Palmetto Linen Svc v. UNX, Incorporated ( 2000 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
PALMETTO LINEN SERVICE,
INCORPORATED,
Plaintiff-Appellant,
v. No. 99-1209
U.N.X., INCORPORATED; NOVA
CONTROLS, INCORPORATED,
Defendants-Appellees.
Appeal from the United States District Court
for the District of South Carolina, at Florence.
Cameron McGowan Currie, District Judge.
(CA-97-1533-4-22)
Argued: November 30, 1999
Decided: March 2, 2000
Before WILKINSON, Chief Judge, KING, Circuit Judge, and
Cynthia Holcomb HALL, Senior Circuit Judge of the United States
Court of Appeals for the Ninth Circuit, sitting by designation.
_________________________________________________________________
Affirmed by published opinion. Chief Judge Wilkinson wrote the
opinion, in which Judge King and Senior Judge Hall joined.
_________________________________________________________________
COUNSEL
ARGUED: Olin Leo Purvis, III, OLIN L. PURVIS, III, P.C., Myrtle
Beach, South Carolina, for Appellant. David Wesley Whittington,
Charleston, South Carolina, for Appellees. ON BRIEF: Robert E.
Lee, MCINTOSH & LEE, Florence, South Carolina, for Appellee
Nova Controls.
_________________________________________________________________
OPINION
WILKINSON, Chief Judge:
Palmetto Linen Service filed a tort action for damages resulting
from the alleged malfunction of a chemical dispensing system used
in its commercial washers. The district court dismissed Palmetto's
claims because South Carolina's economic loss rule limits Palmetto's
remedies to contract and thus bars any tort recovery. We now affirm
the judgment.
I.
Palmetto operates a commercial laundry business that supplies lin-
ens to hotels, restaurants, and hospitals. Defendant U.N.X., Inc., sold
chemicals to Palmetto for use in the cleaning process. U.N.X. also
installed a computerized pump system in Palmetto's washers to regu-
late the injection of the chemicals. Defendant Nova Controls, Inc.,
manufactured and distributed certain components used by U.N.X. in
the chemical dispensing system.
Palmetto alleges that this system malfunctioned, injecting exces-
sive amounts of chemicals into the washers and thereby destroying
over $200,000 worth of Palmetto's linens. Palmetto filed suit against
U.N.X., seeking damages for the destruction of its linens and other
losses caused by U.N.X.'s negligence in the design, installation, and
maintenance of the system.
After some discovery, Palmetto added Nova as a defendant, assert-
ing both negligence claims and a claim for breach of express war-
ranty. Nova had guaranteed the parts it sold to U.N.X. under a one-
year limited warranty. The warranty provided only for the repair and
replacement of defective equipment and expressly precluded liability
for consequential damages. Nova conceded that the warranty also
extended to Palmetto as a foreseeable user under the Uniform Com-
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mercial Code (U.C.C.). See S.C. Code Ann.§ 36-2-318 (Law. Co-op.
1976).
In November 1998, the district court granted Nova's unopposed
motion for summary judgment on the express warranty claim, leaving
only Palmetto's tort claims. In January 1999, the district court granted
summary judgment to both defendants on the negligence claims on
the ground that South Carolina's economic loss rule barred any tort
recovery by Palmetto. Palmetto now appeals the dismissal of its negli-
gence claims.
II.
South Carolina's economic loss rule provides that where a buyer's
expectations in a sale are frustrated because the product does not
work properly, the buyer's remedies are limited to those prescribed
by the law of contract. See Kennedy v. Columbia Lumber & Mfg. Co.,
384 S.E.2d 730, 736 (S.C. 1989). This doctrine demarcates the bound-
ary between contract and tort in product liability cases by helping to
determine which theories are applicable in a given action. See Bishop
Logging Co. v. John Deere Indus. Equip. Co., 455 S.E.2d 183, 188
(S.C. Ct. App. 1995). Its contours and rationale have been carefully
explained by Judge Traxler in Myrtle Beach Pipeline Corp. v. Emer-
son Elec. Co., 843 F. Supp. 1027 (D.S.C. 1993), aff'd, 46 F.3d 1125(4th Cir. 1995) (unpublished table decision). Most fundamentally, the
economic loss rule distinguishes between transactions involving the
sale of goods, where contract law protects economic expectations, and
transactions involving the sale of defective products to individual
consumers, whose injuries are traditionally remedied by the law of
torts. See id. at 1049.
A.
Palmetto first argues that the economic loss rule does not bar its
tort claims because it merely seeks to hold defendants liable for negli-
gence in the provision of services. Although Palmetto failed to raise
this argument below, see e.g., Wilder Corp. v. Wilke, 497 S.E.2d 731,
733 (S.C. 1998), we would nonetheless reject it.
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A contract involving the delivery of both goods and services is
classified as a sale of goods governed by the U.C.C. where its "pre-
dominant thrust" is "a transaction of sale, with labor incidentally
involved." United States v. Southern Contracting of Charleston, Inc.,
862 F. Supp. 107, 109 (D.S.C. 1994). Courts have thus often limited
a party to contractual remedies where the contract calls for a combi-
nation of goods and services. See, e.g., id. at 109-10 (contract to man-
ufacture and deliver incinerator was a sale of goods); Plantation
Shutter Co. v. Ezell, 492 S.E.2d 404, 406-07 (S.C. Ct. App. 1997)
(contract for purchase, installation, and adjustment of interior window
shutters was a sale of goods); United States v. City of Twin Falls, 806
F.2d 862, 871 (9th Cir. 1986) (contract for purchase and installation
of wastewater treatment equipment was a sale of goods); Southern
States Coop. v. Townsend Grain & Feed Co. (In re L.B. Trucking,
Inc.), 163 B.R. 709, 719 (Bankr. D. Del. 1994) (farmer's contract to
purchase herbicide was primarily a sale of goods where trained herbi-
cide applicator was required to spray fields).
Palmetto contracted for the chemicals supplied by U.N.X. and the
installation of the chemical dispensing system. The predominant
thrust of this transaction was to provide the chemicals and equipment.
Any services involved in the transaction, such as the design and main-
tenance of the equipment, were merely incidental to the sale of goods.
The economic loss rule therefore bars any negligence claim.
B.
Palmetto next argues that defendants are liable because they
breached a legal duty of care separate and apart from their contractual
obligations. We disagree. The economic loss rule bars a negligence
action "where duties are created solely by contract." Kennedy, 384
S.E.2d at 737. Where there is a special relationship between the par-
ties that is independent of the contract, however, there exists a duty
of care whose breach will support a tort action. See Tommy L. Griffin
Plumbing & Heating Co. v. Jordan, Jones & Goulding, Inc., 463
S.E.2d 85, 88 (S.C. 1995). For example, South Carolina courts have
permitted negligence actions to proceed against engineers and lawyers
based on their professional duties to plaintiffs. See, e.g., Griffin, 463
S.E.2d 85; Lloyd v. Walters, 277 S.E.2d 888 (S.C. 1981). But no spe-
cial relationship exists between Palmetto and either defendant. Pal-
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metto points to no professional duty on the part of defendants. Nor
does Palmetto claim that defendants violated any code provision or
contravened any industry standard. See Kennedy , 384 S.E.2d at 737.
Rather, as the district court observed, the relationship between U.N.X.
and Palmetto is merely one of vendor-vendee. And a mere buyer may
resort only to contractual remedies.
C.
Palmetto finally argues that the "other property" exception to the
economic loss rule permits it to proceed in tort. We reject this argu-
ment as well. Although the economic loss rule generally "does not
apply where other property damage is proven," Kershaw County Bd.
of Educ. v. United States Gypsum Co., 396 S.E.2d 369, 371 (S.C.
1990), "courts have tended to focus on the circumstances and context
giving rise to the injury" in determining whether alleged losses qual-
ify as "other property" damage, Myrtle Beach Pipeline Corp., 843 F.
Supp. at 1057. Specifically, in the context of a commercial transaction
between sophisticated parties, injury to other property is not action-
able in tort if the injury was or should have been reasonably contem-
plated by the parties to the contract. See id. at 1058. In such cases the
"failure of the product to perform as expected will necessarily cause
damage to other property," rendering the other property damage
inseparable from the defect in the product itself. Neibarger v. Univer-
sal Coops., Inc., 486 N.W.2d 612, 620 (Mich. 1992).
The district court correctly analogized the facts of the instant case
to those of other cases foreclosing recovery for other property damage
where such damage was foreseeable and inseparable from the alleged
product defect. See, e.g., Redman v. John D. Brush & Co., 111 F.3d
1174, 1181-83 (4th Cir. 1997) (tort claim for theft of coin collection
caused by defect in safe was barred because essence of plaintiff's
complaint was that safe did not meet economic expectations); Purvis
v. Consolidated Energy Prods. Co., 674 F.2d 217, 223 (4th Cir. 1982)
(tort claim for loss of tobacco caused by defect in tobacco barns was
barred because loss resulted from "ordinary commercial risk of prod-
uct ineffectiveness"); Theuerkauf v. United Vaccines Div. of Harlan
Sprague Dawley, Inc., 821 F. Supp. 1238 (W.D. Mich. 1993) (tort
claim for death of rancher's minks caused by defective vaccine was
barred because loss was the natural, foreseeable result of the product
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defect); Neibarger, 486 N.W.2d 612 (tort claim for damage to cattle
caused by defective milking machine was barred because loss was
within contemplation of parties). The destruction of Palmetto's linens
was the natural and foreseeable result of a malfunction in the chemi-
cal injection system. The other alleged losses were similarly foresee-
able. The parties to the contract either contemplated or should have
contemplated these dangers in allocating the risk of loss. While we do
not downplay the extent of Palmetto's alleged losses, business entities
must protect their commercial interests up front through the medium
of contract. The economic loss rule dictates that Palmetto cannot now
obtain in tort a remedy for which it did not bargain.
III.
The judgment of the district court is
AFFIRMED.
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