of quality, evidenced by internal deterioration or breakdown, are assigned to the economic loss category, while the loss stemming from defects that cause accidents `of violence or collision with external objects' is treated as physical injury," compensable under tort law. Id. at 1169-70 (quotation and footnote omitted).

A facial review of this case does not neatly place the action in either category, although it would appear to be more akin to an economic loss situation. The significance of the dichotomy between economic loss and property damage set forth in Glass Sand is undercut to some extent by the reliance by the Glass Sand court on Seely v. White Motor Co., 63 Cal.2d 9, 403 P.2d 145, 45 Cal.Rptr. 17 (1965). While Se...