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January 13, 1981


The opinion of the court was delivered by: Shadur, District Judge.


National Can Corporation ("National Can") has filed an eight-count Complaint charging Whittaker Corporation ("Whittaker") with supplying two types of defective solid Polyvinyl Chloride ("PVC") compounds for use in making seals and gaskets for soft drink and beer bottle caps ("crowns").*fn1 Counts I through VI allege breach of various warranties, while Counts VII and VIII allege the tort of negligent misrepresentation. Whittaker has moved to dismiss the latter two Counts under Fed.R.Civ.P. 12(b)(6). For the reasons stated in this memorandum opinion and order, Whittaker's motion is granted.

National Can claims that Whittaker's two PVC compounds suffered from decomposition after assembly of the crowns, so that particles became visible in the beverage contained in the bottles. This created the need to destroy large quantities of National Can's finished products and, as alleged in each of the two Counts:

  As a proximate result of Whittaker's negligence,
  Hutchinson has sustained damage due to rejection of
  goods by its customers, claims by its customers, loss
  of profits, and other incidental and consequential

There are no allegations of any physical injury resulting from the defective products.

In this diversity action all substantive questions must be decided in accordance with Illinois law. Although the Illinois Supreme Court has yet to speak directly to the issue presented here, under the circumstances this Court will follow the law as enunciated by the intermediate Illinois Appellate Courts, most particularly those that sit here in Chicago (the Illinois Appellate Court for the First District).*fn2

Although National Can argues otherwise, it is unquestionable that the damages it asserts are of the sort characterized by the controlling Illinois cases as "economic loss." As Mr. Justice Simon of the Illinois Appellate Court stated just last month (immediately before taking his seat on the Illinois Supreme Court), in his thoughtful opinion in Fireman's Fund American Insurance Cos. v. Burns Electronic Security Services, Inc. (93 Ill. App.3d 298, 48 Ill.Dec. 729, 417 N.E.2d 131 (1st Dist. 1980)):

  Economic loss, as we view it, is the loss of the
  benefit of the user's bargain. It is the loss of the
  service the product was supposed to render, including
  loss consequent upon the failure of the product to
  meet the level of performance expected of it in the
  consumer's business. In Koplin [49 Ill.App.3d 194]
  (at 199 [7 Ill.Dec. 113, 364 N.E.2d 100]), the court
  defined "economic loss" as loss resulting from a
  product "inferior in quality" which "does not work
  for the general purposes for which it was
  manufactured and sold," and we agree with that
  statement. We differ from the Koplin definition of
  economic loss, however, because in Koplin the court
  added to its definition a dichotomy between physical
  harm and economic loss. We see no reason to make the
  presence or absence of physical harm the determining
  factor; the distinguishing central feature of
  economic loss is not its purely physical
  characteristic, but its relation to what the product
  was supposed to accomplish. For example, if a fire
  alarm fails to work and a building burns down, that
  is "economic loss" even though the building was
  physically harmed; but if the fire is caused by a
  short circuit in the fire alarm itself, that is not
  economic loss.
  The principal concern of the buyer is, of course,
  whether the product will accomplish what it is
  designed to do. Economic loss should be contrasted
  with loss which the parties could not reasonably be
  expected to have in mind such as hazards peripheral
  to what the product's function is. For example, if a
  defect in the fire alarm sets off a fire or even
  causes a stench which drives customers away and
  consequently results in loss of profits, without any
  physical harm, this is a peripheral hazard producing
  a non-economic loss.
  The definition of economic loss is inextricably
  linked to the reasons why that type of loss is
  removed from the field of tort liability. When goods
  are sold, their soundness is the core of the bargain.
  It is for the parties to decide what the consequences
  will be if the bargain founders. An entire body of
  law, contracts — of which product warranties is a
  part — is available to govern those areas of the
  relationship concerning which the bargain is silent.
  There is thus no need for the law of torts to define
  the rights of parties

  in privity when they have done so themselves. When a
  buyer loses the benefit of his bargain because the
  goods are defective, that is, when he suffers
  economic loss, he has his contract to look to for
  remedies. Tort law need not, and should not, enter
  the picture. Album Graphics. Where the parties are in
  privity, all reasonably foreseeable consequential
  loss can be allocated in advance. Thus, in that
  situation where no personal injury is involved,
  recovery of economic loss should be governed by the
  law of warranty.*fn3

In the Fireman's Fund appeal the choice presented was between strict liability in tort and contract theories of liability. But the Illinois Appellate cases (cited with approval in Fireman's Fund) had first established the identical doctrine of no recovery for economic losses in negligence actions. Album Graphics, Inc. v. Beatrice Foods Co., 87 Ill.App.3d 338, 350, 42 Ill.Dec. 332, 341, 408 N.E.2d 1041, 1050 (1st Dist. 1980); Alfred N. Koplin & Co. v. Chrysler Corp., 49 Ill.App.3d 194, 7 Ill.Dec. 113, 364 N.E.2d 100 (1st Dist. 1977); see J & L, 626 F.2d at 284-85 (3d Cir. 1980).*fn4

National Can seeks to escape the force of this uniform body of law by characterizing its claim as one under the tort of negligent misrepresentation, recognized in Rozny v. Marnul, 43 Ill.2d 54, 60, 250 N.E.2d 656, 659 (1969); McAfee v. Rockford Coca-Cola Bottling Co., 40 Ill.App.3d 521, 526, 352 N.E.2d 50, 54 (2d Dist. 1976); and Restatement (Second) of Torts § 552. If the Court may be pardoned a bad pun, National Can is seeking to put new wine into old bottles.

Restatement § 552, as well as the Illinois case law National Can seeks to rely on, deals with an essentially different kind of situation from that involved here. Section 552 imposes liability for detrimental reliance upon "one who in the course of his business or profession supplies information for the guidance of others in their business transactions." That tort has been recognized almost exclusively in situations where information was supplied that damaged a plaintiff in its relations with third parties, see Green, The Duty To Give Accurate Information, 12 U.C.L.A.L.Rev. 464 (1965).

Though the tort of negligent misrepresentation may arguably be stretched to fit the claim in this case, it takes an impermissible double stretch to import general language as to the kind of damages recoverable in such tort cases (including economic loss, Rozny, 43 Ill.2d at 62, 250 N.E.2d at 660) into the present case. Such general language cannot prevail over the specific rejection of damages based on economic loss in the Illinois cases cited earlier in this opinion. To return full circle to the point discussed earlier in this opinion (both in the text at footnote 2 and in that footnote), this Court is certainly ...

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