Hutton v. Deere & Company ( 2000 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
APR 5 2000
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
ROBIN L. HUTTON, individually and
d/b/a High Country Logging,
Plaintiff-Appellant,
No. 99-8053
v. (D.C. No. 98-CV-124)
(D. Wyo.)
DEERE & COMPANY, a Delaware
corporation; STEWART &
STEVENSON POWER, INC.,
a Delaware corporation; PRO PAC
INDUSTRIES, LTD., a Canadian
corporation,
Defendants-Appellees.
ORDER AND JUDGMENT *
Before KELLY , HENRY , and MURPHY , Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.
Plaintiff Robin L. Hutton, individually and doing business as High Country
Logging (Hutton), appeals the district court’s summary judgment dismissal of his
diversity suit against defendants Deere & Company (Deere), Stewart & Stevenson
Power, Inc (S&S) and Pro Pac Industries, LTD (Pro Pac) claiming, under
Wyoming law, negligence, strict product liability and breach of implied warranty
of fitness for a particular purpose for the destruction by fire of a piece of forestry
equipment owned by Hutton. The district court had jurisdiction based on
diversity of citizenship under 28 U.S.C. § 1332, and we exercise jurisdiction
under 28 U.S.C. § 1291, and affirm.
I. Facts.
Hutton owns a commercial logging business operated in Sheridan,
Wyoming. S&S is a Casper, Wyoming retail distributor of various lines of
construction equipment, and is an authorized dealer of equipment manufactured
by Deere. Early in 1995, Hutton expressed to S&S an interest in acquiring a
delimber, which removes the limbs from felled trees and cuts the trees to certain
log specifications. S&S representatives took Hutton to a logging site to view a
delimber in operation. The particular delimber Hutton viewed was a Model
PP-453 delimber, manufactured by Pro Pac, mounted onto a John Deere 690E LC
-2-
excavator. It is undisputed that all delimbers have to be mounted onto some
motorized carrying equipment, such as the Deere excavator. See Appellant’s App.
at 75-76. The purpose of a Deere excavator is to dig dirt; thus, in order to
convert the excavator into a delimber, the boom, arm and bucket of the excavator,
which are used for digging, must first be removed and then a delimber is attached.
In April and May 1995, Hutton and S&S discussed the purchase of a Pro
Pac delimber mounted on a Deere 690E LC excavator. S&S ordered a Deere
690E excavator from an S&S equipment division in Houston, Texas and ordered a
Pro Pac 453 delimber from Pro Pac in Canada. The excavator was shipped from
Houston to S&S in Casper, where S&S removed its boom and bucket. In its
modified form, the Deere 690E is referred to as a “carrier.” S&S then shipped the
carrier to Pro Pac in Canada where Pro Pac attached its delimber to the Deere
690E carrier. In the course of installing its delimber unit onto a Deere carrier,
Pro Pac substantially modifies the equipment by adding a catwalk, installing
heavy duty guarding underneath the machine, modifying the tracks, adding cab
protection, welding on a rock guard, and adding additional ventilation. Following
this conversion, the machine, now referred to as a “delimber,” was shipped by Pro
Pack to S&S, arriving in Caspar on July 16, 1995.
On July 22, 1995, Hutton signed the purchase order for the delimber and
took delivery of the equipment. The purchase order identified the equipment as a
-3-
“John Deere 690E carrier [a]ssem[bled] w[ith] Pro-Pac Model PP-453 delimber,”
and charged $260,935 for the single, integrated unit. The purchase order listed
the standard express warranty, the available extended warranties, and disclaimers
of implied warranties. Hutton insured the unit for $275,000.
On July 14, 1996, while delimbing trees in the Big Horn National Forest,
the delimber caught and was destroyed by fire. The parties dispute the cause of
the fire. Hutton alleges that the fire was caused by defective wiring in the carrier;
Deere claims that the fire was caused by an improper installation of the Pro Pac
delimber unit, allowing excessive debris to gather and catch fire. Following the
fire, Hutton’s $275,000 insurance claim was paid.
II. Economic Loss Rule.
Wyoming has adopted the “economic loss rule” in products liability claims
based on negligence and strict liability theories, which bars recovery in tort when
a plaintiff claims purely economic damages unaccompanied by physical injury to
persons or damage to other property. See Rissler & McMurry Co. v. Sheridan
Area Water Supply Joint Powers Bd. , 929 P.2d 1228, 1234-35 (Wyo. 1996);
Continental Ins. v. Page Eng’g Co. , 783 P.2d 641, 647 (Wyo. 1989). “The
‘economic loss rule’ is ‘founded on the theory that parties to a contract may
allocate their risks by agreement and do not need the special protections of tort
law to recover for damages caused by a breach of the contract.’” Rissler , 929
-4-
P.2d at 1235 (quoting South Carolina Elec. & Gas Co. v. Westinghouse Elec.
Corp. , 826 F. Supp. 1549, 1557 (D.S.C. 1993)). Wyoming’s economic loss rule is
based on the Supreme Court’s decision in East River Steamship Corp. v.
Transamerica Delaval, Inc. , 476 U.S. 858 (1986), which held that, under
admiralty law, a cause of action in tort does not lie “when a defective product
purchased in a commercial transaction malfunctions, injuring only the product
itself and causing purely economic loss.” Id. at 859, 871. “[T]he law of contracts
is far better suited to deal with the dissatisfaction on the part of a purchaser under
such circumstances.” Continental Ins. , 783 P.2d at 647.
Contract law, and the law of warranty in particular, is well suited to
commercial controversies of the sort involved in this case because
the parties may set the terms of their own agreements. The
manufacturer can restrict its liability, within limits, by disclaiming
warranties or limiting remedies. See U.C.C. §§ 2-316, 2-719. In
exchange, the purchaser pays less for the product. Since a
commercial situation generally does not involve large disparities in
bargaining power, we see no reason to intrude into the parties’
allocation of the risk.
Id. (quoting East River , 476 U.S. at 873) (further citation omitted).
In East River, the Supreme Court drew a distinction between damage
caused to the “product itself” and damage to a “person or other property.” See
476 U.S. at 870. When the product itself is damaged, the “resulting loss is purely
economic” and losses such as “repair costs, decreased value, and lost profits . . .
-5-
essentially [involve] the failure of the purchaser to receive the benefit of its
bargain--traditionally the core concern of contract law.” Id.Defendants moved for summary judgment based on Wyoming’s economic
loss rule, contending that Hutton’s tort claims were barred because the only
damage was to the delimber unit itself. Thus, it claimed it had no duty to Hutton
under a negligence or strict liability claim. Hutton responded by claiming that the
Pro Pac delimber attached to the Deere carrier constituted “other property.”
Because Hutton claimed the fire started in the Deere carrier portion of the
equipment, it argued the fire in the carrier engine damaged “other property” when
it burned and destroyed the attached Pro Pac delimber unit. The district court
rejected Hutton’s argument and granted Defendants’ motion for summary
judgment, ruling that the Pro Pac delimber did not constitute “other property”
because the Pro Pac delimber and the Deere carrier “were effectively component
parts of a single piece of equipment.” Appellant’s App. at 46.
The Supreme Court shed light on the East River “other property” issue in
Saratoga Fishing Co. v. J.M. Martinac & Co. , 520 U.S. 875 (1997). In Saratoga ,
a purchaser of a ship added a skiff, a fishing net, and spare parts before reselling
it to Saratoga Fishing. A faulty hydraulic system caused an engine room fire
which in turn caused the ship to sink. Saratoga sued the manufacturer of the
hydraulic system and the company that built the vessel. At issue was whether,
-6-
under the economic loss rule, the added equipment was “other property.” The
Court distinguished between components incorporated by a manufacturer before
sale to an “Initial User” and those items added by a “User” of the manufactured
property, holding that the added skiff, fishing net and spare parts were “other
property” because they were added by the Initial User after the product was
placed in the stream of commerce:
When a Manufacturer places an item in the stream of commerce by
selling it to an Initial User, that item is the “product itself” under
East River . Items added to the product by the Initial User are
therefore “other property,” and the Initial User’s sale of the product
to a Subsequent User does not change these characterizations.
Id. at 879.
The Court emphasized that it is not the various component parts, but the
product itself as placed in the stream of commerce by the manufacturer and
distributors that is the “product.” Id. at 883 (citing Shipco 2295, Inc. v. Avondale
Shipyards, Inc. , 825 F.2d 925, 928 (5th Cir. 1987)). As the Court had earlier
emphasized in East River , “‘[s]ince all but the very simplest of machines have
component parts, [a contrary] holding would require a finding of ‘property
damage’ in virtually every case where a product damages itself. Such a holding
would eliminate the distinction between warranty and strict products liability.’”
Id. at 883 (quoting East River , 476 U.S. at 867).
-7-
We agree with the district court that, under Saratoga Fishing , the product
which Hutton bargained for, and the product which was placed in the stream of
commerce by the manufacturers and the distributor, was the fully converted
delimber machine. Hutton negotiated and purchased the equipment as a single
item with a single price. The final sales quote, dated July 19, 1995, identifies the
sale item as “One (1) New John Deere 690E Carrier . . . assembled complete with
a Pro-Pac Model PP-453 Delimber.” Appellee’s Supp. App. at 17 (emphasis
added).
The record also clearly demonstrates that S&S was the distributing dealer
of the delimber machine, not an “Initial User,” as Hutton argues. Acting solely as
a dealer, S&S arranged for the conversion of the Deere excavator to a delimber
for purposes of selling the modified equipment to Hutton. As soon as the
modifications were completed and the machine was shipped from Pro Pac to
S&S’s dealership, S&S immediately sold the machine to Hutton as a fully
converted package. Hutton then put the machine to use in the Wyoming’s Big
Horn National Forest. The district court correctly held that the Pro Pac delimber
was not “other property,” but was a component part of a single product. See
Saratoga Fishing Co. , 520 U.S. at 879.
-8-
Because no “other property” of Hutton was damaged, the economic loss
rule precludes recovery under Hutton’s tort theories and, therefore, the District
Court correctly dismissed Hutton’s negligence and strict liability claims.
III. Implied Warranty of Merchantability.
Hutton also claims the district court erred in holding that defendants
effectively disclaimed Wyoming’s implied warranty of merchantability. See Wyo.
Stat. § 34.1-2-314. Under Wyoming law, a correctly executed and displayed
exclusion of an implied warranty is enforceable, although disclaimers of warranty
protections are not favored and are strictly construed. See Stauffer Chem. Co. v.
Curry , 778 P.2d 1083, 1091 (Wyo. 1989). Wyoming law requires that language
purporting to exclude or modify the implied warranty of merchantability must
include the word “merchantability” and, in case of a writing, be conspicuous. See
id. at 1091-92; Wyo. Stat. § 34.1-2-316. “If the disclaimer is in writing and is
conspicuous, there is no requirement that the customer actually read or
acknowledge the disclaimer in order for it to become a part of the bargain.”
Stauffer , 778 P.2d at 1092.
The parties agree that the disclaimer of warranty on the purchase order for
the delimber contained the word “merchantability.” Hutton contends, however,
that the disclaimer was not conspicuous. The determination of whether a
-9-
warranty disclaimer is conspicuous is a question of law for the court. See Wyo.
Stat. § 34.1-1-201(x). Section 34-1-201(x) defines “conspicuous” as follows:
[A] term or clause is conspicuous when it is so written that a
reasonable person against whom it is to operate ought to have noticed
it. A printed heading in capitals (as: NON-NEGOTIABLE BILL OF
LADING) is conspicuous. Language in the body of a form is
“conspicuous” if it is in larger or contrasting type or color. . . .
Id.
We agree with the district court that the disclaimer of warranties here was
sufficiently conspicuous and that a reasonable person would have noticed it.
Hutton signed a two page “Customer Purchase Order for John Deere Industrial
Products.” The front page of the purchase order includes a paragraph heading of
“IMPORTANT WARRANTY NOTICE.” Appellee’s Supp. App. at 15. The
paragraph then tells the product purchaser that the express warranty for the
product is printed on the back of the sheet. See id . The paragraph then states in
boldface, capital letters, “YOUR RIGHTS AND REMEDIES PERTAINING TO
THIS PURCHASE ARE LIMITED AS INDICATED ON BOTH SIDES OF THIS
PURCHASE ORDER. WHERE PERMITTED BY LAW, NO IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS IS MADE.” Id. Then,
directly above the customer signature line appears the statement: “I (We)
understand that my (our) rights in connection with this purchase are limited as set
forth on both sides of this Purchase Order.” Id.
-10-
The back of the purchase order includes the following disclaimer, which
appears under a heading in boldface, capital letters:
NO IMPLIED WARRANTY OR OTHER REPRESENTATION .
Where permitted by law, neither John Deere nor any company
affiliated with it makes any warranties, representations or promises,
express or implied, as to the quality, performance, or freedom from
defect of its products, other than those set forth on this page, and
NO IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS IS MADE .
Id. at 16.
Under the statutory definition, this disclaimer is conspicuous. The heading
and disclaimers are printed all in capital letters and in boldface type. “A
contract’s warranty disclaimer satisfies the conspicuous requirement when it is
printed in all capital letters . . . or when it is in a larger and boldface type.”
Stevenson v. TRW Inc. , 987 F.2d 288, 296 (5th Cir. 1993) (collecting cases);
Quality Acceptance Corp. v. Million & Albers, Inc. , 367 F. Supp. 771, 773-74 (D.
Wyo. 1973) (finding disclaimer conspicuous where it was all capitalized and
appeared above the signature line). Although similar attention-calling language
appears in other provisions of the purchase order, the disclaimer is easily located
and read, and we therefore hold that it is conspicuous.
IV. Unconscionability.
Finally, Hutton claims that giving effect to the implied warranty disclaimer
in this case would be unconscionable, and thus should not be enforced. The
-11-
Wyoming Supreme Court has enunciated several factors to be considered in
determining whether a contract is unconscionable:
(1) Was a party deprived of a meaningful choice as to whether to
enter into the contract? (2) Was a party compelled to accept the terms
of the contract? (3) Was there an opportunity for a meaningful
negotiation? (4) Was there a great inequality of bargaining power?
(5) Was one party readily subject to deception? [and,] (6) Was one
party in some manner surprised by fine print or concealed terms?
Svalina v. Split Rock Land & Cattle Co. , 816 P.2d 878, 882 (Wyo. 1991).
We agree with the district court that, applying the Wyoming law of
unconscionability in contracting, see id ., this disclaimer of implied warranties was
not unconscionable. There are no facts which indicate Hutton was deprived of a
meaningful choice as to whether to enter into the contract, that he was compelled
to accept the terms of the contract, that there was a great inequality of bargaining
power, or that Hutton was readily subject to deception. Hutton had a full
opportunity to select the equipment and review the purchase order documents,
and, thus, had an opportunity to meaningfully negotiate its terms.
-12-
Accordingly, the judgment of the United States District Court for the
District of Wyoming is AFFIRMED.
Entered for the Court
Paul J. Kelly, Jr.
Circuit Judge
-13-