SIOUX CITY, ETC. v. Intern. Tel. & Tel. Corp.

Decision Date14 December 1978
Docket NumberNo. C 78-4017.,C 78-4017.
Citation461 F. Supp. 662
PartiesSIOUX CITY COMMUNITY SCHOOL DISTRICT, Plaintiff, v. INTERNATIONAL TELEPHONE & TELEGRAPH CORP., Defendant.
CourtU.S. District Court — Northern District of Iowa

Marvin J. Klass and A. J. Stoik of Stewart, Hatfield, Klass & Whicher, Sioux City, Iowa, for plaintiff.

Peter A. Cross, New York City, Wiley Mayne, John D. Mayne, Sioux City, Iowa, for defendant.

ORDER

McMANUS, Chief Judge.

This matter is before the court on defendant's motions to dismiss and to strike. Granted in part and denied in part.

Plaintiff, an Iowa school corporation organized under the laws of Iowa, instituted this diversity action to recover damages in excess of $10,000.00 against defendant, a Delaware corporation with its principal place of business in New York, pursuant to 28 U.S.C. § 1332.

Plaintiff alleges that it entered into written contracts with Haco Engineering Company (Haco) on July 8, 1970 for purchase of 26 "rooftop reheat multizone heating units" and with Stroh Corporation (Stroh) on August 27, 1970 for purchase of another 39 of the same units, all for use at two of plaintiff's Sioux City, Iowa schools. All the units were manufactured by one of defendant's divisions and sold to Haco and Stroh for further distribution. The units had been expressly warranted by defendant to perform satisfactorily for a period of 10 to 15 years from the date of installation.

Plaintiff further alleges that the heat exchangers in the units were defective from the time of manufacture, making the units worthless when installed and unreasonably dangerous in that they discharged or emitted carbon monoxide and other noxious gases into the air, subjecting all persons in and around the schools to a risk of death or serious physical injury. This condition has allegedly caused plaintiff considerable expense in removing and replacing the units and in daily monitoring of the air quality.

Plaintiff asserts its action upon various legal theories of products liability: breach of express warranty (count 1), and implied warranties of merchantability (count 2) and fitness for particular purpose (count 3); strict liability in tort (count 4); and negligent design (count 5). Plaintiff also alleges that as of at least 1972 defendant has been aware of the defect and the dangerous risk involved, and has failed to notify plaintiff of the availability of repair kits and differently designed units. Characterizing this omission on defendant's part as willful, wanton and reckless, plaintiff prays for punitive damages (count 6).

It is noted that nowhere in the complaint does plaintiff allege any actual injury to persons or damage to plaintiff's property other than to the heating units — the products themselves. It is on the basis of this omission in the pleading that defendant now moves pursuant to FRCP 12(b)(6) to dismiss count 4 for failure to state a claim. Defendant also moves to dismiss or to strike count 6, which constitutes the plaintiff's prayer for punitive damages. Plaintiff resists all the motions.

I

A motion to dismiss is the proper method for testing the legal sufficiency of a complaint. 2A Moore's Federal Practice, ¶ 12.08 at 2265-66 (2d ed. 1975). A motion to dismiss for failure to state a claim should not be granted unless it appears beyond doubt that the plaintiff could prove no set of facts in support of its claim which would entitle it to relief. Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 31 L.Ed.2d 263 (1972); Haines v. Kerner, 404 U.S. 519, 520-21, 92 S.Ct. 594, 30 L.Ed.2d 652 (1972); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Stifel, Nicolaus & Co. v. Dain, Kalman & Quail, Inc., 578 F.2d 1256, 1260 (8th Cir. 1978); Bramlet v. Wilson, 495 F.2d 714, 716 (8th Cir. 1974). In ruling on the motion the court must construe the complaint liberally, taking the alleged facts as true and entitling the plaintiff to all reasonable inferences in its favor that may be drawn from the alleged facts. Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975); Stifel, Nicolaus & Co. v. Dain, Kalman & Quail, Inc., supra, at 1260.

II

The Iowa Supreme Court has recognized the products liability theory of strict liability in tort, Hawkeye-Security Ins. Co. v. Ford Motor Co., 174 N.W.2d 672, 684 (Iowa 1970) (Hawkeye I) and has indicated that an essential element of that theory is that the defect in the product was the proximate cause of personal injuries or property damage suffered by the user or consumer,1 Kleve v. General Motor Corp., 210 N.W.2d 568, 571 (Iowa 1973) (emphasis added). Courts and commentators have delineated at least four distinct categories of harm which could be held recoverable under the theory of strict liability in tort for defective products: (1) physical injury to persons; (2) physical damage to tangible things other than the product itself; (3) physical damage to the product itself; and (4) commercial or economic losses which involve no physical harm but which are occasioned by the unfitness of the product. See Iowa Electric Light & Power Co. v. Allis-Chalmers Mfg. Co., 360 F.Supp. 25, 28 (S.D.Iowa 1973). Iowa law clearly allows recovery for damages described in categories (1) and (2). Id.; Kleve, supra; Hawkeye I, supra. See Aller v. Rodgers Mach. Mfg. Co., 268 N.W.2d 830 (Iowa 1978). The Iowa courts have not yet clarified whether their recognition of strict liability encompasses recovery for damages described in categories (3) or (4). Thus, the federal courts have been faced with the task of divining what the scope of the Iowa law is or would be if the state courts were presented with issues similar to the one now being considered in this case.

Indeed, on a previous occasion, this court has interpreted the Iowa law to require dismissal of a strict liability claim wherein the plaintiff sought to recover "the value of the machines, plus installation expenses, repair costs, and additional damages exceeding $200,000.00 for loss of business profits and goodwill." Midland Forge, Inc. v. Letts Industries, Inc., 395 F.Supp. 506, 514-15 (N.D.Iowa 1975). Noting that, traditionally, damages are recoverable in tort for personal injuries or damages to property other than the defective product itself, it was decided in Midland Forge that the law of strict liability in Iowa does not create any remedy for economic losses resulting from a product malfunctioning in its commercial use, especially where neither party appears to have been in an unequal bargaining position. Id.; Accord Iowa Electric, supra, at 27-33. Cf. Boone Valley Coop. Processing Ass'n v. French Oil Mill Mach. Co., 383 F.Supp. 606, 614-15 & n. 6 (N.D.Iowa 1974) interpreting the Iowa Electric case not to preclude a strict liability claim by any plaintiff who is of equal bargaining position with defendant, but rather narrowly construing the Iowa Electric decision to preclude a strict liability claim by a corporate plaintiff seeking to recover solely for economic loss.

It is obvious that, absent any clarification of the Iowa law from the state courts, the federal courts will continue to thrash about almost blindly on this issue. Since such clarification has not come subsequent to the aforeindicated federal decisions, this court is once again required to apply uncertain state law.2 In an attempt to clarify prior federal court holdings, therefore, this court now reads the Iowa law to be that a strict-liability claim will not arise absent allegations of personal injury or damage to property other than the product itself, with the possible exceptions where (1) the parties are of unequal bargaining position or (2) where the plaintiff seeks recovery in addition to "loss of the bargain" and concomitant commercial/economic losses that result only from loss of the bargain (see, e. g., categories of harm (3) and (4) supra). Midland Forge, supra; Boone Valley, supra; ...

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