September 9, 1983 for the construction of a "co-generation power plant" at its Lockhaven, PA mill. The contract was for the installation of new equipment and the upgrading of existing Boilers Nos. 1 and No. 2 for production of steam at higher pressure and temperatures.
C. T. Main Construction, Inc. subcontracted the upgrading of the boiler to the original manufacturer of the boilers, Riley Stoker, Inc. This work included, as pertinent to this case, the alteration of the superheater elements of the boilers. These are steel tubes located inside the boiler which are exposed to the gas and fire of the boiler and served to superheat the steam passing through them. The specifications called for a design to allow a temperature of 770 degrees at a pressure of 650 p.s.i.g. According to the Complaint, the project was completed and went into production in October 1984.
In May of 1985, Hammermill began to experience difficulties from ruptures of the superheater tubes in Boiler No. 2. Seven of the tubes in Boiler No. 2 ruptured in the next seven months, and had to be repaired. Boiler No. 1 also required repairs. Plaintiff claims damages, both direct for replacement, and consequential including production losses, additional production costs, loss of revenue, and legal and engineering costs.
Plaintiff has sued on causes of action of strict tort liability, negligence and breach of implied warranties.
Plaintiff sued C. T. Main Construction, Inc., the contractor; The C. T. Main Corporation, its parent company; Riley Stoker Corp. and its parent company, Ashland Technology, Inc., now called ATEC, Inc.
Defendants Riley Stoker Corp. and C. T. Main Construction, Inc. have moved for Judgment on the Pleadings, or in the alternative, for Partial Summary judgment. Because evidentiary materials have been filed in support of the motion, the court will determine the matter under F.R.Civ.P. 56.
Movants allege that this case is concerned solely with economic loss for which no cause of action exists under theories of negligence or strict liability because no injuries to persons or property resulted from the failure of the boiler. Defendants also move for partial summary on the limitation of warranties and recoverable damages for breach of warranty if a breach is established.
We will consider each part of the motion separately. The matter has been fully briefed and supported by evidentiary material. There appears to be no genuine issue of material fact and the matter is ripe for summary judgment.
The Tort Claims
This is a diversity action and Pennsylvania law applies to the tort claims.
Since the adoption of the rule of strict liability imposed on manufacturers and sellers by Sec. 402A Restatement (2nd) of Torts by the Pennsylvania Supreme Court in Webb v. Zern, 422 Pa. 424, 220 A.2d 853 (1966), the rule has undergone judicial construction to define the nature of the harm caused by the defective product. A distinction was drawn between those cases resulting in physical injury to persons and damage to other property as distinguished from economic loss from the deterioration of the product itself. The states have divided in their interpretation of the Restatement Rule as applied to the property itself.
In New Jersey, it was held that the unexpected deterioration of carpeting gave rise to strict liability, Santor v. A & M Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305(1935).
In California, a landmark case established a rule that has been followed in a majority of states, that economic loss alone caused by the deterioration or malfunction of the product itself, without injury to persons or damage to other property would not support a cause of action for strict liability. Seely v. White Motor Co., 63 Cal. 2d 9, 403 P.2d 145, 45 Cal. Rptr. 17 (1965).
This question has spawned lively judicial and academic debate about the proper scope of § 402A of the Restatement (Second) of Torts as opposed to the provisions of the Uniform Commercial Code. Thankfully, we need not predict how Pennsylvania courts would decide this issue since the Third Circuit has recently undertaken this task and we need merely follow their lead. See Aloe Coal Company v. Clark Equipment Company, 816 F.2d 110 (3d Cir. 1987). In the Aloe Coal case, the Circuit Court rejected its earlier position on this issue enunciated in Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165 (3d Cir. 1981), holding that Pennsylvania courts would adopt as state law the Supreme Court's reasoning in East River Steamship Corp. v. Transamerica Delaval, 476 U.S. 858, 54 U.S.L.W. 4649, 90 L. Ed. 2d 865, 106 S. Ct. 2295 (1986). In so deciding, the Third Circuit concluded that the fire damage to a tractor shovel in the Aloe Coal case was not recoverable under Pennsylvania law on a theory of negligence, and that the buyer's remedies were limited to those available under the law of warranty. In the case at hand, as in the Aloe Coal case, the plaintiff seeks neither damages for personal injury nor for property damage other than loss of the defective superheater tubes. No other component of the boiler was damaged. See Deposition of Daniel N. Murry, p. 40. The threatened risk of harm to personnel and the fact, accepted for purposes of this motion, that failure of the super heater tubes results in failure of the boiler does not change our conclusion that the plaintiff's loss is purely economic. Under the current Third Circuit decision in Aloe Coal, the plaintiff is limited to its warranty remedies.
The Warranty Claim
The movants argue that limitations and disclaimers in the pertinent contracts in this case preclude Hammermill from basing this action on breach of implied warranties, and that they restrict the damages claimed. Plaintiff responds that there are no limitations in any warranties on which it relies, and that limitations clauses in various contract documents advanced by defendants are not applicable to it because it was not a party to these documents.
I. Implied Warranties Claim
Plaintiff's complaint does not rely on any express warranty language which has been breached but seeks to impose liability on defendants based on the implied warranties of fitness and/or merchantability. Complaint, para. 16. Both defendants strongly argue that the limitation of warranties language in Riley Stoker's subcontract with C. T. Main Construction clearly and conspicuously excludes such warranties, and precludes Hammermill from bringing an action based on breach of implied warranties. Paragraph 11(f) of the Riley Stoker Proposal (See Appendix, P. 18) indicates in bold print that:
THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES WHETHER WRITTEN, ORAL OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PURPOSE.