AMENDED MEMORANDUM OPINION AND ORDER
PIERSOL, Chief Judge.
The defendants, Amoco Chemical Company and Amoco Reinforced Plastics Company (ARPCO), have filed a Motion for Summary Judgment on the Merits of the Complaint filed against them by the plaintiffs, Brookings Municipal Utilities, Inc. and the City of Brookings, South Dakota. After the Court's previous Memorandum Opinion and Order on the Motion for Summary Judgment, defendants' filed a Motion for Reconsideration of the Order. For the reasons stated below, defendants' Motion for Summary Judgment is granted in part and denied in part, and the Motion for Reconsideration is denied.
Between 1975 and 1980, plaintiffs over-saw the construction of a sewer line, the "Southwest Interceptor," that ran between Brookings and a wastewater treatment facility three miles south of town. The Southwest Interceptor included 14,855 feet of Techite II pipe (hereinafter sometimes referred to simply as "Techite pipe"), which was sold to a private contractor by the defendants. In 1996, after a break in the Techite pipe in 1983 and two more
The process of building the Southwest Interceptor began in 1975. That year, the City of Brookings hired Banner Associates, Inc. ("Banner"), to engineer and design the pipeline. Banner's senior engineer, Fred Rittershaus, served as the project director, and began the process of designating certain types of reinforced fiberglass pipe as suitable for use in the Southwest Interceptor. In the course of designating such materials, Rittershaus received information about Techite pipe from Chuck Conklin, a representative of ARPCO. At the time, ARPCO was a wholly owned subsidiary of Amoco and the manufacturer of Techite pipe.
The information which Rittershaus received from Conklin included several representations about the qualities of Techite II pipe. For instance, Conklin wrote Rittershaus a letter stating that the defendants manufactured Techite II "in accordance with ASTM D 3262-76 (Sewer Pipe)." An Amoco brochure which Conklin gave to Rittershaus also stated that Techite II met the requirements of ASTM D 3262, and additionally stated that the pipe would "perform satisfactorily after an extended period (50 years) of operation under commonly encountered and anticipated conditions." Techite II's projected life of 50 years was linked to its ability to resist corrosion and its qualification for the ASTM sewer pipe specification. In his deposition, Rittershaus testified that these statements were important to him in deciding whether Techite II was suitable for the Southwest Interceptor.
Despite the statements in defendants' sales literature, there is evidence to suggest that Techite II did not meet the specifications of ASTM D 3262, and that defendants knew it. For example, a memorandum produced by defendants, dated April 26, 1974, discusses the "problems we are having with Type 2 — both in not qualifying for the ASTM and severe leaking at Hydro testing." Defendants apparently tried to fix the problems with Techite II over the next several years. In 1977, a "dossier" prepared by Amoco employees to "provide factual summaries for rebuttal arguments in defense" of Techite pipe, stated that there had been "no Techite strain-corrosion field problems with pipe made to ASTM D3262, since 1973." In 1977, however, a memorandum describing a meeting of Amoco and ARPCO employees to discuss a "five-year (1978-1983) strategy study" on "marketing, manufacturing, research and licensing of Techite pipes" listed, as a research goal: "Solve cracking and strain corrosion problems."
There is no evidence that the "problems" defendants had in getting Techite II to meet the ASTM requirements were ever disclosed to plaintiffs or to Banner.
Through Banner, Brookings advertised the Southwest Interceptor project for bids, and listed Techite pipe as one of five kinds of fiberglass reinforced pipe which were suitable for the project.
Apparently after NCU had laid all 14,855 feet of the Techite pipe, Rittershaus wrote to NCU to notify NCU about problems with pipe deflection. ARPCO's Techite brochure indicated that pipe corrosion could be accelerated by strain induced by deflection in Techite pipe, and stated that "[m]aximum ring deflection is limited to 5% of the nominal pipe diameter." The letter, a copy of which was also sent to ARPCO, noted that 117 sections of pipe had deflections between 5% and 10%, and an additional 14 sections of pipe had deflections greater than 10%. In response, an ARPCO service manager wrote to Banner, stating that "[t]he strain level at 7.5% deflection will still be within the parameters of ASTM-D-3262 corrosion resistance guidelines," with the only effect being "a small reduction in the safety factor at 50-years life." Rittershaus asked for additional data to support ARPCO's conclusion that the deflection criteria could be relaxed from 5% to 7.5%. On January 3, 1980, Rittershaus received a report indicating that such a relaxation would be within the safety margin after fifty years of service life. Apparently, all of the deflections in the pipeline greater than 7.5% were corrected. On November 6, 1980, after Banner certified and recommended the Southwest Interceptor project for approval, Brookings Municipal Utilities accepted ownership of the pipeline.
After installation, the Southwest Interceptor suffered three corrosion-related incidents. On April 25, 1983, a twenty-foot section of pipe broke, necessitating repair of the pipe and prompting Rittershaus to advise NCU and Amoco of the problem. Almost thirteen years later, on April 14, 1996, a motorist named Heidi Aylward drove her car into what she thought was a mud puddle, but which turned out to be a
Plaintiffs' Complaint contains six counts: (1) strict products liability; (2) negligence; (3) breach of express warranty; (4) breach of implied warranty; (5) fraud, deceit and misrepresentation; and (6) deceptive trade practices. Defendants have moved for summary judgment on all counts of the Complaint.
Under Rule 56(c) of the Federal Rules of Civil Procedure, "[s]ummary judgment is appropriate when the evidence, viewed in a light most favorable to the non-moving party, demonstrates that there is no genuine issue of material fact, and that the moving party is entitled to judgment as a matter of law." Clark v. Kellogg Co., 205 F.3d 1079, 1082 (8th Cir.2000). Because jurisdiction in this case is premised on diversity of citizenship, defendants' motion is governed by the law of South Dakota. See id. If the state law on any issue is ambiguous, the Court must predict how the South Dakota Supreme Court would resolve that issue. See id.
A. Strict Products Liability and Negligence Claims
"The general rule is that economic losses are not recoverable under tort theories; rather, they are limited to the commercial theories found in the UCC." City of Lennox v. Mitek Industries, Inc., 519 N.W.2d 330, 333 (S.D.1994) (adopting the economic loss doctrine in South Dakota).
As consequential losses caused by alleged defects in the Techite pipe, the costs of replacing the pipe are purely economic losses for which plaintiffs cannot recover in tort. See City of Lennox, 519 N.W.2d at 333-34 (barring tort recovery for "repair costs that fall under consequential damages"). Nor can plaintiffs obtain a tort remedy for their economic losses simply by claiming that defects in the pipe caused a separate injury to a person or other property. The "personal injury" and "other property" exceptions are limited to
Plaintiffs cannot recover any such damages. Although plaintiffs claim that Heidi Aylward suffered personal injuries when she drove into the sinkhole, they have admitted that they are not seeking any damages for personal injuries to Ms. Aylward or anyone else. Plaintiffs do claim that they are seeking damages to "other property" in the form of "damage to the bedding, backfill material and placement" of the pipe. Like the costs of replacing the pipe, however, these types of damages are consequential losses whose recovery is barred under the economic loss doctrine. See City of Lennox, 519 N.W.2d at 333-34 (barring recovery for the cost of removing insulation and sheet metal in the process of replacing defective trusses). Plaintiffs thus cannot recover any damages under the "personal injury" or "other property" exceptions.
Plaintiffs cannot obtain a tort remedy for their replacement costs by characterizing those expenditures as an effort to prevent personal injuries in the future. In Carey-Canada, the Minnesota Supreme Court allowed a building owner to proceed in tort for damages relating to the maintenance, removal and replacement of asbestos, where the owner claimed that the asbestos was "highly dangerous to humans." Carey-Canada, 486 N.W.2d at 397. The court's decision to allow a tort remedy, however, was not based simply on the dangerousness of asbestos, but rather on the court's observation that the danger posed by the asbestos — asbestosis — was not foreseeable at the time the asbestos was purchased, Id. ("[T]he risk posed by materials containing friable asbestos `is not the type of risk that is normally allocated between the parties to a contract by agreement.'") (quoting City of Greenville v. W.R. Grace & Co., 827 F.2d 975, 978 (4th Cir.1987)). In fact the court indicated that the failure of asbestos to "perform satisfactorily as fireproofing" — a failure which could itself constitute an unreasonably dangerous condition — would not support a claim for economic loss:
Id. Similarly, the dangers of personal injury, property damage, and liability under the Clean Water Act, which plaintiffs claim would have been caused by the failure of the pipe, were all foreseeable consequences of defective pipe when Banner approved Techite pipe for the Southwest Interceptor and NCU purchased the pipe from Amoco. Because plaintiffs' claims are fundamentally different from the claims in Carey-Canada, there is no reason to decide whether the South Dakota Supreme Court would adopt the rationale of that case, and no basis for allowing plaintiffs to recover under theories of products liability.
B. Breach of Warranty Claims
Under § 2-607(3) of the UCC, where a tender of goods has been accepted, "[t]he buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy." SDCL 57A-2-607(3). The purpose the notice requirement is to: (1) give the seller sufficient time to investigate the breach of
Plaintiffs were required to provide notice of breach to "the seller" under § 2-607(3). The notice requirement "is a fundamental prerequisite of a buyer's recovery for breach of warranty." Ehlers v. Chrysler Motor Corp., 88 S.D. 612, 226 N.W.2d 157, 159 (1975). Plaintiffs contend that they are exempt from the notice requirement, arguing that they are not "buyers" under § 2-607(3) because they did not buy the Techite pipe from defendants. As defendants point out, the cases which plaintiffs cite for this proposition involved allegations of personal injury by a plaintiff who did not purchase the product by which he was injured. See Cole v. Keller Indus., Inc., 132 F.3d 1044 (4th Cir.1998) (employee injured while using ladder purchased by his employer); Yates v. Pitman Mfg., Inc., 257 Va. 601, 514 S.E.2d 605 (1999) (workman injured by crane being used to deliver coal to his employer). In contrast, plaintiffs bought the Techite pipe from NCU, and are therefore "buyers" required to provide notice under the statute.
That does not mean that plaintiffs were required to provide notice directly to defendants. A majority of courts addressing the issue have interpreted the language of § 2-607(3) as contemplating only "a transaction between the buyer and the immediate seller," and thus as requiring notice only to "the party that tendered the goods to the buyer, i.e. the immediate seller." See Church of Nativity v. WatPro, Inc., 474 N.W.2d 605, 609-10 (Minn.App.1991) (listing cases), aff'd on other grounds, 491 N.W.2d 1 (Minn.1992); Cooley v. Big Horn Harvestore Systems, Inc., 813 P.2d 736, 741-42 (Colo.1991) (en banc) (listing additional cases).
Plaintiffs have not pointed to any circumstances which could excuse their failure to provide notice prior to filing this lawsuit. While plaintiffs claim that defendants knew about defects in Techite pipe from problems with other buyers, a seller's actual knowledge of defects does not excuse a buyer from providing notice of breach:
American Mfg. Co. v. United States Shipping Bd. Emergency Fleet Corp., 7 F.2d 565, 566 (2d Cir.1925) (Learned Hand, J.); see also Aqualon Co. v. Mac Equip., Inc., 149 F.3d 262, 266-67 (4th Cir.1998) (describing the continuing widespread adherence to Judge Hand's description of the notice requirement).
C. Fraud, Deceit and Deceptive Trade Practices Claims
As alleged in this case, plaintiffs' causes of action for fraud,
There is an issue of fact as to whether defendants misrepresented the attributes of Techite pipe to Rittershaus. As defendants point out, Rittershaus testified that he is personally unaware of any untrue statements in the Techite information which was provided to him, and that he has no information that the sewer pipe did not meet the specifications of ASTM D 3262. (Rittershaus Dep. at 38:15-39:1; 126:10-19.) However, plaintiffs have produced separate evidence suggesting that the documents Rittershaus received from defendants falsely stated that Techite pipe met the criteria of ASTM D 3262 and that it would last for fifty years. This evidence indicates that Techite II did not qualify for ASTM D 3262 in 1974, and that it would not last for its projected life of 50 years. Additional evidence indicates that defendants were still trying to solve "cracking and strain corrosion problems" in 1977, at the same time they were telling potential customers that Techite II did not suffer from such problems in the field. Finally, the evidence suggests that Techite II did not meet ASTM standards as late as August 18, 1980, after all of the Techite pipe in the Southwest Interceptor had been laid, but before plaintiffs had accepted ownership of the pipeline. The portion of evidence which is contained in documents generated by defendants and their former employee supports the inference that the defendants' alleged misrepresentations were made knowingly and with the intent to deceive Rittershaus.
Defendants cannot escape liability to plaintiffs for their alleged misrepresentations simply because they did not make any statements directly to plaintiffs. Defendants may be liable to plaintiffs, even if plaintiffs only received misrepresentations through Rittershaus.
Restatement (Second) of Torts, § 533 (1977) (cited in Taggart v. Ford Motor Credit Co., 462 N.W.2d 493, 503 (S.D. 1990)). Thus, an automobile dealer who makes false representations as to the quality of a car is liable, not only the person to whom he sells the car, but also to third
There is also evidence to support an inference that Rittershaus and plaintiffs relied on defendants' alleged misrepresentations. In his deposition, Rittershaus indicated that plaintiffs were relying on him to identify sewer pipe which would be suitable for the Southwest Interceptor, by testifying that Brookings Municipal Utilities "wanted to get the best bid with a pipe that would meet the specifications we [Banner] developed." Rittershaus also testified that he relied on the documents he received from defendants to the extent that they stated that Techite II was "resistant to corrosive environments," "exceed[ed] the rigorous requirements" of ASTM D 3262, and would have a service life of fifty years or more. Whether Rittershaus and plaintiffs were justified in relying on those statements is a question of fact for the jury.
Plaintiffs' 30(b)(6) deposition testimony does not bar them from producing evidence to support these theories of misrepresentation and reliance. Andrew Jensen, plaintiffs' Rule 30(b)(6) representative, testified that he had no knowledge of any misrepresentations which defendants made to plaintiffs, or any personal knowledge of defendants' representations on which plaintiffs relied. According to some district court cases, a party whose Rule 30(b)(6) deponent states that the party has no knowledge or position as to an area of inquiry cannot argue for a contrary position at trial, unless it can show that the information supporting its new position was not known or was inaccessible at the time of the 30(b)(6) deposition. See Rainey v. American Forest & Paper Ass'n, Inc., 26 F.Supp.2d 82, 94-96 (D.D.C.1998); United States v. Taylor, 166 F.R.D. 356, 362-63 (M.D.N.C.1996). Assuming, for the sake of argument, that these cases correctly describe the effect of Rule 30(b)(6) deposition answers, Jensen's answers do not prevent plaintiffs from arguing that they were defrauded by defendants' alleged misrepresentations. The Court reads Jensen's 30(b)(6) deposition testimony as saying only that plaintiffs never received or relied upon any direct misrepresentations from Amoco.
Finally, there is evidence to show that defendants' alleged misrepresentations caused plaintiffs' injuries. Under South Dakota law, a legal cause is a cause without which the alleged harm would not
For the reasons stated, plaintiffs have not provided a sufficient basis to present to a jury their claims of strict products liability (Count I), negligence (Count II), breach of express warranty (Count III) and breach of implied warranty of fitness for a particular purpose (Count IV). Plaintiffs have, however, presented sufficient evidence and a sufficient legal basis to support their claims of fraud, deceit and misrepresentation (Count V) and deceptive trade practices (Count VI). Accordingly,
IT IS ORDERED: