Hutton v. Deere & Company

• Court: Court of Appeals for the Tenth Circuit
• Decided: April 5, 2000
• Docket: 99-8053
• Status: Unpublished

Opinion

F I L E D United States Court of Appeals Tenth Circuit UNITED STATES COURT OF APPEALS APR 5 2000 FOR THE TENTH CIRCUIT PATRICK FISHER Clerk

ROBIN L. HUTTON, individually and d/b/a High Country Logging,

Plaintiff-Appellant, No. 99-8053 v. (D.C. No. 98-CV-124) (D. Wyo.) DEERE & COMPANY, a Delaware corporation; STEWART & STEVENSON POWER, INC., a Delaware corporation; PRO PAC INDUSTRIES, LTD., a Canadian corporation,

Defendants-Appellees.

ORDER AND JUDGMENT *

Before KELLY , HENRY , and MURPHY , Circuit Judges.

After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist the determination of

* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. The court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3. this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is

therefore ordered submitted without oral argument.

Plaintiff Robin L. Hutton, individually and doing business as High Country

Logging (Hutton), appeals the district court’s summary judgment dismissal of his

diversity suit against defendants Deere & Company (Deere), Stewart & Stevenson

Power, Inc (S&S) and Pro Pac Industries, LTD (Pro Pac) claiming, under

Wyoming law, negligence, strict product liability and breach of implied warranty

of fitness for a particular purpose for the destruction by fire of a piece of forestry

equipment owned by Hutton. The district court had jurisdiction based on

diversity of citizenship under 28 U.S.C. § 1332, and we exercise jurisdiction

under 28 U.S.C. § 1291, and affirm.

I. Facts.

Hutton owns a commercial logging business operated in Sheridan,

Wyoming. S&S is a Casper, Wyoming retail distributor of various lines of

construction equipment, and is an authorized dealer of equipment manufactured

by Deere. Early in 1995, Hutton expressed to S&S an interest in acquiring a

delimber, which removes the limbs from felled trees and cuts the trees to certain

log specifications. S&S representatives took Hutton to a logging site to view a

delimber in operation. The particular delimber Hutton viewed was a Model

PP-453 delimber, manufactured by Pro Pac, mounted onto a John Deere 690E LC

-2- excavator. It is undisputed that all delimbers have to be mounted onto some

motorized carrying equipment, such as the Deere excavator. See Appellant’s App.

at 75-76. The purpose of a Deere excavator is to dig dirt; thus, in order to

convert the excavator into a delimber, the boom, arm and bucket of the excavator,

which are used for digging, must first be removed and then a delimber is attached.

In April and May 1995, Hutton and S&S discussed the purchase of a Pro

Pac delimber mounted on a Deere 690E LC excavator. S&S ordered a Deere

690E excavator from an S&S equipment division in Houston, Texas and ordered a

Pro Pac 453 delimber from Pro Pac in Canada. The excavator was shipped from

Houston to S&S in Casper, where S&S removed its boom and bucket. In its

modified form, the Deere 690E is referred to as a “carrier.” S&S then shipped the

carrier to Pro Pac in Canada where Pro Pac attached its delimber to the Deere

690E carrier. In the course of installing its delimber unit onto a Deere carrier,

Pro Pac substantially modifies the equipment by adding a catwalk, installing

heavy duty guarding underneath the machine, modifying the tracks, adding cab

protection, welding on a rock guard, and adding additional ventilation. Following

this conversion, the machine, now referred to as a “delimber,” was shipped by Pro

Pack to S&S, arriving in Caspar on July 16, 1995.

On July 22, 1995, Hutton signed the purchase order for the delimber and

took delivery of the equipment. The purchase order identified the equipment as a

-3- “John Deere 690E carrier [a]ssem[bled] w[ith] Pro-Pac Model PP-453 delimber,”

and charged $260,935 for the single, integrated unit. The purchase order listed

the standard express warranty, the available extended warranties, and disclaimers

of implied warranties. Hutton insured the unit for $275,000.

On July 14, 1996, while delimbing trees in the Big Horn National Forest,

the delimber caught and was destroyed by fire. The parties dispute the cause of

the fire. Hutton alleges that the fire was caused by defective wiring in the carrier;

Deere claims that the fire was caused by an improper installation of the Pro Pac

delimber unit, allowing excessive debris to gather and catch fire. Following the

fire, Hutton’s $275,000 insurance claim was paid.

II. Economic Loss Rule.

Wyoming has adopted the “economic loss rule” in products liability claims

based on negligence and strict liability theories, which bars recovery in tort when

a plaintiff claims purely economic damages unaccompanied by physical injury to

persons or damage to other property. See Rissler & McMurry Co. v. Sheridan

Area Water Supply Joint Powers Bd. , 929 P.2d 1228, 1234-35 (Wyo. 1996);

Continental Ins. v. Page Eng’g Co. , 783 P.2d 641, 647 (Wyo. 1989). “The

‘economic loss rule’ is ‘founded on the theory that parties to a contract may

allocate their risks by agreement and do not need the special protections of tort

law to recover for damages caused by a breach of the contract.’” Rissler , 929

-4- P.2d at 1235 (quoting South Carolina Elec. & Gas Co. v. Westinghouse Elec.

Corp. , 826 F. Supp. 1549, 1557 (D.S.C. 1993)). Wyoming’s economic loss rule is

based on the Supreme Court’s decision in East River Steamship Corp. v.

Transamerica Delaval, Inc. , 476 U.S. 858 (1986), which held that, under

admiralty law, a cause of action in tort does not lie “when a defective product

purchased in a commercial transaction malfunctions, injuring only the product

itself and causing purely economic loss.” Id. at 859, 871. “[T]he law of contracts

is far better suited to deal with the dissatisfaction on the part of a purchaser under

such circumstances.” Continental Ins. , 783 P.2d at 647.

Contract law, and the law of warranty in particular, is well suited to commercial controversies of the sort involved in this case because the parties may set the terms of their own agreements. The manufacturer can restrict its liability, within limits, by disclaiming warranties or limiting remedies. See U.C.C. §§ 2-316, 2-719. In exchange, the purchaser pays less for the product. Since a commercial situation generally does not involve large disparities in bargaining power, we see no reason to intrude into the parties’ allocation of the risk.

Id. (quoting East River , 476 U.S. at 873) (further citation omitted).

In East River, the Supreme Court drew a distinction between damage

caused to the “product itself” and damage to a “person or other property.” See

476 U.S. at 870. When the product itself is damaged, the “resulting loss is purely

economic” and losses such as “repair costs, decreased value, and lost profits . . .

-5- essentially [involve] the failure of the purchaser to receive the benefit of its

bargain--traditionally the core concern of contract law.” Id.

Defendants moved for summary judgment based on Wyoming’s economic

loss rule, contending that Hutton’s tort claims were barred because the only

damage was to the delimber unit itself. Thus, it claimed it had no duty to Hutton

under a negligence or strict liability claim. Hutton responded by claiming that the

Pro Pac delimber attached to the Deere carrier constituted “other property.”

Because Hutton claimed the fire started in the Deere carrier portion of the

equipment, it argued the fire in the carrier engine damaged “other property” when

it burned and destroyed the attached Pro Pac delimber unit. The district court

rejected Hutton’s argument and granted Defendants’ motion for summary

judgment, ruling that the Pro Pac delimber did not constitute “other property”

because the Pro Pac delimber and the Deere carrier “were effectively component

parts of a single piece of equipment.” Appellant’s App. at 46.

The Supreme Court shed light on the East River “other property” issue in

Saratoga Fishing Co. v. J.M. Martinac & Co. , 520 U.S. 875 (1997). In Saratoga ,

a purchaser of a ship added a skiff, a fishing net, and spare parts before reselling

it to Saratoga Fishing. A faulty hydraulic system caused an engine room fire

which in turn caused the ship to sink. Saratoga sued the manufacturer of the

hydraulic system and the company that built the vessel. At issue was whether,

-6- under the economic loss rule, the added equipment was “other property.” The

Court distinguished between components incorporated by a manufacturer before

sale to an “Initial User” and those items added by a “User” of the manufactured

property, holding that the added skiff, fishing net and spare parts were “other

property” because they were added by the Initial User after the product was

placed in the stream of commerce:

When a Manufacturer places an item in the stream of commerce by selling it to an Initial User, that item is the “product itself” under East River . Items added to the product by the Initial User are therefore “other property,” and the Initial User’s sale of the product to a Subsequent User does not change these characterizations.

Id. at 879.

The Court emphasized that it is not the various component parts, but the

product itself as placed in the stream of commerce by the manufacturer and

distributors that is the “product.” Id. at 883 (citing Shipco 2295, Inc. v. Avondale

Shipyards, Inc. , 825 F.2d 925, 928 (5th Cir. 1987)). As the Court had earlier

emphasized in East River , “‘[s]ince all but the very simplest of machines have

component parts, [a contrary] holding would require a finding of ‘property

damage’ in virtually every case where a product damages itself. Such a holding

would eliminate the distinction between warranty and strict products liability.’”

Id. at 883 (quoting East River , 476 U.S. at 867).

-7- We agree with the district court that, under Saratoga Fishing , the product

which Hutton bargained for, and the product which was placed in the stream of

commerce by the manufacturers and the distributor, was the fully converted

delimber machine. Hutton negotiated and purchased the equipment as a single

item with a single price. The final sales quote, dated July 19, 1995, identifies the

sale item as “One (1) New John Deere 690E Carrier . . . assembled complete with

a Pro-Pac Model PP-453 Delimber.” Appellee’s Supp. App. at 17 (emphasis

added).

The record also clearly demonstrates that S&S was the distributing dealer

of the delimber machine, not an “Initial User,” as Hutton argues. Acting solely as

a dealer, S&S arranged for the conversion of the Deere excavator to a delimber

for purposes of selling the modified equipment to Hutton. As soon as the

modifications were completed and the machine was shipped from Pro Pac to

S&S’s dealership, S&S immediately sold the machine to Hutton as a fully

converted package. Hutton then put the machine to use in the Wyoming’s Big

Horn National Forest. The district court correctly held that the Pro Pac delimber

was not “other property,” but was a component part of a single product. See

Saratoga Fishing Co. , 520 U.S. at 879.

-8- Because no “other property” of Hutton was damaged, the economic loss

rule precludes recovery under Hutton’s tort theories and, therefore, the District

Court correctly dismissed Hutton’s negligence and strict liability claims.

III. Implied Warranty of Merchantability.

Hutton also claims the district court erred in holding that defendants

effectively disclaimed Wyoming’s implied warranty of merchantability. See Wyo.

Stat. § 34.1-2-314. Under Wyoming law, a correctly executed and displayed

exclusion of an implied warranty is enforceable, although disclaimers of warranty

protections are not favored and are strictly construed. See Stauffer Chem. Co. v.

Curry , 778 P.2d 1083, 1091 (Wyo. 1989). Wyoming law requires that language

purporting to exclude or modify the implied warranty of merchantability must

include the word “merchantability” and, in case of a writing, be conspicuous. See

id. at 1091-92; Wyo. Stat. § 34.1-2-316. “If the disclaimer is in writing and is

conspicuous, there is no requirement that the customer actually read or

acknowledge the disclaimer in order for it to become a part of the bargain.”

Stauffer , 778 P.2d at 1092.

The parties agree that the disclaimer of warranty on the purchase order for

the delimber contained the word “merchantability.” Hutton contends, however,

that the disclaimer was not conspicuous. The determination of whether a

-9- warranty disclaimer is conspicuous is a question of law for the court. See Wyo.

Stat. § 34.1-1-201(x). Section 34-1-201(x) defines “conspicuous” as follows:

[A] term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: NON-NEGOTIABLE BILL OF LADING) is conspicuous. Language in the body of a form is “conspicuous” if it is in larger or contrasting type or color. . . .

Id.

We agree with the district court that the disclaimer of warranties here was

sufficiently conspicuous and that a reasonable person would have noticed it.

Hutton signed a two page “Customer Purchase Order for John Deere Industrial

Products.” The front page of the purchase order includes a paragraph heading of

“IMPORTANT WARRANTY NOTICE.” Appellee’s Supp. App. at 15. The

paragraph then tells the product purchaser that the express warranty for the

product is printed on the back of the sheet. See id . The paragraph then states in

boldface, capital letters, “YOUR RIGHTS AND REMEDIES PERTAINING TO

THIS PURCHASE ARE LIMITED AS INDICATED ON BOTH SIDES OF THIS

PURCHASE ORDER. WHERE PERMITTED BY LAW, NO IMPLIED

WARRANTY OF MERCHANTABILITY OR FITNESS IS MADE.” Id. Then,

directly above the customer signature line appears the statement: “I (We)

understand that my (our) rights in connection with this purchase are limited as set

forth on both sides of this Purchase Order.” Id.

-10- The back of the purchase order includes the following disclaimer, which

appears under a heading in boldface, capital letters:

NO IMPLIED WARRANTY OR OTHER REPRESENTATION . Where permitted by law, neither John Deere nor any company affiliated with it makes any warranties, representations or promises, express or implied, as to the quality, performance, or freedom from defect of its products, other than those set forth on this page, and NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS IS MADE .

Id. at 16.

Under the statutory definition, this disclaimer is conspicuous. The heading

and disclaimers are printed all in capital letters and in boldface type. “A

contract’s warranty disclaimer satisfies the conspicuous requirement when it is

printed in all capital letters . . . or when it is in a larger and boldface type.”

Stevenson v. TRW Inc. , 987 F.2d 288, 296 (5th Cir. 1993) (collecting cases);

Quality Acceptance Corp. v. Million & Albers, Inc. , 367 F. Supp. 771, 773-74 (D.

Wyo. 1973) (finding disclaimer conspicuous where it was all capitalized and

appeared above the signature line). Although similar attention-calling language

appears in other provisions of the purchase order, the disclaimer is easily located

and read, and we therefore hold that it is conspicuous.

IV. Unconscionability.

Finally, Hutton claims that giving effect to the implied warranty disclaimer

in this case would be unconscionable, and thus should not be enforced. The

-11- Wyoming Supreme Court has enunciated several factors to be considered in

determining whether a contract is unconscionable:

(1) Was a party deprived of a meaningful choice as to whether to enter into the contract? (2) Was a party compelled to accept the terms of the contract? (3) Was there an opportunity for a meaningful negotiation? (4) Was there a great inequality of bargaining power? (5) Was one party readily subject to deception? [and,] (6) Was one party in some manner surprised by fine print or concealed terms?

Svalina v. Split Rock Land & Cattle Co. , 816 P.2d 878, 882 (Wyo. 1991).

We agree with the district court that, applying the Wyoming law of

unconscionability in contracting, see id ., this disclaimer of implied warranties was

not unconscionable. There are no facts which indicate Hutton was deprived of a

meaningful choice as to whether to enter into the contract, that he was compelled

to accept the terms of the contract, that there was a great inequality of bargaining

power, or that Hutton was readily subject to deception. Hutton had a full

opportunity to select the equipment and review the purchase order documents,

and, thus, had an opportunity to meaningfully negotiate its terms.

-12- Accordingly, the judgment of the United States District Court for the

District of Wyoming is AFFIRMED.

Entered for the Court

Paul J. Kelly, Jr. Circuit Judge

-13-