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Judicial Doctrine Trumps Plain Language of NJPLA - Third Circuit Predicts Expansion of Economic Loss Rule in New Jersey

Stark & Stark recently joined forces with the consumer advocacy group, Homeowners Against Deficient Dwellings (HADD), to file an amicus curiae brief urging the New Jersey Supreme Court to uphold a homeowner?s right to pursue tort remedies against manufacturers of defective building components in Dean v. Barrett Homes, Inc., 406 N.J.Super. 453, 202 (2009) cert. granted, 200 N.J. 207, 976 (2009). Oral argument was heard on January 4 of this year; a decision has yet to issue. Dean centers upon on the interaction of a judicially created doctrine known as the ?economic loss doctrine,? which bars the tort recovery of ?purely economic loss,? and the statutory remedy prescribed in the New Jersey Product Liability Act (the ?Act? or ?NJPLA?), N.J.S.A. 2A:58C-1 to ?7 for ?harm caused by a product.? N.J.S.A. 2A:58C-1. Recently, the Third Circuit Court of Appeals had occasion to address that interaction in Travelers Indem. Co. v. Dammann & Co., Inc., --- F.3d ----, 2010 WL 395915 (3d Cir. 2010). Although, factually, Travelers arose in a context that is distinguishable from Dean (the former involved a commercial sale of defective goods, the latter a consumer transaction in residential realty), the Third Circuit?s decision of February 5, 2010 predicting how the New Jersey Supreme Court will approach the interplay of judicial policy and legislative enactment is both on point and deeply worrisome in its resolution of that issue.

It is well-settled that the drafting of statutory language to carry out prevailing policy preferences is a legislative, not a judicial, function. Yet, in Travelers, the Third Circuit Court appeared to substitute the judicial policy pronouncements embodied in the economic loss doctrine for the plain language of the NJPLA. At issue was whether a commercial purchaser of a defective product could sue under the NJPLA for ?physical damage to property, other than to the product itself,? N.J.S.A. 2A:58C-1(b)(2), when the ?other property? damage was a reasonably foreseeable result of a breach at the time of the original contracting. While acknowledging that ?the NJPLA clearly permits a plaintiff to pursue a tort remedy in the event of harm to ?other property,?? Id. at *6, the Third Circuit nevertheless predicted that the New Jersey Supreme Court would apply the common-law construct of the economic loss doctrine to preclude such a recovery. ?After surveying the law in other jurisdictions,? the court explained, ?we predict that the New Jersey Supreme Court would interpret the doctrine to bar tort claims where a plaintiff seeks economic damages for foreseeable losses for which the plaintiff could have contractually allocated risk[,] . . . without reference to whether the loss stems from damage to ?the product itself? or ?other property.?? Id. at *2, 6 (emphasis added).

Applying this test to the facts before it, the court concluded that the sale of mercury-tainted vanilla beans to International Flavors & Fragrances Inc. (IFF), a manufacturer of vanilla extract, did not give rise to a cognizable tort claim against the bean supplier, Dammann & Co., Inc., even though the adulterated beans allegedly caused damage to the other ingredients in the manufacturer?s flavoring extract and the equipment used in the extraction process. The controlling inquiry, the court explained, is ?not whether the damage extends beyond the physical dimensions of the purchased product,? but whether the ?property damage experienced by the owner. . . was a foreseeable result of a defect at the time the parties contractually determined their respective exposure to risk.? Id. at *8, 9 (internal quotation marks and citations omitted). The manufacturer?s losses were ?purely economic? because, in the court?s assessment, they were ?within the contemplation of sophisticated business entities with equal bargaining power and. . . could have been the subject of their negotiations.? Id. at 8. Thus, IFF was precluded from seeking a tort recovery under the doctrine.

The Third Circuit?s holding achieves a result that the New Jersey Supreme Court has time and again admonished courts to avoid?the judicial rewriting of a plainly worded statute. The NJPLA, by its terms, encompasses ?any claim or action brought by a claimant for harm caused by a product.? N.J.S.A. 2A:58C-1 (emphasis added), including ?physical damage to property other than to the product itself[.]? N.J.S.A. 2A:58C-1(b)(2) (emphasis added). It prescribes a single, statutorily defined theory of recovery for any such claim, adopting, generally, the methods of proof recognized for strict liability in tort. ?The language chosen by the Legislature in enacting [the statute] was both expansive and inclusive, encompassing virtually all possible causes of action relating to harms caused by consumer and other products.? In re Lead Paint Litigation, 191 N.J. 405, 436-37 (2007). As the New Jersey Supreme Court recently observed in Rowe v. Hoffman-La Roche, Inc., 189 N.J. 615 (2007), the NJPLA ?was intended ?to establish clear rules with respect to specific matters as to which the decisions of the courts in New Jersey have created uncertainty.?? Id. at 624 (quoting Senate Judiciary Committee, Statement to Senate Committee Substitute for S.B. No. 2805, at 1 (Mar. 23, 1987)).

In Travelers, the Third Circuit gave short shrift to this legislative prerogative. While acknowledging the NJPLA?s remedial purpose of ?establish[ing] clear rules? with respect to product liability claims, the court found the Legislature?s efforts wanting. ?The statute,? the court opined, ?obscures more than it elucidates, especially when juxtaposed with other elements of New Jersey law.? Id. at *15 n. 5. Yet, the only ?juxtaposition? presented in the court?s opinion is to extra-jurisdictional case law limiting, or abrogating, the ?other property? exception of the economic loss rule. The court readily acknowledged that ?[n]o New Jersey court has delineated the contours of ?the product itself? and ?other property?? and that ?[n]either the Supreme Court of New Jersey nor any other New Jersey court has directly clarified the interaction between the NJPLA and the economic loss doctrine.? Id. at *3.

Addressing the ?apparent tension? between its formulation of the doctrine and the plain language of the NJPLA, the court stated:

It might be argued, of course, that a court is more at liberty to work around a judicially-created doctrine than a legislative act, which a court must do its utmost to respect and enforce. Whatever the merit of that argument, it is not relevant here, as we are not ignoring the NJPLA's ?other property? exception. Instead, we seek to reconcile two seemingly conflicting strains of New Jersey law to the best of our ability given all available, relevant data.

Id. at *15 n. 8. In view of the acknowledged absence of New Jersey precedent directly on point, it is not entirely clear what ?seemingly conflicting strains of New Jersey law? informed the court?s construction in this case. Id. However, the effect of that construction is unmistakable; it imposes additional requirements on a statutory remedy where they are not plainly expressed.

The court, evidently, saw ?no principled reason. . . why a legislatively-created ?other property? exception should be interpreted any differently from its judicially-created counterpart.? Id. at *9. An examination of the statute, however, discloses at least two reasons. First, the presumed ?exception? for ?other property? is found nowhere in the provisions of the Act. Rather, the Act excepts ?damage to the product itself? from the general rule that ?physical damage to property? caused by a product is a ?harm? actionable in strict liability. N.J.S.A. 2A:58C-1(b)(2). Second, if the Legislature intended to incorporate the judicial construct of the economic loss doctrine, it easily could have done so by including a provision that explicitly forecloses the recovery of purely ?economic loss.? A number of state legislatures have done just that in their product liability statutes. See, e.g., R.C. Wa. 7.72.010(6); La. R.S. 9:2800.53(5). The New Jersey Legislature, advisedly, did not.

The Third Circuit?s use of the economic-loss doctrine as a policy-construction tool led it to conclude that ?harm? under the NJPLA does not mean what the statute plainly says, but rather is code for the prevailing common-law view of tort damages. New Jersey law, however, presumes that Legislative enactments are written in plain English, not code. Recognizing the consequences of unbridled judicial forays into the legislative sphere, the New Jersey Supreme Court has cautioned courts to ?enforce the legislative will as written and not according to some unexpressed intention,? Dacunzo v. Edgye, 19 N.J. 443, 451 (1955), and, further, to avoid ?extending judicial doctrines that might dislocate the legislative structure.? Spring Motors Distributors, Inc. v. Ford Motor Company, 98 N.J. 555, 557 (1985).

The Third Circuit?s opinion represents not only a judicial abrogation of a statutory remedy but also a troubling extension of one of the most ?quickly and confoundingly expanding legal doctrine[s.]? Paul J. Schwiep, The Economic Loss Rule Outbreak: The Monster That Ate Commercial Torts, Fla. B.J., Nov. 1995, at 34. As one jurist colorfully put it:

Like the ever-expanding, all-consuming alien life form portrayed in the 1958 B-movie classic The Blob, the economic loss doctrine seems to be a swelling globule on the legal landscape of this state.

Grams v. Milk Products, Inc., 283 Wis.2d 511, 540 (2005) (Abrahamson, C.J., dissenting). Previously well-established remedies under the common law have already succumbed to the rapidly expanding doctrine, as demonstrated most recently by the New Jersey Appellate Division?s decision in Dean v. Barrett Homes, Inc., 406 N.J.Super. 453, 202 (2009) cert. granted, 200 N.J. 207, 976 (2009). It now appears that even plainly worded enactments of the Legislature are not immune.

Full post as published by Construction Litigation Law Blog on February 26, 2010 (boomark / email).