United States District Court, M.D. Pennsylvania
October 19, 2005.
FIDELITY & DEPOSIT COMPANY OF MARYLAND and WAYPOINT FINANCIAL CORPORATION, Plaintiffs
INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant.
The opinion of the court was delivered by: J. SMYSER, Magistrate Judge
MEMORANDUM AND ORDER
The plaintiff Waypoint Bank purchased an IBM computer. The
computer allegedly malfunctioned. The malfunction allegedly
caused a loss of electronic data. The plaintiffs' complaint is
based upon this incident and the alleged loss of electronic data.
The plaintiffs seek compensation for service charges for
restoration of the lost data. The amount of the loss is stated as
$178,728.72. A count (I) is based upon a negligence theory, a
count (II) is based upon a strict liability theory, and a count
(III) is based upon a theory of a breach of implied and express
The defendant has by motion asked the court to dismiss Counts I
and II on the grounds that only economic damages are involved
here and on the grounds that the gist of this civil action is a
breach of contract. This case was initially brought in the Court of Common Pleas of
Dauphin County and was removed to this court. A motion to remand
to state court was denied. Defendant IBM was served on July 15,
The motion to dismiss the complaint now under consideration was
filed on August 4, 2005. Doc. 25. A supporting brief was filed on
August 8, 2005. Doc. 27. A brief in opposition was filed on
August 19, 2005. Doc. 28. A reply brief was filed on September 2,
2005. Doc. 30.
The court has jurisdiction of this civil action under
28 U.S.C. § 1332. The parties agree that the applicable law is Pennsylvania
The issues presented by this motion are whether the economic
loss doctrine requires that Count I and Count II be dismissed
and, if not, whether the gist of the action doctrine requires
A motion to dismiss pursuant to Rule 12(b)(6) challenges the
legal sufficiency of the plaintiff's complaint; the court must
decide whether, even if the plaintiff were able to prove all of
his allegations, he would be unable to prevail. Mortensen v.
First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977).
In a Rule 12(b)(6) motion to dismiss for failure to state a claim
upon which relief can be granted, the burden is on the moving
party to show that there is no actionable claim. Johnsrud v. Carter, 620 F.2d 29, 33 (3d Cir.
1980). When deciding a motion to dismiss, the court must accept
all material allegations of the complaint as true and draw all
inferences in the light most favorable to the plaintiff.
Pennsylvania House, Inc. v. Barrett, 760 F. Supp. 439, 449
(M.D. Pa. 1991). However, "conclusory allegations of law,
unsupported conclusions and unwarranted inferences need not be
accepted as true." Id. at 449-50. A complaint should not be
dismissed for failure to state a claim upon which relief can be
granted unless it appears beyond doubt that the plaintiff can
prove no set of facts in support of his claim which would entitle
him to relief. Conley v. Gibson, 355 U.S. 41, 44-46 (1957);
Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988).
The facts relevant to this motion, as alleged in the complaint,
are that defendant International Business Machines Corporation
manufactured a computer which was acquired by the plaintiff
Waypoint Bank. On October 8, 2002, there was a computer shut down
and data stored in the AS400 computer was lost. IBM acknowledged
that the computer was defective and replaced it. Waypoint
incurred service charges of $178,728.72 for restoration of data.
Fidelity and Deposit Company of Maryland made payment, under
Waypoint's policy of insurance with Fidelity and Deposit Company
of Maryland, to Waypoint of $173,728.72. Waypoint sustained its
(deductible) loss of $5,000.00. The complaint avers that the
plaintiffs' loss was caused by the negligence, carelessness and other liability
producing conduct of the defendant.
The defendant argues that the economic loss doctrine bars the
tort claims stated in Counts I and II. The economic loss doctrine
provides that where a product injures only itself, and not any
person or other property, the loss is purely economic and any
claim arising out of the loss sounds in contract and not in tort.
Lucker Mfg. v. Milwaukee Steel Foundry, 777 F.Supp. 413, 415
(E.D. Pa. 1991), appeal dismissed, 983 F.2d 1051 (3d Cir.
1992); Spivack v. Berks Ridge Corp., Inc., 586 A.2d 402, 405
(Pa.Super.Ct. 1990); General Pub. Util. v. Glass Kitchens of
Lancaster, Inc., 542 A.2d 567, 570 (Pa.Super.Ct. 1988). See
also East River S.S. Corp. v. Transamerica Delaval Inc.,
476 U.S. 858 (1986) (holding, under admiralty law, 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.").
One of the rationales for the economic loss doctrine is that
claims for only economic loss are appropriately brought as breach
of contract or warranty claims rather than as tort claims. "[I]f
a claim is in essence one arising from `failed economic
expectations,' i.e. expectations that the product would perform
in the manner warranted, then tort recovery is inappropriate."
Wellsboro Hotel Co. v. Prins, 894 F.Supp. 170, 175 (M.D. Pa. 1995) (McClure, J.). Another rationale of the
economic loss doctrine is to avoid boundless litigation:
To allow a cause of action for . . . purely economic
loss would be to open the door to every person in the
economic chain of the negligent person or business to
bring a cause of action. Such an outstanding burden
is clearly inappropriate and a danger to our economic
Aikens v. Baltimore & Ohio R.R. Co., 501 A.2d 277, 279
Although the Pennsylvania Supreme Court has not had the
opportunity to decide whether it would accept the economic loss
doctrine, both the Pennsylvania Superior Court and the United
States Court of Appeals for the Third Circuit have predicted that
the Pennsylvania Supreme Court would adopt the economic loss
doctrine. REM Coal Co., Inc. v. Clark Equip Co., 563 A.2d 128
(Pa.Super.Ct. 1989); Aloe Coal Co. v. Clark Equip. Co.,
816 F.2d 110, 117 (3d Cir. 1987), cert. denied, 484 U.S. 853
The defendant's argument for the application of the economic
loss doctrine is that the negligently manufactured or defective
computer injured only itself in that the lost electronic data was
integrated into the computer system so as to be a part of the
computer itself and not other property. The point of disagreement
of the parties in the application of the economic loss doctrine
to this set of facts is whether the data stored in the computer
is a part of the property (the computer) itself. In REM Coal Co.
v. Clark Equipment Co., supra, the Court held that the economic loss doctrine bars a
tort claim against a manufacturer of a product when the resulting
damage is limited to the loss of the product itself. Both parties
agree on the applicability of the REM Coal case and its
rationale to this case.
The plaintiff asserts that it has found no Pennsylvania
appellate decision holding that computer retained data is
"integrated" into the computer such that it is deemed part of the
product itself. No Pennsylvania decision is cited, however, that
holds that computer retained data is not "integrated" or that it
is not a part of the product itself. We view the data entered
into the computer to be a part of the computer and not a separate
item of property.
The conceptualization of the data as other property,
independent of the computer and merely being stored in the
computer, calls out for a description of the nature and
characteristics of the "other property." The plaintiff has not
undertaken in its brief to supply a definition or description of
the data as property separate from the computer itself. The
plaintiff's analogy is to the contents of a building when the
building is defectively constructed. Such tangible contents, such
as boxes stored in a warehouse, can be objectively defined and
described as entities separate from the defective product.
Computer retained data and programming has no tangible physical
character and so can not be described in tangible physical terms.
Unlike tangible and separable physical property, data entered into the computer is entered into the computer to become
in a significant way a part of the computer, and to be in various
ways transformed by the computer. (The data in its form prior to
entry, we note, may also be maintained in duplicate outside of
We consider the application of the economic loss doctrine to be
correct because there is no way to establish the exact nature of
the "other property" insofar as the "other property" is data
stored in the computer. This means that litigation involving the
valuation of the lost property could be boundless and burdensome.
Where as here the data can be (and has been) restored, the cost
of restoration is an appropriate part of breach of contract
damages and moreover the process of restoration itself
establishes the fact of loss. If lost data is seen to give rise
to a broader range of tort claim putative damages, the proof of
the nature and value of this destroyed "other property" will give
rise to very difficult proof and valuation problems. Although
neither party's brief addresses the nature and extent of monetary
damages that the plaintiff may be claiming beyond the recovery of
the cost of the computer and of restoring the lost data, the
potential economic loss based upon lost computer data could in
imaginable cases be great.
We do not agree with the plaintiff that the stronger argument
is that the data stored within a computer is not integrated into the computer system so as to become part of the
computer itself rather than other property.
The defendant argues that, alternatively, Counts I and II
should be dismissed because the gist of this action lies in
contract and not in tort. This argument is not reached, because
we have decided that Counts I and II must be dismissed under the
economic loss doctrine.
For the reasons stated herein, IT IS ORDERED that the
defendant's motion is GRANTED and that Counts I and II of the
complaint are DISMISSED.
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