Koss Const. v. Caterpillar, Inc.

• Decision Date: 05 June 1998
• Docket Number: No. 78054,78054
• Parties: KOSS CONSTRUCTION, Appellant, v. CATERPILLAR, INC., Appellee, and Martin Tractor Company, Inc., Defendant.
• Court: Kansas Court of Appeals

Page 255

960 P.2d 255

25 Kan.App.2d 200

KOSS CONSTRUCTION, Appellant, v. CATERPILLAR, INC., Appellee, and Martin Tractor Company, Inc., Defendant.

No. 78054.

Court of Appeals of Kansas.

June 5, 1998.

Review Denied Sept. 10, 1998.

Syllabus by the Court

1. A motion for judgment on the pleadings is based upon the ground that the moving party is entitled to a judgment on the face of the pleadings themselves. In considering a defendant's motion for judgment on the pleadings, the question is whether, upon the admitted facts, the plaintiff has stated a cause of action.

2. A commercial buyer of defective goods cannot sue in negligence or strict liability where the only injury consists of damage to the goods themselves.

3. Absent privity, a corporate purchaser who has incurred only economic loss may not maintain a cause of action for breach of the implied warranty of merchantability against a manufacturer.

Sharon A. Werner, of McDonald, Tinker, Skaer, Quinn & Herrington, P.A., Wichita, for appellant.

George P. Coughlin and John M. McFarland, of Lathrop & Gage, L.C., Overland Park, for appellee.

Before ROYSE, P.J., ROGG, Special Judge, and JAMES J. SMITH, District Judge, Assigned.

ROYSE, Judge:

This is a products liability action. Koss Construction Co. (Koss) sued Caterpillar, Inc. (Caterpillar) and Martin Tractor Company, Inc. (Martin) for damages to a Caterpillar roller caused by an allegedly defective part. Caterpillar filed a motion for judgment on the pleadings, which the district court granted. Koss appeals from that decision.

A motion for judgment on the pleadings is based upon the ground that the moving party is entitled to a judgment on the face of the pleadings themselves. In considering a defendant's motion for judgment on the pleadings, the question is whether, upon the admitted facts, the plaintiff has stated a cause of action. Scully v. Overall, 17 Kan.App.2d 582, 584, 840 P.2d 1211,rev. denied 252 Kan. 1093 (1992).

"A motion for judgment on the pleadings serves as a means of disposing of a case without trial where the total result of the pleadings frame the issues in such manner that the disposition of the case is a matter of law on the facts alleged or admitted leaving no real issue to be tried." Clear Water Truck Co., Inc. v. M. Bruenger & Co., Inc., 214 Kan. 139, Syl. p 2, 519 P.2d 682 (1974).

Koss' petition alleged that Koss purchased a vibratory roller from Martin in November 1992. The roller was manufactured by Caterpillar. In November 1993, the roller caught fire during a highway project and was significantly damaged. Koss alleged that the fire was caused by defective hydraulic hoses. Koss sought judgment from Martin and Caterpillar for the damage to the roller, alleging claims based on strict liability, negligence, and implied warranty of merchantability.

Caterpillar filed a motion for judgment on the pleadings. The district court determined that Koss could not recover for simple economic loss to the roller under either negligence or strict liability. The district court further concluded that because Koss lacked privity with Caterpillar, it could not maintain an action for breach of implied warranty against Caterpillar. After the district court granted Caterpillar's motion for judgment on the pleadings, the parties stipulated to the dismissal without prejudice of Koss' claims against Martin. Koss appeals.

The first issue presented on appeal is whether the district court erred by concluding that a party may not recover damages for harm to a defective product under negligence or strict liability in tort. This is a question of law, subject to unlimited review on appeal. Foulk v. Colonial Terrace, 20 Kan.App.2d 277, 283, 887 P.2d 140 (1994), rev. denied 257 Kan. 1091 (1995). This is an issue of first impression in Kansas.

Koss contends that in Kansas, damages to a defective product are recoverable under negligence or strict liability. To support this contention, Koss relies on Fordyce Concrete, Inc. v. Mack Trucks, Inc., 535 F.Supp. 118 (D.Kan.1982). In that case, the defendant, Mack Trucks, Inc. (Mack), delivered a chassis to Ash Grove Cement, which was the parent corporation of Fordyce Concrete, Inc. (Fordyce). Mack knew the chassis was to be used as a concrete truck, but Fordyce arranged for the purchase and installation of the truck mixer assembly. The frame on the chassis broke, causing the cab and the mixer to separate and collide with each other. 535 F.Supp. at 119.

Fordyce brought suit against Mack, alleging breach of implied warranties and strict liability for sale of a product in a dangerous and defective condition. Fordyce later asserted a claim against Reynolds Metal Company (Reynolds), which had designed and manufactured the frame, claiming Reynolds was strictly liable for damage caused by its dangerous and defective condition. The defendants filed motions for summary judgment. 535 F.Supp. at 119.

In ruling on the motions for summary judgment, the federal district court analyzed the question whether Fordyce could recover damages for harm to the defective product under a theory of strict liability. The court began by identifying four types of injury that may be present in a products liability case: (1) personal injuries, (2) physical damage to property other than the defective product, (3) harm to the defective product itself, and (4) economic loss. 535 F.Supp. at 120. The court then examined § 402A of the Restatement (Second) of Torts (1965), which provides in part that a seller of

"(1) ... any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if

(a) the seller is engaged in the business of selling such a product, and

(b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold."

The court concluded that under the plain language of § 402A a plaintiff may recover under strict liability for damage to property other than the defective product. 535 F.Supp. at 120-121. The court next acknowledged that most courts do not allow a plaintiff to recover under negligence or strict liability for loss that is purely economic or pecuniary in nature. 535 F.Supp. at 121-122.

Faced with these two choices, the court concluded that damage to the defective product is not included within the definition of economic loss. Instead, damage to the defective product should be treated like damage to other property, recoverable under tort theories. In reaching this conclusion, the court acknowledged that the most difficult issue presented by the question before it was whether the remedies available under the Uniform Commercial Code would be abrogated by allowing recovery for damage to a defective product under § 402A. The court decided, however, that the burden of proving that a product was unreasonably dangerous under § 402A distinguishes "defective products with qualitative defects covered by the Uniform Commercial Code from those products in a defective condition covered by § 402A." 535 F.Supp. at 124-125.

The federal district court, in denying the defendants' motions for summary judgment on Fordyce's strict liability claims, concluded its analysis with the following:

"We doubt that the Kansas appellate courts would engage in drawing lines between different types of property damage as attempted by many courts in the cases discussed above. We believe that the Kansas Supreme Court, if faced with the question before us, would once again follow the explicit language of § 402A and allow plaintiff to recover for physical damage to property resulting from an unreasonably dangerous defective product regardless of whether the damage is inflicted upon the defective product or upon other property." 535 F.Supp. at 126.

One authority expressed pointed criticism of the approach approved in Fordyce:

"A few maverick decisions have even allowed recovery in strict tort when the defect causes passive injury to the goods sold, and no associated property loss. Such decisions extend Section 402A beyond anything the drafters dreamed of, and effectively repeal the warranty provisions of the Code insofar as Article 2 defenses might be available to the seller. Fortunately, this type of judicial legislation is rare. Most courts respect Article 2 occupation of the field where the loss is purely economic in nature, including direct loss to the goods themselves due to breach of warranty. Since Section 2-714 directly covers primary economic loss to the defective goods, the courts should not effectively repeal that Section by stretching Section 402A beyond its intended limits. In sum, with respect to primary economic loss, warranty is superior to strict tort unless the courts overstep their bounds." Clark and Smith, The Law of Product Warranties p 12.03[c] (1984).

After Fordyce was decided, the United States Supreme Court addressed the question whether damages to a defective product are recoverable under tort or contract law in East River S.S. Corp. v. Transamerica Delaval, 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986). East River and the other plaintiffs had chartered oil-transporting supertankers built by a related corporation. The turbines which were the main propulsion units for the supertankers were designed, manufactured, and installed by Transamerica. When the plaintiffs discovered damage to the turbines, they filed suit against Transamerica. They alleged that Transamerica was liable under the doctrine of strict liability for defective design of the turbine components. They claimed the defectively designed turbine components damaged the turbines. Thus, the Supreme Court had to examine whether injury to a product itself is the kind of harm that should be protected by products liability or left entirely to the law of contracts. 476 U.S. at 859-861, 106 S.Ct. 2295.

The Supreme Court...