Golden Spread Coop., Inc. v. Emerson Process Mgmt.
Opinion
SIDNEY A. FITZWATER, SENIOR JUDGE
On November 19, 2018 the United States Magistrate Judge entered his findings,
After making an independent review of the pleadings, files, and records in this case, the findings, conclusions, and recommendation of the magistrate judge, the objections of Golden Spread and Westport, and Emerson's December 17, 2018 response to the objections, the court concludes that the conclusions and recommendation are correct. It is therefore ordered that the objections are overruled, the conclusions and recommendation of the magistrate judge are adopted, and Emerson's April 16, 2018 motion for summary judgment against Golden Spread and Westport is granted. The motion in limine and motion to exclude expert testimony are denied without prejudice as moot. The court *500enters judgment in favor of Emerson by judgment filed today.
SO ORDERED .
FINDINGS, CONCLUSIONS, AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
D. GORDON BRYANT, JR., UNITED STATES MAGISTRATE JUDGE
Pursuant to a Standing Order of Reference, this case has been referred to the undersigned United States Magistrate Judge for pretrial management, including decisions as to non-dispositive matters and making findings and recommendations as to dispositive matters. ECF No. 74. This case, removed from state court on diversity jurisdiction, arises out of a contract in which Defendant Emerson Process Management Power & Water Solutions, Inc. (Emerson) agreed to replace the distributed control system (DCS) for a steam turbine at Plaintiff Golden Spread Electric Cooperative, Inc.'s (GSEC) power station. Emerson now moves for summary judgment on GSEC's contract (breach of contract and express warranty) and tort (negligence and strict liability) claims for damages allegedly sustained by the steam turbine as a result of defects in the DCS. See Def. Emerson Process Management Power & Water Solutions, Inc.'s Mot. for Summ. J. (ECF No. 71) [hereinafter Def.'s Mot. Summ. J.]. For the reasons that follow, the undersigned recommends that the District Judge GRANT Emerson's motion.
I. Background
GSEC operates Mustang Station Power Plant (Mustang Station), a consumer-owned power plant located near Denver City, Texas. Mustang Station became operational in 2000, and has multiple generators capable of producing a combined 958 megawatts of power. App. to Pl.'s Resp. to Def.'s Mot. Summ. J., at 11 (ECF No. 78) [hereinafter Pl. App.]. This litigation centers on one of those generators-an Alstom steam-turbine generator known as Unit 3-and a control system designed by Emerson. GSEC purchased Unit 3 from Alstom and installed it in the Mustang Station during 1999-2000. Id. at 2.
In 2013, GSEC solicited proposals to replace Unit 3's DCS, and Emerson submitted the winning bid. Def. Emerson's Br. in Supp. of its Mot. Summ. J., at 8 (ECF No. 72) [hereinafter Def.'s Br.]; Pl.'s Br. in Opp'n to Def.'s Mot. Summ. J., at 6-7 (ECF No. 77) [hereinafter Pl.'s Resp.]. GSEC and Emerson subsequently negotiated and executed a contract that required Emerson to design, develop, program, and install the new DCS for Unit 3. Pl. App., at 2. The DCS is "the necessary means for operation and control of the steam turbine's integrated subsystems" and includes "computer hardware, software and associated equipment." App. to Def. Mot. Summ. J., at 2 (Decl. of Glen Wagner) (ECF No. 73) [hereinafter Def. App.]. Specifically, the executed contract requires, in part, that Emerson provide "control solutions that will target and analyze specific processes in Golden Spread's Mustang Station, determining optimal operating conditions and offering tremendous cost savings to Golden Spread's Mustang Station facility." Pl.'s First Am. Compl., at 3 (ECF No. 36). The contract encompassing the parties' agreement consists of four parts, numbered in their "order of precedence" for interpretation: (1) Cover Letter; (2) Proposal; (3) License Agreement; and (4) Terms and Conditions. Def. App., at 290.
*501During Emerson's testing and commissioning of the new DCS, Mustang Station lost power and Unit 3 tripped offline. Pl. App., at 2; Def.'s Br., at 9; Pl.'s Br., at 7. As Unit 3 coasted to a stop, the lube-oil system failed to remain engaged, causing the turbine to overheat and suffer extensive friction damage. Def.'s Br., at 9; Pl.'s Br., at 7. Investigation after the incident revealed that the new DCS created and installed by Emerson for Unit 3 contained a logic error in the software that caused the lube-oil system to prematurely shut off during the turbine roll-down. Def.'s Br., at 9; Pl.'s Br., at 7.
Following the incident, and pursuant to the parties' agreement, GSEC submitted a warranty claim to Emerson. Def.'s Br., at 9-10. Emerson completed modifications to the DCS software, which GSEC subsequently approved, and GSEC returned Unit 3 to service. Def. App., at 2-3 ¶ 11 (Decl. of Glen Wagner). Emerson performed this warranty work at no charge to GSEC. Joint Stipulation of Facts, at 1 (ECF No. 98).
GSEC and Westport Insurance Company2 filed this suit in an attempt to recover for the damages sustained by Unit 3 due to Emerson's alleged improper design, development, programming, and installation of the replacement DCS. Pl.'s First Am. Compl., at 4-12. They seek $ 8,352,996.94 in damages for steam turbine repair costs caused by the lack of lubrication following the power failure. GSEC's Amended Complaint alleges claims for breach of contract, breach of express warranty, negligence, and strict product liability. Id. Emerson moves for summary judgment as to all claims. Def.'s Br., at 10-22.
Emerson contends that GSEC's breach of contract and warranty claims fail as a matter of law because the parties' negotiated contract unambiguously provides that GSEC's sole and exclusive remedy is for Emerson to either correct any nonconformity or defect or, if impracticable, to refund the purchase price. Def.'s Br., at 11-13; Def. Emerson's Reply Br. in Supp. M. Summ. J., at 5-10 (ECF No. 83) [hereinafter Def.'s Reply]. Emerson further asserts that Texas's economic loss doctrine bars GSEC's tort claims as a matter of law. Def.'s Br., at 13-19; Def.'s Reply, at 10-15. Emerson also proffers alternative theories for granting partial or full summary judgment, arguing the parties contracted for a disclaimer of consequential or incidental damages arising from either contract or tort claims, and a total damage cap equal to the greater of the defective item's purchase price or $ 2.5 million. Def.'s Br., at 19-22; Def.'s Reply, at 15.
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SIDNEY A. FITZWATER, SENIOR JUDGE
On November 19, 2018 the United States Magistrate Judge entered his findings,
After making an independent review of the pleadings, files, and records in this case, the findings, conclusions, and recommendation of the magistrate judge, the objections of Golden Spread and Westport, and Emerson's December 17, 2018 response to the objections, the court concludes that the conclusions and recommendation are correct. It is therefore ordered that the objections are overruled, the conclusions and recommendation of the magistrate judge are adopted, and Emerson's April 16, 2018 motion for summary judgment against Golden Spread and Westport is granted. The motion in limine and motion to exclude expert testimony are denied without prejudice as moot. The court *500enters judgment in favor of Emerson by judgment filed today.
SO ORDERED .
FINDINGS, CONCLUSIONS, AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
D. GORDON BRYANT, JR., UNITED STATES MAGISTRATE JUDGE
Pursuant to a Standing Order of Reference, this case has been referred to the undersigned United States Magistrate Judge for pretrial management, including decisions as to non-dispositive matters and making findings and recommendations as to dispositive matters. ECF No. 74. This case, removed from state court on diversity jurisdiction, arises out of a contract in which Defendant Emerson Process Management Power & Water Solutions, Inc. (Emerson) agreed to replace the distributed control system (DCS) for a steam turbine at Plaintiff Golden Spread Electric Cooperative, Inc.'s (GSEC) power station. Emerson now moves for summary judgment on GSEC's contract (breach of contract and express warranty) and tort (negligence and strict liability) claims for damages allegedly sustained by the steam turbine as a result of defects in the DCS. See Def. Emerson Process Management Power & Water Solutions, Inc.'s Mot. for Summ. J. (ECF No. 71) [hereinafter Def.'s Mot. Summ. J.]. For the reasons that follow, the undersigned recommends that the District Judge GRANT Emerson's motion.
I. Background
GSEC operates Mustang Station Power Plant (Mustang Station), a consumer-owned power plant located near Denver City, Texas. Mustang Station became operational in 2000, and has multiple generators capable of producing a combined 958 megawatts of power. App. to Pl.'s Resp. to Def.'s Mot. Summ. J., at 11 (ECF No. 78) [hereinafter Pl. App.]. This litigation centers on one of those generators-an Alstom steam-turbine generator known as Unit 3-and a control system designed by Emerson. GSEC purchased Unit 3 from Alstom and installed it in the Mustang Station during 1999-2000. Id. at 2.
In 2013, GSEC solicited proposals to replace Unit 3's DCS, and Emerson submitted the winning bid. Def. Emerson's Br. in Supp. of its Mot. Summ. J., at 8 (ECF No. 72) [hereinafter Def.'s Br.]; Pl.'s Br. in Opp'n to Def.'s Mot. Summ. J., at 6-7 (ECF No. 77) [hereinafter Pl.'s Resp.]. GSEC and Emerson subsequently negotiated and executed a contract that required Emerson to design, develop, program, and install the new DCS for Unit 3. Pl. App., at 2. The DCS is "the necessary means for operation and control of the steam turbine's integrated subsystems" and includes "computer hardware, software and associated equipment." App. to Def. Mot. Summ. J., at 2 (Decl. of Glen Wagner) (ECF No. 73) [hereinafter Def. App.]. Specifically, the executed contract requires, in part, that Emerson provide "control solutions that will target and analyze specific processes in Golden Spread's Mustang Station, determining optimal operating conditions and offering tremendous cost savings to Golden Spread's Mustang Station facility." Pl.'s First Am. Compl., at 3 (ECF No. 36). The contract encompassing the parties' agreement consists of four parts, numbered in their "order of precedence" for interpretation: (1) Cover Letter; (2) Proposal; (3) License Agreement; and (4) Terms and Conditions. Def. App., at 290.
*501During Emerson's testing and commissioning of the new DCS, Mustang Station lost power and Unit 3 tripped offline. Pl. App., at 2; Def.'s Br., at 9; Pl.'s Br., at 7. As Unit 3 coasted to a stop, the lube-oil system failed to remain engaged, causing the turbine to overheat and suffer extensive friction damage. Def.'s Br., at 9; Pl.'s Br., at 7. Investigation after the incident revealed that the new DCS created and installed by Emerson for Unit 3 contained a logic error in the software that caused the lube-oil system to prematurely shut off during the turbine roll-down. Def.'s Br., at 9; Pl.'s Br., at 7.
Following the incident, and pursuant to the parties' agreement, GSEC submitted a warranty claim to Emerson. Def.'s Br., at 9-10. Emerson completed modifications to the DCS software, which GSEC subsequently approved, and GSEC returned Unit 3 to service. Def. App., at 2-3 ¶ 11 (Decl. of Glen Wagner). Emerson performed this warranty work at no charge to GSEC. Joint Stipulation of Facts, at 1 (ECF No. 98).
GSEC and Westport Insurance Company2 filed this suit in an attempt to recover for the damages sustained by Unit 3 due to Emerson's alleged improper design, development, programming, and installation of the replacement DCS. Pl.'s First Am. Compl., at 4-12. They seek $ 8,352,996.94 in damages for steam turbine repair costs caused by the lack of lubrication following the power failure. GSEC's Amended Complaint alleges claims for breach of contract, breach of express warranty, negligence, and strict product liability. Id. Emerson moves for summary judgment as to all claims. Def.'s Br., at 10-22.
Emerson contends that GSEC's breach of contract and warranty claims fail as a matter of law because the parties' negotiated contract unambiguously provides that GSEC's sole and exclusive remedy is for Emerson to either correct any nonconformity or defect or, if impracticable, to refund the purchase price. Def.'s Br., at 11-13; Def. Emerson's Reply Br. in Supp. M. Summ. J., at 5-10 (ECF No. 83) [hereinafter Def.'s Reply]. Emerson further asserts that Texas's economic loss doctrine bars GSEC's tort claims as a matter of law. Def.'s Br., at 13-19; Def.'s Reply, at 10-15. Emerson also proffers alternative theories for granting partial or full summary judgment, arguing the parties contracted for a disclaimer of consequential or incidental damages arising from either contract or tort claims, and a total damage cap equal to the greater of the defective item's purchase price or $ 2.5 million. Def.'s Br., at 19-22; Def.'s Reply, at 15.
In response, GSEC argues that Emerson misinterprets the terms of the contract, and that the Limited Warranty provisions cited by Emerson are not the sole and exclusive contractual remedies available. Pl.'s Br., at 10-13. In addition, GSEC contends the economic loss doctrine does not preclude recovery in this case because it bargained for the new DCS separately from the original turbine. Id. at 14-22. GSEC further asserts that the damage to Unit 3 was not consequential, but instead direct and foreseeable damage not limited by the contract. Id. at 22-24. Lastly, GSEC claims that the damages cap in the contract does not cover or apply to their claim for attorney's fees. Id. at 24-27.
*502II. Summary Judgment Standard
"Summary judgment is required when 'the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.' " Trent v. Wade ,
The movant "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett ,
If the movant will have the burden of proof on a claim or defense at trial, it "must establish 'beyond peradventure all of the essential elements of the claim or defense.' " Bank One, Tex., N.A. v. Prudential Ins. Co. of Am. ,
III. Analysis
A. Emerson's Motion
This court's local rules require that a party seeking summary judgment must "on the first page [of its motion], under the heading 'summary,' state concisely the elements of each claim or defense as to which summary judgment is sought ...." N.D. Tex. Local Civil Rule 56.3(a) (emphasis added). The rule further provides that the party may satisfy this requirement "by stating in its motion that each of the required matters will be set forth in the party's brief." Local Rule 56.3(b). Emerson followed the latter course, referring the court to its brief for a summary of the grounds upon which it seeks summary judgment. See Def.'s Mot. Summ. J., at 1;
*503Def.'s Br., at 11-21. While not a model of clarity, and certainly not "stat[ing] concisely the elements of each claim or defense as to which summary judgment is sought," the court gleans the following from Emerson's motion and brief.3 Because neither the motion nor brief identifies, much less examines, any summary judgment proof concerning the essential elements of GSEC's claim for breach of express warranty,4 the court presumes Emerson does not seek judgment by either affirmatively showing the nonmovant's inability to establish such material facts or "merely demonstrat[ing] an absence of evidentiary support in the record" as to the warranty claim. See Wesley ,
It does appear, however, that Emerson seeks summary judgment as to GSEC's contract, express warranty, negligence, and strict product liability claims as follows:
1. GSEC's breach of contract claim, as a general proposition, is subsumed within its express warranty claim by operation of Texas law;
2. Warranty and remedy limitations negotiated by the parties in the written contract bar GSEC's breach of express warranty claim;5
3. The economic loss rule bars tort claims for damage to the steam turbine because the DCS is an "integrated component" and the turbine therefore does not constitute "other property"; and
4. Even if the turbine qualifies as "other property" under the economic loss rule, its repair costs would be unrecoverable "consequential damages" or, if recoverable, subject to the contract's damage cap.
See Def.'s Br., at 6-8, 12 n.3. The court examines each claim as follows.
B. The Summary Judgment Record Before the Court
Although GSEC asserts four separate causes of action, i.e., breach of contract, breach of express warranty, negligence, and product liability, its claims boil down to two common issues: did the DCS provided by Emerson contain a defect that caused damage to the Unit 3 turbine and, if so, what remedies, if any, does the parties' contract provide for such defect and the resulting damages? Before the court can properly evaluate Emerson's motion, it must first identify the summary judgment evidence in the record concerning these two questions.
As to the parties' negotiated agreement, both parties have submitted verified copies of the final version of the contract. See Def. App., at 289-382; Pl.'s First Am. Compl., Ex. A, at 1-94 (ECF No. 37-1). While the parties clearly have differing interpretations of the contract, there appears to be no dispute over what documents *504actually make up the contract or the relevant language contained therein.
Regarding the incident itself, from the court's review of the parties' summary judgment filings (including the motion and supporting brief, response, and reply, all exhibits and appendices attached thereto, and the parties' joint stipulation), the parties agree factually as to what occurred-they simply disagree as to the resulting legal consequence. Apparently due to this lack of factual dispute, however, neither GSEC nor Emerson offers much in the way of traditional Rule 56 summary judgment proof-affidavits, deposition testimony, etc.-specifically identifying the cause of the injury alleged.6 Identifying the defect causing the damages sought by GSEC is significant because the contract contains different language for defects related to Goods and Services and those associated with Software and, as argued by GSEC, potentially provides differing remedies for each. Because few, if any, of either party's factual recitations in the motion for summary judgment (MSJ) briefing concerning the specific cause of the DCS's failure and the resulting damage are submitted as sworn testimony, the court must consider the legal impact, if any, of the parties' unsworn factual statements contained in their MSJ briefs, as well as GSEC's factual allegations set forth in its First Amended Complaint (FAC), in determining whether to grant or deny Emerson's motion for summary judgment. For the reasons set forth below, the court believes it can consider the following as admissible summary judgment evidence for the purpose of evaluating Emerson's motion.
First, a court may rely on judicial admissions contained in an opponent's response to a motion for summary judgment in deciding whether disputed fact issues exist. See City Nat'l Bank v. United States ,
Based on the record before the court, it is abundantly clear the parties do not dispute that a "logic error" in the software of the DCS caused the alleged damages in this case. The court need look no further than GSEC's response to Emerson's motion to confirm this. See, e.g. , Pl.'s Br., at 7 ("Investigation ... revealed the newly-purchased and installed DCS contained a logic error"), 11 ("[T]he instant dispute resulted from a defect in the DCS software."), 23 ("This list has no connection to direct property damage to the turbine occurring as a result of Emerson's faulty DCS logic ." (emphasis added) ). Emerson, at least for purposes of its motion, concurs in GSEC's assessment. See, e.g. , Def.'s Br., at 9 ("[T]he lube oil system failed to remain engaged because of a flaw in the programming of the steam turbine DCS"); Def.'s Reply, at 9 ("Golden Spread even acknowledges that its claims are for a defect in the control logic software...."). Further examination of GSEC's live complaint removes any doubt as to what GSEC contends caused the damages it seeks to recover herein. See, e.g. , Pl.'s Am. Compl., at 8 ¶ 20 ("The DCS logic implemented by Emerson and controlling the lube oil system was defective in that it caused the lube oil system to fail to engage, resulting in overheating and friction damage to the steam turbine."), 9 ¶ 25 ("The DCS control logic programmed by Emerson was defective. A detailed review of the logic that Emerson installed in the DCS at the time of the event reveals an incorrect logic loop."), 11 ¶ 29 ("The DCS logic implemented by Emerson and controlling the lube oil system was defective in that it caused the lube oil system to fail to engage, resulting in overheating and friction damage to the steam turbine."). GSEC also provides testimony that meets the requirements of Rule 56(c)(4) through an affidavit from an engineering expert, attached to its FAC as Exhibit A, wherein he opines that "a detail review of the logic that Emerson had installed, in their DCS, at the time of the event shows incorrect control logic existed," which "directly contributed to the Mustang Station Steam Turbine damage." Pl.'s Am. Compl., Ex. A, at 2-3 ¶¶ 8, 12. In sum, the court finds that the summary judgment record firmly establishes that a "logic error" in the software of the DCS caused the alleged damages in this case.
Considering the foregoing, the summary judgment evidence also clearly proves GSEC accepted the DCS unit upon delivery, incorporating it into the Unit 3 turbine and then seeking repair or modification to the DCS unit when defects in the software surfaced (as opposed to returning it or revoking the acceptance). The undisputed evidence also demonstrates, as a general proposition, that once notified of *506the software issue, Emerson remedied the defect to GSEC's apparent satisfaction and at no cost to GSEC. Specifically, GSEC submitted a written "warranty demand for the failure of the control system installed by Emerson at Mustang Station pursuant to the Software License Agreement and Paragraph 5(e) of the Terms and Conditions of Sale ...." Def. App., at 5-6 (email from GSEC Chief Operating Officer (COO) J. Jolly Hayden, dated Apr. 14, 2015); Joint Stipulation of Facts, at 1. In response, Emerson worked with GSEC to remedy the defect by modifying the software, with no charge to GSEC. See Def. App., at 2-3 ¶ 11; see Pl.'s Am. Compl., Ex. A, at 3 ¶ 11 ("Following the March 25th event Emerson and the plant conducted a detail review of all of the logics in the Emerson DCS. Many changes were made including the removal of the faulty Auto Stopping Logic for the EM DC Pump."); Joint Stipulation of Facts, at 1. GSEC approved the modifications, then put Unit 3 back into service. Def. App., at 3. The court finds no evidence in the record showing GSEC disputes that Emerson remedied the DCS's defective software in accordance with the contract; instead, it contends that the contract, rather than providing an exclusive repair remedy, also authorizes recovery by GSEC for damage caused to the turbine as a result of the software defect. Pl.'s Resp., at 11-13.
The court will examine the parties' contractual bargain within the foregoing factual framework and determine the legal effect of the agreement as to GSEC's various claims against Emerson.
C. Contract-Based Claims
Emerson moves for summary judgment on GSEC's contract-based claims, i.e., breach of contract and breach of warranty. Emerson claims that it provided GSEC with its exclusive remedy for any breach of warranty when it made modifications to the DCS, thus enabling GSEC to ultimately return Unit 3 to service. The contract expressly provides that it is "formed and shall be construed, performed, and enforced under the laws of the State of Texas." Def. App., at 295 ¶ 15(d); see Tel-Phonic Servs., Inc. v. TBS Int'l, Inc. ,
1. As a matter of law, GSEC has no breach of contract claim because it accepted the DCS.
Emerson asserts in its motion for summary judgment that GSEC's contract claims "are properly characterized as breach of warranty claims." Def.'s Br., at 12, n.3 (alleging that GSEC's contract claim is "properly characterized as [a] breach of warranty claim[ ]" based on the Texas Supreme Court's distinction between such claims based on buyer's acceptance of defective goods). GSEC does not address this argument in its brief.
The court initially observes that as a matter of law, breach of contract and breach of warranty are distinct claims with different remedies. See A.O. Smith Corp. v. Elbi S.p.A. ,
*507Selectouch Corp. v. Perfect Starch, Inc. ,
Here, the evidence shows, and GSEC alleges nothing to the contrary, that GSEC did not reject or revoke acceptance of the DCS. Instead, GSEC asserts that (1) Emerson supplied and installed the defective DCS into its preexisting steam turbine (Pl.'s Resp., at 7, 10-13) and (2) after accepting the DCS, GSEC subsequently discovered defects in the DCS during testing and commissioning.
2. The summary judgment evidence demonstrates Emerson has fulfilled its warranty contractual obligations and that Emerson is entitled to entry of judgment on GSEC's breach of warranty claims.
a. Under Texas law, Emerson has complied with its contractual obligations in regard to GSEC's warranty claim.
Emerson asserts that GSEC's express warranty claim fails because Emerson provided GSEC with its exclusive remedy for any breach caused by DCS software errors when it corrected the defects under the contract's exclusive remedy provisions. Def.'s Br., at 6, 12; Def.'s Reply, at 6-8 (contained in both the License Agreement and the Terms and Conditions of Sale). In response, GSEC alleges that the remedies provided in the warranty sections of the License Agreement and Terms and Conditions are not the sole remedies available under the contract for claims based on defective software, and it has "not agreed to waive damage claims if Emerson damages our property or ... breaches its confidentiality obligation." Pl.'s Resp., at 10. While GSEC bears the burden of proof on its warranty claims,8 *508limitations of remedies in a warranty are affirmative defenses, not elements of GSEC's cause of action; as such, Emerson must establish "beyond peradventure all of the essential elements of the ... defense."9 Orthoflex, Inc. ,
In interpreting the contract under Texas law, and specifically its warranty provisions, the court's primary objective "is to ascertain the true intentions of the parties as expressed in the instrument." J.M. Davidson, Inc. v. Webster ,
When considering whether a contract is ambiguous, "[o]bjective manifestations of intent control, not 'what one side or the other alleges they intended to say but did not.' " URI, Inc. v. Kleberg Cty. ,
Although Emerson and GSEC urge the court to adopt differing interpretations of the contract, particularly in regard to available remedies, neither party asserts that the contract is ambiguous. See Def.'s Br., at 11-13; Def.'s Reply, at 5-10; Pl.'s Resp., at 10-11. The contract at issue is comprised of four different documents that "are to be complementary and interpreted in harmony so as to avoid conflict ...." Def. App., at 290 (Offer). The contract also sets out a specific "order of precedence in interpretation" to be used "[i]n the event of any inconsistency, conflict, or ambiguity ... (i) Cover Letter, (ii) the Proposal, (iii) License Agreement, and (iv) Terms and Conditions."
Interpreting the contract as a whole and giving meaning to all its provisions, the court finds that the exclusive remedy provision for warranty claims based on defective software is not reasonably susceptible to more than one interpretation and is therefore not ambiguous. See Project Dev. Grp., Inc. v. Metro. Transit Auth. of Harris Cty. , No. 07-96-0350-CV,
The contract's Terms and Conditions of Sale provide the following in regard to any defects found in goods or services provided by Emerson:
If Buyer discovers any warranty defects with respect to the Goods manufactured by Seller (other than the firmware, which shall be subject to warranty claims under the Software License Agreement)11 or Services and notifies Seller thereof in writing during the applicable warranty period (as set forth in this Section 5), Seller shall (i) correct any defects and errors in the Services by re-performing the same, and (ii) at Seller's option, either repair or replace that portion of the defective Good(s) manufactured by Seller. If despite Seller's reasonable efforts, a defective Good manufactured by Seller cannot be repaired or replaced, or a nonconforming Service cannot be re-performed, Seller *510will refund to Buyer the purchase price of such defective Goods/Services.
Def. App., at 293 ¶ 5(e) (Terms and Conditions of Sale). Because the undisputed summary judgment evidence shows that a "logic error" in the software of the DCS caused the alleged damages in this case, the court will first examine, as required by the express terms of the contract, the Software License Agreement (License Agreement) to determine the bargain struck by the parties as to applicable warranties and the remedy provided for any breach thereof. The express warranty in the License Agreement provides that "the Software shall comply, in all material respects, with the technical specifications in the Documentation, [and] will be free from defects which materially affect its utility with respect to the intended purpose...." Def. App., at 297. The License Agreement further specifies that:
In the case of a nonconformity to the foregoing warranty and if EMERSON is notified in writing of such nonconformity ... EMERSON shall be promptly remedied [sic]12 such non-conformity (at its expense), by correction in the medium originally supplied, or provision of a procedure to correct material errors. If such remedies are impracticable, EMERSON shall promptly refund to LICENSEE the purchase price for nonconforming Software....
The warranties set forth above are the exclusive remedies with respect to any warranty claim relating to the Software and shall be in lieu of all other warranties with respect thereto, whether statutory, express or implied (including all warranties of merchantability and fitness for purpose and all warranties arising from course of dealing or usage of trade). This License Agreement and the rights and obligations of the Parties hereunder shall be subject to the limitations set forth in Section 6 of the Terms and Conditions.
In no event, regardless of the form of the claim or cause of action (whether based in contract, infringement, negligence, strict liability, other tort or otherwise), shall either party's liability to the other party and/or its customers with respect to any claim arising in connection with this Agreement exceed the greater of (i) price to buyer of the specific goods manufactured or services provided by seller giving rise to the claim or cause of action, or (ii) $ 2.5 million.
Def. App., at 293 ¶ 6(B) (Terms and Conditions) (emphasis added).
Emerson maintains that because it complied with the express terms of the License Agreement for remedying the DCS defect, GSEC has received all relief to which it is entitled under the contract. Def.'s Br., at 12. GSEC argues in response that while Emerson did repair or reprogram the DCS software, other language in the contract reflects the parties' intent to not limit GSEC to that sole remedy for a breach of the express warranty. Pl.'s Resp., at 10-13. The court agrees that Emerson fulfilled its obligation under the specific provision cited for remedying defects in the DCS unit's software. As previously outlined, the undisputed summary judgment evidence establishes that GSEC submitted a written "warranty demand for the failure of the control system installed by Emerson at Mustang Station pursuant to the Software License Agreement and Paragraph 5(e) of the Terms and Conditions of Sale...." Def. App., at 5-6 (email from GSEC COO J. Jolly Hayden, dated April 14, 2015); Joint Stipulation of Parties, at 1. In response, Emerson worked with GSEC to remedy the defect by modifying the software at Emerson's expense; GSEC approved the modifications and put Unit 3 back into service. Def. App., at 2-3 ¶ 11; see Pl.'s Am. Compl., Ex. A, at 3 ¶ 11.14 It is therefore clear that no disputed issue of material fact exists as to whether Emerson complied with the contractual remedy for a breach of express warranty claim based on defects in the software. Because the summary judgment proof shows, and GSEC does not dispute, that Emerson remedied the DCS's defective software in accordance with the warranty's terms, the record requires entry of judgment in Emerson's favor on GSEC's express warranty claim, absent the contract providing some additional remedy. See, e.g., Purcel v. Advanced Bionics Corp. , Civil Action No. 3:07-CV-1777-M,
b. The parties' contract provides no other remedies for breach of warranty.
Having found that Emerson fulfilled the terms of the License Agreement by repairing the DCS to GSEC's satisfaction, the court must now determine whether *512as a matter of law the contract limits GSEC to this sole remedy for breach of express warranty, or whether the contract provides additional remedies, e.g., the recovery of monetary damages for injury to the turbine. The court finds that the parties' contract provides no other remedy.
With some exceptions not applicable here, parties may modify or disclaim warranties under the Texas Uniform Commercial Code (UCC). See
Initially, the court notes that a plain reading of the contract supports the conclusion that the remedy already provided by Emerson constitutes GSEC's sole relief as to a breach of warranty. See, e.g., URI, Inc. ,
To combat what appears to be the contract's rather straightforward language on this issue, GSEC relies on comments made by the parties during contract negotiations, as well as specific clauses or provisions found elsewhere in the final version of the executed contract. GSEC cites to extrinsic evidence concerning the Limitation of Remedy clause (section 6(A) ) negotiated by the parties, arguing that commentary to the edits17 demonstrates GSEC did not agree to waive damage claims "if Emerson damages our property or ... breaches its confidentiality obligation." Pl.'s Resp., at 10. Even accepting its explanation as true, i.e., that GSEC requested an edit to Section 6 of the Terms and Conditions to allow for property damage claims against Emerson, GSEC's expressed rationale behind the edit cannot inform the court's decision as to the contract's scope and meaning. Because the contract is unambiguous on its face (and the parties do not contend otherwise), "extrinsic evidence of subjective intent is inadmissible and has no effect." Shaver v. Schuster ,
GSEC contends initially that (1) the Limited Warranty section (Section 5) of the Terms and Conditions (goods and services), specifically 5(h),18 operates only as a disclaimer of additional warranties for *514goods and services, not as a proscription against all claims for property damage and, apparently in the alternative,19 (2) Section 5's limited warranty language has no bearing on GSEC's claim because it specifically excludes claims based on defective software. Pl.'s Resp., at 11. GSEC also makes a related argument concerning language in the License Agreement, asserting that its terms pertaining to software only waive additional warranties of fitness and merchantability and do not constitute a disclaimer of any other claim or cause of action GSEC may have related to defective software. Id. at 13. In support of this construction, GSEC refers to the License Agreement's language specifying that "the rights and obligations of the Parties hereunder shall be subject to the limitations set forth in Section 6 of the Terms and Conditions," and that Section 6's damages cap (limiting each party's liability to the greater of the price to buyer of the good or service provided or $ 2.5 million) would be superfluous if it did not apply to other property damage claims arising out of defective software. Id. at 12. Finally, GSEC claims that language in the Cover Letter, which holds the highest priority in the documents forming the contract, contains another express warranty from Emerson concerning the DCS, and that this warranty "contains no limitations and was breached by [Emerson's] conduct." Id. at 13.
GSEC's foregoing arguments focus primarily on two sections of the contract, both of which are contained in the Terms and Conditions. Essentially, GSEC seems to allege first that Section 5's language providing that the warranties and remedies contained therein "are exclusive remedies for all claims based on defective goods (other than software ... which is covered by the Software Licensee [sic] Agreement) ... and there are no other representations or warranties of any kind," in no way bars its express warranty claim for damage to the turbine because the language: (1) only operates as a disclaimer of additional warranties for goods and services, not for claims of property damage; or (2) by its express terms specifically excludes from its coverage claims based on defective software.
Regardless of whether the court has accurately articulated GSEC's argument in regard to Section 5's language, the court nonetheless finds that the cited provision in no way alters the outcome in this case. The contract undisputedly provides identical warranty waivers and remedy limitations for goods and services or software in the Terms and Conditions and the License Agreement, and such remedies are exclusive. Compare Def. App., at 293 (Terms and Conditions ¶ 5(e) ) ("If Buyer discovers any warranty defects with respect to the Goods manufactured by Seller (other than the firmware, which shall be subject to warranty claims under the Software License Agreement) or Services and notifies Seller thereof in writing during the applicable warranty period ... Seller shall (i) correct any defects ... and (ii) at Seller's option, either repair or replace that portion of the defective Good(s). If ... a defective Good manufactured by seller cannot be repaired or replaced ... Seller will refund to Buyer the purchase price ...."), and Def. App., at 293 (Terms and Conditions ¶ 6(A) ) ( ("The remedies of Buyer set forth in Section 5 of this Agreement are exclusive remedies for all claims based on defective Goods (other than software, including firmware, which is covered by the Software License Agreement) or Services."), *515with Def. App., at 297 (Software License Agreement) ("[I]f Emerson is notified in writing of such nonconformity during the applicable warranty period, Emerson shall be promptly remedied [sic] such non-conformity (at its expense), by correction .... If such remedies are impracticable, Emerson shall promptly refund to [GSEC] the purchase price ...."), and Def. App., at 297 ("The warranties set forth above are the exclusive remedies with respect to any warranty claim relating to the Software and shall be in lieu of all other warranties with respect thereto ...."). The court finds the summary judgment evidence establishes that defective software caused damage to the turbine, and such damages are necessarily covered by the License Agreement; however, even assuming coverage by the Terms and Conditions (as a good or service), the applicable language and remedy are the same: repair or refund of purchase price. Both contract sections expressly state that such remedies are exclusive for all claims based on alleged defects, and GSEC is bound by the express terms of the agreement it negotiated.
In an attempt to avoid this construction, GSEC points to the language contained in Section 6 of the Terms and Conditions, which provides as follows:
In no event, regardless of the form of the claim or cause of action (whether based in contract, infringement, negligence, strict liability, other tort or otherwise), shall either party's liability to the other party and/or its customers with respect to any claim arising in connection with this Agreement exceed the greater of (i) price to buyer of the specific goods manufactured or services provided by Seller giving rise to the claim or cause of action, or (ii) $ 2.5 Million.
Def App., at 293 ¶ 6(B) (Terms and Conditions) (emphasis added). GSEC submits that this provision reflects the parties' intent that the language contained in both the License Agreement (software) and the Terms and Conditions (goods and services), disclaiming any additional warranties and limiting remedies to simply repair or refund, is not exclusive and that the parties contemplated other causes of action or methods of recovery. Pl.'s Resp., at 12. In essence, GSEC argues this interpretation is required so as to "harmonize and give effect to all provisions of the contract so that none will be rendered meaningless." See J.M. Davidson, Inc. ,
As previously noted, the court must give effect to the parties' intent as expressed in the plain language of the contract taken as a whole. Here, the court has found that the summary judgment proof establishes a defect in the DCS software, and that the terms of the License Agreement provide an exclusive remedy of repair or refund of the purchase money, which Emerson has fulfilled.20
The License Agreement's language stating that "the rights and obligations of the Parties hereunder shall be subject to the limitations set forth in Section 6 of the Terms and Conditions" (which obviously *516include the language of 6(B) ) requires no different result. GSEC's argument presumes the only conceivable legal dispute that could arise in connection with the parties' contract is one involving defective DCS software; if true, such a scenario would admittedly render the damage cap language superfluous. This interpretation, however, assumes too much. If claims or disputes could arise "in connection with [the] Agreement" separate and apart from alleged defects in the DCS software , the damage or cap limit of Section 6(B) can still be given legal effect in harmony with the contract's exclusive remedy provisions related to the software. Emerson cites three examples in its Reply where Section 6(B)'s limits would otherwise come into play: (1) breach of contract in the event Emerson failed to deliver the control system; (2) damage caused by Emerson personnel while on GSEC's property during installation of the control system; and (3) Emerson's breach of the contract's confidentiality clause. Def.'s Reply, at 6. The court does not believe this list to be exhaustive, but it is sufficient to make the point-the contract's general damage cap or limit can still have legal effect and import while being construed in harmony with the parties' expressed intent to exclusively limit available remedies for defects in the DCS software.
This conclusion also aligns with the "fundamental axiom of contract interpretation that specific provisions control general provisions." Baton Rouge Oil & Chem. Workers Union v. ExxonMobil Corp. ,
Finally, GSEC's argument in regard to the significance of the Cover Letter similarly fails to alter the court's conclusion. GSEC asserts that in the Cover Letter, which holds the highest precedence in the documents forming the contract, Emerson expressly warrants that through *517the DCS replacement project it will be "determining optimal operating controls and offering tremendous cost savings," and providing "industry-specific applications, unmatched experience, and a highly skilled team of engineers." Pl.'s Resp., at 13 (quoting Def App., at 289 (Krecek Decl. Ex. C) ). GSEC posits that this alleged warranty "contains no limitations and was breached by [Emerson's] conduct."
In summary, Emerson is entitled to summary judgment as to GSEC's breach of contract claim because GSEC accepted the DCS rather than revoking its acceptance or returning the DCS. The parties' contract also requires entry of summary judgment as to GSEC's breach of warranty claim because the undisputed evidence shows Emerson fulfilled its warranty and remedial obligations under the express terms of the contract: it corrected, at Emerson's expense and to GSEC's satisfaction, the software defect in the DCS. As a result, the undersigned recommends that the district judge GRANT Emerson's motion as to GSEC's contract-based claims.
D. Tort Claims and the Economic Loss Doctrine
1. The parties' positions.
Emerson next argues that the economic loss rule bars GSEC's tort claims (i.e., negligence and strict liability) for damage to the Unit 3 turbine. Def.'s Br., at 13-18.21 The application of the economic loss rule is a question of law for the court to decide. U.S. Steel Corp. v. John H. Young, Inc. , No. 03-16-00206-cv,
Emerson contends the economic loss rule bars GSEC's tort claims because once the DCS was installed into the Unit 3 turbine, the DCS became an integrated, component part of Unit 3 itself (i.e., the finished product). Thus, Emerson asserts *518that the damage to Unit 3 constitutes damage to the product, not damage to other property. Def.'s Br., at 13-18; Def.'s Reply, at 14-15. Moreover, Emerson argues that "it was entirely foreseeable that the steam turbine could be damaged if the DCS supplied by Emerson did not perform as warranted" and GSEC "should not be permitted to evade the allocation of risk set forth in the contract." Def.'s Br., at 19; see Def.'s Reply, at 11-13.
In response, GSEC asserts that the economic loss rule does not bar its tort claims because the damage to Unit 3's turbine constitutes "other property." Pl.'s Resp., at 14-21. GSEC contends that it contracted with Emerson for the new DCS-not the entire steam turbine (i.e., Unit 3); therefore, the "product" in this case and the "object of contract ... that governs the rights of the parties" is the DCS itself. Id. at 14. In other words, the preexisting parts of the steam turbine constitute "other property." Id. GSEC argues that the "relevant contract sets out the requirements and responsibilities of the parties with regard to the purchase of the DCS only " because they bargained for Unit 3 separately, i.e., with a different company approximately fourteen years prior to the Emerson contract. Id. at 18 (emphasis added). In addition, GSEC suggests that Emerson had a duty, independent of any obligation undertaken in the contract, not to damage the preexisting turbine. Id. at 16-17.
2. The economic loss doctrine or rule.
a. Applicable law.
Before examining the economic loss rule and its application herein, the court must first determine what law governs. When sitting in diversity jurisdiction, a federal court applies the law of the state in which it sits. Blase Indus. Corp. v. Anorad Corp. ,
(1) decisions of the [Texas] Supreme Court in analogous cases, (2) the rationales and analyses underlying [Texas] Supreme Court decisions on related issues, (3) dicta by the [Texas] Supreme Court, (4) lower state court decisions, (5) the general rule on the question, (6) the rulings of courts of other states to which [Texas] courts look when formulating substantive law and (7) other available sources, such as treatises and legal commentaries.
Shakeri ,
*519b. The Texas economic loss rule: what is it?
In Texas, the economic loss rule (ELR) "generally precludes recovery in tort for economic losses resulting from a party's failure to perform under a contract when the harm consists only of the economic loss of a contractual expectancy."22 Chapman Custom Homes, Inc. v. Dall. Plumbing Co. ,
Despite its recognition by the Texas Supreme Court over forty years ago, Texas courts, as well as others across the country, continue to wrestle with the ELR's scope and application. Courts frequently have difficulty defining and applying the ELR because "there is not one economic loss rule broadly applicable throughout the field of torts, but rather several more limited rules that govern recovery *520of economic losses in selected areas of the law." Sharyland ,
3. A closer examination of the parties' arguments.
Emerson alleges that the ELR bars GSEC's tort claims because once it installed the DCS into the Unit 3 turbine, the DCS became an integrated, component part of Unit 3 (i.e., the finished product). Thus, Emerson asserts that the damage to Unit 3 constitutes damage to the product itself, not damage to other property. Def.'s Br., at 13-18; Def.'s Reply, at 14-15. Emerson contends that the turbine should not be considered "other property" because the DCS was specifically configured for and integrated into the turbine and would have no use otherwise, thereby making it the "product itself." Def.'s Br., at 17-18. In arguing this, Emerson attempts to place the facts of this case within the holdings of several Texas state court decisions, and federal cases applying Texas law, where the courts have held that a plaintiff cannot recover for damage caused to a product as a whole by a component part supplied by or to the original manufacturer for integration into the finished product. See, e.g., Lopez v. Huron ,
Emerson also asserts that "it was entirely foreseeable that the steam turbine could be damaged if the DCS supplied by Emerson did not perform as warranted" and GSEC "should not be permitted to evade the allocation of risk set forth in the contract." Def.'s Br., at 19; see also Def.'s Reply, at 11-13. To support this argument, Emerson relies on Alcan Aluminum Corp. , where a judge in this district, applying Texas law, surveyed court decisions from other jurisdictions addressing whether the ELR bars tort claims when a component part damages a completed product. 133 F.Supp.2d at 505. The court concluded that the Texas Supreme Court would reject a tort action against a component supplier for damage to the completed product because "the most common rationale for such conclusions is that damage to other components was clearly foreseeable" and that "parties can protect themselves from foreseeable consequences in the contract, which is more efficient than tort remedies." Id. Emerson urges the court to adopt the same foreseeability analysis here because "the parties are sophisticated entities" that were capable of protecting themselves in the contract and "it was entirely foreseeable at the time of contracting that the control system supplied by Emerson could damage [the turbine]." Def.'s Reply, at 11.
GSEC understandably disagrees, and argues that where the subject of the contract (the DCS) is a component part of what was ultimately damaged (the turbine), Texas law requires the court to determine the object of the parties' contract or bargain-or, stated alternatively, *521whether the parties bargained separately for the individual component(s). Pl.'s Resp., at 17-20. GSEC contends that it contracted with Emerson for the new DCS-not the entire steam turbine (Unit 3); therefore, the "product" in this case and the "object of contract ... that governs the rights of the parties" is the DCS itself. Id. at 14. GSEC asserts that the "relevant contract sets out the requirements and responsibilities of the parties with regard to the purchase of the DCS only " because they bargained for Unit 3 separately, i.e., with a different company approximately fourteen years prior to the Emerson contract. Id. at 18 (emphasis added). According to GSEC, although the DCS is a component part of Unit 3, under American Eagle Insurance Co. v. United Technologies Corp. ,
In American Eagle , the Fifth Circuit, ostensibly applying Texas law, looked to its prior maritime law decision in Shipco v. Avondale Shipyards, Inc. ,
To properly evaluate Emerson's motion seeking summary judgment as to GSEC's tort claims, this court must determine what constitutes the "product" and "other property" between the DCS and turbine. If the DCS, as an integrated component part, and the turbine are considered the product, the Texas ELR would preclude recovery for damage sustained by the turbine due to the defective DCS. If, however, under Texas law the turbine is considered "other property," then GSEC can recover in tort for damage to the turbine, assuming it can establish the necessary factual elements of its claims.
4. The Texas economic loss rule and "other property."
The distinction between "other property" and the "product itself" is usually straightforward ( Alcan , 133 F.Supp.2d at 503 ), and Texas courts have had little difficulty with this distinction where a product, purchased by the plaintiff from a manufacturer, is damaged by a defective component that was an integrated part of the product when sold. In such cases, Texas courts have consistently viewed the component part and product as a whole and applied the ELR, thereby precluding a finding of damage to "other property." See, e.g., Lopez ,
And while it appears the Texas Supreme Court has not specifically addressed the question of whether the ELR applies to products damaged by replacement component parts furnished by the original manufacturer or supplier , lower Texas courts have shown no hesitation in extending its application. See, e.g., Equistar ,
In addition, on a closely related question "[i]t does not appear that the Supreme Court of Texas itself 'has squarely addressed the issue of whether a component part manufacturer can be sued in tort for damage to a product by a commercial buyer who installs the component into its product.' " TEU Servs. ,
The issue presented here, however, is different than any of the foregoing scenarios. This case does not involve damage caused by a component or replacement part supplied by the original seller and installed inside a finished product, or a component part purchased by the plaintiff to integrate into a finished product for resale. Instead, the DCS in this case is a replacement component part purchased from a source other than the original manufacturer/supplier, long after the initial transaction,23 to be used by GSEC not for resale after incorporation into a finished product, but rather at its facility after integration into the turbine (Unit 3). The parties do not cite, and the court has not found, any Texas or Fifth Circuit case law that directly addresses this issue. The court must therefore determine, based on Texas law, whether the steam turbine constitutes "other property."
a. Determining what constitutes "other property" under Texas law: the "object of the bargain" test.
GSEC argues, and the court agrees, that Texas courts apply-at least in theory-an "object of the bargain" test to define what constitutes "other property" for the purpose of the ELR. See, e.g., Chapman Custom Homes ,
For example, the Texas Supreme Court's opinion in Signal Oil & Gas Co. v. Universal Oil Products is somewhat similar factually to the case at bar; however, it provides little practical guidance on where courts should draw the line between "the product" and "other property."24 In *524Signal Oil , Signal contracted with various parties (1) to procure the materials and equipment necessary to construct and (2) to actually build an isomax unit and hydrogen facility at the Signal plant located in Houston. 572 S.W.2d at 322-23.25 Signal alleged that defendants provided a defective isomax reactor charge heater ("a component part of the plant"), which caused an explosion and fire at the Houston refinery. Id. at 322. Signal asserted that the heater itself, the isomax unit, and other refinery equipment and property were damaged in the explosion and sought recovery for those damages, alleging strict liability and implied warranty theories. Id. at 322-23. Distinguishing Mid Continent , which held that the ELR foreclosed strict liability claims where the product damages only itself, the court found that Signal had "properly alleged a cause of action in strict liability based upon its allegations of property damages"-"[t]o the extent that the product itself has become part of the accident risk or the tort by causing collateral property damage, it is properly considered as part of the property damages, rather than as economic loss." Id. at 325. Despite recognizing the viability of Signal's strict liability claim, the court ultimately denied recovery for damage to "other property" due to Signal's failure to obtain the necessary fact findings. Id. at 326.
This court finds the Signal Oil language to be more confusing than helpful in: (1) understanding how the Texas Supreme Court distinguished between the object of the contract and "other property"; and (2) making an Erie guess as to how that court would decide the issue today. The court did not use or discuss the "object of the bargain" standard it articulated in Mid Continent or subsequently in Jim Walter Homes for distinguishing between the *525product and other property. Further, application of that measure would seem to require an outcome different than that reached by the court. Because it appears that the isomax unit and plant were the object of the various contracts, i.e., what Signal bargained for, the entire plant would qualify as the product rather than other property. In addition, other than simply holding that the ELR did not preclude a strict liability claim for damage to other property,26 the court provided no analysis or explanation for why it apparently considered everything beyond the heater to qualify as "other property."27
Lower Texas courts have neither explored the intricacies of Signal 's holding nor applied it in as broad of terms as its wording would suggest. Instead, these courts have merely read Signal as permitting recovery "to other surrounding property"-not as allowing recovery for damage to a finished product caused by a component part. See, e.g., Grizzly Mountain ,
b. The rationales and policy considerations underpinning the Texas Supreme Court's adoption of the ELR support its broad application.
Since its adoption, the Texas Supreme Court has consistently emphasized several important rationales in support of the ELR. The Texas Supreme Court first recognized the ELR in Nobility Homes , where it held *526that a plaintiff cannot recover his economic loss under strict product liability law but can "recover such loss under the implied warranties of the Uniform Commercial Code." See Sharyland ,
Quoting at length from the Restatement (Third) of Torts: Liability for Economic Harm , the Texas Supreme Court recently reaffirmed these "principal rationales" for the ELR, acknowledging that while "[e]conomic injuries may be no less important than injuries of other kinds," courts nevertheless "impose tort liability for economic loss more selectively than liability for other types of harms." LAN/STV ,
A contract that settles responsibility for such a risk will therefore be preferable in most cases to a judicial assignment of liability after harm is done. The contract will better reflect the preferences of the parties and help prevent the need for speculation and litigation later. Contracts also are governed by a body of commercial law that has been developed to address economic loss, and thus will often be better suited for that task than the law of torts. In short, contracts to manage the risk of economic loss are more often possible, and more often desirable, than contracts to manage risks of other types of injury. As a result, courts generally do not recognize tort liability for economic losses caused by the breach of a contract between the parties, and often restrict the role of tort law in other circumstances in which protection by contract is available.
In sum, the Texas Supreme Court's reasoning and analysis demonstrate a strong preference for remedying economic loss through contract rather than tort law. The cited criteria and rationale, in this court's view, encourage a finding that Texas law requires an expansive, rather than restrictive, *527application of the ELR. An examination of other Texas cases confirms such an approach.
c. Lower Texas court cases applying the ELR.
Several lower Texas court cases, although they do not address the specific factual situation at issue in this case, help guide this court's analysis in applying the benefit of the bargain test and determining whether Unit 3's turbine constitutes "other property." In Equistar Chemicals, L.P. v. Dresser-Rand Co. , for example, the Houston Court of Appeals considered application of the ELR with respect to replacement parts.
At trial, plaintiff "obtained favorable verdicts on both tort and warranty theories," but on appeal defendant argued the ELR barred plaintiff's recovery in tort.
Similarly, in Grizzly Mountain v. Honeywell Int'l, Inc. , the Corpus Christi Court of Appeals considered whether the ELR barred plaintiff's recovery for damages to a helicopter that contained a replacement engine manufactured by defendant.
*528Id. at *1, *5. Sometime thereafter, plaintiff transferred the defendant-manufactured engine into the helicopter with registration number N263KA. Id. at *1. Plaintiff alleged that the N263KA helicopter subsequently crashed due to a "catastrophic failure of the engine reduction gearbox," which plaintiff claimed was due to defendant's defective engine design and manufacture. Id.
Applying Texas law, the court held that the ELR barred plaintiff's claims because the damaged helicopter did not constitute "other property." Id. at *6-7. The court first noted that plaintiff did not have a contractual relationship with defendant such that the helicopter could amount to "other property" for which plaintiff separately bargained. Id. at *6 (citing Pugh ,
The San Antonio Court of Appeals likewise concluded in Lopez v. Huron that plastic bags supplied by defendant to plaintiff for packaging its masa constituted component parts.
The foregoing cases demonstrate that while Texas courts generally articulate a "benefit of the bargain"-type test in ELR cases, in application they do not consider only the literal object of the contract-i.e., the part or product for which the parties contractually negotiated. See
d. Federal court cases applying the Texas ELR.
Federal courts applying Texas law have likewise broadly defined the "object of the bargain" test. In Alcan Aluminum Corp. v. BASF Corp. , District Judge Sam Lindsay considered whether the ELR barred plaintiff's recovery for a defective component part's damage to other parts of an assembled product.
Highlighting a potentially "relevant distinction" between a plaintiff who purchases an integrated product as a whole versus purchasing a component that the plaintiff then installs into an integrated product for either resale or personal use, the court noted that "[t]he boundary between the subject matter of a contract and 'other property' when the former is a component of the latter ... is not completely clear."
Several other federal courts have similarly held that where a defective component part integrated as part of a whole product damages the product, the ELR prohibits tort recovery. In Sanitarios Lamosa, S.A. de C.V. v. DBHL, Inc. , the District Court for the Southern District of Texas court found that plaintiff could not recover for damage to toilets caused by allegedly defective ballcocks-a component part plaintiff installed into toilets and then sold to consumers-because the toilets constituted a completed product, not "other property" under Texas law.
A year later, the Western District in Helen of Troy, L.P. v. Zotos Corp. likewise held that a component-part manufacturer was not liable for damage caused by the component to a commercial buyer's assembled product.
Most recently, TEU Services, Inc. v. Inventronics USA, Inc. (another Western District case) also rejected a plaintiff's contention that its assembled product constituted "other property."
The foregoing cases demonstrate that courts broadly apply the Texas "benefit of the bargain" test. As a result, courts addressing the issue have generally concluded that a commercial buyer cannot recover economic losses from a component-part manufacturer for damage caused to a product by the integrated component part.
e. Other relevant cases on the ELR.
Texas courts and federal courts within this circuit have relied on cases from other jurisdictions in analyzing the ELR. This court also finds such decisions instructive on the issue at hand. The Equistar court, for example, relied on the Third Circuit's opinion in Sea-Land , where the court found that an engine, damaged by a defective replacement part (connecting rod) installed ten years after the original sale, did not constitute "other property" under the ELR.
Although it applied maritime law, the court also finds the Statia Terminals N.V. v. Huber, Inc. case instructive because it analyzes and relies on the "object of the bargain" test. See No. Civ.A. 95-1633,
Finally, the court also finds the Cincinnati Insurance Co. v. AM International, Inc. case instructive in determining whether GSEC's claim for damages to the steam turbine is barred by the ELR. The plaintiff in Cincinnati Insurance brought suit against defendant on behalf of its insured-a commercial printing company-alleging that defendant supplied a replacement "transfer cylinder gear" for a printing press that later broke and caused damage to the press.
Plaintiff argued that the damage to the press constituted "damage to other property" for which it could recover.
In deciding the ELR barred the plaintiff's tort claims, the court relied upon many of the same "policies underpinning the economic loss doctrine" identified by the Texas Supreme Court for its adoption of the ELR, including:
(1) to maintain the fundamental distinction between tort law and contract law; (2) to protect commercial parties' freedom to allocate economic risk by contract; and (3) to encourage the party best situated to assess the risk [of] economic loss, the commercial purchaser, to assume, allocate, or insure against that risk.
*533f. The "separately bargained for" language in American Eagle, Grizzly , and Pugh does not preclude application of the ELR under the circumstances of this case.
As argued by GSEC, and as touched upon above, at least one Fifth Circuit decision ( American Eagle ) and two Texas state court cases ( Grizzly and Pugh ) seemingly suggest a different standard for determining applicability of the ELR: did the parties bargain separately for the component part at issue, as opposed to the integrated or completed product as a whole? Taken at face value, the language in these decisions suggests that if the parties did bargain separately, i.e., contracted specifically for the product or component that failed, the ELR would not apply and a tort claim could follow. See, e.g., Pugh ,
The court readily admits that if application of the ELR is as simple as determining whether the parties bargained separately for the DCS, the turbine would constitute "other property" and the court should deny Emerson's motion as to GSEC's tort claims. In this court's view, however, the current state of Texas and Fifth Circuit law does not permit such a simplistic or literal reading of the courts' language or the seemingly easy resolution such an interpretation would provide.29 First, none of these courts actually found that the ELR did not apply based on the "bargained for separately" standard, and instead held that under the record as developed, the ELR in fact barred the plaintiffs' tort claims. See, e.g., American Eagle ,
*534Second, and of much more significance, the cited language cannot simply mean "did the parties bargain separately for the item?" The case law is rife with state and federal court decisions interpreting Texas law where the parties clearly bargained separately and only for the item in question, i.e., the object of the contract, and the court nevertheless applied the ELR in barring the plaintiff's tort claims. See, e.g., U.S. Steel Corp. ,
To the contrary, this court finds that decisions such as Grizzly , Pugh , and American Eagle do not identify a separate, stand-alone measure for applying the ELR, but instead restate in an alternative fashion the beginning point for all analysis under Texas law for the ELR-what is the object of the contract? As demonstrated by the court's earlier examination of relevant case law, while determining the subject of the parties' contract is a crucial question in answering whether the ELR bars a tort claim, these courts' decisions frequently turn on additional factors such as (1) integration of component parts, (2) foreseeability of the harm, and (3) UCC policy considerations undergirding the ELR. A close reading of Grizzly and Pugh shows that those courts recognize the foregoing criteria, thereby counseling strongly against a strict or limited reading of the "bargained for separately" language. For example, in Pugh the court acknowledged the general premise that Texas courts apply the ELR where defective component parts damage a product in the hands of (1) the final consumer or (2) a manufacturer assembling the components into a final product for resale. Pugh ,
*535Grizzly ,
These same considerations formed the basis for other courts to apply the ELR even where the injured party bargained separately for the defective item that caused the injury. As already exhaustively detailed herein, multiple decisions applying Texas law have refused to find that an integrated product or unit, damaged by a defective component part, would qualify as "other property" for purposes of the ELR. The courts have applied this standard where: (1) the defective component part was already integrated into the completed product at purchase; (2) the original manufacturer or supplier provided the defective component as a replacement part after the original sale; or (3) a manufacturer contracted for and incorporated the defective component part into an integrated product or unit and subsequently sold it to customers. See, e.g., Mid Continent , 572 S.W.2d at 312-13 (rejecting under the ELR plaintiff's strict liability claim for damage caused by airplane's defective engine, where engine was a component part of the whole product when purchased); Equistar ,
Similarly, these courts have also applied the ELR, even where the parties bargained separately for the defective item, where the harm ultimately sustained by the finished, integrated product was foreseeable by the parties. See Alcan ,
Finally, and in this court's view most significantly, these decisions reaffirm the underlying rationale proffered by the Texas Supreme Court in adopting the ELR: losses arising from defective products that cause no personal injury or damage to other property "tend to be especially well suited to allocation by contract" and decisions made by the contracting parties as to how best manage the risk. LAN/STV ,
In sum, and for reasons explained in more detail below, this court finds that cases such as American Eagle , Grizzly , and Pugh do not support the conclusion that simply because the parties bargained for the DCS separately, the DCS is "other property" and GSEC can pursue tort claims for their claimed damages. The standard set forth in these cases merely restates the "object of the bargain" test in an alternative fashion, and thus confirms the need to analyze other factors or considerations to determine whether the ELR precludes GSEC's tort claims.
5. Application: Damage to the turbine does not constitute damage to "other property."
Against the foregoing backdrop, the court makes its best Erie guess as to how the Texas Supreme Court would answer the question at hand. For the reasons discussed below, the court concludes that the Texas Supreme Court would hold that the object of the parties' bargain was a fully integrated and operating Unit 3 turbine, with the control unit (the DCS) constituting just one component of the whole functioning product. Thus, any damage to the turbine does not constitute damage to "other property" for which GSEC can recover in tort (negligence or strict liability).
a. The parties bargained for a fully-functioning Unit 3 turbine.
From the court's review of the contract, including the "offer sheet" or proposal from Emerson, which GSEC accepted, the DCS consists of a complex configuration of hardware (e.g., computers, servers, and LCD monitors) and various software programs integrated together that act as a "control interface for all engagement and control functions" of Unit 3. Def. App., at 2 ¶ 5 (Decl. of Glen Wagner). As a result, the DCS allows GSEC to control system devices, interface with field instrumentation, initiate startup and shutdown sequencing, adjust system settings and inputs/outputs that the turbine converts into energy, and operate and control Unit 3's integrated subsystems.
At the time of the contract, the parties knew that the DCS was a component of Unit 3. Specifically, Emerson's offer acknowledged the precise services and equipment it was to provide (and what it would not provide) with respect to the "Steam Turbine Control" of Unit 3. See Def. App., at 304-19. Emerson replaced GSEC's outdated control system, integrating the updated hardware and software into the existing Unit 3. See, e.g., id. at 289 (referring to the Mustang Station project as a "Controls Replacement Project" (emphasis added) ); 314 (describing Emerson's scope of supply as including "Systems: Replacement of existing Steam Turbine Control System" (emphasis added) ); 316 (explaining the installation services "included in the Offer to upgrade Mustang Station existing Steam Turbine Control System"); 317 (providing for installation of "new Ovation plates with Ovation Controller and I/O modules in existing cabinets ..." (emphasis added) ). GSEC's goal, through the purchase of the updated Emerson DCS, was a more efficient and *537sophisticated means of controlling and monitoring the steam turbine (the product). See id. at 318. The contract and accompanying documents make clear that the DCS and steam turbine are component parts of a single system. Their relationship is integral; without one, the other serves little or no purpose. See, e.g., TEU Servs. ,
GSEC contends that it only bargained for the DCS-not the steam turbine-and that the turbine must therefore constitute "other property."31 Pl.'s Resp., at 13. Through their argument, GSEC endeavors to distinguish the facts of this case from the holdings in cases like Equistar and Lopez , where the courts held that plaintiffs could not recover for damages to finished products caused by component parts that the plaintiffs had installed into the product. See id. at 13-14. GSEC too narrowly reads the holdings in these cases. The fact that "[t]he turbine and DCS [are] separate pieces of property arising out of separate bargains negotiated at separate times" (id. at 20 (emphasis in original omitted) ) is not controlling for the purpose of Texas's "benefit of the bargain" test. Instead, this court will follow the broader-and what it believes to be the correct-construction articulated by federal and Texas courts, and apply the "object of the bargain" standard by considering not only the actual product bargained for, but also the ultimate use and purpose of the integrated product as contemplated by the contract (contractual expectancy), and whether the eventual damage was foreseeable at the time of bargaining. See, e.g., TEU Servs. ,
As GSEC implicitly acknowledges, the DCS (whether manufactured by Emerson or another company) is a necessary component of Unit 3, without which the steam turbine could not operate. See Pl. App., at 2 (Aff. of J. Jolly Hayden, at 2 ¶ 9) (explaining that "[t]he steam turbine can be *538paired with any number of control systems," but making no assertion that the steam turbine can operate without a control system). The DCS is like the ballcocks in Sanitarios Lamosa or the LED drivers integrated into the exterior light fixtures in TEU Servs. -a component installed into a completed product (turbine). The court sees no reason to conclude otherwise simply because GSEC is not reselling the turbine but is instead using the completed product for its own use. Although GSEC may have purchased the Emerson DCS separately from the steam turbine, the object of its bargain was a fully-functioning Unit 3-not merely the purchase of an updated control system. Standing alone, the DCS had no use or purpose to GSEC. Because the DCS is intimately connected to the operation of the steam turbine, the court finds that the DCS is merely one component part, albeit a significant one, of Unit 3-the whole, integrated product.
Having determined that the DCS constitutes a component part, the court must also conclude that the turbine does not amount to "other property." To hold that the DCS is an independent part separately bargained for and the turbine is "other property" would contravene Texas law. Indeed, the facts of this case fit squarely within the holdings of Texas and federal courts that "have rejected the argument that damage to a finished product caused by a defective component part constitutes damage to 'other property,' so as to permit tort recovery for damage to the finished product."32 Lopez ,
b. Damages were foreseeable and the injury is purely economic.
Similarly, the fact that the damages to the turbine were foreseeable and GSEC's claimed damages are purely economic leads this court to conclude that the ELR applies to GSEC's tort claims. The DCS "is the control interface for all engagement and control functions of the steam turbine ...." Def. App., at 2 (Decl. of Glen Wagner). As such, it is foreseeable that a malfunction in the DCS software could damage the steam turbine, which is directly controlled by the DCS.33
c. Policy dictates that GSEC may only pursue a warranty claim.
Finally, the Texas Supreme Court's rationales for adopting the ELR likewise counsel this court to conclude that GSEC's tort and strict liability claims are governed by warranty law. GSEC and Emerson are sophisticated entities, familiar with managing the risks involved in a transaction and negotiating a contract that fairly assigns those risks. See LAN/STV ,
Moreover, GSEC's alleged damage-strictly economic loss-is not the type of injury negligence or strict liability law is intended to remedy. See Mid Continent , 572 S.W.2d at 312 (quoting W. Page Keeton, 32 S.W.L.J. 1, 5 (1978) ) (explaining that tort law seeks to protect against harm to persons and other property). As the United States Supreme Court explained in East River , "[w]hen a product injures only itself the reasons for imposing a tort duty are weak and those for leaving the party to its contractual remedies are strong." East River ,
For all of these reasons, the court concludes that the Unit 3 steam turbine, with the integrated DCS, is the whole product, and any damage to it does not constitute damage to "other property" under Texas law. GSEC's tort claims, asserted under either negligence or strict liability theories, are therefore barred by the ELR. Accordingly, the court should GRANT Emerson's motion for summary judgment as to all GSEC's tort claims.34
IV. Recommendation
For the foregoing reasons, the undersigned RECOMMENDS that the United States District Court GRANT Defendant's Motion for Summary Judgment (ECF No. 71). The undersigned further RECOMMENDS that the District Court DENY as moot Defendant's "Motion in Limine to Exclude Evidence of Other Incidents" (ECF No. 89) and "Daubert Motion to Exclude the Testimony of James Hawks" (ECF No. 90).
V. Right to Object
A copy of these findings, conclusions, and recommendation shall be served on all parties in the manner provided by law. Any party who objects to any part of these findings, conclusions, and recommendation must file specific written objections within fourteen days after being served with a copy. See
Dated: November 19, 2018
Footnotes
Construing the contract as a whole and the parties' intentions as expressed in the entirety of the "Remedies" clause, it is clear the parties intended this language to read "Emerson shall promptly remedy such non-conformity." and the court will interpret it as such in analyzing Emerson's motion. See Dalmac-Shelton Fannin Farms, Ltd. v. Zurich Am. Ins. Co. , No. 3:08-CV-0782-N,
Justice Pope expressed further confusion in Signal Oil (decided the same day as Mid Continent ) over how the court construed Mid Continent as a contract (rather than strict liability) case by finding no damage to "other property," yet recognized a strict liability claim in Signal Oil based on damage to property other than the product. The object of both contracts was the damaged product purchased from the defendant-"[t]he airplane in Mid Continent crashed because a crankshaft gear bolt had backed out of position"; in Signal Oil , the defective heater damaged "the very isomax unit and hydrogen plant that Signal obtained" under contract from the defendants. Signal Oil , 572 S.W.2d at 332. Justice Pope concluded by noting that the court's "holdings are inconsistent and portend problems that could be avoided by adhering to" strict liability law. Id. Nevertheless, the Texas Supreme Court did (and continues to) confirm the general principle that "[t]he economic loss rule applies when losses from an occurrence arise from failure of a product and the damage or loss is limited to the product itself." LAN/STV ,
360 F. Supp. 3d 494 (Golden Spread Coop., Inc. v. Emerson Process Mgmt.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.