MEMORANDUM AND ORDER
April 12, 1995
This diversity case has been brought before the Court by motion of the defendant, Addco, which seeks dismissal of Counts III, IV and VI of the plaintiff's complaint pursuant to Fed. R. Civ. P. 12(b)(6). Further, Addco seeks the dismissal of both Count V to the extent it contains a claim for negligent misrepresentation and Plaintiff's claims for punitive damages. For the reasons that follow, the defendant's motion to dismiss will be granted in part.
I. HISTORY OF THE CASE
The issue for the Court is whether Plaintiff has stated a claim on which relief can be granted; thus, we must take as true all of the factual allegations made in the complaint. ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994). Accordingly, the facts giving rise to this lawsuit are as follows. The plaintiff in this case is Eagle Traffic Control ("Eagle"), a Pennsylvania corporation in the business of providing safety equipment to highway work sites pursuant to various contracts. In the course of performing one of these contracts, Eagle sought to purchase a number of flip disk boards and a light emitting diode ("LED") board. A flip disk board is a diesel and battery powered sign that displays messages of warning or instruction to motorists near worksites, and an LED board flashes programmed messages to motorists.
Addco submitted a bid in which it assured Eagle that the diesel fuel consumption rate on the flip disk boards was reasonable and that the products were generally free from defect. Relying on this information, Eagle purchased 15 flip disk boards and one LED board from Addco, which were subsequently deployed at a worksite in Delaware. The products were covered by a two year warranty. Soon after the signs were placed in operation, however, Eagle discovered that the fuel consumption rate was significantly higher than promised, and that the signs frequently malfunctioned. As a result of these difficulties, Eagle claims losses in the form of: (1) fuel costs significantly higher than expected, (2) lost per diem charges for board operation, (3) the cost of replacing an LED board, (4) maintenance costs that should have been covered by the warranty, and (5) damage to its reputation.
On December 6, 1994, Eagle initiated the instant action by filing a complaint in this Court pursuant to our diversity jurisdiction. See 28 U.S.C. § 1332. The complaint contains six counts, four of which are at issue here.
In Count III, Eagle alleges that Addco was negligent in its manufacture of the products, causing harm to Eagle as well as potential harm to persons traveling in the vicinity of the affected worksites. The fourth count contains the assertion that Addco is liable under a strict liability theory. In Count V, Eagle alleges that Addco made knowing or negligent misrepresentations regarding the characteristics and capabilities of the products. Finally, in Count VI, the plaintiff seeks compensatory and punitive damages for Addco's alleged disparagement of the name of Eagle Traffic Control. Addco has since filed the instant motion to dismiss, in which it argues (1) that the claims for negligence, strict liability, and negligent misrepresentation are barred by the economic loss rule; (2) that Eagle has failed to state a claim on which relief can be granted with respect to its trade disparagement claim; and (3) that Eagle has failed to state a basis for the imposition of punitive damages. With this background in mind, we turn now to the merits of the parties' arguments.
A.Standards Applicable to a Rule 12(b)(6) Motion
In considering a motion to dismiss pursuant to Rule 12 (b)(6), the complaint's allegations must be construed favorably to the pleader. The court must accept as true all of the plaintiff's factual allegations and draw from them all reasonable inferences. Schrob v. Catterson, 948 F.2d 1402, 1405 (3d Cir. 1991)(citations omitted). Thus, the court will grant a Rule 12(b)(6) motion only if the non-moving party cannot prevail legally under the set of facts alleged. Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990). In deciding this motion, this Court will apply these standards to each of the disputed claims in Eagle's complaint.
B.Negligence, Strict Liability, and Negligent Misrepresentation Claims
As we noted above, Eagle has brought claims for negligence, strict liability and negligent misrepresentation. Under the law of both Pennsylvania and Delaware,
there is no recovery under the tort theories of negligence, strict liability or negligent misrepresentation "where a product malfunctions because of an alleged defect in the article and causes damage to the product itself and consequential damages in the nature of cost of repair or replacement or lost profits, but the malfunction causes no personal injury and no injury to any other property of the plaintiff." Lower Lake Dock Co. v. Messinger Bearing Corp., 395 Pa. Super. 456, 577 A.2d 631, 634 (1990) (citing REM Coal Co. v. Clark Equipment Co., 386 Pa. Super. 401, 563 A.2d 128 (1989)(en banc)); see Danforth v. Acorn Structures, Inc., 608 A.2d 1194, 1198 (Del. 1992)(noting that "under Delaware tort law, the economic loss doctrine is a complete bar to the recovery of economic loss caused by qualitatively defective products"); Palco Linings, Inc. v. Pavex, Inc., 755 F. Supp. 1269, 1273-74 (M.D. Pa. 1990)(under Pennsylvania law, no action permitted for negligent misrepresentation where losses claimed are purely economic).
These cases draw their strength from the United States Supreme Court's decision in East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 90 L. Ed. 2d 865, 106 S. Ct. 2295 (1986). In East River, the Court held 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. at 871. The Court reasoned that the impetus behind the application of tort law is significantly abated where there has not been an allegation of harm to person or property, since tort law is concerned primarily with safety. Id. In other words, tort law is not intended to compensate parties for losses suffered as a result of a breach of a duty assumed pursuant to an agreement, but is instead designed to protect persons and property from injury. On the other hand, the Court noted that contract law, and warranty law in particular, is better suited to disputes involving claims where defective products cause purely economic harm because it allows the parties to set the terms of their agreements. Id. at 872-73. Thus, the Court concluded that no negligence or strict products liability claim could lie where the only harm alleged is economic loss.
As we noted above, Eagle alleges that it incurred losses in the form of higher fuel costs, lost per diem charges, replacement and maintenance costs, and damage to its reputation, all of which fit within the ambit of economic loss. See Lucker Mfg. v. Milwaukee Steel Foundry, 777 F. Supp. 413, 416 (E.D. Pa. 1991)(loss of goodwill is an economic loss for which there can be no recovery in tort under the economic loss rule); Lower Lake Dock, 577 A.2d at 634 (economic loss includes "cost of repair or replacement or lost profits"). Thus, it would appear that Eagle's claims sounding in tort must be dismissed. In an effort to avoid this precedent, however, Eagle cites the Delaware Superior Court's decision in Guardian Constr. Co. v. Tetra Tech Richardson, Inc., 583 A.2d 1378 (Del. Super. Ct. 1990), for the proposition that courts in Delaware recognize an exception to the economic loss rule. The defendant in Guardian was a design engineer that had been hired by the state to provide specifications relating to a construction project. A general contractor, one of the plaintiffs, used the specifications to prepare the bid and to subcontract some of the work. It was later determined that the specifications were faulty, resulting in added costs to the plaintiffs. In allowing the suit to go forward, the court adopted the Restatement (Second) of Torts § 522 (1977)
and held as follows:
If, in the course of its business, [Defendant] negligently obtained and communicated incorrect information specifically known and intended to be for the guidance of Plaintiffs, and if it is specifically known and intended that Plaintiffs would rely in calculating their project bids on that information, and if Plaintiffs rely thereon to their detriment, then [Defendant] should be liable for foreseeable economic losses sustained by Plaintiffs regardless of whether privity of contract exists.