Travelers Indem. Co. v. Dammann & Co., Inc.

• Decision Date: 05 February 2010
• Docket Number: No. 09-1225.,09-1225.
• Parties: The TRAVELERS INDEMNITY COMPANY v. DAMMANN & CO., INC. and International Flavors & Fragrances Inc. Dammann & Co., Inc. v. Cooperative Business International, Inc. and Nationwide Mutual Insurance Company International Flavors & Fragrances Inc., Appellant.
• Court: U.S. Court of Appeals — Third Circuit

594 F.3d 238

The TRAVELERS INDEMNITY COMPANY v. DAMMANN & CO., INC. and International Flavors & Fragrances Inc.

Dammann & Co., Inc. v. Cooperative Business International, Inc. and Nationwide Mutual Insurance Company

International Flavors & Fragrances Inc., Appellant.

No. 09-1225.

United States Court of Appeals, Third Circuit.

Argued December 2, 2009.

Filed February 5, 2010.

Robert G. Rose (Argued), Day Pitney, Morristown, NJ, for Appellant, International Flavors & Fragrances Inc.

Frank E. Borowsky, Jr. (Argued), Michael J. Frantz, Jr., Borowsky & Borowsky, Shrewsbury, NJ, for Appellee, The Travelers Indemnity Company.

Peter M. Bouton, William H. Mergner, Jr. (Argued), Leary, Bride, Tinker & Moran,

Cedar Knolls, NJ, for Appellee, Dammann & Co.

George A. Prutting, Jr. (Argued), Prutting & Lombardi, Audubon, NJ, for Third Party Appellee, Cooperative Business International, Inc.

Richard D. Millet, Richard D. Millet & Associates, Bridgewater, NJ, for Third Party Appellee, Nationwide Mutual Ins. Co.

Before: FISHER, HARDIMAN and STAPLETON, Circuit Judges.

OPINION OF THE COURT

FISHER, Circuit Judge.

The Travelers Indemnity Company sought a declaration in federal court that it was not obligated to cover any claims asserted against its insured, Dammann & Co., Inc., by International Flavors & Fragrances Inc. ("IFF"). More than three years after Travelers initiated this lawsuit, IFF sought leave to assert various crossclaims against Dammann. The District Court denied that request on futility grounds, concluding that the proposed crossclaims either were time-barred or failed to state a claim. IFF now appeals the District Court's denial of its request. Seeing no abuse of discretion in the District Court's ruling, we will affirm.

I.

Dammann is a producer of raw foods, including vanilla beans. IFF manufactures, among other things, food and beverage flavoring, including vanilla extract. Dammann agreed, via a written contract, to sell vanilla beans to IFF and delivered shipments in January 2004. IFF incorporated those beans into its vanilla extract, which it later sold to several of its customers. In February 2004, IFF learned that some of the beans may have contained mercury. Subsequent tests confirmed as much. In May 2004, IFF sent a letter to Dammann claiming more than five million dollars in damages in connection with the contaminated beans. Dammann thereafter sought coverage from Travelers, its insurer, for liability arising out of IFF's claim.

In November 2004, Travelers commenced this action by filing a one-count complaint against Dammann and IFF in the United States District Court for the District of New Jersey. Travelers sought a declaration that the insurance policy it had sold to Dammann did not cover IFF's damages claim. Dammann subsequently filed a counterclaim against Travelers, seeking a declaration that Travelers was obligated to cover IFF's claim and asserting additional claims for breach of contract, breach of fiduciary duty, and breach of the duty of good faith and fair dealing. Dammann also filed a third-party complaint against Cooperative Business International, Inc. ("CBI"), and CBI's insurer, Nationwide Mutual Insurance Company. In its third-party complaint, Dammann alleged it had bought the contaminated beans from CBI and sought indemnification from CBI — or from Nationwide — for any liability Dammann might incur as a result of IFF's claim.

In June 2007, Travelers moved for summary judgment on its declaratory judgment claim. The District Court denied that motion, concluding that a portion of IFF's claim was covered by Dammann's insurance policy with Travelers and that another portion was potentially covered by the policy.

In February 2008, IFF sought leave to file crossclaims for breach of express warranty, breach of implied warranty, and product liability against Dammann. Dammann and CBI both opposed the motion. In August 2008, Magistrate Judge Shipp denied IFF's motion.¹ Judge Shipp noted that IFF's February 2008 request came more than four years after its January 2004 receipt of the beans but less than four years after its February 2004 discovery of the contamination. The Uniform Commercial Code ("U.C.C."), which Judge Shipp determined was applicable, imposes a four-year statute of limitations, see U.C.C. § 2-725(1), and provides that a cause of action accrues at the time of the breach except where a warranty expressly extends to future performance, id. §§ 2-725(2)(a), (3)(c). Judge Shipp concluded there was no such express extension in IFF's contract with Dammann and that, as a consequence, IFF's breach of warranty crossclaims were untimely. With respect to IFF's product liability crossclaim, Judge Shipp reasoned that it was barred by the economic loss doctrine. Judge Shipp also found that IFF had exhibited undue delay in seeking leave to file crossclaims. For all these reasons, Judge Shipp denied IFF's motion.

IFF appealed Judge Shipp's ruling to the District Court. Before the District Court disposed of that appeal, IFF filed a brief "in further support" of its appeal. In that supplemental brief, IFF reiterated its challenge to Judge Shipp's ruling and sought permission to assert not only the breach of express warranty, breach of implied warranty, and product liability crossclaims it had previously sought to assert, but also express indemnification and implied indemnification crossclaims, all against Dammann.

In October 2008, Travelers and Dammann stipulated to the dismissal of each other's claims.

In November 2008, the District Court held a hearing on IFF's appeal of Judge Shipp's ruling and its request to file additional crossclaims. In December 2008, the District Court rejected IFF's appeal and denied its request to assert any crossclaims, concluding they were futile because they were either time-barred or insufficiently pled. Travelers Indem. Co. v. Dammann & Co., Inc., 592 F.Supp.2d 752 (D.N.J.2008). The District Court did not address Judge Shipp's finding that IFF had unduly delayed in seeking leave to assert crossclaims.

This timely appeal followed. On appeal, IFF argues that it should have been permitted to proceed on its product liability as well as express and implied indemnification crossclaims. IFF does not challenge the District Court's denial of its request to assert breach of express and implied warranty crossclaims.

II.

The District Court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction under 28 U.S.C. § 1291.² We review a district court's denial of a request for leave to file new claims for abuse of discretion. See Winer Family Trust v. Queen, 503 F.3d 319, 325 (3d Cir.2007).³ "`Futility' means that the complaint, as amended, would fail to state a claim upon which relief could be granted." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir.1997) (citation omitted). In determining whether a claim would be futile, "the district court applies the same standard of legal sufficiency as applies under [Federal] Rule [of Civil Procedure] 12(b)(6)." Id. (citation omitted). "[I]f a district court concludes that an amendment is futile based upon its erroneous view of the law, it abuses its discretion." Abbott v. Latshaw, 164 F.3d 141, 149 (3d Cir.1998) (quotation marks and citation omitted); see also Smith v. NCAA, 139 F.3d 180, 190 (3d Cir.1998) ("If a district court concludes that an amendment is futile based upon its erroneous view of the law, it abuses its discretion in denying a plaintiff leave to amend to include a legally sufficient allegation." (citation omitted)), vacated on other grounds, 525 U.S. 459, 119 S.Ct. 924, 142 L.Ed.2d 929 (1999).

III.

A. IFF's Proposed Product Liability Crossclaim

IFF argues that the District Court erred in denying its request to assert a product liability crossclaim. The District Court agreed with Judge Shipp that IFF's crossclaim sounded in contract and thus was governed by the U.C.C. and its four-year statute of limitations. The Court rejected IFF's contention that its crossclaim sounded in tort and was therefore governed by the New Jersey Product Liability Act ("NJPLA"), N.J. Stat. Ann. § 2A:58C-1 et seq., and New Jersey's accompanying six-year statute of limitations for tort claims. See N.J. Stat. Ann. § 2A:14-1.⁴ In making these determinations, the District Court reviewed New Jersey's economic loss doctrine. While recognizing that New Jersey law was unsettled on this point, the District Court, after surveying the law in other jurisdictions, predicted that the Supreme Court of New Jersey would interpret that doctrine to bar tort claims where a plaintiff seeks economic damages for foreseeable losses for which the plaintiff could have contractually allocated risk. Concluding that IFF was just such a plaintiff, the District Court reasoned that the economic loss doctrine barred application of the NJPLA in this case.

Under the NJPLA, "[a] manufacturer or seller of a product shall be liable in a product liability action only if the claimant proves by a preponderance of the evidence that the product causing the harm was not reasonably fit, suitable or safe for its intended purpose[.]" N.J. Stat. Ann. § 2A:58C-2.⁵ The statute defines "harm," in pertinent part, as "physical damage to property, other than to the product itself[.]" N.J. Stat. Ann. § 2A:58C-1(b)(2)(a). While the NJPLA defines "harm," it does not explain the meaning of "physical damage to property, other than to the product itself." No New Jersey court has delineated the contours of "the product itself" and "other property" as contemplated by the NJPLA.

Under New Jersey law, the economic loss doctrine "defines the boundary between the overlapping theories of tort law and contract law by barring the recovery of purely economic loss in tort, particularly in strict liability and negligence cases." Dean v. Barrett Homes, Inc., 406 N.J.Super. 453, 968 A.2d 192, 202 (2009) (quotation marks and citation omitted), cert. granted, 200 N.J. 207, ...