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Integrity Carpet Cleaning, Inc. D/B/A Leather Pro v. the Bullen Companies

January 5, 2011

INTEGRITY CARPET CLEANING, INC. D/B/A LEATHER PRO, PLAINTIFF
v.
THE BULLEN COMPANIES, DEFENDANT



The opinion of the court was delivered by: Stengel, J.

MEMORANDUM

This breach of contract action was originally filed in the Circuit Court of Jackson County, Missouri and was then removed by the defendant to the United States District Court for the Western District of Missouri. Upon joint motion of the parties, it was transferred to this court in August of 2008. Discovery was completed in March of 2010 and the defendant filed a motion for summary judgment.For the following reasons, I will grant the motion in part and deny it in part.

I. BACKGROUND*fn1

Plaintiff, Integrity Carpet Cleaning d/b/a Leather Pro, is in the business of marketing and selling leather cleaning products and teaching about the process of cleaning leather. Pl.'s Resp. To Def.'s Statement of Material Facts ("Pl.'s SF") ¶ 1. In 2006, Leather Pro hired The Bullen Companies to engineer, manufacture, and bottle custom leather cleaning and maintenance products. Def.'s Statement of Material Facts ("Def.'s SF") ¶ 3. Leather Pro provided samples of products it wanted Bullen to create, and instructed Bullen that it sought "mirror images" of the samples provided, but which performed better, were water-based, and smelled like leather. Pl.'s SF ¶ 6. Later in 2006, Leather Pro contracted to sell Bullen's products to a third party, Stanley Steemer, for use in "Leather Cleaning Kits." Def.'s SF ¶ 4. Stanley Steemer had precise requirements for the chemical makeup of the products, and communicated these requirements to Leather Pro. Pl.'s SF, ¶ 8. For a period of several months, Bullen sent samples of the products to Leather Pro for field testing. Id. at ¶ 9. Lonnie McDonald, Leather Pro's President, testified that the field testing encompassed only testing for whether the products met basic use requirements, i.e. whether the products cleaned, repelled water, or repelled oil. Dep. Of Lonnie McDonald 18:18--19:18. He specifically stated that he relied on Bullen to create a chemical formula meeting the requirements set forth by Stanley Steemer. Pl.'s SF ¶ 9.

Leather Pro ultimately placed orders for five separate products for use in the Stanley Steemer kits: (1) Nubuck Protection PA; (2) Leather Protector PA; (3) Moisturizer PA; (4) Deep Cleaner; and (5) Aniline Cleaner. Pl.'s SF ¶ 10. Most of these products were sent directly from Bullen to Stanley Steemer, and they were packaged under a Stanley Steemer label by Bullen. Id.; Compl. ¶ 18. After several months during which Stanley Steemer distributed the kits to its employees and franchisees and relied on Leather Pro to train these individuals in using the products, it discovered that batches of the two cleaning products had been polluted with toilet bowl cleaner and mislabeled.

Pl.'s SF ¶ 11; Dep. Of An Vu, 13--15. Over the next several months, the cleaning products were recalled, packaged at Stanley Steemer Stores, and sent back to Bullen. Id.

¶¶ 12, 14; Def.'s SF ¶ 14. Bullen then produced and sent to Stanley Steemer replacement cleaning products. Def.'s SF ¶ 15. Leather Pro claims the contamination of the cleaners caused Stanley Steemer to investigate the remaining Bullen-produced products. Pl.'s SF

¶¶12, 15. As a result of this testing, Stanley Steemer discovered problems with the two protection products: the poor viscosity of the Leather Protector PA product caused it to separate over a period of time and create an unpleasant smell, and caps on the bottles containing it weren't properly sealed, and the Nubuck Protection PA was highly flammable and contained a high solvent content. Pl.'s SF ¶¶ 17, 19. Because Stanley Steemer rejected the Bullen-produced protection products, Leather Pro provided replacement protection solutions to Stanley Steemer from another vendor, Multi-Master North America. Id. ¶ 16; Def.'s SF ¶ 37.

According to Leather Pro, the contamination of the cleaning products occurred several months after its production agreement with Bullen was underway, and its field testing of the protection products did not reveal any problems. Pl.'s SF ¶¶ 22, 23, 25. It claims that while it was generally aware of the basic uses of the products, it was unaware of the specific chemical makeup of the products, including the degree of solvent in the Nubuck Protection PA, which caused its flammability. Pl.'s SF ¶¶ 28, 30, 32. While Bullen claims the two protection products were recalled because Stanley Steemer believed they were not the same products it initially approved, Leather Pro disputes this, arguing that the products were recalled solely because they malfunctioned and were hazardous. Def.'s SF ¶¶ 34-36; Pl's SF ¶¶ 34-36. At some point after the recall of the Bullen products, Stanley Steemer terminated its relationship with Leather Pro. Def.'s SF ¶ 38.

Leather Pro's complaint against Bullen consists of four counts: Count I alleges breach of the implied warranty of merchantability; Count II alleges breach of the implied warranty of fitness for a particular purpose; Count III alleges negligence; and Count IV alleges breach of contract. Leather Pro is a corporation organized under the laws of Missouri with its principal place of business in Missouri, and Bullen is a corporation organized under the laws of Pennsylvania with its principal place of business in Pennsylvania. Both parties agree that the amount in controversy exceeds $75,000. Therefore, this court may properly exercise jurisdiction under 28 U.S.C. § 1332(a). Bullen now seeks partial summary judgment in its favor on the following five grounds:

(1) the economic loss rule precludes Leather Pro from recovering under a negligence theory; (2) Leather Pro cannot prove reliance and is therefore barred from asserting claims under the implied warranty of fitness for a particular purpose; (3) Leather Pro cannot prove that the protection products performed improperly or were otherwise defective and therefore cannot claim breach of the implied warranty of merchantability for these products; (4) Leather Pro cannot prevail on its breach of contract claim for the protection products because it tested, approved, and accepted them; and (5) Leather Pro's claim for incidental and consequential damages is precluded because it is too speculative.

II. STANDARD OF REVIEW

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). An issue is "genuine" when a reasonable jury could return a verdict for the non-moving party based on the evidence in the record. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is "material" when it could affect the outcome of the case under the governing law. Id.

A party seeking summary judgment initially bears responsibility for informing the court of the basis for its motion and identifying those portions of the record that it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Where the non-moving party bears the burden of proof on a particular issue at trial, the moving party's burden can be met simply by demonstrating "to the district court that there is an absence of evidence to support the non-moving party's case." Celotex, 477 U.S. at 325. After the moving party has met its initial burden, "the adverse party's response, by affidavits or otherwise as provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." FED. R. CIV. P. 56(e). Summary judgment is therefore appropriate when the non-moving party fails to rebut by making a factual showing "based on the affidavits or by depositions and admissions on file" that is "sufficient 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, 477 U.S. at 322; Harter v. GAF Corp., 967 F.2d 846, 852 (3d Cir.1992).

III. DISCUSSION

The parties are in agreement that Pennsylvania substantive law applies to this dispute.*fn2

A. Plaintiff's Negligence Claims

It is clear that the buyer of a defective product has remedies against the seller under the U.C.C., which Pennsylvania has adopted. See Aloe Coal Co. v. Clark Equip., 816 F.2d 110, 116 (3d Cir. 1987). Bullen claims that Leather Pro's negligence claim, which it has asserted in addition to contract and warranty claims, must be dismissed because the economic loss rule, which bars recovery in tort for economic losses caused by defective products, applies. Pennsylvania's economic loss rule "provides that no cause of action exists for negligence that results solely in economic damages unaccompanied by physical or property damage." Azur v. Chase Bank USA, 601 F.3d 212, 222 (3d Cir. 2010). Stated differently, "a manufacturer in a commercial relationship has no duty under either negligence or strict products-liability theory to prevent a product from injuring itself." Aloe Coal, 816 F.2d at 117 (citing East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 871, 106 S.Ct. 2295 (1986). Leather Pro responds that Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d 270, 581 Pa. 454 (Pa. 2005), applies in this case and renders the economic loss rule inapplicable.

In Bilt-Rite, the Supreme Court of Pennsylvania addressed whether the economic loss rule applies to a building contractor who asserted a negligent misrepresentation claim under Section 552 of the Restatement (Second) of Torts against an architect after it relied on the architect's misrepresentations in submitting a contract bid. Id. at 272. The court recognized that lower courts in Pennsylvania and District Courts interpreting Pennsylvania law had applied the rule to prevent contractors and subcontractors from recovering in tort for the negligent misrepresentations of architects and other design professionals on the ground that tort law "is not intended to compensate parties for losses suffered as [a] result of a breach of duties assumed only by agreement." Id. at 283 (citing Palco Linings, Inc. v. Pavex, Inc., 755 F.Supp. 1269, 1271 (M.D.Pa. 1990) (holding that "the policy consideration underlying tort law is the protection of persons and property from losses resulting from injury . . . a buyer, contractor, or subcontractor's 'desire to enjoy the benefit of his bargain is not an interest that tort law traditionally protects.'" (internal citations omitted))).

In rejecting the reasoning of Palco and other courts to so construe the economic loss rule, however, the court's decision in Bilt-Rite was narrow:

We are persuaded by . . . decisions from our sister jurisdictions that: (1) this Court should formally adopt Section 552 of the Restatement (Second), which we have cited with approval in the past, as applied by those jurisdictions in the architect/contractor scenario; (2) there is no requirement of privity in order to recover under Section 552; and (3) the economic loss rule does not bar recovery in such a case. Recognizing such a cause of action, with such contours, is consistent with Pennsylvania's traditional common law formulation of the tort of negligent misrepresentation.

Id. at 285. The court's intention that its decision apply only to architects, engineers, and other professionals who supply specific and unique information for use by others in their business dealings is evident from the cases it cited supporting its ruling, all of which involve negligent misrepresentations by architects and engineers who submitted plans and calculations for use by others in bidding on construction or other projects. See id. at 284-288, citing, inter alia, Nota Constr. Corp. v. Keyes Assoc., 45 Mass.App.Ct. 15, 694 N.E.2d 401 (Mass. 1998) (subcontractor relied architect's plans in bidding on school construction project); Donnelly Constr. Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184, 677 P.2d 1292 (Ariz. 1984) (same); Robert & Co. Assoc. v. Rhodes-Haverty P'ship, 250 Ga. 680, 300 S.E.2d 503 (Ga. 1983) (property buyers relied on engineer's report concerning the condition of property); Jim's Excavating Serv., Inc. v. HKM Assoc., 265 Mont. 494, 878 P.2d 248 (Mont. 1994) (construction project bidder relied on engineer's plans and preparations for a project); Tommy L. Griffin Plumbing & Heating Co. v. Jordan, Jones, & Goulding, Inc., 320 S.C. 49, 463 S.E.2d 85 (S.C. 1985) (same)).

The Supreme Court of Pennsylvania and federal courts in this circuit have recognized the limited holding of Bilt-Rite. Court have refused to apply it to plaintiffs asserting general negligence claims against retailers, see Pa. State Emp. Credit Union v. Fifth Third Bank, 398 F. Supp. 2d 317, 327-28 (M.D.Pa. 2005); credit-card issuers, see Azur, 601 F.3d at 223-24; and utility companies, see Excavation Techn., Inc. v. Columbia Gas Co. Of Pa., 985 A.2d 840, 604 Pa. 50 (Pa. 2009), because they are not design professionals hired to prepare plans or provide information to others for pecuniary gain. At least one of these courts has also noted that Bilt-Rite is inapplicable where a plaintiff asserts a general negligence and not a negligent misrepresentation claim. See Fifth Third Bank, 398 F. Supp. 2d at 328 ("[T]he instant case is not a negligent misrepresentation case, and Bilt-Rite was not an expansive examination of the economic loss doctrine[.]").

Leather Pro's reliance on Bilt-Rite is inapposite. First, it asserts a negligence claim against Bullen, not a negligent misrepresentation claim. Second, its argument that Bullen, as a chemical manufacturer, should be held to the standards of design professionals like architects and engineers, is shallow. Leather Pro claims Bullen is a design professional because it was hired to chemically analyze and copy formulas, and then to manufacture Leather Pro's line of products. Even assuming this is true, Leather Pro can point to no case from the Supreme Court of Pennsylvania or elsewhere supporting the claim that a chemical manufacturer provides information any more than a seller of other goods does. The Pennsylvania Supreme Court expressly limited its holding in Bilt-Rite to apply to design professionals, and did not include generic manufacturers, even those involved in sophisticated work.

Leather Pro's reliance on Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875, 117 S.Ct. 1783 (1997) is similarly unavailing, as that case concerns the interpretation of general maritime law, and does not purport to construe Pennsylvania law. See Travelers Indem. Co. v. Dammann & Co., Inc., 594 F.3d 238, 252 (3d Cir. 2010) (rejecting reliance on Saratoga Fishing because, as a maritime matter, it did not construe New Jersey law, the controlling law in the case).

Bilt-Rite's exception to the economic loss rule does not apply in this case. A review of the record reveals that the harm Leather Pro claims to have suffered is indeed economic in nature.*fn3 Its complaint alleges that, as a result of Bullen's failure to deliver usable products to Stanley Steemer, Stanley Steemer had to recall the Bullen products, Leather Pro was forced to purchase significant quantities of leather care products from another manufacturer, and ultimately Stanley Steemer ceased its business relationship with Leather Pro. In other words, Bullen's failure to meet its obligations to supply a working product caused Leather Pro to incur financial damages and to lose a business relationship with a third party. I believe this action sounds in contract, and that Leather Pro has failed to establish that an exception to the economic loss ...


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