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From Products Liability Law Daily, May 8, 2015

Smoke and fire damage caused by amplifier to indoor sports area was foreseeable

By John W. Scanlan, J.D.

The owner of an indoor sports arena could not recover in tort for smoke and fire damage allegedly caused by a sound amplifier because they were foreseeable and, thus, recovery was precluded under the economic loss doctrine, the U.S. Court of Appeals for the Eighth Circuit held in upholding a district court’s grant of summary judgment to the amplifier manufacturer. In doing so, the Eighth Circuit determined that there was no reason to depart from its past precedent in which it followed the “foreseeability approach” to this doctrine (Arena Holdings Charitable, LLC v. Harman Professional, Inc., May 7, 2015, Beam, C.).

Background. A fire at Ralph Engelstad Arena in 2011 caused $5 million in damages to the building, fixtures, and personal property. Arena Holdings, LLC brought claims for negligence, strict liability, and post-sale failure to warn against Harman Professional, Inc., the manufacturer of a Crown Macro-Tech 5002VZ amplifier used in the arena. Arena Holdings asserted that the fire started when the amplifier produced a current in a loudspeaker that spread to adjoining speakers in the arena’s catwalk. Harman brought a third-party complaint against Impulse Group, Inc., which installed the sound system at the Arena when it was originally built and also installed the amplifier at issue. The district court granted summary judgment to Harman, finding that the economic loss doctrine precluded Arena Holdings from recovering tort damages. Arena Holdings appealed.

Economic loss doctrine/North Dakota law. Noting that the North Dakota Supreme Court had not directly ruled on the issue presented in this case, the Eighth Circuit determined that it had to follow its own prior precedent in Dakota Gasification Co. v. Pascoe Building Systems, 91 F.3d 1094 (8th Cir. 1996). In Dakota Gasification, the Eighth Circuit predicted that North Dakota likely would take what it then referred to as the “modern” foreseeability approach to the economic loss doctrine and find that this doctrine would preclude tort liability for physical damage to other nearby property of commercial purchasers who could foresee such risks at the time of purchase.

Arena Holdings argued that the Dakota Gasification court was mistaken in its prediction because the U.S. Supreme Court subsequently issued Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875 (1997), in which it decided that equipment added to a product after manufacture was “other property” and that compensation for damage to this other property could be recovered in tort. It further argued that the most recent version of the Restatement (Third) of Torts adopted the Saratoga Fishing approach. As a result, the Eighth Circuit had reason to justify a departure from Dakota Gasification. However, the Eighth Circuit found Saratoga Fishing was not on point because it was an admiralty case and did not construe North Dakota law. Two other cases cited by Arena Holdings in which the North Dakota Supreme Court had spoken in dicta of the economic loss doctrine did not stand as decisive legal authority from which the Eighth Circuit could determine that the state high court would likely reject the foreseeability approach found in Dakota Gasification; further, this dicta could be interpreted differently from Arena Holdings’ view, and it was not certain that the North Dakota Supreme Court would not apply the foreseeability approach.

Finally, finding similarities between the present case and Dakota Gasification, the Eighth Circuit observed that no developments had taken place in North Dakota law since Dakota Gasification was issued to alter its earlier analysis of the issue.

Foreseeability. The damages to the Ralph Engelstad Arena were not recoverable in tort because it was foreseeable to the contracting parties that a defect in the sound system as a whole or the amplifier in particular could cause a fire and result in damages. Arena Holdings argued that nothing about this particular accident was foreseeable, but the Eighth Circuit found that the existence of indemnification and warranty clauses showed that there had been an ability to negotiate and provide for the allocation of risk and the limitation of liability. To hold otherwise would encourage buyers like Arena Holdings to forgo contractual protection in exchange for a reduced purchase price because they could rely on tort remedies later as a form of warranty.

Dissent. In a dissenting opinion, Chief Judge William Jay Riley argued that in the nearly 20 years since the Eighth Circuit decided Dakota Gasification, the North Dakota Supreme Court had directed the state courts away from the foreseeability approach the Eighth Circuit predicted that the state high court would adopt. The state high court has approved tort recovery for damages to “other property.” Simply because the North Dakota Supreme Court has not directly contradicted Dakota Gasification, the Eighth Circuit should not continue to follow its past prediction based on a legal landscape now decades old, he cautioned. The “modern” trend discerned by the Eighth Circuit in 1996 lost its momentum shortly thereafter, he said, noting as examples the U.S. Supreme Court’s decision in Saratoga Fishing and the Restatement (Third) of Torts. The Restatement applies outside admiralty law; further, North Dakota had derived its economic loss doctrine from the U.S. Supreme Court’s decision in East River S.S. Corp. v. Transamerica Delaval Inc., 476 U.S. 858 (1986), which was an admiralty case. Finally, he stated that even applying the test from Dakota Gasification, Arena Holdings should not be precluded from tort recovery on summary judgment because foreseeability of harm was a question that should be left to a jury.

The case is No. 14-1853.

Attorneys: Bradley John Beehler (Morlaw Law Firm, Ltd.) for Arena Holdings Charitable, LLC, and RE Arena, Inc. Randall J. Bakke (Smith & Bakke) for Harman Professional, Inc. Christopher P. Malone (Cousineau & McGuire) for HB Sound & Light, Inc. Joel A. Flom (Flom Law Office) for ON Semiconductor Corp.

Companies: Arena Holdings Charitable, LLC; RE Arena, Inc.; Harman Professional, Inc.; Impulse Group, Inc.; Impulse Group LLC; HB Sound & Light, Inc.; ON Semiconductor Corp.

MainStory: TopStory DamagesNews IndustrialCommercialEquipNews ArkansasNews IowaNews MinnesotaNews MissouriNews NebraskaNews NorthDakotaNews SouthDakotaNews

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