California on January 24-25, 1978. Sundstrand did stress and fatigue life analyses of a collet finger, which was an aluminum extrusion machined on both the inside and outside surfaces, and certified that the collet finger, as designed, would last well in excess of 250,000 cycles, the required life specified by PPG. Sundstrand's primary stress analyst was Mari Wolf, who was located at the Anaheim, California office of Sundstrand. She was supervised by Benjamin Gay, also located in California. Mari Wolf spent a considerable portion of 1977 in Rockford, Illinois performing the stress analyses, and apparently drafted Sundstrand's reports to PPG in California. Based on Sundstrand's findings, PPG issued various purchase orders to Sundstrand for the manufacture and supply of winders and collets.
After Sundstrand had begun supplying PPG with new winders, PPG inquired of Sundstrand whether less expensive collet fingers, not machined on the inside surfaces [called "as extruded" collet fingers] would still meet the stress and fatigue life criteria. The parties dispute the genesis of the design revision. PPG claims that Sundstrand informed them that they were going to discontinue machining the inside surfaces and would supply "as extruded" collet fingers. Sundstrand claims PPG ordered it to undertake a "Value Engineering Study" to identify strategies to reduce costs. In either event, Sundstrand advised PPG that eliminating the machining of the inside surface could reduce the cost of the collet fingers by 42 percent. PPG alleges that Sundstrand gave it written assurance that the change would not affect the stress and fatigue life of the collet fingers. PPG states that Sundstrand supplied it with at least 354 winders with "as extruded" collet fingers. PPG's complaint alleges that in May, 1986 it discovered that these "as extruded" collet fingers were developing stress cracks below the specified minimum life. They allege that this rendered the collet fingers unfit for further service, causing PPG extensive engineering costs in its efforts to replace all the "as extruded" collet fingers supplied by Sundstrand.
PPG filed this action alleging a breach of the Engineering Services Agreement, causing damage to the collet fingers themselves as well as the cost of replacement. In addition, PPG's complaint contains causes of action in tort. PPG alleges that Sundstrand breached its duty to perform its design work in a professional and non-negligent manner. PPG also claims that the defendant misrepresented by not disclosing that it had not tested the "as extruded" collet fingers, and by insisting that the "as extruded" collet fingers would meet the design criteria.
Sundstrand's motion for partial summary judgment claims that PPG's remedies for the cost of replacement, an economic loss, are defined exclusively in an action under the contract. Therefore, Sundstrand argues, PPG's tort claims fail to state a cause of action for which relief can be granted. PPG responds that choice of law requires that this Court apply the laws of California, Illinois or North Carolina, and not that of Pennsylvania, and that those states would recognize a tort remedy for this loss where the contract is for professional services.
A. Summary Judgment Standard
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment shall be granted if, upon a review of the materials properly before the court, "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Summary judgment may properly be granted in the face of some alleged factual dispute between the parties, because Rule 56(c) requires only that there be no genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202, 211 (1986). While a court must view the evidence in a light most favorable to the non-moving party, Lang v. New York Life Ins. Co., 721 F.2d 118, 119 (3d Cir. 1983), summary judgment must be granted "against a party who fails to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265, 273 (1986); C. Wright, A. Miller, M. Kane Federal Practice And Procedure § 2727 (Supp. 1987).
B. Is Economic Loss Recoverable Under Tort Theory ?
Sundstrand's motion for summary judgment is grounded on the proposition that the cost of replacement of the collet fingers is an economic loss, and "when the failure of a product results only in economic loss, the owner's remedy is in contract and not in tort." Memorandum in Support of Defendant's Motion for Partial Summary Judgment, p. 3. Sundstrand's position enjoys considerable support from the United States Supreme Court in East River Steamship Co. v. Transamerica Delaware, Inc., 476 U.S. 858, 106 S. Ct. 2295, 90 L. Ed. 2d 865 (1986), and the Third Circuit in Aloe Coal Co. v. Clark Equipment Co., 816 F.2d 110, 117 (3d Cir.), cert. denied, 484 U.S. 853, 98 L. Ed. 2d 111, 108 S. Ct. 156 (1987).
In East River, charterers of supertankers brought suit against turbine manufacturers seeking damages from alleged design and manufacturing defects which caused the supertankers to malfunction while on the high seas. 476 U.S. 858, 106 S. Ct. 2295, 90 L. Ed. 2d 865. The suit had originally alleged breach of contract and warranty as well as tort claims for strict liability for design defects and negligent supervision of the installation. Due to statute of limitations defenses, the contract claims were dropped and the suit was brought in tort only. 106 S. Ct. at 2297.
The Supreme Court in East River had to decide whether injury to a product itself may be brought in tort. Noting that product liability law has expanded to afford greater protection from dangerous products than is available under warranty law, the Court commented that "it is clear, however, that if this development were allowed to progress too far, contract law would drown in a sea of tort." 106 S. Ct. at 2300. Justice Blackmun, writing for a unanimous Court, first examined the prevailing majority and minority views. The majority approach, exemplified by Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965) (defective truck), held that preserving a proper role for the law of warranty precludes imposing tort liability if a defective product causes purely monetary harm. East River, 106 S. Ct. at 2301 (also citing Jones & Laughlin Steel Corp. v. Johns-Manville Sales Corp., 626 F.2d 280, 287 and n.13 (3d Cir. 1980). Justice Blackmun then reviewed the minority approach, whose progenitor, Santor v. A and M Karagheusian, Inc., 44 N.J. 52, 66-67, 207 A.2d 305, 312-313 (1965) (marred carpeting), held that a manufacturer's duty to make nondefective products encompassed injury to the product itself, whether or not the defect created an unreasonable risk of harm. Id. The Court rejected the minority view, holding that "a manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring itself." Id.
Explaining why the Court had arrived at the public policy judgment that there should be no tort remedy for economic loss, Justice Blackmun wrote that repair costs, decreased value and lost profit are "essentially the failure of the purchaser to receive the benefit of its bargain - traditionally the core concern of contract law." East River, 106 S. Ct. at 2302. After examining the law's policy concern for spreading costs in products liability cases, Justice Blackmun went on to broader contract law concerns:
Contract law, and the law of warranty in particular, is well suited to commercial controversies of the sort involved in this case because the parties may set the terms of their own agreements. The manufacturer can restrict its liability, within limits, by disclaiming warranties or limiting remedies. See UCC §§ 2-316, 2-719. In exchange, the purchaser pays less for the product. Since a commercial situation generally does not involve large disparities in bargaining power, cf. Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69 (1960), we see no reason to intrude into the parties' allocation of risk.