Hospira Inc. v. Alphagary Corp.

• Decision Date: 06 January 2009
• Docket Number: No. COA08-487.,COA08-487.
• Citation: 671 S.E.2d 7
• Parties: HOSPIRA INCORPORATED, Plaintiff, v. ALPHAGARY CORPORATION, Defendant.
• Court: North Carolina Court of Appeals

671 S.E.2d 7

HOSPIRA INCORPORATED, Plaintiff, v. ALPHAGARY CORPORATION, Defendant.

No. COA08-487.

Court of Appeals of North Carolina.

January 6, 2009.

Appeal by plaintiffs from orders entered 16 February 2006, 16 August 2007, and 9 November 2007 by Judge Albert Diaz in Superior Court, Mecklenburg County. Heard in the Court of Appeals 21 October 2008.

Reinhart Boerner Van Deuren S.C., by Allen C. Schlinsog, Jr. and Colleen E. Fielkow, Milwaukee, WI; Robinson, Bradshaw & Hinson, P.A., by R. Steven DeGeorge and Jonathan C. Krisko, Charlotte, for plaintiff-appellant.

McGuirewoods, LLP, by Bradley R. Kutrow and Brian Kahn, Charlotte, for defendant-appellee.

WYNN, Judge.

Plaintiff Hospira Incorporated¹ appeals from summary judgment granted in favor of Defendant AlphaGary Corporation on Hospira's claims for fraud, negligent misrepresentation, violations of the Unfair and Deceptive Trade Practices Act, and third party beneficiary breach of contract. Hospira also appeals from the 16 February 2006 order dismissing its negligence claim and from the 16 August 2007 order denying its motion to reinstate the negligence claim in light of Lord v. Customized Consulting Specialty, Inc., 182 N.C.App. 635, 643 S.E.2d 28, disc. review denied, 361 N.C. 694, 652 S.E.2d 647 (2007). We affirm summary judgment on the fraud, negligent misrepresentation, violations of the Unfair and Deceptive Trade Practices Act, and third party beneficiary breach of contract claims. However, we reverse the trial court's dismissal of Hospira's negligence claim.

Hospira manufactures medical devices known as sight chambers, which are small transparent tubes that attach to intravenous (IV) lines and allow the monitoring of fluids. Hospira sells sight chambers to healthcare providers as part of IV administration kits. To manufacture the sight chambers, Hospira uses a specially formulated polyvinyl chloride (PVC) compound known as Ashland Dry-Blend (ADB) or 50-0218. ADB is a "radiation grade" material, meaning that the resin can withstand sterilization by irradiation. Hospira converts the ADB into pellets in a process called "pelletizing" which involves heating the plastic powder ADB and extruding it into pellets for use in injection molding. The pellets are then used in molding the chambers.

Hospira previously formulated and pelletized ADB, and molded the sight chambers itself; however in 1999, Hospira began to contract with Moll Industries, Inc. to manufacture its sight chambers. In late 2001, Hospira retained AlphaGary to pelletize the ADB for use in the molding process. AlphaGary signed a specification letter, prepared by Hospira, for the production of ADB pellets, material number 75-1648. The letter included a continuing guarantee that the pellets be manufactured in accordance with Hospira's specifications. The letter did not address the specifications for pellets ordered by third party vendors.

In November 2001, Hospira again retained Moll to manufacture some of its sight chambers. However, Hospira did not supply the ADB pellets directly to Moll as it had done in previous orders; rather, Hospira instructed Moll to purchase the pellets from AlphaGary. But, instead of using ADB to make the pellets sold to Moll, AlphaGary used its own proprietary non-radiation grade PVC resin. Thereafter, Moll, using the pellets provided by AlphaGary, manufactured millions of sight chambers, which Hospira purchased and incorporated into its IV administration kits. Over time, Hospira learned that the chambers were becoming severely discolored after repeated sterilization. Upon discovering that the pellets Moll used to make the chambers were not "radiation grade" ADB, Hospira recalled, replaced, and destroyed the sight chambers and accompanying kits.

On 5 April 2005, Hospira brought an action against AlphaGary for fraud, negligent misrepresentation, negligence, estoppel, third party beneficiary breach of contract, and violation of the North Carolina Unfair and Deceptive Trade Practices Act. Hospira alleged that AlphaGary intentionally concealed its use of an "unapproved" compound substitute and made false and misleading statements to Moll and Hospira's management in an attempt to cover-up the switch. In response, AlphaGary moved to dismiss the action under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure. By order dated 16 February 2006, the trial court granted AlphaGary's motion regarding Hospira's claim for negligence and estoppel but denied its motion regarding the remaining four claims.

On 1 May 2007, AlphaGary moved for summary judgment on the remaining claims. The trial court granted summary judgment for Alphagary and denied Hospira's Rule 60(b)(6) motion to reinstate its negligence claim in light of Lord. Hospira appeals arguing that the trial court erred by (I) granting summary judgment in favor of AlphaGary and (II) failing to reinstate its negligence claim, originally dismissed as barred under the economic loss rule, in light of Lord.

I.

This Court reviews an appeal from summary judgment to determine "whether there is any genuine issue of material fact and whether the moving party is entitled to a judgment as a matter of law." Bruce-Terminix Co. v. Zurich Ins. Co., 130 N.C.App. 729, 733, 504 S.E.2d 574, 577 (1998) (citation omitted). Reviewing the evidence presented in the light most favorable to the non-moving party, summary judgment is appropriate when "(1) an essential element of the other party's claim or defense is non-existent; (2) the other party cannot produce evidence to support an essential element of its claim or defense; or (3) the other party cannot overcome an affirmative defense which would bar the claim." Caswell Realty Assocs. v. Andrews Co., 128 N.C.App. 716, 720, 496 S.E.2d 607, 610 (1998) (citation omitted).

In its appeal, Hospira argues that the trial court erred in granting summary judgment for AlphaGary on its claims of (A) fraud and negligent misrepresentation; (B) violation of the North Carolina Unfair and Deceptive Trade Practices Act, and (C) third party beneficiary breach of contract. We disagree.

A.

Hospira first argues that the trial court erred by granting summary judgment in favor of AlphaGary on its claims of fraud and negligent misrepresentation. To survive a motion for summary judgment on the charge of fraud, the record must show evidence of the following: "(1) false representation or concealment of a material fact, (2) reasonably calculated to deceive, (3) made with intent to deceive, (4) which does in fact deceive, and (5) resulting in damage to the injured party." Harrold v. Dowd, 149 N.C.App. 777, 782, 561 S.E.2d 914, 918 (2002) (citing Ragsdale v. Kennedy, 286 N.C. 130, 138-39, 209 S.E.2d 494, 500 (1974)). After careful review, we find no error.

Although the record reflects significant communications between AlphaGary and Moll, there is no evidence in the record that AlphaGary concealed or misrepresented to Hospira the composition of the pellets supplied to Moll or that AlphaGary acted with intent to deceive either party. An essential element of actionable fraud is that the false representation or concealment be made to the party acting thereon. See, e.g., Shreve v. Combs, 54 N.C.App. 18, 282 S.E.2d 568 (1981). The transaction and communications at issue here involved the sale of pellets from AlphaGary to Moll, not from AlphaGary to Hospira. Absent an agency or fiduciary relationship between Moll and Hospira, there are no grounds on which Hospira can maintain a claim based on allegations of direct false representation.

Nonetheless, Hospira argues that, based on the specification letter and continuing guarantee, AlphaGary agreed to follow certain specifications and that the agreement applied to all purchases of "75-1648" or ADB pellets, whether by Hospira or a third party vendor. However, the record reflects that the specification letter was binding only as to transactions between Hospira and AlphaGary. The specification letter includes nothing to indicate that the specifications were also intended to apply to transactions between AlphaGary and Moll. Accordingly, this argument is without merit.

Further, Hospira argues that AlphaGary's misrepresentations, conveyed through Moll, are actionable. Hospira relies on the Court's holding in Rowan County Bd. of Education v. U.S. Gypsum Co., 332 N.C. 1, 418 S.E.2d 648 (1992), in which a school district was found to have an actionable fraud claim against the defendant because the school district's architect relied on the false representations made by the defendant. However, in Rowan County, the architect to whom the misrepresentation was made was an agent of the plaintiff. The architect relied on the statements in the defendant's sales brochure, which claimed that the building material was "ideal for ceilings in schools" and failed to discuss the known health hazards associated with the use of asbestos. Id. at 17, 418 S.E.2d at 659. Later, having discovered that the insulation contained harmful asbestos and had to be removed, the school sued the manufacturer for fraud. Throughout the opinion in Rowan County, the issue of whether the school proved the element of reliance is framed in terms of whether the school or its agent relied on the defendant's misrepresentations in choosing the building materials. Specifically, the Court stated that the defendant's liability for fraud was based on the fact that "the agent of Rowan responsible for ordering ... installation" relied on the misrepresentations in the defendant's literature. Id. at 21, 418 S.E.2d at 661.

Here, there is no evidence to suggest that Moll acted as Hospira's agent in purchasing the compounds for pelletization from AlphaGary; in fact, Hospira denied that Moll was its agent. Still, Hospira points out that the decision in Rowan County does not explicitly define "agent" or analyze the degree of control the school district exercised over the architect. However, we believe that the context of the...