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United States District Court, Northern District of Illinois, E.D

June 7, 1983


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


U.S. Home Corporation ("U.S. Home") filed this diversity action against several individuals and corporations that furnished services or products in connection with a sewer construction project for which U.S. Home was general contractor. Two of the defendants moved under Fed.R.Civ.P. ("Rule" 12(b)(6) for their dismissal from this lawsuit:

    1. George W. Kennedy Construction Company, Inc.
  ("Kennedy"), the subcontractor that constructed and
  installed some of the sanitary and storm sewers and
  water mains in the project; and

    2. Armco, Inc. ("Armco"), the manufacturer of water
  mains and sewer components used by Kennedy.

Kennedy's motion scarcely merited discussion and has been denied for reasons announced orally from the bench May 6, 1983. Because Armco's motion requires analysis, it is dealt with in this' memorandum opinion and order.

Count VIII, the only claim directed against Armco, sounds in strict liability:

  12. The truss pipe, its parts and components, were
  manufactured by Defendant, ARMCO, INC. in an
  inherently defective condition, and were in that
  condition at the time the pipe left the possession and
  control of that Defendant.

  13. The defective condition of the pipe rendered the
  sewer system inoperative because of extensive water
  infiltration, the partial and total collapse of
  portions of the system and the truss pipe's total
  failure to operate as required. These failures were
  all the direct and proximate result of inherent
  defects in the truss pipe.

Under Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 1021-22, 85 L, Ed. 1477 (1941) Illinois choice of law doctrine defines the source of substantive principles to test the legal sufficiency of Count VIII. At the May 6 hearing this Court asked both counsel to address the choice of law question neither had considered in its memoranda. Both have since answered that Illinois also provides the substantive rule of decision, and though neither's analysis is more than superficial*fn1 this Court will treat those answers as a binding agreement to look to Illinois law.

Both parties claim to invoke the recent and authoritative Illinois Supreme Court decision in Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69, 61 Ill.Dec. 746, 435 N.E.2d 443 (1982). As is so often the case under those circumstances, each is partly right and partly wrong.

Armco contends U.S. Home's claimed damages are "economic losses" that Moorman renders non-recoverable under a strict liability theory. Specifically Armco says two types of economic loss are involved:

    1. the costs of repairing (or replacing) the
  allegedly inferior truss pipe and

    2. consequential losses arising from the pipe's
  qualitative defects.

U.S. Home counters that Count VIII escapes Moorman's strict liability limitation by seeking redress for both economic loss and property damage to other portions of the sewer system.

Buttressed by reasonable inferences from the Complaint, U.S. Home's response is persuasive. Moorman, 91 Ill.2d at 85, 61 Ill. Dec. at 753, 435 N.E.2d at 450 (emphasis added) teaches "where only the defective product is damaged, economic losses caused by qualitative defects falling under the ambit of a purchaser's disappointed expectations cannot be recovered under a strict liability theory...." They are instead redressable only under contractual principles of warranty law (not asserted by U.S. Home against once-removed supplier Armco).

Admittedly the line between property damage and economic loss is a blurred one.*fn2 But Moorman's attempt to clarify those concepts is sufficiently illuminating to dispose of Armco's Rule 12(b)(6) challenge (91 Ill.2d at 82-83, 61 Ill.Dec. at 752, 435 N.E.2d at 449):

  The demarcation between physical harm or property
  damage on the one hand and economic loss on the other
  usually depends on the nature of the defect and the
  manner in which the damage occurred. (Pennsylvania
  Glass Sand Corp. v. Caterpillar Tractor Co. (3d Cir.
  1981), 652 F.2d 1165, 1169.) As one commentator
  observed in applying the definition of economic loss
  with respect to damage to the product:

    When the defect causes an accident "involving some
    violence or collision with external objects," the
    resulting loss is treated as property damage. On the
    other hand, when the damage to the product results
    from deterioration, internal breakage, or other
    non-accidental causes, it is treated as economic
    loss. It is also important to distinguish between
    "direct" and "consequential" economic loss. * * *
    Direct economic loss also may be measured by costs
    of replacement and repair. Consequential economic
    loss includes all indirect loss, such as loss of
    profits resulting from inability to make use of the
    defective product. (Note, Economic Loss in

    Products Liability Jurisprudence, 66 Colum.
    L.Rev. 917, 918 (1966).) Accord, e.g.,
    Pennsylvania Glass, 652 F.2d 1165,

Pennsylvania Glass was the case with which Moorman specifically stated its agreement immediately before the passage quoted in the preceding paragraph of this opinion.

Surely Count VIII ¶ 13's assertion as to "the partial and total collapse of portions of the [sewer] system" can be fairly read as a claim that the defective truss pipe actually damaged other segments of the sewer system. To that extent at least, Count VIII arguably asserts the sort of accidental damage that gives rise to compensable property damage under Moorman.*fn3 In any event, the status of that damage claim must await an inquiry into "the nature of the defect and the manner in which the damage occurred," as Moorman put it. Obviously a pleading-directed motion cannot be the vehicle for resolving such factual issues.*fn4


Armco's motion to dismiss is denied. Armco is ordered to answer Complaint Count VIII on or before June 21, 1983.

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