Holden Farms, Inc. v. Hog Slat, Inc. , 347 F.3d 1055 ( 2003 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
_____________
No. 02-2786MN
_____________
Holden Farms, Inc., a Minnesota *
Corporation; Rod Garness; Eugene *
C. Ward; Randy Swanson; Rick *
Anderson d/b/a Circle A Farms; Tim *
Sanborn; AJ Farms, a Minnesota *
General Partnership; Dennis Kofstad; *
Marlin Kruckeberg; and Pork *
Avenue, LLP, a Minnesota Limited *
Liability Partnership, *
* On Appeal from the United
Appellants, * States District Court for
* the District of
* Minnesota.
v. *
*
Hog Slat, Inc., a North Carolina *
Corporation; BCM Manufacturing, *
LTD., a Canadian Corporation; and *
Double L Group LTD., an Iowa *
Corporation, *
*
Appellees. *
___________
Submitted: March 10, 2003
Filed: October 28, 2003
___________
Before WOLLMAN, RICHARD S. ARNOLD, and MURPHY, Circuit Judges.
___________
RICHARD S. ARNOLD, Circuit Judge.
In this case an ultimate buyer sues up the stream of commerce alleging
warranty, contract, and tort claims against the direct seller, tort and warranty claims
against the distributor, and tort and warranty claims against the manufacturer. The
District Court dismissed all claims on motions to dismiss and for summary judgment.
We affirm in part and reverse in part.
I.
Holden Farms and the nine other plaintiffs (whom we shall sometimes
collectively call Holden Farms) produce and market hogs. Between August 29, 1994,
and September 5, 1997, plaintiffs entered into ten contracts with Hog Slat, a North
Carolina corporation, for the construction of hog nurseries. Seven of the ten contracts
were entered into by Barry Holden on behalf of Holden Farms. The other three
contracts were entered into by the remaining plaintiffs. The plaintiffs and Hog Slat
agree that all of the contracts were fully integrated agreements. Five of the ten total
contracts contained a choice-of-law clause stating that "[t]his Contract is controlled
and governed, and the parties agree to be bound, by North Carolina law." The other
five contained a choice-of-law clause stating that "[t]his Contract is controlled and
governed, and the parties agree to be bound, by Iowa law."
Holden Farms and the nine other plaintiffs desired to expand their operations.
As part of that expansion, Holden Farms wished to build hog nurseries, and
contracted with Hog Slat for that purpose. Hogs are placed in a nursery after they are
born but before they are finished for sale. The nurseries are built with slatted floors,
supported by beams, so that the hogs' refuse does not contaminate their living space.
The contracts provided that Hog Slat would install a plastic flooring manufactured
by BCM Manufacturing, a Canadian corporation, and distributed by Double L Group,
an Iowa corporation. BCM and Double L were not parties to any of the contracts.
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In April 1994, Holden Farms acted as host for a sales presentation by Double
L and Hog Slat to explain the advantages to hog farmers of a new plastic flooring,
Filter Eeze Maxima, to be used in the hog nurseries. Double L was BCM's sole
distributor of Maxima flooring in the United States. As part of promoting the
Maxima flooring to Holden Farms, Double L prepared a letter and promotion
brochure. The letter was provided to Holden Farms by a Double L representative
named Borcherding. The letter stated that Mr. Borcherding was a "representative of
BCM Manufacturing," but it was apparently understood by Holden Farms that Mr.
Borcherding also represented Double L. Importantly for this case, the letter also
stated that the "Filter-Eeze Ten-year non-prorated warranty is proven!" The brochure,
prepared by Double L, but carrying a Hog Slat logo, also referred to a ten-year
warranty. The executed contracts explicitly stated, however, that all warranties
extended under the contracts were "only for one (1) year from the date of substantial
completion or for such period as the manufacturer's warranty, whichever is less." The
contracts did not mention any ten-year warranty, although they did refer to a
manufacturer's warranty.
Installation of the first three nurseries was completed by Hog Slat in October
1994, and the other seven nurseries were completed over the next several years. Hog
Slat followed BCM's installation specifications, which called for the use of steel
beams to support the flooring. In the summer of 1998, Holden Farms began to notice
problems with the flooring in the first three nurseries built. The constant exposure
to hog waste caused the steel support beams to swell and corrode, which in turn
caused the plastic floor to buckle. The hogs were able to lift the buckling slats with
their snouts, creating gaps in the flooring that they fell through into the manure pit
below. Approximately 50 feeder hogs were killed as a result, and Holden Farms had
to replace the flooring.
-3-
Holden Farms filed suit against Hog Slat, BCM, and Double L. It alleged that
Hog Slat was in breach of its contracts, violated its express and implied warranties,
and was liable for negligent design and negligent misrepresentation. Holden Farms
alleged, as well, that BCM violated its warranty and was liable for negligent design
and negligent misrepresentation. Finally, plaintiff alleged that Double L had violated
its warranty and was liable for negligent misrepresentation. Plaintiff sought
replacement-cost damages, business-interruption damages, and other expenses.
Hog Slat moved to dismiss the claims against it pursuant to Federal Rule of
Civil Procedure 12(b)(6) on the grounds that the claims were barred by the statute of
limitations, the parol-evidence rule, and the economic-loss doctrine. A Magistrate
Judge recommended dismissal of the contract and warranty claims against Hog Slat
because the claims were barred by the one-year time limitation for bringing claims
agreed to in the contract and by the parol-evidence rule. Determining that the choice-
of-law clause governed the tort claims, the Magistrate Judge recommended that the
tort claims be dismissed except as to the loss of the hogs. Under Iowa and North
Carolina law, recovery for injuries based on the flawed flooring was precluded by the
economic-loss doctrine. The doctrine provides that a buyer may not recover from a
seller or other person claimed to have made warranties with respect to sold goods in
a tort action for economic loss to the goods themselves. Recovery may be had for
such loss only in a warranty or contract action. The District Judge adopted the
Magistrate Judge's recommendation.
Double L filed an answer generally denying the allegations and filed cross
claims against Hog Slat and BCM. Hog Slat filed an answer as to the remaining
claims against it and brought cross claims against BCM and Double L. BCM filed
an answer generally denying all claims.
Next, Hog Slat brought a motion for summary judgment. Soon after, BCM
brought its own motion for partial summary judgment, excepting damages concerning
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the hogs. Double L moved for summary judgment on all claims. The District Court
granted Hog Slat's motion as to the negligent-misrepresentation claim, holding that
Hog Slat owed Holden Farms no duty. The Court, however, preserved the negligent-
design claims but reiterated that it had limited those claims to the loss of the hogs.
Double L was granted summary judgment on all claims against it, and BCM was
granted summary judgment on all claims against it except those relating to damages
from the loss of the hogs.
The District Court's ruling left Holden Farms with only the claims for the loss
of hogs surviving. The parties stipulated to the dismissal of all remaining claims,
making the order of the District Court final. This appeal followed. We affirm in part
and reverse and remand in part.
II.
"In considering a motion to dismiss, we must assume that all the facts alleged
in the complaint are true. The complaint must be liberally construed in the light most
favorable to the plaintiff. A Rule 12(b)(6) motion to dismiss a complaint should not
be granted unless it appears beyond a doubt that the plaintiff can prove no set of facts
which would entitle the plaintiff to relief. Whether a complaint states a cause of
action is a question which this court reviews de novo." Coleman v. Watt, 40 F.3d
255, 258 (8th Cir. 1994) (internal citations omitted).
We review a grant of summary judgment de novo. Summary judgment is
appropriate "if the pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of
law." Fed. R. Civ. P. 56. The non-moving party is entitled to all reasonable
inferences based on the facts. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249
(1986).
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We shall address the claims against each party in turn.
III.
Holden Farms argues that the District Court erred when it dismissed its contract
claims against Hog Slat, dismissed its non-hog-loss tort claims against Hog Slat, and
granted Hog Slat's summary-judgment motion on its negligent-misrepresentation
claim. We disagree.
A.
The District Court dismissed Holden Farms' breach-of-contract claim against
Hog Slat because the one-year time limitation for bringing suit, set out in Article
IV(G) of the contracts, had expired.1
1
Article IV(G) of the contracts provides:
Warranty: Contractor warrants to Owner that materials and
equipment furnished under this Contract will be new and of good
quality, unless otherwise required or permitted under the Contract
Documents and in accordance with the manufacturer's warranties,
and that the Work will be free from defects not inherent in the
quality required or permitted and will conform to the Contract
Documents. Provided, however, that any warranty is subject to
such reasonable tolerances and variances as are usual and
customary in the trade and subject to such Article VIII below, the
aforesaid warranties are only for one (1) year from the date of
substantial completion or for such period as the manufacturer's
warranty, whichever is less.
There are no other warranties of any kind expressed or implied,
oral or written. Contractor disclaims any other warranties.
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Holden Farms argues that the limiting language bars only actions for violation
of warranty, but does not preclude other claims for breach of contract. It concedes
that the warranty period had expired, but argues that the limitation made in Article
IV(G) applied only to the promises made in that Article. It places great weight on the
title of Article IV(B): "Contractors Additional Obligations." Thus, since it fashions
its suit as a breach of Article IV(B)2 of the contract, it argues that the District Court
erred in dismissing its suit. We disagree.
This issue is governed by North Carolina and Iowa law. Neither Holden Farms
nor Hog Slat challenges the choice-of-law provision as it applies to the breach-of-
contract claims. Because the analysis is the same under either state's law, we do not
separate our discussion by state.
We think Article IV(G) shows that the parties intended the time limitation for
initiating a suit to apply to the whole contract.3 The language of the article discusses
both workmanship and the quality of goods used. As such, it is meant as a general
limitation setting out when an action on the contract must be brought.
Further, even were we not convinced that the parties intended Article IV(G) to
create a general one-year time limit for initiating suit, Article VIII of the contracts
would bar such claims. Article VIII provides, in part, that "[i]n all events, however,
Owner's placement of the hogs in any building shall constitute an acceptance of that
building 'as is' with all defects in materials or workmanship." Thus, when Holden
2
Article IV(B) provides, among other things, that Hog Slat will use its "best
skill and attention" in completing the nurseries, and that it will "be solely responsible
for all construction means, methods, techniques, sequences, and procedures."
3
See Farm & City Ins. Co. v. Potter, 330 N.W.2d 263, 265 (Iowa 1983) ("[W]e
give these words their ordinary rather than a technical meaning."), and Root v.
Allstate Ins. Co, 272 N.C. 580, 587, 158 S.E.2d 829, 835 (1968) (applying a plain-
language approach to interpreting a contract).
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Farms placed hogs in the nurseries it gave up the right to sue for breach of contract.
B.
Holden Farms next asserts that the District Court erred in dismissing its non-
hog-loss related tort claims. First, it argues that the District Court incorrectly applied
Northwest Airlines v. Astraea Aviation Serv., 111 F.3d 1386 (8th Cir. 1997), and that
Minnesota law governs the tort claims against Hog Slat. Second, it argues that its
claims are not barred by Minnesota's economic-loss doctrine. Because we disagree
with the first argument, the second argument becomes moot. We affirm the District
Court's dismissal of these claims.
1.
Holden Farms argues that the District Court erred in holding that, under
Northwest Airlines, the tort claims against Hog Slat should be governed by the
choice-of-law provisions set out in the Holden Farms/Hog Slat contracts. We
disagree. The essential principle of Northwest Airlines is that, under Minnesota law,
if analysis of the claims connected to a contract involves interpretation of the
contract, then the forum will apply the contractual choice-of-law provisions to the tort
claims. Id. at 1392. Here, both the negligent-design and negligent-misrepresentation
claims speak to the provisions of the contract. Just as in Northwest Airlines,
"[a]lthough mainly styled as torts, these claims stem from [Hog Slat's] alleged failure
promptly to provide functioning parts . . . as required under the contracts." Ibid. The
rule may be harder to understand with respect to the negligent-misrepresentation
claims, but the analysis is simplified if one looks to what the allegedly negligent
misrepresentation was. Holden Farms alleges that Hog Slat negligently promised that
the goods would be as warranted for ten years, and that they had a twenty-year proven
performance record, at the April 1994 meeting. Whether such tortious activity
occurred requires an analysis of whether the contract included such warranties and
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of what the warranties meant. Thus, in analyzing the tortious behavior we are
essentially analyzing the contract. Therefore, the Northwest Airlines rule applies, and
the tort claims against Hog Slat will be governed by North Carolina and Iowa law.
2.
We have held that five of the contracts are governed by North Carolina law,
and five by Iowa law. Holden Farms argues that its tort actions are not barred even
if the laws of these states are applied. We first address North Carolina law.
Under the law of that state, "a tort action does not lie against a party to a
contract who simply fails to properly perform the terms of the contract, even if that
failure to properly perform was due to the negligent or intentional conduct of that
party, when injury resulting from the breach is damage to the subject matter of the
contract." Spillman v. American Homes, 108 N.C. App. 63, 65, 422 S.E.2d 740, 741-
42 (1992). Spillman is a case involving the sale and installation of a mobile home,
and is analogous to the case at bar. The North Carolina Court of Appeals barred
Spillman from pursuing his negligent-design claim. So here, where Holden Farms
claims that the hog houses it bought were negligently designed, the negligent-design
claim is barred under North Carolina law.
In North Carolina, this economic-loss doctrine, as it is known, appears to apply
to all tort actions involving the sale of goods in which damages are alleged to have
resulted from defects in the goods sold. The language we have quoted from Spillman
refers simply to "tort action[s]," and does not appear to distinguish between
negligent-design claims and, say, negligent-misrepresentation claims. Accordingly,
North Carolina's economic-loss doctrine bars both tort claims Holden Farms seeks to
assert. We recognize that a contrary implication might be drawn from a recent federal
case (not cited by the parties), Wilson v. Dryvit Systems, Inc., 206 F. Supp. 2d 749(E.D.N.C. 2002). The case involved the sale of a new home, and the plaintiffs
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claimed that covering or "cladding" that was supposed to protect the exterior of the
building was defective. Claims were stated for negligence, gross negligence,
negligent misrepresentation, fraud, and unfair and deceptive acts and practices. The
District Court granted summary judgment for the defendants on all claims. It first
discussed a group of claims it referred to as "Negligence claims." Id. at 753. These
claims alleged, among other things, that the defendant had been " 'negligent in the
design . . . and warning of the' [exterior covering]." Ibid., quoting Complaint ¶ 33.
The Court explained:
North Carolina has adopted the economic loss rule,
which prohibits the purchaser of a defective product from
bringing a negligence action against the manufacturer or
seller of that product to recover purely economic losses
sustained as a result of that product's failure to perform as
expected. Instead, such claims are governed by contract
law.
Ibid. (citations omitted). This doctrine, the Court held, barred plaintiffs' claims for
negligence and gross negligence.
The Court then went on to discuss the claim of negligent misrepresentation
separately. See id. at 754-55. This claim was dismissed on the ground that any
misrepresentations made by defendant had been made to general contractors and to
the public, not to the plaintiffs. The separate discussion of the negligent-
misrepresentation claim, and the fact that it was dismissed on a ground other than the
economic-loss doctrine, may indicate that, for some reason, the Court believed that
this doctrine barred only negligent-design claims, and not negligent-misrepresentation
claims. The Court's opinion does not say that, nor does it cite any North Carolina
case so holding, but this may have been what the Court intended. However that may
be, we are not aware that any North Carolina state court case provides the basis for
such a distinction, and, despite our respect for the federal district court in North
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Carolina, and its judge, we are not persuaded that the Supreme Court of North
Carolina would so hold.
There is an additional reason for rejecting the negligent-misrepresentation
claim, if such a reason be needed. The tort does not exist when business people are
dealing with each other at arm's length. Kindred of North Carolina, Inc. v. Bond,
____ N.C. App. ____, ____, 584 S.E.2d 846, 853 (2003). Hog Slat's alleged
negligent misrepresentations did not concern matters known only to it. Contrast the
situation in Kindred, where the misrepresentations had to do with financial
information available only to the defendant, and the arm's length rule was not applied.
We know of no reasons why Holden Farms could not have checked out with others
the information provided to it by Hog Slat, BCM, and Double L. So, even if North
Carolina's economic-loss doctrine, for some reason, does not apply to negligent-
misrepresentation claims, this claim is barred in the present case under another
doctrine of North Carolina law.
3.
Holden Farms also argues that its tort claims were not barred under Iowa law.
We disagree and affirm the District Court.
As a general rule in Iowa, "[e]conomic losses to the product itself are excluded
[from recovery in tort]." Richards v. Midland Brick Sales Co., 551 N.W.2d 649, 651
(Iowa App. 1996). In looking at a particular case, a court faced with both a product-
liability claim and a breach-of-warranty theory, should "determine whether contract
law or tort law is best suited to the nature of the loss claimed . . .." Ballard v. Amana
Society, Inc., 526 N.W.2d 558, 562 (Iowa 1995) (internal citation omitted). Contract
doctrine is appropriate when "the loss relates to a consumer or user's disappointed
expectations due to deterioration, internal breakdown or non-accidental cause."
Nelson v. Todd's Ltd., 426 N.W.2d 120, 125 (Iowa 1988) (internal citation omitted).
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"Tort theory . . . is generally appropriate when the harm is a sudden or dangerous
occurrence, frequently involving some violence or collision with external objects,
resulting from a genuine hazard in the nature of the product defect." Ibid. We hold
that contract law should prevail and bar the tort claims. The deterioration in the
flooring was not immediate, and exposure to the hog waste was known and expected
by Holden Farms. Thus, we hold that the injury reflects a disappointment in
performance caused by the gradual deterioration and internal breakdown of the steel
support beams. Therefore, Iowa contract law governs the dispute, and the Iowa
negligent-design claims are barred by the economic-loss doctrine.
We know of no reason why the economic-loss doctrine in Iowa would not
cover pre-contract-formation negligent-misrepresentation claims. In any event,
Holden Farms has no colorable claim against Hog Slat. Under Iowa law, in order for
a plaintiff to state a claim upon which relief can be granted, the defendant must "be
in the business or profession of supplying information for the guidance of others."
Sain v. Cedar Rapids Community School Dist., 626 N.W.2d 115, 125 (Iowa 2001).
Such a requirement is "fundamental." Ibid. Hog Slat was not in the business of
providing information. Its relationship to Holden Farms was as a seller of goods and
was not advisory in nature. Holden Farms, therefore, can not state a claim upon
which relief can be granted, as Hog Slat owed Holden Farms no duty.
IV.
We turn now to the claims against Double L. Holden Farms appeals from the
District Court's grant of summary judgment on its negligent-misrepresentation and
violation-of-express-warranty claims. We affirm in part and reverse and remand in
part.
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A.
The first issue is whether the District Court applied the right law. The Court
determined that "under the law of the case" North Carolina and Iowa law applied to
the tort claims against Double L. The Court held that Double L got the benefit of the
choice-of-law clause contained in the contracts between Hog Slat and Holden Farms.
We respectfully disagree. Neither Double L nor BCM was a party to the Hog
Slat/Holden Farms contracts. Neither signed the contracts and neither was bound
thereby. Double L, BCM, and Hog Slat appeared to be a united front; they were all
present at the April 1994 meeting, and made joint presentations. Their relationship,
however, was merely as connecting tributaries in a stream of commerce. BCM made
the Maxima flooring; Double L distributed the Maxima flooring to the ultimate seller,
Hog Slat; and Hog Slat, in turn, sold the flooring to Holden Farms. The ultimate sale
to Holden Farms certainly benefitted the upstream distributor and the upstream
manufacturer, but the relationship among the manufacturer, distributor, ultimate
seller, and buyer involved a series of contracts — not one aggregate contract. Thus,
the choice-of-law clause does not govern Holden Farms' claims against Double L (or
BCM) and we are obligated to reconsider the choice-of-law issue.
"Federal courts sitting in diversity are required to look to the choice-of-law
principles of the forum state . . . and then apply the same law to the case as the forum
state would." PVI, Inc. v. Ratiopharm GmbH, 253 F.3d 320, 329 (8th Cir. 2001). We
hold that Minnesota courts would apply their own law in this situation. That state
follows the significant-contacts test. Nodak Mut. Life Ins. Co. v. American Family
Mut. Ins. Co., 604 N.W.2d 91, 94 (Minn. 2001). Although Double L is an Iowa
corporation, all relevant events occurred in Minnesota. The April 1994 meeting was
at Holden Farms in Minnesota; information provided to Double L was left in
Minnesota; the flooring was installed in Minnesota; and the flooring eventually
decayed in Minnesota. No other forum has a significant interest in the claims against
Double L. In contrast, Minnesota has a significant interest in adjudicating alleged
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torts and breaches of warranty occurring within its borders. It follows that Minnesota
law applies.
B.
As noted above, the District Court dismissed Holden Farms' express-warranty
claim against Double L as being barred by the Holden Farms/Hog Slat contract
warranty limitation. Holden Farms contends that the District Court's ruling was in
error, arguing that Double L provided a separate warranty, and that this warranty
should be enforced.
1.
The District Court dismissed the warranty claims against Double L and BCM
on two grounds. First, it held that if there were a ten-year warranty extended by
Double L to Holden Farms, the warranty was limited by Article IV(G) of the contract
between Holden Farms and Hog Slat. The District Court cited our holding in Hunter
v. Texas Instruments, Inc., 798 F.2d 299, 302 (8th Cir. 1986), in support. Second, it
held that the parol-evidence rule barred consideration of an independent warranty
because the Holden Farms/Hog Slat contracts were integrated contracts that set forth
the final expressions of the parties' agreements. We are constrained to disagree with
both holdings.
First, Hunter does not apply to this case. Hunter involved a contract where the
warranty limitation was clearly applicable to the manufacturer, as the manufacturer
was expressly mentioned in conjunction with the limitation. Id. at 301 n.5. The
Court held that the limitation was valid despite the fact that the manufacturer was not
a party to the contract, because the buyer was put on notice. Id. at 302. Such is not
the case in the contracts involved in the case at bar. Article IV(G) does not clearly
mention either Double L or BCM in conjunction with the warranty limitation.
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Instead, the contract says that "Contractor," defined elsewhere as Hog Slat, "disclaims
any other warranties." Further, the inapplicability of the limitation to any
manufacturer's warranties is presumed in Article IV(G)'s language. The warranty
limitation states "the aforesaid warranties are only for one (1) year from the date of
substantial completion or for such period as the manufacturer's warranty, whichever
is less." By using the manufacturer's warranty period as an alternative measuring
date, the contracts presume that there are different end dates for the warranties issued
by Hog Slat and the warranties issued by others, and, therefore, at least implies that
warranties other than Hog Slat's exist.
While the parol-evidence rule bars Hog Slat or Holden Farms, as parties to a
final integrated agreement, from introducing "evidence of any prior agreement or a
contemporaneous oral agreement," neither Double L nor BCM was a party to the
Holden Farms/Hog Slat contract. Consequently, Double L can find no shelter under
the parol-evidence rule.
We reverse the District Court's grant of summary judgment with respect to the
breach-of-warranty claims against Double L and remand to the District Court for
further proceedings.4
C.
We turn now to Holden Farms' appeal from the District Court's grant of
summary judgment in favor of Double L on the negligent-misrepresentation claim.
Holden Farms alleges that the District Court erred in applying Safeco Ins. Co. v. Dain
4
Double L argues in the alternative that the District Court's dismissal of Holden
Farms' contract claims against it should be affirmed on the ground that it, Double L,
never gave Holden Farms any express warranty. The only warranty Double L gave,
it argues, was to Hog Slat. The District Court did not reach this argument, and neither
do we. The District Court may address it on remand.
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Bosworth, Inc., 531 N.W.2d 867 (Minn. App. 1995). Safeco held that Minnesota
recognizes no duty between parties engaged in arm's length negotiations for the
purposes of negligent misrepresentation. Id. at 871-72. The Court based its opinion
in part on the sophistication of the parties and in part on the lack of unity of interest
between the parties. Id. at 872-73. Holden Farms argues that the District Court erred
in granting Double L's summary-judgment motion, because there remained a question
of material fact whether Holden Farms was a sophisticated party. We agree with the
District Court's decision. Holden Farms is one of Minnesota's largest hog farmers.
To label it unsophisticated would unduly minimize its place in the industry. Double
L owed Holden Farms no duty for purposes of negligent misrepresentation.
V.
Lastly, we address Holden Farms' appeal from the District Court's granting of
BCM's summary-judgment motion on express-warranty, negligent-design, and
negligent-misrepresentation claims.
Because our analysis on the warranty claims and the negligent-
misrepresentation claims is the same as it was for the claims against Double L, we
affirm the District Court's dismissal of the negligent-misrepresentation claim for lack
of duty, and we reverse and remand with respect to the express-warranty claim.
All that is left to consider is the negligent-design claim. Under the choice-of-
law analysis laid out above, we believe the District Court applied the wrong law.
Since BCM was not a party to the Hog Slat/Holden Farms contract, and thus not
subject to its choice-of-law provisions, Northwest Airlines v. Astraea Aviation
Services, supra, is inapplicable, and normal Minnesota choice-of-law analysis applies.
Essentially for the reasons stated in our Double L analysis, we hold that Minnesota
law governs the negligent-design claim.
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Nonetheless, BCM argues that, under Minnesota law, the negligent-design
claim is barred by the economic-loss doctrine. We disagree.
The controlling law on economic loss in this action is a statute, Minn. Stat.
§ 604.10(a),5 which provides:
Economic loss that arises from a sale of goods that is due
to damage to tangible property other than the goods sold
may be recovered in tort as well as in contract, but
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.
We are not convinced that Holden Farms was a merchant in goods of the kind.
We acknowledge at the outset that there is a difficulty in the case law. In
Regents of University of Minn. v. Chief Industries, 106 F.3d 1409 (8th Cir. 1997) (2
– 1 decision), this Court, citing Minn. Stat. § 336.2-104(1),6 held that the University
of Minnesota, when it purchased a grain dryer, (a) was a merchant, and (b) was a
5
The Minnesota Legislature has enacted a new provision governing economic
loss, Minn. Stat. § 604.101. The section applies only to claims arising from
transactions which occurred on or after August 1, 2000. All the transactions in this
matter occurred prior to August 1, 2000, and accordingly Minn. Stat. § 604.10 is the
applicable statute in this case.
6
Minn. Stat. § 336.2-104(1) provides: " 'Merchant' means a person who deals
in goods of the kind or otherwise by occupation holds out as having knowledge or
skill peculiar to the practices of goods involved in the transaction or to whom such
knowledge or skill may be attributed by employment of an agent or broker or other
intermediary who by occupation holds out as having such knowledge or skill." This
statute is part of the Minnesota version of the Uniform Commercial Code, and
predates the more specific economic-loss statute.
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merchant in the goods of the kind sold. Regents, 106 F.3d at 1411-12. The Court
reasoned that because the University "had purchased a number of such units over the
prior thirty years, and had the advantage of a centralized purchasing department that
solicited bids for the purchase," it had the requisite sophistication and knowledge to
qualify as a merchant in the type of goods sold. Id. at 1412.
In Jennie-O-Foods, Inc. v. Safe-Glo Prods. Corp., 582 N.W.2d 576 (Minn.
App. 1998), the Minnesota Court of Appeals rejected our Regents analysis. Jennie-O
involved a suit between a turkey farmer and the manufacturer of heaters used in the
turkey farm. The Court held that "[i]n accord with Den-Tal-Ez and the Regents
dissent, and based upon our independent conclusion that Minn. Stat. § 604.10(a) does
not include within its provisions the broad definition of 'merchant' contained in Minn.
Stat. § 336.2-104(1), we hold that Jennie-O was not a merchant in goods of the kind
with respect to heaters and is not barred from recovering in tort." Jennie-O, 582
N.W.2d at 579.7 Holden Farms argues that we should accept the Minnesota Court of
Appeals' rejection of Regents.
Holden Farms' suggestion finds support in our law. Although "various
intermediate appellate [state] courts are not [binding on us], . . . they are persuasive
authority, and we must follow them when they are the best evidence of what [state]
law is." Garnac Grain Co. v. Blackley, 932 F.2d 1563, 1570 (8th Cir. 1991). Further,
the Supreme Court has held that an intermediate state appellate court's decision "is
a datum for ascertaining state law which is not to be disregarded by a federal court
7
Lloyd F. Smith Co. v. Den-Tal-Ez, Inc., 491 N.W.2d 11 (Minn. 1992),
involved a suit between a non-privity owner and the manufacturer of a dental chair.
Dr. Vukodinovich bought the dental practice and dental chair from a Dr. Stoffel. Dr.
Stoffel, in turn, had purchased the practice and chair from a Dr. Shepard. The chair
eventually caused a fire. The Court held that Dr. Vukodinovich was not a merchant
in the type of goods sold, and allowed him to maintain a tort suit against the chair's
manufacturer.
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unless it is convinced by other persuasive data that the highest court of the state
would decide otherwise." West v. American Tel. & Tel., 311 U.S. 223, 237 (1940).
Here, we have no data suggesting that the Minnesota Supreme Court would disagree
with the Jennie-O holding. In fact, we presume that, if Jennie-O had been decided
prior to Regents, our Court would have followed the case. Therefore, to the extent
that Jennie-O and Regents disagree, we hold that Jennie-O controls.
Having decided that Jennie-O is the test for determining whether a sale of
goods is between merchants, we now must determine whether Holden Farms qualifies
as a merchant in goods of the kind sold.
In Marvin Lumber & Cedar Co. v. PPG Industries, 223 F.3d 873 (8th Cir.
2000), we defined the Jennie-O standard.8 Marvin dealt with a seller of custom doors
who purchased a weather-roofing chemical to apply to the doors. Id. at 883. We held
that when "a manufacturer with sophisticated knowledge of a component purchases
and incorporates that component into its product, the manufacturer is not merely a
dealer with respect to the finished product, but with respect to the component part as
well." Id. at 884. Thus, the Court reasoned, a manufacturer who acts solely as a
consumer, and does not incorporate the purchased product into the final manufactured
item will not be held to be a "merchant in goods of the kind" for purposes of Minn.
Stat. § 604.10(a). Ibid. In the language of the Court, referring to Jennie-O, "a turkey
farm is not in the heater business." Ibid. If the heater fails, the turkey farmer may sue
the manufacturer in tort. Ibid.We find both the reasoning and the example used by the Marvin Court
controlling in this case. The flooring of a hog nursery is not incorporated into the hog
8
We did not find it necessary to decide whether Jennie-O had superseded
University of Minnesota, holding that the difference in the two standards would not
matter to the outcome in Marvin. Id. at 883.
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itself, and a hog nursery seems to be analogous to a heater in a turkey pen. Holden
Farms is a consumer with respect to the hog nurseries, and its tort claims will not be
dismissed because of the economic-loss doctrine. We reverse the grant of summary
judgment as to the negligent-design claim against BCM and remand for proceedings
consistent with our analysis above.
V.
To summarize: we affirm the District Court's dismissal of all claims against
Hog Slat. As to Double L, we reverse the District Court's dismissal of the breach-of-
warranty claim and affirm the dismissal of the negligent-misrepresentation claim. As
to BCM, we affirm the dismissal of the negligent-misrepresentation claim. We
reverse the dismissal of the warranty and negligent-design claims. As to those rulings
that are reversed, the case is remanded to the District Court for further proceedings
not inconsistent with this opinion.
It is so ordered.
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