Perlmutter v. U.S. Gypsum Co., s. 91-1265

• Decision Date: 03 September 1993
• Docket Number: Nos. 91-1265,91-1271,s. 91-1265
• Citation: 4 F.3d 864
• Parties: Prod.Liab.Rep.(CCH)P 13,669 Jordon PERLMUTTER, individually and as trustee for the Abe Perlmutter Testamentary Trust; Leland Rudofsky, Gerard Rudofsky, and Harley Rudofsky, trustees for the Albert Rudofsky Family Trust; Bernstein Investment Co., a Colorado Limited Partnership; Morrison Northglenn Partnership, a Colorado General Partnership; and Glenn Investment Partnership, a Colorado General Partnership, Plaintiffs-Appellees/Cross-Appellants, and Sue M. Glick, Trustee for the Albert Rudofsky Family Trust, Plaintiff, v. UNITED STATES GYPSUM CO., Defendant-Appellant/Cross-Appellee, and National Gypsum Company; W.R. Grace & Company; Highland Stucco and Lime Products, Inc., a California Corporation, Defendants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 864

4 F.3d 864

Prod.Liab.Rep.(CCH)P 13,669

Jordon PERLMUTTER, individually and as trustee for the Abe Perlmutter Testamentary Trust; Leland Rudofsky, Gerard Rudofsky, and Harley Rudofsky, trustees for the Albert Rudofsky Family Trust; Bernstein Investment Co., a Colorado Limited Partnership; Morrison Northglenn Partnership, a Colorado General Partnership; and Glenn Investment Partnership, a Colorado General Partnership Plaintiffs-Appellees/Cross-Appellants and Sue M. Glick, Trustee for the Albert Rudofsky Family Trust, Plaintiff, v. UNITED STATES GYPSUM CO., Defendant-Appellant/Cross-Appellee and National Gypsum Company; W.R. Grace & Company; Highland Stucco and Lime Products, Inc., a California Corporation, Defendants.

Nos. 91-1265, 91-1271.

United States Court of Appeals Tenth Circuit.

Sept. 3, 1993.

Kell M. Damsgaard of Morgan, Lewis & Bockius, Philadelphia, PA (Peter H. Blair, Jr., of Foster & Blair, Denver, CO, with him on the brief), for defendant-appellant/cross-appellee.

Kenneth B. McClain of Humphrey, Farrington & McClain, P.C., Independence, MO (William S. Silverman of Silverman & Riley, Denver, CO, with him on the brief), for plaintiffs-appellees/cross-appellants.

Before McKAY, Chief Judge, McWILLIAMS and KELLY, Circuit Judges.

McKAY, Chief Judge.

United States Gypsum Company appeals a jury award for negligence and failure to warn in selling an asbestos-containing acoustical plaster to Plaintiffs. USG contends that the trial court erred in several respects, discussed below. The Plaintiffs, the owners of a shopping mall where the plaster was used, cross-appeal on the issues of pre-judgement interest and punitive damages. Finding error below, we REVERSE the jury verdict and REMAND for a new trial. As a result, we need not consider Plaintiffs-Appellees' cross-appeal on damages.

I.

In 1967, USG sold an acoustical plaster product to a group of Colorado real estate developers for use in the Northglenn Mall. The product, sold under the trade name Audicote, contained asbestos. In 1967, Audicote was neither advertised nor labeled as containing asbestos; the Developers were apparently unaware of the asbestos. USG issued "limitations," however, on the use of Audicote. These limitations were contained in marketing materials and catalogues targeting architects and designers who would specify the use of Audicote in buildings. The limitations indicated that Audicote should be used only in areas free from disturbance and high humidity.

Over the next twenty years, the Audicote was damaged by water leakage and routine maintenance at the Northglenn Mall. It was maintained and repaired by the Developers. In 1987, the Developers entered into negotiations to sell the mall for $30.8 million. When due diligence revealed the presence of asbestos, the parties terminated negotiations on this transaction. After expending $1.75 million to remove the Audicote, the Developers sold the mall to another purchaser for $34.5 million, representing a profit of approximately $20 million. The Developers do not assert that anyone has been physically injured by the presence of the product or that property damage occurred other than contamination which required removal of the Audicote.

The Developers brought suit to recover the cost of removing and replacing the plaster. The Developers asserted causes of action based on strict liability, negligence, breach of express and implied warranties, fraudulent concealment, and misrepresentation. ¹ The jury subsequently found in favor of USG on the strict liability claim but for the Developers on the claim for negligence and failure to warn after the sale. After various unsuccessful post-trial motions by USG and the Developers, both sides appealed.

II.

The first issue we address is whether the nature of the injury Developers allege entitle them to the damages they seek. USG argues on this appeal that the Developers have alleged merely economic loss resulting from a product's performance that did not meet their expectations. As such, USG argues, the Developers' cause of action is for contract damages, not for the tort damages Developers seek. The trial court's determination of this question under Colorado law is reviewed under a de novo standard. Adams-Arapahoe School Dist. No. 28-J v. GAF Corp., 959 F.2d 868, 871-72 (10th Cir.1992).

Our recent decision, Adams-Arapahoe, 959 F.2d at 868, controls our decision. In that case, the school district sought to recover damages it alleged that it suffered from the presence in its buildings of an asbestos-containing floor tile. The school district alleged that the presence of asbestos in the tile itself and the risk associated with the asbestos, as well as contamination of the school buildings, constituted injury sounding in tort. Id. at 871.

We noted that under Colorado law, a plaintiff must allege physical injury to person or property to recover in tort. See id. (citing Jardel Enters., Inc. v. Triconsultants, Inc., 770 P.2d 1301, 1304 (Colo.Ct.App.1988) (economic loss rule does not prevent negligence action to recover for physical injury to person or property); Bayly, Martin & Fay, Inc. v. Pete's Satire, Inc., 739 P.2d 239, 242 (Colo.1987) (actual loss or damage essential to tort action)). Consequently, we rejected the school district's argument that the mere presence of asbestos in a product or the risk of injury from the presence of asbestos constituted the type of physical injury remediable by a tort action. Id. at 872-73. We noted that contamination from the asbestos-containing floor tile would entitle the school district to recovery in tort. See id. at 873. We held, however, that the school district had not presented sufficient evidence to sustain an action to recover for the contamination from the floor tile. Id. at 874.

The question we are presented under Adams-Arapahoe is whether the Developers have presented evidence sufficient to overcome USG's motion for directed verdict and post-trial motions on this claim. In so doing, we view the evidence in the light most favorable to the Developers and draw all inferences in the Developers' favor. Id. at 873 (citing Hill v. Goodyear Tire & Rubber, Inc., 918 F.2d 877, 880 (10th Cir.1990)). We believe that the Developers have met this burden.

At trial, the Developers did more than present evidence that the Audicote plaster used in the Northglenn Mall contained asbestos or that the plaster could release asbestos dust if disturbed or allowed to flake or crumble. The Developers showed that there were significant amounts of asbestos fibers not only on top of a display case but also near an information booth, as well as in an area near certain lighting fixtures and on carpeting at the entry way to one of the stores. There was also expert testimony that given the condition of the asbestos, it needed to be removed. Taking the evidence and all reasonable inferences in the light most favorable to the Developers, we hold that under the controlling law the Developers have presented evidence sufficient to prove tortious injury resulting from the Audicote plaster.

III.

Next we address USG's contention that the trial court improperly instructed the jury on USG's post-sale duty to warn the Developers regarding the potential dangers of the Audicote plaster. During the trial, the Developers argued that USG was under a continuing duty to warn consumers of the dangers associated with the use of Audicote because it contained asbestos. USG argued that no such post-sale duty to warn exists under Colorado law. The trial court allowed the Developers to present scientific evidence, developed after USG sold the Audicote to the developers, regarding the safety of asbestos. At the conclusion of the evidence, the trial court instructed the jury that one cause of action asserted by the Developers was

a continuing duty to use reasonable care to warn users of its products from dangers which it knew or should have known about. The manufacturer is under a duty to keep informed about its products from research, accident reports, scientific literature and other sources reasonably available to it, and to use reasonable methods to advise the users concerning hazards which the manufacturer learns about during the expected useful life of the product.

(USG App. at 92a.) USG asserts that the trial court erred in concluding that a post-sale duty to warn existed under Colorado law and that the evidence admitted and instructions were in error.

A federal court, sitting in diversity, must "ascertain and apply Colorado law [with the objective] that the result obtained in the federal court [should be] the result that would [be] reached ... in a Colorado court." Adams-Arapahoe, 959 F.2d at 871 (citing Lutz Farms v. Asgrow Seed Co., 948 F.2d 638, 641 (10th Cir.1991); Erie R.R. Co. v. Tompkins, 304 U.S. 64, 72-73, 58 S.Ct. 817, 819-20, 82 L.Ed. 1188 (1938)). We review this state law determination de novo. Adams-Arapahoe, 959 F.2d at 871 (citing Salve Regina College v. Russell, 499 U.S. 225, 239, 111 S.Ct. 1217, 1225, 113 L.Ed.2d 190 (1991)).

The Colorado Supreme Court has not spoken authoritatively on the question of when a post-sale duty to warn arises under Colorado law. The lead case on this issue is Downing v. Overhead Door Corp., 707 P.2d 1027 (Colo.Ct.App.1985). ² In Downing, the Colorado Court of Appeals considered whether the manufacturer of an automatic garage door opener had a duty to warn consumers of the dangers of placing the activation switch within the reach of children. The manufacturer had become aware of this danger after it sold the door opener which injured the plaintiff in Downing. The Colorado Court of Appeals stated:

The duty to warn exists where a danger concerning the product becomes known to the manufacturer subsequent to the sale and delivery of the product, even though it was not known at the time of the sale.

After a product involving human safety has been sold and dangerous defects in design have...