Opinion
No. CV-F-06-1020 OWW/DLB.
November 8, 2006
ORDER DENYING DEFENDANT THE GLIDDEN COMPANY DBA ICI PAINT'S MOTION TO DISMISS FOURTH CAUSE OF ACTION OF FIRST AMENDED COMPLAINT (Doc. 11)
Plaintiff Penny Newman Grain Co., Inc. (Penny Newman) has filed a First Amended Complaint for Breach of Contract, Negligence and Breach of Express Warranty (FAC). Named as defendants are Midwest Paint Service, Inc. (Midwest), ICI Paints (ICI), and Does 1-100. The FAC alleges that Penny Newman and Midwest entered into a Painting Contract in June 2003 under which Midwest agreed to provide the labor, supplies, insurance, equipment and tools necessary to prepare, patch and paint a storage facility consisting of concrete silos in Stockton, California (the Stockton Facility) for the sum of $336,500; that Midwest began the process of preparing and repainting the Stockton Facility in August 2003; that Midwest finished working on the Stockton Facility in January 2004. The FAC further alleges:
10. MIDWEST has at all times failed, refused and neglected to perform according to the terms of the Painting Contract, including the specifications and provisions therein. More specifically, MIDWEST negligently prepared the surface of the Stockton Facility, painted the Stockton Facility and/or selected a paint wholly unsuitable for the purposes for which it was used and which MIDWEST knew or should have known was unsuitable for said application. As a result of the foregoing conduct of MIDWEST, large sections of the paint applied to the Stockton Facility failed to adhere to its surface, resulting in blistering, flaking and in many instances, the complete stripping of paint from the surface of the Stockton Facility, exposing it to the elements.
The Fourth Cause of Action is for negligence against defendant ICI Paints and Does 51-100. The Fourth Cause of Action alleges in pertinent part:
27. PENNY NEWMAN is informed and believes that, prior to undertaking the painting of the Stockton Facility, MIDWEST consulted with a representative or representatives of ICI PAINTS regarding its intent to use Devoe Hydrosealer and High Build Acrylic Enamel in the course of that project. PENNY NEWMAN is further informed and believes, and thereupon alleges that a representative or representatives of ICI PAINTS specifically advised MIDWEST that the foregoing Devoe products were not suitable for the application which MIDWEST intended to use them for, e.g. the painting of the Stockton Facility.
28. Despite ICI PAINTS specific knowledge of MIDWEST's intention to use the foregoing Devoe products in the repainting of the Stockton Facility, and the fact that the Devoe products were not suitable for such an application, ICI PAINTS nevertheless sold the foregoing Devoe products to MIDWEST for use in the repainting of the Stockton Facility, failed to provide any notice to PENNY NEWMAN of the inappropriateness of the Devoe products being used by MIDWEST, and failed to take any other precaution in order to protect PENNY NEWMAN from the foreseeable damages resulting from the inappropriate Devoe sealer and paint in the painting of its Stockton Facility.
29. By virtue of ICI PAINTS' having manufactured the above-referenced Devoe products, having been advised by MIDWEST of the intended use for such products, and selling the foregoing Devoe sealer and paint products to MIDWEST with knowledge of their intended use in the repainting of PENNY NEWMAN'S Stockton Facility, ICI Paints owed a duty of care to PENNY NEWMAN with respect to such activities.
30. In acting as alleged hereinabove, ICI PAINTS was careless, and negligent in violation of its duties and obligations to PENNY NEWMAN, as the owner of the Stockton Facility. As a direct and proximate result of the carelessness and the negligence of ICI PAINTS, PENNY NEWMAN has been damaged as alleged hereinabove.
The FAC prays for "the costs of hiring experts to investigate and analyze the damages in an amount according to proof at the time of trial" and "the costs of restoration and repair to the Stockton Facility according to proof at the time of trial".
Defendant The Glidden Company dba ICI Paints moves to dismiss the Fourth Cause of Action pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure, for failure to state a claim upon which relief can be granted.
A. Governing Standards.
A motion to dismiss under Rule 12(b)(6) tests the sufficiency of the complaint. Novarro v. Black, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal of a claim under Rule 12(b)(6) is appropriate only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Dismissal is warranted under Rule 12(b)(6) where the complaint lacks a cognizable legal theory or where the complaint presents a cognizable legal theory yet fails to plead essential facts under that theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984). In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe all inferences from them in the light most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002). However, legal conclusions need not be taken as true merely because they are cast in the form of factual allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003). Immunities and other affirmative defenses may be upheld on a motion to dismiss only when they are established on the face of the complaint. See Morley v. Walker, 175 F.3d 756, 759 (9th Cir. 1999); Jablon v. Dean Witter Co., 614 F.2d 677, 682 (9th Cir. 1980) When ruling on a motion to dismiss, the court may consider the facts alleged in the complaint, documents attached to the complaint, documents relied upon but not attached to the complaint when authenticity is not contested, and matters of which the court takes judicial notice. Parrino v. FHP, Inc., 146 F.3d 699, 705-706 (9th Cir. 1988).
B. Request for Judicial Notice.
In its reply brief, ICI requests that judicial notice under Rule 201, Federal Rules of Evidence, be taken of the Third Party Complaint of Midwest Paint Service, Inc. Against Norberg Paints, Inc. filed in this action. (Doc. 15) In the Third Party Complaint, Midwest alleges that Norberg Paints, Inc., an authorized retailer of Devoe paint products, misrepresented to Midwest that the Devoe paint products were appropriate for the Stockton Facility, and alleges causes of action for negligent misrepresentation and indemnity/contribution.
Judicial notice may be taken of a pleading filed in an action as a matter of public record. Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001). However, because a court may not take judicial notice of a fact that is "subject to reasonable dispute", Rule 201(b), Federal Rules of Evidence, judicial notice will be limited to the fact of the allegations in the Third Party Complaint and will not be considered for the truth of those allegations in resolving this motion to dismiss. Lee, id. at 689-690.
C. Legal Duty/Duty to Warn .
ICI argues that dismissal is appropriate because the FAC does not articulate any legal duty ICI supposedly owed to Penny Newman. ICI contends the allegations that ICI "owed a duty of care" and was "careless and negligent in violation of its duties and obligations" to Penny Newman do not suffice because they fail to identify any basis for a legal duty upon which Penny Newman purports to sue ICI.
"`Whether a duty of care exists is a question of law for the court . . . The existence of a duty `must be decided by the court on a case-by-case basis.'" Briano v. Conseco Life Ins. Co., 126 F.Supp.2d 1293, 1297 (C.D.Cal. 2000). "Whether a duty will be imposed depends upon a number of factors, including: (1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of the injury suffered, (3) the degree of certainty the plaintiff was injured, (4) the connection between the defendant's conduct and the injury, (5) the moral blame attached to the conduct, and (6) the policy of preventing future harm." Lincoln Alameda Creek v. Cooper Industries, Inc., 829 F.Supp. 325, 328 (N.D.Cal. 1992), citing Biakanja v. Irving, 49 Cal.2d 647, 650 (1958). In Ileto v. Glock, Inc., 349 F.3d 1191 (9th Cir. 2003), rehearing en banc denied, 370 F.3d 860 (9th Cir. 2004), cert. denied sub nom. China North Industries Corp. v. Ileto, 543 U.S. 1050 (2005), the Ninth Circuit explained:
Whether a legal duty arises `is a question of law which is simply an expression of the sum total of the policy considerations that lead a court to conclude that a particular plaintiff is entitled to protection.' . . . A critical part of the determination of whether a particular plaintiff is entitled to protection is whether she is `foreseeably endangered by defendant's conduct.' . . . The California Supreme Court has explained that the legal duty to exercise due care so as not to create an `unreasonable risk of injury to others' extends to the `class of persons who it is reasonably foreseeable may be injured as the result of the actor's conduct[.]' . . . The court continued, `[i]t is well established, moreover, that one's general duty to exercise due care includes the duty not to place another person in a situation in which the other person is exposed to an unreasonable risk of harm through the reasonably foreseeable conduct (including the reasonably foreseeable negligent conduct) of a third person.'
Penny Newman notes the allegations in the FAC that Midwest consulted with representatives of ICI regarding the use of the Devoe products to paint the Stockton Facility and that ICI knew prior to the painting of the Stockton Facility that the use of the Devoe products was inappropriate for that specific application and so advised Midwest. Despite ICI's alleged knowledge of both the specific project to be painted and the unsuitability of the Devoe products for that job, ICI proceeded to sell those products to Midwest, without taking any precaution to prevent Penny Newman from being harmed. Penny Newman asserts that the factors upon which California law bases the existence of a duty of care are clearly present in the allegations of the FAC:
The transaction between MIDWEST and [ICI], the sale of paint products despite an improper application, was clearly intended to effect PENNY NEWMAN as an owner of the facility to be painted. Moreover, the transaction between MIDWEST and [ICI] did not take place in the abstract. [ICI] was fully aware of MIDWEST's intent to use inappropriate paint products in conjunction of the painting of the Stockton Facility. In short, [ICI] knew both the specific project in which the paint products were to be utilized and the owner of that project at the time of their sale to MIDWEST.
. . . Despite having advised MIDWEST of the fact that the paint products MIDWEST proposed to use in painting the Stockton facility [sic] was wrong for such an application, [ICI] sold that same paint to MIDWEST without apparent hesitation. As a result, injury to PENNY NEWMAN was . . . foreseeable. . . .
That PENNY NEWMAN has been injured [because] under the allegations of the [FAC], it has spent well in excess of $300,000 repainting its Stockton Facility with paint which should never have been used for that application. In addition, PENNY NEWMAN is faced with the process of stripping the improperly utilized paint products sold by [ICI] to the extent that the paint has not already fallen off, and incurring additional expense to repeat the entire painting process. That injury . . . would not have taken place had [ICI] taken either of two courses of action, neither of which would have significantly burdened it. [ICI] could have either refrained from selling paint products which it knew were going to be improperly utilized. Alternatively, since it was aware that the project at issue was the painting of [the] Stockton Facility, it could have contacted PENNY NEWMAN and advised them that they did not approve the use of Devoe Hydrosealer and Hi-Build Acrylic Enamel for the repainting of the Stockton Facility.
The conduct of [ICI] as alleged in the [FAC] is unquestionably blameworthy. [ICI] knew of MIDWEST's intention to proceed to use their paint products improperly, facilitated the improper use of those products, reaped the profit from the sale of its paint products and then apparently sat idly by while its paint products were applied to the Stockton Facility and, inevitably, failed.
Finally, Penny Newman argues, imposition of a duty of care in this case will further the policy of preventing future harm:
The case before this Court involves a seller with specific knowledge of the inappropriateness of its product for a planned application, the buyer of the product's intention to use that product in an inappropriate manner, and the identity of the entity that would be harmed by the third party's misconduct. Under those circumstances, a product manufacturer should be deterred from selling a product for an application as to which the product is unsuitable.
ICI further argues that it did not owe a duty to warn Penny Newman. In so arguing, ICI relies on Persons v. Salomon North America, Inc., 217 Cal.App.3d 168 (1990).
Persons involved an action by a skier against the manufacturer of rented ski bindings that were incompatible with the thermoplastic ski boots plaintiff owned, causing her injury when she fell. The trial court denied plaintiff's motion for a partial directed verdict on the issue of the manufacturer's duty to warn the plaintiff. The Court of Appeal affirmed and noted "in failure to warn cases where the product is both flawlessly designed and manufactured, the defect is not inherent in the product; rather, the product is rendered defective because of the actions of the manufacturer in failing to adequately warn of the dangerous condition." 217 Cal.App.3d at 174-175. The Court of Appeal explained in pertinent part:
[C]ourts have recognized that the test for failure to warn under strict liability contains a standard of reasonableness . . . Factors such as `the normal expectations of the consumer as to how the product will perform, degrees of simplicity or complication in the operation or use of the product, the nature and magnitude of the danger to which the user is exposed, the likelihood of injury, and the feasibility and beneficial effect of including a warning' must be considered to determine whether a warning is necessary. . . .
Another circumstance which should be considered is the reliability of a third party, e.g., a business intermediary, to convey the warning to the ultimate user. This factor is contained in comment n to section 388 of the Restatement Second of Torts. Although comment n relates to a product liability cause of action for negligent failure to warn where the manufacturer alerted only the intermediate distributors, we conclude that its factors make it clear that the touchstone of liability under a strict liability cause of action for failure to warn is reasonableness and relied on concepts common to those found in negligence. . . .217 Cal.App.3d at 175. The Court of Appeal concluded:
[T]he evidence in this case sufficiently established that a direct warning to plaintiff would have been ineffective, and thus unnecessary, because of the ultimate user's lack of ability to make an informed judgment from such notice and the fact that the skier necessarily relies on the knowledge and technical expertise of the ski shop in selecting rental skis and bindings and making proper adjustments to set the bindings at an appropriate release level based on the skier's height, weight and skiing ability.
When a manufacturer or distributor has no effective way to convey a product warning to the ultimate consumer, the manufacturer should be permitted to rely on downstream suppliers to provide the warning. `Modern life would be intolerable unless one were permitted to rely to a certain extent on others doing what they normally do, particularly if it is their duty to do so.'. . . .
Here, Cornice was in the business of renting skis and bindings. It had an independent duty to exercise reasonable care in supplying this equipment and was itself subject to strict liability for failure to warn its customers of the dangerous propensities of articles it rented. . . .
The evidence establishes that Salomon 444 bindings do not pose a danger unless used with nonstandard or untreated thermoplastic boots. Once it has distributed its bindings to rental shops such as Cornice, Salomon has no practical way, other than warning and educating the rental shops of the danger, to control its product to see that the bindings are not used with untreated thermoplastic boots. Moreover, issuance of an effective warning depends upon proper identification of the skier's boots. Salomon cannot be expected to know the identity of the ultimate user of its rental bindings, much less the type of boot the consumer is using. However, the ski shop technician has direct contact with such customer and has the ability, applying Salomon's technical manual with seminar training, to identify a customer's boot, assess its compatibility with Salomon bindings, lubricate the boot if necessary and set a safe release level.
Having provided a warning to Salomon dealers, defendant had a reasonable basis to believe Cornice would pass along the product warning and was justified in relying upon Cornice to perform its independent duty to warn as required by law. . . .
In sum, we find that the evidence is sufficient to establish that Salomon did not have a duty, as a matter of law, to warn plaintiff. . . .217 Cal.App.3d at 177-178.
ICI argues that the facts of Persons are similar to those alleged in the FAC and that its reasoning applies:
Here, Plaintiff alleges without equivocation that ICI warned Midwest — an admittedly sophisticated intermediary — that its paint was unsuitable for use on the Stockton Facility . . . In providing this statement to Midwest, ICI discharged its duty to warn under California law and no additional duty to warn Plaintiff exists.
Penny Newman responds that the Fourth Cause of Action is not premised solely on a duty to warn:
Such a warning only became necessary because [ICI] chose to proceed with the sale of its paint products to MIDWEST, despite its knowledge of the fact that MIDWEST intended to use them on an inappropriate application. As a result, [ICI] could have avoided breaching its duty to PENNY NEWMAN by either refraining from selling the product in the first place, or in the alternative, at least providing PENNY NEWMAN with the same warning which it provided to MIDWEST, so that PENNY NEWMAN could take whatever cautions it deemed appropriate.
Penny Newman further argues that Persons is distinguishable because ICI was aware that the Devoe products were to be used by Midwest to paint Penny Newman's Stockton Facility. Therefore, ICI, unlike Salomon, had multiple, simple, and practical methods by which it could have warned Penny Newman which do not involve product labeling or packaging. Furthermore, Penny Newman notes, the Fourth Cause of Action is not based on strict liability for failure to warn:
The paint products sold by [ICI] to MIDWEST were not, per se, defective with or without a warning. They were simply unsuitable for the application as to which [ICI] knew MIDWEST intended to use its paint products. The purpose of notice to MIDWEST in this case would not ameliorate any defects or any particular qualities in [ICI's] paint products. Rather, notice to PENNY NEWMAN would have prevented their usage altogether by alerting PENNY NEWMAN to the unsuitability of the paint being sold to MIDWEST. Moreover, while Salomon may have been able to reasonably rely on the assumption that an installer/renter would follow the warnings and instructions provided with its ski bindings, [ICI], at the time that it sold the paint products to MIDWEST, knew that MIDWEST was disregarding its warning and proceeding to utilize the paint products for an improper application.
ICI replies that the two primary factors in evaluating whether a product manufacturer owes a duty to warn the ultimate consumer when the manufacturer has already conveyed an adequate warning to a sophisticated intermediary compels a finding that ICI discharged its duty to warn when it allegedly advised Midwest that the selected paint was unsuitable for the Stockton Facility.
Looking to the likelihood that Midwest would convey that information to Penny Newman, ICI argues:
Plaintiff alleges that it hired Midwest to select and use `suitable' paint for the job . . . It did not hire ICI for either of these tasks. Nor is there any allegation that Plaintiff ever sought ICI's advice or guidance with regard to such paint selection. Thus, not only is it likely that Midwest would heed or convey ICI's alleged warning, Midwest was contractually-obligated [sic] to Plaintiff to do so. Midwest also is alleged to be a highly-skilled [sic] painting contractor `who specializes in the painting of grain elevators and mills' and, as such, it warranted to Plaintiff its `work will be completed in a good and workmanship like manner [sic].' . . . ICI, thus, was entitled to rely on Midwest to exercise its skill and judgment and perform the job, for which it was hired, in a competent and workmanlike manner. . . .
ICI refers to Carmichael v. Reitz, 17 Cal.App.3d 958 (1971), wherein a drug manufacturer did not have a duty to warn the patient in part because a sophisticated intermediary, i.e., the physician, constituted an "intervening party" for purposes of conveying a manufacturer's warning to the ultimate consumer:
The doctor is intended to be an intervening party in the full sense of the word. Medical ethics as well as medical practice dictate independent judgment, unaffected by the manufacturer's control, on the part of the doctor.17 Cal.App.3d at 988. ICI also refers to Stevens v. Cessna Aircraft Company, 115 Cal.App.3d 431 (1981), holding that the aircraft manufacturer did not have a duty to warn passengers directly about an airplane's weight restrictions, concluding that "[i]n the airplane situation the passenger necessarily depends upon the skill and judgment of the pilot to determine the load capacity of the airplane in light of the flying conditions to be encountered", 115 Cal.App.3d at 434, and that "[i]t is the pilot who has control of the airplane and the responsibility under federal regulations to determine aircraft weight prior to takeoff." Id. at 433. ICI argues that the rationale of these cases applies to the allegations of the FAC:
Midwest's contractual obligations to Plaintiff, combined with its alleged expertise in painting grain mills, makes it the intended `intervening party in the full sense of the word.' It is Midwest `who has control' of the job and the contractual responsibility, commensurate with its professional skill, to select the suitable paint in light of the conditions that existed at Plaintiff's facility. ICI is not a painting contractor; nor did Plaintiff hire it to paint its facility or to select suitable paint for the job. When ICI allegedly `advised' Midwest that its paint selection was `unsuitable' for this job, ICI rightfully was entitled to rely on Midwest to perform its obligations in accordance with its alleged expertise.
With regard to the feasibility and effectiveness of warning the consumer directly, ICI argues:
Just like the doctor in Carmichael and the pilot in Stevens, the `ordinary consumer' of ICI's paint is not Plaintiff, but rather Midwest. Just like the doctor and the pilot, Midwest is alleged to possess a high degree of sophistication and experience in painting grain elevators and mills . . . The judgment about which paint is most suitable for Plaintiff `s grain silos is thus best left to the `skill and judgment' of Midwest, the specialized painting contractor who Plaintiff hired specifically for this purpose.
In particular, the judgment about which paint is most suitable for a certain job must be based on many factors which typically are unique to that job — e.g. environmental conditions, conditions of surfaces to be painted, etc. — and cannot be made by a remote manufacturer. Instead, that judgment must be made by the on-site contractor who is in the best position and has the expertise to evaluate these factors. It would impose an unfeasible and onerous burden on a paint manufacturer to be familiar with the numerous conditions that may exist at each jobsite throughout the country where its products ultimately may be used. Thus, like determining appropriate loads for an airplane or prescribing medicine for a particular patient, evaluating the factors relevant to selecting the appropriate paint for Plaintiff's silos is better left to Midwest, the skilled profession contractor who Plaintiff hired to perform precisely that job.
The fact that a manufacturer may know the identity of the end-user does not operate to create the duty Plaintiff seeks to enforce here. Otherwise, the manufacturer would find itself in the untenable situation Plaintiff proposes where it must substitute its judgment for that of the contractor hired to do the job so as to avoid potential liability to an ultimate consumer. Such an intervention would not be effective or desirable. Interjecting itself into the contractual relationship between Plaintiff and Midwest . . . could create potential liability for ICI. If ICI had done as Plaintiff advocates, thereby undermining Midwest's recommendations and expertise, Midwest could take the position that ICI interfered with its contractual relationship and impugned its reputation as a specialty painting contractor.
ICI further argues that Penny Newman's assertion that ICI should have enforced its alleged advice to Midwest by withholding the sale of the Devoe products to Midwest is not a viable alternative. ICI refers to Groll v. Shell Oil Company, 148 Cal.App.3d 444 (1983). In Groll, a boy who used stove and lantern fuel to light a fireplace, resulting in personal injury, brought a products liability action against the manufacturer of the fuel. The manufacturer sold the fuel in bulk, accompanied by a data sheet which adequately warned of the fuel's dangerous propensities. The fuel was resold to a distributor who packaged it in individual containers and provided a warning on the container that the fuel was extremely flammable and should be kept away from heat and open flame. The trial court granted the manufacturer's motion for nonsuit on the ground that the manufacturer did not owe or breach a duty to the plaintiff. In affirming, the Court of Appeals cited Carmichael v. Reitz and Stevens v. Cessna Aircraft Co. as well as Walker v. Stauffer Chemical Corp., 19 Cal.App.3d 669 (1971) in holding that the manufacturer did not have a duty to warn the consumer directly:
Since respondent manufactured and sold BT-67 in bulk, its responsibility must be absolved at such time as it provides adequate warnings to the distributor who subsequently packages, labels and markets the product. To hold otherwise, would impose an onerous burden on the bulk sales manufacturer to inspect the subsequent labeling of the packaged product. In addition the manufacturer would have severe enforcement problems if the bulk product purchaser failed to adhere to the recommended warnings.148 Cal.App.3d at 449. ICI argues that the same situation is presented here:
First, the [Third Party Complaint] demonstrates that ICI did not sell directly to Midwest but rather Midwest purchased the paint from an authorized retailer, Norberg. Thus, under Plaintiff's theory, ICI would have been required to withhold sales of its paint to one of its authorized retailers — a clearly improper and likely illegal action. Second, to recognize such an obligation would confer on ICI authority over Midwest which it does not have. Simply put, the law does not authorize a manufacturer like ICI to refuse to sell its product to a painting contractor.
ICI further contends that cases which have imposed a duty to warn the ultimate consumer typically involve tangible items that could bear a warning the ultimate consumer could read and heed. See Groll, supra, 148 Cal.App.3d at 449. Here, ICI argues:
The ultimate consumer who, like here, hires an experienced painting contractor, will not see the paint can and is in no position to read any warnings. This consideration applies even more forcefully in this case where the alleged `advice' appears to have been an oral statement made directly to Midwest and not an alleged deficiency in written warning language on the paint can.
Whether or not a legal duty running from ICI to Penny Newman existed may well depend upon the actual facts as established at summary judgment or trial. Penny Newman alleges that ICI did warn Midwest that the Devoe products were unsuitable for the Stockton Facility but nonetheless sold those products to Midwest without taking any additional action. However, Midwest alleges that ICI, through its authorized retailer, Norberg, did not advise or warn Midwest that the Devoe products were unsuitable for the Stockton Facility. Until this factual dispute is resolved, the existence of a legal duty running from ICI to Penny Newman to warn Penny Newman or to desist from the sale of the Devoe products to Midwest cannot be determined. Even if ICI advised Midwest that the Devoe products were not suitable to the Stockton Facility, Midwest, in the exercise of its professional judgment and experience, could have disagreed. Does a legal duty of care run from ICI to Penny Newman under that circumstance? How specific does the advice have to be before such a duty arises? Does imposition of a legal duty essentially make ICI the insurer of the performance of the contract between Penny Newman and Midwest? If such a legal duty is determined to exist, the scope of that duty is problematic and may well depend upon the actual underlying facts. Arguably, imposition of a duty on ICI to warn Penny Newman could result in potential liability to ICI for, as an example, interference with the contract between Penny Newman and Midwest. In addition, whether or not ICI had any legal duty to Penny Newman to refrain from selling the Devoe products to Midwest may well depend upon the actual facts. Therefore, although ICI's arguments raise serious reservations about the imposition of a duty of care running from ICI to Midwest, it cannot be concluded at the pleading stage that such a duty of care does or does not exist as a matter of law.
D. Economic Loss Rule.
As noted, the FAC prays for "the costs of hiring experts to investigate and analyze the damages in an amount according to proof at the time of trial" and "the costs of restoration and repair to the Stockton Facility according to proof at the time of trial".
ICI moves for dismissal of the Fourth Cause of Action on the ground that California's "economic loss rule" bars this claim.
In Seely v. White Motor Co., 63 Cal.2d 9, 18 (1965), the California Supreme Court held that the plaintiff could not recover in strict liability or negligence for the cost of repairing the defective truck or for business income lost because the truck could not make deliveries. "Even in actions for negligence, a manufacturer's liability is limited to damages for physical injuries and there is no recovery for economic loss alone." Id. "`"Economic" loss or harm has been defined as "damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits — without any claim of personal injury or damages to other property. . . ."'" Sacramento Regional Transit Dist. v. Grumman Flxible, 158 Cal.App.3d 289, 294 (1984).
Penny Newman asserts that the damages sought by the FAC are not solely "economic damages", because the FAC alleges that the Stockton Facility has been exposed to the elements and will have to be stripped of the Devoe products resulting in additional costs and wear and tear on the Stockton Facility. Although ICI replies that wear and tear to the Stockton Facility is not alleged in the FAC and that, even if it were, "that allegation would fail for wont [sic] of any meaningful specificity or alleged causal relationship to the alleged paint failure", resolution of this issue is not necessary at this juncture given denial of this aspect of the motion to dismiss.
Penny Newman argues that, under the circumstances presented by this case, California law allows the recovery of economic damages under negligence.
In Biakanja v. Irving, supra, 49 Cal.2d 647, the California Supreme Court held that a defendant's negligent performance of a contractual obligation resulting in damage to the property or economic interests of a person not in privity could support recovery if the defendant was under a duty to protect those interests. The factors looked to in determining the existence of such a duty are identical to those set forth above, i.e., (1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of the injury suffered, (3) the degree of certainty the plaintiff was injured, (4) the connection between the defendant's conduct and the injury, (5) the moral blame attached to the conduct, and (6) the policy of preventing future harm. In Biakanja, the Supreme Court concluded that the defendant notary owed a duty to an intended beneficiary not to mishandle the will's drafting and solemnization, attaching particular importance to the fact that the end and aim of the notary's services to the testator was to provide for the passing of the estate to the plaintiff and to the high impropriety and need to prevent the unlicensed practice of law. Aas v. Superior Court, 24 Cal.4th 627, 644 (2000).
In J'Aire Corporation v. Gregory, 24 Cal.3d 799 (1979), the Supreme Court applied the Biakanja factors to conclude that the tenant of a building used as a restaurant could state a cause of action for negligence against a renovation contractor hired by the building's owner for business income lost when the contractor failed to complete the project with due diligence. Applying the Biakanja factors, the Supreme Court held that a "special relationship" permitting recovery of economic losses existed between the contractor and the tenant. The Supreme Court held that the Biakanja factors, in combination with "ordinary principles of tort law such as proximate cause", were "fully adequate to limit recovery" of purely economic damages "without the drastic consequence of an absolute rule which bars recovery in all such cases." Id., 24 Cal.3d at 808. In Platte Anchor Bolt, Inc. v. IHI, Inc., 352 F.Supp.2d 1048, 1052-1053 (N.D.Cal. 2004), the District Court explained:
Despite the general rule regarding economic loss, California law recognizes a limited exception. The California Supreme Court has `held that a defendant's negligent performance of a contractual obligation resulting in damage to the property or economic interests of a person not in privity [can] support recovery if the defendant was under a duty to protect those interests.' . . . This exception was first articulated in Biakanja, a case in which the state supreme court held that a notary public was under a duty to exercise due care to protect a will's devisee, despite the absence of privity between the notary public and the devisee . . . The exception was further clarified in J'Aire Corp. v. Gregory . . ., which articulated a six-factor test to determine whether such an extra-contractual duty exists. When the J'Aire test is met, the defendant is deemed to have a `special relationship' with the plaintiff and may be liable to the plaintiff in negligence for economic damages. . . .
Penny Newman contends that the same factors that establish a duty of care on the part of ICI, see discussion supra, also support a finding that a "special relationship" exists which gives Penny Newman the right to recover economic damages:
[A]s alleged in the [FAC], [ICI] knew the use to which its paint products was to be made, knew that its customer, MIDWEST, was aware of the unsuitability of the paint products it was purchasing for the intended application, and knew that its customer despite having been warned of the unsuitability intended to proceed with the painting of PENNY NEWMAN's facility with the unsuitable [ICI] paint products. Nevertheless, [ICI] proceeded to supply MIDWEST with inappropriate paint products, and made no effort to provide PENNY NEWMAN with an opportunity to protect itself. Under such circumstances, a `special relationship' exists sufficient to justify an award of economic damages as a result of [ICI's] negligence.
ICI replies that existence of a "special relationship" between Penny Newman and ICI need not be reached because "the condition precedent to the application of this exception — i.e. that ICI tortuously breached a contract with Midwest — is entirely absent in this case." Relying on the allegations of Midwest's Third Party Complaint against Norberg, ICI contends that it is not in contractual privity with Midwest and, therefore, could not have tortuously breached a contract with Midwest.
ICI cites no authority specifically requiring a contractual relationship between parties such as ICI and Midwest as a prerequisite to the recovery of economic loss damages by a party such as Penny Newman and no such authority has been discovered. Given the absence of this authority and the legal standards governing resolution of a motion to dismiss under Rule 12(b)(6), dismissal on this ground as a matter of law is not appropriate.
E. Conclusion.
For the reasons set forth above, Defendant The Glidden Company dba ICI Paint's motion to dismiss the Fourth Cause of Action is DENIED at the pleading stage.
IT IS SO ORDERED.