Northwestern Public Service v. Union Carbide Corp.

• Decision Date: 28 September 2000
• Docket Number: No. CIV 99-4182.,CIV 99-4182.
• Citation: 115 F.Supp.2d 1164
• Parties: NORTHWESTERN PUBLIC SERVICE, a division of Northwestern Corporation, f/k/a Northwestern Public Service Company, Plaintiff, v. UNION CARBIDE CORPORATION, Defendant.
• Court: U.S. District Court — District of South Dakota

Page 1164

115 F.Supp.2d 1164

NORTHWESTERN PUBLIC SERVICE, a division of Northwestern Corporation, f/k/a Northwestern Public Service Company, Plaintiff, v. UNION CARBIDE CORPORATION, Defendant.

No. CIV 99-4182.

United States District Court, D. South Dakota, Southern Division.

September 28, 2000.

Richard O. Gregerson, James E. Moore, Woods, Fuller, Shultz & Smith, Sioux Falls, Russell C. Molstad, Jr., Huron, Stephen J. Powell, Jim D. DeKoster, Swisher Cohrt, PLC, Waterloo, IA, for Plaintiff.

Thomas G. Firtz, Lynn, Jackson, Shultz & Lebrun, Rapid City, Eric F. Quandt, Kelley, Drye & Warren, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

PIERSOL, Chief Judge.

The defendant, Union Carbide Corporation, has filed a Motion to Dismiss the Amended Complaint filed against it by the plaintiff, Northwestern Public Service. For the reasons stated below, the Motion to Dismiss is granted in part and denied in part.

BACKGROUND

This case involves polyethylene pipe which the parties refer to as "Century Pipe."¹ The Century Pipe was made from a chemical compound known as DHDA-2077 Tan, which was developed, manufactured, distributed and sold by defendant. According to the Amended Complaint, plaintiff purchased the Century Pipe from several entities other than defendant from 1970 through 1974, and installed the pipe as part of its natural gas distribution systems in South Dakota and Nebraska from 1971 through 1974. Plaintiff alleges that it discovered defects in the DHDA-2077 Tan in 1997 and that these defects caused the Century pipe to be subject to premature failure, unreasonably dangerous, and a threat to public safety. Plaintiff claims that, as a result of these defects, it has had to replace all of the Century Pipe in its gas distribution systems.

In this lawsuit, plaintiff seeks to recover the cost of replacing the pipe as well as punitive damages. Plaintiff's Amended Complaint contains ten counts: (1) Negligence; (2) Strict Products Liability; (3) Intentional Misrepresentation; (4) Concealment; (5) Breach of Express Warranty; (6) Breach of Implied Warranty of Merchantability; (7) Breach of Implied Warranty of Fitness for a Particular Purpose; (8) Unjust Enrichment; (9) Deceit; and (10) Deceptive Trade Practices.² In its Motion to Dismiss, defendant seeks the dismissal of each of these counts.

DISCUSSION

No count in the Amended Complaint may be dismissed under Rule 12(b)(6) for failure to state a claim unless it appears beyond doubt that plaintiff can prove no set of facts demonstrating that it is entitled to relief on that count. See Springdale Educ. Ass'n. v. Springdale School Dist., 133 F.3d 649, 651 (8th Cir.1998).

The parties agree that this case is governed by the substantive law of South Dakota. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). When this Court is applying South Dakota law under Erie, and the South Dakota Supreme Court has not specifically addressed an issue, the Court must determine what the state supreme court would probably hold were it to decide the issue. Farr v. Farm Bureau Ins. Co. of Nebraska, 61 F.3d 677, 679 (8th Cir.1995). In resolving such questions, the Court may consider relevant state precedent, analogous decisions, scholarly works, and other reliable data. See id. These data include judicial decisions from other jurisdictions whose doctrinal approach to legal matters is substantially the same as South Dakota's and developing trends in the relevant field of substantive law. See 19 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure: Jurisdiction 2d § 4507, at 195-200 (1996).

A. Products Liability Claims

Defendant argues that the first two counts of the Amended Complaint — both of which are products liability claims — are barred by the economic loss doctrine. Under this doctrine, economic losses are generally limited to the commercial theories found in the Uniform Commercial Code and are consequently not recoverable under tort theories of products liability. City of Lennox v. Mitek Industries, Inc., 519 N.W.2d 330, 333 (S.D.1994); see also Agristor Leasing v. Spindler, 656 F.Supp. 653 (D.S.D.1987) (holding that economic losses are not recoverable under theories of strict tort liability or negligence). There are established exceptions to the economic loss doctrine which allow recovery in tort for personal injury or damage to "other property." City of Lennox, 519 N.W.2d at 333; see also Corsica Coop. Ass'n v. Behlen Mfg. Co., Inc., 967 F.Supp. 382 (D.S.D. 1997). In support of its products liability claims, plaintiff seeks the adoption of an additional exception to the doctrine, one that would allow recovery when a defective product "poses a substantial threat to public safety."

Plaintiff's claims of negligence and strict products liability do not fit within a "public safety" exception to the economic loss doctrine. The courts which have recognized such an exception have done so in order to provide a tort remedy for defective products whose risks were not foreseeable at the time of contracting. See, e.g., Tioga Public School Dist. v. United States Gypsum Co., 984 F.2d 915, 918 (8th Cir.1993) (noting that the danger posed by the asbestos in question had nothing to do with the level of performance of the product); 80 South Eighth Street Ltd. Partnership v. Carey-Canada, Inc., 486 N.W.2d 393, 397 (Minn.1992) (noting that the plaintiff did not claim that the fireproofing in question failed to perform satisfactorily as fireproofing). In contrast,

a claim arising from the failure of a product to meet expectations of suitability, quality and performance resulting in damages which a party to a sales contract could reasonably expect would flow from a defect in the product is a benefit of the bargain claim better addressed under contract and the Uniform Commercial Code.

Carey-Canada, 486 N.W.2d at 397.³ In this case, the danger allegedly posed by the pipe — presumably the leaking of natural gas—was a foreseeable result of the failure of DHDA-2077 Tan to perform its intended function as a component of the Century Pipe.⁴ Because plaintiff's claims of negligence and strict products liability are not covered by a "public safety" exception, there is no need to decide whether South Dakota would adopt such an exception. As run-of-the-mill products liability claims, those claims are barred by the economic loss doctrine. See Brookings Municipal Utilities, Inc. v. Amoco Chemical Co., 103 F.Supp.2d 1169, 1175 (D.S.D.2000); Determan v. Johnson, 613 N.W.2d 259, 263-64 (Iowa 2000) (denying tort remedy for significant structural defects in home plaintiff had purchased, even though the defects presented "a genuine safety hazard to persons and property," because the tort claim was based on unfulfilled expectations about the quality of the home).

B. Fraud Claims

1. Economic Loss Doctrine

A more difficult question is whether plaintiff's claims of intentional misrepresentation, fraudulent, concealment, deceit and deceptive trade practices are barred under the economic loss doctrine. In support of these fraud claims, plaintiff alleges that defendant made intentional misrepresentations that "DHDA-2077 Tan complied with industry and regulatory requirements to be rated as a PE 2306 polyethylene pipe compound suitable for use in natural gas distribution systems." Plaintiff also alleges that defendant fraudulently concealed facts indicating that DHDA-2077 Tan did not meet these standards. Finally, plaintiff claims that the alleged misrepresentations and concealment about the quality of the Century Pipe induced plaintiff to purchase the pipe.

The parties take different positions on whether the economic loss doctrine permits recovery for claims such as these. Defendant argues that the doctrine only allows claims of fraudulent inducement involving misrepresentations "that do not in themselves constitute contract or warranty terms subsequently breached by the seller." See Huron Tool v. Precision Consulting Services, Inc., 209 Mich.App. 365, 532 N.W.2d 541, 546 (1995). Plaintiff, on the other hand, argues that the doctrine permits all claims of fraud in the inducement, regardless of whether the alleged misrepresentations involve warranty terms. See Budgetel Inns, Inc. v. Micros Systems, Inc., 8 F.Supp.2d 1137, 1149 (E.D.Wis.1998). Under Huron, plaintiff's fraud claims—all of which concern the quality of the Century Pipe—would be barred under the economic loss doctrine. Under Budgetel, the economic loss doctrine would not bar those claims. Since the South Dakota Supreme Court has not yet addressed this issue, see City of Lennox, 519 N.W.2d at 333, the Court must predict whether the state supreme court would allow plaintiff to proceed on its claims of statutory and common-law fraud.

Applying the economic loss doctrine to fraud claims is a cumbersome job. The economic loss doctrine was developed and designed to protect contract law from being engulfed by the law of products liability. See East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866-75, 106 S.Ct. 2295, 2299-2304, 90 L.Ed.2d 865 (1986); Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, 149-52 (1965). Thus, the doctrine recognizes that, unless courts preserve an appropriate distinction between personal injuries and commercial losses, contract law will "drown in a sea of tort." East River, 476 U.S. at 866, 106 S.Ct. at 2299-2300 (citing Grant Gilmore, The Death of Contract 87-94 (1974)). Unlike the law of products liability, however, the law of fraud was not developed to redress only physical injuries to persons or property, but was designed to provide compensation for commercial losses as well. See Hoff v. Bower, 492 N.W.2d 912, 914 (S.D.1992) (affirming an award of compensatory damages for commercial losses caused by fraud) (citing Trautman v. Coffman, 39 S.D. 628, 166 N.W. 150, 151 (1918)); see generally Prosser & Keeton on Torts, §§...