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KING v. HILTON-DAVIS (05/02/88)

argued: May 2, 1988.

KING, NAAMAN E. AND KING, MARIAN
v.
HILTON-DAVIS, A/K/A HILTON-DAVIS CHEMICAL COMPANY, A DIVISION OF STERLING DRUG, INC.; TERWIN CHEMICALS, INC.; HILTON-DAVIS GROUP AND WASHBURN POTATO COMPANY AND KEARNEY, FRANK S. SR. FRANK S. KEARNEY, SR. & SONS HILTON-DAVIS, APPELLANT



On Appeal From the United States District Court For the Eastern District of Pennsylvania, Civil Action No. 85-0877.

Higginbotham, Stapleton, and Greenberg, Circuit Judges.

Author: Stapleton

Opinion OF THE COURT

STAPLETON, Circuit Judge.

This diversity action brings before us once again the problem of ascertaining the boundary between tort and contract. We find that the plaintiff's product liability claims were for economic loss resulting from injury only to the product itself, and accordingly conclude that the principles of East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 90 L. Ed. 2d 865, 106 S. Ct. 2295 (1986), which we predicted in Aloe Coal Co. v. Clark Equipment Co., 816 F.2d 110 (3d Cir.), cert. denied 484 U.S. 853, 108 S. Ct. 156, 98 L. Ed. 2d 111 (1987), would be adopted by the Pennsylvania courts, require reversal of the district court's denial of defendant-appellant Hilton-Davis' motion for judgment N.O.V.

I.

Naaman and Marion King are Pennsylvania farmers who run a roughly 600-acre farming operation producing, among other things, potatoes. They have been in the farming business for about 36 years. A large part of the Kings' 1983 potato crop failed; they attributed this to the fact that the bulk of the seed potatoes they had purchased that spring had been treated with a chemical by the name of Fusarex. The Kings sued Hilton-Davis, the manufacturer of Fusarex, in tort, alleging that Hilton-Davis failed to warn the Kings properly about Fusarex and that this failure to warn was not only negligent but rendered the company strictly liable as well. The jury found in favor of the Kings on both the negligence and strict liability counts. On appeal, Hilton-Davis raises a variety of challenges to the jury's verdict. We address only Hilton-Davis' argument that the character of the Kings' loss is such that no recovery for it in tort is possible under Pennsylvania law.

Seed potatoes are harvested in fall and stored over the winter, then cut up and planted in the spring. Stored seed potatoes should not be allowed to sprout; they will generally remain dormant naturally, putting out no sprouts, if kept at certain constant, relatively low temperatures. To ensure dormancy, seed potatoes may be treated with a sprout suppressant.

Fusarex is a sprout suppressant which has been in use in the United States since the 1950s. It is a tan, clay-based powder, 94% inert and 6% active, which is applied to seed (or other) potatoes as they are put into storage. After the Fusarex powder is put on the potatoes, its active element slowly forms a gas which surrounds the potatoes. It is this gas which inhibits sprouting, though just how it does so is not known. Come spring, the seed potatoes are removed from storage, cut up, and planted. If the remaining Fusarex is not to some extent -- precisely how much is also not -- known removed from the seed potatoes before planting, sprouting may continue to be inhibited, so that the planted seed potatoes may not sprout at all or may not grow well if they do sprout. The remaining Fusarex is removed by ventilation.

In fall of 1982, the Kings contracted with Washburn Potato Company, a potato dealer located in Maine, to buy Katahdin seed potatoes for the 1983 season. As was its usual practice, Washburn had at that time not yet made any arrangement concerning who would actually supply the seed potatoes to be sold to the Kings, instead waiting to see which supplier would have a good-quality crop of the desired potato variety available in early 1983. Some of Washburn's suppliers treated their seed potatoes with Fusarex, and others did not. In general, between 70% and 75% of seed potato growers use Fusarex on some part of their crops. The Maine grower who eventually supplied the Kings' seed potatoes, Mr. Kearney, had treated his potatoes with Fusarex before putting them into storage in the fall of 1982, Kearney bought the Fusarex he used from Hilton-Davis.

The rate of application recommended for Fusarex by Hilton-Davis is one pound of the chemical per 600 pounds of potatoes. This application rate results in a whole-potato concentration of 100 parts per million. The EPA allows a whole-potato Fusarex concentration of 25 ppm in food. Because Kearney had in prior years obtained proper sprout suppression using considerably less Fusarex than recommended by the manufacturer, in fall of 1982 he applied to his seed potatoes only three pounds of Fusarex per 14,000 pounds of potatoes. This resulted in a whole-potato concentration of 15 ppm at the time the Kings bought the seed potatoes. The parties stipulated that at the time of planting, the seed potatoes had a whole-potato concentration of .71 ppm of Fusarex, and a peel concentration of between 4.8 and 6.8 ppm.

At the time he collected his seed potatoes from Kearney, Mr. King was provided by Kearney with a state certificate of inspection upon which was noted the fact that the potatoes had been treated with Fusarex. King testified that he was not familiar with Fusarex at that time and assumed that its sole purpose was to prevent rot. Conflicting evidence was presented at trial as to whether Kearney and King discussed Fusarex and whether Kearney gave King a Fusarex bag complete with label.

The Kings annually devote about 150 acres of their land to potatoes; between April 27th and May 4th of 1983, they planted about 96 of these acres with the Fusarex-treated seed potatoes bought from Washburn and supplied to Washburn by Kearney. Two-thirds of this planting completely failed to sprout, and the third that did sprout ultimately gave a very poor yield.

The Kings brought suit against Hilton-Davis, Washburn, and Kearney over this crop failure. The Kings sued Hilton-Davis and Washburn both in tort, based on theories of strict liability and negligence, and in contract, based on breach of warranty. The suit against Kearney was dismissed for lack of personal jurisdiction. The action against Hilton-Davis and Washburn went to trial, and the jury returned a verdict in favor of the Kings against both defendants. The jury found Hilton-Davis 85% negligent and strictly liable; it found Washburn 15% negligent, but not liable for ...


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