Richard O'Brien Companies v. Challenge-Cook Bros.

• Citation: 672 F. Supp. 466
• Decision Date: 26 October 1987
• Docket Number: Civ. A. No. 86-K-1828.
• Parties: RICHARD O'BRIEN COMPANIES, f/d/b/a Richard O'Brien Equipment Sales, Inc., and Du-All, Inc. a Colorado corporation; the Concrete Pumping Company, a Colorado corporation; Capital Equipment Company, a Texas corporation; and Capital Rentals Inc., a Texas corporation, Plaintiffs, v. CHALLENGE-COOK BROS., INCORPORATED, a California corporation, Defendant.
• Court: U.S. District Court — District of Colorado

672 F. Supp. 466

RICHARD O'BRIEN COMPANIES, f/d/b/a Richard O'Brien Equipment Sales, Inc., and Du-All, Inc. a Colorado corporation; the Concrete Pumping Company, a Colorado corporation; Capital Equipment Company, a Texas corporation; and Capital Rentals Inc., a Texas corporation, Plaintiffs, v. CHALLENGE-COOK BROS., INCORPORATED, a California corporation, Defendant.

Civ. A. No. 86-K-1828.

United States District Court, D. Colorado.

October 26, 1987.

Mark D. Gruskin and Jeanne M. Cochran, Swartz & Gruskin, Denver, Colo., for plaintiffs.

Michael E. Oldham, Johnson, Oldham, Sullivan & Angell, Denver, Colo., for defendant.

MEMORANDUM OPINION AND ORDER

KANE, District Judge.

This is a diversity based products liability suit. It comes before me on defendant's motion for summary judgment.

Plaintiffs are involved in the purchase and provision of pumping services to the construction industry. Defendant manufactures and markets a concrete pump known as the `Titan 3900'. In April, 1978, first plaintiff entered into a series of dealership agreements with defendant to sell the Titan pumps. First and second plaintiffs purchased thirty-nine of these pumps. They sold four of them to third plaintiff. Third plaintiff purchased three of the same pumps from another party. Third plaintiff leased a number of the pumps to fourth plaintiff. They all allege the pumps are defective. In August, 1986 they filed suit against defendant in the District Court for the City and County of Denver. First plaintiff sought to recover damages for eighteen pumps. Second plaintiff sought to recover damages in respect of seventeen pumps. Third and fourth plaintiffs sought damages in respect of seven pumps. Defendant filed a removal petition in September 1986.

Plaintiffs' complaint posits four claims for relief. They claim for breach of an implied warranty of merchantability (first claim for relief), for breach of an implied warranty of fitness (second claim) and for negligence (third claim). The fourth claim for relief purports to state a claim for manufacture and/or sale of a `defective and unreasonably dangerous' product. Plaintiff's claim damages, including incidental and consequential damages incurred by them as a result of the alleged defects in the pumps.

Defendant moves for summary judgment on five separate grounds. It asserts the law governing plaintiff's complaint is that of California. It argues the implied warranties invoked by plaintiffs have been validly disclaimed by defendant. It asserts plaintiffs' claims for economic loss are not sustainable, because economic losses arising from a buyer's disappointed expectations with a commercial transaction are not recoverable in tort. Finally, it maintains first plaintiff's claims are entirely barred and third and fourth plaintiffs' claims are partially barred by a compromise and settlement of these claims in 1983.

Defendant's motion for summary judgment is granted in part.

I THE APPLICABLE CONFLICT OF LAW RULES

Plaintiff's complaint may be divided in two. First, there are the third and fourth counts which purport to state a claim in negligence and strict liability in tort. Then there are the first and second claims for relief which allege breach of implied warranty. It is appropriate to deal with these separately.

A. Third and Fourth Claims — When is a Tort not a Tort?

The difficulties characteristic of any conflict of laws problem are exacerbated in the instant context by an initial complicating argument introduced by defendant. Defendant accepts product liability issues are generally classified as tort problems for the sake of determining the applicable conflict of law rules. It maintains, however, in the instant situation, the problem should be treated as a contract issue. It substantiates this argument by asserting plaintiffs' claim is based upon intangible economic loss not attributable to physical injury to person or harm to tangible things. Losses of this nature, it maintains, are only recoverable in warranty actions. Accordingly, it argues, this should be regarded as an action in contract.

The lex fori clearly governs this threshold issue of classification White v. American Motors Sales Corp., 550 F.Supp. 1287, 1289 (W.D.Va.1982) affd. 714 F.2d 135 (4th Cir.1983). Given this, the application of a little commonsense can avoid the pages of argument the parties have deposited with the court. Defendant's contention represents an effort to wag the dog by its tail. I am obliged here to apply Colorado conflicts rules to the issues before me, Dresser Indus., Inc. v. Sandvick, 732 F.2d 783 (10th Cir.1984). Products liability issues in Colorado are classified as tort problems, Hickman v. Thomas C. Thompson Company, 592 F.Supp. 1282, 1286 (D.Colo.1984). This is a products liability suit. Therefore, this is a tort suit. If damages based on intangible economic loss are not recoverable in tort, then they are not recoverable in this suit. To this separate issue I shall return. But the point is, as far as classification is concerned, it is a separate issue.

I have been referred to no authority for the proposition that classification issues in conflict of law problems are to be determined according to the character of damages sought, rather than the cause of action posited. I find it very difficult to believe any exist.

The choice-of-law rules I therefore apply here are Colorado's tort choice-of-law rules. Colorado law applies the `most significant relationship' rule as enunciated in the Restatement (Second) of Conflict of Laws § 145 (1971) to interstate tort problems, First National Bank in Fort Collins v. Rostek, 182 Colo. 437, 514 P.2d 314, 320 (1973).

Section 145 provides;

(1) The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurence and the parties under the principles stated in § 6.

(2) Contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include;

(a) the place where the injury occurred,

(b) the place where the conduct causing the injury occurred

(c) the domicil, residence nationality, place of incorporation and place of business of the parties, and

(d) the place where the relationship, if any, between the parties is centered.

Section 6 lists the following factors as relevant to choosing the applicable law,

(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum.

(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,

(d) the protection of justified expectations,

(e) the basic policies underlying the particular field of law,

(f) certainty, predictability and uniformity of result, and

(g) ease in the determination and application of the law to be applied.

In the instant context, the following are the principal connecting factors.

1. First and second plaintiffs are Colorado corporations with their principal places of businesses in Colorado.

2. Third and fourth plaintiffs are Texas corporations with their principal places of business in Texas.

3. Defendant is a California corporation with its principal place of business in California.

4. The pumps were originally purchased by different entities in nine states, Colorado, Illinois, Texas, Oregon, Washington, California, North Carolina and Idaho.

5. The pumps are presently located in four different states, Colorado, Texas, Georgia, and California.

6. Third and fourth plaintiffs purchased and/or leased the pumps from first plaintiff in Colorado.

7. The products were designed in California.

The choice, as the parties recognize, must be between Colorado and California. I am satisfied that application of the above test to these connectors clearly posits that Colorado law should govern the tort issues. In so concluding, I attach particular importance to the fact the relationship between the parties as a whole was centered here, first and second plaintiffs being Colorado corporations and the leasing arrangements having been executed here. The domicile, residence, place of incorporation and place of business of the parties and the place where the relationship of the parties is centered assumes pivotal importance in determining the applicable law in negligence suits, Sabell v. Pacific Intermountain Express Co., 36 Colo.App. 60, 536 P.2d 1160 (1975). Further, the place the injury occurred, rather than the place of manufacture, provides the most compelling policy concerns in situations such as the present, Hickman v. Thompson, 592 F.Supp. 1282, 1286 (D.Colo.1984). Finally, the most important factors to be considered in this context are those contained in § 6(b) and (c) of the Restatement, Conlin v. Hutcheon, 560 F.Supp. 934, 936 (D.Colo.1983). These point to Colorado law.

B. The contract claims

The contracts `contacts' test is not identical to that employed for the resolution of tort conflicts problem. Given the differing policy considerations applying to interstate contract and tort problems, it is conceivable that different governing laws will emerge from the same fact pattern. Colorado applies the `most significant relationship' rule contained in § 191 of the Restatement, Webb v. Dessert Seed Co. Inc., Colo., 718 P.2d 1057 (1986). This points, in the absence of express choice by the parties, to the place of delivery unless the considerations outlined in § 6 dictate another state has a more significant relationship with the transaction. In particular, the place of delivery rule is inapplicable where `the contract contemplates a continued relationship between the parties which will be centered in a state other than that where delivery took place', Restatement comment f to § 191. This is clearly the case with an agreement of this nature, see Collins Radio Co. of Dallas v. Bell, 623 P.2d 1039 (Okl.App...