Paquette v. Deere and Co.

Paquette v. Deere & Co.  (97-389); 168 Vt. 258; 719 A.2d 410

[Filed 4-Sep-1998]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.



                            No. 97-389



Emile and Marjorie Paquette                  Supreme Court

                                             On Appeal from
    v.                                       Addison Superior Court

Deere and Company and Oshkosh                February Term, 1998
Truck Corporation



Matthew I. Katz, J.


       David M. Klein of Bauer, Anderson and Gravel, Burlington, for
  Plaintiffs-Appellants.


       Thomas P. Simm of McCormick, Fitzpatrick, Kasper and Burchard, P.C.,
  Burlington, for Defendants-Appellees.


PRESENT:  Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.


       JOHNSON, J.   Plaintiffs appeal the superior court's order dismissing
  their suit seeking compensation for economic losses incurred when they
  traded in their allegedly defective motor home.  We conclude that
  plaintiffs' warranty claims were not brought within the relevant
  limitations period, and that their products liability claims could not be
  based upon the purely economic losses incurred in this particular case. 
  Accordingly, we affirm the superior court's judgment.

       Because judgment was granted on the pleadings in this case, we accept
  as true all well pleaded factual allegations contained in the complaint and
  all reasonable inferences that can be drawn from those allegations.  See
  Thayer v. Herdt, 155 Vt. 448, 456, 586 A.2d 1122, 1126 (1990).  According
  to their complaint, plaintiffs purchased a new John Deere Superchief

 

  Winnebago on August 2, 1989 for $64,000.  Beginning in 1990, plaintiffs
  began experiencing problems with the motor home resulting from defective
  electrical wiring.  The engine would cut out and stall, which in turn
  affected the performance of the brakes.  Plaintiffs made several attempts
  to repair the vehicle, but the problems recurred.  On September 23, 1994,
  plaintiffs were involved in an accident as a result of these problems.

       Approximately one month after the accident, plaintiffs received a
  recall notice, dated September 6, 1994, which warned of electrical problems
  that could result in engine stalling and partial brake failure.  The notice
  asked owners who were experiencing such problems to stop using their motor
  homes and bring them in for repair.  After receiving the notice, plaintiffs
  had their motor home repaired and continued to use it.  Later, while
  traveling in Florida in March 1995, plaintiffs began having the same
  problems with the motor home that had previously occurred.  Feeling that
  the vehicle was not safe enough to drive back to Vermont, plaintiffs traded
  it in for $22,000 and purchased another, less expensive motor home. 
  Plaintiffs claim that they incurred a final loss in excess of $33,000 by
  having to trade their motor home in at a reduced value due to its defective
  condition.

       In October 1996, plaintiffs filed suit against Deere and Company and
  Oshkosh Truck Corporation alleging strict products liability, negligent
  products liability, breach of an implied warranty of merchantability, and
  breach of an implied warranty of fitness for a particular purpose.  The
  superior court granted defendants' motion for judgment on the pleadings,
  ruling that (1) self-destruction of the product itself cannot form the
  basis for products liability or negligence claims; and (2) the statute of
  limitations had run on the warranty claims.  On appeal, plaintiffs argue
  that the trial court erred in ruling that (1) they were precluded from
  recovering economic losses pursuant to their products liability claims, and
  (2) their warranty claims were brought outside the limitations period.

       We first consider the warranty claims.  Plaintiffs argue that the
  recall notice sent to them in October 1994 should be construed as a
  warranty and a new promise reviving prior warranties.

 

  In plaintiffs' view, the post-sale representations and promise to repair
  contained in the notice modified the original contract for the purchase of
  their motor home, and thus tolled the statute of limitations for their
  warranty claims.

       We find no merit to these arguments.  By the time that Deere and
  Company issued the recall notice in October 1994, more than five years had
  passed since plaintiffs purchased the Winnebago, and thus the statute of
  limitations had already run on their warranty claims.  See 9A V.S.A. §
  2-725(1), (2) (action for breach of contract for sale must be commenced
  within four years after cause of action has accrued; breach-of-warranty
  action accrues upon tender of delivery of goods).  The recall notice could
  not have revived warranties that were no longer actionable.  Nor did the
  recall notice, standing alone, expressly or impliedly make any warranties
  regarding the Winnebago; rather, it merely promised to install a wiring
  improvement parts kit.

       We now turn to plaintiffs' products liability claims.  This Court has
  adopted the doctrine of strict products liability as embodied in
  Restatement (Second) of Torts § 402A.  See Zaleskie v. Joyce, 133 Vt. 150,
  155, 333 A.2d 110, 114 (1975).  "Under that doctrine, a manufacturer is
  strictly liable for physical harm or property damages resulting from a
  defective product that reaches a user without undergoing substantial
  change."  Webb v. Navistar Int'l Transp. Corp., 166 Vt. 119, 126, 692 A.2d 343, 346 (1996); see Restatement (Second) of Torts § 402A(1) (1965) (one
  who sells any product in defective condition unreasonably dangerous to user
  or user's property is "subject to liability for physical harm thereby
  caused to the ultimate user . . . or his property") (emphasis added).

       Over the years, plaintiffs proceeding under § 402A have sought damages
  for (1) physical injuries to persons; (2) physical damage to property other
  than the dangerous product itself; (3) physical damage to the product
  itself; and (4) consequential damages that involve only commercial or
  economic loss.  Generally, all jurisdictions have allowed recovery for the
  first two types of injury.  Some jurisdictions have allowed recovery for
  damage to the product itself,

 

  though most often only if the loss occurred in the context of a dangerous
  situation such as an accident.  Very few jurisdictions, however, have
  allowed recovery based on claims of commercial or economic loss.  See P.
  Sherman, Products Liability for the General Practitioner § 10.05, at 287-90
  (1981) (general rule is that damages for commercial or purely economic loss
  are unavailable in strict products liability actions); see also 2 L. Frumer
  & M. Friedman, Products Liability § 13.11, at 150 (1998) (under traditional
  and still prevailing rule, economic losses caused by product failure must
  be pled in warranty or contract, not products liability); 2 M. Madden,
  Products Liability § 22.23, at 340-41 (2d ed. 1988) (majority rule is that
  economic loss, including damage to product itself unaccompanied by injury
  to persons or damage to other property, is generally not recoverable in
  products liability actions); W. Keeton, Prosser & Keeton on Torts § 101, at
  708-09 (5th Ed. 1984) (discussing theories available to recover various
  types of losses).

       The leading case for the majority position is Seely v. White Motor
  Company, 403 P.2d 145 (Cal. 1965).  There, the brakes on the plaintiff's
  truck failed, resulting in an accident that caused some damage to the truck
  but did not injure the plaintiff.  The plaintiff sought damages for repair
  of the truck, the purchase price of the truck, and profits lost in his
  business because he was unable to use the truck.  Writing for the majority,
  Justice Traynor agreed that physical injury to property, including the
  defective product itself, should be compensable under strict liability in
  tort, but found that the plaintiff had failed to demonstrate that the
  alleged defect caused the physical damage to the truck.  See id. at 152. 
  As for the economic losses claimed by the plaintiff, the court reasoned
  that while consumers should not have to bear the risk of physical injury
  caused by products that manufacturers bring into the stream of commerce,
  consumers can be fairly charged with the risk that the products they
  purchase will not match their economic expectations, at least to the extent
  that the manufacturers have not warranted to that effect.  See id. at 151.

       In the leading case for the minority position, the New Jersey Supreme
  Court allowed a

 

  plaintiff to seek damages under a theory of strict tort liability for a
  carpet that had developed lines in it.  See Santor v. A and M Karagheusian,
  Inc., 207 A.2d 305, 311-13 (N.J. 1965).  The court opined that the purpose
  behind the doctrine of strict liability in tort -- to ensure that the cost
  of injuries or damages resulting from defective products is borne by the
  manufacturers rather than the consumers -- applies with equal force even
  when the product is not dangerous and the damage does not extend beyond the
  product itself.  See id. at 312.

       In the context of a maritime law case, the United States Supreme Court
  considered these and other intermediate positions concerning the
  recoverability of economic losses under a theory of strict products
  liability.  See East River Steamship Corp. v. Transamerica Delaval, Inc.,
  476 U.S. 858 (1986).  In that case, charterers of a supertanker sought
  damages for repair costs and lost income resulting from a defective turbine
  engine that ceased functioning while at sea.  After surveying the case law,
  the Court held that a manufacturer in a commercial relationship has no duty
  to prevent a product from injuring itself, and thus could not be liable for
  such damages under a theory of strict products liability.  See id. at 871. 
  Stating that damage to the defective product itself "is most naturally
  understood as a warranty claim," id. at 872, the Court rejected the
  intermediate position taken by courts that had adopted a risk-of-harm
  analysis under which plaintiffs could receive compensation for damage to
  the product itself depending on "the nature of the defect, the type of
  risk, and the manner in which the injury arose."  Id. at 869-70.

       The reaction to East River has been mixed.  Most courts have adopted
  its holding, even in cases involving consumer transactions.  See Lee v.
  General Motors Corp., 950 F. Supp. 170, 174 (S.D. Miss. 1996) (concluding
  that Mississippi Supreme Court would follow East River and deny damages for
  economic losses associated with replacement of fiberglass roof on vehicles
  alleged to be dangerously defective); Bocre Leasing Corp. v. General Motors
  Corp., 645 N.E.2d 1195, 1195 (N.Y. 1995) (adopting East River reasoning in
  denying recovery for economic losses incurred when helicopter incurred
  damage during emergency landing and transportation from scene of accident);
  Continental Ins. v. Page Engineering Co., 783 P.2d 641, 647-48 (Wyo.

 

  1989) (following East River in denying economic losses resulting from
  failure of dragline pulley used in mining operation); see also Somerset
  Marine, Inc. v. Forespar Products Corp., 876 F. Supp. 1114, 1116 (C.D. Cal.
  1994) (East River applies in consumer as well as commercial transactions);
  Karshan v. Mattituck Inlet Marina & Shipyard, Inc., 785 F. Supp. 363, 366
  (E.D.N.Y. 1992) (same); Wellcraft Marine v. Zarzour, 577 So. 2d 414, 418
  (Ala. 1990) (rule that tort action may not be premised on product defect
  that results in damage only to product itself applies in both commercial
  and consumer transactions); Jones v. General Motors Corp., 631 A.2d 665,
  666 (Pa. Super. Ct. 1993) (same).  But see Sherman v. Johnson & Towers
  Baltimore, Inc., 760 F. Supp. 499, 501-02 (D. Md. 1990) (suggesting that
  East River holding is not controlling in cases involving consumer
  transactions).

       Some courts have rejected the reasoning in East River, however,
  finding that the purpose and principles behind the doctrine of strict
  products liability require a risk-of-harm analysis before a determination
  can be made as to whether economic losses, including damage to the product
  itself, may be the sole basis for a products liability suit.  See Pratt &
  Whitney Canada, Inc. v. Sheehan, 852 P.2d 1173, 1179-81 (Alaska 1993)
  (declining to abandon risk-of-harm test in determining that damage to
  aircraft forced to make emergency landing due to engine failure is
  compensable in products liability action); Washington Water Power v.
  Graybar Elec., 774 P.2d 1199, 1209-10 (Wash. 1989) (refusing to abandon
  risk-of-harm analysis in case involving fire hazard created by defective
  insulators).  The federal district court in Vermont has predicted that this
  Court would bar the recovery of economic losses resulting from the sale of
  dangerously defective lacrosse stick heads in a commercial transaction, see
  Vermont Plastics, Inc. v. Brine, Inc., 824 F. Supp. 444, 449 (D. Vt. 1993),
  but that we would allow the recovery of economic losses suffered by a
  farmer in a consumer transaction involving an ineffective herbicide that
  resulted in a decreased yield of corn, see Mainline Tractor & Equipment Co.
  v. Nutrite Corp., 937 F. Supp. 1095, 1104 (D. Vt. 1996).

       Much of the reasoning in the cases employing a risk-of-harm analysis
  is persuasive, and

 

  we leave open the possibility that under certain circumstances we may allow
  recovery for damages resulting from physical harm only to the defective
  product itself.  But circumstances warranting such an outcome are not
  present here.  In this case, plaintiffs do not seek damages for any
  physical harm.  Rather, they seek damages for purely economic losses -- the
  reduced value of the motor home resulting from its defective wiring system
  and related problems.(FN1)  Cf. University of Vermont v. W.R. Grace & Co.,
  152 Vt. 287, 287, 565 A.2d 1354, 1354 (1989) (product liability action
  alleging property damage due to asbestos contamination); Northridge Co. v.
  W.R. Grace & Co., 471 N.W.2d 179, 180 (Wis. 1991) (complaint stated viable
  products liability claim in alleging that asbestos had caused physical harm
  by contaminating and thus limiting function of buildings in which it was
  located).  In reality, plaintiffs are seeking damages for not having
  received the benefit of the bargain to which they believed they were
  entitled. Their loss relates to their disappointed commercial expectations,
  and thus is not recoverable under a theory of products liability.  Cf.
  Bagel v. American Honda Motor Co., 477 N.E.2d 54, 58 (Ill. App. Ct. 1985)
  (no recovery available in products liability action for damages resulting
  when cam chain broke while motorcycle was idling).  Absent physical harm, §
  402A is not implicated, at least not under the instant circumstances.

       Plaintiffs contend that preventing them from bringing their products
  liability claims would be bad public policy because it would encourage
  persons to operate dangerously defective vehicles until they suffer
  physical harm as the result of an accident.  We do not find this argument
  persuasive.  See National Crane Corp. v. Ohio Steel Tube Co., 332 N.W.2d 39, 44 (Neb. 1983) (fact that incurring replacement costs also removed
  potential future tort liability does not convert economic loss into
  physical harm or transform warranty cause of action into products liability
  action).  We are satisfied that permitting recovery for defective products

 

  whenever physical harm occurs adequately serves the public policy behind
  the doctrine of strict products liability -- to create incentives for
  manufacturers to produce safe products by making them absorb and pass on
  the costs of injuries resulting from defective products.  See Webb, 166 Vt.
  at 126, 692 A.2d  at 346.  If we were to allow recovery for purely economic
  losses in products liability actions absent any physical harm based solely
  on claims that an alleged defect could have endangered persons or their
  property, warranty law would, in effect, be subsumed into tort law.

       Nor are we persuaded that, simply because this case involves a
  consumer transaction, any type of damages alleged, regardless of whether
  they involve physical harm, can support a products liability action.  The
  distinction between consumer and commercial transactions does not further
  the safety rationale behind the doctrine of strict products liability.  See
  Pratt, 852 P.2d  at 1179 n.9 (potentially dangerous products are just as
  dangerous to public when in hands of commercial or industrial users as they
  are in those of individual consumers); Somerset Marine, 876 F. Supp.  at
  1116 (applying economic loss doctrine in noncommercial context does not
  erode manufacturer's incentive to produce safe products because
  manufacturers remain accountable for physical harm to consumers and
  commercial entities alike).  Further, as Justice Traynor stated in Seely,
  "[t]he law of warranty is not limited to parties in somewhat equal
  bargaining position."  403 P.2d  at 151; see Pratt, 852 P.2d  at 1179 n.8
  (distinguishing between consumer and commercial transactions in context of
  warranty law is questionable given that even commercial buyers do not have
  input into extent of manufacturers' warranties); Danforth v. Acorn
  Structures, Inc., 608 A.2d 1194, 1200-01 (Del. 1992) (recognizing exception
  to economic-loss doctrine based on whether consumer or commercial
  transaction took place would defeat intent of legislature in adopting
  Uniform Commercial Code, which provides remedies to all parties involved in
  contracts for sale of goods).  This is true notwithstanding that in Vermont
  sellers may not exclude or limit their liability in transactions involving
  ordinary consumers.  See 9A V.S.A. § 2-316(5); Mainline Tractor, 937 F. Supp.  at 1104.  Our warranty law covers

 

  consumer transactions and places limits on when warranty claims can be
  brought.  See 9A V.S.A. § 2-725(1), (2) (four-year statute of limitations
  for warranty claims based on contracts for sale of goods).  Plaintiffs
  brought claims that are actionable only under warranty law, but the
  statutory period for bringing those claims had already expired.

     Affirmed.
                               FOR THE COURT:
                               
                               _______________________________________
                               Associate Justice


  ------------------------------------------------------------------------
                                  Footnotes


FN1.  Plaintiffs allege that they were in an accident caused by the
  motor home's defects, but the accident occurred nearly two years before
  they filed suit, and their complaint indicates that they are seeking
  compensation for the "final loss" resulting when they traded the vehicle in
  at a reduced value.