Isla Nena Air Servs. v. Cessna Aircraft Co., 05-2501.

• Decision Date: 31 May 2006
• Docket Number: No. 05-2501.,05-2501.
• Citation: 449 F.3d 85
• Parties: ISLA NENA AIR SERVICES, INC.; San Juan Jet Charter, Inc., Plaintiffs, Appellants, v. CESSNA AIRCRAFT COMPANY; Pratt & Whitney Canada Corp., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

449 F.3d 85

ISLA NENA AIR SERVICES, INC.; San Juan Jet Charter, Inc., Plaintiffs, Appellants, v. CESSNA AIRCRAFT COMPANY; Pratt & Whitney Canada Corp., Defendants, Appellees.

No. 05-2501.

United States Court of Appeals, First Circuit.

Heard March 7, 2006.

Decided May 31, 2006.

Lawrence D. Goodman, with whom Luis Del Valle-Emmanuelli, García & Fernández Law Office, Juan A. López-Conway, and Devine Goodman Pallot & Wells, P.A. were on brief, for appellants.

James M. Derr, with whom Bruce J. McGiverin were on brief, for appellee Cessna Aircraft Company.

Kathleen M. O'Connor, with whom Thornton, Davis & Fein, P.A., A.J. Bennazar-Zequeira, José R. García-Pérez and Bufete Bennazar, C.S.P. were on brief, for appellee Pratt & Whitney Canada Corp.

Before BOUDIN, Chief Judge, TORRUELLA, Circuit Judge, and HANSEN,^* Senior Circuit Judge.

TORRUELLA, Circuit Judge.

Plaintiffs-Appellants Isla Nena Air Services, Inc. and its successor in interest San Juan Jet Charter, Inc. (hereinafter "Isla Nena") brought suit against defendants-appellees Cessna Aircraft Company ("Cessna") and Pratt & Whitney Canada Corporation ("PWC") in the United States District Court for the District of Puerto Rico. The complaint alleged claims arising from an airplane crash near Culebra, an island municipality of Puerto Rico. Isla Nena now appeals from the district court's dismissal of its complaint for failure to state a claim upon which relief may be granted. After careful review, we affirm the judgment of the district court.

I.

Isla Nena is a Puerto Rico corporation that operates a short-haul commercial airline in Puerto Rico. Cessna is a Kansas corporation that designs, manufactures, and sells aircraft. PWC is a Canadian corporation that designs, manufactures, and sells aircraft engines. On November 26, 2001, Isla Nena purchased a new Cessna 208B (the "Aircraft") from Cessna and took delivery at Cessna's factory delivery center in Wichita, Kansas. The Aircraft was powered by a PWC engine.

On August 30, 2003, the Aircraft was carrying nine passengers and a pilot from Fajardo, a city on the northeast coast of Puerto Rico, to Culebra, an island municipality of Puerto Rico approximately twenty miles east of Fajardo. About five miles west of the Culebra airport at an altitude of 2500 feet, in clear weather, the engine failed and the Aircraft lost power. The pilot was able to glide the Aircraft toward Flamenco Beach near Culebra and performed a controlled emergency water landing just off the beach. Following the landing, the pilot assisted all of the passengers — none of whom were seriously injured — to shore. The Aircraft suffered major damage to all of its components and the engine was destroyed.

After the accident, the National Transportation Safety Board ("NTSB") conducted an investigation. The NTSB determined that certain rivets installed around an engine inlet duct were either fractured or corroded. After the NTSB examined the engine, it was shipped back to PWC. PWC examined the engine's component parts and found that the damage to the engine was consistent with ingestion of a foreign object. Isla Nena's theory is that the rivets were defectively designed or installed, causing them to break off, and that the rest of the engine failed when it ingested one of the broken rivets.

On September 20, 2004, Isla Nena filed a six-count complaint against Cessna and PWC¹ in the United States District Court for the District of Puerto Rico. The complaint asserted diversity jurisdiction and contained claims for strict liability (Counts I and II) and negligence (Counts III and IV).² The complaint sought to recover damages for loss of value to the Aircraft and engine, cost to repair the Aircraft and engine, loss of use of the Aircraft, and lost profits.

On November 12, 2004, PWC filed a motion to dismiss Counts I-IV pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Cessna joined the motion. The motion argued that, despite the fact that the complaint asserted diversity jurisdiction, federal admiralty jurisdiction and substantive admiralty law applied. Federal admiralty law has adopted the "economic loss rule." Under the economic loss rule as articulated by the United States Supreme Court, a party generally may not recover damages in tort if a defective product damages only itself. See E. River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 876, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986). Because the Aircraft damaged only itself, the motion argued that Isla Nena's claims were barred by the economic loss rule. In the alternative, the motion argued that Puerto Rico substantive law would also apply the economic loss rule.³ Isla Nena opposed the motion, arguing that admiralty jurisdiction did not apply and that the economic loss rule did not apply under Puerto Rico law. In January 2005, the parties filed replies and surreplies. On March 16, 2005, an initial scheduling conference was held and the issues raised in the motions were discussed. Simultaneous supplemental briefs were filed on April 11, 2005, and simultaneous supplemental responses were filed on April 22, 2005. On July 11, 2005, Isla Nena filed a motion for leave to supplement the record, arguing for the first time that, even if federal admiralty jurisdiction applied, under the Puerto Rico Dock and Harbor Act the court was bound to apply Puerto Rico law.

On August 9, 2005, the district court granted the motion to dismiss. The court found that admiralty jurisdiction applied and therefore that Isla Nena's tort claims were barred by the economic loss rule. The court also found that, even if Puerto Rico law applied, the result would be the same because Puerto Rico law would follow the economic loss rule. Finally, the court denied Isla Nena's motion to supplement but stated that, even if it were to allow the motion, the economic loss rule would still apply. The court therefore entered partial judgment with respect to Counts I-IV. Thereafter, Isla Nena agreed to drop Counts V and VI, and the partial judgment was modified to a final judgment on August 30, 2005. Isla Nena has timely appealed.

II.

A. Standard of Review

We review a district court's decision to grant a Rule 12(b)(6) motion to dismiss de novo, taking as true the well-pleaded facts in the complaint. Vistamar, Inc. v. Fagundo-Fagundo, 430 F.3d 66, 69 (1st Cir. 2005).

B. The Economic Loss Rule

Under the economic loss rule, a party generally may not recover in tort when a defective product harms only the product itself (instead of a person or other property). See, e.g., East River, 476 U.S. at 867-68, 106 S.Ct. 2295; Lockheed Martin Corp. v. RFI Supply, Inc., 440 F.3d 549, 552-53 (1st Cir.2006) (applying New Hampshire law); Restatement (Third) of Torts: Prod. Liab. § 21, comment d (1998). Under the formulation of the rule that the majority of courts have adopted, a party may not recover in tort "[e]ven when the harm to the product itself occurs through an abrupt, accident-like event." East River, 476 U.S. at 870, 106 S.Ct. 2295.

East River is an admiralty case; therefore, if we were to apply federal admiralty law, Isla Nena's claims would be barred by the economic loss rule, as it is undisputed that the defect in the Aircraft caused damage to the Aircraft and nothing else. However, the instant case presents an unresolved question as to whether admiralty jurisdiction should apply, and the Supreme Court's precedents on this issue have not been entirely clear. If the economic loss rule applies under Puerto Rico law, we need not reach the question of admiralty jurisdiction and could leave that issue aside for the Court to clarify at a later date. Because we find that Puerto Rico courts would apply the economic loss rule, we affirm the judgment of the district court and do not address whether admiralty jurisdiction should apply.

C. Puerto Rico Law and the Economic Loss Rule

The Puerto Rico Supreme Court has not directly addressed whether the economic loss rule is applicable under Puerto Rico law. We therefore "look to analogous state court decisions, persuasive adjudications by courts of the states, learned treatises, and public policy considerations ... in order to make an informed prophecy of how the Puerto Rico Supreme Court would rule." Pérez-Trujillo v. Volvo Car Corp., 137 F.3d 50, 55 (1st Cir.1998)(quoting Rodríguez-Surís v. Montesinos, 123 F.3d 10, 13 (1st Cir.1997))(brackets and internal quotation marks omitted).

Article 1802 of Puerto Rico's Civil Code, 31 P.R. Laws Ann. § 5141, provides for a right of action stemming from a person's negligence. Although neither Article 1802 nor any other provision of the Civil Code has explicitly incorporated the doctrine of strict liability, it is well-settled that Puerto Rico courts have adopted that doctrine under Article 1802. See Guevara v. Dorsey Labs., Inc., 845 F.2d 364, 365 (1st Cir.1988)(stating that, under Article 1802, "the Supreme Court of Puerto Rico has developed a strict liability standard for manufacturers of defective products"); Rivera-Santana v. Superior Packaging, Inc., 132 P.R. Dec. 115, 126, 1992 P.R.-Eng. 754830, 1992 WL 754830 (1992). We begin by discussing Article 1802 and the economic loss rule.

1. Article 1802 and the Economic Loss Rule

Article 1802 provides that "[a] person who by an act or omission causes damage to another party through fault or negligence shall be obliged to repair the damage so done." 31 P.R. Laws Ann. § 5141. After careful consideration, we believe that the Puerto Rico Supreme Court would rule that the economic loss rule bars an action under Article 1802 where a defective product harms only itself.

We addressed an issue similar to the present one in Betancourt v. W.D. Schock Corp., 907 F.2d 1251 (1st Cir.1990). In that case, a plaintiff found a serious defect in a sailboat he had purchased and sued the manufacturer. The plaintiff sued in both tort and contract under Puerto Rico law, seeking damages for his investment in...