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DJ Coleman, Inc. v. Nufarm Americas

March 12, 2010

DJ COLEMAN, INC., PLAINTIFF,
v.
NUFARM AMERICAS, INC. DEFENDANT.



The opinion of the court was delivered by: Daniel L. Hovland, District Judge United States District Court

ORDER ON DEFENDANT'S MOTIONS FOR SUMMARY JUDGMENT

Before the Court are the Defendant's "Motion for Summary Judgment" and "Renewed Motion for Summary Judgment and Reply to Plaintiff's Reply to Defendant's Summary Judgment Motion" filed on July 1, 2009 and August 26, 2009. See Docket Nos. 28 and 40. The Plaintiff filed responses in opposition to the motions on July 31, 2009 and January 20, 2010. See Docket Nos. 38 and 75. The Defendant filed a reply brief on August 26, 2009. See Docket No. 44. For the reasons set forth below, the Defendant's motion for summary judgment and renewed motion for summary judgment are granted in part and denied in part.

I. BACKGROUND

The plaintiff, DJ Coleman, Inc. ("DJ Coleman"), is a farm corporation that is incorporated in the State of North Dakota and conducts farming operations in Burleigh County, North Dakota. DJ Coleman's principal, Clark Coleman, is responsible for DJ Coleman's commercial farming operations. Clark Coleman is a licensed pesticide purchaser and applicator. The defendant, Nufarm Americas, Inc. ("Nufarm"), is an Illinois corporation. Between May 10, 2007 and May 24, 2007, Clark Coleman planted different varietals of sunflowers. Clark Coleman used pre-emergent chemicals, Mad Dog(r), a generic glyphosate broad-spectrum herbicide, and Spartan(r), a herbicide, prior to planting the sunflowers. Between June 21, 2007 and June 24, 2007, Clark Coleman sprayed his post-emergent sunflower crops with a tank mix of Assert(r),*fn1 Scoil(r),*fn2 and Asana(r).*fn3 Nufarm is the manufacturer of Assert(r) and the wholesale distributor to United Agri Products, Inc. ("UAP"), the direct North Dakota retail seller to Clark Coleman. Clark Coleman did not contact Nufarm for approval before tank mixing Assert(r), Scoil(r), and Asana(r) in 2007. DJ Coleman alleges that Assert(r) caused severe damage to its 2007 sunflower crop by producing stunted and deformed heads, and seeks economic and non-economic damages.

This action was originally filed in Burleigh County District Court in April 2008. Nufarm removed the action to federal district court on May 7, 2008. See Docket No. 1. DJ Coleman alleges claims of products liability, negligence, failure to warn, breach of warranties, and violations of N.D.C.C. chs. 51-12*fn4 and 51-15 for false and deceptive advertising. Nufarm now moves for summary judgment on each claim.

II. STANDARD OF REVIEW

Summary judgment is appropriate when the evidence, viewed in a light most favorable to the non-moving party, indicates that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. Davison v. City of Minneapolis, Minn., 490 F.3d 648, 654 (8th Cir. 2007); see Fed. R. Civ. P. 56(c). Summary judgment is not appropriate if there are factual disputes that may affect the outcome of the case under the applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of material fact is genuine if the evidence would allow a reasonable jury to return a verdict for the non-moving party.

The Court must inquire whether the evidence presents a sufficient disagreement to require the submission of the case to a jury or whether the evidence is so one-sided that one party must prevail as a matter of law. Diesel Mach., Inc. v. B.R. Lee Indus., Inc., 418 F.3d 820, 832 (8th Cir. 2005). The moving party bears the burden of demonstrating an absence of a genuine issue of material fact. Simpson v. Des Moines Water Works, 425 F.3d 538, 541 (8th Cir. 2005). The non-moving party "may not rely merely on allegations or denials in its own pleading; rather, its response must... set out specific facts showing a genuine issue for trial." Fed. R. Civ. P. 56(e)(2).

This action is based on diversity jurisdiction. Therefore, the Court will apply the substantive law of North Dakota. See Paracelsus Healthcare Corp. v. Philips Med. Sys., 384 F.3d 492, 495 (8th Cir. 2004).

III. LEGAL DISCUSSION

DJ Coleman raises claims of products liability, negligence, failure to warn, breach of warranties, and violations of N.D.C.C. chs. 51-12 and 51-15. Nufarm contends that it is entitled to summary judgment on each of the claims.

A. NEGLIGENCE AND STRICT LIABILITY CLAIMS

DJ Coleman alleges claims of products liability, negligence, and failure to warn which are tort claims grounded in negligence or strict liability. "Products liability grew out of a public policy judgment that people need more protection from dangerous products than is afforded by the law of warranty." East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866 (1986). Under principles of products liability, a manufacturer of a defective product may be liable for personal injury and property damage. "Under the [economic loss] doctrine, economic loss resulting from damage to a defective product, as distinguished from damage to other property or persons, may be recovered in a cause of action for breach of warranty or contract, but not in a tort action." Steiner v. Ford Motor Co., 606 N.W.2d 881, 884 (N.D. 2000). The economic loss doctrine is not a fixed rule and there are numerous exceptions across the jurisdictions. "The economic loss doctrine is based on the understanding that contract law, and the law of warranty in particular, is better suited for dealing with purely economic loss in the commercial arena than tort law, because it permits the parties to specify the terms of their bargain and to thereby protect themselves from commercial risk." Dakota Gasification Co. v. Pascoe Bldg. Sys., 91 F.3d 1094, 1098 (8th Cir. 1996).

In East River, the plaintiffs sued the manufacturer of four ships whose turbines failed as a result of a product defect and caused damage solely to the turbines. The plaintiffs alleged tortious conduct and sought damages for the costs of repairing the ships and for lost income while the ships were out of service. At issue was whether the plaintiffs could recover in tort for the damage to the "product itself," i.e., the turbines. The United States Supreme Court considered the three main approaches that courts were following at that time: (1) the "majority approach" which denied tort recovery when the defective product caused damage to itself, and did not cause damage to other property or personal injury; (2) the "minority approach" which allowed tort recovery when the defective product damaged only itself; and (3) the "intermediate approach" which allowed tort recovery when the defective product damaged only itself under certain circumstances. The United States Supreme Court adopted the majority approach, and determined that the plaintiffs were not entitled to recover in tort for the defective turbines damaging only themselves. The Supreme Court said:

The tort concern with safety is reduced when an injury is only to the product itself. When a person is injured, the "cost of an injury and the loss of time or health may be an overwhelming misfortune," and one the person is not prepared to meet. In contrast, when a product injures itself, the commercial user stands to lose the value of the product, risks the displeasure of its customers who find that the product does not meet their needs, or, as in this case, experiences increased costs in performing a service. Losses like these can be insured. Society need not presume that a customer needs special protection. The increased cost to the public that would result from holding a manufacturer liable in tort for injury to the product itself is not justified.

Damage to a product itself is most naturally understood as a warranty claim.

Such damage means simply that the product has not met the customer's expectations, or, in other words, that the customer has received "insufficient product value." The maintenance of product value and quality is precisely the purpose of express and implied warranties. Therefore, a claim of a non-working product can be brought as a breach-of-warranty action. Or, if the customer prefers, it can reject the product or revoke its acceptance and sue for breach of contract.

East River, 476 U.S. at 871-72 (internal citations omitted). The Supreme Court determined that recovery by the plaintiffs on a warranty theory would entitle them to the costs of the repair and lost profits, and would place them in the position that they would have been in had the turbines worked properly.

In East River, the United States Supreme Court did not consider whether a plaintiff could recover in tort when the defective product injures "other property" or persons. The Supreme Court considered this issue in Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875 (1997). In Saratoga Fishing, the owner of a fishing vessel brought an admiralty tort action against the manufacturer of the vessel and the designer of the vessel's hydraulic system, alleging that the hydraulic system was defectively designed. The case arose from an engine room fire and flood that led to the sinking of the fishing vessel. The Supreme Court described the owner of the vessel at the time of the fire as the "Subsequent User," as compared to the "Initial User," who had purchased the vessel from the manufacturer. The Initial User added certain equipment (skiff, net, and various spare parts) to the vessel upon purchase from the manufacturer. The issue was whether the added equipment was "other property" under the economic loss doctrine and, therefore, recoverable under tort law. The United States Supreme Court held that the added equipment constituted "other property":

We conclude that equipment added to a product after the Manufacturer (or distributor selling in the initial distribution chain) has sold the product to an Initial User is not part of the product that itself caused physical harm. Rather, in East River's language, it is "other property." (We are speaking, of course, of added equipment that itself played no causal role in the accident that caused the physical harm.) Thus the extra skiff, nets, spare parts, and miscellaneous equipment at issue here, added to the ship by a user after an initial sale to that Initial User, are not part of the product (the original ship with the defective hydraulic system) that itself caused the harm.

Saratoga Fishing, 520 U.S. at 884-85.

The economic loss doctrine was first applied by the North Dakota Supreme Court in Hagert v. Hatton Commodities, Inc., 350 N.W.2d 591 (N.D. 1984) ("Hagert I"). Hagert I involved a commercial transaction, but the North Dakota Supreme Court later followed the majority of courts in applying the economic loss doctrine to consumer transactions as well. See Steiner v. Ford Motor Co., 606 N.W.2d 881 (N.D. 2000); Clarys v. Ford Motor Co., 592 N.W.2d 573 (N.D. 1999). The North Dakota Supreme Court has not considered whether tort recovery is permitted for damage to "other property."

In Coop. Power Ass'n v. Westinghouse Elec. Corp., 493 N.W.2d 661 (N.D. 1992), the North Dakota Supreme Court revisited the issue of the economic loss doctrine, and adopted the rationale of East River. Cooperative Power Association purchased a transformer for use at a coal plant. An electrical arc in the transformer caused damage to the transformer itself. Cooperative Power Association sued Westinghouse in federal district court alleging breach of express warranty, breach of contract, negligence, and negligent misrepresentation. The federal court certified to the North Dakota Supreme Court the issue of "May a manufacturer of a machine sold in a commercial transaction be held liable in negligence or strict product liability theory for economic loss caused by the failure of a component part of the machine, which causes direct damage to the machine only?" Coop. Power, 493 N.W.2d at 662. The North Dakota Supreme Court answered in the negative, holding that the manufacturer of a machine cannot be held liable in negligence or strict liability for economic loss caused by the failure of a component part of the machine which causes damage to only the machine itself. The North Dakota Supreme Court stated:

A contractual duty arises from society's interest in the performance of promises and has been traditionally concerned with the fulfillment of reasonable economic expectations. Society's need to spread losses is substantially lessened in commercial transactions where damage is to only the product itself, because those losses essentially relate to the benefit of the bargain between business entities. That loss is most frequently measured by the cost of repairs, the difference in the value of the product, or consequential damages attributable to the failure of the product to perform as expected. Those losses are based upon, and flow from, the purchaser's loss of the benefit of the contractual bargain and are the type for which a warranty action provides redress.

Id. at 664 (internal citation omitted). While Coop. Power did not involve damage to "other property," the North Dakota Supreme Court stated in dicta:

CPA nevertheless argues that a "risk of harm" analysis is applicable to commercial transactions because that analysis provides manufacturers with incentive to produce safe products. CPA asserts that it is only through fortuitous circumstances that this defective product did not damage other property or people in the area. Although society has a strong interest in safe products, the rules of negligence and strict liability for damage to property other than the product itself and for personal injury adequately protect that interest and provide manufacturers with incentive to produce safe products.

Id. at 665.

In Dakota Gasification Co. v. Pascoe Bldg. Sys., 91 F.3d 1094 (8th Cir. 1996), the Eighth Circuit Court of Appeals adopted an expansive approach to the economic loss doctrine. Dakota Gasification purchased an oxygen plant from the government at a significantly reduced rate under the condition that Dakota Gasification would forego a percentage of the profits. The purchase contract stated that the plant was purchased "'AS IS, WHERE IS,' WITHOUT WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT WARRANTY AGAINST INFRINGEMENT, WARRANTY OF MERCHANTABILITY AND WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE." Dakota Gasification, 91 F.3d at 1097. Several years after purchasing the oxygen plant, the roof collapsed under the weight of ice and snow, causing damage to various items in the plant. Dakota Gasification sued the seller of the steel roof alleging tort claims. At issue was whether the economic loss doctrine barred tort actions where the damage was to other nearby property of commercial purchasers who could foresee such risks at the time of purchase. The federal district court predicted that the North Dakota Supreme Court would adopt the expansive, modern trend which precluded liability in tort for physical damage to the same property or other property where the damage was a foreseeable result of a defect at the time the parties contracted. The Eighth Circuit agreed:

The trial court recognized that the modern trend in many jurisdictions holds that tort remedies are unavailable for property damage experienced by the owner where the damage was a foreseeable result of a defect at the time the parties contractually determined their respective exposure to risk, regardless [of] whether the damage was to the "goods" themselves or to "other property." Although there is no North Dakota case directly on point, the reasoning used by the courts that have accepted this modern trend, along with the North Dakota Supreme Court's reasoning in Cooperative Power, lead us to conclude that the modern trend's approach is entirely consistent with North Dakota's prior treatment of the economic loss doctrine.

Id. at 1099.

Subsequent to the Eighth Circuit's ruling in Dakota Gasification, the United States Supreme Court issued the decision of Saratoga Fishing, previously discussed, which rejected an expansive approach to the economic loss doctrine, and the American Law Institute adopted the Restatement (Third) of Torts: Products Liability § 21. The Restatement (Third) of Torts: Products Liability § 21 also rejected an expansive approach and adopted East River's and Saratoga Fishing's "property/other property" dichotomy, providing:

For purposes of this Restatement, harm to persons or property includes economic loss if caused by harm to:

(a) the plaintiff's person; or

(b) the person of another when harm to the other interferes with an interest of the plaintiff protected by tort law; or

(c) the plaintiff's property other than the defective product itself.

Restatement (Third) of Torts: Products Liability § 21.

In Albers v. Deere & Co., 599 F. Supp. 2d 1142 (D.N.D. 2008), this Court recently determined that the economic loss doctrine barred tort recovery for "other property" where the damage was reasonably foreseeable. In Albers, the plaintiff purchased a used combine and header in a single purchase. The purchase order identified the combine and header as separate products. The combine ignited and burned both the combine and the header. The plaintiff brought an action in federal district court seeking damages for the loss of the combine, header, and fuel. The plaintiff alleged negligent design or manufacturing, negligent failure to warn, contract/breach of warranties, and strict liability failure to warn. In considering whether the economic loss doctrine precluded tort relief for the damages sought, the Court noted that the prediction of the North Dakota Supreme Court's determination was difficult in light of both Saratoga Fishing and the Restatement (Third) of Torts: Products Liability § 21 rejecting expansive approaches to the economic loss doctrine. However, because the issue was not a matter of first impression, the Court was obligated to follow the Eighth Circuit's prediction of North Dakota law unless a subsequent state court decision or statutory amendment had rendered the prediction clearly wrong. Finding no such state court decision or statutory amendment, the Court followed the Eighth Circuit's ruling in Dakota Gasification:

In this case, while there may be a substantial question with respect to the continued viability of Dakota Gasification's prediction, it cannot be said it is clearly wrong. The North Dakota Supreme Court has not squarely addressed the issue and its most recent statements in Clarys, that tort recovery is permitted for damage to property other than the product itself, are dicta. Further, Dakota Gasification's "foreseeability approach" does not foreclose tort recovery for damage to all "other property" -- only damage that could have been foreseen and made the subject of the purchase negotiations. As such, it is only an incremental step beyond what the North Dakota Supreme Court has suggested in broad terms is the law, and it is a step that several courts have taken as indicated by the prior discussions, including most recently the Wisconsin courts. Thus, it is possible that the North Dakota Supreme Court might follow Dakota Gasification, or a similar variant of the "foreseeability approach," when directly presented with the question.

Albers, 599 F. Supp. 2d at 1152. The Court applied the foreseeability approach of Dakota Gasification and concluded that the damage to the header and the loss of gasoline were foreseeable.

DJ Coleman acknowledges the existing precedent in this circuit which bars any recovery in tort. However, DJ Coleman requests that the Court certify to the North Dakota Supreme Court the question of whether the economic loss doctrine applies when there is damage to property other than the product itself. The Court declines to do so. The Court will uphold the precedent of the Eighth Circuit as established in Dakota Gasification. Applying Dakota Gasification's "foreseeability approach," the Court finds that damage to the sunflower crop was clearly foreseeable in the event of a defect in the herbicide Assert(r). Other courts have found that the economic loss doctrine bars claims for negligence and strict liability in cases where herbicides damaged farm crops. See Maynard Coop. Co. v. Zeneca, Inc., 143 F.3d 1099 (8th Cir. 1998); Bailey Farms, Inc. v. NORAM Chem. Co., 27 F.3d 188 (6th Cir. 1994). The Court finds that DJ Coleman's products liability, negligence, and failure to warn claims are barred by the economic loss doctrine. Accordingly, summary judgment is granted on these claims.

B. EXPRESS AND IMPLIED WARRANTY CLAIMS

DJ Coleman contends that Nufarm breached an express warranty of fitness for a particular purpose and implied warranties of fitness and merchantability. DJ Coleman also contends that it was a third-party beneficiary to any express or implied warranties that Nufarm gave to distributors, retailers, resellers, and others, and that Nufarm breached express and implied warranties to distributors, retailers, resellers, and others.

Despite finding that the economic loss doctrine bars recovery under DJ Coleman's tort claims, damages may be recoverable under express and implied warranties. See Hagert I, 350 N.W.2d at 595. A plaintiff may recover added expenses and lesser yield on claims based on warranty theories. Id.

The Assert(r) label provides, in part:

Directions for Use of this product should be followed carefully. It is impossible to eliminate all risks inherently associated with the use of this product. Desirable plant injury, ineffectiveness, or other unintended consequences may result because of such factors as manner of use or application, weather or crop conditions beyond the control of Nufarm or Seller. All such risks shall be assumed by Buyer and User, and Buyer and User agree to hold Nufarm and Seller harmless for any claims relating to such factors.

Seller warrants that this product conforms to the chemical description on the label and is reasonably fit for the purposes stated on the Directions for Use when used in accordance with the directions under normal conditions of use. NUFARM MAKES NO WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE, NOR ANY OTHER EXPRESS OR IMPLIED WARRANTIES WITH RESPECT TO THE SELECTION, PURCHASE OR USE OF THIS PRODUCT. Any warranties, express or implied, having been made are inapplicable if this product has been used contrary to label instructions, or under abnormal conditions, or under conditions not reasonably foreseeable to (or beyond the control of) seller or Nufarm, and Buyer assumes the risk of any such use.

To the extent allowed by law, Nufarm or Seller shall not be liable for any incidental, consequential, or special damages resulting from the use or handling of this product. To the extent allowed by law, THE EXCLUSIVE REMEDY OF THE USER OR BUYER, AND THE EXCLUSIVE LIABILITY OF NUFARM AND SELLER FOR ANY AND ALL CLAIMS, LOSSES, INJURIES OR DAMAGES (INCLUDING CLAIMS BASED ON BREACH OF WARRANTY, CONTRACT, NEGLIGENCE, TORT, STRICT LIABILITY OR OTHERWISE) RESULTING FROM THE USE OR HANDLING OF THIS PRODUCT, SHALL BE THE RETURN OF THE PURCHASE PRICE OF THE PRODUCT OR AT THE ELECTION OF NUFARM OR SELLER, THE REPLACEMENT OF PRODUCT.

...

USES WITH OTHER PRODUCTS ...


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