Clarys v. Ford Motor Co.

• Decision Date: 27 April 1999
• Docket Number: No. 980337,980337
• Citation: Clarys v. Ford Motor Co., 592 N.W.2d 573, 1999 ND 72 (N.D. 1999)
• Parties: Prod.Liab.Rep. (CCH) P 15,510, 1999 ND 72 Joseph CLARYS, Plaintiff and Appellee, v. FORD MOTOR COMPANY, Defendant and Appellant.
• Court: North Dakota Supreme Court

Page 573

592 N.W.2d 573

Prod.Liab.Rep. (CCH) P 15,510, 1999 ND 72

Joseph CLARYS, Plaintiff and Appellee, v. FORD MOTOR COMPANY, Defendant and Appellant.

No. 980337.

Supreme Court of North Dakota.

April 27, 1999.

Marnell W. Ringsak, of Severin, Ringsak & Morrow, Bismarck, N.D., for plaintiff and appellee.

Jonathan P. Sanstead, of Pearce & Durick, Bismarck, N.D., moved for admission of John D. Sear (argued), Bowman and Brooke, LLP, Minneapolis, Minn., for defendant and appellant.

SANDSTROM, Justice.

¶1 Ford Motor Company appealed from an order denying its motion for summary judgment dismissal of Joseph Clarys's tort claims for damages incurred when Clarys's 1990 Ford Aerostar van ignited and burned in a parking lot. Ford also appealed from the judgment awarding Clarys $5,873.50 damages. We hold the economic loss rule applies to consumer purchasers. We, therefore, reverse the judgment and the order denying Ford's motion for summary judgment, and we remand for entry of judgment dismissing Clarys's tort claims against Ford.

I

¶2 In 1995, Clarys bought a 1990 Ford Aerostar van from the Car & Truck Connection, Inc., of Williston. The van had been driven 95,182 miles when Clarys purchased it. In September 1996, the van, while sitting unattended in a parking lot, was destroyed when it ignited and burned. The fire was caused by a defective ignition switch designed, manufactured, and installed by Ford. Clarys's insurer, National Farmers Union Insurance Company, paid Clarys for the fire damage to the van. It then brought a subrogation action, in Clarys's name, against Ford. The complaint alleged negligence, product liability, and breach of warranty.

¶3 Ford filed a motion for summary judgment dismissal of the case, alleging the negligence and product liability tort claims were precluded by the economic loss doctrine and the breach of warranty contract claim was barred by the statute of limitations. The trial court granted the motion for dismissal of the breach of warranty claim, concluding the statute of limitations had run. However, the trial court denied Ford's motion to dismiss the negligence and product liability claims, concluding the economic loss doctrine, which bars tort claims when the only damage is to the defective product, does not apply to consumers. Ford, reserving its right to appeal the trial court's ruling on the motion for summary judgment, entered a stipulation conceding liability and damages. The trial court entered judgment for Clarys, and Ford appealed.

¶4 The district court had jurisdiction under N.D. Const. art. VI, § 8, and N.D.C.C. § 27-05-06. The appeal was timely under N.D.R.App.P. 4(a). This Court has jurisdiction under N.D. Const. art VI, § 6, and N.D.C.C. § 28-27-01.

II

¶5 The sole issue raised by Ford on appeal is whether the trial court erred, as a matter of law, in denying the motion to dismiss Clarys's tort claims on the ground the economic loss doctrine does not apply to consumers. Summary judgment is a procedure for the prompt and expeditious disposition of a controversy without trial if either party is entitled to judgment as a matter of law, if no dispute exists as to either the material facts or the inferences to be drawn from undisputed facts, or if resolving factual disputes would not alter the result. Estate of Thompson, 1998 ND 226, p 6, 586 N.W.2d 847. On appeal, we determine whether a genuine issue of fact exists and whether the law was applied correctly. Martin v. Martin, 1997 ND 157, p 6, 568 N.W.2d 280. Questions of law are fully reviewable on appeal. Stanley v. Turtle Mountain Gas & Oil, Inc., 1997 ND 169, p 6, 567 N.W.2d 345.

A

¶6 This Court first applied the economic loss doctrine in Hagert Farms v. Hatton Commodities, Inc., 350 N.W.2d 591, 595 (N.D.1984). Hagert Farms purchased pinto bean seed from Hatton Commodities, Inc. The seed was contaminated, and consequently the bean plants were diseased and had to be destroyed. Hagert Farms sued Hatton Commodities, Inc., for damages, alleging negligence, breach of warranty, and strict liability in tort. The case presented this Court the first opportunity to consider whether damages for a defective product could be recovered under a theory of strict liability in tort. This Court held the economic loss resulting from the defective bean seed could be recovered under express or implied warranty principles under the Uniform Commercial Code, but not in a strict liability tort claim under Section 402A, Restatement (Second) of Torts. ¹ Id.

¶7 This Court revisited the issue of the economic loss doctrine in Cooperative Power Ass'n v. Westinghouse Elec. Corp., 493 N.W.2d 661 (N.D.1992). Cooperative Power Association (CPA) purchased a transformer from Westinghouse for use at its electrical generating station. An electrical arc within the transformer caused damages to it. CPA sued Westinghouse in federal court, alleging causes of action in contract and tort. The federal court certified to this Court the question whether a manufacturer of a product sold in a commercial transaction could be held liable in negligence or strict product liability for economic loss resulting from the failure of a component part of a product, resulting in damage only to the product itself. Relying upon the United States Supreme Court decision in East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 871, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986), this Court applied the economic loss doctrine, holding CPA could not sue in tort for damages occurring only to the defective product, where there was no damage to persons or other property. This Court explained the rationale underlying the economic loss doctrine:

Tort law imposes responsibility on manufacturers of defective products because they are best able to encourage safer manufacture and design and to allocate the costs of injury arising from unsafe products.

A contractual duty arises from society's interest in the performance of promises and has been traditionally concerned with the fulfillment of reasonable economic expectations. Society's need to spread losses is substantially lessened in commercial transactions where damage is to only the product itself, because those losses essentially relate to the benefit of the bargain between business entities. That loss is most frequently measured by the cost of repairs, the difference in the value of the product, or consequential damages attributable to the failure of the product to perform as expected. Those losses are based upon, and flow from, the purchaser's loss of the benefit of the contractual bargain and are the type for which a warranty action provides redress.

Cooperative Power, 493 N.W.2d at 664 (citations omitted). This Court recognized society's interest in safe products is adequately protected by allowing tort recovery when a defective product causes injury to persons or other property:

Although society has a strong interest in safe products, the rules of negligence and strict liability for damage to property other than the product itself and for personal injury adequately protect that interest and provide manufacturers with incentive to produce safe products.

Cooperative Power, 493 N.W.2d at 665.

¶8 Our decisions in Hagert and Cooperative Power involved commercial purchases by businesses, not consumers. In this case, we consider for the first time whether the economic loss doctrine should be applied to consumers.

B

¶9 Most courts, like North Dakota, have adopted the economic loss doctrine and bar actions in tort when the only damage alleged is to the product itself. See Annot., Strict Products Liability: Recovery for Damage to Product Alone, 72 A.L.R.4th 12 (1989). The majority of courts which have adopted the economic loss doctrine have applied it to both consumers and business purchasers. See, e.g., State Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 572 N.W.2d 321, 325 (Minn.App.1997), and the cases it cites ("[o]ur conclusion that the economic loss doctrine applies to consumers as well as businesses in an action for loss of the product itself is consistent with opinions from foreign jurisdictions" ); Alloway v. General Marine Industries, 149 N.J. 620, 695 A.2d 264, 270 (1997), and the cases it cites ("[t]he vast majority of courts across the country likewise have concluded that purchasers of personal property, whether commercial entities or consumers, should be limited to recovery under contract principles").

¶10 The separate and distinct functions served by tort and contract law, upon which the economic loss doctrine is based, apply equally to consumer and business purchasers of defective products. In refusing to exempt consumer purchasers of homes from the economic loss doctrine, the Delaware Supreme Court in Danforth v. Acorn Structures, Inc., 608 A.2d 1194, 1200-01 (Del.Supr.1992), explained contract remedies under the Uniform Commercial Code provide adequate recourse for both consumer and business purchasers of defective goods:

[W]e are unable to accept Danforth's contention that Delaware should recognize an exception to the economic loss doctrine by allowing individual consumers, as distinguished from commercial buyers, to recover for economic loss based upon the alleged inherently unequal bargaining power between individual consumers and commercial sellers. Such a rule would defeat the legislative intent of the General Assembly in enacting Article 2 of the Uniform Commercial Code ... as the complete framework of the rights and remedies available to parties to a sale of goods contract. Article 2 confers broad standing to raise warranty claims for economic loss on product users in privity of contract with the commercial seller and on product users who qualify as third-party beneficiaries ... Therefore, we see no reason to extend tort law into an area adequately governed by warranty law.

(citations omitted).

¶11 In accord is the decision of the Supreme Court of New Jersey in Alloway, 695 A.2d at 268-69, which...