Des Moines Flying Serv., Inc. v. Aerial Servs. Inc.

• Decision Date: 03 June 2016
• Docket Number: No. 14–0632.,14–0632.
• Parties: DES MOINES FLYING SERVICE, INC., Appellee, v. AERIAL SERVICES INC.; Cedar Valley Aviation, LLC; and Kirk P. Fisher, Appellants.
• Court: Iowa Supreme Court

880 N.W.2d 212

DES MOINES FLYING SERVICE, INC., Appellee,

v.AERIAL SERVICES INC.; Cedar Valley Aviation, LLC; and Kirk P. Fisher, Appellants.

No. 14–0632.

Supreme Court of Iowa.

June 3, 2016.

John R. Walker Jr. and Kate B. Mitchell of Beecher, Field, Walker, Morris, Hoffman & Johnson, P.C., Waterloo, for appellants.

Steven V. Lawyer of Law Firm of Steven V. Lawyer & Associates, P.L.C., West Des Moines, for appellee.

CADY

, Chief Justice.

In this appeal, an aviation company challenges the application of a statutory immunity provision to its claim of a breach of the implied warranty of merchantability found in the Uniform Commercial Code (UCC) arising from an alleged defect in product design or manufacturing. On our review, we must determine whether the immunity provision only applies in tort cases or if it also applies to contracts. We hold the statutory immunity only applies in products liability cases involving personal injury or property damage, not in cases based solely on economic loss. On our review, we affirm in part and reverse in part the court of appeals, reverse the district court judgment, and remand.

I. Factual Background and Proceedings.

On February 20, 2009, Cedar Valley Aviation, a wholly owned subsidiary of Aerial Services, Inc. (ASI), brought a Piper 522AS (Cheyenne II) in for maintenance to Des Moines Flying Service, Inc. (DMFS). Among numerous other checks and repairs, DMFS noted both the pilot's and copilot's windshields were “delaminated” and installed new windshields. The replaced windshields were original to the aircraft, thirty-three years old. The new windshields cost $19,323.63 each with an additional $6300 charge for labor. The entire bill, dated August 31, 2009, included many other services and totaled $69,655.58. No warranties or disclaimers were contained on the invoice.

Replacement windshields in aircraft are limited to the part number in the original type design or one approved under a Parts Manufacturing Authorization. The windshields DMFS installed were the part specified by the manufacturer, Piper Aircraft, Inc. (Piper), and manufactured by PPG (Pittsburgh Plate Glass) Industries, Inc. No other windshield was approved for installation under a Parts Manufacturing Authorization.

DMFS is an authorized dealer for Piper parts. Piper provided a limited warranty on parts.¹ The warranty extended for six months after purchase of the part, not to exceed twenty-four months from when the part shipped from the Piper Factory. According to the dealer agreement between DMFS and Piper, DMFS was required to ask each customer to read and acknowledge in writing the warranty policies for the parts provided.

DMFS purchased the windshields from Piper. Piper had inspected the windshields to confirm they met with design specifications prior to sale. DMFS did not provide ASI with a copy of Piper's written warranty or otherwise inform ASI of the limited time period covered by the warranty for any of the parts installed. DMFS installed the windshields sometime between February 20 and August 30, 2009, resulting in February 28, 2010, as the last possible date for Piper's warranty coverage.

On June 24, 2010, ASI was making a routine photography flight at 24,000 feet when the copilot's windshield cracked without impact from another object. The pilot performed an emergency descent and proceeded to Des Moines for inspection and repair. The crack occurred a few days shy of ten months after the new windshield was installed and the plane had been returned to ASI. ASI submitted an affidavit from an expert stating that the average life of the windshield should be “ten (10) or twenty (20) years absent improper installation, a product defect, or an impact with a foreign object.” No person or property (other than the windshield) was harmed by the crack in the windshield.² Only economic losses resulted—the cost of the windshield repair and the cost to hire another aviation company to complete contracted work during the repairs.

On June 29, 2010, DMFS replaced the cracked copilot's windshield, returned the aircraft, and invoiced ASI on June 30. The invoice total for the part, labor, and adhesive used to install the part came to a total of $23,046.08. Of that total, $19,323.63 was the cost of the replacement windshield. Trident Engineering Associates examined the broken windshield to determine the cause of the crack. The firm made three findings:

1. the primary crack in the pilot's windshield from N522AS originated at a point on the ground edge of the exterior glass lamination;

2. the point of origin was most probably a grinding mark which raised the local stress on the edge of the outer glass ply and initiated cracking; and,

3. there is no evidence of impact by a foreign object.

ASI refused to pay the June 30 bill from DMFS. On October 22, DMFS brought suit against ASI in Polk County for breach of contract (for failure to pay the invoice) and fraudulent misrepresentation (for assurances of future payment made to get DMFS to release the aircraft and give up its artisan lien). On January 24, 2011, a change of venue was granted moving the case to Black Hawk County. Upon transfer, ASI raised affirmative defenses regarding negligent inspection and installation and defective product. ASI also counterclaimed against DMFS for product defect, negligence for failure to inspect, negligent installation, res ipsa loquitur, breach of warranty of implied merchantability, breach of implied warranty of fitness for a particular purpose for the windshield, and breach of implied warranty of fitness for a particular purpose for the services installing the windshield.

On November 9, ASI filed a cross-claim against Piper, alleging product defect, negligent inspection, and breach of implied warranty of merchantability. On July 13, 2012, Piper moved for summary judgment, claiming the economic loss doctrine barred recovery of economic damages against Piper, citing Iowa Code section 554.2318 (2009)

(limiting third-party warranty recovery to one “who is injured by breach of the warranty”). In a reply to the resistance to summary judgment, Piper asserted for the first time it was immune from suit under Iowa Code section 613.18. On December 4, the district court found ASI was not in privity with Piper and granted Piper's motion for summary judgment, as the third-party plaintiffs could not recover indirect economic losses from Piper.

On December 19, DMFS filed a motion for summary judgment on all of ASI's counterclaims and partial summary judgment on the original claims. DMFS also argued the economic loss doctrine, lack of control for the res ipsa loquitur claim, immunity under section 613.18

, a failure to establish elements for the implied warranty of fitness for particular purpose, and that delivery of the aircraft to DMFS for repair created an implied contract under which no party had alleged DMFS's performance was defective. ASI conceded the economic loss doctrine barred the product defect, negligence, and res ipsa loquitur claims. However, ASI alleged that the grinding mark was not the sole cause of the damage to the windshield and the installation process may have been part of the cause of the crack.³ ASI further contested the implied warranty of fitness and the contract claim. ASI argued the costs of the replacement windshield and installation are equitable benefits owed to ASI for the sale and installation of an unmerchantable windshield.

On February 7, 2013, the district court granted summary judgment in favor of DMFS on the tort claims based on the economic loss doctrine. As to the implied warranty of merchantability, the district court found ASI did not set forth facts under which the crack arose from anything other than a product defect and barred the claim under Iowa Code section 613.18

. The implied warranty of fitness for a particular purpose claims were denied because DMFS had no reason to know the windshield would not be put to anything other than ordinary use (ordinary use is a merchantability claim) and had no discretion in what windshield to install. The court denied DMFS summary judgment on its breach of contract claim, finding a genuine issue of material fact.

On May 6, DMFS filed another motion for summary judgment, this time on the affirmative defenses offered by ASI. As support, DMFS argued that the February 7 summary judgment ruling decided all the defenses. ASI resisted, but the court found in DMFS's favor on September 12. A bench trial was held on October 21 on the breach of contract issue after the fraudulent misrepresentation count was dismissed at the request of DMFS. The court found no evidence of any factor other than the grind mark causing the windshield crack and that the defect was concealed beneath a seal attached during manufacturing. The court held the defect in the windshield did not negate ASI's duty to pay for the replacement costs incurred in June 2010 and ordered ASI to pay the invoice plus interest.

ASI appealed the judgment, and DMFS cross-appealed the calculation of interest. We sent the case to the court of appeals. The court of appeals held that the UCC applied to the action, but that the claim was barred under section 613.18

immunity because the plain language of the statute had no limiting language excepting suits claiming economic loss based on contract law from its coverage. The court of appeals also recalculated the interest owed DMFS to a lower rate and remanded for entry of the award. DMFS does not appeal, and we do not address, the interest calculation. ASI applied for further review on the question of the applicability of section 613.18 immunity to economic losses under section 554.2314.

II. Scope of Review.

“We review the district court's summary judgment ruling to correct errors at law.” Vossoughi v. Polaschek, 859 N.W.2d 643, 649 (Iowa 2015)

. Our review is limited to determining whether the law was applied correctly or whether there is a genuine issue of material fact. Sanford v. Fillenwarth, 863 N.W.2d...