of state law involves a prognostication subject to the changing indicia of available state law. We adopt the test enunciated by the court in Factors, Etc. and find that a district court is generally bound by the first impression prediction of state law by a Court of Appeals when a) that holding has not been disturbed by an Act of the legislature or a ruling of state court on point and applying state law, and b) the ruling of the Court of Appeals has not overlooked or misapplied available authority.
With this in mind we feel bound by the Fifth Circuit's decision since there is no indication that these holdings have been disturbed by Texas state courts or the Texas legislature, cf. e.g. Waters v. American Automobile Insurance Co., 124 U.S. App. D.C. 197, 363 F.2d 684, 689 (D.C.Cir. 1966), nor does it appear that the decisions in Clark and Garvie, notwithstanding the comments of Judge Rubin, overlook the pertinent state court cases. Factors, Etc. Inc., 652 F.2d at 283.
In the instant case Pipe Systems and Phillips agreed to reduce the limitations period in accordance with article 2.725(a) to one year as set forth at paragraph 7 of the distributor's agreement. Following Clark and Garvie, we find that this action accrued when the pipe liners manufactured by Phillips were delivered to Pipe Systems in May 1981. The third-party complaint filed March 23, 1983 against Phillips therefore is time barred by the terms of the distributor's agreement with respect to the breach of warranty claims. Accordingly, summary judgment will be entered in favor of Phillips as Count II of the third-party complaint.
Pipe Systems also alleges in its third-party complaint that Phillips is strictly liable for defects in the pipe liner. It seeks indemnity or contribution for any amount it is required to pay the plaintiff Hammermill because of defects in the pipe system. Hammermill seeks to recover from Pipe Systems the cost of repairs as well as consequential damages. Phillips demurs on the grounds that an action in tort cannot be sustained where, as here, the damage caused by the good involves only economic loss associated with costs of repair and replacement of the goods.
A noted distinction in products liability law turning on the nature of the harm suffered has arisen which distinguishes those actions based upon traditional contract theories involving warranties of merchantability and fitness for a particular purpose and those based upon tort law theories of strict liability or negligence. Those actions based on economic loss indicative of the contract strain involve attacks upon the suitability or quality of the product and draw damages which include the cost of repair and replacement, and loss of profit. This category is distinguished from actions sounding in tort seeking recovery for physical harm or property damage. Courts have increasingly noted this distinction and have sought to classify cases based upon the nature of the harm suffered. The classification process is an evolving aspect of state law and remains an area characterized by uncertainty within each state and from jurisdiction to jurisdiction.
Pipe Systems' tort claims is not governed by the terms of the distributor's agreement and, accordingly, we are not bound by the provisions requiring the application of Texas law. We must therefore reconsider the choice of law question to determine what state's law should apply to this cause of action.
The principles controlling choice of law determinations in Pennsylvania in tort cases were set forth in the landmark case of Griffith v. Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964). In Griffith, a tort case involving an airplane accident in Colorado, the court departed from Pennsylvania's traditional adherence to the doctrine of lex loci delicti where the place of injury dictated the choice of law determination. The court adopted a flexible two-part analysis which required consideration of both the contacts of each jurisdiction, see Restatement, § 145, and an interest analysis of the relevant state's policies with respect to the controversy. See, Melville v. American Home Assurance Company, 584 F.2d 1306, 1311-13 (3d Cir. 1978). This analysis has been held to be applicable in tort cases involving third-party contribution. See, Elston v. Industrial Lift Truck Co., 420 Pa. 97, 216 A.2d 318 (1966).
In determining which jurisdiction's law should apply in a tort action we look first to the contacts that each jurisdiction has with the subject matter of the lawsuit. In this light, we think there are important factors suggesting that Pennsylvania law should apply. The pipe liner was designed for use in, and made a part of, a pipe system constructed and installed in Pennsylvania for the benefit of the plaintiff, a Pennsylvania corporation. The system was designed to carry effluent from a major industrial plant to a municipal waste treatment plant in anticipation of its eventual discharge into Lake Erie. The alleged defect giving rise to this claim was discovered after installation and after the system was activated. Any damages resulting from the separation of pipes within the system were sustained in Pennsylvania.
In considering the second part of the Griffith analysis we find that this issue of products liability law involves interests and policies which are of considerable consequence to the jurisdiction where the alleged injury occurred. See, Restatement Second, Conflict of Laws, § 147. The classification of products liability cases under strict headings which might preclude an action sounding in tort is an area of law about which Pennsylvania has an abiding interest. In light of the foregoing, we will apply Pennsylvania law to this portion of the third-party plaintiff's claim. See, Osterholt v. St. Charles Drilling Co., 500 F. Supp. 529, 533 (E.D. Mo. 1980).
Courts applying Pennsylvania law have considered the distinction recognized in most jurisdictions between tort recovery for physical injuries and warranty recovery for economic loss. The emerging trend in Pennsylvania has been to examine the "type of harm" suffered in order to determine the appropriate remedy. This approach was most notably articulated by the California Supreme Court in Seely v. White Motor Co., 63 Cal. 2d 9, 403 P.2d 145, 45 Cal. Rptr. 17 (1965) and adopted by the Pennsylvania Superior Court in Industrial Uniform Rental Company, Inc. v. International Harvester Co., 317 Pa. Super. 65, 463 A.2d 1085 (1983). The Court in Seely reasoned that while a consumer should not bear the risk of physical injury from a product, one could be charged with knowledge that a product may not perform up to "economic expectations." 63 Cal. 2d at 18, 403 P.2d at 151.
The Third Circuit has had occasion to consider the Seely rationale. In Posttape Associates v. Eastman Kodak Co., 537 F.2d 751 (3d Cir. 1976), the court held that lost profits resulting from defective film were not recoverable where the damages "arise from a non-dangerous impairment of quality of the product . . ." 537 F.2d at 756, n.5. In Pennsylvania Glass Sand Corporation v. Caterpillar Tractor Co., 652 F.2d 1165 (3d Cir. 1981), the court decided that a fire which damaged a front-end loader involved a hazardous defect compensable under tort law. In Jones & Laughlin Steel Corp. v. Johns Manville Sales Corp., 626 F.2d 280 (3d Cir. 1980), after a discussion of an Illinois UCC provision identical to that found in Pennsylvania, the Court held that a purchaser of a roof could not recover under a strict liability theory based on the roof's poor performance.
Important policy considerations underlie the refusal of courts to extend recovery on strict liability to commercial transactions involving primarily economic loss. Economic loss is nearly always incurred only by the owner of the product, and the owner is generally in a position to guard against such losses by bargaining for warranty protection. The Uniform Commercial Code as adopted in Pennsylvania provides a mechanism through section 2316 to impose reasonable limitations on warranties. To the extent the doctrine of strict liability does not permit such limitations the legislative intent behind the passage of section 2316 would be frustrated were tort remedies made applicable to commercial disputes involving primarily economic loss. As the Pennsylvania Superior Court stated in Industrial Uniform, "the extension of strict liability to cover economic loss in effect would make a manufacturer the guarantor that all of its products would continue to perform satisfactorily throughout their reasonably productive life." Pa.Super. at , 463 A.2d at 1085, see also, Clark v. International Harvester Co., 99 Idaho 326, 335, 581 P.2d 784, 793 (1978).
We find that the damages resulting from the alleged malfunction of the pipe liner supplied by Phillips constitutes an economic or commercial loss of a type protected by the law of warranty. Essentially, the damages which have resulted are to the pipe system itself and the allegations of possible additional damage are unsupported by any evidence.
Pipe Systems submits that the question of whether or not the pipe presented a dangerous or hazardous defect is an issue of fact. It contends that discharge of the untreated sewage resulting from the allegedly defective pipe liner could contaminate the surrounding wetlands and waters and also affect animal and fish life in the area. As a result, Pipe Systems argues that damages may include the fines and penalties associated with violations of the regulations of the Department of Environmental Resources as well as monetary damages to private parties. However, Pipe Systems offers no evidence that would substantiate the likelihood of damages to other property. And although Hammermill has made a claim against Pipe Systems for consequential damages resulting from the pipe liner malfunction, as we have previously noted, any claim for consequential damages against Phillips is specifically precluded by the distributor's agreement executed with Pipe Systems. Pipe Systems' recovery, therefore, is limited to the damage that the product, the pipe liner, has caused to itself. This is a commercial loss of the type protected by the law of warranty. Accordingly, summary judgment is granted in favor of the third-party defendant as to Count I of the third-party complaint.