By Leah S. Poniatowski, J.D.
Third Circuit reversed summary judgment in part for claims based on promises made about the system, concluding that the "nature" of those claims was distinct from products liability claims.
A company that purchased an explosion protection system successfully argued that many of the claims it filed against the manufacturer fell under New Jersey’s consumer fraud law, which allowed for treble damages, because the assertions focused on the promises made by the manufacturer, the U.S. Court of Appeals for the Third Circuit held, reversing the district court in part. The appellate panel’s decision followed clarification from the state high court that the "nature of the claim" and not the "nature of the damages" is dispositive of a claim. However, the claim challenging the performance of the device fell within the state’s products liability law, and summary judgment on that issue was affirmed (Sun Chemical Corp. v. Fike Corp., November 27, 2020, Ambro, T.).
An ink producer, Sun Chemical Corporation, had purchased a new dust collection system that included an explosion protection system manufactured by Suppression Systems, Inc., a wholly owned subsidiary of Fike Corporation (collectively, Fike or the manufacturer). A fire occurred at the facility and an alarm on the system’s control panel activated but was not audible. Although the workers extinguished the fire, an explosion sent a fireball through the ducts of the dust collection system, injuring seven Sun Chemical employees and damaging the company’s facility.
The ink producer filed suit, alleging in a single count that Fike made false promises and misrepresentations in violation of New Jersey’s Consumer Fraud Act (CFA). Fike asserted that it was entitled to summary judgment under the CFA and that the CFA claims were subsumed by New Jersey’s Products Liability Act (PLA).
Trial court. The federal district court in New Jersey agreed with the manufacturer [see Products Liability Law Daily’s December 12, 2017 analysis]. The trial court held that despite the fact that the claim was brought under the CFA, the essential nature of the claim sounded in products liability—i.e., a manufacturing or design defect, or a failure to warn, which caused harm in the form of personal injury to the plant’s workers. Thus, the manufacturer’s motion for summary judgment was granted.
Third Circuit appeal. Sun Chemical filed an appeal to the U.S. Court of Appeals for the Third Circuit. The appellate court held that the case fell "at the intersection of the UCC, the PLA, the CFA, and the economic loss doctrine." Despite a thorough review of governing law, the appellate court explained that it remained unsure of how to resolve the questions presented by Sun Chemical’s claim. While the PLA may allow recovery and punitive damages for some of the same injuries, under the CFA, the $5 million sought in damages could be trebled to more than $15 million. Given the stakes in this allocation of economic loss risk arising from a commercial transaction-both for the companies in this case and others operating in the state of New Jersey-the appellate court petitioned New Jersey’s high court to certify four questions of law.
State supreme court. New Jersey’s supreme court certified the questions, holding that claims arising under the state’s consumer fraud statute-namely, deceptive, fraudulent, misleading, or similar commercial practices-may proceed in separate counts of the same pleading as claims for manufacturing, warning, or design defects under the PLA [see Products Liability Law Daily’s July 30, 2020 analysis]. The supreme court explained that "it is the nature of the claims brought, and not the nature of the damages sought, that is dispositive of whether the PLA precludes the separate causes of action." Thus, it was the nature of the action giving rise to the claim that determined how that claim was characterized, and Sun Chemical was mistaken in its heavy reliance on the nature of the damages it sought when it asserted that the damages were economic losses rather than damages for injury to persons or property, the state supreme court concluded.
Analysis. The Third Circuit resumed its analysis in the case at bar, proceeding "with the benefit of the [state supreme court’s] thoughtful opinion." With respect to Sun’s three claims concerning the suppression system’s compliance with the pressure-sensor requirement, training of Sun’s employees, and the system’s lack of failures in the field, the federal appellate court determined that the claims were within the state high court’s description of claims in the scope of the CFA. The federal appellate court explained that the claims were premised on Fike’s alleged failure to fulfill promises made to Sun, which were distinct from claims about the system itself.
Additionally, the federal appellate court concluded that the claim that the system lacked an audible alarm was not a claim outside of the CFA for two reasons. First, the claim did not conflict with the PLA. Second, because the alarm was not an essential feature of the device, the crux of the claim was that Fike broke its promise. Accordingly, the federal appellate court held that the PLA did not "swallow" these misrepresentation claims. Moreover, the federal appellate court concluded that Sun raised sufficient fact issues for these claims to survive summary judgment.
However, the final claim that the suppression system had several interrelated capabilities that failed did not fall under the CFA. The federal appellate court explained that the underlying theory was that the product did not work, thus falling under the PLA. Therefore, the federal district court’s grant of summary judgment on that claim was affirmed.
The case is No. 18-1062.
Attorneys: Jeffrey A. Beer (Riker Danzig Scherer Hyland & Perretti LLP) for Sun Chemical Corp. Gino P. Mecoli (Reilly Janiczek McDevitt Henrich & Cholden) for Sun Chemical Corp. and Fike Corp.
Companies: Sun Chemical Corp.; Fike Corp.; Suppression Systems Inc.
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