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BOCRE LEASING CORP. v. GMC

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK


January 10, 1994

BOCRE LEASING CORP., Plaintiff,
v.
GENERAL MOTORS CORPORATION (ALLISON GAS TURBINE DIVISION), Defendant.

The opinion of the court was delivered by: LEONARD D. WEXLER

MEMORANDUM AND ORDER

 WEXLER, District Judge

 Bocre Leasing Corporation ("plaintiff" or "Bocre") brought a used helicopter from Edwards and Associates ("Edwards"), a broker of used aircraft. The helicopter, which was manufactured by Allison Gas Turbine Division of General Motors Corporation ("defendant" or "Allison"), failed while in flight. Although no one was injured as a result of the failure, the helicopter itself sustained damage. Plaintiff brought suit against Allison, under both a negligence and strict liability theory, seeking to recover for the economic damage it suffered as a result of the helicopter's failure. Presently before the Court is defendant's motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the reasons stated below, defendant's motion is granted.

 I. BACKGROUND

 The underlying facts of this case are neither complicated nor in dispute. In 1986, Bocre brought the helicopter "as is" from Edwards for $ 214,000. On May 31, 1989, the helicopter experienced a loss of power and was forced to crash land. Fortuitously, no one was injured as a result of the crash and no property other than the helicopter itself sustained any damage. Subsequent to the crash, the helicopter was placed on a flat bed truck which was too high for the underpasses under which it travelled. As a result, the helicopter suffered more damage. Plaintiff, which had insured the helicopter, received $ 275,000 from its own insurer and $ 96,000 from the trucker's insurer.

 II. DISCUSSION

 Both Parties agree that New York law applies to this diversity case. Thus, the issue in this case is whether New York would allow a buyer in a commercial transaction to sue in tort the manufacturer of a product which malfunctions in a way that could cause great personal or property damage, but which only causes injury to the product itself and economic loss. *fn1" In East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 90 L. Ed. 2d 865, 106 S. Ct. 2295 (1986), the Supreme Court, exercising admiralty jurisdiction, considered this precise question. In that case the Court held that there is no "cause of action in tort. . .when a defective product purchased in a commercial transaction malfunctions, injuring only the product itself and causing purely economic loss." Id. Although East River is not binding on New York, it has widely influenced the development of products liability law throughout the country. See e.g, Cooperative Power Ass'n v. Westinghouse Elec. Corp., 493 N.W.2d 661 (N.D. 1992); Danforth v. Acorn Structures, Inc., 608 A.2d 1194 (Del. 1992); Neibarger v. Universal Coops., Inc., 439 Mich. 512, 486 N.W.2d 612 (Mich. 1992); Miller v. United States Steel Corp., 902 F.2d 573 (7th Cir. 1990)(applying Wisconsin law); Waggoner v. Town & Country Mobile Homes, Inc., 808 P.2d 649 (Okla. 1990); Laurens Elec. Coop., Inc. v. Altec Indus., Inc., 889 F.2d 1323 (4th Cir. 1989)(applying South Carolina law); Continental Ins. v. Page Eng'g Co., 783 P.2d 641 (Wyo. 1989); Lloyd Wood Coal Co. v. Clark Equip. Co., 543 So. 2d 671 (Ala. 1989); Aloe Coal Co. v. Clark Equip. Co., 816 F.2d 110 (3rd Cir.), cert. denied, 484 U.S. 853, 98 L. Ed. 2d 111, 108 S. Ct. 156 (1987) (predicting Pennsylvania law on the basis of East River); Public Serv. Co. of New Hampshire v. Westinghouse Elec., Corp., 685 F. Supp. 1281 (D. N.H. 1988) (applying New Hampshire law); O'Brien Cos. v. Challenge-Cook Bros., Inc., 672 F. Supp. 466 (D. Colo. 1987)(applying Colorado law); Anderson Elec., Inc. v. Ledbetter Erection Corp., 115 Ill. 2d 146, 503 N.E.2d 246, 104 Ill. Dec. 689 (Ill. 1987). This Court must therefore predict whether New York, like most of the other jurisdictions that have considered the issue, would adopt the East River approach in this case.

 A. The East River Approach

 In East River, the charterers of certain supertankers brought suit against the manufacturer of the ships' turbines after the turbines malfunctioned, causing injury to the supertankers themselves, but to no other property or person. The charterers, who were not in privity of contract with the manufacturer *fn2" , sought to recover in tort for the pure economic loss they suffered as a result of the defective engines.

 The Court reviewed the three basic land-based approaches before making its decision. The majority approach, which the Court adopted, disallowed tort recoveries when the product caused only economic loss, regardless of the potential for serious personal injuries or property damage. In contrast, the minority approach allowed tort recoveries for defective products causing only economic loss even when the malfunction was not unduly dangerous. Finally, the intermediate approach attempted to "differentiate between 'the disappointed users . . . and the endangered ones,'" and allowed a tort recovery only when the plaintiff was placed in danger as a result of the product defect. East River, 467 U.S. at 869 (quoting Russell v. Ford Motor Co., 281 Ore. 587, 575 P.2d 1383, 1387 (1978)). After reviewing the land-based approaches, the Court determined that so long as the malfunction causes only economic loss, "even when the harm to the product itself occurs through an abrupt, accident-like event," there can be no recovery in tort. East River, 467 U.S. at 871.

 The Court rejected the minority approach because it feared that it would expose manufacturers to run-away damages. As the Court stated, the "minority view fails to account for the need to keep products liability and contract law in separate spheres and to maintain a realistic limitation on damages." Id. The Court found the intermediate approach unsatisfactory as well, stating that because the intermediate approach "essentially turn[s] on the degree of risk, [it is] too indeterminate to enable manufacturers easily to structure their business behavior." Id. at 870.

 B. New York Law

 In Schiavone Constr. Co. v. Elgood Mayo Corp., 56 N.Y.2d 667, 436 N.E.2d 1322, 451 N.Y.S.2d 720 (1982), a case that pre-dates East River, the New York Court of Appeals followed the intermediary approach and held that a remote purchaser could not recover in tort for economic losses sustained as a result of a defective product, where that product was not unduly dangerous. See also Dudley Constr. v. Drott Mfg. Co., 66 A.D.2d 368, 412 N.Y.S.2d 512 (4th Dep't 1979). In Bellevue South Assoc. v. HRH Constr. Co., 78 N.Y.2d 282, 574 N.Y.S.2d 165, 579 N.E.2d 195 (1991), the Court of Appeals was called upon to revisit the issue for the first and only time since the Supreme Court announced its decision in East River.

 In Bellevue, the plaintiff entered into a building contract with a contractor. The contractor thereafter entered into a contract with the defendant subcontractor to supply wood flooring for the project. The wood flooring was defective and the plaintiff sued the defendant subcontractor in tort to recover for the economic loss it sustained as a result of needing to replace the defective flooring. Although the Court of Appeals noted the impact of the East River decision, it found it unnecessary to adopt East River because it determined that plaintiff's tort claim failed both under the East River approach and the Schiavone approach inasmuch as it concluded that the wood flooring was not unduly dangerous. *fn3"

 Since Bellevue, one lower New York court has continued to apply the intermediary approach. *fn4" In Trustees of Columbia University v. Gwathmey Siegel and Assoc. Architects, 192 A.D.2d 151, 601 N.Y.S.2d 116 (1st Dep't 1993), the court allowed the plaintiff to recover in tort for the cost of replacing the defective facade of a building, finding that the crumbling facade was unduly dangerous. 601 N.Y.S.2d at 119. Despite Gwathmey, however, this Court believes that the New York Court of Appeals, like the majority of other courts that have considered the issue, would apply the East River approach to the case at hand. See Aloe Coal Co., 816 F.2d at 118 (intermediate state court decisions not conclusive when predicting how a state's highest court will rule).

 Most importantly, the East River approach has the benefit of keeping damages in check, which is especially significant in a commercial context such as this. Moreover, this approach also relieves courts of the burden of determining whether a malfunctioning product is unduly dangerous. The New York courts wrestled with this difficult aspect of the intermediary approach in Bellevue, resulting in a sharply divided court. Finally, because the East River approach is less indeterminate than the intermediary approach, it allows manufacturers to structure their business affairs more efficiently.

 Plaintiff in the present case makes much of the fact that it never entered into any contract with the manufacturer and therefore had no opportunity to bargain with it. Moreover, plaintiff argues that because it was not in privity of contract with defendant, it has no contractual remedies against it. Therefore, plaintiff argues, to bar this suit would be to foreclose any remedy whatsoever for the loss it suffered, and East River was not meant to limit recovery in this way. See Butchkosky v. Enstrom Helicopter Corp., 784 F. Supp. 882 (S.D. Fla. 1992)(finding Florida's economic loss rule inapplicable in the absence of privity of contract between the parties).

 This Court notes that the plaintiffs in East River, like plaintiff herein, were once removed from the transaction. Additionally, the plaintiffs in both Schiavone and Bellevue were also remote purchasers. If plaintiff has no other recourse in this case it is because it chose to buy the aircraft "as is" from Edwards. In return, plaintiff undoubtedly paid less for the helicopter than it otherwise would have. Plaintiff could have, however, bargained for warranties and in the event of a breach, could have sued Edwards under the contract. Accordingly, this Court finds plaintiff's argument, that the East River approach is inapplicable in the absence of a contract between the parties, to be without merit. See also Miller, 902 F.2d at 575 ("Privity of contract is not an element of the economic loss doctrine."). Because this Court finds that the New York Court of Appeals would apply the East River approach to this case, defendant's motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure is granted.

 III. CONCLUSION

 For the above-stated reasons, defendant's motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure is granted.

 SO ORDERED.

 LEONARD D. WEXLER

 UNITED STATES DISTRICT JUDGE

 Dated: Hauppauge, New York

 January 10, 1994


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