United States District Court, Northern District of Illinois, E.D
June 7, 1983
U.S. HOME CORPORATION, PLAINTIFF, GEORGE W. KENNEDY CONSTRUCTION COMPANY, INC., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
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
Count VIII, the only claim directed against Armco, sounds in strict
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
Court will treat those answers as a binding agreement to look to Illinois
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
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
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.