Regents of the University of Minnesota v. Chief Industries, Inc. ( 1997 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 96-1257
___________
Regents of the University *
of Minnesota, *
*
Appellant, *
*
v. * Appeal from the United States
* District Court for the
Chief Industries, Inc., a * District of Minnesota.
Delaware corporation; *
Parker-Hannafin Corporation, *
an Ohio corporation, as *
successor in interest and *
current owner of Jackes-Evans *
Controls, a Mississippi *
corporation, *
*
Appellees. *
___________
Submitted: November 20, 1996
Filed: February 13, 1997
___________
Before BEAM, LAY, and LOKEN, Circuit Judges.
___________
BEAM, Circuit Judge.
The University of Minnesota appeals the district court's1
grant of summary judgment to defendants Chief Industries and
Parker-Hannafin Corporation in this products liability case. We
affirm.
The Honorable David S. Doty, United States District Judge for
the District of Minnesota.
I. BACKGROUND
Since 1959, the University has operated the Southwest Research
Station near Lamberton, Minnesota. The Southwest station, one of
several agricultural research stations run by the University,
consists of 680 acres on which the University grows various crops
and conducts research. The University leases an additional 2,000
acres at the Southwest station to tenants who contribute a share of
their crops as rent. All of the crops grown at the station are
handled at on-site facilities.
In 1985, the University decided to purchase a new grain dryer
for the Southwest station. Before the purchase, Dr. Wallace Nelson,
the superintendent of the station since it opened in 1959,
consulted Dr. Harold Cloud, an agricultural engineer in the
University's Department of Agricultural Engineering. Dr. Nelson
described Dr. Cloud as a "drying specialist in ag[ricultural]
engineering" and as "the expert, probably, in the United States on
drying." Appellant's Appendix at 24, 25. Dr. Nelson stated that
because of Dr. Cloud's expertise, "he did a great deal of help on
specifications, fan sizes, BTUs, all these sort of things." Id. at
24.
After soliciting bids, Nelson purchased a dryer unit
manufactured by a subsidiary of Chief Industries from a local
distributor. The dryer was essentially a gas-powered heater and
fan unit that the University attached to a concrete slab on the
exterior of an existing grain drying structure. One component of
the unit was an electronic solenoid valve that stops the flow of
fuel to the unit when the air in the dryer reached a certain
temperature. The solenoid was manufactured by a predecessor of
Parker-Hannafin.
On August 5, 1992, seven years after the University bought the
Chief grain dryer, a fire damaged the structure to which the unit
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was attached. The University alleges that the Parker-Hannafin
solenoid failed, causing the dryer to overheat and start the fire.
The University brought suit against Chief and Parker-Hannafin,
asserting theories of strict liability, failure to warn, and
negligent design and manufacture. The district court concluded
that the University was a "merchant in goods of the kind" and was
thus barred from bringing tort claims under Minnesota Statutes
§ 604.10. Board of Regents of the Univ. of Minnesota v. Chief
Indus., Inc., 907 F. Supp. 1298, 1302 (D. Minn. 1995). On this
basis, the district court granted summary judgment to the
defendants. The University appeals.
II. DISCUSSION
We review the district court's grant of summary judgment de
novo. Thorn v. International Business Machines, Inc., 101 F.3d 70,
72 (8th Cir. 1996). Summary judgment is proper only if the
evidence taken in the light most favorable to the nonmoving party
fails to create a genuine issue of material fact and one party is
entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).
Section 604.10(a) of the Minnesota Statutes provides that
"economic loss that arises from a sale of goods between parties who
are each merchants in goods of the kind is not recoverable in
tort." Enacted in 1991, section 604.10 codified Minnesota's
preexisting rule that in commercial transactions the Uniform
Commercial Code provides the sole remedy for economic loss arising
out of the sale of goods, except for personal injury or damage to
the product itself. Under this "economic loss" doctrine, a
plaintiff may not recover in tort for damages to other property
caused by a defective product, but is limited to contract actions
such as breach of warranty. See Lloyd F. Smith Co. v. Den-Tal-Ez,
Inc., 491 N.W.2d 11, 14 (Minn. 1992).
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The Minnesota Supreme Court has considered no economic loss
cases since section 604.10 was enacted. In applying the doctrine
in Den-Tal-Ez, however, the court explicitly referred to the
statute (which was then pending in the state legislature) and
adopted the statute's language limiting tort recovery for
"merchants in goods of the kind." Id. at 17 & n.7. We therefore
agree with the district court that it is proper to construe section
604.10 in harmony with the principles set forth in Den-Tal-Ez and
Hapka v. Paquin Farms, 458 N.W.2d 683 (Minn. 1990).
In Hapka, the Minnesota Supreme Court held that "the Uniform
Commercial Code must control exclusively with respect to damages in
a commercial transaction which involves property damage only." 458
N.W.2d at 688. Under Hapka, the inquiry focused on whether the
sale of the defective product was a "commercial transaction" or a
"consumer transaction." See id. at 687. As the court explained,
the U.C.C. barred tort claims for damage to other property in
commercial transactions, but did not so limit actions that arose
from consumer transactions. Id.
In 1992, the court revisited the economic loss doctrine in
Den-Tal-Ez. In Den-Tal-Ez, a dentist purchased second-hand a
motorized dental chair. 491 N.W.2d at 13. The dentist brought a
product liability suit against the manufacturer after the chair
allegedly caused a fire that damaged the dental office and the
building where it was located. Id. The district court ruled that
Hapka barred the plaintiffs' tort claims, and the Minnesota Court
of Appeals affirmed. Id. The state supreme court reversed.
Leaving intact Hapka's basic distinction between commercial and
consumer transactions, id. at 17, the court explained that the
economic loss doctrine applied to losses caused by a product sold
by "a merchant dealing with another merchant in goods of the kind."
Id. at 15.
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This brings us to this appeal's sole question: is the
University a "merchant in goods of the kind"? That is, is the
University a merchant with respect to grain drying heaters such as
the one that allegedly caused the fire at the Southwest station?
If, as the district court concluded, the University is a merchant
with respect to grain dryers, then it may not recover in tort under
either the statute or the Hapka/Den-Tal-Ez rule.
Under the U.C.C. a "merchant" is:
a person who deals in goods of the kind or otherwise by
his occupation holds himself out as having knowledge or
skill peculiar to the practices or goods involved in the
transaction or to whom such knowledge or skill may be
attributed by his employment of an agent or broker or
other intermediary who by his occupation holds himself
out as having such knowledge or skill.
Minn. Stat. § 336.2-104(1). A party is thus a "merchant" of goods
for purposes of the U.C.C. either: (1) by dealing in those goods;
or (2) by way of specialized knowledge of the goods. There is no
dispute that the University is not a dealer in grain drying units,
so if section 604.10 applies, it is only because the University has
specialized knowledge of such products. Notwithstanding section
336.2-104(1)'s dual definition of "merchant," the University argues
that a party must be a dealer to be a "merchant of goods of the
kind" for purposes of section 604.10.
Den-Tal-Ez provides some support for the University's
position. The court in that case noted that "in a classic
commercial transaction involving experienced merchants engaged in
the buying and selling of their stock in trade" the recovery of
loss is appropriately restricted to contractual remedies. 491
N.W.2d at 16. The University also points to Dietz Brothers, Inc.
v. Klein Tools, Inc., No. C9-92-1136, 1993 WL 19709 (Minn. Ct. App.
Jan. 26, 1993). As part of a brief discussion, the court quoted
the definition of "merchant" in section 336.2-104(1) and noted that
"[a] ``merchant' also is defined as ``[o]ne who is engaged in the
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purchase and sale of goods; a trafficker; a retailer; a trader.'"
Id. at *2 (quoting Black's Law Dictionary 890 (5th ed. 1979)).
We are not persuaded, however, that either of these cases
requires that a "merchant in goods of the kind," for purposes of
section 604.10, be an actual dealer of the product. We note first
that as an unpublished opinion, Dietz has no precedential value.
Minn. Stat. § 480A.08, Subd. 3. Even as persuasive authority,
however, Dietz does not greatly aid the University, as the court in
that case explicitly cited section 336.2-104(1) in discussing
whether the plaintiff was a merchant in goods of the kind. The
Dietz court did not indicate that the "specialized knowledge"
category of the statute's definition of "merchant" did not apply in
the context of the economic loss doctrine.
Similarly, while the court in Den-Tal-Ez indicated that a
dealer in a commercial transaction involving its normal stock-in-
trade was a merchant for purposes of the economic loss doctrine, it
did not indicate that the rule applies only to dealers. Rather,
the court was more concerned with whether the plaintiff's
sophistication, knowledge, and bargaining power with respect to a
particular product indicates the wisdom of providing for
"reasonable containment of the risk of a defective product . . . by
providing an exclusive warranty remedy." Den-Tal-Ez, 491 N.W.2d at
16. A plaintiff who regularly buys and sells goods of the kind
will in all likelihood have such knowledge and sophistication, but
so may a similarly knowledgeable party who is not a dealer.
Neither the statute nor the case law indicates that section 604.10
should be limited to dealers. Indeed, to so narrow section 604.10
would create an unwarranted inconsistency with section 336.2-
104(1)'s dual definition of "merchant."
In the present case, the University's knowledge and experience
with respect to grain dryers constituted "knowledge or skill
peculiar to the practices or goods involved in the transaction."
Minn. Stat. § 336.2-104(1). The University had purchased a number
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of such units over the prior thirty years, and had the advantage of
a centralized purchasing department that solicited bids for the
purchase. Before purchasing the unit, the Southwest station's
superintendent (who had been responsible for other such purchases)
consulted a prominent expert in grain drying, who provided advice
on such specifications for the unit as fan size and BTU
requirements.
To be sure, not all large, sophisticated purchasers are
necessarily merchants in goods of the kind they buy, just as an
informed and careful individual consumer does not become a
"merchant." But based on the particular and undisputed facts of
this case, we agree with the district court that the University
possessed specialized knowledge with respect to the grain drying
unit, and that "[t]his knowledge informed the University of the
risks posed by the product and the potential damage to both the
product and other property that could result from product failure."
Board of Regents, 907 F. Supp. at 1302. The district court
properly concluded that, as a matter of law, the University was a
merchant of goods of the kind and that section 604.10 bars any
action in tort.
III. CONCLUSION
For the foregoing reasons, we affirm the judgment of the
district court.
LAY, Circuit Judge, dissenting.
I respectfully dissent.
The only good in today's decision is that its jurisdictional
roots are in diversity of citizenship, 28 U.S.C. § 1332. Thus,
this case should have little precedential value but may confuse the
issue until the Supreme Court of Minnesota can further clarify the
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state's law concerning the difference between commercial and
consumer transactions. I had assumed the Supreme Court had done
this in Justice Simonett's lucid opinion in Lloyd F. Smith Co. v.
Den-Tal-Ez, Inc., 491 N.W.2d 11 (Minn. 1992). In that case, the
court points out the limiting value of Hapka v. Paquin Farms, 458
N.W.2d 683 (Minn. 1990), distinguishing commercial and consumer
transactions. In Hapka the buyer was limited to his U.C.C. remedy,
and the seller and buyer were both knowledgeable dealers in seed
potatoes and were of relatively equal bargaining power.
Unlike the court today, the Den-Tal-Ez court interpreted Hapka
as providing a "narrow definition" of "commercial transaction."
Den-Tal-Ez, 491 N.W.2d at 17. More to the point, Den-Tal-Ez
defined the only phrase necessary to the resolution of this case,
holding that the U.C.C. provides the exclusive remedy only "where
the parties to the sale are dealers in the same goods or, to use a
more precise term, 'merchants in goods of the kind.'" Id. (quoting
Minn. Stat. § 604.10) (emphasis mine). By so defining "merchants
in goods of the kind," the only question remaining for us is
whether the University and Parker-Hannafin are both "dealers in the
same goods." The answer is clearly no.
But the majority insists that the Den-Tal-Ez court "was more
concerned with whether the plaintiff's sophistication, knowledge,
and bargaining power" sufficiently countered any risk of purchasing
a defective product than whether both parties to the transaction
were dealers in the same goods. Ante at 6. I find no such
discussion in Den-Tal-Ez. In fact, Justice Simonett expressly
states, "[I]f the buyer of a defective product is not a merchant
dealing with another merchant in goods of the kind, the buyer is
not precluded from suing in tort as well as contract for damage to
his other property." 491 N.W.2d at 15. The court thereafter
emphasized that in consumer transactions,
"[t]he destruction of a home and physical damage to
personal property is no less an injury to one who
sustains them than a bodily injury." Milbank Mut. Ins.
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Co. v. Proksch, 309 Minn. 106, 115, 244 N.W.2d 105, 110
(Minn. 1976) (defective Christmas tree caused fire damage
to house). Consequently, when the defective product
causes damage to other property outside the classic
mercantile transaction, our sense of justice dictates
that here, too, the more restrictive warranty remedy
should not preclude resort to an alternative tort remedy
with its more relaxed statute of limitations.
Id. at 16-17.2
Section 604.10(a) governs this claim. When it enacted §
604.10(a) in 1991, had it so desired, the Minnesota legislature
could have chosen the broad term "merchant" as generally defined by
§ 336.2-104(1) instead of "merchants in goods of the kind." The
legislature's choice instead to incorporate the limiting language
manifests its intent to narrow application of the economic loss
doctrine.3 There is no inconsistency in this obvious, clarifying
provision, with § 336.2-104(1). The intended purpose of § 604.10
was to overcome Hapka's broad language, based on § 336.2-104(1), so
that ordinary consumers will not be denied their "economic loss
arising from the sale of goods."4
2
The majority faults the University in citing an unpublished
opinion with no precedential value. Dietz Bros., Inc. v. Klein
Tools, Inc., No. C9-92-1136, 1993 WL 19709 (Minn. Ct. App. Jan. 26,
1993). Yet the majority itself finds support in Dietz's definition
of merchant under § 336.2-104(1). The majority fails to recognize
that Dietz did not rely on § 604.10 and its clarifying language
because § 604.10 was found not to be retroactive. Id. at *1.
3
The Comment to § 336.2-104 amply discusses how various
operative specific provisions of the U.C.C., which borrow from the
§ 336.2-104 definition of "merchant," have limited or expanded the
definition to meet the particular purposes of those provisions.
See Minn. Stat. § 336.2-104 cmt. 2.
4
As the Board of Regents notes, Senator Stumpf presented the
bill, which later passed and was codified as § 604.10, as "the
possible way of correcting [the Hapka decision]." Hearings on S.F.
No. 565 Before Subcomm. on Civil Law of Senate Judiciary Comm.,
(March 22, 1991) [hereinafter Hearings] (introduction of Sen.
Stumpf); Appellant's App. at 59. Senator Stumpf then introduced
Mark McKeon, who apparently authored the bill and who represented
insurance companies that insured farmers. After a lengthy
discussion regarding farmers who purchase implements that much
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In contrast, the majority opinion today declares that limiting
§ 604.10 to dealers "would create an unwarranted inconsistency"
with § 336.2-104. Ante at 6. But by incorporating § 336.2-104's
broad definition of "merchant" as it regards goods of the kind
(i.e., by including not just dealers but also others whose
occupation or employment of another gains them some specialized
knowledge in the goods) the majority contradicts the very intent of
§ 604.10. Evident from the legislative history and consistent with
Justice Simonett's interpretation, § 604.10(a) was intended to
protect individuals, such as farmers, whose farm implements damage
other property. We have essentially just such a case before us.
Indeed, we should be wary of suggesting § 604.10(a) adds
nothing to Minnesota law, or that it is a mere redundancy to
§ 336.2-104(1). Fundamental to statutory construction is the well-
settled principle that every statute shall be construed to have
meaning. Gale v. Comm'r of Taxation, 228 Minn. 345, 349, 37 N.W.2d
711, 715 (1949) ("A statute should be so construed that, if it can
be prevented, no clause, word, or sentence will be superfluous,
void, or insignificant."); see also Minn. Stat. § 645.16 ("Every
law shall be construed, if possible, to give effect to all its
provisions. When the words of a law in their application to an
existing situation are clear and free from all ambiguity, the
letter of the law shall not be disregarded under the pretext of
pursuing the spirit.").
The present case is clearly one that involves a consumer
transaction. A solenoid valve failed in a heater in a University
agricultural research facility some seven years after purchase.
later caused fire damage to other property, McKeon complained that
"when a farmer buys a widget, it's a commercial transaction and the
farmer and his insurer are subject to the holding in Hapka at this
point." Hearings (statement of Mark McKeon, representing Minn.
Ass'n of Farm Mut. Ins. Cos.); Appellant's App. at 65. McKeon
regarded the loss of hogs due to a fire caused by an electric pump
to be "a perfectly typical example" of a situation the bill would
address. Id. at 67.
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This defective valve allegedly interrupted the flow of fuel to the
burner unit, resulting in an extensive fire and loss to the
University. Under the majority's interpretation, the University is
limited to its remedy under the U.C.C. This is an artificial token
of relief since the statute of limitations has already run on any
breach of warranty claim.
Even assuming, as does the majority, that the Minnesota
Supreme Court did not intend to interpret "merchants in goods of
the kind" under § 604.10(a) when it referred to that section and
stated "dealers in the same goods" is synonymous with "merchants in
goods of the kind," the court's decision today remains in error.
Without the Den-Tal-Ez interpretation of § 604.10(a), one would
begin and end with the definition of "merchant" as defined by
§ 336.2-104(1).
Section 336.2-104(1) defines "merchants" as comprising two
classes: those possessing specialized knowledge as to the
particular goods involved in the transaction, and those possessing
specialized knowledge as to the particular business practice
involved in the transaction. Minn. Stat. § 336.2-104 cmt. 2, ¶1.
Regarding those with specialized knowledge as to goods, the statute
designates only three particular methods of acquiring such
knowledge to attain "merchant" status: (1) by being a dealer in the
goods; (2) by maintaining an occupation by which one holds himself
out as having specialized knowledge in the particular goods
involved; or (3) by employing an agent, broker or other
intermediary who, by his occupation, holds himself out as having
specialized knowledge in the goods involved. Minn. Stat. § 336.2-
104(1).
The majority of the court conflates the last two methods,
suggesting a person becomes a merchant simply "by way of
specialized knowledge of the goods." Ante at 5. Yet this is far
too sweeping a generality to reflect accurately the code's express
reliance on the occupation of the purported merchant or the
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occupation of the purported merchant's hired agent, broker or other
intermediary. In this case, of course the University by its
occupation does not hold itself out as having specialized knowledge
in grain drying units, and the record does not support the notion
that the University hired Dr. Cloud as an intermediary who, by his
occupation, held himself out as having specialized knowledge in
grain drying units.
Additionally, I do not believe that by consulting with an
agricultural engineer the University achieves merchant status as to
the grain drying unit. The Minnesota Supreme Court resolved a
similar issue in Church of the Nativity of Our Lord v. Watro, Inc.,
491 N.W.2d 1 (Minn. 1992), the same day it decided Den-Tal-Ez.
There, a church had employed an architectural firm to inspect
church buildings and to identify repair and maintenance needs. The
firm recommended re-roofing and participated with the church in
selecting materials and contractors for the job. After consequent
repairs, a leaky roof eventually caused substantial interior damage
to the walls and ceilings of church buildings. Interpreting
"merchant" under § 336.2-104(1) for the purposes of application of
the Minnesota Consumer Fraud Act, the court held the church was not
a "merchant" in the transaction. It declared, "[S]omething more
than hiring a consultant is required to move a noncommercial entity
within the scope of the definition of 'merchant.'" Id. at 7. By
comparison, something more than engaging an agricultural specialist
is necessary to move the University within the scope of "merchant
in goods of the kind."
Contrary to Minnesota application of the U.C.C., the court
today penalizes a purchaser for employing expert assistance. Worse
still, as in this case, by seeking general expert assistance
concerning the particular function a device should serve--as
opposed to gaining expert assistance concerning the particular
hazards the given device might pose--a purchaser simply barters
away the right to protect itself from potential tremendous
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consequential losses in exchange for information that the purchased
device will fit specified operative needs.
The majority recognizes that Dr. Cloud was a prominent expert
in grain "drying" and that Dr. Cloud's expertise assisted to
determine the specific "fan size and BTU requirements." Ante at 7.
But as the University argues, this general functional expertise
does not equate to expertise in the dryer units themselves, in fuel
valves, or in the fire hazard the dryer unit might pose the
University's property. Thus, even assuming today's decision
otherwise correctly promotes a mere purchaser to a "merchant in
goods of the kind" by the purchaser's employment of a risk-
calculation expert, the decision is yet in error since Dr. Cloud's
expertise concerns only function, not safety. The majority fails
to discuss whether the factual record supports the conclusion that
Dr. Cloud was an expert in grain dryers, as opposed to having
expertise merely in grain drying. In many cases this type of
distinction may be nominal, but not here.
In sum, that the University is large and has purchased several
of these heaters in the past and has retained an engineer
knowledgeable in the specifications and use of the heaters does not
transform the University from an ordinary consumer to a merchant
similar to a "trafficker, retailer, trader." Ante at 6. In all
due respect, the result reached here is absurd. I think both the
legislature of the state of Minnesota and the lawyers of this state
should be concerned with this esoteric approach to the law. Any
purchaser of goods who now makes a specialized study of consumer
products in order to buy a car, a computer, a tractor or any other
type of consumer goods for use will now find that its specialized
buying knowledge will preclude it from recovering for a defective
product that caused consequential damages.5
5
By analogy consider a businessman who has purchased three
computer systems over the past decade, upgrading periodically after
conferring with a computer consultant. The consultant considers
the particular needs of the business and she assists in purchasing
the computer that she recommends. Thus, the new system contains a
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I would reverse.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
specific memory capacity and processing speed and includes a
certain printer and monitor. A year after the statutory period
expires for bringing a breach of warranty or contract claim, a
faulty computer component causes a fire, destroying the office.
Under the reasoning of the court today, the businessman's
specialized knowledge--as imputed through his consultant--would
leave him a "merchant in goods of the kind," notwithstanding that
his consultant's functional expertise did not concern the
electrical hazards that ultimately caused the loss. This result is
simply inconsistent with Minnesota law.
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